Sunday, November 6, 2016

Perth Mint Dragon and Phoenix 2017 1oz Silver Coin

I have another coin recommendation for readers' consideration. That is the: 
 

Perth Mint Dragon and Phoenix 2017 1oz Silver Bullion Coin

 


I posted a thread about this coin a number of days ago on Silver Stackers to get some market feedback as I thought the coin had a lot of potential. With a mintage of only 50,000 and only 5,000 of those being sold directly from Australia, it reminded me a great deal of the 2014 Wedge-Tailed Silver Eagle Coin I had recommended on this site a couple of years ago (which has increased in value substantially despite spot price having moved little since).

Interest was strong with a number of members expressing they would like to purchase 100 or more coins, so I don't expect the 5,000 being sold through Australian distributors of the coin to last long.

The Perth Mint gave an indication on their blog that it is a 'one off' however I was contacted by the company who commissioned the coin (LPM) and they advised to expect different coin 'types' with the same design, such as a high relief and/or gold version. The coin was conceptualised and designed over two years before release. Design approvals for a 2018 coin are in the pipeline, meaning this is intended as the first coin in a series (which in my view adds to it's collectability), described by the LPM contact as being 'Chinese based with international appeal'.

Dragon and phoenix have been represented together on a number of coins in the past. When I asked in the Silver Stackers thread about the significance / symbolism I received the following response from one member:
In China, dragon and phoenix are also symbols for marriage harmony.

Traditionally, the groom wears a red suit with dragon pattern on it, and the bride wears a red dress with phoenix pattern.

Dragon is also the symbol of the Emperor and phoenix is the symbol of his wife being the Queen.
Perth Mint said the following on their blog:
The dragon has supreme status in Chinese mythology as the greatest divine force on Earth. The Phoenix is regarded as an immortal bird whose rare appearance foreshadows harmony at the ascent to the throne of a new emperor.

In Feng Shui, the dragon and phoenix are perfect matches for one another. The phoenix is ‘yin’ while the dragon is ‘yang’ in the Chinese philosophical account of natural balance and interdependence. Their portrayal together is a widely recognized symbol of everlasting love.
The coin designer was Tom Vaughan who also designed the 2014 Year of the Horse Gold and Silver Coins for Perth Mint and the 2017 Year of the Rooster Silver Coin (along with many others). In my opinion the coin design looks great, though I wonder whether it would have looked better with the creatures head to tail, instead of head to head and also perhaps smaller on the coin, so the design looks less 'busy'. Also I'm not a fan of the 'cartoon like' eyes on the dragon. Nit picking aside, I am sold and think it is worth buying if you can purchase for less than $10-11 over spot (and have bought some myself).

The phoenix and dragon have been represented on a number of Chinese coins and medals in the past including this coin from 1990:


And this recent beauty from the Nanjing Mint (photo via Chinese Medals):


This medal is very nice with a fantastic design and high relief finish, however is minted in very low numbers and is much more expensive and difficult to source, so I see it belonging to a different market to the Perth Mint coin.

The Perth Mint Dragon and Phoenix 2017 1oz Silver Coins can be purchased (at present) from:

LPM

I understand that Modern Coin Mart is the exclusive distributor in the North American Market, so you can probably expect to see these appearing soon in slabbed / graded form.

Those who follow my bullion coin recommendations will see they are often a hot product which sell out quickly, so best to move fast and avoid disappointment if you have an interest in purchasing for release prices. For those who missed out on the Monkey King Coin which I recommended previously (they have since sold out at Perth Bullion and APMEX), these can still be purchased at LPM for a great price (currently 'on sale').

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Saturday, October 8, 2016

Monkey King: A Perth Mint Year of the Monkey Novelty

Earlier this year I recommended a couple of silver bullion coins (for those interested in buying silver), those being the 1oz Perth Mint Silver Koala Coin 2016 and the 1oz Perth Mint Silver Kangaroo Coin 2015. This post will be a brief coverage of a third (and one that I have purchased personally).

