(B)(N) The Poor Man’s Gold

Figure 1: World Demand for Gold

Drama. Gold is not a scarce resource according to the demand for it in manufacturing or technology which is about 320 metric tons (tonnes) per year and that is  easily supplied by just a few mines. Canada alone produced 170 metric tons of new gold last year but lags China (455 metric tons), Australia (270), Russia (250), and the US (209), and Canada has also only recently overtaken Peru (150 metric tons) in production.

But gold is kept in short supply by sovereign governments which have a lot of it in their vaults (about 33,000 metric tons and 20% of all the gold ever produced) and they want to keep its value as marked to the strong currencies and they also want to encourage the development of new mines for copper, gold, and silver, and all of the employment, royalties, and taxes which that creates; please see Figure 1 above.

However, the investment market for gold assets is as good as gold in a lively economy but has returned an aggregate average of only 1.7% per year over the past five years, advanced month-by-month for returns one year later, and the Canadian market trades today for USD$145 billion which is less than half of what it did in 2012 ($325 billion) and it was as low as $80 billion in December 2015; please see Figure 2 below for more details (and click on it and again to make it larger as required).

Figure 2: The Poor Man’s Gold – Fundamentals

In other words, there’s been a net outflow of money from this market although “gold investors” seem to die hard on the “Daily Dig Reports” (or something) and it’s likely that some of them are overseeing as little as a total of $80 billion in this market (the bottom in December 2015) and that they have a discipline of selling high to novices and Johnny-Come-Latelies at the end of a cycle and then eventually buying and holding at lower prices and waiting for the next blow-back to sell at higher prices (such as now).

Nevertheless. it’s possible (very possible, please see below) to make free money in this market – just like the banks – while maintaining the only investment practice that we know – 100% capital safety guaranteed or it’s not an investment – but the end game in the absence of a trading economy in higher-value manufactured goods (of which “money” is one thanks to our governments, as above) is a barter economy in which iron swords and wheat will count for a lot more than the gold in our purse or on our arm.

The Poor Man’s Gold

I just said that it was free, mom.

The (B)-Class Long Portfolio returned only an average of 8.9% per year in this market which has, in aggregate, declined by 50% since 2012 and even more in 2015.

However, the long plus short portfolio in the same (B)-Class Portfolio returned an average of 19.8% per year and we “cash managed” the portfolio by routinely taking profits from the stop/loss sales into our pocket for deployment elsewhere (in a better market of which there are always many) and the portfolio ran thereafter with a declining and eventually zero net cost (in June 2017) and we’re willing to hold forty-six of these fifty companies now, for free, and we’re waiting for the next short event, or the next long event, whichever comes first because it doesn’t matter if our money is trading for what it’s worth in gold stocks at high prices – nothing – but, sure, we’ll play along; please see Figure 3 below for further details.

Figure 3: The Poor Man’s Gold – (B)-Class Portfolio

For more information on real “risk management” in modern times and additional references to the theory and how to read the charts and tables, please see our Post, The RiskWerk Company Glossary and “(P&I) Dividend Risk and Dividend Yield“, and our recent Posts “(P&I) The Profit Box” and “(P&I) The Process – In The Beginning“; and we’ve also profiled hundreds of companies in these Posts and the Search Box (upper right) might help you to find what you’re looking for, such as “(B)(N) TLM Talisman Energy Incorporated” or “(B)(N) ATHN AthenaHealth Incorporated” or “(B)(N) PETM PetSmart Incorporated“, to name just a few.

And for more applications of these concepts please see our Posts which rely on the Theory of the Firm developed by the author (Goetze 2006) which calibrates The Process to the units of the balance sheet and demonstrates the price of risk as the solution to a Nash Equilibrium between “risk-seeking” and “risk-averse” investors within the demonstrated societal norms of risk aversion and bargaining practice. And for more on The Process, please see our Posts The Food Chain and The Process End-Of-Process.

And for more on what risk averse investing has done for us this year, please see our recent Posts on “(P&I) The Easy (EC) Theory of the Capital Markets” or “(B)(N) The Easy (EC) Theory of the S&P 500“, and the past, The S&P TSX “Hangdog” Market or The Wall Street Put or specialty markets such as The Dow Transports & Utilities or (B)(N) The Woods Are Burning, or for the real class action, La Dolce Vita – Let’s Do Prada! and It’s For You, Dear on the smartphone business.

And for more stocks at high prices, The World’s Most Talked About Stocks or Earnings Don’t Matter – NASDAQ 100. And for more on what’s Working in America, Big Oil, Shopping in America or Banking in America, to name just a few.

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond™
Alpha-smart with 100% Capital Safety and 100% Liquidity
Guaranteed
With No Fees and No Loads on Capital

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com.

Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”). The Canada Pension Bond®™, The Medina Bond®™, The Barometer®™, the Free Market Yield®™ and Extreme Economics®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.