Sunday, August 1, 2010

Conundrum Of Gold Stock On Financial Sense Newshour

The price of gold may be stuck right now, but it's still high enough to secure large profits for many senior mining companies. Yet, the gold stocks aren't doing that well. Case in point: Barrick, which is at about the same level where it was when it closed its hedge book. Despite the company taking the loss that came with the closing of their hedge book, which puts the hedge-book drag-down in the past, it's now selling at about the same price now that it was when the book was closed.

In the third segement of the Financial Sense Newshour podcast [.mp3 file], John Doody explains why the gold stocks aren't faring that well. Part of it is operational issues, like Newmont finding lower grades than expected in its new Boddington mine, but part of it is the convenience of gold ETFs taking away investment demand for gold stocks. Doody expects those companies to become more dividend-focused, which would help boost demand for their stocks particularly from funds that don't invest in issues that don't pay dividends.

Next on that segment was Patrick Heller of Liberty Coin Service, who argued againt the opinion that the new form 1099 rules were aimed at gold holders. The rules require any company to fill out one (in triplicate) if they pay $600 or more for any good(s) or service(s) in the course of a year to a supplier. The Obamacare bill, now law, requires a 1099 when any seller gets more than $600 total in the entire year. Some have argued that this new requirement was aimed at tracking gold coins, but Heller disagreed; he believes that it was just a general sweep. He (and Jim Puplava) still complained about it.

Following was John Williams of ShadowStats, who believes that inflation is still around the corner. The reason why is, the data he uses still shows the eocnomy in a real mess. He expects quantitative easing as a result, which would drive down the greenback a lot.


The relative underperformance of the gold stocks is a bot of a mystery, but it is a sign that they're out of favour right now. Boosting dividends, like Newmont's 50% boost and Barrick's 20% increase, will help because they'll increase the payout for waiting.

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