Larry, bite or no bite, what I said is the truth.
What you observed this week in particular is the result of anti-gold Barrons taking another one of their patented swipes at the gold equities market with their negatory piece proclaiming loudly to anyone who listens that...BASED ON A CASH FLOW METRIC specious argument, that all gold equities were overpriced and therefore, deserving of being sold.
IT is a bogus argument, and one that only helped trapped equity bears in rising equities climes.
Three (3) MORE things to remember about gold equities:
1) GOLD MINING COMPANIES are based on ASSET VALUATION not on "cash flow metric." That would be like claiming that because the restaurant sector had poor "book to bill ratio" no one should own restaurant stock. Everyone knows that the book to bill ratio is a metric for valuation of semi-conductor genre equities. Another example of a specious metric valuation argument would be to apply the Chicago Purchasing Managers data which tracks inventory flow and build up of the manufacturing industry to value the airline sector for building up an inventory of unsold seats, and those unsold seats needing to be "worked off." Apples and oranges metrics in all 3 instances.
Several of the gold mining companies are only selling enough gold to pay the bills, and holding the physical for either better future prices b/c they all see what we pedantrian plebes see, OR they plan to use the stockpiled bullion to pay a special dividend as one large gold miner did this week...after the Barron's hatchet job. <font color=blue>(BTW...the last hatchet job on gold done by Barron's was in February when they took aim to Royal Gold's Royalty model and used the wrong yardstick to measure IT as well.)</font>
2) Mutual funds by virtue of size and competition for sector dollar deposits, all play the same VERY SMALL POOL of large names, by and large. This is simply due to their need for liquidity so that they can get in and get out of the gold equities' market without either raising or lowering the market in that small sector by the very size they themselves generate in that sector when they lumber around in their executions doing their thang...
It stands to reason that when Barrons conducts an illogical stampede, ALL blackbox players--mutual funds, hedge funds, daytraders--(makes no nevermind) herd surge out of the largest equities' names plus several small names as well--and drag down gold equities, which are then reflected in your NAV
3) As you have accurately observed, there is a lag period between gold equities appreciation and gold bullion appreciation in your 50/50 allocation model.
Why? One has to understand the pokey analyst world who works by what I call a mixture of "committee thinking" and "rookie rabbit ears."
The committee thinking process is a group think dynamic shared by all the "gold fund managers." It is WORK, and I do mean work, to re-examine their spreadsheet data (for lack of a better nomer) in light of rapidly moving underlying physical commodity price appreciation. They don't just go to the column market gold prices and plug in $410, and voila, a new "equity valuation immediately blinks to the bottom line of their spreadsheet. These fund managers have to re-evaluate weighted assay averages on known mine data, guess what management is thinking in light of higher pries, conduct surveys of management to determine THEIR group think re: expanding reserves potential and corporate planning and budgeting for expansion, etc., etc., etc.
All the time, they are looking askance at the flow of geological data, price data, supply data, demand data, seasonal data, economic data, trying to put their finger on what is conservatively predictable in all those metrics prior to making their buy/sells. THEY HATE to move suddenly such as when they are driven by huge outflows from disgruntled pension funds for example, scared by recent Spitzer-like revelations.
So, while physical gold is free to respond immediately to supply demand based buying/selling in an open outcry auction system, at least here in NY, and free to respond immediately to ESF and Locals running prices daily up and down the flagpole to see who salutes, mutual funds are by and large the slow-deliberate elephant in the space, as opposed to the more nimble physical gold valuation player.
Chew on this, and you'll begin to understand why I said what I said in the first response to your query.
Thanks for the get back.
The short answer is NO, you're not seeing an overbought condition in the equities correcting themselves. It is my thinking they haven't even begun to catch up with this latest bullion move that is still very fluid and very strong and very much nascent in terms of duration.
Look at it this way:
Physical gold is up OVER $400 --a psychological benchmark I'll grant you--only some 13 out of 23 banking days, and only higher closes above $400, 2 out of 2 Fridays in a row.
There's no way in hell, equities analysts have had time to reconstruct or re-evalutate gold equities, etc. It simply isn't in their nature to do this ASSET BASED METRIC recalc, which is the proper metric, in a newer/higher plateau that has only been in place 13 out of the last 23 banking days.
The very management personnel they have to survey in order to re-jigger their spreadsheets don't even agree on what they are going to do or if this above $400 is "for real"
They probably won't believe above $400 is for real for another 2 years, frankly...the last 22 have been so very very brutal.
Just some addition fodder upon which for you to chew.
Regards |
