Golds next bull run? What to buy?Gold looks to be headed higher even with a strong dollar so what are the best ways to play the next bull run in gold? I know Travis has (SAND) in his portfolio but I’d like to know his thoughts as well as yours. Do long term call options make sense for more leverage? I’d like to know what others who believe gold is going higher are buying and what worked best the last time gold reached new highs. Thank you in advance for your input. JB
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Rick Rule made another appearance on BNN in the last couple of days, and James Fraser tweeted a summary of the content which you can read in about 5mins instead of having to suffer the plethora of adverts that BNN inject into the show :-
http://www.pennyminingstocks.com/rick-rule-top-picks/
You can see Ricks opinions on many of the stocks found on this mini blog and see his top 3 picks (one is a new Ross Beaty play – Does anyone know about Anfield ??).
Kind regards -fr
Gold coming out of the closet ? Looks like it might be:
http://lonestarwhitehouse.blogspot.ch/2016/05/former-bis-stefan-gerlach-global.html
“This is the third elite economist to say the same thing” i.e. talk openly about revaluing currencies against gold.
Kind regards -fr
In discussing the depression the author makes this statement: “….and tensions were easily transmitted across national borders, with the gold standard exacerbating financial vulnerability by constraining central banks’ ability to act.”
This is an unsupported statement that blithely blames the gold standard for preventing allegedly beneficial action by Central Banks. It is false and is based on false assumptions.
The gold standard did not prevent the German banks from hyperinflationary measures that were directly the cause of hyperinflation.
The main cause of illiquidity was the French intransigence on German reparations.
The financial problems were certainly real but solutions were hindered mostly for political and national reasons that had nothing to do with the gold standard.
The United States might have been able to break the logjam if we had been willing to forgive French-US debt in exchange for French forbearance or forgiveness on German war debt.
I just asked one of my Chinese friends to ask her dad what are they telling the people there. I get the feeling he was pretty high ranking he is chauffeured still in retirement. Her mom and him like I show them things here. See if I can get an inside scoop are they going gold crazy? Her friends lost alot of money..in market got in late.. Mom seemed to do really well. Over there it’s a who you know thing..
Hi lulu, my explanation of Optionality as I understand it from Rick Rule was on this thread back on March 8 Or March 12 above
Sell Macy’s, Buy Gold By Briton Ryle
Written Monday, May 16, 2016
Sales at America’s biggest retail stores are an unmitigated disaster. In the first quarter, same-store sales (SSS) at Macy’s fell -5.6% from last year. Analysts were expecting sales to fall -3.4%. At Kohl’s, same-store sales fell -4%. Analysts were actually expecting a slight gain of +0.4. It was the same at Nordstrom and Dillard’s, where same-store sales fell -1.7% and -5%, respectively.
The simple fact is that online retail sales are killing the brick-and-mortar retailers. Did you see Amazon’s earnings? Total revenue for the first quarter was up 28% over the same time last year. 28%. Product sales were up 20%. And that means one thing: People are buying more stuff from Amazon and less from the Macy’s and Targets of the world.
I’m sure some people will try to tell you that the terrible numbers from brick-and-mortar retailers mean the American consumer is struggling. They’ll say it’s because the economic recovery has been weak and new jobs don’t pay well enough to support the American Dream…
And while it’s true that the weak economy isn’t doing us any favors, it’s way too simple to just say that Americans suddenly can’t afford their way of life. Headline retail sales for April were up 1.3%, which is the biggest gain in a couple years… via Wealthdaily
Oy. Oy vey. Oyu Tolgoi copper/gold mine gets 5.3 Billion expansion program.
The Mongolian Government has about a one-third interest.
http://www.turquoisehill.com/s/Oyu_Tolgoi.asp
Do we care about this Mongolian copper/gold mine ?
Of course we do. We care very deeply.
Why do we care ? We are not long Rio Tinto, Turquoise Hill, or the Democratic People’s Republic of Mongolia. We do not own real estate in suburban Ulan Bator.
But here’s why, in ascending order of importance.
First it is a notch in the belt of Robert Friedland, Geologist/Developper of the Century, he of Ivanhoe Mines, who discovered this deposit. It’s a trophy in his case and shows the type of asset he is after. Long IVPAF.
