Although I am not a gold permabull- unlike most on this thread, I believe junior golds are now a buy...
Barrick Golds reported cash cost per oz in the third quarter was 185/oz.
Canada has the lowest average cost per oz mined of the major countries like
South Africa, Australia etc. Once those South African mines start to
announce shutdowns it will help the remaining domestic producers in Canada
and the U.S. And in this deflationary scenario <if it continues> the cost
of mining will drop as well - for example, Opec is now increasing its oil
production - this will drive energy prices down, leading to lower
production costs for any company using energy, including mining companies -
and help to revive demand for commodities, particularly in Japan and Asia
which are large energy importers, which are very oil price sensitive. I'm
seeing the first inklings of a turnaround in gold here - reduced supply
coming onto the market combined with better demand from consumers at this
price - and a lot of stale news about central bank selling (old news) -
providing the necessary "wall of worry" for a bull market, and increasing
bearishness in public discourse (for example in this newsgroup - all the
bears are now coming out of hibernation at this low price) - where were
they a year ago? And there are now substantial profits on the short side
which must be unwound. And the Globe and Mail consensus poll of money
managers has just turned net bearish on gold - after having been net 70
percent bearish for over two years. This suggests a contrarian position is
becoming warranted. At the last major low in gold some years ago the ratio
of the TSEGold Index to the TSEComposite got down to about 1.2 to 1 - it is
now under .9. This typically reads about 2.3-2.4 at tops from my studies
(set last January at 13,000 on the TSEGold Index). So this indicator
suggest that on a relative valuation basis the TSEGold Index is VERY
undervalued. On these bases, I have placed a considerable amount of money
into the gold sector last week, including Barrick Leap Options (25 strike)
for year 2000 expiry - giving me two years on a nicely hedged low cost
market leader, TVX Gold (Covered Option Write), and Farallon Resources
(T.FAN). Other bullish factors include favourable seasonal tendencies in
metals in the December to March period, drying up of year end tax loss
selling, increased money flows into the Canadian market associated with the
RRSP season, and the onset of the winter solstice which generally marks a
watershed in human psychology, with increasing ambient light levels of
spring encouraging speculation, and a reduction in SAD (seasonally
affective disorder/gloom). Silver also looks good - that helps.
Hope I'm right - there's some darned good values out there in depressed
juniors - go for it. I am.... |
