a big booyah going out to ya, mythman........
Think Gold for Growth
By Jim Cramer
RealMoney.com Columnist
4/13/2006 9:29 AM EDT
URL: thestreet.com
We aren't just running short of oil. We are short of gold. GFMS released its survey this week about demand and supply for gold, and it tells you that $600 an ounce isn't high enough. And that tells you that if you don't own a gold stock along with an oil stock, you are going to miss out on the next leg of the rally.
First, the bleak supply side: Mine production is up only 2% to 2,500 metric tons per year, and it's mainly in Latin America. The South African and Canadian mines are pretty much exploited. We had gigantic central bank sales, up 40%. I ask, "Is that sustainable?" And the costs of drilling went up 7% to $269 an ounce. It's costing us more and more to find the stuff. Despite the increase in price, scrap gold advanced just 1.5%.
Now to the red-hot demand side: We fabricated 4% more gold jewelry in 2005, 2,712 metric tons -- nearly 800 metric tons more than we found! -- including dramatic increases in Indian demand.
I continue to believe that people are explaining both gold and oil in terms of hoarding and a sense of world instability for the former and geopolitical risk in the latter. As I used to say so often in this column, Wrong! It is all supply and demand, with the supply situation getting worse and the demand side getting much stronger. Don't forget that our own Chris Edmonds is fond of pointing out that we have twice the number of drills cooking but we are coming up with the same amount of oil as just a few years ago.
Why should we think like this? Because this supply-demand story is a secular growth story, not a cyclical stock story. That means the gold producers need to be bought on any weakness, including the weakness I am seeing this morning. Goldcorp (GG:NYSE) is the lowest-cost gold producer, and Crystallex (KRY:Amex) has the most upside, when Chavez approves. The story looks to get only worse in 2006 -- more disparity between supply and demand -- despite the remarkable increase in price. |