I have covered the reasons for my preference toward Perth Mint silver bullion coins many times in the past, they have a (relatively) low mintage (compared with many other silver bullion coins), are minted with aesthetically pleasing designs, often come individually capsuled with a quality finish and while priced as bullion coins on release, often attract additional premiums in the future.

I haven't purchased any of the recent lunar bullion coins from Perth Mint in bulk (the last was the horse). While the designs for the goat, monkey and recently released rooster are fine (realistic depictions), they are somewhat less interesting animals than those earlier in the series such as the dragon, snake and horse, which in my view makes them less attractive to buyers. From time to time Perth Mint releases additional lunar coins during the year, which don't match the standard lineup. Examples have included a coloured gold dragon coin, the design of which differed to the standard release and privy coins (of which I'm not a fan). Another which I only recently discovered is the 'Monkey King', produced as a one-off, but falls within the 'Lunar / Year of the Monkey' category of coins.


The Monkey King silver coin was struck in 1/2oz, 1oz, 2oz, 5oz, 10oz, and kilo sizes. However, only the 1oz size was released at retail by The Perth Mint in presentation packaging (now unavailable on the website). The other coins were manufactured on behalf of Perth Mint's international wholesale clients.

Maximum mintages for the Monkey King silver coin are as follows (though final sales may end up lower):

1/2oz = 100,000
1oz = 100,000
2oz = 10,000
5oz = 10,000
10oz = 5,000
1 kilo = 5,000.

The Perth Mint housed these coins in capsules for delivery to wholesale customers (e.g. Baoquan) who were responsible for any additional presentation packaging (as pictured in this thread on Silver Stackers).

I purchased a box (100) of these coins, they are available from Perth Bullion and APMEX (Perth Bullion appear to be sold out now). These were the cheapest prices I could find, there are other dealers selling them for substantially higher prices. At the time of writing there are only 113 available from APMEX and 255 at Perth Bullion (was 355 earlier this morning). I expect that once they are sold at dealers the premium for these coins will begin to rise.

The one negative aspect is that this coin doesn't naturally fall into a standard series that may see collectors trying to collect an 'entire set' in the same way as the standard silver lunar coins, koalas, kookaburras and kangaroos. However I suspect the novelty of the coin and Chinese origin of the design may see them sought out by collectors and investors alike, increasing their value over purchase price. It was a little more over spot than I would normally like to pay (A$11, which is almost 50% more at current prices), however think this purchase will turn out ok and took an opportunity to 'buy the dip' with the recent pullback in the price of silver.

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Tuesday, September 20, 2016

Gold Exposure For Superannuation Without An SMSF

I have written on gold exposure in superannuation without the need for a Self Managed Super Fund (SMSF) in past articles here, for example some funds allow direct equity investment. IOOF Employer Super (previously know as Spectrum Super) is one such fund and has a fairly extensive list of direct shares and securities (including gold miners and PMGOLD).

As mentioned in a recent post I have added gold related positions to my super the last couple of years with Silver Lake Resources (SLR), Medusa Mining (MML), Norther Star Resources (NST) and since then Regis Resources Limited (RRL), but not everyone wants to expose themselves to the risks associated with miners. Not everyone wants a level of involvement in their super investments such as that which is required to pick miners or work out what allocation they should have to gold.

What is a conservative allocation to gold in your superannuation fund anyway? 5%? 10%? How does 25% sound...
"The Permanent Portfolio is an investment strategy developed by Harry Browne in the 1970s that advocates splitting your money equally across four assets – cash, gold, equities and bonds – and rebalancing back to that split whenever they diverge too much. Mainstream financial planners would probably balk at a 5% allocation to gold, let alone 25%, but how does such a strategy perform in reality and could you get your financial planner to consider it?