Second, this enormous deposit is going to become a mine. It will produce a lot of copper, and gold and silver, too.
Third, wouldn’t you know it…Sandstorm Gold has the deal to off-take the gold and silver production ! Nolan Watson again !
Sandstorm Gold’s deal is that they are gonna the gold and silver production, subject to certain limits expressed as a percent of the copper production, but up to threshholds
of 8.6 million ounces of gold, 40 million ounces of silver, and 9.1 Billion pounds of copper. Sandstorm is going to pay $ 220 dollars per ounce for the gold and $ 5 per ounce
for the silver. As I recall the copper price will be 1/3 of the spot price. For those of you not used to lots and lots of zeros, the gold production alone implies income to Sandstorm of
8 BILLION DOLLARS since they are going to clear almost $ 1000 per ounce if today’s prices prevail in the future.
Now the life of the mine is pretty long. 30 years maybe. And Sandstorm’s deal will continue after the first 8.6 million ounces of gold and 40 million ounces of silver, though the price they will pay for production after the threshold is $500 per ounce of gold, $10 per ounce of silver, and $1.10 per pound of copper.
Long $SAND. Planning a spot where I can to erect a statue of Nolan Watson
in my front yard. Maybe I’ll gild it like the ancient Greeks did.
Wow, indeed. I am surprised to learn SAND got that deal instead of the Francos or Royal Golds of this world. Kudos SAND – if the political troubles do indeed settle down.
Meanwhile I have another tidbit to share too:
http://globenewswire.com/news-release/2016/05/12/839230/10162631/en/Mariana-Resources-Ltd-Issue-of-Equity-Warrant-Exercise.html?f=22&fvtc=7
A bunch of Mariana’s warrants got exercised which is some kind of vote of confidence..
Kindest regards -fr
Older you tube video on Oyu Tolgoi
http://www.turquoisehill.com/s/Home.asp
Pretty sure this is directly related to the transaction whereby Sandstorm Gold became Mariana Resources’ largest shareholder. Sandstorm has 7.56% of Mariana and the
warrants are stated as having to do with “the private placement February 15”, which we parsed out to mean the deal with Sandstorm.
Just read that link again – Mariana’s warrants exercise at 1.6p and the stock trades at 2.8p. I guess if it doesn’t tank down to 1.6p tomorrow that would be a vote of confidence? (Meaning, maybe the news came out after market close? Just thinking out loud.)
Sandstorm prefers to buy stock in companies in such a way that they can buy and sell with anonymity. And they do it regularly on companies they are trying to do deals with on streams and royalties.
However, in the present situation they have taken a large interest in Mariana, so any action on their add or reduce holdings is presumeably subject to disclosure rules and therefore cannot be done anonymousy anymore, as is Sandstorm’s SOP.
Thus my interpretation of the situation is that Sandstrom has acquired 7.56 % of Mariana Resources because they think it is A GREAT INVESTMENT. Normally they take a position when they are trying to get a stream or royalty done, I suppose so that the target takes them seriously. However, their 7.56% position with Mariana was done AFTER or IN CONJUNCTION their stream/royalty deal. So it was a completely voluntary, stand-alone, and discretionary decision on the part of Sandstorm, it was not part of a strategy to get a deal done on royalties or streaming.
My conclusion is, therefore, that we do not need to worry about all the stock from the warrants hitting the market and dragging down Mariana’s stock price. Sandstorm is a strong owner and they want a big position in Mariana Resources because they think the mine is going to be a home run. They are not looking to flip the stock, they are looking to make a lot of money mining gold out of Hot Maden.
Sandstorm does not need cash from flipping Mariana stock. They have tons of cash and they have tens of millions available in their revolver. They are not going to dump their Mariana shares, they are going to hold them and be a force and stakeholder in the company, above and beyond their interest in the royalty streams.
And mark my words, a new resource estimate is coming from another hemisphere on Mariana Resources. They have a potfull of stuff in their Dona Ines project in South America.
Shall we hazard a guess as to who will finance this ?
The Mongolian Government has been pacified with a 34%+ interest.
