Tale of the Tape: A Rough Year for Gold and Silver Investors

Amid a dramatic bull market trend of the sort that has characterized gold over the past decade, we can comfortably label a year in which bullion proxy SPDR Gold Trust (NYSE: GLD  ) outperformed the index-tracking SPDR S&P 500 (NYSE: SPY  ) by only 14.9% as a relatively rough year for gold.

As 2011 draws to a close, gold and silver investors are receiving a poignant reminder of just how volatile and challenging the journey to precious-metal profits can be. While storm clouds grow darker over Europe's acute debt crisis, the U.S. dollar remains the ironic beacon of strength relative to a rapidly crumbling euro currency. Accordingly, gold and silver have snapped back violently, and on Wednesday morning gold collapsed through key technical levels as both the 200-day moving average and the $1,600 level failed to hold. Without intense buying activity in Asia, moreover, it is likely these prices would have dived lower still. Incredibly, Chinese gold imports reportedly surged by 4,000% in October over the prior-year mark to reach 85.7 tonnes!

But if you think gold's relatively meager outperformance of the benchmark S&P 500 (INDEX: ^GSPC  ) during 2011 came in short of expectations, have a look at silver. After surging to nearly $50 per ounce earlier in the year amid an epic short squeeze, the metal has reversed course from that nearly 60% advance to a monster retreat back into negative territory for the year to date.

And if you think bullion investors have had a rough ride through all the volatile action, you'll reel at the carnage in the trampled mining sector. The Market Vectors Gold Miners ETF (NYSE: GDX  ) -- known colloquially as "the GDX" -- is down 12% for the year as of Tuesday's close, while record profits by silver producers have failed to stave off a gut-wrenching 21% decline for the Global X Silver Miners ETF (NYSE: SIL  ) .

Hits and misses among my top picks for 2011
Around this time last year, I issued my top 10 stock picks for 2011 among the miners of gold and silver, but the sector's rough ride ensures this will not count among my best years of picking the winners. As a long-term, buy-and-hold investor, I am prepared to endure the occasional rough year, so long as the underlying investment thesis remains intact. In the case of gold and silver, I believe there can be little doubt that the conditions to support higher metal prices will continue to pile up even as this near-term sell-off dips deeper. In accordance with my unabashedly bullish stance toward precious metals, and my continuous tracking of the individual stocks I picked, I continue to personally own every stock on that list (except, of course, for Northgate Minerals, which was acquired by AuRico Gold (NYSE: AUQ  ) ). Likewise, they all remain active outperform picks in my Motley Fool CAPS portfolio.

AuRico Gold (previously Gammon Gold) earned my highest recommendation for 2011 as a standout turnaround story in the making, and, indeed, the company achieved a remarkable run of strategic advances during 2011 through a pair of aggressive gold acquisitions. Despite a deep pullback during the second half of the year, the stock remains ahead of the S&P 500 by nearly 7% and is outpacing the GDX by more than 16%. At its year-to-date peak, AuRico logged a 73% advance that I hope provided some benefit to my readers. As AuRico's recently acquired Young-Davidson mine comes into production during 2012, I look for AuRico to regain its growth momentum in convincing fashion.

I selected AuRico acquisition target Northgate Minerals as my No. 2 pick for 2011. Since it was clear to me that the market failed to comprehend the full value of the Young-Davidson project, I am pleased that AuRico did and that Northgate's Toronto-listed shares advanced some 17% in 2011 before trading ceased in late October.

There is no way to sugarcoat it: My No. 3 selection of Brigus Gold (AMEX: BRD  ) was an outright disaster in 2011. The stock has been chopped in half year to date! But I personally inspected the company's flagship Black Fox Mine in June, and I was so impressed by the positive developments under way that I doubled down on the stock after my return. I concede that I stepped to the plate a bit early with this one, but I am more than happy to wait patiently while Brigus ramps up underground production and ushers its new gold discoveries at the project toward fast-tracked development.

My No. 4 selection was another standout winner, as Yamana Gold (NYSE: AUY  ) finally began to close the enormous valuation gap that I have been pointing out to my readers for several years now. Yamana tied Northgate for best performance of the bunch -- with a 17% advance year to date -- and outperformed the GDX by a convincing 29%. With strong production growth still in the works, I expect solid gains from the stock to persist for years to come.

Silver miner Coeur d'Alene Mines (NYSE: CDE  ) has shed only 2.7% year to date, roughly matching the performance of the S&P 500. But the company continues to churn out silver at reasonable costs, and I expect the resulting cash flow to facilitate some strategic acquisitions in the not-too-distant future. Fresh from an embarrassing snafu where Coeur reportedly permitted some mining claims in Nevada to expire, I think the company's new CEO will head into 2012 eager to redeem himself.

Fellow silver miner Alexco Resource (AMEX: AXU  ) has shed 14% so far in 2011, but even that underwhelming performance is better than the corresponding 21% retreat by the Global X Silver Miners ETF. I expected a strong showing in 2011 by gold producer Primero Mining (NYSE: PPP  ) , and a proposed transaction with Northgate nearly cemented that outcome before AuRico swooped in to spoil the party. In the battered stock left behind by that melee (down 32% for the year), however, I see the greatest gold stock in the world.

