Steering Clear of the Gold Minefield

 | Jul 05, 2013 | 12:09 PM EDT
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A couple of months ago, when gold was first showing some real signs of cracking, I met with and talked to a couple of gold CEOs. I wanted to get their take on the dislocations going on in the market.

One thing was clear. An increasing number of these gold executives really do buy into the arguments that gold is the new currency -- the claims we've all heard since 2008. They believe the central bankers have lost control of all their respective fiat currencies, and that a major calamity will eventually come home to roost that will affect all of us.

When that day comes, they expect gold to shine.

However, in the meantime -- and especially after Friday morning's jobs numbers -- it's hard to foresee catalysts that would bring back the yellow rock.

For the moment, the world's economy is continuing to heal. It's getting stronger. The central banks, starting with that of the U.S., are preparing for the time when they actually can start shrinking their balance sheets, and not continuing to increase them.

Gold needs a new crisis before it can get its mojo back. It either needs rampant and runaway inflation, or some kind of panic from fears of central banks seizing money en masse, sort of like what we saw in Cyprus back in March.

Of those two scenarios, the second seems more likely at this juncture.

Maybe China needs to crash before people will be spooked back into gold. But if that kind of crisis occurred, wouldn't you expect the Chinese government and central bank to sell some of their gold holdings in order to help themselves muddle through that crisis? That would kill the price of gold again. If you'll recall, that's what happened a few months ago, when rumors circulated that this was taking place in the midst of the Cyprus tempest in a teapot.

Here's one thing that's clear: If the price of gold seems to have few positive catalysts in the near term, gold miners' stocks have even less going for them.


Kinross Gold (KGC) is currently trading at sub-$5 levels. The last time the stock plumbed these lows had been back in April of 2002. Its high in early 2008 was close to $30.

This is only a bigger junior miner, too.

For every Kinross, there are hundreds of speculative junior miners that are running out of cash or are about to do so. In the months and years ahead, there will be enormous opportunities for those players with cash on hand to scoop up properties at enormous discounts.

Contrarians like to rush into a hated trade, and right now there are few more hated groups than the miners. But I still don't see any catalysts to make me excited to join in.

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