Two things to remember:Here we are two months later with gold at $1387.20 and the GDX at $28.52 and it is only in the last few weeks that we are beginning to see some outperformance by the miners. Here's the 3-month chart from Yahoo:
1) the mining stocks are highly leveraged plays on the commodity, a 1% drop in Au can cause a 5% drop in the miners.
2) looking at the option prints is only part of the story. We don't know if the trades are a directional bet, a hedge against common, a roll of a previously establish position etc.
Gold is up $13.30 (0.85%) at $1,586.3; the Market Vectors Gold Miners ETF is up 4.07% at $36.06....
Mish Buys a Basket of Miners
Most of my investment funds are under management at Sitka Pacific. I also have investments with GoldMoney and some other assets from my late wife Joanne.I think he's early, just as I thought one of our favorite bloggers was early back in March and again in early April:
I believe precious metal miners represent true value, but I cannot state when the market will come to the same conclusion.
Last week I bought a basket of miners with a significant amount of money. Many of these stocks are also held in various Sitka Pacific strategies....MORE
Last month one of our favorite blogs, Cassandra Does Tokyo, expressed a hankerin' for some miner love and I tried to (gently) poke fun at the trade:
Cassandra Likes Gold Miners (XAU; GDX; HUI)
Cassandra's fate was to foresee the future but have no one believe her....Here's Cassie after taking the dive into Vancouver- listed Canadian juniors:
She was also the second most beautiful woman in the world and deranged....
Cassandra by Evelyn De Morgan
(1898, London); Cassandra in front
of the burning city of Troy
at the peak of her insanity
I've mentioned that the ultimate bottom of this cycle could very well be the (nominal) top of the last cycle, the $875 print ($2360+ adjusted) in Hong Kong in January 1980. That would be far below the all-in costs of mining and even below just the cash costs alone for some of the miners:
...Analyzing the all-in sustaining costs (total costs associated with producing gold), 2013 guidance of Barrick Gold, Newmont, Kinross, Goldcorp and Agnico Eagle ranges from $950 to a maximum of $1200 per ounce....
Just yesterday Russia's Polymetal estimated their cash costs at $725-$750.
This comes as the industry is the least hedged it has been since 2002 meaning any further declines throw the miners into a negative cash flow situation. That 5:1 leverage for the equities mentioned in the first quote could easily go to 7 or 10:1,i.e. as gold trades below their costs the miners are actually at risk of insolvency.
I'm in no hurry to own these guys even hedged as a pair trade against the commodity.
However, if you are a believer and want serious exposure there is always the Direxion triple leveraged ETF, NUGT.
(the inverse triple levered is DUST as in "Ashes to ashes...")
The other long ETF to consider for maximum gearing is GGGG.