For Australian investors hard numbers on the Permanent Portfolio strategy can be found by looking at the Cor Capital Fund, run by Davin Hood. His latest Quarterly Report is out and his fund’s performance, as summarised in the chart below, I think justifies giving the strategy some consideration."
The above written by Bron Suchecki in 2015 was paired with a chart which I have taken the liberty of updating for this article:

Click Chart to Enlarge
Bron continues:
"It is important to note that the blue line is the theoretical performance of the strategy before the fund started and the white line is its actual performance. What is clear from this chart is the low volatility of the fund’s performance – yes, you don’t get big gains (as the Australian Equities line shows in 2006 & 2007) but nor do you get the big losses (as happened in 2008). For those looking for a consistent and safe investment plan for the long run, this chart shows that the strategy has merit.

Part of the performance comes from not just the choice of asset classes to allocate to but the disciplined rebalancing between those asset classes. Unless you are willing to hold all of these asset classes, and sell those which are up and buy those which are low, the strategy probably will not work as indicated.

Unfortunately, if you are looking for someone else to be that disciplined investor for you, Cor Capital is currently limited to sophisticated/wholesale investors, which means, for example, an initial investment of $500,000."
It has been highlighted to me that this fund is now far more accessible for Australian investors, particularly for those with an interest to buy in through super. You can allocate as little as $1000 to the Cor Capital Fund if you have at least a $5000 super account balance.

As briefly described on the ABC Bullion website:

1). Open a brightday Complete Super Account
2). Transfer some or all of your Superannuation to brightday
3). Invest in the Cor Capital Fund


They have a more in depth brochure available here.

On seeing this, my first thought was to take a look through the Cor Capital Fund PDS (cynical I know). A number of risks associated with gold were listed (price risk, government risk e.g. change in laws), but interestingly saw no mention of custodian risk and the only mention of how the gold was held, "Physical gold is held in professional bullion vaults on our behalf."

I sent an email to enquire how the gold is stored and received a prompt reply from the Portfolio Manager (Davin Hood): 
"The Fund precious metals allocation (25% approx.) is currently 99.8% in physical gold and we keep about half in Perth at the Mint and half in Sydney at Custodian Vaults (ABC)."
I do like that the fund has a conservative approach even with the storage of it's gold, diversifying across the two companies and locations.

I don't have any intention in the near future to move a portion of my super into this fund, however it looks like a reasonable option to consider for those who want to have exposure to gold as part of a diversified portfolio in their super.


 
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Thursday, August 4, 2016

Australian House Prices in Gold / Silver Ounces (2016)

Every 12 months I have been updating the data I keep on Australian house prices measured in ounces of Gold and Silver. Here is the latest update which takes us through to June 2016 (inclusive).

Data for house prices is via Residex (median house price indices).

Data for Gold and Silver prices is via Perth Mint (bid average AUD).

Key Figures:

Adelaide (Ounces to buy a house) 
Housing Peak Against Gold (February 2005): 501oz Gold
Latest Figures (June 2016): 258oz Gold, 19,332oz Silver
Based on Current Spot Price: 249oz Gold, 16,389oz Silver

Brisbane (Ounces to buy a house)
Precious Metals Peak (January 1980): 62oz Gold, 1091oz Silver
Housing Peak Against Gold (February 2004): 600oz Gold
Latest Figures (June 2016): 296oz Gold, 22,237oz Silver
Based on Current Spot Price: 286oz Gold, 18,852oz Silver

Melbourne (Ounces to buy a house)
Precious Metals Peak (January 1980): 67oz Gold, 1181oz Silver
Housing Peak Against Gold (February 2004): 661oz Gold
Latest Figures (June 2016): 433oz Gold, 32,460oz Silver
Based on Current Spot Price: 417oz Gold, 27,519oz Silver 

Perth (Ounces to buy a house)
Housing Peak Against Gold (July 2007): 642oz Gold
Latest Figures (June 2016): 295oz Gold, 22,128oz Silver
Based on Current Spot Price: 285oz Gold, 18,759oz Silver

Sydney (Ounces to buy a house)
Precious Metals Peak (January 1980): 103oz Gold, 1811oz Silver
Housing Peak Against Gold (February 2004): 1100oz Gold
Latest Figures (June 2016): 625oz Gold, 46,876oz Silver
Based on Current Spot Price: 603oz Gold, 39,741oz Silver

(Spot Price ratio calculated on A$27/oz for Silver, A$1780/oz for Gold)

Gold and Silver (monthly data) outperformed all capital city prices since the last update.