Great Panther Silver (AMEX: GPL  ) took a beating this year as the miner broke a prior six-year winning streak of expanding production volume and toiled with isolated patches of ore of a lower grade than the mine plan had anticipated. Here again, I subsequently visited the miner's flagship operation in order to gain first-hand perspective of the operation and where it was heading. At current prices, I consider the stock an absolute steal, and I look forward to celebrating a reinvigorated growth trajectory once the recent hiccups are ironed out. Rubicon Minerals (AMEX: RBY  ) has careened 36% lower during 2011 despite a major strategic investment by Agnico-Eagle Mines (NYSE: AEM  ) , and shares of Taseko Mines (AMEX: TGB  ) -- now 48% beneath where they began the year -- now trades well beneath any rational notion of fair value even for the miners copper and molybdenum assets alone. A clever Fool, then, will appreciate exposure to the miner's gold and niobium resources that are essentially free.

Peering toward 2012
Later this month, I will be issuing a fresh round of top picks among the miners of gold and silver, and I invite Fools to review my selections as the relevant articles are posted here. I suspect that a few of the names discussed above may vie for a position on the list for 2012, but I am mulling a range of candidates that I have not previously discussed at length. If you join me in thinking that quality miners of gold and silver will surge once again following this relatively dreadful performance in 2011, then take a moment to add these and other stocks to your watchlist using the links provided below. While, of course, it is possible for weakness in gold and silver to persist in the near term as Europe's crisis foments a stampede into the U.S. dollar, I urge Fools to hone their focus upon the gold- and silver-supporting scenarios that follow thereafter.

Fool contributor Christopher Barker can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He tweets. He owns shares of Agnico-Eagle Mines, Alexco Resource, AuRico Gold, Brigus Gold, Coeur d'Alene Mines, Great Panther Silver, Primero Mining, Rubicon Minerals, and Taseko Mines. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (7) | Recommend This Article (27)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 15, 2011, at 3:10 PM, Jbay76 wrote:

    It has been a bumpy ride, but the fundamentals are there, so i am taking it as buying opportunities becuase now is when we set ourselves up for the future profits. I look forward to reading your picks for 2012. I have a bit of powder ready, though I just got more AUQ today at $8...super stoked on that.

    Fool on!

  • Report this Comment On December 16, 2011, at 7:08 AM, skypilot2005 wrote:

    Sinch wrote:

    "Silver miner Coeur d'Alene Mines (NYSE: CDE ) has shed only 2.7% year to date, roughly matching the performance of the S&P 500. But the company continues to churn out silver at reasonable costs, and I expect the resulting cash flow to facilitate some strategic acquisitions in the not-too-distant future. Fresh from an embarrassing snafu where Coeur reportedly permitted some mining claims in Nevada to expire, I think the company's new CEO will head into 2012 eager to redeem himself."

    http://www.ryepatchgold.com/i/pdf/RYE-PATCH-GOLD-2011-12-09-...

    A Rye Patch Gold Bonanza!

    12/9/11

    http://www.ryepatchgold.com/s/Home.asp

    http://phx.corporate-ir.net/phoenix.zhtml?c=86472&p=irol...

    http://www.mineweb.com/mineweb/view/mineweb/en/page32?oid=14...

    Rye Patch seizes golden opportunity on Coeur d'Alene's claim snafu

    12/6/11

    http://finance.yahoo.com/news/Rye-Patch-Expands-Oreana-ccn-9...

    Rye Patch Expands Oreana Trend Holdings Stakes Mining Claims on Existing Gold and Silver Resources

    12/5/11

    “Rye Patch Gold identified open locatable public lands and staked claims covering portions of the Rochester and Nevada Packard gold and silver mines and their resource inventory - approximately 400 unpatented mining claims covering 30.3 square kilometres. An unknown portion of the Rochester and Nevada Packard resources along with numerous gold-silver targets are within the newly staked ground.

    The claim maintenance fee is a mandatory fee paid yearly on or before August 31 of each year. Coeur Rochester, Inc., a wholly-owned subsidiary of Coeur d'Alene Mines (TSX:CDM.TO - News)(NYSE:CDE - News), failed to pay the mandatory claim maintenance fee payment to the BLM rendering its 541 unpatented mining claims conclusively forfeited and void on September 1, 2011.

    The lands with the forfeited mining claims became open to entry and the location of new mining claims by any third party. Rye Patch identified the open ground and located unpatented mining claims during October and November 2011.

    Rye Patch completed the monumentation of its mining claims in November 2011. Rye Patch informed the senior management of Coeur d'Alene Mines of the location of the mining claims on November 28, 2011.”

    Rochester:

    http://coeur.com/operations-rochester-nevada.html

    I respectfully submit that I would not buy CDE until this situation gains some certainty.

    I own a good sized "chunk" of Rye Patch but, that doesn't diminish their claims.

    This is the first time I've questioned one of your "picks". But currently, I think it is "Buyer Beware" with CDE.

