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 is amazing how different investor sentiment can be around the globe regarding just one topic: gold bullion.
Most of you are quite aware that the price for gold bullion here in America has dropped significantly this year. One could come to the conclusion that investor sentiment has left the precious metal for good.
However, looking at investor sentiment for gold bullion on an international basis, the picture is very different.
Just recently, the premium for gold bullion in India hit a record $100.00 an ounce above London prices. The demand for gold is so high in India that the supply for physical gold is running out. (Source: “Gold Premiums Hit Record in India,” Reuters, October 15, 2013.)
As most of you are probably aware, the Indian government has tried to clamp down on imports of gold bullion to try and stem the outflow of their currency, which is causing the rupee to drop significantly.
This is a great example of not just investor sentiment on a local level, but of global investor sentiment as well, which gives us a better picture of the true fundamental situation. Gold bullion has fallen in price here in America; that’s because investor sentiment looking at the precious metal from the point of view of the U.S. dollar.
People in other nations are not experiencing the same type of price drop in gold bullion. In fact, in India, the rupee has dropped so far that gold prices are still near their record highs.
Will investor sentiment shift in favor of gold bullion once again versus the U.S. dollar?
Obviously, no one can predict the future, but we can all agree that the path America is moving towards is unsustainable. Just recently, China once again voiced its concerns and called for the end of the U.S. dollar as the reserve currency for the world.
With trillions of dollars of debt piling higher and higher, gold bullion may once again be seen as an alternative to the U.S. dollar—if our fiscal situation does not change.
In no way am I suggesting that America will become India anytime soon. America has a tremendous amount of advantages in the world, including a talented and highly educated workforce, some of the leading technology companies in the world, and vast natural resources.
Unfortunately, we are only as strong as the weakest link. And I think it’s quite obvious that the weakest link is our politicians in Washington. Because of what I’ve seen over the past few decades in Washington, I think adding gold bullion to a portfolio for the long-term makes sense, especially now that it’s “on sale” here in America compared to the rest of the world.
When looking to preserve or create wealth, the best time to enter or exit a position is when investor sentiment has gone far beyond the norm. At this point, investor sentiment for gold bullion appears to be far too pessimistic. However, in other parts of the world, investor sentiment is so bullish, they can’t buy enough gold bullion! So much so that supplies are close to running dry.
Over the long term, such imbalances do work themselves out. However, over the short term, price imbalances will occur, and it takes a patient investor to ride out the storm.
Hopefully, our elected “leaders” can come to their senses and actually formulate a plan that makes sense and can help put America back on the right path.
Since I have yet to see any such plan put in place (kicking the can doesn’t count), having some gold bullion as an insurance policy might be the smartest move one could make right now.
This article Update: Global Gold Bullion Demand Still Rising, Supplies Running Dry was originally published at Investment Contrarians
by Sasha Cekerevac, BA
