Defending Against Gold Mining Stocks

 | Oct 19, 2011 | 12:42 PM EDT
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People are always asking me how come I don't recommend individual gold stocks vs. the SPDR Gold Shares (GLD) or the iShares Gold Trust (IAU), which we own for Action Alerts Plus.

You want to know why? Take a look at Agnico Eagle (AEM). That is exhibit A in my defense against pounding the table for any gold stock. It is down hideously today because one of its most important mines has been shut down and taken off line. A major pillar to the story is gone, as the company announced that mining at the Goldex field in Canada has been suspended indefinitely because of flooding.

This is the kind of crushing blow that makes you find yourself thinking, "How could I have bought this stock as a proxy for gold when there is an actual proxy for gold in the stock market?" "How could I have missed the whole gold move because of this stock?"

Agnico Eagle has been one of the great, growth gold stocks because of its aggressive expansion. But the screw-ups in the last year are unfathomable. It is simply amazing how much can go wrong.

Isolated? Nope. When Goldcorp (GG), reported its last quarter, which was a huge miss, it cited blunder after blunder, many of them caused by natural disturbances like floods and fires.

Again, you missed the gold move that you probably wanted to capture if you owned GG, and that is one of the finest miners in the world.

Remember, these two stocks next time you say "Hey, I gotta get some gold, who is mining it and making fortunes." The execution risk is humongous, the payoff if everything goes right simply not worth it.

You want gold? Buy gold. Buy the bullion. Buy the coins. Buy the real proxies as we have for Action Alerts Plus.

Just don't by the stocks.

You might find yourself down 10 bucks on a mine shutdown the way people are right now who own AEM, a stock that was already down about 30% for the year, despite this year's big rally in gold, one that, by the way, hasn't been repealed despite endless grousing about how the gold bubble is about to burst.

Oh and get this, if you owned this stock for the last two years you are actually down on it. During this period, GLD rose an astounding $58 to $160 from $102! And, with that, the gold stock prosecution rests.

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volatility is quite low here, and we could see some downsides here in the short term. ...



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