Silver hit a low not seen since late in 2010 this morning, and the price of gold has again broken back under the $1,400 per ounce mark. Gold is back up to $1,486 on last look. Kitco.com was bearish earlier showing silver could break under $20 before it showed the total numbers of speculative bullish positions in gold, silver, platinum, and palladium.

The move is trying to bring favor back to miners. The Market Vectors Gold Miners ETF (NYSE: GDX) top ETF is up by 4.5% at $27.58 and the Market Vectors Junior Gold Miners ETF (NYSE: GDXJ) is up 4.8% at $10.96. The reality is that these bounces are off of 52-week lows and much may be short covering. Gold itself was down over 19% in dollar terms so far in 2013 before today’s bounce. Now compare that to the miners, where the “GDX” was down literally about 45% just in 2013 as of this morning’s new lows.

Silver Wheaton Corp. (NYSE: SLW) frequently trades in tandem with silver and its shares have recovered by 4% to $22.62 so far this Monday. The iShares Silver Trust (NYSE: SLV) was down as much as 29% in 2013 at this morning’s lows, while Silver Wheaton was down about 41% year to date as this Monday’s lows.

ETFS Physical Platinum Shares (NYSE: PPLT) is up 2% at $147.74 so far today, but this broke under $142 earlier and the platinum ETF was down by only 6% so far in 2013 at the lows this morning.

Our view is generally that trying to call an exact bottom is a very painful game. Sometimes it works and sometimes it doesn’t, and there are equal numbers of reasons for each. That being said, here is a view of the latest action in the price of gold via stockcharts.com showing you where the GLD ETF was trying to hold some support this Monday.

As of 2:30 or so EST we have the Market Vectors Gold Miners ETF (NYSEMKT: GDX) up 1.47% at $29.01 and the Market Vectors Junior Gold Miners ETF (NYSEMKT: GDXJ) is up only 0.67% at $12.09. The SPDR Gold Shares (NYSEMKT: GLD) is up 1.95% at $138.10. Here is why we are concerned about this deep underperformance, with the performance measurements being year-to-date so far in 2013 based upon the closing price from Friday:

• GLD -16.4% YTD
• GDX -38.3% YTD
• GDXJ -39.3% YTD

Kitco.com showed that the last price seen after the 2 PM mark was up $19.80 at $1,426.75 for spot gold. This is a 1.4% gain versus the “GLD” exchange traded product backing metal being up actually 1.95% about 30 minutes later. Miners have been bettered to the tune of more than twice as much as actual gold prices on the way down. So if a stabilizing day comes and the miners do not get the bounce back at anywhere close to as much as twice the rate, well it seems that investors who make actual investment decisions rather just speculating decisions may not be as convinced that the rally is real.

We do not want get into a daily or multiple times per day argument over gold prices versus the miners. That being said, this just doesn’t look or feel right on the surface. There are also some still negative on the day as well in the gold mining complex: Barrick Gold Corporation (NYSE: ABX) down 1.27%; AngloGold Ashanti Ltd. (NYSE: AU) down by -0.4%; and Harmony Gold Mining Company Limited (NYSE: HMY) down by -0.6%. None of the major mining players are seeing the major bounces we would have expected.

We have already noted some of the issues investors need to keep in mind about gold this year, and the dumping of physical gold by ETFs like the SPDR Gold Shares (NYSEMKT: GLD) and the ETFS Physical Swiss Gold Shares (NYSEMKT: SGOL) appears to indicate that investors are more willing now to bet on a recovering global economy. The need for a safe-haven seems to have taken a backseat to a new appetite for risk.

The impact goes even deeper though. If gold prices continue to decline, demand for gold will fall and the prices that gold miners are able to get for their production will fall, putting even more pressure on the tenuous profits now available to gold miners. The gold miner ETFs, Market Vectors Gold Miners ETF (NYSEMKT: GDX) and Market Vectors Junior Gold Miners ETF (NYSEMKT: GDXJ) are both down around 20% since the beginning of the year, although neither had a particularly buoyant 2012 either.

The bad news even spreads to silver, where the Global X Silver Miners ETF (NYSEMKT: SIL) is down the same 20% since the first of the year and the iShares Silver Trust (NYSEMKT: SLV) has lost 10% since a mid-January peak.

