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What is the “Safest Gold Stock on the Planet?”

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You’ll be unsurprised to hear that the rise in gold this week has caused the copywriters to enter their frenzy stage — one half expects that there will be a run on replacement keyboards as these eager souls bang away and wear out their “G”, “O”, “L” and “D” keys.

Which doesn’t mean that this is the best time to buy gold, of course (If I could tell you when that is, I’d be sitting on a gold throne right now) — personally, I like to speculate in gold stocks from time to time, but I treat the actual yellow stuff as more of a savings vehicle than an appreciating asset. Still, if a miner can produce gold for $400 an ounce, that sets you up for a stock with pretty good profit margins.

So let’s find out who we’re told is this “safest gold stock on the planet,” shall we?

The ad in question comes in from Michael Lombardi, teasing the pick of the woman who edits his Explosive Mine Stocks newsletter, Inya Ivkovic. The letter normally sets you back $195/year but is, naturally, “on sale” right now for $89. Still, if you just want to find out which gold stock is called the safest, well, $89 is a bit steep for that — your friendly neighborhood Stock Gumshoe can sniff it out for you for the low low price of squadoosh. Zip. Nada. Nothin’. (Though as always, you’re welcome to pay if you want to – and I’ll love you for it).

The headline of the ad is, of course, extraordinarily compelling:

“Why the safest gold stock on the planet could be the easiest way ever to finally own gold”

And it’s probably a useful reminder that yes, gold has gone up incredibly over the last decade — but it’s still a niche investment, most US investors don’t invest in gold bullion or mining stocks, most households own gold only as jewelry. I’m sure that’s changed over the years, and certainly new investments have made it easier to get exposure to gold, particularly the gold-backed ETFs like GLD … but still, it’s arguable that most investors think about precious metals as an “asset class” even now (which is, if you listen to folks like Richard Russell, one more reason why the parabolic rise in gold has yet to really begin — there aren’t, to put it bluntly, enough suckers in the boat for it to sink yet).

So there area lot of teasers floating around lately that make essentially the same point: “It’s not too late, you can still own gold.” Whether or not that turns out to be true is, of course, a matter for future historians to decide — but with the US dollar under pressure again, and gold going up in dollar terms almost every day, you can certainly imagine that investors are feeling a little itchy, especially as folks predict $2,000 and $3,000 gold.

Here’s how Lombardi puts it in the teaser:

“With gold up about $30.00 U.S. an ounce for the week ended Friday September 17, 2010, the yellow metal sits at a new fresh record high of just under $1,300 an ounce.

“Gold has gained 333% since 2002 when I first started recommending it. Some gold stocks have gone up in excess of 500% during that time period.

“My belief continues to be that most investors are still not aware of, and have missed, the 10-year bull market in gold bullion prices.

“In fact, the only mainstream site I could find that covered gold’s big move this past week was aol.com: ‘Gold hits new record high amid economic worries.’ It was one of the lead stories on the home page last Tuesday night and Wednesday morning.

“As far as other gold coverage goes…

“Other popular sites like yahoo.com and msn.com did not have stories on gold.”

So that’s how he feels about it. He also goes through the “three phases” argument about bull markets, which you’ve probably heard before (phase 1: it grows and only the smarties know, phase 2: the smart money jumps in, phase 3: the mainstream media picks up the story and the public starts speculating — he thinks we’re in phase 2).

And then we get to the tease about our specific stock:

“I’ve been trying to step out of my “gold bug” shoes and figure out what I would want as a new gold investor…

“Bottom line, I’d want a safe, easy way to get started but with lots of growth potential.

“So, that’s exactly what I’ve found for you.

“It’s a gold stock company…but, it’s almost like a ‘Blue-Chip’ in the industry, as far as being a safe place to put your money.”

So that sounds pretty good — I know a lot of my readers are already avid speculators in junior miners, and we’re all looking for that unknown stock that’s sitting on a top secret gold deposit … so I don’t end up writing about the “big” mining stocks very often. But this tease is clearly for a return to some semblance of sanity for folks looking to “get started in gold.”

And then we get the specifics to help us nail down this stock idea:

“Safest Gold Stock on the Planet Could Be the Easiest Way Ever to Finally Own Gold

“The company is the gold industry leader, with interests in 25 operating mines and a pipeline of projects located across five continents, in addition to large land positions on some of the most prolific mineral districts.

