PM Miners: Of Blood in the Streets, and Catching Falling Knives

Jim H
By Jim H on Mon, Mar 4, 2013 - 5:47pm

Every time I think we are at the stage of a final, cathartic puke on the mining stocks.. they take another 5% down day.  Today is another of those 5% (average) down days... and you just have to wonder when the world wakes up to the fact that these companies own Gold and Silver in the ground, and that this is where the puck is going (real money, real stuff, vs paper).  

GDXJ, junior miners ETF, is at a 52 week low, down 3.8% right now

GDX, major miners ETF, is at a 52 week low, down 3.0 %

IAG (IamGold) P/E down below 7.. a deep value stock.. also sporting a 3.8% dividend.  Down 5.9% as I write...  

Miners have never in my experience been more out of favor.. even many Goldbugs have disowned them as just another "paper" investment that is prone to manipulation, etc.  But there are real companies out there, with rights to real metal in the ground.  Unless something has fundamentally changed about how the world works, I believe that there will be fortunes made by those who are saving dry powder now and can invest in the right mining stocks. 

Is today the final capitulatory end of the selling?  How low can they go?  Will they ever go up again?  Will metals ever go up again?  

I will update the thread with my knife catching exploits... bought some RVM on Friday, and it's the only miner going up today.. so I am not bleeding yet    : )

Oh, and Bitcoin is over $36 today.   

 

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23 Comments

jughead13's picture
jughead13
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Sorry.....

But too many of the "sources" I use suggest that a catharsis is approaching....Rick rule, and a swiss advisor I respect, feel another selloff to bring not only the Dow/s&p/equities, but also the commodities, including the PM's....down in a purge to capture all the stops below 26 in silver and 1500 in gold......maybe not a protracted down turn, but then the "sell in may and go away" theory may be coming early.....and the lower levels could persist for months....I'd hate to see it, but.......Jughead

jughead13's picture
jughead13
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On The Other Hand....

I shouldn't leave without expressing the other side.....e.g. Jim Sinclair, whose opinion I respect most of all(along with that of CM), suggests the bottom will be in by the end of March....and Marc faber, who has expressed that maybe 1400 will be the bottom in gold this time around.....and FOA/FOFOA say, pay no attention....as long as you have some gold, you will do just fine through the end blowup in the coming economic holocaust.....ah yes, you place your bet and takes your chances.....

jcat3022's picture
jcat3022
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Today Was A Real Bloodbath

 

Today was a real bloodbath for the miners.  What I found unusual was that gold didn't take a significant hit (think it ended up $0.10 or so), but good companies like AUY were down over 6% with above average trading.

real bizarre stuff.  Don't know where the bottom is, but if can't be too far off.  I've been keeping some powder dry for UGL and waiting on a day when I know the bottom is in and gold goes up (without Bernanke having to muster a word). 

thebrewer's picture
thebrewer
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Posts: 110
Don't trust the paper

At this point I'm in the camp of no more paper investments. Even if silver continues to dip, when I hold my silver rounds in hand I feel like I'm holding something of value. I've been buying a little every month for the last 3 years and have no intention of stopping now! I'm also in the process of buying a nice chunk of land with it's own water supply and timber...tangible and valuable.

Grover's picture
Grover
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Posts: 800
Spike may be coming

There is a small operation (2 or 3 guys) who have a website that predicts the future based on shifting patterns in linguistics and their interpretation of these patterns. It sounds hokey, but they've had some pretty spectacular hits on future events over the years. They also have fallen very flat on others. Some of their big hits:

  • July 2001 - they predicted planes flying into buildings in the Fall of 2001. (9/11)
  • Summer of 2004 - a wall of water would hit right after Christmas and kill a quarter million people. (Banda Aceh earthquake and tsunami)
  • For years, they've been warning of big coastal events occurring in Spring 2013. (Not a hit yet, but we're still in winter)

They currently are predicting a failure of the system and major volatility in the PMs. According to them, there will be a huge spike in the price of silver (up or down) that is short lived. They are saying that there will be havoc on the internet and many sites will be shut down. This will last for 3-6 months until it gets resolved. It would only take a shutdown of the DNS (Domain Name Server) for this to happen.

The website is www.halfpasthuman.com. Their prose wouldn't exactly pass muster on this site so be forewarned if you decide to read any of their stuff. It isn't for the faint of heart.

