Thats my point there has not been a market reaction yet (that slight wobbling in the last 2 weeks doesn't count)...which leads me to believe the reaction is still coming.
Some markets lost 1 year of gains. I think that's quite big slump. It is impossible to predict what will happen. One just has to wait and see. I personally am putting my money on my opinion that we will see some strong bulls until the end of year.
Exactly that is the problem. The overall health of the EU depends not on the strongest but on the weakest because of financial contagion. The only EU nation with a serious shot at bailing out Greece right now is Germany....without them it won't/can't happen. German politicians are scared that this can blow up in their face so they are sticking strictly to what the voters want...and the voters are seriously pissed. They resisted the temptations other nations didn't and now the gains made will get pumped into junk Greek debt. Sure the German voters will in the end agree because they have to but they won't be playing along much longer (Italy, Spain etc).
You're right there. But I do think that the German politicians are appoaching the whole issue wrongly. Merkel and Co are creating huge fear in the markets which really is not necessary. What the world, those markets and investors need is people stepping up and making decisions. That is also what the great depression should have tought us. Markets will fall, there will be issues; if you want to calm them you need strong leaders who are not afraid to decide. And you need leaders to make compromises.
Good reasons short term. I doubt its good enough to fix structural flaws. All of the factors you list were present before the 2008 crash too. Made zero difference back then.
These reasons aren't short term. GDP and unemployment movements as we have seen in countries like Germany aren't short term. They are a clear sign that things for certain countries are looking up. Especially look at the massive growth in Asia. The USA is lagging behind but that's no reason for emerging markets as well as Asian markets to slump like that.
Why? Surely if the price of gold doubles overnight then revenue (and CF and DCF) for those companies also double. In fact gold shares should be gaining faster than gold since input costs didn't double. i.e. The increase is (almost) pure profit. I don't doubt what you're say...just don't understand why it is so.
Not quite. Lets take the DCF approach. If the gold price increases but investors expect it to fall again the future, only current earnings will increase. Future earnings are determined by the future Gold price. A large part of the share price is a result of future expected earnings. If investors don't expect these to increase (due to the Gold price falling or other costs increasing) then the share price will only increase by a margin of the increase in the price of Gold.
I recommend you build a simple excel DCF model and play around with it. Take a 5 year forecast with terminal value and increase costs with expected inflation. Make revenue depended on the Gold price and increase it for the current year only. You'll see how little effect the increase has on the value.
You also have to consider that the more Gold is being mined, the more expensive it becomes to harvest the resources. Therefore margins actually decrease over the years.
It gets quite a bit more complicated but the end result is that the share price depends on much more than the gold price. Still, there is a strong correlation as a result of which Gold mine shares can act as a good hedge.
Then there is another large factor, especially in SA and that's unionisation and nationalisation of the mines. Investors take those factors into consideration (even if chances may be remote) and apply a discount to the value for the risk. This results in speculation which again results in differences between Gold and these shares.
EDIT: Many Gold mines also have other diversified operations, for example through subsidiaries. Then there is income from other investments which can also play a major role. Bottom line, not all revenue and profit depends on the mining of Gold. When arriving at a value for the company you have to take all operations into consideration.
Just checked.
No hedging. I think one of the smaller operations still hedges though...can't remember which.
I wouldn't rely on the business day. Not the most reliable source of information. I can't find the link atm but I did read an article on Bloomberg last week stating that the majority of large Gold mines have started again to hedge some of their exposure. I can't give you any more insight or details about it but I do trust Bloomberg. If you had to say that it is strange I would agree. But the companies will have their reasons. Possible some of the large shareholders wanted them to lock into the strong Gold price as they feared a drop in value with the economy picking up?
True. Electricity bill alone probably made quite a dent.
It is a large portion. Labour as well, and as you would probably agree increases on both labour and electricity have become both unpredictable and costly...
