A couple of Gold Stock Positions (AR.to, TMM.to)

I’ve made a number of moves in my portfolio over the last couple of weeks and in a few cases the stocks I’ve bought have already started to move so I thought I’d dedicate a few short posts this weekend to talking about the changes before things get any further.

A couple of Gold Stock Positions

I haven’t been in any gold stocks since the spring.  When I sold out of my positions, I gave the following state of the union.

But the path gold takes to get there could be rocky.  In particular, its clear that the market believes that quantitative easing has worked.  And indeed, the US economy is getting better.  Whether the economy, and the financial markets, can continue to improve without massive injections of money is an open question.  But until that question is answered, which could be 6-12 months away, the working assumption appears to be that it will, and that is going to be bad for gold.

A number of reasons led me to foray back into gold stocks last week. First of all, the debt ceiling appeared to be and finally did get settled on what seems to be a pretty temporary basis. Second, Janet Yellen was announced as the Fed Chairman beginning next year. Third, the latest economic data for the US economy is looking pretty milk-toasty, and fourth, the gold stocks I look at were at or lower than the levels in June and thus were reflecting none of this. I tweeted the following on October 15th.

As I am want to do, I added to my position in both Timmins and Argonaut after they moved up from my initial purchase.

I will be the first to admit that these are not necessarily the best choices in this environment. It was pointed out to me by a friend that if gold rises the companies that will really take off are those that are in the mid-cost range ($1,000/oz) that was marginal before but very profitable if gold returns to $1500/oz. He’s probably right.

But what can I say – I have limited time and resources, it made sense to be in the space given all the above mentioned factors, but I just don’t have time to review the entire universe. I’ve studied the operations of both Timmins and Argonaut in the past, I’m comfortable with their sustainability and their cost structure, both have already passed the hurdle of announcing Q3 production, they are cheap and I saw limited downside if I turn out to be wrong. It was just a simple choice to make a sector bet and I think they should at least outperform the sector marginally.

Maybe some day I will be able to come up with an idea and devote the next 8 hours of my day to figuring out the best way to play it, but I’m not there yet. Good enough investing.

I do not plan to overstay my welcome in gold. What I wrote back in the spring still applies.  We will have another round of speculation about the end of quantitative easing and when that happens gold will be weak.  But until then, we may continue to see a rally here in the gold stocks and if that happens I think its prudent to be involved.