Miner Responsiveness

[BoxofGold]

I can't get a feel for the answer to this: do miners respond more to the price of PM's or to the market? Obviously, if both are down they will go down and both are up they, too, will be up. My question really relates to opposite moves: SM up/PM down or SM down/PM up...which has the most effect on miner stocks?

I'm thinking in very broad terms rather than specifics. That is, take all "miners" as a group, all PM's as a group and Dow/S&P/Nasdaq as group. (Individuals within those groups, for a variety of reasons, can perform differently than the group as a whole - I'm thinking about the group.)

For example, if the SM is down 10% and PM's are up 5%, what happens to miners? What might a simple formula for this be?

Dm = Dsm + (Dpm*2) Change in miners = Change in SM + 2xChange in PM

Appreciate your thoughts.

[AceNZ]

My experience has been that mining stocks respond more to the market than to the price of PMs. I suspect the reason is that the relationship between profits and PM prices varies widely from one mine to another. Political risk is also a factor with many miners. So, market up means people are optimistic, P/Es go up, political risk is underweighted, etc. PMs up means people are scared, political risk is up, miner's cost of production becomes uncertain, etc.

[jbilprophet123]

If PMs are up on a particular day immediate effect on Miners are unknown and driven more by Market.
If the future expectation of trend of PM prices is up Miners trend up, and in this situation Market influence is limited.
IF THERE IS TOTAL PANIC IN THE MARKET LIKE 2008 EVERYTHING IS SOLD AND PM PRICES OR ANY OTHER FUNDAMENTALS ARE IRRELEVANT.

Lately if you observe closely you will find days when markets up big and even PM prices up but Miners did nothing.
And also days when markets down small and PM mildly up but miners up big.

In short if PM prices trend up and is perceived as that by market Miners will multiply the gains in PM prices.

Also worth noting is the fact that from the bottom of 2008 (HUI 150s) to the level of 500s the gain has been over 300% last year or so Miners are consolidating the gains at the highest range in 400 to 500 range. This is creating a huge opportunity to buy Miners with HUI:POG ratio of .39 a ratio of .55 is norm. So Miners are atlest 30% undervalued at present compared to markets.

If the higher inflation all asset classes go up including recovering stock market happen.
With a gold price of 1650 sometime next year HUI at 850 from current 486 is entirely possible for a close to double.

All my liquid portfolio is in miners with HL, AEM and GSS as three positions and will remain like that for next few years.
DYODD

[BoxofGold]

I have noticed (hence my question) the disconnects among the three. My thinking over the next 3 months is POG and miners up and the DOW down so own miners and short the SM. My concern is that could be a conflicting position...thinking with part of my investments that the other part will loose value. (Panic sells excluded.)

[jbilprophet123]

I have noticed (hence my question) the disconnects among the three. My thinking over the next 3 months is POG and miners up and the DOW down so own miners and short the SM. My concern is that could be a conflicting position...thinking with part of my investments that the other part will loose value. (Panic sells excluded.)

If the opinion is markets are down and PMs are up. A simpler play of buying GLD or DGP(twice) or SLV or AGQ (twice) is probably the best bet for a trade.
A hedge play of long miners say gdx or gdxj and short stock markets by some etfs including skf srs or pure indices, is much more safer and lower beta and lower gain potential play.

But thinking that all of these positions long Miners as well as short SM both will be profitable is less likely. Unless we see a blow off top of Gold and Silver or Markets go down slightly with no panic.

[phideaux]

xau vs. DJIA

http://ichart.finance.yahoo.com/z?s=%5EXAU&t=5y&q=l&l=on&z=m&c=%5EDJI&a=v&p=s&lang=en-US&region=US



xau vs gld

http://ichart.finance.yahoo.com/z?s=%5EXAU&t=5y&q=l&l=on&z=m&c=GLD&a=v&p=s&lang=en-US&region=US

[Ebie]

Some or all miners may be diluted by non-legitimate shares put in circulation by the mechanism of "naked shorting."
I don't know.
No one seems to know--on this forum--quantitiatively, how much of this is occuring.
How can a gold mining stock sell for the same as it did 15 years ago when gold has gone up four fold?
Be well.

[BoxofGold]

Unless we see a blow off top of Gold and Silver or Markets go down slightly with no panic.

Not likely! Clarity enters.

[AceNZ]

How can a gold mining stock sell for the same as it did 15 years ago when gold has gone up four fold?

Stock prices are generally related to earnings, but earnings are not directly related to metal prices.

The costs of mining has gone up tremendously in the last 15 yrs. In fact, one could argue that one of the major factors pushing up gold prices has been the increasing cost of production....

The production costs at ABX were $145/oz in 2000, and $463/oz in mid-2009 -- up by more than a factor of three in just nine years. In 2008 alone, average production costs rose about 25%.

Also, some mines still hedge significantly (sell future production at current prices), and haven't been able to profit as much from upward moves in the market as they would have otherwise.

[Ebie]

I hope that you are correct, and, that it is not due to "naked shorting" or other maniupulation.
Be well.


Stock prices are generally related to earnings, but earnings are not directly related to metal prices.

The costs of mining has gone up tremendously in the last 15 yrs. In fact, one could argue that one of the major factors pushing up gold prices has been the increasing cost of production....

The production costs at ABX were $145/oz in 2000, and $463/oz in mid-2009 -- up by more than a factor of three in just nine years. In 2008 alone, average production costs rose about 25%.

Also, some mines still hedge significantly (sell future production at current prices), and haven't been able to profit as much from upward moves in the market as they would have otherwise.