Gold should be interesting next week
Expect an exciting, but not necessarily good, set of earnings reports ahead for gold mining stocks.
Next week promises to be an exciting one for the shares of gold mining companies, as the industry sends a stream of top players to the plate for earnings season.
But not necessarily exciting in a good way. The excitement will come from seeing which gold miner announces the biggest write-down of its assets, and which surprises Wall Street by reporting even bigger write-downs than expected.
That might take a bit of doing. Australia’s biggest gold miner, Newcrest Mining (NCMGY) has noted that it will take a charge of as much as $5.5 billion to write down assets in the second quarter. Kinross Gold (KGC), which took a $3.1 billion write off on a mine in Mauritania in February, has announced a second quarter $720 million charge to write down a mining project in Ecuador. Barrick Gold (ABX) has said it will write down as much as $5.5 billion on its Pascua Lama project in the second quarter and take other, so far, unspecified but "significant" impairment charges in the quarter.
As of July 1 Bloomberg had added up $17 billion in write-downs announced by gold miners over the last 16 months. And the second quarter will add to that total.
With gold selling for less than $1300 an ounce, even after a decent rally that started on June 27, many gold mining companies are carrying assets on their books at values well above current prices. Writing down the value of those assets, plus writing off the value of projects that have been delayed or canceled, guarantees more big charges.
As painful as these write offs will be, they are an essential part of creating a bottom for gold and the gold mining sector. Until mining companies wipe out valuations that are a relic of gold at $1600 to $1700, it will be hard to attract value investors to the sector. Buying by value investors is a necessary first step in any recovery in share prices for the sector. Another round of write-offs that includes project delays or cancellations would also help put a floor under gold prices by demonstrating a contraction in future supply.
The sector touches off earnings week with Newmont Mining (NEM) and Goldcorp (GG) on July 25 -- followed by Yamana Gold (AUY) and Kinross on July 31. Barrick Gold is scheduled to report on August 1. (Yamana and Goldcorp are members of my Jubak’s Picks portfolio.)
Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund, I liquidated all my individual stock holdings and put the money into the fund. The fund owned shares of Newcrest and Yamana as of the end of March. For a full list of the stocks in the fund as of the end of March see the fund’s portfolio.
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The best floor under gold is being created by Fed chairman Benny "Bubbles" Bernanke, as he dumps $65 billion in cheap, funny money into the US economy each month. He is doing this to try to gin up false prosperity for America.
Bernanke is following the example of his predecessor and mentor, Alan "Bubbles" Greenspan, who for his own personal vanity tried to create a "legacy" for himself by dumping easy money into the economy. Greenspan actually believed the platitudes heaped upon him by Congress, which also loves false prosperity.
Both Greenspan and his dutiful acolyte, Bernanke, have their fingerprints all over the massive financial collapse of 2007-08, which was the largest in dollar terms in US history. Neither of them have faced any civil or criminal charges.
The only defense against them and the Federal Reserve is to own gold.
People fail to realize that only a small fraction of the world's physical gold trade occurs in North America. Travel the world, and you will find the wealthy in most other countries consider gold an essential part of their savings portfolio. We Americans would do well to ask 'why?'. Well, because it has been a century and half since the nation last went through a crisis that threatened it's very survival, we have collectively forgotten that when a 'real' economic crisis threatens - meaning that your nation's money has a fair chance of becoming WORTHLESS - that non-tangible assets are no good. Perhaps such a crisis will NEVER occur in America or the West, however with $250 trillion in total US debt (all sectors and sources) and $60 trillion in total US assets, one has to ask, who is it that is taking the real risk here? I am not a survivalist advocating a Mad Max future, but just as I have insurance for my car, home, health and life, I have a little gold as insurance against that smoking financial volcano at the edge of my town. IF nothing else, it helps me sleep better at night, and it will be something 'cool' to pass onto younger generations.
After standing in line at the grocer's for hours, I don't want to worry if he can make change with my Kugeraand. Silver will be more versatile when you don't have goods to barter with.
Am I getting ahead of myself, already anticipating the impending crash? Anyway, sliver does provide a certain flexibility. Think about how long five Gold Eagles will last, as opposed to twenty five Silver Eagles.
Bottom line is...there should be a little bit under everyone's pillow,
just in case....
Pretty much all I was gonna do anyway was agree with Fats, about Gold Investments/Trades.
Mark the day....
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