The gold sell-off could just be temporary, and a shock to the global economy could bring investors back. Lord knows there are plenty of things that can still go wrong with the slow economic recovery.

Exchange Traded Funds

The SPDR Gold Trust (NYSEMKT: GLD) and the iShares Silver Trust (NYSEMKT: SLV) are perhaps the best-known of the precious metal funds. In the past 12 months, GLD shares have dropped 3.5% and shares of SLV have lost 7%. Central bank gold purchases and purchases by ETFs are driving the gold price, whereas silver gets more attention for its role as poor’s man gold and its industrial uses. Neither of these can ever really be considered a value play, but that is not why people invest in precious metals in the first place.

Mining ETFs include Market Vectors Gold Minters ETF (NYSEMKT: GDX), Market Vectors Junior Gold Miners ETF (NYSEMKT: GDXJ) and Global X Silver Miners ETF (NYSEMKT: SIL). Over the past 12 months, shares are down from about 16% at SIL to more than 37% at the junior miners ETF. As the next few paragraphs indicate, that is not likely to change in 2013.

Mining Companies

Rising costs, labor troubles and diminishing ore quality get the blame for the mining industry’s poor showing in 2012. None of these issues is anywhere near a solution. One miner is getting back into the energy business to try to boost its profits, but except for the very largest mining firms that is not a widespread option.

Barrick Gold Corp. (NYSE: ABX) closed at $32.73 last night and has a market value of about $32.75 billion. The consensus target price from Thomson Reuters is $49.10, and the 52-week range is $31.00 to $50.02. Barrick has a dividend yield of 2.4%. The implied upside to the consensus target is 50%.

Goldcorp Inc. (NYSE: GG) closed at $36.13 last night and has a market value of about $29.3 billion. The consensus target price is $49.20, and the 52-week range is $31.54 to $50.74. Goldcorp has a dividend yield of 1.7%. The implied upside to the consensus target is 36%.

Kinross Gold Corp. (NYSE: KGC) closed at $8.27 last night and has a market value of about $9.43 billion. The consensus target price is $12.90, and the 52-week range is $7.11 to $11.68. Kinross has a dividend yield of 1.9%. The implied upside to the consensus target is 56%.

Newmont Mining Corp. (NYSE: NEM) closed at $45.25 last night and has a market value of about $22.46 billion. The consensus target price is $57.50, and the 52-week range is $42.55 to $64.43. Newmont has a dividend yield of 3.1%. The implied upside to the consensus target is 27%.

Yamana Gold Inc. (NYSE: AUY) closed at $16.76 last night and has a market value of about $12.6 billion. The consensus target price is $22.90, and the 52-week range is $12.68 to $20.59. Yamana has a dividend yield of 1.6%. The implied upside to the consensus target is 37%.

Freeport McMoRan Copper & Gold Inc. (NYSE: FCX) closed at $35.69 last night and has a market value of about $33.87 billion. The consensus target price is $40.15, and the 52-week range is $30.54 to $45.55. Freeport has a dividend yield of 3.5%. The implied upside to the consensus target is 12%.

Silver Wheaton Corp. (NYSE: SLW) closed at $37.18 last night and has a market value of about $13.17 billion. The consensus target price is $46.80, and the 52-week range is $22.94 to $41.30. Silver Wheaton has a dividend yield of 0.8%. The implied upside to the consensus target is 26%.

Coeur d’Alene Mines Corp. (NYSE: CDE) closed at $22.93 last night and has a market value of about $2.05 billion. The consensus target price is $30.60, and the 52-week range is $15.15 to $31.97. Coeur d’Alene does not pay a dividend. The implied upside to the consensus target is 33%.

Stillwater Mining Corp. (NYSE: SWC) closed at $14.41 last night and has a market value of about $1.68 billion. The consensus target price is $15.40, and the 52-week range is $7.47 to $15.24. Stillwater does not pay a dividend. The implied upside to the consensus target is 7%.

Implied gains on most of these stocks are too large to be anything but value traps. Freeport and, perhaps, Silver Wheaton are exceptions. Stillwater, the only platinum and palladium producer in the United States, is too small to have much impact on the expected global shortfall of platinum in the next couple of years, but the company obviously benefits if it can maintain and even grow its production.