My position remains the same as it has been since 2014:
"Over the same period (next 3-5 years) I expect rising precious metal prices and a lower Australian Dollar, so do think investors stacking ounces for the eventual purchase of a house will be rewarded (even those in Sydney). Only time will tell if I'm right." 
That said I purchased my own home again in the past 12 months as recently covered on the site:
"But my advice would be not to live your whole life waiting for, planning for, or even hoping for, the next "big crash" (either of the financial system or housing market, arguably the two are joined at the hip in many modern economies).

That might sound odd coming from someone who's analysis, speculation and investments led them to buy a lot of precious metals and write under a handle like 'Bullion Baron'. Some readers may picture me as a nutter with a bunker full of long life food, guns and Gold, just waiting to live out the financial apocalypse 'doomsday prepper' style, but the reality is far less intense.

I'm not saying you shouldn't be prepared for and insure yourself against financial catastrophe, but once you have done so, go out and live a little. The last significant purchase of Gold I made was in late 2014 (after accumulating in the dips periodically in the 6 years prior). I have recently felt comfortable buying a home again in my local property market, Adelaide."
Here are the charts (click any to enlarge).






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Thursday, July 21, 2016

A Common Sense Approach to Picking Gold Miners

A lot of my early posts on this site were about gold (& silver) mining shares, covering which I owned or was looking at in the precious metals space (& why). Over the years I’ve had a number of people email, ask in person, direct message me (on Facebook/Twitter) about gold mining shares, asking for my advice on which miners they should buy, opinions on specific companies or whether it’s time to re-enter the market. My replies have remained relatively broad (& probably unhelpful), because I haven’t spent very much time researching or keeping track of companies in the precious metals space for around 4-5 years. I held some long term gold miner positions in my super (unfortunately given the price trend!) and in 2013/2015 I spent a little time looking at some options adding NST & SLR/MML. Thankfully the rise in these 3 has far more than made up for the losses in the others I hold.

I thought I would write a quick post on how I narrowed down and compared gold miners in the past (2009-2011), which will hopefully provide some ideas for those interested in the gold miner sector who want to take a punt. I am not a fund manager and have no experience in the mining industry, so most of the below is just a common sense approach I took as an individual investor. A lot of the below was simply learned along the way over several years speculating.

Suffice to say if you do not share my view that the price of gold is headed higher over the next couple of years, it would probably be a waste of time reading past this point. My view is that gold miners will provide leveraged exposure to a continuing secular (& new cyclical) bull market in the price of gold. If you think this is another false move or that the price of gold isn't likely to head much higher, then avoid owning gold mining stocks at all.

I am going to look at what are considered nano/micro-cap (capitalisation) stocks. This is the riskiest end of the market (but also the most potential for lucrative gains), so DYODD and don’t consider any companies I narrow it down to here as an invitation to buy. They should make up only a very small percentage of your portfolio. I don’t own any of the companies listed below, however may buy/sell any of them in the future at various times. I prefer researching this end of the market (<$200M market capitalisation) because their finances are often simpler, they have fewer projects and other moving parts which can make peer comparison easier. You can take a similar approach when comparing larger gold miners, but you probably won't need to dig as deep into the specifics (e.g. if they have a $100M in cash, you probably don’t need to be checking their cash burn rate to see if they have enough to last the next two quarters). To balance your exposure to gold mining companies you may choose a handful of companies in each size range, for example 6-12 nano/micro-cap companies (spread your risk!), 3-4 mid-cap and 1-2 large-cap miners.

