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cbwang888 (25.59)

Fire sales on stocks of gold and silver miners

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April 04, 2012 – Comments (31) | RELATED TICKERS: GDX , ABX , GG


 GDX hits new 52 week low today. Gold miners like ABX and GG are priced lower than the valuation/multiple of homebuilders like PHM and DHI now.  

Hope premium of housing recovery surpass the fear of gold crash. Is this a start of a long term trend? Or it is just HF trading to the extreme? Gold can correct 30~35% during the credit crunch like it did in 2008 but it will always come back beause there are now endless of money printing around the world. Don't forget about widening US trade and fisical deficit. In additions, soverign debts problems are only postponed, not solved.

Western bullion banks are in control of commodity and precious metal markets but it will change with the rising of BRICS. PAGE will soon be on stage to challenge the dominance of LMEX and COMEX.

Chinese Dragon year (2012) will be the baby boomer year of China and many of the newborn baby will be given gold or silver on their first month of birth.  Demands like this from China and India are for kept long term, not like HFT flipping positions in a fraction of a micro-second.

31 Comments – Post Your Own

#1) On April 04, 2012 at 3:24 PM, Valyooo (99.47) wrote:

Why are you comparing multiples of gold miners to homebuilders?  That is comparing apples to oranges.  It does not work like that.

Obviously wall street thinks the future of housing is better than the future of gold.  It is funny that for a while now people keep posting blogs like this, yet the miners keep going lower and lower.

What the HELL does HFT have to do with any of this?

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#2) On April 04, 2012 at 3:35 PM, cbwang888 (25.59) wrote:

Valyooo,

Don't you look at the multiple (current or future) of sectors when you redistribute your investment in stocks? It is not 100% comparable but when it goes extremely different, it is noticeable to mention. Don't you think?

 

 

 

 

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#3) On April 04, 2012 at 5:13 PM, Valyooo (99.47) wrote:

The price of houses are rising and the price of gold is falling so it's not comparable to use trailing earnings 

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#4) On April 04, 2012 at 5:16 PM, cbwang888 (25.59) wrote:

So you conclude 6 months make a trend?

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#5) On April 04, 2012 at 8:25 PM, Valyooo (99.47) wrote:

I'm just saying that is what wall street is projecting

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#6) On April 05, 2012 at 12:54 PM, valuemoney (< 20) wrote:

I think valyooo is correct. Housing bubble burst gold bubble is going too.We are in a gold bubble. Same with US treasury bubble. Did you happen to see the CNBC poll the other day? Gold was majority pick among investors and that scares me. When others are gready be fearful. I swear everyone and the brother on caps follows Sinchy and his post. And all kinds of RECS and that scares me. I would say  Gold hit its peak relative to the market in August of 2011 and I would also say that might be close to the bottom in housing. Well good luck. I know I am red thumbing every gold and silver pick I think is over done. I could be wrong but we will see. Gold investments are a guess in my opinion. And I would not want to be guessing with my money.

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#7) On April 05, 2012 at 1:05 PM, valuemoney (< 20) wrote:

I heard the same thing when the tech bubble was bursting. Arba stock 900 dollars in 2000. Was it a fire sale at 50 dollars? Some wanted to think so so they bought it. It trades at 33 dollars today. That is an extreme example but the same basic thought process is with gold bugs now as tech bugs in 2000. I could say the same thing for housing bugs in 2007. No one thought the prices of their homes could go down. But think of it this way. What do you need more...a house or a hunk of gold. My choice is a house. Gold is pretty much worthless in my mind.

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#8) On April 05, 2012 at 1:11 PM, cbwang888 (25.59) wrote:

If gold is a bubble, then gold miners stock would have gone to the moon with super high valuation. I didn't see that happens in 2011. The opposite happened that most major miners went down along with equity market.

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#9) On April 05, 2012 at 1:23 PM, valuemoney (< 20) wrote:

I will give you an example on my thought process on the value of gold.

I have a choice between a gift of 100 thousand dollar house or 100 thousand dollar investment in gold. And have to keep it for 10 years.

I would take the house. For 1. I could most likely rent the house out for 500 dollars a month. My return over 10 years would be 60 thousand dollars in my pocket and I am betting I could sell that house and get my 100 thousand dollar original gift.

Now the gold. It would be sitting there doing nothing for me over those ten years and if I go to sell it I have to HOPE they give me the original 100 thousand and to get the same return as the house I would have to HOPE they give me 160 thousand dollars. See why I would take the house? The house gives me something back the gold is just sitting there with the hope it is worth more in the future.

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#10) On April 05, 2012 at 1:25 PM, valuemoney (< 20) wrote:

Look at the price of AEM it did go to the moon! It was valued at 6 and change in 2000 and it went to about $90!

