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.
We will kick off with a quick at the chart for gold prices and what a great chart it is. Despite the bears constantly jostling to be the first bear to call a major correction for gold prices to drop back to the depths of the last decade, gold is just not listening and continues to strengthen as the demand for real value grows.
Gold prices popped up above the $1250/oz parapet today to survey the economic landscape before easing back to close at $1237.30/oz. Gold is now poised to to set another new all time high and when it does gold prices will be once again, be in unchartered waters. Also note on the chart that the 50dma and the 200dma are moving up in support of gold prices which is a positive sign. The MACD has just had a nice crossover, again a positive indication for gold. The RSI is heading north and as it is sitting at 62, it still has room for a little more upward movement. The Stochastic is in the overbought zone at the moment but hopefully it can move sideways as gold pushes ahead.
The difference this time regarding an all time high is that gold is already at all time highs in all the major currencies across the globe and is therefore starting to attract more attention in these countries, as nervous investors contemplate the advent of a double dip recession. With the exception of the US Dollar, paper money is losing its reputation as a store of value. The printing presses continue to inflate the money supply thus diluting the value of everyone’s savings and begging the question of just what is the point of holding cash as a store of value, huh.
The rally in the dollar is not because its fundamentals are sound, it is more a result of other currencies hitting the wall, particularly the euro, which in our humble opinion faces extinction in the not too distant future. The people of northern Europe will not tolerate forever their hard earned cash being transferred to the south in order to preserve a way of life which many regard as unsustainable. Spain has moved in terms of ordering a 5% pay cut for the public sector only to be met by a strike and threats of many more to come. Every time this sort of news hits the air waves investors are forced to reconsider the logic of holding euros and in greater numbers they will diversify into other asset classes, which for now include the dollar. Sooner or later their will be an event which grabs the headlines in the United States, the first state to default for instance, bringing into focus the very same questions that are being applied to the euro now and again investors will not be shy in making the decision to diversify still further. So where will they go? Well we are gold and silver bugs and have been for some time now so we cannot give you an unbiased answer as we are up to our necks in gold, silver, associated mining stocks, options trades and hold no other equities. We can tell you that we have no intention of touching the industrials as we are of the opinion that the broader markets could still drop by around 30% from here, which would take the DOW back to the 6000 level. But that’s just us and we do see things through gold coloured glasses.
A snippet from BNN:
John Ing
Gold hit a record dollar high above $1,250 an ounce this morning as concern over Europe’s economic outlook lifted risk aversion. BNN interviewed John Ing, President and gold analyst, Maison Placements Canada, to get his view on the current situation. John expressed his concern about the UK, France and the USA and also mentioned the geo-political tensions surrounding Israel and North Korea. The investment communities perception of the broader markets was that the recent oscillations resembled a casino as the DOW traded below 10,000 despite the mega bucks that had be poured into the system. Johns near term prediction for gold prices is $1350/oz and that some time this year gold will hit $2000/oz. We cant argue with that as the metals bull is gathering momentum.
Finally, according to our Collins Pocket Dictionary the word fiat as in fiat money is an ‘order issued by legal authority, a decree or sanction’. Politicians can order an increase in the money supply but they cannot order gold or silver to double, as its just not possible. Therefore, the precious metals are in a unique position as the only true store of wealth. The move towards gold will accelerate in the coming weeks and months bringing the mania phase of this bull market ever closer, so be prepared for it.
Interestingly, in our dictionary the word fiat comes just above the word ‘fib’ to tell a lie!
As a suggestion for those who do want leverage to the precious metals bull, the gold and silver funds together with the careful application of options trades could be a possible solution for you. This way we are exposed to any movement in gold prices which in turn is magnified by the effect of the option. Do remember that loses are also magnified in the same way so its not a strategy for the faint hearted. On the other hand the quality stocks are not performing as anticipated and a non-producing junior stock is a shot in the dark, however, its your money and its your call.
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