Loading ...Sam Kirtley doesn’t agree with Spock
Trading Arguments Against Holding Gold Stocks
The recent spike in gold and its miners, along with the calls from the bulls to back up the truck on “cheap” gold stocks, may tempt some into getting long the mining sector. We are not so easily convinced. These companies face increasing costs against falling revenue and downward revisions in the value of their assets. This means that the trade is not buying gold miners.
Even if one were bullish on gold, the trade would not be to buy gold mining companies. There exists a number of varied ETFs that offer direct long positions on gold that can be easily traded. GLD is single long gold, DGP is double long, and UGLD is triple long. This means that if one wanted a position that outperformed a gold long by triple, as miners did in the recent spike, then one could easily get that by buying UGLD. This trade would achieve the desired returns if the bullish view is correct without any of the risks involved with gold mining companies.
Suppose that one insisted on having long exposure to the gold mining sector. Buying gold stocks would still not be the best way to go in terms or risk reward dynamics. Consider Hecla Mining, whose debt yields over 17% a year. For a long position on the company’s shares to outperform their bonds over a 5 year period, HL would have to more than double in value. Even in one of the best 5 year periods for gold, 2007 – 2011, gold mining stocks did little more than double. How can one reasonably expect them to perform better than this in an environment where gold is a third lower and more likely to fall than rally?
This is not to mention that in the case that one’s bullish view on gold stocks is wrong and the company starts to lose money. In this situation, the debt has first call on the company’s assets. This means that your downside risks are much higher when holding the stock versus holding that same company’s debt. Given that long debt exposure offers a considerably higher expected return and much lower potential losses, holding gold stocks has poor risk reward dynamics even if one insists on having long exposure.
Therefore, we recommend not holding any long exposure to shares of gold mining companies. It is our view that there is no reasonable situation in which long trades on these companies can offer positive risk reward dynamics. Long trades are simply not compensated well enough for the risks being taken.
The data does not support this….if you look at the performance of junior miners out of various bear market lows it is the juniors that achieve fabulous returns when compared to the seniors….juniors that were bought for $0.03 or less at the bottom of the bear…..the article by Jeff Clark “What To The Moon Will Look Like” shows the kind of returns these juniors have achieved after bear markets have bottomed–were any of those juniors in all those other bear market bottoms in any better shape that the juniors of today are in? I doubt it. And at least 90% of mining investors have no idea how to evaluate
individual miners and either their financial or their ore status….money just floods in indiscriminately lifting all boats when buyers see the pennies on the dollar these companies are selling for….I would like to see Sam Kirtley’s data showing junior miners being a bad financial risk at the bottom of devastating bear markets…and who is Sam Kirtley anyway? I’ve been investing in this sector since 1996 and I’ve never heard of Sam Kirtley
And the reason investors want to buy miners is because of the HUGE leverage they offer over the metals….if highly regarded industry investors like Eric Sprott and Rob McEwen are saying junior miners are the place to be where is the data supporting Sam Kirtley’s thesis?
He has news letter SKOption trading out of NZD. He advises options trades only. Mostly vertical calls. You do not want to take advise from him. He is currently bearish on gold and long on GM via options plus XIV.
On 2014 he bought DUST at $89 and held it till end of 2014. LOL Lost lot of money in price decay!!!
Should I gone on more?????
WOW someone who buys and holds triple leveraged ETF’s ….no common sense
One ha\s to be careful buying .03 stocks. Recently Aetna ans San gold went in to bankruptcy.
How one select these stocks??
just darts reallu—I bought Kerr Mines and it is up 207% in one month–it was 0.012/share and now 0.0654…I bought it at 0.03/share and it is up 109% since I bought it and I bought America’s silver co and it is up 144% in one month from .03 to .13/share…I just bought 40 stocks and noticed which ones were moving up at the kitco site over a week or so and bought the ones that were often going up the most and I only bought $1000 max on these penny stocks unless they started really going and then I added to the position
And here’s another thing about Sam Kirtley: on Nov 1,2011 Sam said (“Bullish Momentum Building in Gold and Silver” after gold had fallen from $1900 and change down to below $1550 gold was ready to challenge the old high and the decline was merely a correction in a larger secular bull (which was true HOWEVER the correction was going to get a LOT nastier –down to 1045 and 4 brutal years–before the correction was over)
I’m completely on Spock’s side.