The $SAND deal is not on the existing open pit operation, it is for two new underground orebodies that are being developped, the Hugo North and Heruga deposits.
Checking the royalty details for Hugo North and Heruga on the Sandstorm Gold website, the initial stream price $SAND will pay for the first 9.1 billion pounds of copper is 50 cents per pound.
So when these mines get going, if metal prices are no worse than they are today, Sandstorm will eventually realize net income $ 8 billion in gold, 400 million in silver, and 15 billion in copper from this project. I think we can round up in this case to $ 24 billion.
Then the prices increase all the way up to $500 oz/au, $10 oz/ag, and $1.10 lb/cu.
Yes I know production is a few years away. Yes I know prices on metals are unknowable this far in advance. Yes I understand net present value. Yes it is in Mongolia.
Still seems like pretty good odds that a company with a market cap under a billion is has a contract that is going to generate $24 billion in income from one of 130 deals in their portfolio.
Mongolia has 3.5 million people. The mining industry is going to transform the country, like oil did for the Arabs and for Norway. Firedland and his investors are going to provide the means for the people of Mongolia to transform their country.
Who knows what direction it will take. But the money is going to be there.
Likely we will have Mercedes dealerships, Apple stores, and Starbucks on every corner in Ulan Bator.
Previously the only thing I had read about the Gobi Desert was the story of the paleaontologists who discovered dinosaur fossils there. I think they found the triceratops
fossils with the unhatched eggs there.
Nice to learn about the triceratops eggs! Apparently the monster deposit is going to involve hundreds of kilometers of tunnels deep underground – maybe they’ll find more interesting fossils…
If they find fossils 1.6 kilometers underground it will overturn all accepted dogma in geology, paleontology, evolution, and natural history. I don’t think that will happen, they are not going to find fossils. But they are going to find millions of tons of copper, gold and silver.
Question (for Travis? and anyone else who cares to comment) – I’ve had New Gold for a few years. If it’s supposed to be such a low cost miner, why did it tank from around C$7 when I bought it down to around C$2-3 for such a long time?
I know it’s risen back to almost in the black again – but Just wondering if you know.
I’m not very good at looking up the financials and spotting that there’s some incongruently large piece of debt that might be due in a short period of time and threaten the very existence of a miner… and things like that, unfortunately..
Thanks in advance -fr
Claification of $SAND, $MRLDF, $IVPAF, and Oyu Tulgoi
Long $SAND, $MRLDF, $IVPAF
The conversations above may be a little confusing so I want to clarify the situations as I understand them.
Mariana Resources $MRLDF has two big projects: a 30% interest in the Turkish Hot Maden project, and a South American project (the Dona Ines project). The Turkish Hot Maden Project is 70% owned by a Turkish conglomerate. The South American project does not have a proven resource estimate yet but I believe one will be coming this summer. Long $MRLDF.
Sandstorm Gold has recently acquired 7.56% of Mariana Resources, in addition to completed a net smelter royalty with Mariana Resources on their 30% of the Hot Maden property. So Sandstorm Gold is in deep now in Hot Maden, and because of their relation with Mariana Resouces, they must be considered the odds-on favorite to capitalize on anything coming out of Mariana Resource’s South American property. Long MRLDF.
Long $SAND.
Oyu Tolgoi is a Mongolian mine. The deposit was discovered by Robert Friedland
and Ivanhoe Mines IVPAF. There is a large open pit operation there. My understanding is that Ivanhoe Mines are no longer involved. The project is being managed by Rio Tinto, the partners are Turquoise Hill, the Government of Mongolia, and Entree Gold.
There are two large underground deposits that are targeted for development, The North Hugo deposit and the Heruga deposit. These are monster deposits. Sandstorm Gold has a streaming agreement with Entree Gold for the gold, silver, and copper output from
the North Hugo and the Heruga deposits. These are under the Oyu Tolgoi group, but are not properly part of the Oyu Tolgoi open pit operation, in which Sandstorm to my knowledge DOES NOT have an interest. Sandstorm’s interest in in the North Hugo and Heruga underground projects. Long $SAND.
