What's Next for the Gold Miners?

01/06/2014 12:01 am EST

Focus: COMMODITIES

Jim Jubak

Founder and Editor, JubakPicks.com

Everyone is wondering when gold will bottom and MoneyShow's Jim Jubak weighs in on what he sees in the coming months for the gold miners.

Gold turned in its first losing year in 2013 in a long time. People are asking where is the bottom. We're bouncing around $1,200 to the ounce. On the 30th of December, we broke below $1,200 to $1,196. One of the most common questions I get is, “Where is the bottom for gold?” Is it $1,200? Is it $1,150? Is it $1,050? Is it $1,000?” I don't know that, but I have a strong sense about how we're putting in a bottom for gold mining stocks. I think we're going to see another really important step in this quarter's earnings season, so the earnings will start to come out in January.

Here is the problem that you're going to see, gold mining companies take a hit in a couple different ways. One is that, when they valued their assets in their past and listed their reserves, they made assumptions about what the gold price is, and therefore, what reserves are worth mining.

We're going to see companies that are saying at $1,500 an ounce, we had X amount of reserves, because these all—even the lower-grade ones—were worth mining, and we're going to see reserves go down. We're going to see companies write-off reserves. We're also going to see companies that made a lot of acquisitions. Other gold mining companies have to write-off good will, because those assets are not as part of the reserve write down and not as valuable as they used to be, so we'll see another round of write downs there.

We're going to see some companies come out and say, “We're going to delay production,” because at $1,200 an ounce, this part of our mining inventory is not worth mining, so we're going to put it off for a while, so we'll see a downgrade, in terms of, production projections for these gold mining companies.

think all that means is that the January numbers that these companies are going to report is going to be another major down lag for the whole sector. Depending on what the company is, and how it's structured, will determine how big it is for individuals. For the sector as a whole, I think we're going to see another shoe drop.

I don't know what shoe this is for the gold centipede, whether it's shoe 97, but this is a major point. The question right now is, we've seen some pretty big write-offs before, “Are we going to see write-offs that are big, that look like they're going to be, sort of, the end of the system, are we going to see kitchen-sink-quarters from a lot of companies as they write down a lot of assets, or is it going to look like, well, maybe there is one more to go? Certainly, this quarter is a very important step for putting in a bottom for gold mining stocks.

This is Jim Jubak for the MoneyShow.com video network.

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