NovaGold may not be the cheapest long-dated option on the market because of the partnerships that they have with Barrick and Teck. Also, even if the grade of gold to tonnes of earth/rock is double the average resource, there are many other costs to consider when comparing projects.
Another long-term investor in a long-dated option (Seabridge might be sold for $0 to a major copper miner and then take back a gold royalty stream in return for the project to be developed) to read: SA_2015_Ann_Rep
What sets the gold price: A lesson in flawed logic.
A Strategy for investing in highly volatile, cyclical stocks
Once again, gold, silver and their mining stocks are selling off for whatever reason: risk-on as money floods into the stock market, rising nominal yields, 95% certainty of a (meaningless) 0.25% interest rate hike, momentum–take your excuse. The main point is to know your companies (valuation) and wait for sales like you do at the grocery store. This week we are having a sale on some miners.
As Sprott’s Rick Rule often says, “If you are not a contrarian in the resource sector, you are a victim. The above video is provided to show a particular investing strategy when your quality miners are selling off to prices where you estimate a margin of safety. However, it doesn’t mean you predict THE exact bottom. If your holding period is three-to-five years, you can occasionally pick up cheaper merchandise. Use prices to your advantage, not disadvantage. I also wouldn’t be surprised to see the miners sell-off further because of their highly volatile nature–huge operational and asset-based leverage–when gold or silver goes up or down, both the price of their product goes up or down and the value of their reserves. Never expect exact timing–a fool’s game. Also, miners are impacted by the cost of their inputs, so a rising gold/oil ratio is a positive, for example.
What about the gold price in my assumptions? I am assuming gold is money (“All else is credit”–JP Morgan) and thus I can benchmark it against world currencies. Gold has been THE strongest money relative to all other currencies for the past 20 years, 30 years, 40 years, 50 years, 100 years. Gold is THE only money and store of value that can’t be created out of electronic bits like FIAT MONEY. The stability of available supple is what makes gold the premier money. Of course, due to LEGAL TENDER LAWS, gold is not a currency in the U.S., except that may be changing in some states like Arizona: http://planetfreewill.com/2017/03/09/Ron-paul-testifies-support-arizona-bill-treat-gold-silver-money-remove-capital-gains-taxes/.
In fact, gold (originally silver) is the only Constitutional money allowed–http://www.heritage.org/constitution/#!/articles/1/essays/42/coinage-clause
You can get a historical overview of gold’s‘ price history below. Notice a trend?
P.S. Let me know if anyone wants to see a NPV case study on a miner. —
Designing an analyst course
My goal is to organize a comprehensive analyst course using the best investors’ teachings and lectures. For example, Buffett, Munger, Graham, Fisher, Tweedy Browne, Walter Schloss, Klarman, and many others etc. Why not use original sources of the best practitioners? This is the course I wish I had twenty years ago. It will be Buffett and Munger teaching not me.
The course would cover search, valuation, portfolio management, and you (how to improve decision-making). There would be different modules continuing articles, case studies, videos from Columbia Business School and others. We would go from DEEP VALUE to FRANCHISE INVESTING. Valuing assets to assessing franchises. Understanding reversion to the mean and slow reversion to the mean. You need to understand that when a moat is breached-watch out! Note Nokia in cell phones.
I would have to make it a private web-site because of copy-right. This would be more of like a private study place, library, and discussion area for learning. There could be a in-person value class in some convenient location depending upon interest once folks have had a chance to go through the modules.
HUI represents unhedged miners. In January 2016, the HUI dipped to $99.13 then rose 2.84 xs to $286 when the $BPGDM, Bullish Percentage Index, was less than 15%. Then in mid-July the bullish percentage was 100%! Prices dipped, but then made a marginal new high. Sentiment is not an EXACT timing device. Now, the index is near 7% bullish after a 37% decline and four months. Talk about swings in sentiment. Buy high and sell low. Interest rates are rising, gold is falling, the dollar rising, so who would be in the stupid 7%?
Update: Nov. 27th, 2016
As of Nov. 27th, not every data point shows a turn in the gold market, but bearishness quite high. https://monetary-metals.com/good-news-and-bad-news-report-27-november-2016/
gold-stocks-bullish-sentiment-nov-16th-2016Assuming you have found cheap, well-capitalized miners, developers and/or explorers, there is a time to buy and a time to sell. I think this is a time to be greedy when others are fearful. Also, if this was a sell-off after a long bull market (not a six month rally) where large amounts of capital investment entered mining, then bullishness might be less warranted. ey-m-a-exchange-performance-comparison Place information into context. A good read: commodity-resource-stocks An investment only a mother could love.
HUI in relation to the Dow Jones. Be careful, though, the starting and ending periods are deceptive. The point is that miners have been scorned despite or even because the recent rally/sell-off.
Positive Signs: Juniors holding better than Senior Producers
As deep value contrarians, we aren’t able to have absolute certainty, but we can put probability on our side along with the laws of supply and demand. If you don’t feel ill when buying your resource stocks, then don’t do it. Forcing yourself through the fear (assuming you have done your homework) to ACT, is the key.
Investors fleeing the miners over the past few weeks
Update Nov. 30th 2016
If we are in a bull market, then a healthy position, but more to go if we are in a bear market. But base metals continue to show strength.
Recent headlines imply near total bearishness:
Battered Gold Looks at Risk of Further Thumping
ABN Amro, OCBC see bullion dropping to $1,100 by end of 2017
Higher interest rates, stronger dollar seen pressuring gold
The worst is yet to come. At least that’s the opinion of the top two gold forecasters who say bullion will suffer further losses in 2017 as interest rates climb and the dollar strengthens.
