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Gold up 2.9% HUI down 2.2% today


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Gold up 2.9%, HUI down 2.2%

 

I know there has been turmoil on the stockmarkets today, but I'm losing my patience with my mining shares!

 

Anyone else having doughts?

Who wants mining shares in a bear market like this one? They are almost as bad as the uranium mining shares.....(Though not quite)

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Gold up 2.9%, HUI down 2.2%

 

I know there has been turmoil on the stockmarkets today, but I'm losing my patience with my mining shares!

 

Anyone else having doughts?

 

Today, the HUI's been caught up in a broad stock sell off, bearing no reflection on the stocks it contains.

 

I think the HUI looks like a very good buy, if you believe that gold is going to new highs. I understand your frustration, seeing the HUI drop to half it's value, since March, but it's still acting as a magnifier on the movement of the gold price, as you'd expect since it's product is gold itself. It benefitted a lot from the moves up, but suffers a lot on the moves down.

 

I don't see any reason why the HUI can't double if gold can reach $1200.

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Not just HUI. Biggest fallers in London today have mainly been miners. Lonmin rejected a bid of around £33 a share a month or so ago. Most of these miners have the levels of cashflow that the banks listed can only dream about.

 

FTSE 100 - Fallers

 

ICAP (IAP) 289.25p -23.58%

Man Group (EMG) 305.50p -18.26%

HBOS (HBOS) 142.00p -18.06%

Xstrata (XTA) 1,578.00p -17.47%

Royal Bank of Scotland Group (RBS) 173.00p -16.83%

Eurasian Natural Resources (ENRC) 473.25p -15.34%

Kazakhmys (KAZ) 567.00p -14.74%

Lonmin (LMI) 2,108.00p -14.62%

Lloyds TSB Group (LLOY) 217.25p -13.45%

3i Group (III) 685.50p -13.12%

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I'm concerned that many investors holding mining shares are goldbugs looking for extra leverage over physical.

 

As global meltdown of the financial system now looks a real possibility, I think many goldbugs holding miners will want extra security and sell their shares to buy physical, especially as the leverage doesn't appear to be working anyway. This will of course further reduce the share prices of mining companies.

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I'm concerned that many investors holding mining shares are goldbugs looking for extra leverage over physical.

 

As global meltdown of the financial system now looks a real possibility, I think many goldbugs holding miners will want extra security and sell their shares to buy physical, especially as the leverage doesn't appear to be working anyway. This will of course further reduce the share prices of mining companies.

 

Miners are not so concerned with today's price but the future price of gold. Even without leverage, the HUI to gold ratio was relatively constant at around 0.5 for a number of years, but then began to fall in April, when the serverity of the correction in gold became apparent, due to fear that the gold bull may be over. It's only trading at 0.35 at the moment. I think, if and when, it becomes apparent that the gold bull is still alive, 0.5 can easily be seen as the fair ratio again. If I'm right, it should offer an 40% gain applied on top of the value of a gold investment, if the gold bull is percieved to be stronger than before then we could expect a ratio of beyond 0.5.

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