If there is a short spike in PM prices downward, dealers will up their premia for physical as they did when the price of silver dropped from around $21 to under $9. It might be a good time to buy GLD or SLV for a short term quick profit. After the price recovers, you can sell the ETF and purchase extra physical for the effort. That is what I will do ... if it happens. If it doesn't, I'll have some dry powder.

Grover

Jim H's picture
Jim H
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Jesse not pulling the trigger on miners yet...

Grover...  predicting inherently unpredictable events like a tsunami does not seem to me to relate to predicting something like the movement of a market. 

Brewer... I am with you in the end.  I have my core of metal holdings, and I would love to close out the IRA someday in the not to distant future, with the balance several times what it is today, in order to pay the taxes and fees and still have enough left over for some real estate.  We shall see how it all works out.  

As for the miners, James Turk says that they are historically undervalued relative to the price of Gold.. and my only quibble is that he does not account for the increasing cost of energy over the same time period as a cost of mining;

  http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/3/4_Jam...

Jesse says today,

http://jessescrossroadscafe.blogspot.com/2013/03/gold-daily-and-silver-w...

Complacency reigns.

The pounding in some of the miners today was pretty impressive.

The relationship between stocks and the metals are fascinating.

I am still refining my list of mining stocks, but I am not buying here as my price targets are much lower than current prices. I could be wrong on them as I am quite pessimistic about stocks in general, and the miners are catching it from both sides, being metals related. But for now I see no reason to buy.

And I may not get those buys. But this ability to be 'picky' is one of the benefits of having a substantial long term position which one does not touch. You do not feel pressured to buy bottoms or sell tops, because your greater concentration is always on the long term prize.

You may trade around it if you will, but never, ever, give up your position entirely in a bull market.

So, I have to agree with Jesse that if you believe the market could take a general dive from here.. we could continue to see even more blood in the streets with the miners.  I am trying hard to see both sides and to bide my time. 

Rob P's picture
Rob P
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PMs

Cost average in.  Cost average in.  This is what it feels like when the time has come to buy.  That, in itself doesn't guarantee that this is yet the perfect moment, but it must be much closer than before. It takes guts. Cost average in at a planned pace. It's no place for emotions - they'll get you screwed every time.

Jim H's picture
Jim H
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Miners... violent pop off of the bottom continues...

Three of my recently bought miners - performance today;

MUX   + 8.85%

SA      + 7.23%

IAG     + 9.31%

I am not saying that I won't get my head chopped off tomorow.. I might.  But.. something is going on here, right?  In a world where my money will earn 1.3% on a one year CD.. something is going on here.       

 

Jim H's picture
Jim H
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Face ripped off.. miners today

Easy come.. Easy go

With the metals falling back, even just a little, and not confirming yesterday's rally.. the miners were not at all happy.  My bat senses picked up on this early and I avoided maybe 70% of the damage by putting on a strong, intraday DUST hedge, which I sold high.

The damage;

MUX  - 5.74%

SA    - 8.24%

IAG   - 6.71% 

KennethPollinger's picture
KennethPollinger
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Jim H and comments

Jim.  I agree with some of your comments:

1) there are REAL companies with rights to REAL metal in the ground.

2) invest in the right mining stocks.

 

Okay, easy said BUT which are they? out of hundreds, if not thousands??

How do we REALLY know?

Any suggestions, gang?

Adam Taggart's picture
Adam Taggart
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Posts: 2934
Kenneth

Kenneth -

John Doody dedicates himself to researching the miners and maintins two premium lists with his picks for the top 10 ($495/yr) and top 50 ($1,495/yr) mining company stocks to own:

http://www.goldstockanalyst.com

We're hoping to have John on soon as a podcast guest.

 

Jim H's picture
Jim H
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Picking miners

I do two things;  understand the story behind the stock.. what sets it apart?  Secondly, I listen to what the market is telling me based on the strength of the moves the individual stocks make relative to Gold and/or Silver (aka the beta).  

I don't mess with the penny stocks.. as Ken P says, there are so many.  That is where the long tail is... so many little companies.  They are very speculative, and never profitable.  This rules out most companies with very small market caps... say less than $100M.  