Silver, which closed out 2012 at about $30 an ounce (up 8.3% over 2011) could rise by nearly 40% in 2013 according to some estimates, and one estimate has the price rising to $54 an ounce by the end of the year. Bloomberg records a median estimate of $40.25 an ounce for 2013.

The other precious metals — platinum group metals (PGMs) platinum and palladium, among others — are also expected to rise, from current palladium levels of around $680 an ounce to $736, according to Barclays, and $750, according to HSBC. Current platinum prices of around $1,550 an ounce are expected to rise to $1,710 next year, according to HSBC.

Here at 24/7 Wall St., we looked at some of the drivers behind these price estimates and what 2013 might hold for stocks related to precious metals.

The demand for gold is down to two big drivers going into 2013: emerging market central banks and exchange-traded products backed by physical gold. Central banks, especially from emerging market nations, have been acquiring gold as a means of diversifying their reserve holdings. The yellow metal functions as an insurance policy against the day they will be forced to fire up the printing presses (this could be said of virtually all central banks). Demand from central banks is expected to top 500 tons in 2013, up from an estimated 465 tons this year.

Retail investors in gold either view the yellow metal as a hedge against inflation, a safe haven if the whole world goes crazy or as just another asset class in which to invest. These investors can choose between ETFs backed by physical gold or gold-mining stocks that are substantially exposed to gold prices.

Funds backed by physical piles of gold run a close second to central banks when it comes to gold demand. The SPDR Gold Shares Trust (NYSEMKT: GLD) and the iShares Gold Trust (NYSEMKT: IAU) both offer shares backed by physical gold and both have demonstrated lackluster performance this year, up about 6%. Gold and silver dropped in yesterday’s trading after the Fed’s FOMC meeting minutes showed that the Fed’s bond buying could end by the end of 2013.

All gold ETFs worldwide currently hold a record total of 2,630 tons of the yellow metal. The iShares Silver Trust (NYSEMKT: SLV), backed by physical silver, held nearly 19,000 tons at the end of November.

The precious metals sector that looks to be in for the worst time in the new year is mining. Rising costs, labor unrest and deteriorating ore concentrations made profits hard to come by in 2012 and may get worse this year. Gold miners Barrick Gold Corp. (NYSE: ABX), Goldcorp Inc. (NYSE: GG), Kinross Gold Corp. (NYSE: KGC) and Newmont Mining Co. (NYSE: NEM) are down about 24%, 20%, 17% and 24%, respectively, since the beginning of 2012. Only Yamana Gold Inc. (NYSE: AUY) is showing a gain, up nearly 13%. Costs will continue their inexorable rise as ore quality declines causing production to slow. Labor troubles only contribute more to the unsavory equation.

Silver miners Coeur d’Alene Mines Corp. (NYSE: CDE) and Silver Wheaton Inc. (NYSE: SLW) were down about 1% and up 23%, respectively, in 2012. Silver is far more widely used as an industrial metal than is gold, but if the global economy slows down next year, industrial demand for the devil’s metal likely will fall. Investors are expected to purchase 300 tons of silver in 2013, but the physical surplus is not expected to be soaked up by industrial users, even if the economy is robust. That means silver prices could experience only a very modest gain in 2013.

The mining ETFs have also been pummeled this year. The Market Vectors Gold Miners ETF (NYSEMKT: GDX) fell about 12% in 2012 and the Market Vectors Junior Gold Miners ETF (NYSEMKT: GDXJ) dropped more than 19%.

The Global X Silver Miners ETF (NYSEMKT: SIL) rose about 7.5% for the year, largely on the strength of Silver Wheaton and Mexico’s two silver mining giants, Fresnillo PLC and Industrias Peñoles. Another large holding, Pan American Silver Corp. (NASDAQ: PAAS) declined nearly 16% in 2012.

For 2013, mining stocks appear to carry the biggest risk. Physical gold is at risk as a safe haven even though the fiscal cliff was mostly dodged. As an asset class, gold’s gains for the year might be smaller than many of the predictions. Silver faces the same risks as gold, but to a lesser degree owing to its industrial uses. Investors looking for hard assets might want to look hard at silver and then decide if they can live with the volatility of the devil’s metal.

