gold .... comment for 23/jan/2003, page-4

re: gold .... re shorts. hi,

This appeared today on Gold Eagle and is probably relevant.

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Shorts Attacking the Gold Miners

Many gold investors have noted, with consternation, at the divergence between the price of gold and the performance of the gold mining stocks. Gold has generally been trending higher while the miners are going nowhere. The theory goes that the miners lead the price of gold but that doesn't seem to hold water here as gold keeps heading north.

So why the divergence? Perhaps the answer is in the high levels of short-selling in the miners. Most gold investors are aware of the shorts on the metal itself and the hedges that some of the miners hold. For some reason, there are shorts attacking the miners too. Perhaps they think that there is too much euphoria in the gold miners or that the gold miners are a good area to short because they've risen so much. Or perhaps an an entity doesn't want a lot of people bidding up the miners which would take attention from tech stocks where executives exercise huge numbers of options when prices rise. And heavy shorting can drive down the price of a stock.

Whatever the reason, I'd like to point out what's going on in a few stocks on the American Stock Exchange. These are from a report that comes out monthly and came out on Thursday, January 23, 2003. There are reports available for the New York Stock Exchange and the NASDAQ but the NYSE Short Interest report carries a fee of $400 per year [I believe] and the NASDAQ isn't out yet.

There's a table of miners in here - mostly American

We can see that Kinross has a huge short position relative to average daily volume. The short position rose 17 percent from December to January, even as Kinross rose in price. Wheaton River is also a bit of a shock. It started trading in December and accumulated 1.2 million shorts in a month. It can also be interesting to compare the short position to the total float of a stock. You can get that information from Yahoo Finance.

Strangely enough, a large rise in the number of shorts can be bullish because it can result in spectacular short squeezes where shorts get panicked and cover at market driving the price higher and higher. I look forward to that happening in the miners when earnings reports come around. And not having a lot of shorts can be bearish as there aren't shorts that become desperate to buy at market. Of course gold is in a bull market so these stocks should trend higher with the price of gold as earnings will grow with the price of gold.

I also recommend reading an article at Mineweb (http://www.mineweb.com/) with the title: Short sellers switch attention to Durban Deep posted Wednesday, January 22, 2003. This article covers the short positions of a number of other mining stocks and further information on shorting in general, which you may find useful. The data for their article, though looks like it is from December 2002 which means that it's a month old. Still, it gives you an idea that someone out there is hoping that our miners fail.

I think that the heavy shorting has contributed to the divergence between the price of gold and the performance of the mining stocks. Even stocks with small short positions can be affected by the stocks that are getting heavily shorted. I remain patiently bullish on the miners playing the long-term-buy and hold strategy.

Disclosure: I own more than half of the securities listed above. I recommend that you do your own due diligence in researching stocks for investment or speculation purposes. The securities listed above in no way constitute a recommendation to buy or sell them.

Michael Moy
[email protected]

27 January 2003
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bye.dub
(The Mining Web article mentioned is worth reading too)