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 are hearing from some sources that the gold price will tackle previous highs, and then fall to $850…If previous highs are hit, and if a double top is formed, then a major correction could come about. There are two ‘ifs’ there, though, which is not solid ground on which to stand.
In further edited excerpts from the original article* Julian D. W. Phillips (www.goldforecaster.com) goes on to say:
In the last few years the gold market has changed considerably from essentially a market where there was little investment interest to one where investment interest dominates the market. That investment interest is now at Sovereign wealth fund and central bank level, areas well beyond past market shapes. Past shapes defined the technical patterns we now see and these patterns are now being set based on a far bigger, different natured market too. The technical picture is still very valid, but must be tempered by the new fundamentals. So let’s not ignore these changes when assessing future price moves.
We take the technical picture and the fundamental picture together before we come to a conclusion. Here’s the scene now:
a) Investment Demand
Investment demand is rising and from old money, as well as new. It is buying anonymously and through the Fix in London so as to stay below the radar. Why?
The problems of the [world] are not going to go away. They are structural. With national interests clashing with Eurozone interests among all members over money, only words of support are coming forward, no action. Confidence in the is waning, no matter what politicians are saying.
b) USD Problems
US dollar problems have not changed and there is little political will to attend to the ailments of the USD, riveted as they are on internal matters.
c) China
China is growing rapidly and has become self-sufficient in terms of internal growth. Exports remain important to them, hence the USD peg system they currently operate. Therefore, what they can’t afford to do is to let the yuan rise strongly against all currencies. Yes, we do see an eventual lifting of the peg, but only when the yuan will not rise strongly against the USD. This can only happen if yuan are gushing out of China to such an extent that the currency will either fall or hold around current levels.
In such an environment of uncertainty and doubts about the future, it is unlikely that there will be a great exit from gold. It is far more likely that gold will remain attractive as long as the world is in the present state.
d) Indian Subcontinent
Now look to the Indian subcontinent. Indians are well known for their caution when it comes to buying gold. They are very careful not to buy if there is a likelihood of the gold price falling heavily. They have been out of the market during the bulk of the consolidation we have just weathered. Last year imported gold was extremely low and the market supplied to a large extent by scrap gold. Now they are turning buyers again. History tells us that they believe we have seen the low around $1,050 to $1,100 and that price forms good support. In addition the Chinese are inherent savers and have only recently been in a position and a government encouraged one, to buy gold. Both nations’ governments are steady buyers of gold as evidenced of late. Certainly they would treat any fall in the gold price as a buying opportunity.
Conclusion
The conditions which would support a major correction in the gold price are not present. Should a correction from a failed attack on recent highs occur in such an environment, it is likely to be a short one.
* http://www.goldforecaster.com/freelist.php (Gold Forecaster regularly covers all fundamental and Technical aspects of the gold price – with a 95% accuracy rate – in a weekly newsletter. To subscribe, please visit www.GoldForecaster.com.)
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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