Why Gold Mining Shares Will Boom

I thought I was going to lose my teeth as the truck bounced through gullies and over rocks. We were going through the Australian bush. BTW, I’m not complaining! I loved it! Such beautiful scenery and great company.

The driver is a true expert on mining and has been involved in mining for about 30 years.
One of the key things he mentioned was the fact that costs of gold mining will be coming down, thus returning gold miners to profitability.
You see, many commentators has pointed out that the cost of mining an ounce of gold is somewhere between $1200-1700 per ounce. It really depends on how much you allocate of corporate overhead and initial capital outlays. At these levels, many if not most gold miners are losing money on their production.
So far, we have not seen any miners cut back their production but we are seeing a virtual halt to any new production or capital outlays for production. This will lead to a sharp reduction in the growth of new mines and therefore start to squeeze the supply side of the equation to a more bullish situation.
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Another bullish feature is that many of the big miners have been writing off their past sins. For example, they bought other companies at the top of the gold market and now those assets are crushed. So they write off the value. This causes them to lose billions of dollars over the near term but will cause a big increase in earnings in the future. The old problems are wiped out leaving just good news ahead. I believe this factor is one of the main reasons for the rally in gold stocks over the last month.
 
The big gorilla is the Fed, who will then continue to worry the gold market with talk about tapering. The market is worried that the Fed decreasing their insane easing posture will hurt the demand for gold. I, on the other hand, think that this factor is completely baked into the price of gold. Who doesn’t think the Fed will have to tighten or at least stop easing sometime in the future.
 
When will this bullish case come to pass? Soon but not right away.
 
Normally stocks lead the metal. Yet stocks are still weaker than gold which suggests to me that gold could take another dip before the bull market begins. This could be on the back of weaker growth in China.
 
So watch this indicator to confirm that the bull market in gold stocks is back in play!
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15 Responses to Why Gold Mining Shares Will Boom

  1. Rick Pearson says:

    Allo from Toronto, mate! “…normally stocks lead the metal…” In light of the Fed influence on the market, is there any ‘normal’ right now? It’s August and the market hasn’t even slowed down. I thought I’d be sitting in cash this summer, but the bull runs!

  2. Carol says:

    I always appreciate Courtney’s advice. It gives me a direction to look into.

  3. John says:

    You still can’t eat it! The days of the pharaohs are over. It is mostly used for jewelry today and can be thinned to unbelievable amounts. Even if you have gold and we have financial armageddon, I need food, not gold. You can have it. It will return to $500 per ounce someday.

    • courtneyds says:

      No, you can’t eat it but people still value it. Only food? No bullets?

    • Taufiq says:

      There will always be lots of Intrinsic Value in Gold.
      As long as Gold has value it will be worth its weight in itself.
      Yes, you cannot eat it… but as long as the World is… there will always be demand for gold. Gold will continue to be in demand, it will be easy to buy food with it. Gold has Value because of the Jewelry and also for Industrial use… And look at India… it is a major part of religion as tons and tons of Gold is sitting in the temples.

  4. Karen Reid says:

    Hi Courtney,

    thanks for sharing the info on Gold, everytime I go to Sydney I go to ABC Gold Bullion, I feel like a kid in the toyshop!

    Enjoy the bush!

  5. Vikki Sharpe says:

    Awesome Courtney thank you for keeping us all at the top of the game.
    love The Newsletters.

  6. John says:

    Taufig, Take your scrap gold to any dealer nearby, and report back to me on what percentage of spot they are willing to pay you for gold. Easy to buy, difficult to sell, “in the real world”. You want to trade the contracts, ok, but might as well be trading tulips.

  7. Vittorio says:

    Thanks Courtney & Taufik,
    China has been quietly and regularly buying gold and recommending their citizens to do the same – they may aim to ensure that their currency will be taken seriously in the future as it will be backed by value (tulips from my home country are great but they have a short shelf life…). In the mind of the Chinese (and Indians, and Malaysians and Indonesians and Koreans… you get the drift) there is no better store of value than the “barbaric relic” that the central banks and commercial banks are unable to deliver when their rightful owners ask for their gold back… Germany having to wait 8 years to receive their own gold from the Fed and ABN-Amro telling their clients that they will not receive their gold back, but cash – as well as recent changes in the way the CME proposes to deliver the yellow metal – only serve to strengthen the suspicion that maybe fractional banking applied to gold may have seen institutions selling short more gold than they should have… We all have heard of a “bank run” anyone knows if there has ever been a “gold run” in history? I choose to buy the same gold – and at the same time – as China does…

  8. Peter says:

    Gold always has value. China, and India are still buying it in great quantities, so when paper money becomes scrap, eg Germany in 1929, they then brought in the Gold mark as the currency to get the economy back on track. (Historical fact)

  9. J.A. says:

    How do you tell when the gold stocks are leading gold itself? And what gold stocks do you consider in this analysis? Anyone care to shed some light on this? Many thanks!

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