In theory, owning the miners gives you exposure to the spot price. The downside to owning the miners is that gold mining is an extremely capital intensive business, often performed in very volatile locations like Africa and other high risk locations. They see absolutely no reason for investors seeking gold price exposure to own high multiple mining stocks, which due to their very nature expose the investor to even more inherent risk. This will spell bad news for Market Vectors Gold Miners ETF (NYSEMKT: GDX) and for Market Vectors Junior Gold Miners ETF (NYSEMKT: GDXJ) if Jefferies is right.

Sure you can hedge the miners by purchasing puts or using a costless collar (whereby you sell a covered call against your purchased stock and use the proceeds to buy protective put options). But you may just be adding more layers to an already risky portfolio holding. It is their contention that large cap miners like Newmont Mining Corp. (NYSE: NEM) will find it extremely difficult to replace current reserves with ounces acquired at comparable costs. Why? For the same reason an investor is long gold in the first place — inflation. Costs are continuing to rise, from equipment to labor, and will only stay on a similar path as central banks around the world continue to thirst for large stockpiles of gold to hedge their currency risk.

So what’s the answer? Simple, a gold pair trade. The investor buys the ETF that attempts to track gold pricing, SPDR Gold Shares (NYSEMKT: GLD). Then, you are short a basket of large cap gold-mining stocks that have been underperforming and/or Market Vectors Gold Miners ETF (NYSEMKT: GDX) and Market Vectors Junior Gold Miners ETF (NYSEMKT: GDXJ).

The aforementioned Newmont has declined in price this year despite materially higher gold prices. So if the same trend continues, the investor benefits as SPDR Gold Shares rises, and the price of the large cap miners continues to decline, or at worst stay flat. Short and long, the classic pair trade.

Lee W. Jackson

Silver Rules! iShares Silver Trust (NYSEMKT: SLV) is up 4.1% at $34.29 and the lower cost ETFS Physical Silver Shares (NYSEMKT: SIVR) is up 4% at $34.25 on the day.  The Global X Silver Miners ETF (NYSEMKT: SIL) is up over 6% at $23.97 on the day.  Silver Wheaton Corp. (NYSE: SLW), a leader in silver, is up 4.4% at $37.81 and the troubled Hecla Mining Co. (NYSE: HL) is up over 6% at $6.17. Pan American Silver Corp. (NASDAQ: PAAS) is up 5.5% at $19.60.

The show on gold is continuing. The SPDR Gold Shares (NYSEMKT: GLD) is up 2% at $171.30 and the lower-cost ETFS Physical Swiss Gold Shares (NYSEMKT: SGOL) is up 2% at $174.60. The gold miners are also outperforming the gold metal as well. We are seeing the Market Vectors Gold Miners ETF (NYSEMKT: GDX) up 4% at $52.01 and the Market Vectors Junior Gold Miners ETF (NYSEMKT: GDXJ) is up 3.6% at $23.94. Newmont Mining Corp. (NYSE: NEM) is up 5% at $55.18 and Gold Fields Ltd. (NYSE: GFI) is up 3.4% at $12.73.

The reason for the move is simple enough. More QE just means more inflation.  Maybe not today, and maybe not tomorrow.  More dollars going into the system debases paper money. YOu can’t expect the gold bugs or the silver bugs to believe that the value of the currency is better off with more money being injected into the banking system.

JON C. OGG

S&P’s report is titled “High Prices Mask a Difficult Future for Gold Miners.” The implication her is that S&P believes that gold miners could face pressure on their underlying credit ratings to the point that new projects are curtailed, investment is reduced, dividends could be cut and many operations could be shut down entirely.

Today’s report signals just some of the longer-term risks for the major miners and producers held in the Market Vectors Gold Miners ETF (NYSEMKT: GDX) and in the Market Vectors Junior Gold Miners ETF (NYSEMKT: GDXJ). S&P sees production increasing in the single-digits over the next two or three years, but it believes production will start to decline thereafter. New capacity is expected to offset decreasing reserves, but that will not last long. S&P sees the leading gold companies increasing their combined annual production of 27 million ounces by about 5.7 million ounces a year through 2016 but the increased supply may be enough to act as an overhang on prices.

