How To Take Advantage of the Next Economic Cycle – Gold

Commodities and Precious Metals
In recent blogs, I discussed how a feature of the new economic cycle now starting, is the remarkable need in the world for base metal and for precious metals.

I discussed how the ‘doom and gloom’ crowd was urging people to buy precious metals to save themselves from the impending collapse. As I said, ironically they are correct, but for the wrong reason. Gold and silver are in demand and this demand will grow for the foreseeable future, meaning the value of silver will grow, and will not fall.

Gold – The Supply and Demand Equation
Gold is different than base metals and is different than silver. As we know, the price of gold has dramatically risen from the $250 range to the current range of $1,700 to $1,900.

Will the Price of Gold Continue to Rise?
I think, as I have written this month and last, that betting on another dramatic rise in the price of gold, is about as sure a bet as going to your local casino and making a wager. For reasons detailed in those blogs, there is a significant chance of the price of gold diminishing (yes – even falling) and also a significant chance of the price of gold rising.

If you wish to gamble on gold in the belief that it is a hedge against inflation and instability, these may still be valid rationale, but caution is warranted.

The Market Foretells the Future
Currently the market for gold seems to be saying that some sort of equilibrium is in place with neither significant upward nor significant downward pressure on the price of gold. One inescapable fact is that the current price of $1,700 seems stable and realistic.

Supply of Gold
The large gold producers of the world have a continuing problem. As they produce gold from their reserves in the ground, their reserves dwindle and they must acquire – either by exploration or by acquisition – more supplies of gold to mine.

The amount of gold supplied to the world by the majors is shrinking. Less gold is being produced. The same problem exists for new supply, as exists with all other mining. The large and obvious deposits have been found. New exploration is in more and more remote areas.

The same issue as with copper and with silver mining exists for gold also – with environmental issues and massive new regulations, including the opposition by Greens to any mining development – new sources of supply are very difficult to find, and even more difficult and expensive to bring into production. The time frame for a new mine just keeps getting longer and longer.

So the supply issue will not be resolved any time soon. The only answer to the supply issue, is to adjust the demand issue. In simple terms, the price of gold has to stay high. Otherwise, there is no way that new gold sources will be discovered and brought on the market.

Demand for Gold
Demand for gold remains different than for other precious metals. Silver and other metals, including rare earths, have increasing demand from industry.

While some gold is used for industrial purposes, such as electronic purity, most gold continues to be in demand as a historical consumer demand for jewelry, safekeeping, and economic stability, as well as an historically approved reserve for financial institutions.

As there are more and more people worldwide able to afford the purchase of gold, the demand for gold remains high.

As there are more and more banks and financial institutions growing to world class size, the demand for gold to keep in their reserves grows.

The demand for gold will not abate. The only question is whether the price will move a little or a lot from current values.

How to Invest in Gold
I discussed this previously, but suffice to say that investing in the major gold producers is generally not profitable over the long term. If the price of gold rises, their shares also rise, but not proportionately. If the price of gold falls, those shares fall dramatically.

I suggest that you look for junior gold explorers and producers. They are very profitable at these levels, their share prices are quite distressed, and the majors have to keep taking them over to sustain their ever increasing need for new supply of gold in the ground.

The views expressed in this blog are opinions only and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment and we do not accept unsolicited investment funds

By Larry Cyna

Mr. Cyna is an accomplished investor in the Canadian public markets for over 20 years, and has managed significant portfolios. He is a financing specialist for private and public companies, and has expertise in real estate and debt obligations. He has assisted private companies accessing the public markets, has been a founding director of public companies and continues as a strategic consultant to selected clientele. He is and has been a director, a senior officer and on the Advisory Board of a number of TSX and TSXV public companies in the mining, resource, technology and telecommunications sectors, and the Founding Director of two CPC’s with qualifying transactions in mining and minerals. He was an honorary director of the Rotman School of Management MBA IMC program, has completed the Canadian Securities Institute Canadian Securities Course & Institute Conduct and Practices Handbook Course, was a former Manager under contract to an Investment Manager at BMO Nesbitt Burns, a roster mediator under the Ontario Mandatory Mediation Program, Toronto, a member of the Institute of Corporate Directors of Ontario, a member of the Upper Canada Dispute Resolution Group, and the Ontario Bar Association, Alternate Dispute Resolution section. He obtained his designation as a Chartered Accountant in Ontario in 1971 and was the recipient of the Founder’s Prize for academic achievement together with a cash reward. He became a CPA in the State of Illinois, USA in 1999 under IQEX with a grade of 92%. He is a Member of the Institute of Chartered Accountants of Ontario and the Canadian Institute of Chartered Accountants. He holds certificates in Advanced ADR & in Civil Justice in Ontario, Faculty of Law, University of Windsor, certificate in Dispute Resolution from the Ontario Institute of Chartered Accountants. Previous accomplishments are Manager of Cymor Risk Consultants LP specializing in Risk Management Assessment; CEO of Cyna & Associates specializing in mediation and ADR; Founder & Senior Partner of Cyna & Co, Chartered Accountants, a fully licensed and accredited public accountancy firm with international affiliations; and was a partner in a large public accountancy firm. Mr. Cyna is well known in the Canadian Investing community. He is invited to, and attends presentations given by public companies usually 3 or 4 times each week. These presentations are intended by the various hosting companies to present their inside story to sophisticated parties and Investment Managers for the purpose of attracting funding, or of making parties more interested in acquiring shares of those companies. Being a part of this keeps Mr. Cyna deeply involved in the current market and leads to numerous investment opportunities.

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