just cleared, on gold, gold shares, s&p500, speculation vs savings
From: J
Sent: 2011 10 3 5:53 AM
Subject: RE: Gold vs. Gold Stocks - gold vs s&p500
listened to basic points don coxx and did calculation per his guidance re gains to date from january 1st 1971 to now:
it calculates that S&P500 => [(1031 / 92)^(1 / (2011 - 1971)) - 1] x 100 = 6.5%
and gold => [(1600 / 35)^(1 / (2011 - 1971))-1] x 100 = 10.1%
gold beat stocks on cap gain basis, and by any generous estimate of dividends, gold also beat s&p500 after accounting for divies, and did so without fuss.
iow, gold is good as savings method, whereas s&p500 is an object of speculation.
some day soon enough gold mining shares would be considered firstly for their all-in replacement cost and
some other day for their gold in the ground marked to market and rounded up with optionality value.
recommendation: keep accumulating everything gold by shorting puts, either trade of the second decade, or just perpetual savings discipline. s&p500 stocks are for speculators, and t-bills are for victims.
From: b
Sent: 2011 10 3 3:32 AM
Subject: RE: Gold vs. Gold Stocks
"More money=higher prices" sure does work on the intermediate and long term though, as witness attached and nowandfutures.com
And a for what its worth from my miners page on physical vs. stocks, and excluding the miner stocks gain between Jan 1980 and their peak in late 1980:
Per the Financial Sense Junior Indexes 2006 review ( 2007 results here), there are 4 main classifications of junior miners - Overall, Producers, Development and Exploration. Based on the relationships since 2002, the juniors have outperformed the BGMI by about 3-3.5 times and the HUI by about 2-2.5 times (see 2002-6 data below to see how those multipliers are derived).
Transferring that performance back to the BGMI's 1970's bull market data and using the January 1980 high as the high point (the Dow/gold ratio high) and January 1970 as the start, and using London prices:Physical gold went from $36.02 to $850.00, a gain of 2,260%.Physical silver went from $1.84 to $48.00, a gain of 2,509%.The BGMI (the best long term representation we have of all gold & metals mining stocks) went from 92.34 to 716.66, a gain of 676%.Juniors miners gained an average 3.25x the BGMI, or 2,197%.A 50/50 split of physical silver and gold returned 2,385%.David Galland of Casey Research notes during the “last major inflationary period in the US, 1962 to 1982, gold shares rose, on average, 1,503%. This correlates well with the data above.
Using the January 1980 high as the high point (the Dow/gold ratio high) and January 1966 as the start (the Dow/gold ratio low), and using London prices:Physical gold went from $35.13 to $850.00, a gain of 2,319%.Physical silver went from $1.29 to $48.00, a gain of 3,621%.The BGMI (the best long term representation we have of all gold & metals mining stocks) went from 98.64 to 716.66, a gain of 627% (note that the BGMI's later actual peak in Oct 1980 was about 1285).Juniors miners gained an average 3.25x the BGMI, or 2,262%.The Dow went from about 985 to about 870 during the period, for a loss of about 12%.The S&P 500 went from about 93 to about 110 during the period, for a gain of about 18%.The dollar index went from about 1.205 in 1971 (when dollar index records started being kept) to about .85 in January 1980.In other words, in both scenarios physical gold and silver returned significantly better results than stocks - including juniors.
For another parallel - using the partial bull market high in late 1974 as the high point and January 1966 as the start (the Dow/gold ratio low), and using London prices:Physical gold went from $35.13 to $183.72, a gain of 423%.Physical silver went from $1.29 to $5.01, a gain of 288%.The BGMI (the best long term representation we have of all gold & metals mining stocks) went from 98.64 to 458.79, a gain of 395%.Juniors miners gained an average 3.25x the BGMI, or 1284%.These relationships bear a very high similarity to the bull market since 2000-2, with the exception that gold was price controlled before 1966-1971 and had more catch up to do than silver.
