"Everything you need to know about gold"
GOLD WILL CONTINUE TO OUTPERFORM MINING SHARES
No amount of wishful thinking and baseless proclamations will change that. Owning gold stocks (miners) instead of the actual physical metal (in other words, processed and refined with appropriate hallmarks and in tradable form) is a losing bet. Investors should ignore the siren song of gold mining shares.
GOLD STOCKS VS. GOLD
The long-term underperformance of gold stocks compared to gold itself is clear and indisputable. A matter of remaining contention is whether or not beleaguered investors in the not-so-shiny metal stocks will ever recover from more than twenty years of disappointing and largely negative results. It isn’t just the poor relative performance, though; holding gold mining stocks has been a losing proposition in its own right.
Below is a chart which shows the relationship of the HUI (NYSE Gold Stock Index) relative to the price of gold…
COST OF PRODUCING GOLD
Ever wonder how much it costs to produce an ounce of gold? Most of us tend to focus on the market price for gold since that is what we hear referenced on a daily basis.
That makes sense. However, investors and owners of gold mining stocks have valid reasons to pay more attention to production costs of gold in addition to the market price. After all, you have to get the gold out of the ground first, before it can be refined and sold.
GOLD STOCK CHARTS
Every time gold stocks hiccup to the upside, there is a groundswell that emanates from the depths of disappointment and disillusionment. Promoters use words like exhaustion and capitulation to describe the conditions surrounding what they refer to as “a major turning point” for gold mining shares.
GOLD STOCKS ARE WORSE THAN GOLD
Gold stocks latest swoon confirms what has been stated and inferred in my previous articles about gold mining shares – namely, gold stocks are a lousy investment.
The original article linked in the preceding paragraph was published in September 2016. I just finished reading it again and find no reason to edit or modify its contents.
The price of gold peaked in the summer of 2016 – shortly before my article was written and published – at $1357 oz. (monthly average closing price). At that time the GDX (ETF index of gold mining shares) peaked at 30.60.
Both gold and gold mining shares (gold stocks) have been lower and higher since then, and the past six years have seen a fair amount of volatility. Lately, both gold and gold stocks have undergone downside corrections since their most recent highs earlier this year.
So where are we now?
GOLD STOCKS – WISHING AND HOPING
As is the case with both silver (see Waiting On Silver) and gold, so too has the waiting game proved to be unprofitable for gold stocks. Wishing and hoping for better results doesn’t change the reality of losing (losing – “failing to gain or retain; being deprived of”).
The rise and fall of gold stocks is a story of hurt and disappointment. That is because most of the time gold stocks are in decline.
Below are four charts which depict the sad story. Following each chart I will make some brief comments…
BARRICK AND BUFFETT…
The roundtrip is now complete and the entire voyage took less than a year. When Berkshire Hathaway acquired nearly 21 million shares of Barrick Gold in Q2 of 2020, people took notice.
Buffett’s about face and sale of almost 9 million shares of Barrick the following quarter (Q3) seemed incongruous. The remaining 12 million shares were sold in the fourth quarter of 2020, and Berkshire Hathaway is now devoid of any holdings in the gold arena.
Sometime after the end of the second quarter, news of Berkshire Hathaway’s acquisition of Barrick Gold made headlines. Not known for a favorable opinion on gold, Warren Buffett surprised some people with his move. Also, the addition of Barrick Gold Corp to the Berkshire portfolio was noteworthy for another reason…
“…Warren Buffet, while he did add to his positions in a few stocks, he added only a single new stock to his portfolio – Barrick Gold.”
As significant as Buffet’s entry into the gold arena is, news of Berkshire Hathaway’s third quarter reshuffling prompted some confusion among observers and investors. The original stake of 21 million shares had been reduced by almost 9 million shares to a total of only 12 million shares at the end of September.