Here is the basic agenda:

1. Find a list of gold miners
2. Narrow selection based on quantitative criteria
3. Narrow selection based on qualitative criteria
4. Choose the companies you will consider buying
5. Find a good entry point
6. (…)
7. Take profit (or cut your losses)

And here we go…

Find a list of gold miners


The list of gold miners you want to consider will depend on your situation. You may want to only consider those on your local stock exchange. You may only be able to consider those in the ASX300 if you are in Australia and looking to buy using a superannuation fund which allows direct share investment. As an Australian investor wanting to stick with those available on the ASX I find a Gold Nerds subscription an invaluable time saver and tool (you will see why later as we narrow the selection). If you want to compile your own spreadsheet (making it easier to compare the stocks) Gold Nerds handily has a list of the companies they cover on their website (see here) or try Mining Feeds / Junior Miners for broader lists which cover miners in other countries along with Australia (don’t rely on any list to be 100% complete or accurate).


Narrow selection based on quantitative criteria


Here is where having a spreadsheet like Gold Nerds or having created your own with the relevant information makes things easier. We can narrow down our list in a variety of ways, for example limiting those we look at by market cap, gold reserves or cash. Here is a quick list on what I will be using to narrow the selection of miners (using the Gold Nerds spreadsheet):
  • Less than $25M market capitalisation (as above, looking for nano/micro-cap stocks)
  • Cash holdings of more than $1M (looking for cash that will last for at least 2 quarters) 
  • Market cap more than $2M (to avoid absolute bottom of the barrel stocks, probably best avoided) 
  • Share price higher than .001 (to avoid companies whose shareholders may value it less, but can’t price that in)
  • 75%+ in Gold (as opposed to having Gold as a side show to other minerals)
Here's how the list looks after the following factors are taken into account (narrowing a list of 200+ companies to 40):

Click Table to Enlarge

Keep in mind that some of these may change with regular updates. For example sorting based on market capitalisation, you may find that stocks fall into and out of your selection based on share price movement from one day to the next, so you may want to run these checks over a period of days or even weeks to ensure all relevant companies are captured. Another option is to use a buffer approach, for example instead of searching for companies with a market capitalisation under $25M, bump it up to $30-35M.

This isn’t an exhaustive list of quantitative comparisons you might consider. For example some other relevant data to check for:
  • How many listed shares do they have? (low share price, high number of shares can be indicative of significant past dilution)
  • How many listed and unlisted options do they have?
  • If the company is producing, what is their cash costs (per ounce mined)? Total costs? Net profit? Earnings per share?
  • What size is their JORC mineral resource? Ore reserve? What is the grade?
  • How long will their cash last?

The relevant questions may depend on the stage of the company (explorer, developer or producer). In the nano/micro-cap space you won’t have many companies producing (or even nearly at that stage), so some of the above questions won’t be relevant.

Remember you are not trying to calculate the absolute best miner/explorer in your list, but typically a group of the best among their peers. So the measures you use here to narrow the field are more about ruling out the worst. 

Narrow selection based on qualitative criteria


This is probably the more difficult measure to narrow the selection. Quantitative data can be relatively easy to compare (e.g. Debt too high? Forget it. Not enough cash to fund the next quarter? Too risky.), but qualitative is where you need to review various aspects of the company where it may not be so easy to choose one over the other. Also you may need to review some of the quantitative findings in a qualitative manner.

For example, perhaps they have a high number of shares issued… many junior mining companies have had to issue a lot of shares over the past few years just to survive. Did they raise capital in a responsible manner (minimising dilution of existing shareholders where possible)? Did they provide an opportunity for all shareholders to take part (through a Share Purchase Plan)? Did institutional buyers retain their shares in the company or just flog them off (or still trying to sell them, creating a supply overhang which may keep the share price low)? If they have a low number of shares on issue, is that just because they’ve had a share consolidation recently?

Some of the numbers may not be directly comparable, for example a low-grade body of gold bearing ore close to the surface may be far more lucrative than a deep high-grade vein style deposit which can be costlier and more difficult to mine.