“The company has:

“The gold industry’s only ‘A’-rated balance sheet—talk about safety…that beats many ‘Blue-Chips’

“The gold industry’s largest unhedged production and reserves—these guys believe in the future of gold and are willing to stand behind it.

“Two advanced projects in construction that are expected to collectively contribute 2.4 million ounces of low-cost, average annual production at full capacity—with the current average cash margin per ounce of gold at $748.00, these two new projects alone could add $1.795 billion to the company’s cash flow!

“Listings on both the New York and Toronto Stock Exchanges with easily traded shares.”

And they go on to tell us that this stock is increasing the dividend by 20%, and going from a biannual payout to a quarterly dividend. And that they’ve got a “27-year track record.”

So that’s more than enough to feed into the mighty Thinkolator — and indeed, we needn’t thinkolate on it all that much anyway, since much of the teased data is taken word-for-word from the company’s website: This is Barrick Gold (ABX in both NY and Toronto), which is by almost any measure the biggest gold miner in the world, with a market cap of about $46 billion and sales over the last year of nearly $10 billion.

And yes, Barrick did raise the dividend from 40 cents/year to 48 cents, and change it to a quarterly payout (so 12 cents per quarter) — that puts it in the top tier of big miners who pay dividends, but it’s still just a 1% yield so that’s not really saying much (the major miners like Goldcorp (GG), Newmont (NM) and AngloGold Ashanti (AU) generally pay out dividends of somewhere between .3% and 1% annually).

So really, this isn’t going too far outside of mainstream thinking: The biggest company is the safest. And it may well be true, though “safe,” of course, is in the mind of the beholder. The general consensus among investors seems to be that you want to own gold stocks to get leverage to the price of gold, but that hasn’t necessarily been the case during the last five years or so of dramatic gold performance (that’s cherry picking to some extent, if you go back further or choose a different time period results may differ) — I pulled the chart below from Yahoo Finance, it’s just a simple comparison of Barrick (ABX), Goldcorp (GG), Newmont (NEM), Anglogold Ashanti (AU) and the miners index (GDX) and the physical gold ETF (GLD) to represent the metal itself. You can see that over that time gold performed significantly better than these big miners, with Goldcorp being the only one that even came close, and, perhaps more importantly, that it was far less volatile — it didn’t dip nearly like the miners did during the financial crisis.

And here’s a one-year version of that chart, just to be fair:

So over the past year, Newmont did outperform gold (maybe in part because of their big copper exposure as well), and Barrick came close enough — but as you can see, the “leverage” to gold seemed to be more pronounced on the downside and most of the big miners did worse than the metal. Over two years it’s a different story, but that’s because so many miners collapsed entirely during the crisis that several of them did dramatically better than gold coming out of that collapse in the Fall of 2008.

I’m not sure if this means much of anything — you could interpret it to be that gold miners have a ways to go to “catch up” with gold, or that companies in an extractive industry should underperform the commodity because they deplete their assets over time (though all of these firms actively add reserves, of course, both organically through exploration and drilling and through acquisition of junior miners). Or you could just say that gold as a metal has appeal as a store of value and safety that you don’t get by owning a capital-intensive industrial company that happens to be producing gold.

For what it’s worth, I think the big miners are probably “under owned” by resource investors — everyone likes to pick a sexy junior stock and be the only one on the golf course who’s heard of it, but with input costs relatively under control (at least, compared to the fears they had when oil, a major cost driver, was over $150) and the price of their end product soaring, you’d think they’d be putting together some remarkable numbers over the next few quarters — and the fact that all of the big miners have now closed out their hedge books means that they should enjoy the gold boom.

Unless, of course, the fact that the big miners have all stopped hedging means that we’re at the very top of the market.

You also don’t have to pick a “big mine” winner if you’re thinking that the large gold miners are the best bet at this point in the market, you could just go with the index of major gold miners, the ticker for that ETF is GDX and Goldcorp and Barrick and the rest of the names you’ve probably heard of dominate the portfolio. Of course, the dividend is lower at .23%, but at some point that seems like splitting hairs with such a teensy yield — you’ll need to let dividends compound for years and years to get any real benefit from Barrick’s 1% dividend … though it would help, certainly, if they opt to keep boosting it every year.

So what do you think? Sick of gold? Excited to see if the big miners can finally take advantage of their operating leverage to gold prices and soar higher than the metal? Prefer the little tiny junior guys that have more chance to jump by 500% (or fall by 100%) on a big discovery? Let us know with a comment below.

