Crisis-Weary and I Why I still own some Gold Stocks

by Lsigurd on October 2, 2011

I’ve gotten tired of reading about Europe and sovereign debt and under-capitalized banks. I think I have read all I need to know to be able to make the decisions I have to make. I’ve already gotten out of most everything but my very core positions, with those being a couple of oil companies, a special situation REIT, and a few gold stocks.

Its the gold stocks that I am most interested in understanding better. While the gold stocks, particularly the junior and mid-tier one’s, performed terribly last week, I remain somewhat suspicious as to whether this under-performance can be maintained.

The gold stocks have a few tail winds in this environment that very few other stock groups have:

The price of the commodity they sell has risen dramatically in price. Keep in mind that at this time last year we didn’t even have $1400/ox gold. Many of the stocks I am investing in are trading at valuations cheaper than they were at that time.
The costs of production and the costs of construction have come down and, if this is going to turn into a recession, likely will continue to come down. This goes not only for oil, rubber, steel, but for labor too, as in most mining districts gold companies are competing with the gambit of base metal producers that will be less able to bid up for workers
For gold companies operating outside of the United States, in particular those in emerging economies like Brazil and Mexico, the currency headwinds that they have faced have subsided, and these companies should be able to enjoy falling cash costs in USD.
As I have said ad nauseum, the likely endgame for the euro-crisis remains likely to be the end of the euro. It is hard to imagine how the traditional store of value will not do well in an environment where the second largest currency ceases to exist in its present form.

So with those points in mind, and being somewhat euro-ed out from the past weeks of non-stop reading, I sat back this weekend and listened to conference calls and presentations from gold companies. There were a few that piqued my interest, many that provided nothing new, and a few that stood out. I’m going to spend the next few posts, which I will put out over the next few days hopefully, talking about 3 companies that stood out for me: