Mining stock price movements???

[ghotib]

Price of gold dropped substantially last night, and today the share price of at least 2 gold miners - Newcrest and Lihir - is also down substantially. But the gold that's mined today won't be sold at today's gold price - will it? Either it was sold months ago or it will be sold at some future price. So what's the justification for an instant drop in the price of the mining companies?

Same kind of violent share price reaction to general announcements happens in other businesses too, but mining seems the most obvious case.

Tks

Ghoti
(If necessity is the mother of invention, curiosity is the mother of discovery)

 

[Julia]

Ghoti

An article in I think yesterday's "Aireview" discussed the fact that on its physical demand alone (demand for gold as a commodity) the current price can't be justified. They suggested the recent rise in price (and share prices) had been created by investors and speculators rather than demand by end users of gold. Don't know whether this has had anything to do with it.
A lot of other things are down also.

Regards

Julia

 

[nizar]

Price of gold dropped substantially last night, and today the share price of at least 2 gold miners - Newcrest and Lihir - is also down substantially. But the gold that's mined today won't be sold at today's gold price - will it? Either it was sold months ago or it will be sold at some future price. So what's the justification for an instant drop in the price of the mining companies?

Same kind of violent share price reaction to general announcements happens in other businesses too, but mining seems the most obvious case.

Tks

Ghoti
(If necessity is the mother of invention, curiosity is the mother of discovery)

yes thats correct, gold mined 2day wont be sold at 2days gold price, but the large drop in gold price overnight created uncertainty about the outlook of gold, because people may have bought those stocks thinking that the price of gold will rise further, and when they see it dropping, they are uncertain, so they sell, therefore price drops...

 

[ghotib]

Thanks guys. I guess my question wasn't clear enough. I wasn't exactly puzzling over why the price of gold miners dropped when the price of gold did; more over why people think that a fall in the price of gold is a rational justification for a fall in the price of gold miners.

And vice versa, of course.

But the more I think about it the more I think that it's just an extreme case of normal market disconnect between share price and business value. No biggie.

Ghoti

 

[michael_selway]

Thanks guys. I guess my question wasn't clear enough. I wasn't exactly puzzling over why the price of gold miners dropped when the price of gold did; more over why people think that a fall in the price of gold is a rational justification for a fall in the price of gold miners.

And vice versa, of course.

But the more I think about it the more I think that it's just an extreme case of normal market disconnect between share price and business value. No biggie.

Ghoti

What about if the price of gold kept falling and started a long down trend to $300 lets say, then should the prices of NCM and LHG drop as well?

thx

MS

 

[noirua]

What about if the price of gold kept falling and started a long down trend to $300 lets say, then should the prices of NCM and LHG drop as well?

thx

MS

The Late Lord Rothschild, who made his money by buying crashed stocks in the 1930's, said " I made my fortune by selling too soon " - just a thought in these rampant gold markets.

 

[markrmau]

more over why people think that a fall in the price of gold is a rational justification for a fall in the price of gold miners.

It sort of makes sense in an odd schizophrenic kind of way.

In the absense of any other data (announcements etc), the only way to guess a gold companies potential future earnings is to use the POG as indicated in the futures market.

The key is to determine what is a genuine mispricing in the futures market, and what is just noise. There are several examples of big drops (noise) in base metals on the LME (london metals exchange) which created buying opportunities in BHP and RIO.

 

[michael_selway]

It sort of makes sense in an odd schizophrenic kind of way.

In the absense of any other data (announcements etc), the only way to guess a gold companies potential future earnings is to use the POG as indicated in the futures market.

The key is to determine what is a genuine mispricing in the futures market, and what is just noise. There are several examples of big drops (noise) in base metals on the LME (london metals exchange) which created buying opportunities in BHP and RIO.

Buy opportunites? Sell BHP/RIO maybe?

Live base metals chart says another big sell off Friday on LME



Zinc is the only metal that is fundamentally still strong, ie demand is greater than supply

 

[wayneL]

Got Gold?

 

[markrmau]

Holey doley, carnage on the lme!

I don't think this is noise this time (so it is not a buying op for bhp/rio).

My guess is that the markets were scared of the demand for the us 30yr bonds. The rest of the world IS willing to support US deficits. So a lot of money is jumping ship from the recent speculative hot inflows into base metals and gold - which were a hedge against inflation.

There have been signs that metals have lost touch with fundamentals and become speculative investments. Analysts keep upgrading price targets to follow the markets. Loss of backwardation. New funds and derivative products for the metals market....

 

[tasmanian]

do you think everyones a little nervous?its not a dotcom boom.someone is actually paying the $$$ for these resources.aussie resources companies have been down along time.its the positive cycle enjoy the ride no need to fight it.

 

[rederob]

Metal prices were running too far ahead of themselves and needed to correct.
I won't be buying the big end of town, but I do want more BMX and KZL and might get the opportunity for a bargain on Monday.
The resources boom is far from over and a great way to get ahead in the markets is buying into weakness against an overwhelming rising trend.

 

[ghotib]

It sort of makes sense in an odd schizophrenic kind of way.

In the absense of any other data (announcements etc), the only way to guess a gold companies potential future earnings is to use the POG as indicated in the futures market.

The key is to determine what is a genuine mispricing in the futures market, and what is just noise. There are several examples of big drops (noise) in base metals on the LME (london metals exchange) which created buying opportunities in BHP and RIO.

Yabbut doesn't that assume that the only factor affecting the success of a miner is the price of its product. I can't think of any other business where that's true; what's different about mining?

Maybe this really comes down to is the ratio of holders to traders different for miners than for other businesses? Looks to me as though it might be, but I can't think of a way to test it.

Disclosure: my better half bought Newcrest for less than $1 on a tip from a local and still holds

Cheers,

Ghoti