Recent Mania for the metal Silver
In the recent mania for silver, gold quite surprisingly has become almost forgotten. We have gotten used to the metal trading at $1,500 per oz, and it has become somewhat humdrum.
Silver zoomed beyond reason, then plummeted as exchanges grew fearful of another meltdown and as a result raised their margin requirements. Silver rose rapidly against all reason to almost $50/oz as traders considered it their latest plaything. Then it plummeted, but soon started recovering and is now almost back to $40 per oz.
What to take from all of this is that there is an intrinsic value for the precious metals that is real and and sustainable.
For the near future, these metals are the place to be.
The Cymor Strategic Growth Funds have done well with junior resource companies and remain believers. Except we don’t buy the metals as we think that is gambling.
We buy junior companies that look for, or develop, or produce these resources. We know that if the company is solid enough, whether the metal rises or falls, the company should do well. At the end of this blog we will mention a few of our picks.
Some Observations on the Demand For Gold
The China National Gold Corp (CNGC) recently commented that Chinese demand for gold could significantly outpace domestic supply over the next three years, with demand forecasted to increase 22% by 2014. They commented that Gold production should reach 400 tonnes by 2014, but consumption is expected to grow to 700 tonnes over the same period.
According to the World Gold Council (WGC). China now accounts for 25% of gold investment demand, compared with India’s 23%. World investment demand for gold in Q1’11 was 11.8 million ounces up 52% from a year ago.
Gold supply from mine production was estimated at 88.8 million ounces up 6.6% from mine production of 83.3 million ounces in 2009. In 2010, total gold supply including net producer hedging, official sales and recycled gold was 133.6 million ounces.
The Price of Junior Gold Gold Stocks Continues to Lag
Everyone knows that gold stocks are lagging far behind the metal price. Yet no one seems to know why.
This is all very interesting and one must consider from more of an overall view how to take all of this.
If you accept that there is greater and greater demand for gold and silver, then logically the value of the shares of Juniors should be substantially higher. Since supposedly everyone is mystified by this phenomenon, then one must assume one of the following:
• The market is efficient and feels the future is not bright. Perhaps we are headed for a substantial downturn
• The market is inefficient and the obvious is being ignored
• There are too many stocks clamoring for attention and it is bothersome to try and figure it all out
• Market movers are interested in areas where they can trade quickly and have rapid movements, and slow moving items are of no interest
• Investors in so-called large caps think small caps are too dangerous
The obvious conclusion is that the investing world is comprised of the young and the reckless who want quick and immediate gratification (daily), and the investors who listen to the big bank Advisors and choose supposed safety in large caps.
Buy Low, Sell High
Ever heard of this old adage?
Well what we are seeing is a classic case. Here is a sector that is clearly of great value, whose products are in continually increasing demand, where scarcity is looming, and yet doesn’t meet the current criteria of most investors.
Buy Low, Sell High
So while the under 30’s crowd speculates on the rapid rise or fall of metals, and the over 50’s crowd rushes to supposed ‘safety’, buy the obvious ignored sector. I assure you, it cannot fail to get recognized.
In the meantime, we continue to do very well in this sector – year in and year out, we make very good returns.
