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  • Question for the smart people

    Americas Bubble Economy says to stay out of PM stocks. I have read more than a few posts reiterating that point on the message board.

    Why is my question?


    If PMs do what most of us think they will do, shouldn’t they explode. Just asking cuz I don’t know.


  • #2
    Re: Question for the smart people

    Gold (and other precious metal) mining stocks partially correlate with other stocks, partially correlate with gold, all with greater volatility. In the major stock market crash in the second half of 2008, gold stocks lost some 60% or 70%. Gold mining companies are sometimes long gold, sometimes short gold (perhaps having hedged more than their actual future production), sometimes long B.S. and lies.

    A major motive for holding gold is as insurance in the event that the Dollar fails. In such an event, stocks, bonds, banks, currency, insurance policies, ... may become worthless. You may find that only gold, and only gold that you can physically hold without dependency on some failed financial institution, serves as a portable store of wealth.

    We do not simply hold gold as an inflation hedge, both because gold doesn't always appreciate during inflation (consider the price of gold in Dollars in the 1990's) and because the most essential role of gold is to preserve wealth across a currency collapse.

    Gold mining stocks are more volatile than gold, usually crash along with other stocks in a major crash, often don't track the price of gold, and don't reliably preserve wealth across a currency collapse.
    Most folks are good; a few aren't.

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    • #3
      Re: Question for the smart people

      Originally posted by ThePythonicCow View Post
      Gold (and other precious metal) mining stocks partially correlate with other stocks, partially correlate with gold, all with greater volatility. In the major stock market crash in the second half of 2008, gold stocks lost some 60% or 70%. Gold mining companies are sometimes long gold, sometimes short gold (perhaps having hedged more than their actual future production), sometimes long B.S. and lies.

      A major motive for holding gold is as insurance in the event that the Dollar fails. In such an event, stocks, bonds, banks, currency, insurance policies, ... may become worthless. You may find that only gold, and only gold that you can physically hold without dependency on some failed financial institution, serves as a portable store of wealth.

      We do not simply hold gold as an inflation hedge, both because gold doesn't always appreciate during inflation (consider the price of gold in Dollars in the 1990's) and because the most essential role of gold is to preserve wealth across a currency collapse.

      Gold mining stocks are more volatile than gold, usually crash along with other stocks in a major crash, often don't track the price of gold, and don't reliably preserve wealth across a currency collapse.
      Yup, i also assume that EJ means dont hold PM stocks and think you are holding gold, bc you are not for the reasons PC mentioned.

      But, i would hold some PM stock for speculation if you know how to speculate and not watch a stock drop to zero before you think about selling.... Think of a PM stock just like any other stock, if it doesnt do what you expect cut it loose.

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      • #4
        Re: Question for the smart people

        Originally posted by ThePythonicCow View Post
        Gold (and other precious metal) mining stocks partially correlate with other stocks, partially correlate with gold, all with greater volatility. In the major stock market crash in the second half of 2008, gold stocks lost some 60% or 70%. Gold mining companies are sometimes long gold, sometimes short gold (perhaps having hedged more than their actual future production), sometimes long B.S. and lies.

        A major motive for holding gold is as insurance in the event that the Dollar fails. In such an event, stocks, bonds, banks, currency, insurance policies, ... may become worthless. You may find that only gold, and only gold that you can physically hold without dependency on some failed financial institution, serves as a portable store of wealth.

        We do not simply hold gold as an inflation hedge, both because gold doesn't always appreciate during inflation (consider the price of gold in Dollars in the 1990's) and because the most essential role of gold is to preserve wealth across a currency collapse.

        Gold mining stocks are more volatile than gold, usually crash along with other stocks in a major crash, often don't track the price of gold, and don't reliably preserve wealth across a currency collapse.
        In addition, mining is VERY capital intensive. If liquidity dries up, it can destroy a mining operation and a balance sheet recession is characterized by liquidity problems. Also, mining costs are very sensitive to increases in energy prices, something that seems so simple as tire replacement can become very expensive quickly. The tires are huge, and get worn out frequently. They cost a lot as do many of the mining inputs.

        And to re-emphasize one of TPC's points, the industry is rife with fraud.

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        • #5
          Re: Question for the smart people

          Originally posted by rabot10 View Post
          Americas Bubble Economy says to stay out of PM stocks. I have read more than a few posts reiterating that point on the message board.

          Why is my question?
          If PMs do what most of us think they will do, shouldn’t they explode. Just asking cuz I don’t know.
          Mining company profits = gold price - expenses.

          In a heavy inflationary environment, expenses may well go up faster than gold, actually reducing profits.

          Plus, of course, the issue of counterparty trust. In a time of crisis, would you really believe what the mining company executives are telling you?

          The same profit equation holds for general stocks -- inflation, in general, is not a good thing for company profitability. Plus, high inflation may eventually end up drawing money out of the market in order to pay expenses. The combination means the general market is at risk, too, in a high inflation scenario -- and if the market takes a dive, there's good reason to believe that it could drag miners with it. Decoupling may happen at some stage, but I don't think we're there yet.

          Another way to think about it is that I don't buy gold mining stocks for the same reasons central banks don't buy mining stocks: too many unknowns. That's the last thing you need if the economy goes crazy, just when you would really need the gold.
          Last edited by Sharky; 09-27-10, 10:03 AM.

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          • #6
            Re: Question for the smart people

            Originally posted by Jay View Post
            And to re-emphasize one of TPC's points, the industry is rife with fraud.
            It's been true for a hundred years or more.
            Mark Twain defined a gold mine as a hole in the ground with a liar standing by it.

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            • #7
              Re: Question for the smart people

              PM miners are like low pedigree thoroughbred racehorses.

              Sure, they can win a race and get big odds and stud fees.

              But in the meantime, you gotta feed 'em (energy), train 'em (management), and hope they don't break a leg (get nationalized).

              And the odds are high against their winning a race because they're already long odds.

              The big miners are like high pedigree thoroughbreds: They have better odds, but equally less rewards for much of the same operational risks.

              Miners like thoroughbreds should primarily be treated as expensive hobbies.

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              • #8
                Re: Question for the smart people

                I did so well in PM's. Never sold. Watched most of the gains disappear. Stops don't work because of the volitility. The few I still have are doing well. GDX, SLW, GG. They go up like crazy on good days and months, and go down like crazy on the bad days and months. I'm sure this helped. (insert smiley here)

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