As long-term investors in precious metals, we have featured
several articles that warned about the pitfalls of gold and silver
investing rather than highlighting the redeeming attributes in the
sector. One reason for this is the one-sided analysis that
permeates throughout the gold and silver investment community.
Too often there are voices clamoring for attention about reasons
to invest in gold and silver and very few of those same voices
willing to say "dump the junk." Some analysts in the gold sector
will defy logic by recommending gold stocks in an obvious declining
trend rendering their analysis moot since anyone can use the
rationale "we're in a bull market" to justify their claims.
One sure sign that we're in a gold bull market is when gold and
silver mining companies start paying ever increasing dividends. In
a 2009 article titled "
Why Silver Beats Gold As a Precious Metals Play
," we said, "be mindful of the coming competitive dividend war
between precious metal companies." Apparently, precious metal
stocks have not disappointed in sharing the wealth in the current
gold bull market.
According to Morningstar.com, in the last five years the top ten
dividend increasing companies included Agnico-Eagle (
), Yamana Gold (
), IamGold (
), DRDGold (
), Newmont Mining (
), Goldcorp (GG), Barrick Gold (ABX), Buenaventura (BVN), Royal
Gold (RGLD), and Gold Fields (GFI). The average dividend increase
was a sizable +29.61%. We don't expect this trend to reverse in the
||5-year dividend growth rate
Average dividend growth rate
accessed August 15, 2012
Also, in the same 2009 article and later reiterated in our 2011
article titled "
The Coming Precious Metals Dividend War
," we said the following, "one gold or silver company is going to
'jump the shark' and make the dividend payments in the actual
metal. When that time comes, it will be fair warning to protect
your positions, though this may be indistinguishable to ebullient
gold bugs at the time." When we published our October 13, 2011
article titled "
Gold Resource: Gold Dividend Means Sell
," we felt that precious metal investors had been given fair
warning that "…it may be an indication of a cyclical or short-term
top in the gold market."
The announcement by Gold Resource (GORO) that the option for an
"in-kind" dividend in the form of gold was on August 17, 2011 (
PDF found here
). Three trading days later, the price of the SPDR Gold Shares
(GLD), according to Yahoo!Finance, peaked at $184.59. Twelve
trading days after GORO's announcement, according to Kitco.com, the
London PM fix for gold closed at the peak price of $1,895. At the
same time, the long established Philadelphia Gold and Silver Stock
Index ((XAU)) declined as much as -33% by May, 15, 2012 and has
settled at a loss of -26.80%.
(click to enlarge)
As the precious metals dividend war heats up, the timing, nature
of the dividend, and the quality of the company will provide for
some perspective as to whether we are at a short/long-term peak in
the precious metal market.
However, as we've said in the past, companies that pay dividends
in gold have historically had difficulty in retaining such a
policy. Those companies that currently have a policy of offering
dividend payments in gold should be expected to discontinue such
distributions at some point down the road. When that change in
policy arrives, the news could push the respective gold and silver
stock prices well below known "undervalued" levels.
If you must invest in precious metal stocks, we'd opt for those
that are part of the XAU Index or the HUI Gold Bug Index and pay
their dividends only in the form of cash. The majority of the ten
stocks listed above are long-time members of gold stock
I have no positions in any stocks mentioned, and no plans to
initiate any positions within the next 72 hours.
long physical gold and silver
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