My understanding is that IVPAF has no more interest in Oyu Tolgoi, but IVPAF was dragged into the conversation by me because it illustrates the type of project Friedland is after. Long IVPAF.
A nice “maybe in the future” asset for Sandstorm if they continue with Otu Tolgoi development in the right direction… Though Sandstorm crashed the day they announced that deal a couple years ago because it was big, politically tougher, and further into the future than most of their deals had been to that point. Fingers crossed.
I remember,,,, I added to my holding just before that. Long$SAND
Fortunately Sandstorm is very conservative in their forecasts. The Oyu Tolgoi deal will not be all that productive for quite a while, so it does not figure prominently in their near-term cash flow projections. The politics were an issue but I think we can be somewhat calm about Mongolian politics, since the government stands to gain 34.7% of the profits and therefore now has every reason to want the thing moved along.
Of course an external shock from Russia or China could upset everything.
Sandstorm looks hugely undervalued to me. The Hot Maden deal,with a long-term kicker in the Mariana Chilean deposits, and the Heruga/North Hugo deal, are all factors that individually by themselves could make for a double or triple of Sandstorm’s market cap.
To say nothing of eventualprice appreciation of gold, silver, and copper.
Even with no price appreciation in commodities, every day that passes with gold over $1200 and silver over $14 is good for Sandstorm, since nearly all their pro formas are based on these prices.
Long $SAND.
If one believes long term in gold and silver, then the low prices in Sandstorm Gold are just a great opportunity to buy low and sell high.
I am buying as much $SAND and $PVG as my stomach can stand.
China buys big London gold vault
http://www.kitco.com/news/2016-05-16/China-Expands-Its-Reach-In-London-ICBC-Standard-Bank-To-Purchase-Barclays-Gold-Vault.html
Alan could run over there and check on whether it’s full or not.
I think it is full alright, full of echoes where the gold used to be . Recently Deutsche Bank needed some “re-adjustment” because they could not get their gold back from US Treasury for 8 years, {the following is my speculation] because the vaults here are empty as the gold has been sold to China and India as has the gold in UK vaults.
ICBC is a Government owned bank and is buying the vault to store the gold rather than physically transport it to China. That one vault will hold 20 tons of metal.
I think China is seeking to become the new reserve currency with gold backing. Watch AIIB the Asian Infrastructure Investment Bank with China ,India and Russia as the three largest holders and able to control, that was set up a year ago.
I think it entirely possible for the US to lose reserve status,,, then watch the price of gold in Dollars skyrocket. IMHO I could be wrong and often am,,,, but that could happen.
Echoes indeed, LoL! More recently, Jim Rickards often mentions his pal the Swiss Refinery executive he nicknames ‘Goldfinger’ who tells him how the gold coming from London (heading east after being upsmelted to ‘five nines’ bars) has of late been scraping the back of the barrel. Vaults pull it out on a Last In, First Out (LIFO) basis (reasonably enough, given how heavy the stuff is) and the bars all have stamps detailing their origin and date of casting etc, and Goldfinger relates that he’s never seen bars so old coming in.. so there is a fairly solid case for assuming they’re running out. Probably the same is happening at the COMEX.
I suspect (but don’t fully understand why) this may go towards explaining the lack of any big ‘smashdowns’ of late.
Maybe the paper shorts are just waiting for us to get complacent 🙂
My holdings are pretty much limited to recommendations of Dr. KSS and gold, silver, streaming and mining. Long Silver Wheaton, Franco Nevada, Sandstorm, Majestic, Couer, Great Panther, and others. I also hold some Reits mostly for my wife, and ins. written about by Travis. It is comforting to see that other Dr. KSS Gummies are following a similar path.
Hi Roger,
I am flabbergasted that there is someone out there who has arrived at a similar allocation to my own. I have a large position in speculative biotechs vetted by Doc, but the majority of my stock funds being in gold/silver and commodity investments. In place of REITS, I have unleveraged direct ownership of residential real estate.
I realize that this allocation is vulnerable to a real estate collapse/deflationary crisis.
My thinking is that even were this to occur and wreck havoc on the nominal values, that at least the underlying assets are still going to have real value. The real estate provides income, the biotechs are for capital appreciation, education, and entertainment; the gold and silver for security, with a chance at dividends and appreciation.
