That's a good point...which possibly explains why gold mining companies can do ok in a general deflation - as long as the cost of mining is dropping at a similar or faster rate compared with the price of the produced commodity...with this in mind it might be useful to consider the effect of greatly lower energy costs from the perspective of energy consumers like mining companies...I think that the lower oil prices ahead will in general be stimulative of commodity demand, especially helping the Japanese and Asian economies to recover - which are net aggregate importers on a large scale of oil. In fact this analogy may explain a lot of the current bull market in stocks...although net real incomes of consumers has been flat to declining over the last several years, their "sense" of well-being has actually improved, as the things they want to aquire with that income has declined at a faster rate than their income - in this we gradually deflate our way back to the go-go era of the sixties. With the advent of energy de-regulation, better energy conservation, declining oil prices, and new energy technologies (eg. Ballard/Daimler Benz hydrogen fuel cells, or modern co-generation) we can expect deflationary forces in the energy arena on balance - this should actually help consumers to consume things other than energy - ie. a shift in the spectrum of things consumed away from energy. This may in fact help things like gold and silver - suggesting that the traditional logic of the link betweeen energy prices and gold prices may no longer apply. I think this deflationary logic is what is fuelling the bull in stocks and bonds, and is <temporarily> harming commodities - however the big increase in consumption in some commodities which this eventually implies will be the ingredient which turns around the metals sector. In spite of the general doom and gloom on this thread regarding the Japanese market, I think we are at the tail end of a very long discounting of historical damage which has already occurred suggesting that a BIG move up in the Japanese market may just be around the corner. As demand for commodities from these economies revives, possibly stimulated by lower oil prices, the surprise will be bounce in the metals sector in general, including gold. I view the gold market as oversold now, with a lot of stale bearish liquidation on low volumes. Pessimism on the internet is high with lots of triumphant gold bears making their appearance - they weren't visible a year ago. Please note I am not a conspiracy theorist or perma-bull on gold, but I do agree (at this time) that a nice rally is order. I have been out of golds for over a year and a half, since August of 1996, when my studies indicated that the TSEGold Index was historically massively overvalued compared with the Composite Index. (2.4x). It is now under .9 (below the level set when the last big gold bear that I remember was basing at around 1.2). This is undervalued, I believe. I've began to accumulate some gold plays like long Barrick Jan 25 for 2000 Leaps, TXV Gold (Covered Option Write at 3.65/short Jan. 4 calls), and long Farallon Resources (T.FAN).
Cheers to all... |
