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.
Use gold as a way to protect wealth and as a store of value.
Following on my comments about the Chinese economy in my last report, I was pleased to see that Chinese exports rose an impressive 45.7% in February, well past expectations, after another strong jump of 86% in January. Imports rose 44.7% and trade surplus narrowed to $7.61b. The sustained strength in China’s trade is a source of support for global economy.
While gold continues to consolidate in US dollar terms, it made an all time high in Euros. At €834 per ounce this week, euro gold has never traded higher. Once again we see gold appreciate as the currency devalues. Currency devaluations are a very strong driving force behind gold prices. And, as sterling and the Euro spiral downwards the US dollar has been the main beneficiary of a flight from these currencies. However, what is good about the US dollar? In the current scenario as global markets try to decipher the daily news and political rhetoric from world leaders, we can expect to see huge volatility in currencies, financials which will then relate into stocks and commodities. And, gold is no exception. But one thing for sure, if history repeats itself as it always seems to do, only because human beings don’t change, then we can expect further trouble with these fiat currencies which bodes well for gold.
When it comes to oil, I find it interesting that despite the build in crude inventories in the USA, which usually has a bearish impact on prices, the price of crude has continued upwards. If we have a build in inventories with no new increase in demand, then the price of crude is being affected by change in the values of the currencies. Although the prices of gold and oil don’t exactly mirror one another, there is no question that oil prices do affect gold prices. If oil prices rise or fall sharply, investors can expect a corresponding reaction in gold prices, often with a lag. So, if oil continues higher, then the price of gold could be expected to trade higher as well.
In statement released by the South African Chamber of Mines, in 2009, South Africa produced 204 922.8 kilograms of gold, a 5.8% decline on the 2008 production number of 217 648.5 kilograms. The 5.8% year-on-year decline in production in 2009 was a significant improvement on the large 14.5% decline in production that occurred in 2008 mostly as a result of the electricity crisis. The electricity crisis and the stoppages of mines and shafts for safety related reasons (some valid and some not), had the impact of prematurely downscaling the country’s gold sector in 2008. The 2009 production number means that South Africa has slipped down to position four on the global production ranking, behind China, Australia and the United States. South Africa was the world’s largest gold producer for most of the last century up until 2006. In the fourth quarter of 2009, South Africa’s gold production fell by 1.8% to 51 681.8 kilograms when compared to the 52 644.1 kilograms produced in the third quarter. On a year-on-year basis gold production was down by 5.4% in the fourth quarter of 2009.
TECHNICALS
Gold continues to consolidate and trade sideways between US$1050 and $1150. However, the long-term trend (200 day MA) remains up and is now sitting at $1040. As the price of the yellow metal remains range bound, in the short-term we may see some downward pressure as traders try to sell it down.
As we are experiencing very uncertain times, I continue to recommend that investors accumulate a core holding of gold. The idea is not to make a “killing.” It is primarily to protect wealth and store it in a form that will not disappear if the major fiat currencies collapse and inflation heats up, or if worse political or economic difficulties suddenly materialize.
As a long-term investor it is important to note that the fundamental value of gold is greater than the present price, and because that value will probably rise over time it is prudent to add to your holdings on a regular basis. Do not sell your core holding, whatever the price of gold does. Also, unless you are a collector, do not be beguiled into believing that there is more value in limited edition medallions. Stick to bullion. If you want to speculate on short-term price changes, this should be done with non-core holdings. Have a separate pool of money to do this.
About the author
David Levenstein is a leading expert on investing in precious metals .He brings over 30 years experience in futures, equities, forex and bullion. And, although he began trading silver through the LME in 1980, when it comes to gold, he has traded gold bullion, gold coins, gold shares, gold ETF, gold funds and gold futures for his personal account as well as for clients. Over the years, David has been published in dozens of publications and has appeared on SABC 3, CNBC and Summit TV (South Africa), and is a regular guest on JSE Direct, a premier radio business channel in Johannesburg, South Africa. He is also a regular commentator on www.kitco.com, www.mineweb.com, www.gold-eagle.com, and www.infomine.com David has lived and worked in Johannesburg, Los Angeles, London, Hong Kong, Bangkok, and Bali.
For more information go to: www.lakeshoretrading.co.za
Information contained herein has been obtained from sources believed to be reliable, but there is no guarantee as to completeness or accuracy. Any opinions expressed herein are statements of our judgment as of this date and are subject to change without notice.