My real estate has done fine. This is most of my net worth. But my securities results were at a low point on January 19, 2016. Biotech picks were blowing up and the precious metals were still in a bear market. From 2015 to that dark day, I suffered bad losses. However since then my portfolio has recovered mightily, I am nearly back to the asset values of last year, having nearly doubled since January 19. During that time I have consolidated a number of the biotechs and shifted a little weight to gold and silver.
The rent from the real estate continues to arrive.
Hey Roger. Check out $PVG. Long $PVG
Hi hendtix: I just compared PVG to a few others
http://finance.yahoo.com/echarts?s=SLW+Interactive#{“range”:”ytd”,”allowChartStacking”:true}
is it the potential that makes PVG attractive?
Also, ANTH and OGXI may ready run hard. Of course I am long and may be biased.
$PVG…long…$PVG has been the subject of extensive research on my part, most of which I have shared on the threads (and on this thread, way back in the beginning).
$PVG is an unusual opportunity because it was recently sent into a tailspin over controversies regarding its proven mineral reserves, which controversies have been progressively resolved (in my opinion), conclusively in favor of PVG.
This company checks all the boxes. Great management. Great backers. World class deposit with big upside exploration potential. Friendly jusrisdiction…even better, the mine is fully approved, permitted, financed, and under construction right this very moment. They will pour gold in 2017.
There will not be a bad takeover or merger, there is a shareholder protection plan in place. On top of this, the new exploration targets will be serviced by the mill that is already being built, so it will be pure leverage and mine extension with minimal additional capital outlay.
The company has 7,000,000 ounces AU proven/probable. They will produce 400,000 to 500,000 ounces AU per year for at least 18 years. The all-in cash costs are about $460 per ounce. So you are looking at life-of-mine profits of over $5 billion at todays prices, with no increases in metal prices (!), and excluding further finds in the same claim area, which are CERTAIN TO COME.
The market cap of the company at today’s prices is about $1.4 billion. The mill alone was 700 million. Two months ago you could have bought this company for the cost of the mill, and gotten the gold in the ground FOR NOTHING. So now the price is up a little, you are getting the 7,000,000 ounces of proven reserves for an extra $700 million in market cap.
Still not bad, I think you can see that this works out to $100 per ounce, and it is not pie-in-the-sky. They will be pouring gold in 12 months or so.
Long $PVG
OGXI is running …
ANTH is warming up…
I am long both stock very heavily and may be biased: So let the price adjudicate.
Interesting ‘musing’ from the ‘mercenary geologist’ (Mickey Fulp) recently:
http://www.goldgeologist.com/mercenary_musings/musing-160516-The-Life-Cycle-of-Money.pdf
The essay includes a nice graphic on the cycle of monopolizing then debasing the currency leading to reset, and concludes that one should keep a stash of physical gold.
I strongly recommend Willem Middelkoop’s book The Big Reset for those interested in the endlessly repetitive tendency of governments to debase, steal, and tax.
Inflation, which a stated policy goal of The Powers That Be, is of course simply taxation
in a benign and faceless form.
$NULGF long…Nulegacy
http://nulegacygold.com/i/pdf/2016-05-17_todays-message.pdf
A note from Nulegacy clarifying recent ownership developments. Lost of knowledgeable folks like ABX and Tocqueville have piled in. Nulegacy has a high HOG value.
Long NULGF.
Why The Gold And Silver Futures Market Is Like A Rigged Casino zerohedge.com
Don’t buy futures !
Very true and thank you. Zerohedge should have also tell us which markets are not rigged! They could not! There is none.
With so much going on with RLYP today I am surprised not to see any discussion of it here. They posted numbers and were attacked by MS (as usual) and target was lowered by City. Price is holding well with bid 14.67 down 0.14.
Some gold stocks are about to make a new high. My favorite has been IAG for gold and SLW for silver.
Has ARTH become a “show me” stock?
Mid-day…$SAND pushing up to 52 week highs at $4.40. Blows my mind that this stock was selling for $1.94 on January 20.