    Respectfully,

    Sky Pilot

    Hopefully, still your Official Web Link Assistant

  • Report this Comment On December 16, 2011, at 10:16 AM, skypilot2005 wrote:

    http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/...

    Embry - This Gold Smash Will Pass, the Case for Fiat is Zero

    With near panic in the gold and silver markets, today King World News interviewed John Embry, Chief Investment Strategist of the $10 billion strong Sprott Asset Management to get his take on where he sees gold, silver and the mining shares headed. When asked about the action in gold, Embry said, “You’re always surprised at the viciousness of a decline like this. I mean this all started in the wake of the failed European Summit. At one point, after the initial communique, gold shot up to $1,760 and now it’s roughly $200 lower. The reality has barely changed, but the perception of the reality appears to have swung dramatically.”

    John Embry continues:

    “People are now fussing about deflation and Europe is going to go down. If you actually think about that for more than two minutes, you realize it’s just going to lead to massive amounts of papering over because there is no other alternative. They (central planners) are not going to voluntarily accept a 1930s style deflationary collapse of the economy. The only antidote to that is immense amounts of money creation and that’s what’s going to happen.

    Right now people are sort of looking the other way (towards deflation) and they are wrong. I had been on KWN earlier saying sentiment was very negative, which I took as a strong positive for an eventual rise in the market. But now it’s gone from negative to literally being suicidal. I just can’t believe people’s attitudes.

    This goes back to one of my long held beliefs; reality moves very little, but perception swings wildly. Perception has swung from the idea that we were going to skate through this with more money printing, to being deathly afraid the thing is going to collapse.

    A collapse of the system would actually be very good for gold for the simple reason gold would be required to back up the new currency. In that environment, it would be disinflationary, the gold shares would be spectacular like they were in the 1930s....

    “The other thing I’ve always said is you can’t have leverage in the gold space because it’s so rigged and they are always going to get you. What seems to be the right action, at any point in time, can be reversed in a heartbeat by another attack from the anti-gold cartel.

    Investors should be buying these beaten up gold and silver stocks. This is one of the great trades that you could possibly make. The algorithm trading has pushed a lot of legitimate holders to the edge by the price action, which has created forced margin selling. It’s creating remarkably cheap stocks.”

    When asked about silver specifically, Embry stated, “The physical silver market is as tight as can be. The people who are short the paper market (in silver) are bankrupt, almost to a man. Consequently, their actions are not those of rational men, they are those of desperate men. JP Morgan is trying to protect their short positions and so this move down has a very finite life.

    So you are going to have days like this and I still say silver will be $60 within the next three to six months. As much as I love the gold story, the silver story is much stronger because of the lack of above ground supply. In the future, there won’t be enough silver to fill the demand for investment purposes and the price is going to go berserk to the upside.”

    When asked what he would say to calm the nerves of gold and silver investors globally, Embry remarked, “As I’ve said all along, if you don’t like gold and silver, you like the prospects for fiat paper currency. With a world that’s tens of trillions of dollars in deficit and can’t service the existing debt, the case for fiat paper currency is zero. You can’t make a case for it.

    So on that basis gold and silver, which is the real money, can only do one thing in the future and that is move higher. I’ve been through this so many times with these guys (the cartel) who can take the gold market apart and scare the life out of most humans, and it’s just noise. It’s gone on over and over and over again. In the end this will pass like they all have and gold will move on to new highs.”

    Sky Pilot

    Official Web Link assistant to Sinch

  • Report this Comment On December 16, 2011, at 10:43 AM, XMFSinchiruna wrote:

    SkyPilot,

    Your post as my faithful web link assistant is guaranteed. :)

    You are totally correct ... Because I was in Mexico touring Fortuna's impressive new silver mine near Oaxaca for a few days after the story broke, I completely missed a key aspect of the Rye Patch / Coeur claims situation in Nevada. I assumed the claims were NEAR Rochester, but did not realize they might include portions of stated resources and/or (especially) existing operations. Thank for for correcting my oversight, and for pointing out that Coeur's shares indeed warrant some near-term caution until an outcome comes into view.

    If Rye Patch's coup holds, it's a public relations nightmare for Coeur.

    Thanks for setting me straight, Sky! :)

  • Report this Comment On December 16, 2011, at 12:48 PM, skypilot2005 wrote:

    Sinch wrote:

    "SkyPilot,

    Your post as my faithful web link assistant is guaranteed. :) "

    Thanks.

    Now I can enjoy the Holidays with that weight off of my shoulders.

    I hope, of course, this includes my existing compensation package....

    :)

    Happy Holidays!

    Sky Pilot

    Official Web Link Assistant to Sinch

  • Report this Comment On December 19, 2011, at 7:05 AM, skypilot2005 wrote:
  • Report this Comment On December 30, 2011, at 6:26 AM, skypilot2005 wrote:

    Update:

    http://myspj.com/criminal-justice/district-court/1895-judge-...

    12/21/11

    Judge rules CRI failed to meet their burden but expresses concern for safety of employees

    Sky Pilot

    Official Web Link Assistant to Sinch

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