Did GLD And Other Gold ETFs Kill Gold Stocks?

[pmbug]

... Goldman brings up a very interesting point, namely that the ongoing weakness in gold stocks, and the broad decoupling of gold miners from gold price can be attributed to one primary thing: the emergence of synthetic means of expressing a position on the gold market and "bypassing" direct gold cost pass thru exposure in the form of gold stocks. ...

Our advice, as always, stay away from ETFs: they are nothing short of what synthetic CDOs were back during the credit bubble years. And take advantage of relative mispricing between fake (ETF) and real (miner) asset representation.

http://www.zerohedge.com/news/did-gld-and-other-gold-etfs-kill-gold-stocks

Pretty sure this is nothing new to anyone reading this forum. :judge:

 

[h4rdware]

I think this is dead on correct. It has become quite clear that convenience trumps diligence - until it all goes horribly wrong.

 

[DSAbug]

The more educated investors get, the more money that will come out of GLD and the more that will go into physical. Hopefully, people will wake up to the value of these miners.

 

[h4rdware]

I can only concur.

50% of me says I did a good job of picking good value miners. The other 50% tells me I overlooked the fact that the 'current generation' have no clue whatsoever what they are doing with their money, and miners (unlike APL) are not on the radar, however much value they represent.

Still, a form of common sense tells me to keep picking away at them, because common sense prevails. Eventually.

 

[DCFusor]

As an erstwhile stock-picker, I generally dislike ETFs as they cause too much correlation in the markets, fees aside. I used to love trading copper, FCX on the way up, good company, and some other not so good company short on the way down. Used to be you could do something like this almost no matter what the commodity, and get that effective leverage since their profits after capex had that effect...now, not so much, the good guys get hammered with the bad when things go down, and the bad rise with the good when things get better, due to buying and selling by the ETF in question. Might as well just trade the indexes anymore. It stinks.

Then add - is there really all that gold in GLD? Fees? Just another way for people in the finance business who lack the skill and courage to trade themselves to skim off the rest of us. That's the real deal there - if you can't do it on your own, figure out a way to charge everyone else for being a failure yourself.

 

[swissaustrian]

Just a little thought experiment:
Why would anyone buy PHYS (Sprotts physical gold ETF) instead of GLD if they were both equally backed by physical unpledged and non-leased gold?
PHYS constantly trades with a premium over NAV. Same question with regards to PSLV and SLV.
Simple answer: Those investors who actually do their homework and read the stinking prospectus would never touch GLD/SLV. It´s a scam backed by nothing.
That´s why CNBC had to do a propaganda piece in which they pretended to show some of the gold bars of GLD.

It later came out that they had shown gold bars whose serial numbers did NOT appear on the fund´s list of gold bars. http://www.zerohedge.com/news/some-observations-bob-pisanis-visit-glds-vault :doodoo:
Also read this:

Are leading precious metals ETFs based on undisclosed conflict of interest?
Do financial houses HSBC and JPMorgan Chase & Co. have a conflict of interest in serving as custodians of the metal held by the major gold and silver exchange-traded funds, GLD and SLV, even as those financial houses are themselves holding major short positions in the precious metals? And does the failure of the prospectuses of those ETFs to note the short positions of their metal custodians constitute a material omission in violation of U.S. securities law?
Those questions are raised today in a compelling report written by Catherine Austin Fitts, founder and managing member of Solari Investment Advisory Services LLC, publisher of The Solari Report ( http://solari.com/store/the_solari_report/ ), and a member of GATA's Board of Directors, along with her lawyer, Carolyn Betts.
Fitts and Betts note the increasing evidence that more claims to gold and silver have been sold than there is real metal to fulfill them. Of course GATA long has expressed skepticism about the precious metals ETFs and has wondered whether they are used in part for market manipulation, to make investor-owned metal available for shorting and price suppression at strategic moments, against the interests of the ETF investors.
The Fitts-Betts inquiry is titled "GLD and SLV: Disclosure in the Precious Metals Puzzle Palace" and you can find it at the Solari Internet site here:
http://solari.com/archive/Precious_Metals_Puzzle_Palace/

http://www.gata.org/node/8600

 

[DSAbug]

I can only concur.

50% of me says I did a good job of picking good value miners. The other 50% tells me I overlooked the fact that the 'current generation' have no clue whatsoever what they are doing with their money, and miners (unlike APL) are not on the radar, however much value they represent.

Still, a form of common sense tells me to keep picking away at them, because common sense prevails. Eventually.

I think we are just stuck having to wait for sentiment to shift in favor of the miners.. Last sentiments numbers I saw were showing a 0% bullish % for the miners. That is an extreme.

 

[swissaustrian]

I think we are just stuck having to wait for sentiment to shift in favor of the miners.. Last sentiments numbers I saw were showing a 0% bullish % for the miners. That is an extreme.

From a contrarian perspective: The perfect time to buy.

 

[escobar]

been tracking the gold/XAU ratio here:

http://www.traders-talk.com/mb2/index.php?showtopic=92028

approaching the extremes of 08/09 crisis.

 

[escobar]

been tracking the gold/XAU ratio here:

http://www.traders-talk.com/mb2/index.php?showtopic=92028

approaching the extremes of 08/09 crisis.

 

[pmbug]

... in this comprehensive report by Goldman's Paul Hissey, the appropriately named firm deconstructs the divergence between gold stocks and spot gold in recent years, ... "There is little doubt that gold stocks in general have suffered a derating; initially with the introduction of gold ETFs (free from operational risk), and more recently with the onset of global market insecurity through the second half of 2011. ...

- We feel there are some obvious solutions to the flight to physical gold ETFs. In order to entice investors away from the gold ETFs, producers must

• Reduce perceived operational risk
• Deliver to market expectations (which includes managing those expectations)
• Demonstrate volume- (not just price-) driven EPS growth
  Return cash to shareholders
• Continue to replenish resources and reserves

- It is also likely that some of the derating we have seen recently has been as a result of changing sentiment towards sovereign risk. With a skittish view toward equities in general, and a decreasing willingness to pay for future earnings, it appears as though the market is less inclined to favour exposure to companies in locations where the perceived risk is higher - rightly or wrongly (West Africa, Philippines, etc.).

Investment View:

• However, we would continue to favour exposure to gold companies in the current global financial climate.
• In particular, we would look for those companies which are trading at a discount to valuation AND which we believe to be operationally sound (thereby minimising the risk of further derating).
• Those companies with little/no debt would also be favourable, given the reduction in financial risk and good cash margins (at least currently…).
• Alternatively, we would be comfortable pursuing those stocks that are trading around NPV, but are well managed, have low execution risk and a growth profile that we believe is not at risk of being deferred.

...

More: http://www.zerohedge.com/news/gold-vs-gold-stocks-goldman-releases-2012-gold-odyssey-year-ahead

 

[DSAbug]

Realistically...

All goldman is saying is that management for these companies needs to do a better job of marketing. Get businessmen in there instead of geologists. They want numbers to be "smoothed" out. I'm sure goldman has plenty of recommendations for people to take over these positions

I know that doing such things will make it more palatable for the everyday investor and should help decrease the volatility. I'm just worried that the unintended consequence is that we will end up with a bunch of mining companies with fake numbers.

 

[rblong2us]

Last sentiments numbers I saw were showing a 0% bullish % for the miners. That is an extreme.

Got to be a good time to buy then.