With the monetary metal popping by a couple hundred bucks an ounce in 2016 people are coming out of the woodwork to advise us about its vast upside and on the other side of the spectrum, its dangers. I have done a lot of bitching and moaning about gold’s promoters and bashers alike, because they seem to use similar sets of incorrect assumptions from which to extend their theses. Let’s focus on one of the negative articles; in this case a negative piece on gold mining.
I think I am going to do this on a semi regular basis going forward, with both bullish and bearish articles that I think are not giving people a straight scoop (as I see it, anyway). For some reason gold stirs emotions far beyond the average asset. There is ideology, religion, politics and flat out misunderstanding in the worst of gold analysis. Gold mining can be even more misunderstood due to the sector’s unique counter-cyclical dynamics.
Gold Equities Are Not Good Long-term Investments
I agree wholeheartedly with the title.
On March 17th, 2016 our article “Barrick Gold: Not All That Glitters Is Gold” was published. That same day Barrick (NYSE:ABX) Gold traded at its 52-week high of $15.52/share. We outlined why the bull case in Barrick Gold is unsubstantiated. Specifically we addressed that the negative implications of the Zambian loyalty problems, RSI technical indicator, relative equity valuations, credit risk assessment, high CAPEX amidst declining production, and high financial leverage challenges Barrick’s bull case.
And in less than two weeks our bearish case has already started playing out. Barrick’s stock price has declined by ~15% in the last seven trading days.
With respect to the article’s title, so why then are they tooting their horn about a prescient call on Barrick when the sector as a whole is down in a normal and expected reaction similar to that of Barrick? Why on earth are they using a 5 day chart for this long-term thesis?