A key quote here brings up questions of the bubble in demand. It noted:

Gold prices tend to be volatile and unpredictable. It is difficult to assume that demand from investors, which currently makes up 50% of total gold demand, will be sustainable over time. This is on top of the current record level of physical gold linked to exchange-traded funds.

The growth of the SPDR Gold Shares (NYSEMKT: GLD), iShares Gold Trust (NYSEMKT: IAU) and ETFS Physical Swiss Gold Shares (NYSEMKT: SGOL) has all been astronomical in recent years.

S&P thinks that major gold miners have adequate financial flexibility to deal with low gold prices 12 to 18 months, but S&P said that the commodities boom has added 10% to 15% in production costs.

A concern is that the investment needed to support existing production is with $150 to $200 per ounce per year on top of a media $600 to $650 cost per ounce today, but new cap-ex spending plans could lift production costs to $1,000 or $1,100 per ounce. If gold were to revert back to $1,200 or so, you can see where S&P’s fears come into play.

Out of the Denver Gold Forum 2012 this week there was something else that S&P did not go into as much detail about. New major gold discoveries are becoming harder and harder to find. Massive gold veins have been tapped and tapped, so many new projects are considered lower quality (or higher cost). There were some 168 gold companies presenting there this week.

There is some good news for the gold bugs, if you really take this report beyond its face value. As gold gets more difficult to find, that limits new supply and we know what happens in economic terms if supply becomes scarce. Also, if gold mines start to cut production due to lower prices, then that lower production might likely put in a floor or boost the price.

Today’s report from S&P may just be a harbinger of a self-fulfilling prophecy that supports high gold prices. Needless to say, that does not imply that gold mining outfits are assured to be profitable.

JON C. OGG

By sector, demand for gold in the jewelry sector was down 15% year-over-year, with most of the drop attributed to India and China. Investment demand for bullion and ETFs declined by 23%, again largely on weaker demand from India and China. Central bank buying more than doubled with demand primarily coming from emerging markets. And in the technology sector, demand fell by 5% as substitutes are being used for the pricey yellow metal.

On the supply side, 1,059 metric tons were available in the quarter, down 6% year-over-year and flat sequentially. Mine production accounts for 706 metric tons, flat with mine production last year. Gold recycling accounts for most of the rest of the supply, but recycling was off 12% year-over-year at 364 metric tons.

The SPDR Gold Shares ETF (NYSEMKT: GLD) is down nearly 8.5% for the past 12 months, as is the iShares Gold Trust (NYSEMKT: IAU). And as weak as these have been, gold mining stocks are even worse, with the Market Vectors Gold Miners ETF (NYSEMKT: GDX) down more than 25% and the Market Vectors Junior Gold Miners ETF (NYSEMKT: GDXJ) down 43%.

Even though gold is attractive to central banks in emerging countries, the demand there cannot make up for the loss of jewelry demand in India and China. As the global economy continues to contract, so does demand for gold, whether as a store of value, as an investment, or as jewelry.

The report from the World Gold Council is available here.

Paul Ausick

Einhorn added about 3.2 million shares of Aetna Inc. (NYSE: AET) valued at $123 million; about 6.4 million shares of Cigna Corp. (NYSE: CI) worth $283 million; about 6.7 million shares of Coventry Health Care Inc. (NYSE: CVH) valued at $212 million; some 2.3 million shares of UnitedHealth Group Inc. (NYSE: UNH) valued at about $134 million; and 1.93 million shares of Wellpoint Inc. (NYSE: WLP) valued at $123 million.

Greenlight shed all its holdings in Dell Inc. (NASDAQ: DELL) and Research In Motion Ltd. (NASDAQ: RIMM), while adding calls on 5 million shares of Microsoft Corp. (NASDAQ: MSFT).

The fund also dumped all its 1.2 million shares in the Market Vectors Junior Gold Miners ETF (NYSEMKT: GDXJ), and shaved its position in the Market Vectors Gold Miners ETF (NYSEMKT: GDX).

The SEC filing is available here.

Paul Ausick