I didn't get onto the web until now, so I just now read your post from this morning.
I have done some thinking about gold and about mining companies and about owning one or the other......
The first thing I would say is that I think the market's approach to gold is shifting. The old paradigm was that gold provided asset security in uncertain political/economic times. Central banks used gold reserves to bolster confidence in their currencies. Gold also provided one with a sign of affluence when used in jewelery and coins, etc.
I don't think that paradigm is still completely intact.
I think the globalization of the financial sectors has resulted in a standardization that is beginning to exert it's own pressure toward a feeling of security.....for example, when the IMF steps in and has their loan accepted, they impose world-wide standards on the country involved and the rest of the financial markets breathe a sigh of relief.....I know that this is a very simplified version of the events,but I believe it captures the essence of what I am trying to say.
This standardization has served to decrease the reliance on gold as a backdrop for currencies, and I think that CB selling of reserves is confirmation of this thinking.
There is still a steady, to increasing, demand for gold, but I think the emphasis has shifted more toward being a commodity.
Central bank selling has masked, to some extent, the increase in demand because they are flooding the market with their supplies. This has created a bit of oversupply which has driven price down. This is resulting in smaller, less efficient companies being consolidated and more costly mines being closed. It is also resulting in more cost-effective measures being implemented at the remaining mines. So what has been happening is a decreasing supply from mining and a lowering in the cost per ounce to produce.
If I'm right with my thinking, then the question, for me, becomes: " Is the timing right to buy now?"
I don't think so.......I still think there is oversupply from central bank selling and I want to wait and see how Japan finances their way out of their current problems.....they could sell US Treasuries.....or they could sell gold.....if they sell gold, we have not come close to seeing the bottom yet.
However, I still think that I want to invest in the stock of a good company when I think the timing is right......my research has led me to think that Barrick (ABX) is the way I will choose.....they have the lowest production cost per ounce in the Western Hemisphere, they are making money at these levels, they are increasing sales in these conditions and they are beginning to look real attractively priced.
My opinions and 40 cents will get you a cup of coffee.......in some places! |
