The death of gold and silver?

Maybe the best way to bring these precious metal stocks back to life is to declare them dead.

By TheStreet Staff Mar 4, 2013 1:35PM

thestreet logoGold Bars copyright Stockbyte, SuperStockBy Marc Courtenay

 

Back in late 1981 or early 1982 one of the most popular magazines of that era had a cover story that read something like "The Death of the Stock Market." I remember it well, and I also recall that the stock market seemed "dead" for years.

 

Well, as Mark Twain penned, "The rumors of my death have been greatly exaggerated." Hopefully the notion that gold and silver stocks have kicked the bucket are also "greatly exaggerated." In fact, on my own "bucket list" is to live to see these stocks rise like the mythical Phoenix and soar spectacularly.

 

On Friday some of the most prominent of the gold and silver stocks hit new 52-week lows. Barrick Gold (ABX), with a market cap of over $29 billion, had an intraday low of $29.33 on huge volume.

 

That's a new 52-week low, and the price is getting closer to the five-year lows that were experienced back during the financial fiasco of 2008 that gave us "the Great Recession." Here's a chart of ABX covering that time period -- look at the trailing 12-month diluted earnings per share (EPS) line. Something smells fishy to me -- and I'm not writing after eating a lox and bagel sandwich.

 

ABX chart

 

Now let's look at one of the bellwethers in the silver-producing world and one of my favorite ways to invest in the upside of silver, and that's the royalty-streaming company Silver Wheaton (SLW), which finished on Friday at $31.75. Here's the five-year chart with the same metrics we applied to ABX.

 

slw chart

 

This doesn't look like a chart that foretells the "death" of silver as a viable investment. Oddly, its price is higher right now then it was back in mid-2012, but it's well off its $40-plus price attained by the end of 2012. SLW is rated a "buy" here at TheStreet.

 

On Thursday TheStreet's research dept. made the following observations on SLW: "The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, expanding profit margins, increase in stock price during the past year and notable return on equity. We feel these strengths outweigh the fact that the company shows weak operating cash flow."

 

Some of the big hedge funds still are betting on the price of gold, even though a large number dumped most, if not all, their shares in Jim Cramer's favorite way to own gold, and that's using the SPDR Gold Trust ETF (GLD). GLD finished the week still clinging to life at $152.46 on average volume.

 

Legendary hedge fund manager John Paulson and his firm, Paulson & Co., remain believers in the future of gold. Paulson continues to hold the largest position in GLD with nearly 22 million shares, worth a jaw-dropping $3.344 billion. That's what most would call conviction.

 

By the way, Paulson's firm still holds large positions in gold and silver producing companies like AngloGold Ashanti (AU), which hit a 52-week low on Friday of $23.88 and finished the day at $24.05.

 

As of Dec. 31, Paulson & Co. held 7.35% of the outstanding shares of AU, valued at nearly $885 million. Van Eck Associates Corp. owned over 4% of AU's shares worth, over $490 million as of the end of 2012.

 

Now I'll let you in on my little secret: After the death of the stock market was proclaimed in the early 80s, stocks began a bull run that lasted for 18 years and soared to new all-time highs.

 

So if I proclaim the death of gold and silver stocks, I just may be the catalyst that begins the next really big rally in them. It's definitely worth a try, although the efficacy of it is questionable and I've been expecting that rally for weeks now. My crystal ball needs a good cleaning.

 

I'll close by showing you a very interesting two-year chart of a gold miner exchange-traded fund that you probably haven't heard much about. The Global X Pure Gold Miners ETF (GGGG) also hit a new 52-week low on Friday.

 

gggg chart

 

All I can say is this little ETF, much like its really big competitor the Market Vectors Gold Miners ETF (GDX), officially hit the two-year bottom in share pricing. These ETFs have a barely detectable pulse rate, and the financial paramedics have been called.

 

Maybe, just maybe, this is the contrary indicator so many of us have been waiting for. Or, maybe gold and silver stocks and the entire sector are comatose and waiting for a kiss from Prince Charming. Good luck to us all!

 

At the time of publication the author had positions in ABX, SLW and GDX.

 

 

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18Comments
Mar 4, 2013 4:31PM
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If gold and silver stocks are 'dead', then why are China and India buying them up? We all know that China plans to have the world's only gold-backed currency. India is probably preparing for the demise of the US dollar. Contrary to belief, gold and silver are not investments; they're hedges against inflation...and we know that it's coming.

Sorry, I'll believe gold and silver -- and their stocks - are dead when the US has a balanced budget and its AAA+ rating back.

Mar 4, 2013 4:42PM
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Gold & silver aren't dead. America is. But they're not. I wonder how many Americans are aware of the fraud that's being perpetrated on them day in and day out? This will all end badly. And when it does...there's probably going to be a reckoning.
Mar 4, 2013 6:19PM
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Thanks but no thanks as long as Barry is in charge of the Obamaville budget, I will hedge with metals.
Mar 4, 2013 5:00PM
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Hell, the next thing this self-appointed dictator will do is pull an FDR and call gold in at face value....this guy is a menance. Now look who he is appointing to run the EPA--good bye COAL, hello GREEN and the pals of this despot.
Mar 4, 2013 9:08PM
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A short 20 yrs. ago gold was selling for about 250/troy oz .Now its about 1600/troy oz .Now lets look back to only 6 yrs ago 2007 .Gold was 700/troy oz. Gold has over doubled in a short six yrs .Sure gold fluctuates from week to week depending on the value of USA currency,but it always holds its own against stocks,bonds,currencies and other commodities.If Gold is dead then you must have died and became a ghost yourself.
Mar 4, 2013 8:31PM
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Gold and silver have been the currency of choice for almost 5000 years. It is pure folly to think just because some yahoo politicians decoupled our currencies 50 years ago from precious metals, that the metals won't be used/accepted as "money" for another 5000.
Mar 5, 2013 12:16PM
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What is it about gold stocks that brings out all the conspiracy theorists?
Mar 4, 2013 4:26PM
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Gold is a momnentum play on fear.  It was in the late 70's or early 80's and it is now.  This is not to say we should not fear inflation in the future, but it is crazy to see gold up 800% on near ZERO actual inflation.  SO it is up 800% on the anticapation of future inflation?  And it will inflate still more "when" inflation does hit?  If the economy stablizes fear will subside, then what for gold?  The question of inflation is still out there, but that story gets older and older and older as the years go by and it does not happen.  Again, not saying it won't happen but you need millions to believe the risk in order to move gold and the number of people believing it falls day by day.
Mar 4, 2013 10:13PM
Mar 4, 2013 6:23PM
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The market is near a record high and these sour puss gold bugs are still trying to find

life in gold.It`s time for Fleck to write an article trying to promote his gold shares.

The gold bugs are still on suicide watch.

Mar 4, 2013 2:27PM
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Don't be one of the fools holding on till the end. If you are in gold, GET OUT!!!

As the economy turns people will want more returns than gold can give. Plus, do some research on who really owns the most gold around the world. If protection from government manipulation is what you seek, you really screwed up on that one. Plus, anyone who bought real gold likely has already lost big being you lose 30%-40% value the second you buy it. Think I'm wrong, try selling it.

 

Yes I invest on a regular basis. Watch GLD , DGZ for gold trends.

 

PS- Remember your realtor telling you homes are always a good investement? Don't be stupid people, this is not a short term trend.

Mar 4, 2013 3:08PM
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FOOLS AND GOLD STICK TOGETHER.At $500 an ounce gold might be a buy.
Mar 4, 2013 5:21PM
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gold will be the next BUBBLE to burst!!!
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