Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
It’s a tad puzzling that gold hasn’t broken into new highs, despite enough catalysts to move a herd of stubborn mules. But that’s the hand we’re dealt right now. We can’t get up from the table until the game reaches its conclusion. Besides, I think the stall in prices is giving us one last window to buy before prices break permanently into higher levels for this cycle.
At least that’s how a number of prominent investors and institutions are viewing the price action right now. Here’s a sampling of this year’s “gold bugs” and what they’ve been doing about precious metals recently.
Jim Rogers, billionaire and cofounder of the Soros Quantum Fund, publicly stated last month that he plans to “sell federal debt and purchase more gold and silver.”
George Soros increased his investment in GLD by a whopping 49% last quarter, to 1.32 million shares. His stake is now worth over $221 million. Many investors don’t realize that he also placed call options on GDX worth $9 million. The most logical explanation is that he thinks gold equities are undervalued and that there’s big money to be made in them within a year.
Marc Faber mocks those claiming gold is in a bubble. “It’s nowhere close to that stage,” he says. And even though he’s already sitting on a huge gain, he won’t take any profits. Why? “I keep a picture of Mr. Bernanke in my toilet, and every time I think about selling my gold, I look at it and I know better!”
Brent Johnson, a San Francisco hedge-fund manager, believed in gold so much that he started his own gold fund, Santiago Capital, earlier this year. His latest video points out that there have been “278 global easing moves in the last 14 months.” How does someone not own gold in that kind of environment?
Don Coxe, a highly respected global commodities strategist, stated at the Denver Gold Forum that “now is the best climate I have ever seen for an increase in gold prices.” He told fund managers, mining analysts, and mining executives to prepare for significantly higher gold prices and thus higher gold-mining-stock valuations. “The opportunities ahead are the best I’ve seen.” He thinks a new gold rush is ahead for gold stocks, and that a “lustrous” rally will occur within a year.
Jeffrey Gundlach, cofounder of DoubleLine Capital, predicts that deeply indebted countries and companies will default sometime after 2013. Central banks may forestall these defaults by pumping even more money into the economy – but at the risk of higher inflation in coming years. He recommends buying hard assets including gold, and also “gold-mining firms because we consider them to be bargains.”
Rob McEwen, CEO of McEwen Mining and founder of Goldcorp, is buying precious metals because he believes gold will someday hit $5,000 and silver $200.
Savneet Singh, a former investment analyst at Morgan Stanley, was frustrated with the options available to acquire physical gold in an allocated, whole-bar format outside the banking system. He started Gold Bullion International, the platform service used by the Hard Assets Alliance, a service that virtually does away with the need to buy GLD.
This is only a handful of individual investors who have made recent news with their bullion buying. But institutions, governments, and others are participating, too…
Central Banks
These data suggest in and of themselves that dips in the gold price are likely being bought – and will continue to be bought – by central banks. They’re not exactly short-term traders. Remember, central banks were net sellers as recently as 2009, so this reversal will likely play out for years.
India. I tire of the reports that proclaim something like, “Indian buying dropped this month!” Let’s be clear about India and gold: Imports have more than doubled in three years (through 2011), and investment demand has climbed almost fivefold. And all this occurred while prices were rising and from a nation that already has a strong cultural predisposition towards the metal. Further, silver demand is taking off: sales have jumped 24% this year over last.
There is some government interference, but no slump in demand in India. This trend will continue and may even strengthen when inflation begins making front-page headlines.
Germany. A precious-metals group recently reported that Germans are increasingly buying gold because of fears about economic uncertainty, and that a third of citizens are now considering gold as part of their investments. “There has been a significant increase in demand in recent months because of worry about actions taken by the European Central Bank and US Federal Reserve, as the two central banks seek to counter the euro zone crisis and slow US economic growth.”
Commercial Banks
Eric Sprott recently wrote, “If the Basel Committee decides to grant gold a favourable liquidity profile under its proposed Basel III framework, it will open the door for gold to compete with cash and government bonds on bank balance sheets – and provide banks with an asset that actually has the chance to appreciate. Given that US Treasury bonds pay little to no yield today, if offered the choice between the ‘liquidity trifecta’ of cash, government bonds or gold to meet Basel III liquidity requirements, why wouldn’t a bank choose gold?”
We’ll be watching the news on this topic.
None of these parties think the gold bull market is over, nor the price too high. They recognize the implications of a world floating on fiat currencies, and that government “solutions” to debt and deficit spending will significantly – perhaps catastrophically – dilute the value of currencies, the fallout of which has yet to materialize. As for me, I think that the longer the malaise continues, the more likely the breakout is to be both sudden and dramatic.
We can all speculate about when the next leg up for gold will kick in, but the point for now is to take advantage of the weakness, like many of these gold bugs. When the price breaks out of its trading range, are you sure you won’t wish you’d bought a little more?
I say give you and your loved ones a lasting Christmas gift and call your favorite bullion dealer.
Now is a great time to give yourself another gift… one that will make next year’s holiday season even brighter. There’s currently an anomaly in the metals market that can bring astute investors life-changing gains. Learn more about it and get started today.
