Category Archives: ABX

Reader T.H. asks:

“What is your position on miner shares since the absolute destruction of share prices across the board? does it make a difference to differentiate between juniors and large miners? this sector could be setting up with spectacular gains if timed right.”

Our Response:

There are two types of gold stocks right now, investments and speculations.  The investment category are those gold stocks that are members of the XAU or HUI index.  Constituents of Market Vectors Junior Gold Miners ETF (GDXJ) are the gold stocks that are speculations.

Because many of the gold stocks that are part of the GDXJ will die on the vine, the best opportunity for taking advantage of the juniors is with GDXJ.  However, keep in mind that GDXJ is a "product" and not an asset.  Theoretically, assets can be held for the long-term while products must have a "sell by" date or price.

Below we have listed the gold and silver stocks that are ranked by payout ratio:

The precious metal stocks are arranged by the payout ratio, which in our opinion is the best measure of sustainability of the dividend.  Dividend payout ratios of 50% and less are the most likely to be maintained.  However, the trials that lay ahead in the precious metal sector may require more cuts in the dividend.

Two notes of caution are required.  First, we’re not yield chasers and advise that gold stocks are not purchased based on dividend yield.  Second, Barrick Gold (ABX) and Kinross Gold (KGC) are wild card speculations, with payout ratios in the minus column due to negative annual earnings.  Investment in these companies are highly volatile plays that will pay off big.  However, the challenge will be sitting through the gut wrenching declines that may be ahead.