I am probably just another goldie sucker. I have come to believe that gold is bottoming out, and people are jumping on board the goldies ahead of their fundamentals justifying buying them. This is what I have read has happened in past bottoming processes. Of course there is the chance this could be another false hope and we are gonna get our bottoms spanked again as the POG tanks badly again.
I do not understand what is going on at PRU. I expect there will be some sort of pullback once the quarterly report is out to reveal costs are high and they were unprofitable.
The thing about PRU is that it has been bought by those that believe that it will be taken over because of its large resource. The report in the post below from the GRY thread indicates that at least one newsletter writer has recommended buying GRY and PRU for its takeover potential.
I missed out on buying it and SLR which has also had a massive run because for me the current fundamentals for these companies do not stack up. However other people are willing to make bets on a turnaround and this may for a time keep their share prices unreasonably elevated if the POG does not run up.
In this speculative end of the market you have to take considerable risk and be willing to wear bad outcomes. While I have made good gains on some shares, I have also lost large sums on others , eg $75k on RED and could have lost over $200k, but decided to cut my loses early, and dropped over $50k on MUN/MIZ. There have been many other losses at lower levels. I just have to accept that as part of being in the speculative side of the market, especially in a commodity that has been in a downtrend, and improve my selection and position sizing. If I can not work out a way of surviving I would get out from this market. The only thing that keeps me going is a belief that the POG will turn up soon or has in fact done so.
PRU and SLR were by far the best of the goldie producers to buy if the POG turned up. I missed the break out because I had a view that the POG would head a bit lower. I was going to buy them simply as a short term trade - I still do not like them operationally, but recognise there is some potential. I have not given up on getting back into these companies on a pullback after I have seen their quarterly reports.
I took a larger holding in BDR because I think it will remain a low cost producer with solid management. My broker has a target price of 91 cents for it, others are lower at around 80 cents. I do not think there are the sort of multiples in value in it compared with PRU (because of PRU's potential growth profile and its smaller number of shares on issue), but if the POG does head up there is no reason it will not eventually get over $1.00 again, However, people seem to be holding off buying waiting for the quarterly report, and perhaps that is a prudent thing to do with all the goldies as they all have some issues.
I am sticking for the most part with goldies that are in production rather than explorers (although there are a few that I find interesting) except for GRY which has a project that could be developed. Their management is not one I would trust and I am hoping for a takeover. Some I kind of like are EVR, TGZ, TRY, EVN, MML, RSG (if the price drops a bit or POG heads higher), RRL. OGC, AQG, DRM, NST may also do well if the POG does move higher, but I am not as comfortable in owning these companies so I do not follow them closely.
You are right that things in India are not turning out positive for gold in some respects, drought conditions and no change yet on gold import restrictions. However, if the Modi government does manage to significantly stimulate economic growth that alone could have a bigger impact on Indian gold demand over time than the removal of the gold import restrictions. I think that Indians will find a way to get more gold from overseas by increased smuggling.
The latest spurt in the POG seems to be due to some rekindling of financial system instability (this time in Portugal), a belated recognition that QE tapering is not positive for equities, and maybe more middle eastern strife. The storyline keeps changing. Inflation has not really taken off in the US, although it is up a bit and there is some speculation that it will go higher. China's inflation rate is down while Europe (except for Britain) is extremely low at present. There is more concern about deflation than inflation because this affects asset prices and banks would get hurt if their collateral fell in value.
If you do buy goldies it is best to own ones that are highly liquid, EVR and TGZ are not. That means if there is a panic selloff in goldies exiting is difficult. EVR and TGZ have run up a lot from their lows of 2013. I like them for their longer term potential. EVR has significant debt, TGZ should be debt free by the end of the year but has other issues.
I guess the bottom line is that if you want to get into goldies you have to be willing to wear a lot of risk, and its best not to chase them late in their bursts. I think there will be a pullback soonish. Perhaps it will only be $30, or $50. Identify which goldies you are willing to hold and if you believe that POG is now going to head up hold them for a longer ride. Keep in mind the seasonal factors with gold - there is usually a bit of a sell off in June/July/August and again starting around late February (each year the timing is a bit different). Decide which you want to hold and which you trade - hanging on can be painful. If the market turns down heavily then the goldies can tank badly even if the POG holds up. In the second half of 2011 my goldie portfolio fell 20% over 3 days on two occasions despite the POG being near its peak, when the US and our sharemarkets had a fit.
The following articles provide some perspective on the POG/goldies
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