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Double-Digit Inflation in the 1970s (PDF)
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Category Archives: GDX
Precious Metal Juniors or Majors?
Reader T.H. asks:
“What is your position on miner shares since the absolute destruction of share prices across the board? does it make a difference to differentiate between juniors and large miners? this sector could be setting up with spectacular gains if timed right.”
Our Response:
There are two types of gold stocks right now, investments and speculations. The investment category are those gold stocks that are members of the XAU or HUI index. Constituents of Market Vectors Junior Gold Miners ETF (GDXJ) are the gold stocks that are speculations.
Because many of the gold stocks that are part of the GDXJ will die on the vine, the best opportunity for taking advantage of the juniors is with GDXJ. However, keep in mind that GDXJ is a "product" and not an asset. Theoretically, assets can be held for the long-term while products must have a "sell by" date or price.
Below we have listed the gold and silver stocks that are ranked by payout ratio:
| Symbol | Name | Price | P/E | EPS | Yield | P/B | % from yr low | payout ratio |
| ABX | Barrick Gold Corporation | 14.11 | - | -0.86 | 5.8 | 0.61 | 5.13% | -93.02% |
| KGC | Kinross Gold Corporation | 4.61 | - | -2.16 | 3.4 | 0.53 | 1.99% | -7.41% |
| GOLD | Randgold Resources Limited | 62.69 | 14.1 | 4.44 | 0.8 | 2.09 | 0.66% | 10.81% |
| GFI | Gold Fields Ltd. | 4.94 | 5.03 | 0.98 | 2.9 | 0.7 | 5.57% | 14.29% |
| HL | Hecla Mining Co. | 2.78 | 61.48 | 0.04 | 0.4 | 0.69 | 4.40% | 25.00% |
| BVN | Compa | 14.12 | 6.19 | 2.28 | 3.9 | 0.98 | 5.38% | 25.44% |
| AU | AngloGold Ashanti Ltd. | 12.79 | 17.3 | 0.74 | 1.7 | 0.88 | 2.28% | 28.38% |
| SLW | Silver Wheaton Corp. | 19.34 | 11.99 | 1.61 | 2.5 | 2.08 | 8.73% | 29.81% |
| HMY | Harmony Gold Mining | 3.475 | 10.63 | 0.33 | 2.7 | 0.36 | 5.32% | 30.30% |
| GG | Goldcorp Inc. | 24.31 | 13.74 | 1.77 | 2.5 | 0.84 | 9.45% | 33.90% |
| FCX | Freeport-McMoRan Copper & Gold | 27.6 | 8.96 | 3.07 | 4.6 | 1.45 | 4.27% | 40.72% |
| NEM | Newmont Mining Corporation | 27.12 | 8.27 | 3.29 | 5 | 0.97 | 2.26% | 42.55% |
| AUY | Yamana Gold, Inc. | 9.19 | 18.4 | 0.5 | 2.8 | 0.87 | 7.37% | 52.00% |
| AEM | Agnico Eagle Mines Limited | 27.8 | 18.6 | 1.49 | 3.3 | 1.37 | 0.22% | 59.06% |
| RGLD | Royal Gold, Inc. | 42.04 | 32.76 | 1.28 | 1.9 | 1.12 | 8.28% | 62.50% |
| GORO | Gold Resource Corp | 8.75 | 17.82 | 0.49 | 4.3 | 5.04 | 10.23% | 73.47% |
| AUQ | AuRico Gold Inc. | 4.54 | 27.67 | 0.16 | 3.6 | 0.55 | 12.47% | 100.00% |
| PAAS | Pan American Silver Corp. | 11.56 | 40.35 | 0.29 | 4.4 | 0.62 | 2.21% | 172.41% |
The precious metal stocks are arranged by the payout ratio, which in our opinion is the best measure of sustainability of the dividend. Dividend payout ratios of 50% and less are the most likely to be maintained. However, the trials that lay ahead in the precious metal sector may require more cuts in the dividend.
Two notes of caution are required. First, we’re not yield chasers and advise that gold stocks are not purchased based on dividend yield. Second, Barrick Gold (ABX) and Kinross Gold (KGC) are wild card speculations, with payout ratios in the minus column due to negative annual earnings. Investment in these companies are highly volatile plays that will pay off big. However, the challenge will be sitting through the gut wrenching declines that may be ahead.
Gold Stocks Near New Low
This is the list of gold related equities that we track within 10% of the one year low. We strongly recommend that you do your own research on these companies and assume that the downside risk is half of the current price, at minimum.
Gold Stock Indicator: Buy Indication Arrives with Surprising Plunge
On November 14, 2012, our Gold Stock Indicator (GSI) plunged below both the short and long-term buy indications. The arrival of a buy indication at this point has come five trading days earlier than we anticipated as indicated in our November 10, 2012 (found here).
The first time that the long-term buy indication was triggered on the Gold Stock Indicator (GSI) was on May 3, 2012. At that time, the Philadelphia Gold and Silver Stock Index (XAU) closed at 156.72. The XAU index declined another -9.64% before hitting bottom on May 15, 2012. If an speculator bought the gold stock ETF Market Vectors Gold Miners (GDX) on May 3rd, the speculator would have seen gains of +25% by September 21, 2012. This matched the performance of the XAU gold stock index in the exact same period of time.
The next instance of the Gold Stock Indicator (GSI) falling below the long-term buy indication was on June 21, 2012 when the XAU index was at 157.04. The XAU index finally bottomed at 143.11 or -8.88% below the point that was triggered on the GSI. If a speculator had bought the gold stock ETF Market Vectors Gold Miners (GDX) on June 21st the speculator would have seen gains of +23% by September 21, 2012. This was just short of the performance of the XAU gold stock index gain of +25 in the same period of time.
We no longer recommend or suggest that NUGT or DUST is used to take advantage of the expected speculative opportunity in gold stocks as we had difficulty stomaching the wild volatility that came with such products. We strongly recommend setting parameters around what you wish to get out of your speculation in the gold sector, whether through the use of individual gold stocks or gold & silver stock ETFs. This means that if you can get an exceptional return in a reasonably short period of time then take the gain. As we have a minimum +10% target for our more conservative dividend and insurance stocks before we consider selling within a year, we recommend having a +20% target for gold stock investments.
Again, we expect another -8% to -10% decline in the XAU index before we reassess the market conditions for any new investments in the gold sector.