Miners versus precious metals

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#1 Mon, Aug 14, 2023 - 7:25am
Joined: Aug 29, 2011

Miners versus precious metals

Thanks to Turd for opening up this third main forum a few years ago. It definitely filled a void after the reorganizing of the forum in 2014. Investing in Mining shares isn't exactly trading (though it can be) and even less stacking and preparing.

On the trading forum, I have been keeping alive one of the few mining threads: "Precious metal miners: fathoming the abyss"

The title and and the introductory post suggests that mining shares are lagging precious metals over the long haul. This is indeed the sad story illustrating how generations of mining investors lost at least part of their wealth allocating money to a sector that has been clearly lagging both precious metals and the broad stock market.

Sell side analysts keep pointing to the expected leverage mining share profits realize during a precious metals rally. However, those increased profits are not sustainable, since mining also is wasting an asset: the very mineral layer being exploited. Replacing the asset is an ever lengthier and more costly endeavor.

Several articles on "Mining Corner" illustrate this, both from a tactical as from a strategic point of view.

The latest: Permanent impairment of precious metal miners to the price of the metal as well as the ominous: Miners index (HUI) to gold regression impaired illustrate how and when miners last derailed. Entering the 'regression' keyword provides a list of previous articles illustrating how leverage may hold over a short time frame. Just one example: New linear regression between the HUI miners index and the Gold Price This last article also lists several of the previous linear regressions which failed over the last two decades.

Is all of this a reason never to invest in gold or precious metal mining? No, but it is at least a reason to remain cautious, avoid 'doubling down' on a losing play but rather take your loss. Have an exit strategy by lightening up on miners during a rally.