I have made the point many times that mining companies are particularly unsuited to being judged by the insane stock market game of beat-the-number. Nonetheless, Wall Street likes to judge them by the beat-the-number yardstick.

If miners actually wanted to manage earnings (but most do not), there are games they could play. Ironically, the stocks would probably trade better if the accounting and management were less honest (though that is a sad commentary on the financial environment, not a recommendation on my part).

This dynamic was on display last week when three mining companies whose shares I own reported earnings. First off, Agnico-Eagle Mines (AEM, news) and Goldcorp (GG, news) reported on July 27, and Agnico committed the unforgivable sin of "missing the number." I had thought that had been so well telegraphed (because its earnings estimates had been lowered several times) that it wouldn't matter. But the stock was pummeled for about 5% the next day.

Gold stock owners hate nonsurprises

I think the sell-off that has been created by overreacting to known/old problems is obfuscating the fact that, prospectively, Agnico is set up to do well. Although it could still be vulnerable to a sell-off in gold, I think that ought to be about it on the downside, and I plan to beef up my position. (In fact, I started doing so on July 28.)

Goldcorp, on the other hand, was successful at beat-the-number, but it had to decrease production estimates slightly for the rest of the year as a result of the forest fire near its Musselwhite mine in northwestern Ontario. The impact of the fire was also well known, and I thought the market had already priced that in, subtracting it from the stock price. But (as with Agnico) it appears that bad news is never fully priced in with gold stocks, while good news is often overlooked. Nevertheless, I believe the recent sell-off in Goldcorp is also an opportunity.

Image: Bill Fleckenstein

Bill Fleckenstein

The problem: They're not making this up

The third company I want to discuss, Newmont Mining (NEM, news), reported its quarter on July 28, and though the report read just fine, there seemed to be some confusion as to whether the company actually won or lost at beat-the-number (as if that matters).

Of the three, I believe Newmont is the cheapest. I also noticed in a recent King World News interview that Pierre Lassonde -- who knows the company quite well but has no particular bias since he no longer works there -- thought it was ridiculously cheap and ought to be worth something north of $80 with today's gold price. (The stock trades at about $55 right now.)

That is just one man's opinion, but when people decide they are willing to value gold in the ground at a reasonable price instead of a several-hundred-dollar discount, Newmont is going to take off.

Just imagine if markets weren't 'efficient'

As I have said repeatedly, owning these companies is not about winning at beat-the-number; it is about buying ounces in the ground cheaper than you can buy them above ground, and getting paid a dividend along the way. That these companies are doing well can be seen by the explosion of cash flow and increasing dividends. But, as we have seen with Microsoft (MSFT, news), a company can be doing demonstrably well and hitting on all cylinders, yet the stock can sink, until it doesn't. (Microsoft owns and publishes MSN Money.)

We continue to be in a state of loathing and revulsion as far as the miners go, which is frustrating for the investors involved, but it does create opportunities. At some point the psychology will change, and miners will head higher for seemingly no reason. But so far, that hasn't happened. One thing is clear: There is absolutely no speculative froth in gold stocks and, by extension, very little in gold itself.

Gold bear blundering

Belying that fact, however, was the Aug. 3 Lex column from the Financial Times, which once again argued that gold was making a top, a point the Times has been arguing for probably the last $1,300 to the upside.

The author truly outdid himself when he wrote that "faith in a barbarous relic . . . could be crushed, bringing hefty losses (as happened 31 years ago)." A variation of that refrain is popular with gold bears. However, that decline in 1980 happened not because gold got too high. It was destroyed by Paul Volcker and his heroic policies to make the paper dollar "sound."

Gold bears seem to forget that gold's competition is worthless paper. Thus, given the current stewardship of the world's major currencies, the author's analysis is ridiculous. Given the behavior of certain central banks recently, it also defies logic.

Not only did Thailand's central bank announce last Wednesday that it had added to its gold holdings, but last Tuesday the Korean central bank revealed that it had more than doubled its gold holdings to 39 metric tons with a purchase of 25 metric tons, at a cost of roughly $1.5 billion. Mexico and Russia have also increased their holdings in 2011.

While Korea's purchase would be a pretty chunky investment for many entities, that country is sitting on several hundred billion dollars and has the world's seventh-largest foreign exchange reserve, which makes that gold purchase more of an odd lot.

It is certainly fair to wonder why the Koreans would buy only that much. If they intend to buy more, they are tipping their hand, and if they don't, what good is $1.5 billion worth of gold compared with all the dollar-denominated confetti they are sitting on? On the other hand, perhaps they -- along with other central banks -- are just trying to let folks at home know that they get the joke and have begun exchanging their green paper for real money.

To Catch-22 a falling knife

Even so, while there are so many financial problems hiding in plain sight, internationally and domestically, our stock market has held up pretty well, at least until it began its recent slide (which was interrupted Wednesday, only to turn into a worldwide rout Thursday). It won't take too much more of that to spook Federal Reserve Chairman Ben Bernanke into commencing QE3, another round of money printing. I'm sure the macroeconomic data already have him leaning heavily in that direction.

Thus, at some point the weakness will be arrested by those who want to front-run the hints of QE3, which may begin as we head into the Fed's Jackson Hole shrimp fest (aka its Economic Policy Symposium, scheduled to start Aug. 26. (There are also strong hints it could start after next week's Federal Open Market Committee meeting.)

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However, if Bernanke doesn't promise QE3 soon, there could be even more stock market carnage, which will then cause him to give the bulls what they want (assuming he hasn't refueled the helicopters already). It is a bit of a Catch-22, but that has been clear to me for a while.

I don't expect QE3 to work particularly well, but if the market continues to be hit hard between now and then, it could prompt a big (though possibly brief) rally in stocks, even if economic activity is subpar. Gold, on the other hand, will likely go wild in the wake of QE3.

At the time of publication, Bill Fleckenstein owned gold, as well as stock in Agnico-Eagle Mines, Goldcorp, Newmont Mining and Microsoft.

This column is a synopsis of Bill Fleckenstein's daily column on his website, FleckensteinCapital.com, which he's been writing on the Internet since 1996. Click here to find Fleckenstein's most recent articles.