I find that with regard to this pin action..  the strongest beta is in the miners that are in the range of market cap. > $100M and < $1B.  To this end I watch, have played, and will play again (waiting for the day when Gold really breaks loose finally);

MUX    market cap $724 M,  you are buying mgt. (McEwen)  not profitable now

SA      market cap $613 M,  you are buying one of the biggest, cheapest per ounce Gold in the ground plays, not profitable now

Then there are the profitable, low PE small miners that are just bargains by any measure;

TGD   market cap $379M, PE 9.9, 

PPP  market cap $564M, PE 10.8

Then there are the profitable, low PE, high dividend plays;

IAG   market cap $2.5B, PE 7.5, dividend = 3.8 %

GORO  market cap $684M, PE 11.8, dividend = 5.1 %

So... you have three profiles..  non-profitable, high beta Gold in the ground plays, small but profitable miners, and larger "value play" miners that actually pay dividends like utility stocks.  Think about that;  a current yield like a utility.. with the optionality of a Gold miner.  

The final thing you MUST do if playing miners is diversify.. you never know when something geopolitical, act of God, etc. is going to happen with any one miner.  I got caught in GFI last year when SA started shooting the striking miners... needless to say this was not good for the stock price.  

I build a diversified portfolio across the three groups.  I am easing back in now with the thought that we are at or near a bottom.  If you are not sure what you want to do, there is the junior ETF GDXJ, which contains many of the above stocks.. and the large miners GDX ETF for you to play.  Play at your own risk.   

     

KennethPollinger's picture
KennethPollinger
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Special thanks to Adam

Adam.  Thanks for the quick response.  You are on the stick.

Now, a suggestion.  Why not save our EEE Community some money?

Just pass on the top ten to ALL of us.  500 times $495=savings of $247,500

for our group--and we can invest that money for sustainable projects.

Jim H's picture
Jim H
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Kenneth

I hope you are kidding in regard to your idea.. that would be unethical to pay for an individual subscription and then pass it all around, especially on a public forum like this.  The guy who publishes this newsletter is a small business person.. and your proposal is for us to benefit by denying him rightful income.  Am I missing something?

KennethPollinger's picture
KennethPollinger
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Jim H and ethics

No, you are not missing anything.  I was off-base.  Just can't afford the fee.

Such is life.  Thanks for correcting my faulty thinking.

Jim H's picture
Jim H
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No Problem Kenneth

We are all stronger and smarter together as a community here at PP.com. 

While my advice is free... only time will tell if it is really affordable or not (i.e. loses money).  Below is a snapshot of the early trading results for the model portfolio I mentioned above, vs. the two ETF's.  I think there is no replacement for just watching the market.. watch the way select miners trade.. and you will begin to get at least some intuitive grasp of how they act.  Again, the whole underlying concept here is that Gold and Silver will pop soon, and that the miners are a leveraged way to ride this.  Actual results may differ   : )     

 

GDXJ 11:14AM 16.42 0.00 Up0.41% - - - -  
GDX 11:13am EDT 36.89 Up0.03 Up0.05% - - - 0.20 -  
MUX 11:14am EDT 2.65 Up0.01 Up0.38% - - - - -  
SA 11:10am EDT 14.15 Up0.03 Up0.21% - - - - -  
TGD 11:02am EDT 2.72 Up0.07 Up2.64% - - - - 10.15  
PPP 11:13am EDT 5.84 Up0.03 Up0.53% - - - - 10.82  
IAG 11:14AM 6.6570 Down0.0230 Down0.34% - - - 3.80 7.55  
GORO 11:13am EDT 13.19 Up0.19 Up1.45%

 

KennethPollinger's picture
KennethPollinger
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Posts: 653
Jim H and reasonable advice

Thanks for being so gracious in your response; and, for the advice.

I'll try what you recommend.

On a side note, just got back from Costa Rica and saw some other types

of opportunities: cattle (toros).

1. IF you have a farm (land with pasture) and buy toros at $500/head, put them

grazing on the land for about 14 months and then sell at cattle auction, you

generally get 100% return.

2. IF you place the toros on someone else's farm, the owner and you split

the profits: 50/50%.

And this is not a lot of BULL!             Enjoy, Ken

 

 

Woodman's picture
Woodman
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Posts: 1028
why miners so down

Jim or others, why do you think the miners are so beaten down?  Increasing production costs?  Fewer opportunities to start new mines?  Less demand?  Competition with GLD?  or just lower sentiment or interest to own the stocks?  

I've had some IRA funds in Vanguards precious metals and mining fund, VGPMX, and the price is way down though its been paying some dividends.  I have no need to sell out for many years, so being patient, and the contarian in me is thinking this is a good time to buying more?

Tom

Jim H's picture
Jim H
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I continue to think we have bottomed or are bottoming

Pin action in the miners not 100% upside yet, but gererally up.  I can't tell you why they have become so hated.. but to me, this spells opportunity and I have put in about 40% of my available dry powder into the miners.. I firmly believe selling now would be selling at the bottom.. Good luck Woodman.   

