Gold ETF ‘Killed The Primary Reason For Owning Gold Miners’ : Barry Ritholtz



Gold miner stocks are the cheapest relative to gold in more than three decades, but bottom fishing might not do you any good.

Barry Ritholtz  contends that the relationship between gold prices and miner stocks has gone haywire since the advent of the SPDR Gold Shares exchange-traded fund (GLD) more than one decade ago:

“Gold miners were once a fair proxy for physical bullion. If it were impractical for you as a fund manager to own bars of gold, which entails transportation, storage and security, you had an easy alternative. You bought shares of the miners. The (theoretical) gold reserves they owned was a component of their book value, and was an indirect way to own gold with none of the other costs.

Similarly, if you were an individual investor, and you didn’t want to play the futures markets — high leverage and risk of losses beyond your original investment — you also could buy shares of the various miners.”

Then along came the GLD, the largest ETF that owns physical gold, back in 2004. Its popularity soared right away. More from Ritholtz:

“The ETF killed the primary reason for owning gold miners. Why bother investing in a company saddled with the overhead cost of running a mine and error-prone management — all a drag on returns — when you could instantly buy a stake in gold without any of the complications? …

There may be some price at which the gold miners become attractive. But it seems like it will be impossible to undo the fact that the reason for owning the miners has been displaced by a less expensive, more efficient investment vehicle for gold.

In that case, good luck figuring out at what price the miners are actually cheap.”

Protect your portfolio profits :

Sprott Physical Gold

Gold Buddha
Gold Buddha (Photo credit: @Doug88888)

Gold (GC : NASDAQ : US$1415.40), Net Change: 22.30, % Change: 1.60%, Volume: 146,830
Sprott Physical Gold (PHYS : NYSE : US$11.84), Net Change: 0.11, % Change: 0.93%, Volume: 1,469,493
Go for torque, go for quality or go for the physical? Worries about a potential U.S. military strike against Syria sent oil and
gold prices higher on Tuesday. After almost a 30% fall in the gold price (peak to through) in H1/13, all gold producers without
exception have had to adjust to the new environment.

Even producers with a better quality asset base have had to improve their working capital management, adapt exploration budgets, and in some cases postpone/suspend lower priority development projects. Higher cost producers, have had to come up with new business models (new mine plans) in order to survive in the world of lower gold prices. Higher leveraged companies have had to go even further by postponing key capital projects and searching for alternative ways to generate cash (non-core asset sale for example).

Over the past month, gold shares have recovered some of their losses following the rebound in the gold price and more clarity on managements’ revised plans. At this stage, it is important to look at gold equities by evaluating a number of key parameters in order to select those companies that are best positioned to weather likely higher gold price volatility in the near term without needing to make significant changes to their growth plans and/or business models.

Investors should more on defensive gold equities with a low-cost asset base, low leverage and the ability to deliver development plans even in a volatile gold price environment. Barron’s published an interesting technical comment on gold this week, “the [gold] market negated its June breakdown and now has its sights set on a much more important feature – the former price floor in the $1,542 an ounce area…If gold can reclaim that level, it would be a 30% gain and a bull market by definition.”

Separately, it is worth noting that Sprott Physical Gold Trust now trades at NAV or at a slight discount. Historically, PHYS’s premium/discount to NAV (since inception on February 25, 2010) has ranged between a discount of 2.49% (May 27, 2013) and premium of 23.68% (May 25, 2010).

Retail Weakened By Sandy

English: This is a logo for Costco.
English: This is a logo for Costco. (Photo credit: Wikipedia)


Nov. 30

SPDR Retail ETF (XRT : NYSE : US$63.36)

 Several U.S. retailers reported their November sales numbers with the impact of Hurricane Sandy being a consistent theme.

All in, retail sales increased by 1.6% in the month, less than half the 3.3% increase that analysts were expecting.

Target (TGT) and Macy’s (M) both missed expectations due to weakness from the storm while Kohl’s (KSS)
posted a surprise drop in November sales, sending shares dramatically lower. Additionally, Kohl’s management said the online
strength that it saw in the moth would not be replicated in December.

Limited Brands (LTD), parent company of Victoria’s Secret, Bath & Bodyworks and La Senza, reported a 5% increase in sales, beating expectations while all three of Gap Inc’s (GPS) business lines, Gap, Old Navy and Banana Republic, saw sales improve. Costco (COST), the largest retailer to report results, said that sales rose by a better-than-expected 6%, helping to buoy overall results.

