Terrible strategic decisions with the copper mine acquisitions, lots of leverage. Barrick a good buy now at 25 year lows? Nice move today after earnings.

Another 5% up move so far today.

Up 8% today.

Entire commoditity space is jumping.

The junior miners I watch are all tearing off the lows, closed some of my synthetic shorts I can on a couple of my long equity positions. Could continue to bounce upward off the lows, we’ll see!

I would not buy

I still think gold goes to 900 and silver could go as low as 8.50

However, GDX GLD GDXJ SIL SLV are still great long term investments right here!

ABX has traded off of gold dramatically after they set a third of their balance sheet on fire with bad acquisitions. Could be a value trap or an opportunity.

I’m actually thinking it may be time to start looking at Barrick and the gold co’s in earnest soon. I think the tide is shifting and the Chinese risk is starting to gain some traction.

Have any of ya’ll thought of an ETF metals index like XME?

Well, I like the gold names because they give you more leverage to the commodity price due to the balance sheets and tight margins over sustained cost. And I don’t want a broad metals index because I’m still bearish on the rest.

That balance sheet leverage hasn’t translated to stock performance though. In the very short-term - as in daily - you’ll see what appears to be the miners moving 2x-4x the change in gold, but over the longer-term there’s very little to suggest the miners offer better exposure to upward moves in gold. The beta play disappeared when investors could get their gold fix through GLD.

A very sad chart:


Edit: So much for my nice chart. It was supposed to be of GLD vs GDX from July 2006 to August 2011. GLD beat the miners by about 3x.

Edit 2: *I still buy individual miners, but not as a leveraged play on gold.

^ I see what you’re saying but I think there’s a clear explanation. From 2006-2011 you had a very low financial and operating leverage followed by alot of M&A and massive CAPEX increases (tied to opening high cost mining operations) from 2011 onward that fundamentally changed the sector. Today those miners are saddled with the resulting balance sheet hangover that actually leaves them well positioned to benefit from leverage should prices come move upward again.

Take Barrick as one example. From 2006 to 2011 their debt to EBITDA leverage was below 2x (very low leverage), but in 2012, that metric jumps to 10x (very high leverage). So the time period you selected in those charts is not reflective of the current environment because their balance sheet pictures were moving targets then. You’re using data from a completley different fundamental regime to draw conclusions about the current environment.

Looking at Newcrest you see a similar picture. Debt to EBITDA below 1x for much of the period you mentioned, then at 2013, the ratio jumps to 3.2x. These are different operating environments today, which is why the near term pricing action is different. Additionally, we’re approaching break even levels with a lot of miners like Barrick and Newcrest showing interst per ounce adjusted AISC of ~982 and 856 (much of their peer group is in the $1,000 to $1,050 range). When you approach these break even thresholds, pricing sensitivity is magnified by concerns of liquidity and corporate action.

To be clear, I don’t necessarily think you’re wrong, I just think there are some differences between today’s operating environment and the time period you’re looking at.

Up another ~5% today.

I think it’s time to buy gold stocks. ABX, NEM, GG are my top three with NCM and ANG making the list for diversitification purposes.

I think BS has a good point. I missed the junior miner short trade a few years ago but basically you had a near infinite amount of capital flowing into the sector which encouraged ridiculous capex investments (probably the big boys were less ridiculous but not immune from the temptation). Then the market closed and it was lights out for a lot of the lower quality stocks. When the markets are open and willing to fund an industry for virtually any project, you will get weird behavior that skews the industry returns both short and long-term in both directions. The same thing is about to happen in biotech today.

Since mining is not my cup of tea, I’d probably go for GLD anyway though, I doubt have the skill to individually pick these stocks without spending a huge amount of time getting up to speed.

I don’t disagree at all. I think it’s a mix of what you and BS are saying and the ways investors - typically retail - are able to purchase gold. Either way, there is money to be made with the miners. I’ve bought and sold many of them over the last 10 years. Looking back, I probably should have just bought GLD and saved some time, but it wouldn’t have been as much fun.

Up 7% today on gold rally. This stock was really priced for an extreme scenario. If they can survive, rewards are great…much more so than gold or many other miners.

As much as I love gold (and silver even more) this rally makes me uncomfortable. I’m sitting this one out.

yeah what is gold rallying on? deflation fears? doesn’t make sense to me…