Marc Faber Says Time to Buy Gold Exploration Stocks

by: Peter Cooper December 01, 2008 | about stocks: GDX / GLD    

Peter Cooper

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Celebrated contrarian investment advisor Dr. Marc Faber told Bloomberg television last weekend that he was buying gold exploration stocks as well as gold producers because prices were ridiculously cheap.

Dr. Faber wrote the book Tomorrow’s Gold earlier in this decade and has long been a holder of physical gold as a hedge against inflation and a meltdown in the global financial system. But he has previously not recommended buying exploration stocks, arguing that they could fall in price and that many companies could go out of business.

Given the huge slump in the values of gold exploration stocks over the summer he has, once again, been proven correct. However, the Swiss born investment guru is now preaching with all the enthusiasm of a convert to the cause.

Explorers going cheap

He has good reason, of course. Gold exploration stocks are leveraged to the gold price. Last week Citigroup - which Dr. Faber says should have been left to go bankrupt and not bailed out by the US government in a $306 billion deal last week - said gold may go to $2,000 an ounce in 2009.

Granted the link between the gold price and exploration stocks - remember the latter own the rights to potential future gold field development rights or claims - then such a price hike would mean an even bigger increase in the value of exploration stocks. That these stocks have been beaten down to almost nothing in the recent stock market crash just makes them a better buy.

Dr. Faber is the first major commentator to make this call - and it comes against the worst performance in this sector in 40 years. Of course, for a contrarian there could not be a better buy indicator. Dr. Faber is about to score another big hit for his investment record. If he was a hunter he would need a castle to house all his trophies by now!

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This article has 15 comments:

  •  
    Dec 01 09:03 AM
    How about silver miner CDE which hit .35/share just a week or so ago? Many of the silver miners are down 90-95% YTD--good risk reward or what?

    I'd stay away from the poorly capitalized miners though, as word is that financing has gotten very tight.
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  •  
    Dec 01 10:07 AM
    If you look at the GLD past history chart under Yahoo you will notice that gold changed hands at around $450 in 2006, at around $650 in 2007, and around $850 in 2008.

    Gold miners are making money like never before in 2008. So, why did their stocks tank in half or worse between March 2008 and November 2008?

    Why did all US$ stocks tank regardless of business or country tank in half or worse in that period?

    Why did crude oil drop 2/3's in price in that period?

    Who's driving this wagon?

    The Republican oil boys lost the election in November, 2008 and the oil cartel revenues collapsed.

    Oil prices collapsed in US$'s from March 2009 and the collapse is still on- going.. Middle eastern wealth measured in US$'s just fell by 2/3'rd's. Ain't that too bad?

    The Walmart boys and girls from Arkansas won the election. There's a new sheriff in town.

    Thanks to bad interest rate US$ bets make round the world, (ie. paid high US$ prices for asset and borrowed most of the money paid with high US$ interest rates that can not be now refinanced) there is a forced sale of US$ backed assets now underway.

    When does falling US$ prices of assets end? How about 2040?

    What happens to the US$ price of gold? Only when a lot of foreigh central banks insist on it in place of US$ in balance of payment settlements and sell existing US$ denominated paper for gold. Of course that ends export to the US while it enriches local citizens.

    Good luck.


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    T
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  •  
    Dec 01 10:34 AM
    peter
    do you or dr. faber have any specific recomendations on explorers? do either of you like bhp as a miner of well everything?
    Reply | Link to Comment
  •  
    Dec 01 10:58 AM
    He's not the first to make the call if you follow the sector--though I like him. It's a down day, but there are lots of bargains in excellent, well capitalized companies. Go to Kitco.com and start reading press released and researching the companies. What I own that I think will survive: Bravo Gold, Impact Silver, Sabina Silver, Canadian Zinc (silver), Mines Management, Mineras Andes, Everton, Pelangio, and U.S. Gold. I own others that I believe will recover after a while, but I wouldn't suggest them as stocks yet. I'd suggest taking a chance with Northern Dynasty, which is backed by two of the majors plus Mitsubishi and has enormous resources in the ground. It's incredibly beaten down.
    Reply | Link to Comment
  •  
    Dec 01 12:14 PM
    Does anyone know what gold mining stocks Peter Schiff owns?
    Reply | Link to Comment
  •  
    Dec 01 12:48 PM
    Marc Faber and Jim Rogers are bullish on gold. They are very good long term forecasters.

    www.jimrogers-investme...
    Reply | Link to Comment
  •  
    Dec 01 12:51 PM
    I like how your articles are short and to the point. I suspect Dr. Faber is right on the money, and on days like today there is no better time to get started.
    Reply | Link to Comment
  •  
    Dec 01 12:57 PM
    Show me the money, or the gold, as it were.
    Reply | Link to Comment
  •  
    Dec 01 08:49 PM
    Look at the charts of the gold mines. They all look like they are consolidating and getting ready for another run!!!! I like what the charts are saying. :)
    Reply | Link to Comment
  •  
    Dec 02 01:24 AM
    Buy your hope in a hole that is subject to political confiscation, inflation in production costs, labor unrest, environmental permitting, etc. I will buy the real thing in hand.
    Reply | Link to Comment
  •  
    Dec 02 11:09 AM
    Mark Faber made a good call on the BDI and stocks such as DRYS, it might be a good idea to listen to him on gold.
    Reply | Link to Comment
  •  
    Dec 02 01:02 PM
    NAK is the best junior explorer out there.
    Reply | Link to Comment
  •  
    Dec 02 04:42 PM
    If you agree with this article, the easiest way to buy the gold miners is with the ETF -- GDX.
    Reply | Link to Comment
  •  
    Dec 02 10:22 PM
    There's nothing wrong with dividing gold holdings between physical gold (or ETFs as a proxy) and gold mining stocks. Their prices don't always move in tandem. Tim Iacono's research is pretty good on this point.

    The drop in oil prices means the energy and transportation costs for explorers have declined. Operating margins are now wider.
    Reply | Link to Comment
  •  
    Dec 03 02:54 AM
    Go buy Superfund gold funds. They're up 17-20% ONLY IN NOVEMBER. Their other funds are up 33-70% YTD.
    The MD said gold is gonna double to $2000 coz of hyperinflation.
    www.youtube.com/watch?...
    Reply | Link to Comment
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