Can't Trust Gold Stocks Yet

 | Jan 09, 2012 | 5:16 PM EST
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You can cut the mistrust of the gold stocks with a knife.

This morning Goldcorp (GG) put out astounding production numbers and a five-year plan for gold that made me think, ah hah, we have a better way to play gold than gold. The finding costs are ridiculously low, total cash costs below $400 per ounce for the next five years. The gold production for the fourth quarter alone is 687,000 ounces, telling me the production problems are a thing of the past. Good, because they were devastating. The Penasquito mine, the linchpin for the growth, is finally on track and it sounds like that the increased production could be extraordinary. Plus, GG pays a dividend and intends to increase it.

So, why not pound the table on this one, making it clear that this is the exception to the group?

Frankly, because I'm afraid to. I am afraid that something can go wrong because something always seems to go wrong with these goldminers and the expectations have now been set so high by the release today that there is no margin for error.

One of my great regrets of the last few years is my relentless attempts to find gold stocks that can capitalize on the rising price of gold. At one point I liked Yamana (AUY) then Agnico-Eagle (AEM) and then Novagold (NG), then Goldcorp and then Randgold (GOLD). In every single case the companies then stumbled, producing results that disappointed Wall Street.

It's too bad. In each case I am convinced that these companies have tremendous prospects and are terrific long-term calls on the precious metal that I regard as a currency.

But I remain concerned, despite this fabulous news from GG, that the stocks remain too risky to own. That's why I reiterate that i like to play gold with, well, gold, either the IAU, which I own for ActionAlertsPlus or the GLD. The bullion and coins are fine, too.

The gold stocks? I just have to steer clear no matter how strong the earnings prospects seem to be.

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