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.
“History has shown us, time and again, that the greatest leverage to gold’s rising price is owning gold exploration/development junior mining stocks. Will mainstream investors eventually catch on to the fact they need to own gold and to own gold shares?”
So says Richard Mills (www.aheadoftheherd.com) in his most recent article* entitled “Dow/Gold & Summer Doldrums” currently being distributed to the various financial sites for posting consideration. Below are further reformatted and edited [..] excerpts from the article by Lorimer Wilson, editor of www.munKNEE.com, for the sake of clarity and brevity to ensure a fast and easy read. (Please note that this paragraph must be included in any article reposting to avoid copyright infringement.) Mills goes on to say:
The Gold:Dow Ratio Tells it All
Back in 2000 at gold’s low of $260 and with the Dow at 10,900 in January of that year the Dow:Gold ratio was 41.9 (i.e. it took 41.9 ounces of gold to buy the Dow). Today, with the Dow in the neighbourhood of 10,700 and gold at $1200 or so, it takes only 8.9 ounces to buy the Dow.
This author believes that…investors are catching on to the fact they need to own [physical gold and silver as the recent escalation in their prices attests] and that the buying of shares in companies involved in the search for and development of gold projects will not be too far behind.
Use Summer Doldrums to get Ahead of the Herd
During the summer months investment demand for junior precious metal companies tends to be lethargic with volumes not picking up until after Labour Day [September 4th or so for you non-Canadian readers]. This slowdown happens almost every year – it’s just traditionally a slow period of time hence the old saw “Sell in May and Go Away” – and this year has been no exception with junior precious metal shares weakening in the spring/summer. If TSX.V volumes and precious metal equity prices, however, follow the traditional path they will strengthen again in the fall and as long as gold’s secular bull remains intact – remember gold outperforms most other asset classes in both deflationary or inflationary environments – then precious metal stocks will have their day in the sun.
History shows, time and again, that August can provide an excellent buying opportunity for precious metal juniors, especially when, like now:
• Gold and silver equities are already trading at a discount to metal prices
• Summer doldrums have further weakened share prices
• The gold/silver ratio, traditionally at 15:1, is at 65:1 today
Conclusion
Declining confidence in government, markets and paper money is pushing gold toward a front and center mainstream media position. As Don Coxe says,
“The gold story has been around for millennia, but is now attracting investment for thoroughly modern reasons. This month, we advance the thesis that none of the three major tradable currencies will regain its role as a prized store of value. Gold is moving from the shadows, where economists and politicians had consigned it, to center stage.”
Junior gold/silver companies reporting good to great results regarding project acquisitions, sampling results, drill assays and having experienced management with tightly held, low, outstanding share counts should do well for their investors. In my opinion now might very well be the perfect time to start accumulating select PM stocks – and this author has been a recent purchaser.
At the very least junior precious metal company’s should be on every investor’s radar screen. Are they on yours?
* http://www.aheadoftheherd.com/Newsletter/DowGold%20%20Summer%20Doldrums.htm (If you’re interested in learning more about specific junior gold/silver stocks and the junior resource market in general please come and visit us at www.aheadoftheherd.com. Membership is free, no credit card or personal information is asked for. I can be contacted at [email protected])
Editor’s Note:
– The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
– Permission to reprint in whole or in part is gladly granted, provided full credit is given.
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