Mining Funds...one step forward two steps back

bee

GDX Up 2.5% on Friday...down 5% today. Value or Value trap?

Recent M* Commentary:
"Gold miners' failure to ride the gold bull market up has traditionally been blamed on the rise of physical gold exchange-traded funds, which supposedly drew away investors who had used mining stocks to obtain gold exposure. While there may a smidgen of truth to the story, it doesn't explain gold miners' continued weakness (markets are forward-looking) or the fact that miners underperformed gold even before the rise of ETFs."

Physical Demand is up Globally:
Asia Clamors for Gold Jewelry

Anyone have a handful of miners that seems to be positioned to prosper after the ground settles?

Those who see shorting as a better play DUST (3x short of gold miners) was up 17% today.

hank

bee, I don't know how long your time frame is. Here's one start up getting ready to mine asteroids for precious metals in a few years. Apparently gold is created in huge quantities during supernova explosions. You could get in today at the ground level - so to speak:-)

Seriously, one wonders If all this talk about extra-terrestrial mining might in some way be impacting prices.

http://www.theguardian.com/science/2013/jan/22/space-mining-gold-asteroids

bee

Reply to @hank: Thanks hank, I'm still waiting for Superman to turn the lump of coal I got for xmas into something I can retire on.

TSP_Transfer

Another Step Back 3:25 PM Seeking Alpha
GDX
Gold miner ETF sinks to five-year low, gold closes at lowest since July
The Market Vectors Gold Miners ETF (GDX -5.5%) plunges to a fresh five-year low thanks to the newest PMI manufacturing data, which climbed to the highest reading since 2011; BTIG analyst Dan Greenhaus calls the data "stunning,” and bad for precious metals.Comex gold dropped $28.50, or 2.3%, to settle at $1,221.90 for its lowest close since July; the SPDR Gold Trust (GLD) is down 2.5% to kick off December’s trading.Silver slumped 3.7% to $19.29, also the lowest since July.ABX -5.3%, NEM -3.8%, GG -4.6%, KGC -3.4%, GFI -3.5%, NGD -8.2%, EGO -7.5%, AEM -7%, AUY -5.5%, AGI -8.9%, SLW -5.7%.Other ETFs: GDXJ, NUGT, IAU, PHYS, DUST, SGOL, UGL, DGP, GLL, GLDX, DZZ, UGLD, DGL, DGZ, AGOL, GLDI, DGLD, GGGG, RING, PSAU, TBAR, JNUG, UBG, JDST, SLV, AGQ, SIVR, ZSL, USLV, DBS, DSLV, SLVO, USV.
Not a precious metal miner,but a continuing trend:via S A
RIO
Rio Tinto plans to cut capital spending 20% each year through 2015
Rio Tinto (RIO) is the latest miner to guide capital spending lower, announcing a 20% capex cut in each of the next three years to ~$8B in 2015; iron ore output will reach ~350M metric tons/year.In an investor presentation to be delivered tomorrow, RIO says its YTD spending is ~50% lower than in 2012 and has already exceeded its target of $750M in full-year spending on exploration and evaluation.

Casey Research
Rock & Stock Stats
Last
One Month Ago
One Year Ago
Gold 1,252.10 1,345.50 1,729.50
Silver 20.03 22.49 34.35
Copper 3.19 3.28 3.59
Oil 92.72 98.20 88.07
Gold Producers (GDX) 22.28 25.78 48.04
Gold Junior Stocks (GDXJ) 32.50 39.26 87.60
Silver Stocks (SIL) 11.65 13.32 23.03
TSX (Toronto Stock Exchange) 13.395.40 13,440.61 12,202.85
TSX Venture 934.89 968.44 1,218.38

AndyJ

If we're talking about gold, as Bee seems to indicate, the simplest explanatory variable, the one that's driven mining activity for decades, is the price of the yellow metal. While there's certainly more to it than price alone, it's the most basic variable because of the cost of modern mining.

The easy gold was taken out long, long, long ago. Now gold mining for the most part is extremely intensive, requiring moving entire mountains, reducing them to rubble, and chemically squeezing out minute percentages of gold from the rubble by the use of cyanide, then dumping the "tailings" (the former mountain) into a convenient valley next door. Think how much that costs, not even taking into account the very large externalities involved.

An uptick in the price is likely a necessary but maybe not sufficient condition for gold mining stocks to show some life.

rono

Howdy campers,

There is some truth that the advent of the pm ETFs changed the historical patterns of the gold/XAU ratio [read: POG vs. a basket of mining stocks]. We watched it happen and I actually logged it daily on this board's parent site as it evolved. Historically, when the ratio was under 5.0 it was time to sell miners and buy bullion. Above 5.0 and just the reverse - sell bullion and buy miners. Well, as I type it's 14.93. Where is the new equilibrium level? WTF knows? Everyone that's tried to use it as a buy/sell metric has been hammered.

BTW, the gold/silver ratio is 1/63 and while that's historically high, it's not grotesque.

I've long established my pm position and use moments like these to tweak things a bit. I picked up some PAAS because it's yielding 4.8%. I also bought some annual silver bullion issues and a few hockey pucks (silver 5 oz. america the beautful coins). I think of it as Santa being good to rono. teehehe.

On the margin, I still like miners relative to bullion, silver relative to gold and physical bullion relative to paper bullion. I own TGLDX, PFPFX, CEF, SLW and PAAS. I'm looking to add a bit of SIL which is the silver miners ETF. Silver has more leverage that gold and per the current numbers, miners have more leverage than bullion. I hit my first, and only home run with SLW.

and so it goes,

peace,

rono

rono

BTW, here you go for all you tree hugger types - phytomining.

http://www.livescience.com/28676-plants-grow-gold.html

It's related to phytoremediation that is used to decontaminate polluted sites. There are specific plants that like particular heavy metals and will actually absorb greater than normal amounts. They're called hyperaccumulators.

http://en.wikipedia.org/wiki/Phytoremediation

Yeah, and all you guys laughed when I became a Master Gardener.

and so it goes,

peace,

rono

MikeM

I can not think of a reason to buy-and-hold miners, ever. Take a look at a fund like USAGX over it's 25 year life it's up about 30%. For that reason PM miners are nothing more than a momentum bet in my mind. They can have huge losses and huge rewards. Kind of the same as high stakes gambling in Vegas.

I can understand long term holdings for gold in a balanced portfolio, but not miners. Momentum money only.

rono

Hi Mike,

Hope you're doing well. I can't say I disagree with you. Hell, I'm playing them on a purely speculative note. feh. As for asset allocation to pm's, that should be physical only. The rest is no different from bitcoins.

peace,

rono

cman

Reply to @MikeM: Gold is inflation hedge. Miners are leveraged play on differential between gold price and extraction price. Differential is zero to negative around 1200.