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#11) On April 05, 2012 at 1:27 PM, valuemoney (< 20) wrote:

SLW $2.5 to $46

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#12) On April 05, 2012 at 1:28 PM, valuemoney (< 20) wrote:

GORO $1 to $30

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#13) On April 05, 2012 at 1:30 PM, valuemoney (< 20) wrote:

GG $2.5 to $55

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#14) On April 05, 2012 at 1:31 PM, ryanalexanderson (< 20) wrote:

>   My return over 10 years would be 60 thousand dollars in my pocket and I am betting I could sell that house and get my 100 thousand dollar original gift.

Ooh! Can I too get a magical house that requires no repairs, property taxes always has perfect tenants, and doesn't require any work whatsoever? 

 

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#15) On April 05, 2012 at 1:31 PM, valuemoney (< 20) wrote:

I could go on and on and on.

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#16) On April 05, 2012 at 1:32 PM, valuemoney (< 20) wrote:

Well tell me what you would have gotten with the gold....to stare at it thats it.

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#17) On April 05, 2012 at 1:35 PM, cbwang888 (25.59) wrote:

For house,  you have to pay  property taxes and pay the costs for maintain it. It may not be a bad idea if the location and price is right.

If you believe USD is going to sustain its value relative to goods among the trend of globalization, then gold make no sense from here. Gold is money even though US Fed and UK are trying their best to make it no so. Why do other central banks around the world buying gold during the fiat printing madness?

Again, if you believe US's GDP growth is healthy and back to normal even with growing government debts and artificial low interest rate, then gold has no more upside from here.

Buying a house for yourself when you can afford it is usually a good idea. For investment, price, location and timing is the key. It can still be a good investment from here. Who know?

 

 

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#18) On April 05, 2012 at 1:40 PM, valuemoney (< 20) wrote:

I state that also that if gold is money. You dont want that either. S&P will beat money plus inflation (and that = gold) and from what you are saying is true I choose to invest in the market.

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#19) On April 05, 2012 at 1:44 PM, cbwang888 (25.59) wrote:

Junior miners are volatile and leverage. You could have a big run if the market is undervaluing the assets, potential discovery and profit margins.

 

When I said the gold equity is underperforming the underlying gold, I'm talking about the major established ones.

 

 

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#20) On April 05, 2012 at 1:55 PM, valuemoney (< 20) wrote:

Gold is money even though US Fed and UK are trying their best to make it no so. Why do other central banks around the world buying gold during the fiat printing madness?

Didnt South Korea stop buying gold to back there currency last year? What happened to their currency since then? It didnt fall off a cliff. It don't matter what u use. We could use something beside dollars. There will be a ton of inflation in the future but I dont want to JUST keep up with inflation I want to gain more than that.

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#21) On April 05, 2012 at 1:57 PM, valuemoney (< 20) wrote:

Well good luck. Just don't say I didnt warn you.

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#22) On April 05, 2012 at 2:16 PM, AvianFlu (21.31) wrote:

I agree that there will be a time when you want to completely get out of gold, silver, and all commodities. That time is not now in my view. The way the national debt is exploding the treasury funding needs will be and are massive...even at these low interest rates. When rates head higher even more bond buying will be going on. And of course this all means inflation. Real assets are the hedge against inflation. That includes gold. I think the time to divest will be when we see some real life progress in moving the national debt in the other direction. At this point it seems Washington isn't even discussing the possibility.

A word about housing. I speak as someone with many years as a Realtor. Here is the simple formula: rates up, house prices down. Rates down, house prices up. There is no chance rates will be going down further. What are they going to do...give you a negative interest rate on your home loan? So as rates rise, which will have to happen sooner or later to stem the inflation caused by money printing a la Volcker in the 80s we will see house prices continue going down. Unless you are a cash buyer I wouldn't wait around though, because the lower prices will be offset by the higher interest rate expense.

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#23) On April 05, 2012 at 3:44 PM, Munchies101 (99.45) wrote:

If gold is money, it’s a very poor currency. It’s not easy to trade with (who in their right mind would accept $50 worth of gold for $50 worth of goods or services? They would have to convert it or store it which costs money), it’s incredibly volatile, and its store of value has been awful over the course of history (please don’t pull up a 12yr chart, pull up a history chart if anything to argue this point).

 

At least I know my dollar will buy about the same amount next month as today. With gold, you have no such luxury. And over the course of history, it hasn’t held its value for long periods of time. Usually huge run ups followed by huge selloffs, so people are just hoping to catch the good part of that MOMO trade.

 

I would argue gold is an asset, an asset that has little to no inherent value. It costs $500 to mine the stuff, and it is beyond me why you would pay $1,700 when there is close to nothing you can do with it (besides limited electronic usage).

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#24) On April 05, 2012 at 5:27 PM, cbwang888 (25.59) wrote:

Munchies101,

 

Sea shell was money (http://en.wikipedia.org/wiki/Shell_money)

Here is another gold standard reference one can refer to 

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

I'm not avocate that gold and silver as the only viable way as money.  However, it can be a part of it because no one can fabricate gold and silver. Even platinum or aluminum (storage problem) are fine to be treated as money to back the paper/electronic transaction. They are the elements created by supernova.

