6 years ago I bought gold and also bought gold stocks. Made money on the first, but more than offset by losses on the second.
Gold producers capex and opex are going up exponentially - as quickly as the currencies are being destroyed, and this seems to offset any benefits from the 'rising gold price'.
I am pretty sure all UG mines are doomed due to reserve replacement costs, which leaves only the pits with a shot at profit.
Gold stocks have been, and remain priced at very high PE's, but the question remains - who is going to buy the stuff, and how long are they going to hold it for?
The rise in the gold price has been pathetic given the scope of the crisis. Even more so when you consider that production in the former largest producer: ZA, has fallen off a cliff.
Will the gold price eventually rocket up spectacularly? Probably.
But how sustainable will it be?
The traditional markets in India are under duress. This has been offset by new demand in the ETF gold market, but the Achilles heel with the ETF's are their liquidity, and hence an ability to affect volatility in the gold price.
Everyone can dump their gold ETF's at a moments notice, and this further makes physical gold an unattractive investment for those actually wanting to buy physical, as they fear the moment the financial system contraction ceases, all paper gold will get dumped within a couple of days, and decimate the value of their physical.
So, until I hear more people wanting to buy physical gold and put it in a safety deposit box, I would not consider gold stocks for an investment.
A trade? Yes.
If gold starts to play a role in bank assets again, I will buy with both hands. Yet here we stand with assets on the banks books decaying by the minute, and not one has moved to acquire a large quantity of gold.
So what am I missing? Is the global financial system going to end? If you believe that, forget the gold, go and buy a gun.
Personally I think we will again be inflated out of this crisis by the CB's.
The current crises was deliberately triggered by the CB's with the intention of destroying a significant amount of capital that was building inflationary pressures due to their continued money supply growth.
But the intention is to destroy the capital of the citizens, not the corporates. However in the first wave everyone must suffer. Before long the citizens will be beggin for the CB's to print as much money as they can again.... even if it is all for their own pockets initially.
The corporates will be kept afloat in the interim through loans, and when enough money has been destroyed, the liquidity taps will be turned back on.
Hence I favour investing in businesses enduring asset stress over gold stocks, as I believe the former will benefit from a continuation of the long history of banking actions.
Certainly most banks around the world are being priced for imminent collapse. An imminent collapse of the entire global economy that will send us back to the dark ages.
Will this be allowed to happen? Not likely!
CB's can print as much money as they like with the proviso that every dollar printed devalues every human life.