” The Gold Investor’ s Handbook ” Book Review

1oz 1984 Krugerrand Transferred from en.wikipedia
1oz 1984 Krugerrand Transferred from en.wikipedia (Photo credit: Wikipedia)

Published September 2012 – Private Bank Press

370 pages , $19.95

Available from


If you are new to gold investing or seeking portfolio ideas, this is the book you want to own. It includes both a look at the dynamics of financial crises, and how individuals can protect and grow wealth in such an environment. Bass’ work provides an excellent overview of gold as a tool for asset preservation and growth. The strategies in the book incorporate the physical commodity and paper instruments like mining stocks and ETFs..

This is an easy to read investment guide following up on The Apprentice Millionaire Portfolio.. This book is well written, organized with a wealth of information.. Mr Bass, who has over 30 years experience in investing in gold, gives very good reasons why you may want to invest 10-30% of your portfolio in gold, what form of gold to buy, what to look for as you find a gold firm to purchase from, how gold is a winner during inflationary and deflationary times, etc . There is a lot to know about gold investment, and this book is a very good road map to investing in gold successfully.

Thesis / Direction for The Apprentice Millionaire Portfolio

Reverse of U.S. two-dollar bill John Trumbull'...
Reverse of U.S. two-dollar bill John Trumbull’s Declaration of Independence (Photo credit: Wikipedia)

In answer to recent emails I am providing this outline :

October 18

The two AMP books now in print are focused on a disciplined approach :

1) Directional Trading

Meaning directional bets with respect to countries, currencies and interest rates

Opportunities arise from slow moving macro economic trends such as inflation and the decline of the U.S. dollar

This is a top down strategy.

2) Opportunistic

Based on finding opportunities in short term movements .Selling overvalued securities and buying undervalued.

3) Aggressive Growth

Long tem positions based on the assessment of a company having superior growth and management potential.

The extensive company and ETF  analysis in the books allows you to participate by either doing your own due diligence or following the book suggestions to build your  portfolio.

” The Gold Investors Handbook” is available at ( books) as is  ” The Apprentice Millionaire Portfolio ” which has a broad market sectors review  and portfolio suggestions.

Related articles

SPDR Retail ETF – Hiring Forecast

Image representing Amazon as depicted in Crunc...
Image via CrunchBase

SPDR Retail ETF (XRT : NYSE : US$63.04)

October 17


Amazon announced on Tuesday will hire 50,000 temporary workers at order-fulfilment centres across the U.S. this holiday season. That’s more than double the 20,000 full-time workers that Amazon usually has manning its 40 fulfillment centers around the U.S. What’s more, many of the seasonal employees may end up joining the permanent Amazon workforce, in which many are paid 30% more than traditional retail workers, the company said.

Each year, retailers boost their ranks to handle the swell in demand from shoppers who swarm into aisles on Black Friday and stay through Christmas.

Macy’s (M) recently said it will enlist 80,000 seasonal workers, up 2.5% from last year. Wal-Mart (WMT) will pick up 50,000 associates while Target (TGT) will hire up to 90,000 while Kohl’s (KSSsaid its temporary holiday workforce will boom 10% from last year to 52,700 workers. Overall, the National Retail Federation estimates that American retailers will hire up to 625,000 temporary employees for the holidays


Jim Rogers reveals the next great commodity investment‏

English: Deere & Company World Headquarters bu...
English: Deere & Company World Headquarters building in Moline, Illinois, USA (Photo credit: Wikipedia)

During a recent interview with Investment U, Jim Rogers revealed his favorite place to invest now.

It’s not gold. It’s not technology.

It’s not copper, or oil… or emerging-market stocks.

It’s dirt. More specifically, Rogers likes agriculture.

The sector’s performance is starting to back him up, too.

During one recent 12-month span, the bellwether DB Agriculture Fund (NYSE: DBA) soared 26.4%, outpacing the S&P 500 by 63%.

When the debt downgrade hit U.S. Treasuries in August 2011, DBA dropped 4.42% while the broad market tumbled 16.67%.

Agriculture, right now, is proving more profitable – and safer – than the broad stock market.

Take a look:


DB Agriculture Powershares Chart
Rogers sees the trend continuing for the foreseeable future.

If his latest analysis of the global economy is accurate, “everybody who has a second home in Iowa would be rich,” says Rogers.

