Speculative Mania Stocks

Now some gold stocks are in favour, allowing for a very bullish argument for gold stocks in general. I prefer to think at this point that we are in a bear market of unprecedented proportions, and that stocks which are the beneficiaries of increases in the money supply are showing the same speculative mania that had preceded the blowout in 2008.

Detour gold, while one of the best junior gold stories going, is trading at excessive levels, exceeding the high in 2008. Considering that Detour will have to process 60,000tpd to achieve what Golden Band can achieve with 1000tpd, I wonder why the fascination for the stock. But nonetheless, size is important, big widths, low grades, and open pits get attention, and the company has no problems raising cash. The grade controls had better be bang on, otherwise a huge mill will seem not quite big enough or the pace of processing not quite fast enough.

EGO managed to best the gold price, and keep pace with inflation. The inflation-adjusted amount of its high in 1996 is ~$27. This stock is probably a blowout candidate for the onset of the bear market.

OSK will probably cap out soon, another speculative mania stock. They too have large, low grade, open pit mines which the market seems to favour. But we have no way of knowing whether the grade controls measure up. Shareholders are getting their return on investment, but holding on too long will result in a loss. Kinross bought out RBI.TO at 60p/e, probably the worst speculative buy in the market, almost at the very top. Brett Resources shareholders who are now Osisko shareholders are also receiving their new shares at the very top of the market.

There's a bull market in gold bullion, but whether its happening in gold stocks remains to be seen. If the bear market comes on in earnest, shares are likely to decline until their yields match depression-era levels of 10%. Many stocks yield no more than 1% presently. This is a far, far deeper decline than anyone is anticipating. The only companies in a position to pay out a beneficial yield are the gold producers, yet the emphasis is on a return on investment through stock appreciation. There is no risk in some of these stocks as long as they're going up relentlessly, but they will blow out with the market from the simple fact they're equities following the equity market, not bullion.

Conclusion: GBN.V should lay out a business plan which includes a robust yield, one that rewards shareholders for taking on risk, much as this sounds premature. What is the plan? Filpping the property to acquire shares in a bigger company? Allowing the equity swap holders to dictate the share price in an undervalued takeover?

-F6