Gold miners versus physical gold value gap

[mattee2264]

Gold has been on a tear lately. But little evidence of that in the price of gold mining stocks. 

Disconnect is especially apparent since the pandemic not surprisingly as operational costs have risen, interest rates have risen and ESG considerations have tainted the mining industry. But the weighted average all in sustaining costs are around $1,345 per ounce (Source: S&P global March 24) so there is a healthy spread. 

Difficult to imagine much expansion of supply and the industry is consolidating. And unlike physical gold you get dividends while you wait for the gap to close.

I do not have a strong opinion on gold but when central banks are increasing the money supply at a rapid rate its nice to have something that is fairly limited in supply and isn't something like crypto that is overhyped. 

 

Anyone else have any thoughts on gold miners as an investment? 

 

[thowed]

I will stand by the old attributed Mark Twain quote on miners.

 

Either Bullion or Royalties, though arguably the two best: FNC & WPM are too big to grow much now, and the rest I struggle with.

[Sweet]

Miners generally or do you have specific mining companies in mind?

 

Generally I think they are terrible companies run for the benefit of the founders or board members and not for average shareholders.

 

I remember looking at the shares

outstanding for a range of companies in GDX and GDXJ long ago and it was just constant dilution back then.

 

I’m sure there are ok companies but the industry is a hard pass for me.

[Eldad]

Yeah it’s kind of like shale drillers before the washout. They talk about nothing but increasing production and the great new mines they are about to spend billions on. No ROE discussion anywhere. 
 

I bought a little NEM and GOLD earlier this year. It will be interesting to see if they are able to develop the copper assets that they have and how long it takes the market to realize what they are doing there. 

[aws]

I've always treated gold miners like trading sardines. They can have some great runs but you don't want to hold them, and so I tend to find it ok to use the 3x leveraged ETFs as you won't hold them long enough for the compounding decay to hurt you. Back in 2016 JNUG went up like 1500% in 8 months which was a good time, and a couple of good runs on the inverse ETF JDST. 

[FCharlie]

It seems to me like the gold price is being driven by Asian buyers, and the fact that the miners aren't following along is due to 1)American lack of interest and 2) Investors concern about the miners inability to control cost inflation. My suspicion is that eventually the miners will move much higher. I own several. But that said, I think there is another way to play this. I think because there is an extremely low probability that they decline much (since they haven't really risen much) they make for good short put opportunities., I have been short GOLD, AEM, PAAS, KGC puts all year, closing some out recently but letting the rest decay.

[mattee2264]

Central banks are also loading up on physical gold.

 

I was going to go with Barrick and Newmont and Agnico Eagle Mines as they have diversified portfolios mostly in stable regions and not make it a large position. 

 

I was a little surprised by the shale analogy. My impression is at least at the top end the industry is consolidating and reserves have been declining over the years as new investment is not forthcoming. And this trend will probably continue as ESG discourages mining. And the CEOs of the top miners with Barrick a good example are talking free cash flow and capital discipline etc.