Gold Stocks : More Pain, No Gain

Written by: Jack Boylan

It’s bad enough, from gold stock owners perspective, that the mining companies have underperformed the underlying metal for years. Now, as gold finally had a bad year gold stocks got hit even more. It’s enough to drive them batty. And, of course with tax-loss selling in full swing it doesn’t take a trading genius to discover a loss or two in that sector. And, nobody is expecting a turnaround anytime soon, so the next few weeks could be rough. Although, getting much worse may be difficult:

The losses for the gold miners aren’t much of a surprise given the hefty declines in gold, which are poised to log their first loss in 13 years. But shares of the gold miners have suffered a drop that’s roughly double the year’s price loss for the metal.

That’s right –double! PrimeRates readers are probably familiar with a few of the reasons for gold stocks difficulties, but this downturn is very ugly nonetheless. The main problem, of course, is that many of these precious metals companies let expense get out of hand as the metals shot up in value. Some of that is just natural in that it made economic sense to mine for the more difficult to get to loads. But, some of it just came from riding the good times as miners began to enjoy the ever higher prices. Where will the drop end? That’s not easy to say, as some of the problems are not being solved and of course losses like this breed reluctance. The road back could be rocky and some are not even considering the sector:

“There’s really no bottom in sight right now, unfortunately, and there are a lot better opportunities in other areas of the markets at this point,” said Adam Koos, president of Libertas Wealth Management Group.

To be fair, analysts always say something like that as it is hard to argue with. Of course, there are better opportunities right now with sectors that are, you know, going higher. Who would object to that statement? Jeez. There are some who have a bit of a more positive outlook, even if may not be right now:

“The survivors in the [mining] spacer are going to be the companies with solid balance sheets, meaning they are not levered and who can deliver on guidance at a decreasing cost metric in the current environment,” said Jeffrey Wright, managing director at H.C. Wainwright LLC.

Yeah, well, thanks a lot. While that statement might not be revelatory, it at least has a good does of common senses attached to it. Those companies that bring down their costs and straighten out their balance sheets will have a rebound. And if history is any guide it could be substantial. Beaten down sectors often bounce back with a vengeance. Now, if you analysts could actually tell us when the bottom hits, your usefulness would increase immensely. Let’s not hold our breath.


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Gold Stocks : More Pain, No Gain

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