Gold should be interesting next week

Expect an exciting, but not necessarily good, set of earnings reports ahead for gold mining stocks.

By Jim J. Jubak Jul 19, 2013 5:08PM

Image: Gold (© Comstock Images/Jupiterimages)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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37Comments
Jul 20, 2013 1:11PM
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If creating money out of thin air to boost asset prices (home values, stocks, etc.) is a great thing and will strengthen the  economy then lets pass laws to legalize counterfeiting already and get this country back on track.   Do our elected officials really believe this nonsense of QE.    It defies common sense and we all know it will end badly. 
Jul 20, 2013 1:29PM
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I have been criticized for buying physical gold and silver from friends like Im some sort of survivalist doom and gloomer.  Actually Im just a regular guy who resents that our government has taken us off a precious metal standard that allows them to devalue what I work hard for to earn.   People please don't believe that things are really getting better.  Americans are getting poorer,  the standard of living is going down, record numbers of people are on assistance and food stamps and personal savings is at an all time low in the nations history.   Manufacturing jobs are disappearing being replaced by part-time unskilled jobs that are low paying and making employment numbers appear much better than they are.   We all know this is true, sure they are building houses all over the place but for who???  3 years ago you couldnt sell your house and now things are supposedly better.  WHAT A JOKE!!!   The federal reserve has just become Fannie and Freddie,  didnt we just see this movie a few years ago.   Its time to turn the channel.   
Jul 19, 2013 8:34PM
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Yeah, the depression is over!!  We should borrow more money now since we haven't borrowed enough.  That will make things EVEN BETTER!  Hooray for spend-o-nomics!!
Jul 20, 2013 10:59AM
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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.   

 

    

 

Jul 20, 2013 1:35PM
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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.

Jul 19, 2013 11:01PM
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Buy silver.

 

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.

Jul 20, 2013 4:04PM
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GOLD!  It does a little something for everybody.
Bottom line is...there should be a little bit under everyone's pillow,
just in case....

Jul 20, 2013 9:06AM
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why don't obama's administration pack up and leave and we can get America back again. out of subject sorry, but sense 2006 when the dem's took over this country has been going to hell, now lets get it back.
Jul 20, 2013 5:23PM
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It's OK because I have 1,000,000,000 Obama dollars
Jul 22, 2013 4:39AM
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give detroit their own printing press....with the special paper of course.
Jul 22, 2013 1:10PM
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If I increase the money supply I'm a counterfeiting criminal but if the Fed does it its just good economics.  I guess they have a point, my money wouldn't look as good as there's but in 5 years or so it will be worth the same, NOTHING .  
Jul 21, 2013 1:22PM
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Pretty much all I was gonna  do anyway was agree with Fats, about Gold Investments/Trades.

Mark the day....

Jul 21, 2013 5:29PM
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I bet there are a lot of fellas on here sitting on losses right now, holding physical gold or silver.  John Paulson is known for his gold fund, but he said its only 2% of his total holdings.  How much of your total net worth is tied up into this guys? 
Jul 20, 2013 6:46PM
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damn these posting problems piss me off.!!!
Jul 20, 2013 1:45PM
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When are you f'ers ever going to learn how to use a paragraph? It is hard enough to read your nonsense! In fact, I barely glance at them. I just pick out a few words, and I know what they are about. Mostly they are about sh*t -your own!

Har har har!
Jul 20, 2013 9:31AM
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Silver is a good bet, rather than gold.  I said bet as that is far as goes anymore with the continued manipulation of so-called "markets" being genuine. They are not and that is obvious.  In tech stuff and other age old commodities necessary....like silver and like copper.  Gold will never be the do all and cure all in this "world".  You can "save" all the gold you want to....but, it will not "pan" out as it will become subserviant to now "times".   Give it some thought...as noone will buy gold in a few years...say ten.  Why would you?  You are going to pay for an ounce or gold?  There are no guarantors for satisfying your outlay, regardless of what the "hawkers" say.  It is now, the "federal reserve" note.  Have a nice weekend.
Jul 20, 2013 9:37AM
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As I have said in the past, Gold is a trade. It isn't an investment. The history of Gold and its role in our economy is fairly simple to understand. What is difficult to understand is why anyone would buy it beyond jewelry. I guess if you are a hip hop artist or a survivalist, then its price might have some importance to you. 

Anyway, as the economy continues to improve, money will flow out of bonds and other asset classes into stocks. Obviously rates will move up as the economy heats up and consumers start stepping up their buying of cars, houses, and chalupas!

Bonds aren't dead. They will simply have a reduced allocation in one's portfolio. It is really all pretty simple. If you believe as I do that the economy will improve, then stocks are the place to be. 

One other things to note is the economy has a very long way to go to be considered "improved" to the point we have one that is considered normal. What that means is stocks have a long run ahead them!

Har har har!
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