The easiest way to work through this review and selection process would be to come up with a set of questions that you think are important and work through them for each company. Some areas you may look at:

Management/Directors
  • What relevant experience do they have? (Many small company directors are lawyers/accountants)
  • How long have they been with the company? (Recent changes in management can be a warning signal)
  • What are they being paid? (I typically prefer companies where exploration expenditure exceeds administration costs) 
  • How many are there (relative to size of the company)? (Does a small cap company with 1 project need 6 directors?)
  • Are they looking after the little guy? (SPPs instead of only institutional placements when raising capital)
  • Are they marketing the company? (Investor presentations, conference appearances)
  • Do they deliver what they say they will? (Time frames for drilling results or development milestones)
  • Do they have a significant stake in the company? (If they aren’t prepared to invest their money, why invest yours?)

Mineral Resource/Ore Reserves
  • Do they have a resource/reserve? Does it comply with the JORC code? (Some may use less reliable international measures)
  • What is the grade of the resource? How does that grade compare with similar mine types which are currently producing?
  • Is the resource spread over multiple deposits or in one location?
  • Are resource upgrades expected?
  • Is there a large enough resource/reserve to justify development? (Answer often lies in a mining feasibility study)
  • How long has the company had the resource? (If the resource was defined 10 years ago is there any sign it will be developed?)
  • Has the discovery cost of existing resource been justifiable? (May give indication of viability to extend resource/reserve)
  • How many years’ worth of mining will their resource/reserve last?
  • Is it likely current resources can be converted to reserves?
  • What other minerals have been detected and of value if mining occurs? (e.g. Silver, lead, copper credits may offset production costs)

Cash/Finance
  • How much cash do they have? (Check balance from quarterly report then add any $ from placements/minus estimated expenditure)
  • What’s their rate of cash burn? How long will their cash last? (Less than 2 quarters and you’re at high risk of near term dilution)
  • If they have a significant cash balance, what are their plans for it?
  • Do they have any liabilities (loans)? Any outstanding accounts? Hedging?
  • Do they have a financing facility which dilutes the share base? (Often a bad sign if a company resorts to this type of financing)
  • If an advanced explorer how will they fund development/plant costs?

Exploration/Drilling Results
  • What drilling results do they have due soon? (Which could be a catalyst to send the share price higher) 
  • What is the grade, length, depth of past drilling results? Is it open along strike? (Could indicate more positive news to come)
  • Are they funded for upcoming drilling programs?

Tenement/Project (Including History)
  • Has the project got a history of mining? Was it successful? (Attempts may have been made by other companies to explore/mine the same project or deposit)
  • Have any companies gone into administration mining the same project? What will the current company do avoid the same?
  • Has the price of gold risen enough to consider the project viability again? (Despite any past failings)
  • Does the company own 100% of each tenement/project or only part of? (May need to split profit or pay royalties)
  • Where is the project located and does its geographical location pose substantial sovereign risk? (See KCN on the ASX)
  • Is their tenement/project in a region known for gold exploration, development and production? (i.e. Supportive local government)
  • Has there been any local protests or concerns raised in relation to the company or project?
  • Are there underutilized plants nearby? (They may be able to truck ore to process it without incurring mine development costs themselves)

Production
  • Are they meeting or exceeding projected targets? If not, why not?
  • If they are exceeding targets, why? Is there room for further improvement along these lines?
  • Are they returning dividends to shareholders? Is this in their best interest or would they get more value reinvesting into further exploration?

I can’t go through all the questions you need to be looking at (and they will change depending on the stage the company is at). For the most part it’s not about writing down the answer for each of these to compare with their peers, but instead being aware of this type of information to get an understanding of each company to rate and compare their overall quality.

Something else to consider is the liquidity of the company. Some of the small cap resource companies might be tightly held leaving only a small number that can be publicly traded, this can cause liquidity issues in the event you want to sell with large gaps up and down in price when it changes hands. An example of this is RND on the ASX:

Click Table to Enlarge
Not that companies like this aren't worth considering, but it's an additional risk to be aware of and given the choice between this and another gold miner you think will perform similarly as well, you're best to go with the one easiest to buy and sell.

Another method of research I can recommend is to visit online forums and read through the history of discussion on the companies you’re looking at. A good one for ASX listed companies is Hot Copper. You do need to be aware that many users on the site are posting there simply to ramp the company/ies they are holding at any particular time, but you can often get a feel for investor sentiment by reading the threads or discover potential problems (or even positive aspects) that you may have missed when performing the above due diligence.