Gold Bull break-out day in the making ?…hope so. Some very strong action with no big moves on metal spot prices. Technicals look good and lots of stocks are now over the three-month trough and pushing to new highs. So much for the pundit-inspired, big bad pullback.
$SLW up 91 cents to $20 range. That’s a 5% increase. $SAND and $PVG ready to make new highs. Can’t wait to see what happens after my nap.
It may be presented that we have a breakout in GDX today, anemic as it is. But GDXJ is looks stronger and out of a “better” consolidation formation with heavier volume.
As to gold & silver breakout it will be much more difficult and consequential than stocks for gold is manipulated more than the miners. Then there is the influence of interest rates, dollar, big players public talk vs their truce actions and intentions. Geopolitics, and etc …
My approach to gold:
1–I have no idea what is going on or will be going on. There are some who do know but do not talk to me or invite me to dinner–as nice a person I am! LOL
2–But I do have a few truthful and ever present friends and advisers I can call upon. For once I got to know them, respected and trusted them, and asked them for directions they have not failed me. Do you wish their names? Do you wish to get to know them and be friend them? My pleasure! Let me present to you Mr. and Mrs. Charts.
But let me be upfront: Mr. and Mrs. charts are controversial and have been subject of rejection and ridicule by some. Truth be told, I too resented then for a while. Foe once I got to know them, I soon took them for granted. Visited them hurriedly, randomly, superficially, for few short minutes at a time, and usually overruling them too. I could not understand them. I was young, brave, and a know it all.
Alas, my big losses, failure of my “other” approaches/systems, along with hard study of charts and have humbled me to pay proper respect to Charts Family. I am now an obedient follower and admirer of theirs. Without them I will never be in stock market.
I have to run now! Need to see what Charts are telling me about the market and my holdings.
I think charting is unreliable in the BIO sector but very useful in commodities.
Metals especially. I find they work best to look at several different time frames 5yr, 1yr,4mo,1mo etc. and only then pay attention to minute movements. I use them mainly to detect cycles and whether in rising or falling, not so much attention to Ma 200 day 50 day
etc. You can look at past moves and see how Elliot wave fits very often,,,,but not always.
Long flat periods often break sharply up or down and then if they form a double top or double bottom reverse, often extremely.
Both clinical biotechs and commodities are subject to investor sentiment and emotions. The charts reflect the history of all the factors in both sectors; so they are real records of past emotions, and their predictive potential depends only partially on what has happened already.
I would say that investor emotions have a very big impact on the biotech values. Right now we are seeing the downside of pessimism and lack of confidence, as very expensive clinical assets are selling for pennies on the dollar. I agree that it is difficult to predict investor sentiment, but we are looking for clues and I believe there are valid clues in the chart histories.
To me Charts are partly Chess like and partly Golf like!
In Chess the outcome hinges on how deeply and correctly a player analyzes.
In golf while perfection is impossible anyone can finally hole out.
When there is enough good/honest price and volume TICKS all charts behave the same. Neither name nor symbol is needed to analyze a quality chart.
EW charting has been good to those who sell; seldom good to those using it. But I am not disrespectful of it at times it works perfectly.
.
In today’s news from Bloomberg:
“Billionaire George Soros cut his firm’s investments in U.S. stocks by more than a third in the first quarter and bought a $264 million stake in the world’s biggest bullion producer Barrick Gold Corp.
The value of Soros Fund Management’s publicly disclosed holdings dropped by 37 percent to $3.5 billion as of the end of the last quarter, according to a government filing Monday. Soros also disclosed owning call options on 1.05 million shares in the SPDR Gold Trust, an exchange-traded fund that tracks the price of gold.”
No gold breakout today…but something sure is happening in silver !
Check out these ONE DAY % MOVES on selected silver stocks:
SLW +3.91%
SSRI +5.05%
BCEKF +5.83%
AG +7.57%
Big money going into silver, for sure. These moves are way over the spot price moves.
$PVG and optionality…for me PVG is not primarily an optionality play.
The Hendrixnuzzles Optionality Grade for PVG is only so-so, I am not long PVG on account of optionality. However, the situation at PVG is a very good example for showing the concept of optionality.
