re: The Gold Miner Crash

So we had a gold miner mutual fund manager on CNBC Fast Money tonight, live in-studio. He seemed like a nice guy and he probably knows these companies really well. It doesn’t matter.

I feel bad, there’s really nothing that can be said. His job is to pick stocks from a sector where no one is able to sell an ounce of gold for a price higher than their acquisition cost. In the meanwhile, gold mining stocks do much worse than the metal itself on the way up and down. And they’re all still too flush with cash from the boom times so there aren’t enough looming bankruptcies to clean up the sector.

My full thoughts on the topic here:

God is Making Gold Crash to Test Your Faith (TRB)

and here:

Gold Miner Update: Yes, they still suck.  (TRB)

In the meantime, the manager we interviewed still thinks that gold benefits from cracks in the financial system. Unfortunately, that’s not true – because gold has become a financial instrument thanks to all the ETFs and it is now a part of the financial system, not apart from it. The research shows that the single biggest determinate of gold’s price is now the supply and demand of the financial vehicles, like ETFs and mutual funds.

And as for the miners – they are equities at the end of the day! And not even good ones. Management of the large miners essentially ruined this 12 year rally for their shareholders by issuing tons of stock and hedging wrongly on the way up, removing hedges at the top and then getting entangled in all sorts of uneconomical projects in harsh geographies to add insult to injury. And as equities, by the way, if the stock market crashes, trust me, they do too. And I gotta tell you – the last few “systemic” scares we’ve had, all you need to know is that market players reached for the dollar, the yen and the treasury. Nobody bought gold when those “cracks” appeared.

The game is up and all that’s left is denial what’s happening right in front of people’s faces. If your job is to run a gold fund though, what are you going to say? If you’re the strategist at a Canadian investment bank that’s doing gold miner financing and shit, what choice do you have but to be “constructive”?

It’s, frankly, depressing. I hope for a huge bounce from the miners so that people who’ve made a big mistake can use that bounce to make some changes.

Anyway, highlights below:




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