Choose the companies you will consider buying


If you’ve been over the above and feel out of your depth, don’t worry. If you are new to the stock market or even new specifically to resource companies, then it’s a lot to think about and learn. If you feel uncomfortable selecting companies based on narrowing your selection above, then either keep your position size very small while you continue to learn or you could consider an index which will expose you to a variety of gold miners without needing to pick them specifically. I don’t believe there is any index on the ASX that will give you exposure to those which make up the XGD (S&P/ASX All Ordinaries Gold Index), however I was recently made aware there is a ticker on the ASX (GDX) which attempts to track the performance of the NYSE Arca Gold Miners Index (before fees/expenses), you can read more about the VanEck Vectors Gold Miners ETF here.

Assuming you have been able to narrow down your selection to a smaller number of companies that fit your criteria, you can put them all on to the watch list of your share trading platform (I would hope that you'd narrow down the example list of 40 above to around 10-20 max). From this point forward you just need to watch share price and any market updates provided through announcements which may affect your interest in buying them (for example they may end up outside of your criteria).

Find a good entry point


What do I mean by a good entry point? In my mind you don’t have to be a professional technical analysis trader to apply a common sense approach (or rules) when entering positions in the stocks you are watching. Don’t chase the price. Keep a cool head and don’t get emotional. You may be better off buying a breakout if the stock price has been crawling along at a low price for a period of time. I would recommend taking a look at the trading rules of Assad Tannous of Asenna Wealth published here (also follow him on Twitter, he presents a very cool, calm and collected approach to trading).

The share price of many gold miners has soared over the past 6 months. I expect they will continue to rise over the next couple of years along with the price of gold (hence interest in exposure to the sector), however that doesn’t mean there won’t be corrections along the way or even long boring flat periods. BTFD (Buy The F*cking Dip), don’t BTFP (Buy The F*cking Peak). Average in if you think it may go lower.

With a recent decline in the price of gold, gold mining stocks have taken a beating over the last couple of weeks with the XGD declining around 13% from it's recent peak and the RSI suggesting it's as oversold as other recent corrections (not to say that it can't be longer and deeper on this occasion):

Click Table to Enlarge
There's a chance that a reasonable BTFD opportunity is already upon us, but it's best to look at the charts of those in your watch list for the best opportunities.

(…)


This step is a reference to a South Park meme. In the episode the gnomes are stealing children’s underwear for the purpose of “profit” with no real plan. If you follow the above and below you most certainly do have a plan, so really it’s just a matter of waiting to see what happens at this point. Continue to monitor the companies you own (particularly for any  company announcements). If something of substance changes which has the potential to impact on price you may choose to sell and switch into another company that measures up.

Take profit (or cut your losses)


Through trial and error I have found this step is one of the most difficult, but you should always have an exit plan. My plan owning gold miners is to hold them as leveraged exposure to a rising gold price I expect to see in the years ahead. Chances are that any small mistakes will make a negligible difference (if you’ve spread your risk over multiple stocks) with most companies ‘rising with the tide’ and hopefully careful selection results in a few which will significantly outperform.

If you pick a company and unexpected news causes them to tank, consider selling and taking the hit rather than marrying yourself to a company and riding them into the dirt. A bad drill result or three may be worth holding through, but (for example) if you’re holding a company who has begun production where the grades expected are not being achieved through the mill, this can be a precursor to needing to revisit their ore reserves and mining profitability.

Taking profit is also important. As I said at the start, my view is to ride these companies as leverage to a rising gold price, so my time frame to hold may be years in some cases, but that doesn't mean it's not a good idea to take some profit off the table along the way.

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Good luck. I hope providing this structured approach to picking gold mining companies has been of benefit to you. Any commemts, suggestions or feedback (positive or constructive) is welcome in the comments section below. Would be particularly interested to know if any readers invested in this space have any of the stocks in the table above and if so their reasons for owning over peers...

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