Thursday, March 15, 2007

Gold Mining - For Fun and Profit

A number of years ago I found myself wandering around the swamps of Alaska, fishing pole in hand whipping water and trying to to catch a little dinner* when I came upon this native (Alaskan not Inuit) and he was panning for gold. We got to talking a bit and turns out he'd take about 3 or 4 ounces of gold out of this creek a day. OK - two things - first in those days 3 or 4 ounces of gold was worth 115 - 140 dollars (35 an ounce fixed) and second I was making that a month. Needless to say my favorite pastime became panning. And the only one who got rich off that venture was the guy who sold the pans at North Pole Alaska - a little bump in the road famous for being the "home of Santa Claus" - what a racket. One more thing - Alaskan creeks, even at the max of summer, are freezing cold and rough on the hands and gold mining even with a pan requires use of back muscles that are seldom called on for anything other than mucking stables.

Anyway - I noticed the other day that gold was back down again. In fact I ridiculed the gold bugs for being so crazy that they couldn't see that their favorite inflation fighter wasn't fighting inflation. I still hold them in the highest regard because anyone who can delude themselves so perfectly for so long has to have something really serious going on and gold isn't going to cure it - if you know what I mean.

But I do like a good investment, especially one that might make a couple of quick bucks where I don't have to have cold, rough hands and a sore back and gold might be it.

The problem with gold is two fold - one - it listens to its own drummer and two - it tries to march with the major market at the same time. That's why you get this -

Here we have GLD and the SPY and you can see GLD kind of floating around on its own until the market, as replicated by the SPY, takes a dump and then GLD follows suit.

So is it time to buy gold? No I don't think so and as you saw in the last post on pivot points neither do the pivots.

But when the market does turn up - what gold miner should you buy?

Here are a batch of the more popular miners including a couple of my personal favorites - AUY and KGC both of which I've made more than a few ounces of profit from in the past.

Can you spot why I like KGC and AUY and don't particularly care for NEM and GG? That's correct - my two favorites produce better returns and lose less overall than those other two monsters of the gold miner world. I like them nimble and quick and that's what KGC and AUY are - they are also a half to a third the price of the other two and that means I can buy two to three times more shares for the same money.

Also notice that KGC is a leader stock in this bunch. I.E. KGC goes up and you miss it - get on AUY or any of the others. KGC goes down - get ready to dump the others.

Anyway - I'll try to keep an eye on this group and when KGC turns - I'll do another post.

You will note that I didn't include Jimmy Crack Corn Pone's favorite - KRY - in this mix nor did I include the day trader favorite - DROOY. Here's what they look like on a similar chart -

KRY is on its own trajectory and DROOY, while not too bad - is just too cheap and it traded at its 52-week low yesterday, 57-cents. I don't know what happened to this stock but it is on the way to penny-ville.

*--- I was stationed for 2 years in Fairbanks Alaska and one of our favorite pastimes was fishing - and Alaska melts in the summer and it gets steamy, and thick - for all 6-weeks of it. Also buggy - but that's another story ---


IIO said...

Interesting analysis. I know you are more a trader, but, do you have an opinion on gold as a long-term "investment". I have been heavily invested in gold through an IRA since Nov 2004. I had viewed it as less of an inflation hedge and more of a dollar hedge. I hate to admit it, but I am of the belief that the US dollar is doomed. Thanks.


Gold mining it is.