Recently, a good friend of mine decided to start investing in the junior mining sector space. It did not take long for them to realize just how cyclical this market really is! Since surging in October, gold mining stocks have been trading in a severe downtrend for about the last 10 trading sessions or so. My friend was not fortunate enough to be able to time the market exactly (but seriously who can?) and is now somewhat discouraged to see their portfolio down a good 15 to 20% in such a short period of time…
Have no fear, I say! Although my friend’s reaction is natural, this is just the nature of the business that is the natural resources space; if you want to speculate here, you must have a strong stomach for insane volatility!
For myself, I’m not doing much better and in fact am feeling a lot of pain right now. I wasn’t planning on putting together an update on my overall mining portfolio until the end of the year, but I think now is as good a time as any to post an update…
Readers can see first-hand the type of short-term devastation these type of speculations can impart on a portfolio:
As of market closing, November 12, 2015:
Yup, that’s right — currently, I’m down about 10% and over $22,000!!!
Would you say I am discouraged and regretful?
I know that you can never time type these things exactly, and I accepted upfront that I might potentially lose 10% or 20% or even 50% of my principal along the way… before the tide ultimately turns in my favor.
Similarly, when the shares are trading UP, UP, and UP, I don’t let the good news get to my head… It feels like an eternity ago, but around this time last month, this SAME exact mining portfolio was UP about $23,000…
Things sure change quickly in this space!
As long as the fundamental story hasn’t changed (for each individual company), why trip out about it?
In the long run, I’m convinced (more than ever) that this move will play out and we will ultimately emerge victorious. We must be approaching near a bottom because gold and silver are currently trading at or near the cost of production…
From Gold Price:
There is much talk that gold will soon drop below $1,000/oz… If that were to happen, I would more than welcome it! Even at the current spot price of $1,085/oz, gold is trading at a bargain… Ditto for silver at $14.28/oz…
In fact, I’m hoping to save up some cash over the next few months so I can add more physical metal to my portfolio. It’s hard to turn away from such a rare buying opportunity!
But if the spot price were to decline precipitously further, I can only imagine that demand would go through the roof… and the decline would be very short-lived!
In almost no other market will you be able to find a commodity that decreases in value as demand goes up!
From Gold Core:
Not to mention, the Comex is currently leveraged 300:1 (300 oz of paper gold for every 1 oz of physical gold)… So, who knows how long that game can continue to go on before FINALLY breaking?
Also, we are starting to witness large copper and zinc mines shutting down, which will only further constrain supply of both gold and silver (much of the world’s silver is produced as a byproduct of these mines)… And with emerging markets like China and India continuing to grow out their middle-classes, we can all rest assured knowing that the world’s appetite for metals will not be satiated anytime soon… If anything, demand into the future will only continue to skyrocket further, especially at such low prices!
So, I refuse to be deterred! I continue to approach this speculation with a long-term perspective and not that of a short-term trader:
I learned from real estate back in 2012 that it’s fruitless to try and pick out absolute bottoms; in the end, it isn’t necessary when you are able to buy assets for pennies on the dollar!
I purchased Rental Property #1 for $315,000 and overpaid by $70,000 or so… Had I gotten in months earlier, I probably could have won a similar property for $270,000… In 2012, it seemed like a pretty big deal… In 2015, it’s been long forgotten… Whether I won the property at $315,000, $330,000, or $350,000… cheap is cheap!!!
Over time, the delta of negotiation between the best deals always just end up looking like tiny drops in a bucket…
Today, in the case of gold mining stocks, I truly believe that we are much, much, much, much closer to a bottom (final capitulation) than we are anywhere near a top… which can’t be said for the S&P 500.
For gold and silver, quite simply:
- Demand is strong.
- Supply is constrained.
- And prices keep falling…
As a deep value investor, you’ve got to love that! Whether we are talking about physical gold and silver, or the mining stocks, they are both trading at absurdly cheap levels right now. All I can think about is: BUY, BUY, BUY!!!
And it’s at the near bottom of markets where we have to fight human psychology — It ALWAYS feels like it can go lower at the bottom… until it doesn’t anymore.
Just like it ALWAYS feels like prices can ONLY keep going up at the top of the market…
But if there was ever a time to be GREEDY, it’s NOW!
So, again, I’m not going to even bother wasting my time trying to pick out the absolute bottom… Right now, I’m finding bargains everywhere I look…
That’s where my focus is.
This feels like deja vu… Actually, this is even (better) than it was when I was buying up real estate in 2012…
Photo Credit: Free Digital Photos