From: H
Sent: Wednesday, August 10, 2011 8:55 AM
Subject: Re: Gold vs. Gold Stocks
Well, it is of course true that the inflation of the money supply has helped to hold up nominal prices relative to real prices. In gold tems the stock market crash since 2000 is already on a par with 1929-1932, and bound to get worse.
Note though that no matter how much intervention there is by the Fed, it has a record of failing to prop up prices indefinitely. Massive pumping measures could not stop the 2008 crash from unfolding, and right now, the market has taken back ALL the nominal gains that have occurred since the beginning of QE2 last year (since the effecitve implementation, not the announcement).
In other words, the effect of a huge additional money supply expansion on the stock market over a period of 7 or 8 months has evaporated in the space of two weeks. The price effect of the money supply inflation is countered by a surge in the demand for money, as money is needed to pay back leverage. In fact, even gold's rally is indicative of a surge in the demand for money.
Inflation is a very complex phenomenon, and to understand its effects it is not enough to use the simply equation 'more money=higher prices'. The supply and demand for money, AND the supply and demand for non-monetary goods and their place in the capital structure all play a role in the outcome. It is therefore possible for nominal stock prices to actually follow real prices for certain periods of time. Numerous lead and lag effects come into play as well.
As regards gold stocks, the fact that they can crash when the stock market crashes has been established on several occasions - most notably in 2008 and 1987. In both instances gold stocks fell even more than the broader market - and it was independent of the moves in the gold price. When the margin clerks show up, the fundamentals of your stocks don't matter one whit.
Imo it is a legitimate endeavor to try and avoid the associated drawdowns. I think that is more important than whether one 'misses an opportunity' - I agree w. Barbera on one point certainly: opportunities are like the bus - a new one comes every day. Gaining back lost capital is an entirely different proposition, i.e., adequate managing risk is more important than whether one catches opportunities to make profits.
Anyone who 'sat' through the meltdown in gold stocks in 2008 had to catch up with a 70% loss of capital thereafter, i.e., to merely 'break-even' required a gain of nearly 250%, never mind 'making money'. Avoiding such aggravations seems to be a legitimate endeavor.
Moreover, the issue is whether one should be in gold or gold stocks. Well, for the last 70% rally in gold, the metal was the better bet by a huge margin. In the stock market, there were also better opportunities during the 2009-2011 rally than gold stocks, such as numerous tech momentum stocks. I am just stating a historical fact here.
But that is of course the past - I would agree that at some point in the future - how distant remains unknowable - gold stocks will rally big, just as they have done in 1979. In the 1976-1978 period gold stock holders also sat through an extremely frustrating period of gold stocks going essentially nowhere after their 1975-1976 crash while the gold price actually almost tripled. They got some compensation for waiting in late 1978 - 1980, but only if they kept their nerves during that blow-off rally.
On Wed, Aug 10, 2011 at 12:45 AM, L wrote:
i’m no bull on the S&Ps but to call for a crash every day since the 2008 low and then to finally “call” a slide this month back to last Aug levels in the S&Ps with that daily stopped clock is hard to call “right.” He has never seemed to understand that Bambi was depreciating the paper that everything is denominated in. The only “right” call on the S&Ps has been the same one since 2000, namely that the SPX is in a secular ber market in REAL terms and has been since 2000, which we can see when we chart the SPX in gold rather than in dollars.
From: H
Sent: Tuesday, August 09, 2011 2:51 PM
Subject: Re: Gold vs. Gold Stocks
OK, there is a misunderstanding here - when I said hes 'not wrong' anymore, I only meant that in the context of expecting a crash in the stock market. We just had one.
Also, my point was merely about a sentiment issue. I think if his opinion on gold stocks were more widespread, that would be a good thing. It is imo the fact that the exact opposite consensus has been in vogue for quite some time that has inter alia led to their failure to perform thus far. All the people who praise them to the rafters are already invested after all. Since I hold quite a few gold stocks myself, I'm not happy with that and would welcome it if there were a lot more skepticism a la Barbera (I don't know the guy and merely used this as an example for what at the moment seems actually a contrary opinion ).