Oversea-Chinese Banking Corp. and ABN Amro Group NV see gold sliding to $1,100 an ounce by the end of next year as the Federal Reserve tightens monetary policy, real Treasury yields increase and the U.S. currency rises. Prices were at $1,185.77 Wednesday. The banks were ranked first and second as forecasters in the third quarter, according to data compiled by Bloomberg.
After briefly soaring to $1,337.38 as it became clear that Donald Trump was about to pull off a shock victory in the U.S. presidential election, gold slumped to a nine-month low of $1,171.18 last week on speculation that his pledges to increase spending and revitalize the economy would boost interest rates and augment the attraction of other investments such as stocks and bonds.
“From an investor point of view there is little reason to hold gold,” said Georgette Boele, a currency and commodity strategist at ABN Amro. “Rising inflation expectations are more than countered by the rise in U.S. Treasury yields and expectations about upcoming rate hikes by the Fed. As long as real yields rise and there are no major inflation fears, prices will go lower.”
Global bond yields have climbed to 1.58 percent from a record low 1.07 percent in July, according to the Bloomberg Barclays Global Aggregate Index. The odds of the Federal Reserve hiking in December are 100 percent, up from 69 percent a month ago, before the election, and a gauge of the dollar against its major peers surged to the highest level since at least 2005 last week.
Gold is set for its worst month in more than three years, with investors dumping bullion at the fastest pace since 2013. Assets in bullion-backed exchange-traded funds have shrunk 5.3 percent in November, the biggest monthly drop since June of that year. Billionaire Stan Druckenmiller sold all his gold on election night. “All the reasons I owned it for the last couple of years seem to be ending,” he said in a CNBC interview shortly after the vote.
In the month through Monday, investors pulled $4.4 billion from exchange-traded funds backed by precious metals, the biggest redemption among all asset classes offered in such funds globally that are tracked by Bloomberg. Money is moving out of gold and other precious metals as U.S. equities rally to a record and traders boost bets on further rate increases.
Boele from ABN Amro sees the negative environment for gold continuing into next year, with a recovery for prices expected in 2018. The bank cut its prediction for the end of 2017 from $1,150. Before the U.S. election, Boele was already bearish, lowering her outlook in October.
Barnabas Gan, an economist at OCBC in Singapore, was predicting $1,100 by the end of next year before the U.S. election. He kept to that view in a note on Monday and cut his call for the end of this year to $1,200 from $1,300. He’s factoring in three rates hikes — one in December and two in 2017 — which will drag bullion down to his target by the end of next year.
“Political uncertainties continue to persist,” Gan said. “Note the upcoming Italian referendum as well as next year’s French election. Contrast this with the relative certainty over U.S. economic growth under President-elect Trump’s proposed fiscal plans which gives rise to reflationary and higher U.S. rates expectations into 2017.”
While Gan and Boele already saw lower prices for next year before the U.S. election, a Trump win was interpreted as bullish in a Bloomberg survey of more than 20 traders and analysts published before the vote. A victory for the Republican was seen pushing Comex gold futures to $1,395 within a week. Instead, the reverse happened.
Not everyone is bearish going into 2017. Bullion may average $1,300 next year, says Robin Bhar, head of metals research at Societe Generale SA in London, the third-best gold forecaster in the data compiled by Bloomberg.
“All in all, gold prices are at the mercy of risk appetite. Buying on dips is likely to provide support given a view that gold is a good portfolio diversifier, hedge, insurance policy,” Bhar said in an e-mail last week. At the same time, he acknowledged the downside risks because changes in fiscal policy could push real interest rates higher, offsetting haven demand.
Ignore the analysis but note the concept. The advice to NOT buy the miners was the perfect situation to do the opposite:
See the lows put in Jan. 11th in both the HUI Goldbugs index and Freeport McM (FCX). Only six days after the publishing of this article.
Five years ago, the FTSE 350 Mining index reached a post-financial crisis peak at just over 28,000. It currently sits at 7,134, down 75% at an 11-year low, and share prices remain vulnerable.Global commodities markets remain massively oversupplied and Chinese demand is waning, but there will come a point at which mining shares are a ‘buy’ again. (You always want to buy commodities and/or commodity stocks at the point of MAXIMUM PESSIMISM or when supply is greatest and demand lowest!).
Investec Securities has built a “Mining Clock”, which brilliantly illustrates the mining cycle, including when to buy and when to sell. It’s a real “cut-out-and-keep” for every investor.
“Please see the updated Mining Clock below where we indicate that it appears still too early to be buying the mining sector. This is despite five straight years of underperformance from mining equities globally, in every sector, save Australian listed gold equities which outperformed the ASX in 2014 and 2015.” (Where is the article that told you WHEN, exactly, to buy?). Rearview investing doesn’t work.
The above article proves once again that no one can time a sector–except when (like in this article) there is no hope for a rebound.
And now over the next few days and weeks, a time to rebuy at the margin. But if you are in a bull market Sentry__Com_BullishGold_MacLean___E then sitting tight is what you must do. At most, I think we are in six to seven on the mining clock. So far, the public is not yet participating except perhaps in the last month.
Note the information they give investors. How management communicates is important. Do they provide sufficient detail for you to assess their capital allocation skills and operational performance. Note page 5.
I am not suggesting this as an investment for YOU, but seek out disconnects like this. Despite rising earnings, the market may be worried about lower oil prices because lower oil prices may affect the demand for the products that NVGS ships and/or the capex that NVGS is bearing with delivery of new ships. The question for an investor would be: “Has the market over-discounted the fears of low oil prices or over-supply of ships?” This company is VERY different than a standard dry-bulk shipper. These are highly-specialized/expensive ships. Knowledge reduces risk, so really understand the management and its goals.