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.
December Gold settled slightly lower for the week due largely to end of month and 3rd Quarter profit taking. However the market impressively bounced from mid-week lows down at 1738.3 to settle above 1770 potentially due to another Central Bank announced stimulus this week.
For the 3rd quarter Gold rallied almost 11 percent, and for the month posted a five percent gain. China’s Central Bank poured in billions to reignite shrinking economic growth and joins the U.S. in artificially trying to create some economic momentum heading into the fourth quarter and the beginning of 2013.
Stimulus measures from governments and central banks of the world’s largest economies have gone from the exception and to the norm. As a result, currencies like the Dollar have been devalued creating an inflationary economy, causing the potential for price hikes in food, energy, and of course precious metals. If anything held back the Gold market back to reaching new highs for the year, I believe it was news out of the EU.
Once again our friends there seem to take one step forward and then two steps back. Countries like Greece who have no choice but to accept bailout terms when they run out of money, continue to try to change the terms when it’s time to ask for more to pay off the original loan. Riots in Athens this week over austerity measures prove the point.
The market though seems to have largely focused on Spain this week. Stress tests on Spanish banks revealed Spain’s main financial institutions could withstand a serious economic downturn, but investors anticipate that Moody’s ratings agency could lower its bond rating to near junk. In my opinion, the Spanish are going to ask for a bailout from the ECB, just a matter of how much and when.
Recent downturns in the Euro currency seem to have put a temporary bid to the Greenback, which is mostly commodity bearish. Economic data in the U.S. was mixed with a better reading on jobless claims versus a weak reading on GDP.
Consumer Spending was higher in August, but that was mainly due to a rise in gasoline prices.
I think that a serious correction to the stock market, along with a weak Euro, could cause a pullback in the Gold price. However, if investor perception of this latest Chinese stimulus will lead to better economic data this month and next along with the fact that per the Fed, short term interest rates are here to stay for a while, and I think we could be up at new 2012 highs for the Gold sooner than later.
Please call or email me at any time with questions or comments and have a great weekend!
Sean Lusk
Gold & Precious Metals Analyst
Direct: 312-765-7213
Fax: 312-765-7201
