"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Tuesday, November 27, 2012

Gold shares Continue to Underperform against the Metal

There remains very strong interest in the gold ETF's, interest which I might add is aiding the strength in the metal; however, this interest is a double-edged sword as the ETF's continue to siphon off money flows that would have, in times past, found their way into the mining shares. The result - continued underperformance by the mining shares in general against the price of gold bullion.

Notice from the chart that with a bit more than a month to go in the year, the HUI to gold ratio is sinking back down towards its recent lows and looks to finish the year on a very sour note.

Back in July of this year, the MONTHLY CLOSING price of this ratio was the lowest close for any month going all the way back to January 2002. Even the two spike lows that occurred during the worst of the credit crisis, which erupted in the summer of 2008, managed to see those two months recover well off their worst levels and close higher than this year's July close.

Something is going to have to occur within the industry as we enter into the new year or I believe even some of the long-term holders of the gold shares are going to begin to take a good, hard look at maintaining their holdings. Investors put their capital into a company because they are looking for return on that investment. If they can find better returns in an ETF, they are going to make the move there. That is just a simple fact of investor life.


  1. Really, if the miners wanted a strong stock price all they need to do is to pay dividends in physical gold, no?

  2. Well, it looks like it is getting easier and easier for the Fed to control commodity prices.

    They are now reacting faster and faster to "words" uttered by the various mouthpieces.

    Now they can print even faster, knowing that the slightest rise in commodity prices can be instantly quashed by mere "words".

    Just look at gold, silver, and oil today.

    And interest rates are plunging again to new lows again.

    Central Banking has never been easier.

  3. Just imagine the ETFs would have not been invented during the ongoing financial repression phase since 2001....
    It are the same forces, that invented the MBSs & CDOs and sold it to the dumb.
    Despite the absurdity, that people see gold certificates of ETFs (wich don't even claim to buy the physical), as good as the physical itself, i see lots of resignation and pessimism in the PM-mining community these days. Don't touch the miners!
    That's not the signs of a bubble, if you know what i mean...

  4. It is very interesting that you wrote this today Dan. I just gave up this week and sold all of my mining stocks and moved into a gold bullion closed ended fund. I have been patiently sitting in these mining shares for about five years now and have lost money. I also foolishly put more money in mining shares than the metal. I just kept telling myself to be patient and I will be rewarded, but I decided this week that I am wrong. I see no reason to price the reserves and resources of mining shares when I can invest directly in the above ground mental and avoid all the risk inherent with the mining companies. If gold bullion goes as high as Mr. Sinclair says it is going, I will be happy with what I can make from the metal itself. I want nothing to do with mining shares anymore. Anyway, my extreme disgust at mining shares probably means we at the bottom, but I am just too tired to stay with these mining companies anymore. The only thing that might make me invest in mining shares again will be if a mining company decides to start holding back 15% of gold production storing it themselves allowing the miner to compete with the gold bullion funds. Thank you for everything for do for us. I am very grateful for the knowledge you share. I check this site daily and I always read everything you write.

  5. The v-bottom in stocks today, combined with the crashing of gold, silver, oil, etc., while interest rates remain near rock bottom has me totally speechless.

    100% control of all financial markets has now been achieved by Washington and Wall Street.

    The market is now reacting faster and faster like a pack of Algo Greyhounds chasing the "words" meatball uttered by Boehner, Bernanke, Fisher, Reid, etc.

    Amazing how they talk out of one side of their mouths to crush commodity prices and cause an immediate panic into U.S. Treasuries and Muni-Bonds.

    And yet at the same time, they talk out of the other side of their mouth to announce a "deal" on the Fiscal Cliff to send stocks soaring.

    No other time in history has financial market manipulation been so easy.

  6. I've maintained a sizeable exposure to precious metal miners since the late 90s. It was hard at first, with the tech sector still raging. Eventually it paid off, but now I'm fed up. Bullion funds aren't the only problem. There are problems with costs, operations, politics, NGOs, you name it. Hedge funds that go long bullion and short miners. Infantile "investors" who buy into strength and sell into weakness. Imbeciles following analysts who value miners using $1200 gold and $20 silver.

    Thankfully I've put more into bullion than miners. But with each passing day, I'm thinking more and more about dumping everything but royalty and stream plays (FNV, RGLD, SLW). These have done well and are still close to half of my holdings in the sector. But all the juniors are on the verge of getting the boot, along with a high-priced investment newsletter that has become a major disappointment.

    It's tax-loss selling time, so I should nibble and hang on for a few more months. But if I bail, I really should let you all know, because surely that'll be the time to buy.

  7. The more bullion that gets bought by people selling miners, the higher bullion prices go and the lower miner prices go this creating a greater disparity. Eventually, available bullion will dry up and the fireworks will begin for bullion AND miners.


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