Minyan Mailbag: Navigating Precious Metals
Gold miners should mine gold, not trade gold!
It's hard not to agree with what you are writing, at least for me. Kudos for rhodium. What do you think of palladium? I know that there is a slight excess of supply but it looks quite out of whack with, say, platinum.
I noticed some Aussie producers (i.e. Resolute) are increasing their hedging commitments (and the stocks do not move). Do you think they do it because they expect the gold price to go down OR because they are forced by banks ?
Keep up the nice comments.
I am literally flying to get a plane to NZ but thanks for your nice words.
Rhodium is to precious metals what vanadium is to steel - that's what got me all toey on rhodium back in 2004. Research the metal. Illiquidity is a huge problem and counterparties are rare. Physical is as rare as hen's teeth.
Re: Aussie Producers - many are forced by banks in their financings. I doubt Resolute is. They are just "taking advantage" of high Aussie gold prices thinking they are getting 20 year highs etc. - they discount the inflation adjusted levels which basically doubles the price they should be comparing to. I don't own 'em and won't when they do dumb stuff like hedging. They don't understand that gold is money and all the other reasons I talk about for owning metals.
Further, if they hedge the gold price without hedging their energy costs and other floating costs like interest rates etc., they are on a hiding to nothing, IMO. Energy is a massive cost and they have literally one leg on each side of the picket-fence. Fixed price on a product with unknown future costs is dangerous. With no pressure on costs they are OK, but I reckon they will get "poled" by energy.
Many hedgers think they are "smart." Barrick (ABX) still does and is copping it up the clacker to the tune of about $5 BILLION. Maybe they will win, but I want 100% upside to the massive precious metal bull market that we are in the early stages of. They have just thrown away the optionality that is a gold/metal equity. Gold miners should mine gold, not trade gold!
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