When you only look at US alone, it may be OK for its citizen to have US government monetizes their own debts to issue more USD. It becomes another way to tax everyone holding USD. However, to those foreign trade partners seeking of restore value as reserves, they won't be too happy about it.

That is why when QE1 happens, China tried to print as much to match and peg USD. It caused inflation everywhere.  When QE2 launched, China as a whole tried to spend as much USD they earned during the trade on stockpiling commodities. That also didn't work out well for them.  Now they are lowering their exporting part of the GDP growth and are trying to stimulate their internal consumptions. What do you think they will do with their  trade surplus with US? More T-bonds? I really doubt that.

 

 

 

 

 

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#25) On April 05, 2012 at 5:42 PM, valuemoney (< 20) wrote:

GG returns on investment from MSN money and the industry. I don't know if any one even looks at this stuff when considering an investment. If I knew nothing about the stock and you asked me which investment to choose right off the bat I wouldnt choose the company and surely wouldnt choose the industry.

INDUSTRY: Gold


INVESTMENT RETURNS %

COMPANY

INDUSTRY

S&P 500


Return On Equity

9.21

3.37

28.3


Return On Assets

 6.6

-8.9

 8.7


Return On Capital

6.9

1.9

11.6


Return On Equity (5-Year Avg.)

6.1

3.3

24.6


Return On Assets (5-Year Avg.)

4.9

2.1

8.1


Return On Capital (5-Year Avg.)

5.1

2.5

10.9

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#26) On April 05, 2012 at 5:46 PM, Munchies101 (99.45) wrote:

A very common misconception is that expanding the monetary supply causes inflation or value debasement. It is only half of the equation. If there is no velocity (and there isn’t) there is no inflation or value debasement (MV=PQ). Who cares if there has been QE if companies and investors hoard their money or buy bonds and that money never goes into circulation in the private sector (which is EXACTLY what they are doing)?

 

Not to mention, that is assuming gold has value in which to tie the value debasement. I really don’t think it does. It’s a shiny rock that is virtually untradeable with 99% of all economic players. There is very little demand for gold, and if there were huge amounts of inflation, would you rather have large oil reserves or large gold reserves?

 

I am well aware of the gold standard, and how it was one of the main causes of the great depression. It was also one of the main causes for almost every recession before that time.

 

If gold was the only asset class on the planet, I might be more inclined to purchase some. But it isn’t. Why would I buy shiny rocks for $1,700 that cost $400-$500 to mine that have no inherent value, when I could buy oil for $100 a barrel when it cost $40 to drill and it has a ton of inherent value? I just really, truly don’t understand.

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#27) On April 05, 2012 at 5:46 PM, Munchies101 (99.45) wrote:

A very common misconception is that expanding the monetary supply causes inflation or value debasement. It is only half of the equation. If there is no velocity (and there isn’t) there is no inflation or value debasement (MV=PQ). Who cares if there has been QE if companies and investors hoard their money or buy bonds and that money never goes into circulation in the private sector (which is EXACTLY what they are doing)?

 

Not to mention, that is assuming gold has value in which to tie the value debasement. I really don’t think it does. It’s a shiny rock that is virtually untradeable with 99% of all economic players. There is very little demand for gold, and if there were huge amounts of inflation, would you rather have large oil reserves or large gold reserves?

 

I am well aware of the gold standard, and how it was one of the main causes of the great depression. It was also one of the main causes for almost every recession before that time.

 

If gold was the only asset class on the planet, I might be more inclined to purchase some. But it isn’t. Why would I buy shiny rocks for $1,700 that cost $400-$500 to mine that have no inherent value, when I could buy oil for $100 a barrel when it cost $40 to drill and it has a ton of inherent value? I just really, truly don’t understand.

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#28) On April 05, 2012 at 6:15 PM, cbwang888 (25.59) wrote:

What make you think T-Bonds is not a bubble but gold is? Bonds is a promise that the government will return you the money that borrow. Now it appears the only way they can return that to you is to get it from its printing machine ...

 

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#29) On April 05, 2012 at 6:26 PM, Munchies101 (99.45) wrote:

I never said T bonds wern't in a bubble. I think they are as well, as people are accepting absurdly low returns for T bonds. Tbonds in a bubble or QE does not = gold being a good investment. Also, platinum, aluminum and silver are not the same as gold. They have industrial usage and add lots of value to society. Gold literally does nothing.

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#30) On April 05, 2012 at 11:15 PM, Clément (< 20) wrote:

The real cost of gold is close to 1 200 $ ! When you look closely the small print in ANNUAL reports...

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#31) On April 06, 2012 at 8:19 AM, Munchies101 (99.45) wrote:

No it doesn't. Its either you are saying that 10 years ago they were selling gold at a loss or for whatever reason the price to mine the stuff tripled. I will find my sources later, but even sinch agrees it costs around 500 to mine when him and I had a previous arguement.

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