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Gold Miners Disappoint, but Not for Long

So in effect, the managements at the bigger gold mining companies (which are having difficulties growing) are trying to move away from attracting growth-only investors to enticing investors that may be interested in high dividend yields. This is a logical move.

But rising costs at mining projects may put a crimp into the plans of gold mining companies' as they may not have the cash to raise dividends much. And they have done a poor job of raising dividends for their shareholders to date. In 2011, the dividend yield for gold producers globally was less than half the average for the mining sector as a whole at a mere 1.3%. Their yields are below that of the base metal mining sector and the energy sector.

It seems like management for these precious metal companies have the similar emotional response shareholders have when they are in a winning position. When investors' brains have experienced a winning streak and are happy, they automatically go into preservation/protection mode.

What does this mean? It means management is going to tighten up their spending to stay cash rich as they do not want to give back the gains during a time of increased uncertainty. Smaller bets/investments are what the investor's brain is hard wired to do, which is not always the right thing to do...

Looks like there is still a lot work to be done by gold mining companies' to improve returns to their shareholders. But it is also important to be aware that when physical gold truly starts another major rally, these gold stocks will outperform the price of gold bullion drastically for first few months.

Gold Miner Trading Conclusion

Last week's main report talked about how gold has been forming a major launch pad for higher prices over the past year. Gold bullion has held up well while gold miner stocks have given up over 30% of their gains.

If/when gold starts another rally I do feel gold miner stocks will be the main play for quick big gains during the first month or two of a breakout. The increased price in gold and value of the mining companies reserves could be enough to get management to start paying their investors a decent dividend which in turn would fuel gold miner shares higher.

Both gold and silver bullion prices remain in a downtrend on the daily chart but are trying to form a base to rally from, which may start any day now. Keep your eye on precious metals going into year-end.

If you would like to get my weekly analysis on precious metals and the board market be sure to join my free newsletter at www.TheGoldAndOilGuy.com.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

Chris Vermeulen is founder of the popular trading sites www.thegoldandoilguy.com and www.ActiveTradingPartners.com. There he shares his highly successful, low-risk trading method. Since 2001, Chris has been a leader in teaching others to skillfully trade in gold, silver, oil and stocks in both bull and bear markets.

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