Tuesday, May 31, 2005

Hi Oh... Silver

Today the market decided to go down, particularly at the end of the day, even though the dollar got a lift from the Euro's beating after the French declared they wouldn't ratify the European constitution. With the dollar's strength we thought gold would react negatively and it did, initially. Gold gave up about six dollars in the early going only to see a nice rebound in the middle of the day. Bonds were very strong today getting a boost from the dollar as well.

Silver was the star precious metal today after opening down about ten cents, it managed a gain of about 15 cents. In normal circumstances you might call that a pretty good day, allowing you to buy a nice drop in the morning. PAAS traded down to 13.21 early this morning only to end up 51 cents at 14.29. Not a bad day trade.

There was a comment on yesterday's blog asking for a comment on why anyone should buy precious metal stocks due to their poor valuations. My short answer is that mining stocks, like any other stock, need to be judged not on the past but the future prospects. For mining stocks, if the price of the metals go up, the value of the mines these companies own goes up. It's kind of like what might happen to GM if all of a sudden they could double the price of their cars, they might actually be able to stay in business :-) But, if you can guess at the amount of silver or gold these mines might have, you could say the company is worth what is in the mines less what it costs to get it out and sell it. If their costs don't rise, and your prices do, you have a winning combination.

That is one of the reasons I like the mining stocks and the precious metals themselves, you have more clues as to how the business is running. You have the interaction of the price of the metals with the price of the stocks. The more hints you have, the better you can trade.

Plus, based on the Price of these stocks the last two weeks, rising about 12.5%, their PE ratios have gone up some more. And, if you didn't buy last week you are having to pay higher prices this week.

Look for the Wednesday Update in your email. Lot's of other news tonight, like AIG finally got their earnings out and now we know who deep throat is--not that it's really germaine to the stock market. Too little time...

Dow Industrials: 10467.48 -75.07 (oh oh, under 10,500 again)
BGEIX: 10.20

1 comment:

Anonymous said...

Thanks for the clarification on Mining stocks. I was correct in thinking what I thought I thought but appreciate the confirmation.

Missed the PAAS buy in and am now kicking myself. Ouch, Ouch, one more time, Ouch. There, that should do it.

Enjoyed the 6/01 Wed update. Have been thinking along the same lines regarding this rally. Seems like there is a whole lot of flag waving and very little movement in the markets. It still disturbs me that the market will probably go up in the face of any unemployment news. Having their cake and eating it to all while paying near historic high prices for oil. Lots of smoke and mirrors seems to be distracting everyone from what a month ago seemed to be the bain of the American Economy ($54 and higher oil). Kind of makes you scratch your head.

Will metal stocks retrace enough to get in around $13 (PAAS) or $15 (MDG)? Or would it be a better decision to buy GLD ETF now?

Catch you later.