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.
Happy Monday to all, a sentiment that should ring especially true with my Canadian peers enjoying a long weekend. I enjoyed a regular weekend – two 25-km days running in the mountains – and then boarded a flight this morning for Toronto, to position for a pending visit to Integra Gold’s Lamaque project.
A busy weekend to round out a busy week spent at Sprott’s Natural Resources Symposium, which was fantastic. Very good speakers, an impressive lineup of companies, and highly engaged attendees made for an informative and useful week.
To end the week the US announced that GDP growth in the second quarter had managed just 1.2%. In response, gold shot up.
Two days prior it had done something quite similar:
That was in response to the Federal Reserve not raising rates. And a month before that we saw gold make a more dramatic move:
That was in response to the Brexit vote. These repeated, sharp gains in response to undesired news events matter because they demonstrate one thing: gold has become the Go To investment when news of economic uncertainty hits.
Friday’s GDP number was a serious miss. The market wanted to believe things were doing better – expectations were for 2.4% growth – which means reality was only half of what people expected. Ouch. The US dollar fell 1.2% in a day.
Meanwhile, incredibly, US markets continue to hit all-time highs. The S&P even gained on Friday, following that GDP number.
It’s a perplexing world. US retail investors continue to pull money out of stock mutual funds: in 2016 US stock mutual funds have suffered net outflows 27 of 29 weeks. Rationales revolve around fear of a crash because of the length and extent of the bull run, an uncertain world pushing money into ‘safe’ investments, and poor mutual fund performance.
But what’s crazy is that bond mutual funds are getting inflows. Yes, bonds: despite offering terrible yields, investors are turning to bonds in their search for security.
Gold’s reaction to these news events shows, though, that investors are increasingly aware that it is another safe haven. And that is very important. For gold to go on a real bull run, masses of retail and institutional investors alike have to decide that the yellow metal is an essential hedge against uncertainty. That pushes money into gold ETFs and lifts the price.
As that happens, a subset of the masses realizes gold can be more than a hedge – it can also be a way to profit. That subset of generalist investors starts investing in gold miners. After making money with the miners, they pour over into the developers and, eventually, the explorers.
This phenomenon has only just gotten underway. Gold has a lot of momentum yet to gain. Buckle up!
Today’s snippet from last Wednesday’s Maven Letter includes a brief on Eurasian Minerals’ news last week, a look at how smoothly the money taps are flowing for miners, and the last part of the editorial.
As always, if you enjoy these Maven Mondays I suggest you sign up for a free trial of my subscription service, the Maven Letter, which comes out every Wednesday. To sign up, CLICK HERE.
