Seeking Alpha

Gold miners tumble as gold slips below $1,300

  • GDX -3.2% in early trade as gold (GLD -1.4%) again slides well below $1,300 per ounce.
  • Allied Nevada Gold (a 0.75% holding of GDX) tumbles 15% as it suspends construction of its Hycraft Mill.
  • A favorite playground of the gold miner bears roars back into favor, DUST] +10.5%.
  • Other gold-miner ETFs: GDXJ, GLDX, PSAU, NUGT, GGGG, RING.
Comments (38)
  • Fundamentals don't add up to why gold should be going down.
    6 Aug 2013, 10:30 AM Reply Like
  • No surprise -- Almost nothing in this market is moving on fundamentals.
    6 Aug 2013, 10:35 AM Reply Like
  • What are the fundamentals for gold? What are the earnings, cash flows, and dividend yields?
    6 Aug 2013, 10:43 AM Reply Like
  • If gold is so worthless, why don't you short it here in the 1200's? But I will agree with you that silver has more "fundamental" usage and is the better buy.
    6 Aug 2013, 10:58 AM Reply Like
  • I don't short gold. I buy $DUST.
    6 Aug 2013, 11:03 AM Reply Like
  • Macro, why did you sell DUST in the $50 range and disappear for awhile? Missed ya!

     

    BTW, I have called the gold market almost perfectly. I don't play with miners though and know you have made some good calls.

     

    Here's my latest from July 22nd; Nice Run Up In Gold and Silver Prices - Expect a Pullback http://bit.ly/12dw1ca
    6 Aug 2013, 12:39 PM Reply Like
  • I thought that was the top given then gold prices. Clearly, I misunderestimated (to quote our Dear President Bush) how much gold would crumble.
    6 Aug 2013, 12:40 PM Reply Like
  • Not sure gold has crumbled. It still has a 12 year streak going, and even 12 out of 13 ain't that bad.

     

    Mining stocks, a different story. I wrote this in July 2010 calling a top on miners when the HUI was 512; http://bit.ly/cn264K

     

    Following your other picks with interest Macro.
    6 Aug 2013, 01:04 PM Reply Like
  • I am talking about this year only.
    6 Aug 2013, 02:12 PM Reply Like
  • Read Aristotle's definition of the requirements for a media of exchange, learn what QE will eventually do and then you may understand if you are not already poisoned with ideological bias.
    6 Aug 2013, 10:17 PM Reply Like
  • Shells! We need shells for exchange!
    6 Aug 2013, 10:41 PM Reply Like
  • Are you long DUST???
    8 Aug 2013, 02:32 PM Reply Like
  • I am long DUST indeed.
    8 Aug 2013, 03:43 PM Reply Like
  • Like you said Macro, have to ride out the storm sometimes on DUST. I am actually long with you, and while today hurt, all the news was negative on the miners. It was more a dollar play (dollar down, gold up) today that I saw more than anything else. But I know you are a long term player on this and ignore the daily fluctuations.

     

    I am working on my next book where I will be bullish on gold long term (physical), but still telling investors that the Fed is still relevant and if you throw enough money at something, it's going to go up and make a mark. The real question is, how long can they play the game (think Japan), and can someone, like yourself, change their mind when the game/sentiment changes? I know I have with the price of gold coming down, but we will bottom and the Fed will at some point won't be the driving force for the markets it has been. Valuations are a bit high in my book and once interest rates tick up, we know the result. Again, when? For now, I agree one should trade the trend in the miners, which is down. I still have clients dollar cost average into the physical though.
    8 Aug 2013, 04:09 PM Reply Like
  • 2015 at the earliest.
    8 Aug 2013, 04:30 PM Reply Like
  • MI - Any updates to your views for NUGT, DUST and GDX in light of last few days?
    12 Aug 2013, 10:53 PM Reply Like
  • If taper comes, DUST will spike.
    15 Aug 2013, 12:08 PM Reply Like
  • Yeah Macro, do wait for taper and good luck with DUST;)
    17 Aug 2013, 01:02 PM Reply Like
  • MI: So the corollary to that statement is that no taper would be bad news for DUST, right?
    What odds do you place on taper vs not?
    18 Aug 2013, 12:10 AM Reply Like
  • 100%. May be not in September, but definitely over the next 12 months.
    18 Aug 2013, 12:20 AM Reply Like
  • All talk of Fed tapering is just that...talk. And if it mattered to gold when why did gold fall when the opposite of tapering (QE) was going on? Hint? See dollar.
    19 Aug 2013, 12:24 PM Reply Like
  • Talks may not matter but QE does. As for the dollar, it may be indeed for awhile "the best horse in the glue factory" until all countries accepting now dollars for their resources get hungrier and start redeeming them only for hard assets and refuse payments in any kind of fiat currency or futures contracts backed by only 1% margin. Guess where resources including physical PM are going then and what will happen when now exported inflation comes back home. Paper dollars will be the "Chicken came home to roost"...
    21 Aug 2013, 02:02 AM Reply Like
  • von, paper dollars are what every other country that is experiencing inflation and devaluing of their currency are turning to. Brazil and Argentina are prime examples. If it is true that 70% of the world still uses the dollar for day to day business, this can't be discounted willy nilly because of some QE here. What are they going to redeem the dollar for and why?

