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The absurdity brigade has finally arrived. On October 10, 2011, Barron’s reported, in an article titled “Paying Dividends in Gold Instead of Cash: Gimmick or Real Deal?,” that the president of Gold Resources Corp. (NYSEMKT:GORO) plans to introduce the dividend payments in gold. The president, Jason Reid, spoon fed the standard sub-standard explanation for why such a policy is what investors want. Reid said the following:

Many investors would rather hold physical gold or silver rather than fiat currencies that will continue to be debased.

Taking a cursory look under the hood of Gold Resources, we find that there is absolutely no reason for a dividend policy to begin with. Considering that we’ve been in a rising gold market since 2000, Gold Resources Corp. should at least be able to demonstrate some form of profitability. Unfortunately, not only is GORO absent any profits, it lacks any semblance of fundamental value.

As an example, the price to book ratio is 21 and the price to sales ratio is 23 times in the trailing 12 months. Profit margins, return on equity and return on assets are all in the negative. So where does Gold Resources plan to pay for the dividend in gold? We don’t know.

As has been the case in the past, only the least credible and unprofitable gold companies initiate a dividend policy offering payments in the form of gold. Our first warning of dividend payments in gold was in 2009 (found here) and our most recent Seeking Alpha article titled “The Coming Precious Metals Dividend War” detailed what was expected to occur.

The initiation of dividends in the form of gold by Gold Resources isn’t the nail in the coffin in the current gold bull run. Instead, it may be an indication of a cyclical or short-term top in the gold market. Even the perceived short-term benefit of receiving gold dividends and a possible rising stock price isn’t enough to offset receiving payments in a debased fiat currency when GORO is ultimately going to become a penny stock.

With so many high quality dividend paying gold stock alternatives like Barrick Gold (NYSE:ABX), Newmont Mining (NYSE:NEM) and Agnico-Eagle (NYSE:AEM), long-term shareholders of Gold Resources should sell the stock at their earliest opportunity.

Source: Gold Resources: Gold Dividend Means Sell

Additional disclosure: Holding physical gold and silver.