But I thought it was interesting to hear also a different opinion .
Anyway it was from 321gold site.
I can see the point he is making. I wonder if he is really writing about long term prospects. OK, maybe there is a really good trade off the lows but then what? Perhaps some of us already missed it?
One thing I noticed is that HUI made new lows when gold fell back from its 1999 spike into late 2000, even though gold did not make a new low since then. Gold bear market was over: gold stocks not so, although I am sure that some had already taken off for the moon.
Then, round about 2001, there was the Roodenport Rocket, DRD gold. I am not sure that it rocketed for very long but the South African Rand took a -30% dump and the SA mining stocks took a rocket ride – for a while. In England, we had the early 2000s success story Peter Hambro Mining, that went from about 100 to 1700 in a few years; now it is around 7 when I last looked.
I can also see that this is not like the 1930s. The goldbugs love to quote from the fate of Homestake Mining that doubled as the stock market took a -89% crash and then went up a load more in the ensuing years into the late 1930s. However, in that deflation (until late 1933 anyway), the gold price was fixed against the US dollar. Now it isn’t. That’s why, despite the gold to commodities ratio skyrocketing, exciting the real price of gold argument (which is nonsense in my view), gold stocks have had their worst crash in many decades because basically the US dollar price of gold was in a bear market. Ironically, fiat currency strength squashed the gold miners nearly flat. Now that IS an irony!
The same sort of arguments keep getting made for silver: “gold on steroids.” It has not been gold on steroids to the upside, except for the very short period August 2010 to May 2011. Silver had underperformed gold most of the time if you take a longer view, with much more volatility. Only if you got out of silver at $49 in May 2011 would you have really benefitted from gold on steroids. Silver is only about 3.5x its year 2000 price; gold is about 4.5x its year 2000 price with less volatility.
To benefit from the golds stocks bull you need to be a good trader, a good financial analyst and also need to be very unemotional and willing to dump your stock at the right moment. For most of us, that is a big ask.
However, if we finally get some inflation and a resurgent gold bull market in US dollar terms, the gold stocks (and silver metal and stocks too perhaps) might run and run, although oil and other costs will almost without doubt pinch on the mining profits as in 2001-2011.
In the end, much of these commentaries by the pundits are about selling newsletters and I tend to ignore them these days. At least Spock is giving us actionable info., so time will tell. That’s why I will listen to people like Rick Ackerman because he gives numbers not platitudes. If Spock has got it right, he may have caught the dead lows of the gold stock market. Good luck to him.
I don’t think you do need to be a good trader or a good financial analyst —-it will be like shooting fish in a barrel….just buy 30 stocks and don’t look at them for a year….then you could peek at them but just one peek and then wait till everyone you know–EVERYONE SINGLE PERSON you know is recommending gold stocks and then SELL SELL, SELL—it could not be easier—you can find 30 miners that are selling for pennies on the dollar—you could select the ones that have outperformed their peers over the last couple of years or not but really it doesn’t matter because virtually no investors know anything about the things Spock is undertaking–they are flying blind and hoping to have 5 or 6 or 10 out of 30 that HIT the jackpot because that is all you will need
Sam Kirtley doesn’t mention the chewing up you get on volatility with 3x ETFs. Some of the 3x gold stock bear ETFs have still gone down and down even though gold stocks had a 4 year bear market. So unless you get a straight upmove in gold, will you really get great performaance out of a 3x ETF? That is a do your own due diligence situation. It needs to be analysed properly, not given a soundbite.
I was going to sell all my Fresnillo in the bear market but I kept some and added a little at the bottom. It is now +50% from the lows even though silver has moved not nearly as much. I don’t have any PM stocks at all other than that. Maybe I better get some (I need to get some money first)!
I hope this will be THE bull market of Miners more than a gold bull market.
They (the miners) have experienced one of the worst, if not THE worst bear market in history,now it’s time fot them to SHINE!!!
what a load of absolute rubbish. does this guy even know what a chart is?