     

    I think what you're missing is the dollar represents a basket of other currencies. When it is priced in other currencies, it gives the "illusion" of strength, even though it buys you less (as all currencies do and will continue to do). Have to separate the two.
    21 Aug 2013, 05:14 PM Reply Like
  • Doug, while the dollar still has the status of world reserve currency it may keep for awhile its attraction as a stronger alternative to many local currencies. Hence it is still perceived as "the best horse in the glue factory". However, with QE its participation in the immense growth of the total amount of global currencies much faster than the growth of total global real value output its contribution to the global growth of inflation is undisputable. Creating more dollars of course it a very serious violation of its status as the world reserve currency. Just as once the world lost trust in the real value of the dollar and started redeeming it for gold the second and final stage of its history as world currency is developing right now. Yes, these are still early stages but many countries start bypassing the dollar and set agreements for direct trade using their own currencies. With the continuing erosion of the confidence in the dollar it is only a matter of time before its collapse as perceived media for storage of value and then there will be rush to buy tangible assets to redeem the paper dollars ahead of the others. Manipulating the gold price cannot help since this doesn't solve at all the central problem of the current world financial system based on fiat (fake) currencies. Hence, the collapse will be global, but dollar owners have to lose more because of its perceived strength and accumulation abroad. Any idea why communist China is spending so much on their millitary? Just for the love in arms? Or why Germany and other countries are repatriating their gold? With QE the FEDs are asking the world to share our debt. I see no warm feeling about this proposal. So mark my words - "the chicken WILL come to rost".
    25 Aug 2013, 08:13 PM Reply Like
  • vonMisesfan, you say the chicken will come home too roost, but the problem with the Lew Rockwell crowd is they always say this. They discount the Fed relevance. They discount price action. They don't understand inflation because they con't count credit in their definition (most of them) and they truly don't understand gold because when I went to Mises Institute for the Scholars Conference in 2006 and asked them questions, I was referred to one person who really didn't have much to say at all but a couple papers he wrote on it.

     

    Doesn't mean they won't eventually be right, but any talk of hyperinflation today or a crashing economy (we are the world's largest right?) is ridiculous.

     

    QE isn't doing much damage against the backdrop of the credit contraction. The world still believes in the story of the dollar and that's all that matters. Yes, we do have some countries talking of trading in other currencies, but these are few and far between at present. We also have the world's largest and strongest military I might add.

     

    Germany wants their gold because they need something to show they have the real thing to back their eventual departure from the Euro if it were to come to pass (distant future?). China might be spending more, but they are not going to cut the hand that feeds them. They can wait centuries.

