Can Turtles Fly?

(UPDATE near the end) I tend to follow the gold market on and off, although I'm not really a goldbug and not really sold on its long-term merits. I sold off my only gold holding for no gain shortly after buying it and have missed the gold rally completely. For what it's worth, the gold holding that I sold (and incidentally led to me missing the gold rally), Harmony (HMY), is not doing so well it seems. The stock is back near the levels I bought it at, while the gold market is rallying sharply. I still don't think I made a mistake in selling because my thesis for investing in gold did not materialize as you will see below (i.e. gold is still tracking the broad markets, albeit with a higher beta, so it can still collapse with the broad markets). I think it's timely to look at the gold market right now for a few reasons. The broad markets have rallied sharply in the last couple of months, since the credit crisis. Practically everything has gone up but perhaps the biggest i...

Not sure if this is a dumb idea or not (I have a habit of missing gold rallies) but I sold my gold holding, Harmony (HMY). Ended up with practically zero gain, after taxes and commissions. Although gold can break out here, I'm not confident enough yet with it. Furthermore, I think Tribune looks way more attractive, albeit with big risk of the deal not closing, so I have decided to either add to that or hold cash. For what it's worth, I still like Harmony and I would look at if someone wants a high-risk miner with high-leverage (due to high costs). But the macro environment is very questionable for gold right now. Although gold should rally with all housing problems and a switch to an easis bias by the Federal Reserve, it hasn't been as impressive as I would have liked it. It is still tracking too closely to the broad market for my liking. Since I'm bearish on the broad market, I don't like it. HMY Sale price: $9.41 ROI: 3.29% (excl taxes and commissions)

I purchased Harmony (HMY) this morning at US$9.11. Ok, I have to admit that this was a questionable move done without too much deep thinking. To make matters worse, the online website for CIBC World Markets (Canada) was very slow this morning so I didn't have time to track the price closely to see if I can pick the bottom. Having said all that, I think I would have gone into gold at some point over the next couple of weeks. So it isn't as impulsive of a decision as it seems. I came across a link to this week's Donald Coxe conference call where he was expressing his bullishness for gold (thanks to some poster on the message board at billcara.com for the URL link). If you have some time, check out Donald Coxe's comments. I personally don't like his convervative views (just like I'm sure he wouldn't like my liberal views :) ) but he is a thinker with insightful non-mainstream views. He has been very bullish on commodities over the years but now it looks like ...

One of the most counter-intuitive things with gold mining companies is that, if you are bullish on the price of gold, high-cost producers can potentially result in greater increases in profits. High-cost producer leverage is somewhat similar to debt leverage for a typical business. The spreadsheet below shows an example of a high-cost producer (I picked Harmony's 2007 cash cost estimate from HSBC) versus a low-cost producer (Goldcorp's 2007 estimated cash costs). I am simply picking 1 million ounces of production (that's not the actual production by these companies). When gold goes from $600 to $700, it increases by 16.7%. GG's profit increases by 27.3%, while HMY's profit increases by 45.9%. Similarly from $700 to $800, gold increases by 14.3%, while GG is 21.5% and HMY is 31.4%. So, for the same amount of increase in the gold price, the profit on the high cost producer increases much more than with a low cost producer. The low cost producer will still make a high...