And if you’ve ever subscribed to Explosive Mine Stocks, you just might be the first person to review them — click here to share your experience with your fellow investors, thanks!

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24 Responses to What is the “Safest Gold Stock on the Planet?”

  1. I think that RGLD would be safer since they don't have the overhead and spread their exposure over multiple properties and operators.

  2. Listen to CRISS WEBBER?"THE BEST WAY TO BUY GOLD IS TO BUY THE GOLD BULLION ETF SGOL FROM THE ZURICH KANTONAL BANK IN SWITZERLAND.IT IS THE SAFEST AND BEST OF ALL GOLD INVESTMENTS"..REGARDS.PATRICK O'SULLIVAN

  3. The ETFs do almost as well as the average performance (market cap weighted) of the index, so certainly there should always at least half of the stocks in the index outperforming the ETF… the trick is knowing which half, ahead of time.

    Not that you're wrong, but there are different ways to look at all of these stocks — do be careful with 2-year charts these days, because using them for miners gives you a lot of stocks that were near the absolute bottom at the beginning of the chart, which makes them look like spectacular performers, where a 3-year chart would have some of them closer to flatlining. That's why GLD outperformed on the longer term charts, many people fled to gold during the crisis and it didn't fall nearly as much as the (in some cases highly levered, or in need of capital) miners did.

  4. —jsmineset–

    What do you guys think of James Sinclair's Tanzanian gold venture? I heard him yak about his Tanzanian ventures for years but kind of low key. The other day for the first time I took a look at the stock. I had always thought it was a private operation. Do the smart guys know something I don't. Tanzanian Royalty is doing great. Who does not trust Mr. Sinclair? He is content with the millions he has in my opinion. He is not into scams

    Well what do you guys think—- http://www.google.com/finance?q=AMEX:TRE

    Also listed in Toronto

  5. Look at even how a small cap like Richfield Ventures is doing. Almost 3 $ A share , this is an incredible sector to be in right now.

  6. hi
    I read your comments regarding gold stocks and agree that paper money is no good and gold will go up even highter.

    I am a pensioner and need to know what other junior companies you feel will go up in the next short while. You seam to have alot more knedagle then my self to pick the right stocks. I hope you can provide me a list with your commets as to which one to buy.

    thanks
    Gus

  7. Quant easing to start again – USA politics in chaos – confidence up but not in the dollar
    Even Bangladesh buying GOLD
    I am in to the mines that make an ounce of gold for less than 200 US$ per oz – yes thats right – under good management with buy ratings from top sources
    better than buying physical gold as they make for 200 bucks and sell forward for 1300 bucks
    there are several in asia and I have more than doubled my money on one – more to come – as they are expanding capacity as i write this – gold mining is the go
    all the best investors

  8. I have trying to learn all I can about stocks over the last two months. I read the intelligent comments posted here and would value any advice you all may have. I left a bad situation with nothing and in little over a month with very little to work with, have made about 2,500. Not a lot but better than getting a part time minimum wage job. I feel like this is something I could really have an aptitude for and want to learn all I can. I feel like there are a lot of opportunities in gold and precious metals. Can you offer any advice or tools that will help me get settled and more comfortable with trading??

  9. Well said, but I also would add that for anyone other than a geologist with an advanced degree in business and finance,its very time consuming to even begin to know how to evaluate the strength of a mining company,and I base this on the valuable due diligence analysis that I DO get from good newsletters. The best junior miner newsletter that I know of is Casey's International Speculator, cost about 800 a year and well worth it. There may be other good newsletters for junior miners that I dont know of,but I can vouch for that one. The average investor really needs to make use of the best newsletter advisories they can find.

  10. I have made a lot trading TRE Tanzanian Royalty. I stopped trading it a bit over a year ago and took a permanent position in it at under 2.80/share. I like this stock and the business plan a lot. very similar to RGLD in that they are a royalty company and not expected to be a producer. Also nice, is that they have their own drilling equipment so they geta lot of ork donein a year.
    You can doa lot worse than having a guy like Jim Sinclair at the helm of this compnay. He is a smart guy, and I like to follow smart guys.