Right now, you can buy a non-expiring option on 7,000,000 ounces of gold in the ground proven in the PVG Brucejack project. You can do this by buying shares of PVG stock at $8.50. For every share of PVG stock you get at today’s prices, there is about $50 of gold reserves in the ground at today’s prices. If you allocate the AISC cost per ounce on that $50, you get a margin of $35 dollars or so that should eventually will be realized on the gold represented by that $8.50 share.
Let’s suppose gold goes up $200 per ounce, to the $1500 area. In that case, the value of the gold represented by your PVG share is going to go up about $10, to $60 or so. But the cost to produce that fractional gold ounce does not increase, it costs the same as before to produce that same fractional ounce.
So now your potential asset profit, per share, has increased $10, from $35 to $45.
Not bad for an option you have bought for $8.50, that does not expire. This shows the leverage theoretically possible, the “optionality”, of in-ground gold reserves.
CAVEAT. There is a big difference between the theoretical margin in the reserves, and seeing that value in the stock price. And there is no guarantee of what gold prices will be in the future. But I am looking at the HOG grades for the exploration gold companies, to find good optionality values. And as I said, I am long PVG but the optionality grade is mediocre on PVG.
Thanks Hn: I went back to may 3 with comments from ‘gard’ and well, argh!!
NET PRESENT VALUES…what ere the assumptions ?
Just an aside on a common metric used in mine valuations:
The concept of Net Present Value. Personally I do not look at this too much, other than to note what figure others are looking at in the pronouncements about NPV.
Why am I so skeptical ? The reason is, that any computation of NPV must make all kinds of assumptions about what is a reasonable benchmark return on a capital investment.
In today’s environment, I am not sure what is a reasonable figure to use. Most of the NPV values posit financial returns that some day in the past might have been reasonable. But in today’s world, the figures mean nothing. Where the dickens can one get a “safe” return of the theoretical 5% return, or any other rate, that is glibly presented in the pro-formas for NPV ? It is impossible and getting worse. And what are we to make of NPV in a negative rate environment ?
My first reaction when I see NPV numbers is one of glee, because I think the knee-jerk reaction to show NPV values have a tendency to understate and discount the real value of these assets. Using a discount to evaluate these assets is proper in a world with real interest rates…but that is not the world we are in at the moment. If you look at most mine financing nowadays, only a very small percent is done on conventional interest-bearing financial arrangements.
If negative rates come to pass, and commodities start to inflate, NPV should go into reverse. Instead of taking a future value and discounting it, we will have to take a present value and multiply it ! The new measure will be NFV, net future value !
PSST!… Hey Gummies !…Listen up, I am going to disabuse you of a misleading statement that is continually repeated to pull wool over your eyes!
This one from Kitco news, edited:
…Tuesday May 17, 2016 16:03
(Kitco News) – The world’s largest asset management firm is expecting gold to continue to shine in a world… flooded with negative interest rates…
“….head of asset allocation for BlackRock’s Global Allocation Fund, said that in a world where investors have to pay for the “privilege” of holding government debt, more interest is turning towards gold, an asset class that provides no income. ”
They keep saying gold as an asset class pays no dividends. This is true of bullion…but
A LOT OF MINERS AND ROYALTY COMPANIES PAY DIVIDENDS. Even today, SLW announced one. So don’t believe everything you read. You can make investments in gold THAT PAY DIVIDENDS.
True, but over the past five years the average big gold miner is down more than 50% while gold itself is “only” down 15%. The risk is much higher with miners than with the bullion.
Not that I object to owning miners or royalty companies, I own some — but they are, despite generally being levered to the gold price most of the time (and dramatically so with the sentiment shift early this year, with the average miner up 80% while gold has risen less than 20%), very different as an asset class than is the metal itself.
Observations of a true expert supported by historical data. Thank you Travis.
Hi Travis, you are correct on the historical aspects. And I agree that there are many asset types in the gold/silver sector that can be selected to taste.
But my thinking is not as an alarmist, but as a realist. The world situation is much different now than it has been in the past…not meaning that “this time it’s different”, but more “this time it will be like all the other times”, in that human nature, greed, and value will still win out in the end.
