dwot

Which To Buy -- Gold ETFs or Gold Mining Stocks? (ETFs: CEF, GLD, IAU; Stocks: ABX, FCX, NEM, NTO, RGLD)

I actually think gold stocks are in a gold bubble, and I can back that statement with fundamental analysis.

I did a comparative valuation between NTO and GG, and fundamentals are so grossly different, I find it amazing that the difference wouldn't be picked up by anyone who is making those kinds of recommendations. I'd send it to you, but I couldn't find an email link, but this is a summary of what is working against gold mines these days:

1. The leverage of earnings have grossly decined.
2. The price elasticity of gold bullion to gold stocks, ie, market cap is 3 to 20 times better for bullion than for gold stocks. (Kinross had the best price elasticity out of the gold stocks I calculated.)
3. The increasing cost of acquisitions, from $33/oz at the start of the bull to a max of $175/oz for Glamis.
4. Increasing rates of depletion of reserves.
5. Lower quality gold properties available to replace reserves.
6. Rapidly declining level of reserves to market cap.

Which To Buy -- Gold ETFs or Gold Mining Stocks? (ETFs: CEF, GLD, IAU; Stocks: ABX, FCX, NEM, NTO, RGLD)

Gold stocks no longer provide the leverage performance of the past, plain and simple. Leverage returns decline rapid the further you get into a bull run. Early, leverage returns were 10-fold, and it made gold stocks a great performer. Now at best you can get 1.2 kind of leverage.

How leverage played out early in the bull run on gold and how it can not repeat that performance is really poorly understood.

Furthermore, currently costs for gold stocks are increasing faster than gold the price of gold bullion, so I believe this will result in a negative leverage.