Rogers has long been known as the world’s leading commodity investor. (His track record, as you may know, includes co-founding the Quantum Fund, which soared 4,200% in 10 years versus 50% for the S&P. He’s also penned numerous bestsellers, which should be required reading for any serious investor.) And earlier this year he restated his belief that all commodities are in a bull market that has years to run.

But he singled out agriculture as the best sector right now.

Rogers’ Rationale: Why Agriculture Could Soar

This is a man known for doing his homework. And that’s what has led him to this conclusion.

For starters, agriculture has been a backwater sector for decades. That has created value.

“Over the last 25 or 30 years, agriculture’s been a horrible way to make money throughout the world. As a result, we have virtually no farmers,” Rogers pointed out in a recent interview withInvestment U Executive Editor Garrett Baldwin.

“According to the U.S. Government, the average age of farmers in America is 58 years old. In 10 years, they’re going to be 68 years old… if they’re still alive.

The shortage of farmers will lead to a shortage of farm production. And these shortages equal opportunity with commodities.

“If you get out the Department of Education’s numbers for the past 50 years,” says Rogers, “You’ll see a dramatic decline in the number of students studying agriculture, mining and petroleum engineering.”

“We don’t have any new farmers,” Rogers says. “Second of all, the [experts] are pretty old and are going to be going out of business. It’s a huge mess we have that’s developing in the world, and you’re going to see more and more shortages develop.

“We already have very low inventories on a historic basis for agricultural products. And even if we have a great local crop this year or next, so what? It’s going to be consumed very quickly because the inventory levels are already so low.”

In the future, Rogers sees farmers driving Porsches… and Wall Street brokers driving junkers.

He’s very serious about this.

“You know, the stock brokers are going to be broke,” says Rogers, foreshadowing what he sees as an increasingly diminished role for the financial sector. “All the farmers are going to be stunningly rich.”

How to Invest in the Coming Agriculture Boom

The bottom line for investors, Rogers says, is to participate in the coming agriculture boom however you can. That can include investments like stocks, of course.

But for those with flexibility, he suggests more creative ways to build wealth.

“You want to buy a lake house, buy it in Iowa or Oklahoma. Don’t buy it in Massachusetts,” he says.

Rogers continues: “Buy where the people are going to be rich. Open yourself a chain of restaurants in the agriculture area or department stores or hotels. Anything that you want to do in an area where people are making lots of money, you’ll make a lot of money, too… just because they’re rich.”

On a more conventional-investing level, Rogers sees plenty of opportunity, as well. “Certainly, the seed manufacturers and tractor manufacturers, backhoe dealers, everybody who has anything to do with production of raw materials is going to get rich.”

Some ways to invest include…


Deere & Company (NYSE: DE): The maker of John Deere tractors and equipment is the blue chip of the sector.

AGCO (NYSE: AGCO): Another farm-equipment manufacturing powerhouse, but on a smaller scale… AGCO could have plenty of room for growth, holding a large chunk of Brazil’s tractor market.

CNH Global (NYSE: CNH): The second-largest maker of farm equipment on earth, but less than half of Deere’s market cap.

Seeds and Fertilizers:

Potash Corp. (NYSE: POT): Like Deere, a stalwart of the sector, selling fertilizer and seed products across the U.S. and Canada.

Monsanto (NYSE: MON): Produces seeds for global markets, along with proprietary genetics and other products.

Syngenta AG (NYSE: SYT): This seed giant puts the focus on hybrid and synthetic seed technologies.


Plum Creek Timber (NYSE: PCL): This real estate investment trust owns timberland across the U.S. and pays a very healthy dividend.

Weyerhaeuser Company (NYSE: WY): For over 110 years, Weyerhaeuser has set the standard for the timber industry.


PowerShares DB Agriculture ETF (NYSE: DBA): Tracks the Deutsche-Bank Agriculture Index and is one of the oldest agriculture ETFs in the world.

Market Vectors Agribusiness ETF (NYSE: MOO): MOO contains a basket of stocks tracking the DAXglobal Agribusiness Index.

IQ Global Agribusiness Small Cap (NYSE: CROP): A more aggressive fund that tracks the index by the same name. Holdings include Tractor Supply, Viterra and Nufarm Limited, Australia.

But perhaps the single best investment for average investors would be Rogers’ own fund:ELEMENTS Rogers International Commodity Agriculture ETN (NYSE: RJA).

This ETN tracks Rogers’ own index by the same name. The fund has been outpacing DBA in recent years.