The risk is mostly out of the miners. The ratio of gold price to mining stock values is near all-time highs. True enough they are leveraged; but they were beaten down pretty bad.
Two years ago I started with a strong desire to be diversified in my investments.
But one by one, traditional investment vehicles have been loaded up with risk,in my view mostly by government policies that are now world-wide in scale and collusion.
Bubbles everywhere.
Are bonds safe ? How long will people accept the putative value of our currency ?
Is the stock market attractive ?
Are decent returns from fixed investments to be had ?
Is saving and capital formation encouraged ?
Is real estate healthy, when the industry is predicated on artifical rates from banks, who just punch number to produce as much “capital” as they need?
Are our fiscal and monetary policies working ? Are world economies strong?
Is the world political situation more or less stable than 10 years ago ?
Have we fixed the leverage and liquidity issues that nearly brought us to ruin in 2008?
And what the devil are negative interest rates, is this Frankenstein creation of the bankers something that is going to engender stability and real growth?
Is the multiplier effect of the new money going through the economy high, or is it low?
I am not predicting any particular doomsday outcome, but just suggest, insist even, that the current situation is not sustainable. The fact is, no one knows exactly how it resolve itself. But I think we can count on the bankers and politicians to do what they always do, which is to kick the can down the road and continue with the more of the same bad policies that got us here to begin with. Ultimately that means no real reform, and an inevitable destruction of the currency that may or may not escape the control of the Powers and follow their gentle 2% per year pickpocketing of us.
There will be unlimited supply of currency units. And the law of supply and demand has not been suspended. Print billions of paper dollars or computer credits…the value of them will go down.
When the QE policies became enshrined, I decided that real unleveraged physical assets was the way to go. Last year I made many moves in this direction. I was early, therefore wrong, and lost quite a bit in securities, although my real estate holdings did very well, and I do have some debt on it as a dollar inflation hedge.
But month by month, I have become more persuaded that hard commodity assets, in particular gold and silver, are the only category that will stand up in the end, whatever that end may look like. And I have been increasing my allocation in that sector,
with a variety of the vehicles that are available there. So far this year my results have been excellent, though I have not fully recovered from last years disaster.
It is a bizarre situation. I feel much safer with a 4 cent penny gold stock that is backed by $30 of proven gold reserves, than I do with a share of Google or Netflix. And I am not predicting the end of the world and riots in the streets. The pendulum has just swung too far in one direction, and eventually it will reverse course and moves in the other direction. I think it already has.
People who go on in the tried and true investment approaches will have the luxury of being in the right as long as the charade continues. And I admit it may continue for quite a while. But I do not like what I see, and would rather be a year too early in my moves than one day too late, even if there is an opportunity cost for me because of it.
Best regards, and thanks for the many excellent picks you have made, and thank you for providing a wonderful forum for people to exchange ideas.
I think the new banking negative interest rates will make people view gold without dividends more favorably. No interest beats negative interest.
That’s how I see it also..
Even if gold does not gain for now it is a place to wait and I think more are realizing that and buying. At least part of the rise in gold price is caused by the currency manipulation in the downhill leapfrog game of the Euro, Yen and Dollar. Last week or so Dollar was dropping and gold rose, today Dollar is rising against the yen and gold is dropping. Euro and pound are also rising against yen. Next week things will change in some way after fed meeting now due. Sometimes don’t just do something stand there preserves a safe place,,,, I think gold has bottomed however. I am finally slightly in black in HL and was also in Sand and see lots of upside from here. Silver was hurt worse in last bubble burst si I think it holds more upside than gold but that is a matter of taste.
Long $SAND $HL $PVG $PHYS and $PSLV.
Precisely. I have not verify the statement myself, but the keynote speaker at the Swiss Mining Institute’s event asserted that currently gold investments in total are less than one-half of one percent of world portfolio values, and that even a 1.0 % shift in the asset allocation targets of the investment community into this sector would cause tremendous upward pressure on gold and metal prices.
Even conventional advisors often recommend 5% or 10% allocations as insurance. These allocation figures are so far beyond what people are actually doing, that a relatively small allocation change will cause big price disruptions to the upside.