  11. Uxg is also run by a smart guy who used to run goldcorp
    Uxg used to be a dollar now it is 5
    I think if there is good stuff to buy out there he will find

  12. IF you believe, as I do, that we are about to have a major move in the precious metals I would make my first investment into good, solid information from a guy with a great track record. I am recommending Precious Metals Warrants by Dudley Pierce Baker. If you know nothing about warrants and especially if you are new to the stock market his newsletter can seem to be a bit overwhelming at first. He will walk you through every aspect of his newlsletter. I have done extremely well following his recommendations and I believe the greatest rewards are yet to come. If I keep on going about how great Dudley is you might question my veracity because I would sound just like a tout for some less than credible promoter. I invite anyone else out there who has been a subscriber to PMW to offer their opinions and comments.

    .

  13. I am a new investor. I want to get into gold and know nothign about mining companys or pretty much anythign you guys are talking about. Shuld i just go out and but actual gold and stuff in in my mattress?? I have about 5,000 dollars to invest into gold – i know no one has a crystal ball but any recomendations on where/how to invest my money into gold i would appreciate.

  14. I am a new investor. I want to get into gold and know nothing about mining companies or pretty much anything you guys are talking about. Should I just go out and but actual gold and stuff in my mattress?? I have about 5,000 dollars to invest into gold – I know no one has a crystal ball but any recommendations on where/how to invest my money into gold I would appreciate.

  15. Rob, forget about buying gold or silver, find a junior miner that's already producing so that the possibility of bankrupcy is nill and wait for it to quadruple while the precious metals histeria is on. My recommendation is for Genco Resources (TSX:GGC). It has the potential for greatness within the next couple of months. Here's more info:

    A Mexican Silver miner turnaround story, was previously a $4 stock a few years ago, when it was producing Silver profitably. Because of politics and other issues, the stock has declined to where it is today. Recently with management changes, a new NI 43-101 compliant technical report and feasibility study completed the company’s fortunes are improving. On September 20, 2010, Silvermex Resources (SLVXF, TSX:SMR) offered a merger with the company. Interview with CEO here: http://tinyurl.com/2fekgwe

  16. If I had to pick one I would go with little known Canadian SANDSTORM, SNDXF here and SSL in Canada. Canada has a message board called Stockhouse.com. You can plug-in SSL and read up on it. Coincidentally it just made a nice Drop yesterday, a Financing. Its a ROYALTY Model but a Super Royalty

  17. Does anyone have any input re. "Resource Windfall Speculator" by Dr. Russell McDougal? Among others, he recommends strongly Riverside Resources (gold) and Hathor Exploration (uranium).

  18. I believe sometime back I read an article about New Gold (NGD) that mentioned a connection with GoldCorp (GG). I believe it stated the founder of GoldCorp was as a founder years later of New Gold Corp. Can’t seem to find anything on the subject. Does anyone out there know if GoldCorp and New Gold were distant cousins? Thanks

  19. My dear child, you have taken your piggy bank,and want to turn it into the goose that lays a golden egg….how sad and sweet…. you mean you actually have a trading account and are ready to invest 2,500 into stocks??
    Lets pretend this is like playing monopoly,and just i will offer my best stock picks for a 2,500 dollar account. pick number 1)Watch UPWRF for the next few weeks,or days, and IF it falls back to between 2.25 and 2.10…..BUY 600 shares.

    That leaves you with about half your hard earned money.

    Pick #2) Right now, BUY NNVC at 1.07…. you'll be able to buy about 1000 shares.

    3) go out and get a paper route,and when you save up another 500 dollars BUY more of these two stocks

    In 2 years you will have about 50 thousand dollars

  20. Sinclair has been right on the money in advice (on his site Jsmineset) for years and knows his stuff. His stock has been doing well also. I've got some, as well as some options, and am very happy with what it's been doing.

  21. My experience with gold juniors is very mixed. The best one went up by a factor of nearly 4, others are worth less than half of what I paid for them years ago. I have also noticed a remarkable correlation — the less my initial investment in a junior gold stock, the more it went up. The ones with the biggest losses are the ones I put the most money on. So far as I can tell no one has a crystal ball on the juniors. Treat them as an alternative to Las Vegas, not as investments. Remember that junior gold stocks are not mining stocks. They have no operating mines and no revenue stream. A junior consists of a geologist or two, a guy with a drill, and mineral rights to some property that may or may not have an economic deposit of gold. If they find lots of gold that's economic to mine they may get bought out by a major and their stock goes to the moon. If they don't, they run out of money, and the stock goes to zero. The latter scenario is far more probable.

  22. Wow, you are recommending a pink sheets and OTC stock to a beginner, both probably pump and dumps. Do either have earnings or cash flow? You should be ashamed of yourself.

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