     

    I tell clients all the time, it's the tortoise (gold) vs. the hare (debt). The hare can lead for awhile before gold catches up (see Japan).
    27 Aug 2013, 12:10 PM Reply Like
  • It's a dead cat bounce because there's no fear trade holding up gold.
    6 Aug 2013, 11:20 AM Reply Like
  • There's no fear trade because the government squashes all the bad economic news and tells bankers to short anything gold-related. They are essentially creating a 'reverse fear trade' for holding anything gold related.
    6 Aug 2013, 11:49 AM Reply Like
  • For those who don't want to invest in gold, it's the right moment to invest in big mining companies with the most efficient production costs. Even though, it's unpleasant, these price slumps will only benefit companies like GG or ABX on the long term, reducing the concurrence on the market. Companies with the highest total average costs structure won't be able to remain in the business, even on the short term. More and more companies are going to go out of business, the supply is going to be reduced, while it's very unlikely that the gold demand would slump in the foreseeable future. The gold market isn't an exception to the supply and demand theory, even though other major political factors intervene. So eventually, in a couple of years frame, the gold prices will go up dramatically.
    6 Aug 2013, 11:47 AM Reply Like
  • What we need is a few of the bigger miners going out of business. Not declaring bankruptcy, mind you. They need to truly go out of business and shut down their mines and then put a force field around it so that no one can restart the mines again. Only then will supply of gold fall. Otherwise, the same mines will keep churning out the same high cost gold but under different management. Miners don't learn. They just burn shareholder value.

     

    Do you know of any good force field providers?
    6 Aug 2013, 11:54 AM Reply Like
  • I'd say that Nash equilibrium theory would contradict your opinion. It isn't that easy, as in theory, to close production and layoff working force and of course it would be illegal for the gold miners to make any sort of arrangements in order to reduce the supply. Their fixed costs are simply monstrous, so if they stop working they will lose even more money by not extracting at all. Miners tend to produce no matter what until the moment when the costs become too high and they go out of business. It's simply a matter of time until small miners will start to fill for bankruptcies. Generally speaking, inefficient mines are getting bought by national companies of developing countries like China and India and if they extract any gold, it isn't being commercialized. At these gold prices, I doubt that miners would start purchasing additional high cost assets, unless they'd be really cheap.
    6 Aug 2013, 01:28 PM Reply Like
  • The key bet is mines shut down (which you say gold miners are unlikely to do). So, I am not sure I get your point. Small miners cover what part of the market? What will happen to their mines once they emerge from chapter 11? Same old stuff, man, same old stuff. They will keep churning out metal at high cost, and have negative margin.
    6 Aug 2013, 02:14 PM Reply Like
  • @ MacroInvestor, Its not a supply/demand issue with gold. Its QE and irrational markets. Long term play is long gold if you see what is coming. We will see If I was right 5 years from now. If you want to call yourself the "Macro Investor" than look at the Macro economics. Many developed countries like the US, Japan have debt to GDP greater than 100% (Japan is over 200%). If that doesn't worry you than I don't know what does. Because of this countries are trying to deflate their currency to try to boost exports and spur investments in their countries. Its a currency war. Only end result will be a currency backed by real assets like precious metals. Commodities are the only safe place to hide when this hits the fan. Buy cheap. That's the name of the game. Inflation is coming. Markets just haven't caught on yet. Why buy $dust @ these levels? That trade is going to wear out pretty quick.
    6 Aug 2013, 01:34 PM Reply Like
  • "Only end result will be a currency backed by real assets like precious metals. "

     

    Ok.
    6 Aug 2013, 02:14 PM Reply Like
  • Good time to accumulate physical metal on this weakness and the quality gold and silver companies. I really like Franco-Nevada here. I think that's the safest gold company to buy.
    6 Aug 2013, 02:08 PM Reply Like
  • macro has been dead right on miners. no question.
    nevertheless, they are beginning to actually cut costs and hold back on new expansion

     

    if gold rallies back to $1500, which i believe is possible once the big bad event is finally here (the dreaded tapering), i think even the dumbest run industry in the whole stock market will rally as the long awaited leverage finally shows up
    6 Aug 2013, 09:09 PM Reply Like
  • Whoever bought DUST because it always worked in the past, hopefully has the stomach to ride out days like today.
    8 Aug 2013, 02:34 PM Reply Like
  • Anyone buying more dust at these levels?
    9 Aug 2013, 02:49 PM Reply Like
  • $Dust is for short term trading. Leveraged ETF's are not long term holds. Good luck to those just sitting in $Dust.
    11 Aug 2013, 02:46 PM Reply Like
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