Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Interesting take on Gold Price Movement
I am looking at a chart from analysts from as far back is 2007 where they would forecast the movement of gold for the next five years. The pattern continues to be the same. Gold goes up a year or so and then falls in price. But what is interesting about this forecast chart is that analysts have been wrong since 2007. In 2007 forecasts called for gold to be under $600 an ounce by 2012. 2008 predicted it to be under $800 an ounce. And where is today's forecast? It is calling for gold to fall pretty drastically by 2014. If gold stays consistent with how it moves against forecaster expectations, 2014 could be a good investing year for contrarians in gold!
World View on Gold
China and India account for 47% of the world's demand for gold. Besides the Middle East and the U.S., the rest of the world accounts for another 41%. It wasn't long ago that China and India accounted for just 23% and the U.S. and Middle East accounted for twice what they account for today! Observing this pattern, it seems that what comes out of China and India will have more of an effect upon gold than what would be coming out of Washington these days. Considering Central banks have also become buyers of gold instead of sellers, should we be bullish on gold as investors?
The Deteriorating Economics of Mining Gold
Finding new high quality gold mines in the ground have become increasingly scarce. Quality has been lacking and finds are fewer. For this reason, they are more expensive and take longer to bring into production. So here is the present day scenario:
- Gold stock assets may be of lower quality.
- Governments are more aggressive in 'seizing the plunder' in the form of taxes.
- Poor economic assets and stockholder returns.
So is it better just to buy the metal itself and stay away from the ETFs like GLD or gold mining stocks? So what are the catalysts to move gold mining stocks right now? Generally speaking, high commodity prices benefit the companies that mine them. But when looking at mining companies, one thing to consider is the project the company is exploring more than the present commodity price. If the project is projecting production to take place a few years out, present day commodity prices are not very helpful. What would be more important is the project and if it is meeting milestones along the way of the project. A good example of this would be the suspension of operations of the Pascua Lama-a giant open-pit gold, silver and copper mine being built in the Andes at the border between Argentina and Chile owned by Barrick Gold (ABX) recently for unsafe fine particles in the air. Not only is this one of a set of ongoing problems, but the miner's largest and most controversial project ever is now expected to cost as much as $8.5 billion, with first production expected not before mid-2014. Originally the projections were $3 billion in 2009.
(click to enlarge)
Technically Speaking
The recent rise in GLD was typical and signals of a slowdown could be seen in its extended over bought position in the RSI indicator. As expected, it has backed off and found support just over 162. It slid down the Bollinger Bands, but now appears to be moving sideways and so do the bands. There is a mild chance that we might see a turnaround as both the RSI and MACD are journeying toward bullish territory, but it is too early to make an observation like that. Presently, GLD is moving sideways with a possible move back up, but I am not of the opinion that it will be strong.
Source: http://seekingalpha.com/article/1026061-my-thoughts-on-gold-investing-as-2012-ends
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