Even gold stocks are getting in on the act. Mineweb reports that gold producers are now paying dividends in order to attract the punters. Who says gold doesn’t pay a dividend?! Now if we could just get them to pay it…in gold!
The fact that gold producers are paying a dividend is worth exploring. First, it means gold producers have cash flow. Now whether or not the best use of free cash flow is to return it to shareholders instead of pouring it into new exploration is for the punters to decide. But the fact is, gold is set to finish higher for the 11th straight year. Higher prices are boosting cash flow for producers.
Producers are paying dividends partly because they have the cash, but also because they have competition. Exchange Traded Funds (ETFs) have become a popular vehicle for precious metals investors to hitch a ride on rising prices. Low-cost ETFs have generally been bullish for gold bullion prices. But they may have also sucked out liquidity that in the past would have gone into gold stocks.
One further note to all this. The scandal at MF Global will turn out to be incredibly bullish for gold and silver shares in 2012. That’s small consolation for the investors at MF Global who’ve seen their assets disappear. But a recent article at Barron’s explains why confidence in the “paper” gold and silver market may be the biggest casualty of MF Global’s collapse. Barron’s reports:
The trustee overseeing the liquidation of the failed brokerage has proposed dumping all remaining customer assets – gold, silver, cash, options, futures and commodities – into a single pool that would pay customers only 72% of the value of their holdings. In other words, while traders already may have paid the full price for delivery of specific bars of gold or silver – and hold “warehouse receipts” to prove it – they’ll have to forfeit 28% of the value.
Imagine leaving your car to be valet parked while you go eat dinner with your wife. You eat a pleasant holiday meal, perhaps a Wagyu beef steak from the Margaret River, washed down with a 2007 Forrest Hill Cab Sav. When the valet comes back with your car, 28% of it – all of the boot and most of the rear tires – are gone. That would ruin your dinner.
It’s possible that no one but the paranoid and the idle are going to take note of what happens to MF’s customers. But it’s also possible that investors in gold may return to the share market in order to get exposure to precious metals. Keep an eye on that for 2012 – the return of gold stocks!
Gold stocks carry their own risks, of course. But a small reallocation by investors from ETFs and futures and to share could be a big boost for shares, which have lagged the bullion price this year. And of course all of this assumes bullion prices are not in a bear market but on the verge of a mania phase.
Let’s not beat around the bush, though. The MF liquidators are on the verge of ruining the whole idea of property rights. This is why we’ve repeatedly told our readers at Australian Wealth Gameplan that if you don’t own it, it’s not yours. This goes for gold, for cash, for anything really. Confidence that you can get what’s yours from a trustee or custodian is what prevents bank runs.
What do you think could happen when ordinary people realise that what’s theirs may not really be theirs when they need it? Definancialising your life – extracting the value of your labour from the financial system and converting into a permanent store of value – is what we’ve been banging on about for years now. It’s not too late. But you might want to hurry.
for Markets and Money