 

My screener of favored mining stocks (see earlier post in this string for more background);

  &Price Chg&% Chg Price Paid Shares Mkt Value Yield P/E  
GDXJ 12:21PM 17.05 Up0.20 Up1.16% - - - - -  
GDX 12:21pm EDT 37.56 Up0.23 Up0.57% - - - 0.20 -  
MUX 12:21PM 2.82 Up0.07 Up4.36% - - - - -  
SA 12:21pm EDT 13.76 Down0.04 Down0.72% - - - - -  
TGD 12:07pm EDT 2.68 Down0.07 Down2.55% - - - - 10.00  
PPP 12:19pm EDT 6.04 Down0.02 Down0.66% - - - - 11.15  
IAG 12:21pm EDT 7.01 Up0.09 Up1.30% - - - 3.60 7.87  
GORO 12:20pm EDT 13.00 Up0.32 Up2.52% - - - 5.70 11.74  

 

KennethPollinger's picture
KennethPollinger
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Posts: 653
Jim H and 3 Groups

Jim.  I lke your approach to this issue of gold miners.  Diversification makes

a lot of sense.  Are there more than your 3 group categories?  If so, what are they?

And within your 3 groupings, I imagine that there were many, many in each category, no?

So, how did you come to pick those you did and not the others.  Must have taken a lot

of time and research, no?  Anyway, I am a neophite in gold stocks but am looking to jump in

now.  The Cyprus blowup may just be the thing we need for gold to start shooting upward.

I'm having a hard time trying to find where to put my extra cash, besides in bullion, and

resiliency projects.

Thanks immensely for your assistance and thinking about all this.  Ken

ronpoitras's picture
ronpoitras
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Posts: 23
Gold Stocks

Ken,

You might consider The Tocqueville Gold Fund, a mutual fund that has a good reputation and an experienced manager (John Hathoway). It has a diversified portfolio of gold and silver mining stocks which has been scraping bottom lately but I think has great potential. www.tocquevillefunds.com 

Jim H's picture
Jim H
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Posts: 2379
Good day for the miners in a falling market

The coiled nature of the miners was apparent today as they moved up hard on the continuing confirmation that Gold and Silver have bottomed.  Having banks still closed in Cyprus and capital controls in place doesn't hurt either.  Here is my screener.. I now own all of these save for GORO, having bought PPP half-way through the session today.. and this is where the gut feel comes in from just watching these things for months and years.. it was clear to me that PPP was taking off;

ymbol Time&Price Chg&% Chg Price Paid Shares Mkt Value Yield P/E  
GDXJ 04:00pm EDT 17.12 Up0.29 Up1.72% - - - - -  
GDX 04:00pm EDT 38.43 Up0.98 Up2.62% - - - 0.20 -  
MUX 04:04pm EDT 3.02 Up0.26 Up9.42% - - - - -  
SA 04:02pm EDT 13.97 Up0.20 Up1.45% - - - - -  
TGD 04:00pm EDT 2.95 Up0.12 Up4.24% - - - - 11.01  
PPP 04:05pm EDT 6.29 Up0.43 Up7.34% - - - - 11.65  
IAG 04:02pm EDT 7.18 Up0.26 Up3.76% - - - 3.60 8.07  
GORO 04:00pm EDT 12.68 Up0.17 Up1.36% - - - 5.70 21.13

I am considering VGZ as a next miner position.  MUX was spectacular today, having bottomed, at about 2.30 on a daily close basis, way, way back on March 5.  That's 31% off the bottom, in three weeks... and I will pat myself on the back a bit since this thread was started on March 4.

There is nothing but air above the miners here AS LONG AS Gold keeps rising.  I am betting Gold cannot be contained from here.. it may not sky.. but it won't IMO be contained.          

KennethPollinger's picture
KennethPollinger
Status: Platinum Member (Offline)
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Posts: 653
Jim H and 3 Groups revisited

Jim  Many thanks for posting your junior miner's portfolio.  However, you

have not yet responded to my Mon, Mar 18th posting. It's the criteria, the

procedure, that I am interested in and maybe others too.  Does anyone here

have anything to say about all this? Does Chris hold stock in jr miners, or is it

all bullion? Not asking which, just general perspective. Help!

IF the market tanks 40-50% (Chris, by fall)), isn't it better to wait for that correction,

BEFORE jumping in?  WHAT is one to do?  Thanks Jim for YOUR concrete sharing.

Good luck!

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