$SPTGD vs. $Gold Weekly

In an effort to stay sane in this very irrational market for gold mining shares, I only need to go to the $SPTGD vs. Gold chart to derive what I need to know.

TMX Money S&P TSX Global Gold Index Constituent Companies

Gold mining share prices are not performing against inflation. In fact, they are drastically underperforming inflation in all respects. For reasons noted, gold companies are spending more money than they're making, resulting in shareholder dilution and very little in the way of dividend returns. Now we can officially say without any doubt that gold mining stocks are the absolute dogs, while gold bullion ETFs are the stars. Gold miners themselves have gone aggressively out of their way to absolutely demolish the investment case.

(Once gold prices peak, ETF holders will divest immediately, where ETFs will underperform drastically. Gold miners, OTOH will continue to produce gold and provide a return in the form of dividends.)

The bull market will likely come in the form of dividend payouts, rather than share price returns, imo. The internal rates of return of some companies will advance exponentially along with the gold price, regardless whether share prices are indexed to gold or not.

Valuations in some of these companies are still astronomical and required to come to earth, as the rest of the equity markets. Many gold mining stocks are heavily exposed to base metals, notably copper. As the bear market intensifies, gold miners making bets on copper will basically be spending money otherwise availalble for shareholders on increasingly costly base metals operations.

Be very cautious at this time, because newsletter writers who are attempting to save face having recommended gold miners in the past, are seeing their opportunity to make gains. Dennis Gartmann is now credited for having recommended gold mining stocks, and this should be a warning flag. Newsletter writers who have peddled their particular sauce about gold miner gains during the depression are back in the saddle with the same factual distortions.

Financial Post

The following chart is the truth of the matter. Internal Rates Of Return and the Net Present Value are the most important facets here, not ounces in the ground or fanciful claims about cash costs. Have these claims provided a return against gold? NO.

And dividends. GBN.V can compete with the largest companies out there by paying very robust dividends. I estimate that GBN.V can pay 3¢ a share for the first year, and then something similar quarterly. If they don't come up with something like that, they're risking a hostile buyout.

Netolitzky stands to lose tens of millions in a hostile buyout and will never realize shareholder value unless he faces reality. The Masuparia joint venture is an example of how greatly sidetracked this company has become.

supersize: http://www.flickr.com/photos/11747277@N07/7162651775/sizes/l/in/photostream/

stockcharts.com

-F6