The fact is, over the past several years, investors have perferred the metal to the stocks, for a variety of reasons, which are: exploding costs, massive dilution (a pretty bad record of employing capital in fact), growing political risk and the old stalwart operational risk, that makes surprisingly frequent appearances.
The cost issue should now actually begin to work in favor of the gold miners, as evidenced by that chart of the gold-oil ratio I posted earlier. Economic contractions are generally good for gold mining margins, and looking back, the times when gold miners did in fact outperform gold all coincided more or less with recessionary conditions. So now is actually their chance to shine - we'll see if it actually happens.
On Tue, Aug 9, 2011 at 9:03 PM, L wrote:
no, STILL wrong. Should gold stocks take out their June lows and join the S&Ps in collapsing then and only then will such calls be “right.” Until then, they just look ridiculous. Can we really sit here and say that an asset should NOT be purchased merely because it hasn’t gone up like it probably should given the increase in the price of its product? Seems to me that betting that the market is wrong and buying a mispriced asset is what investing is all about. I welcome the fact that gold stocks are so cheap. It gives me more time to buy more. Are we supposed to love them more and want to buy them when they are ridiculously expensive relative to gold?? That sounds like buying Internet garbage in 1999 simply because it’s up. No thank you....
After the gold stocks have exploded to properly discount what the metal has done, i will be selling them, myself.
From: H
Sent: Tuesday, August 09, 2011 1:52 PM
Subject: Re: Gold vs. Gold Stocks
Emphasis shouild be on 'has been' wrong. Not anymeure, as Clouseau would say. And it doesn't detract from the fact that it's a contrary opinion, because nearly everybody else in this biz is saying the exact opposite, although they have been even 'wronger' so far, as evidenced by the plunging HUI-gold ratio.
In fact, he looks more 'right' by the day - e.g. gold been up by more than $100 in a mere two days now - and gold stocks have gained - nada.
They're being 'pulled up' by gold, but 'pulled down' more by the stock market.
On Tue, Aug 9, 2011 at 7:14 PM, L wrote:
that’s not a gold analyst, silly. he’s a permabear chart monkey (and a very poor one at that). like so many, he’s been pining for a repeat of 2008 every day since the collapse (and ben wrong). see attached for examples of the broken clock –g-
From: H
Sent: Tuesday, August 09, 2011 12:02 PM
To: M
Subject: Re: Gold vs. Gold Stocks
And here is finally an anlyst who is breaking away from the consensus on gold mining stocks and says you should actually go to the sidelines and wait for a more compelling buying opportunity to emerge. The reason why I'm mentioning this is because if there were more people saying this, it would probably be quite bullish - alas, he is really the only guy saying this as far as I know, in spite of the dismal underperformance of the sector.
zerohedge.com
On Tue, Aug 9, 2011 at 6:08 PM, H wrote:
When gold first went above $1000 in 2008, the HUI index topped out at 518 points. Today gold ist $1740 and the HUI index is at 532 points as I write. So for the last 70% increase in gold, these stocks have gone nowhere. More near term, their correlation to gold has indeed turned negative. In December 2010, the HUI index hit 610 points with gold at $1435. So during the last $300 rally in gold, the Index has declined by almost 80 points, or about 13%.
This means of course that gold stocks are now very cheap relative to gold, but they have been cheap relative to gold for 3 years running and keep getting cheaper. This is actually a repeat of what happened during the 1970's gold bull market.
That said, I am sure they will have their day in the sun - I just don't know when, and expect for brief periods, I do not expect them to outperform gold.
Currently they actually have every reason in the world to outperform it, as their input costs have fallen dramatically on account of a rising gold-commodities ratio (see attached gold-oil ratio chart). It's still not happening, but maybe it finally will over coming weeks and months.
On Tue, Aug 9, 2011 at 6:14 AM, M wrote:
Gold stocks starting to get very cheap here.
Interesting to note that the correlation with gold is now NEGATIVE.
This didn't even happen in 2008 - 2009.
Is it "different" this time? i.e. financial collapse?
M |
