Wednesday, 21 March 2012

Some are still bullish for Gold and the Miners

The past week has been tough to be bullish on gold and the miners.

An article by Pater Tenenbarum covers the goldbugs' wall of worry here, in particular addressing the performance of the gold miners.

Some however see a simple and necessary consolidation in gold since September coiling to a point of breakout.

Wednesday 21st could prove whether this is the case.
Having broken out of the downtrend earlier this year some might see the most recent decline as a test of that breakout.

If gold does advance from here there will be many who sold out waiting for $1400 to jump on board.

I pointed to some of the "wave" and "fractal" gold bulls in an earlier post, the most significant of whom I feel is Alf Field.

A few more I have found in recent reading;

Rambus on Gold
Rambus on Hui potential to 1645 by 2013

Some of these numbers do not sound so credible. 
But from $250 neither did $1600

King World News publishes bullish views every day, so one should be wary, but I think some opinions there are worth following when near panic lows.
John Hathaway of Tocqueville gold puts the case I have made before that rising long bond yields, and therefore declining bond capital values could panic money out of this market. So far the "knee-jerk" reaction has been into general equities but a steepening yield curve should indicate stronger inflation (see Steve Saville on "Why Gold" page). A confirmed top in the bonds is Jim Sinclair's final pillar of the gold bull market. He also points to a China trade deficit meaning the Fed has to monetise the US deficit.
Stephen Leeb points to China's aversion to a hard landing meaning that easing there will drive commodities again.
I view China's intentions for the Remnimbi as the final key here, possibly looking to devalue to maintain mercantile export policies or upward revaluations and internationalisation in trade, projecting Chinese "power" through currency and driving Chinese domestic consumption and rebalancing which might undermine the dollar, Sinclair's recent emphasis.

Just look at the "PEA/DFS" Page on this blog to begin to see how moderately higher gold prices from here transform miners' economics, there are juniors selling at a tenth of their project NPVs. 

I feel that the next serious advance for the metals sees dramatic mean reversion in the miners.

If gold's next advance looks to be underway the majors' stock prices should begin to perform and there will be a rush to utilise that paper in mergers and acquisitions to acquire historically cheap resources in the ground from the developers and explorers.
Once key targets get taken out I think we enter the virtuous circle for the junior explorers whereby "smart investors" bought out by the majors have cash from those sales to seek the next discoveries, these will come from new and promising junior companies. 

Focus on good managements and jurisdictions should be key.

Another recent article on M&A probabilities

For junior company selection note that Bill Cara recently announced a company called "Greenfield Mining Capital" which he will establish to advise private clients. As part of this there will be a list of 100 stocks to follow. This should be a "go to" location for all those interested in the juniors. 

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