Gold


Gold Ore

Gold (chemical symbol: Au) is a precious metal, just like silver, platinum and palladium, and one of the most valuable and highly sought after on the planet. Its main purpose is for investing or preservation of wealth, or a hedge against inflation. As small deposits with likewise small operations can already be profitable, gold juniors are the most abundant among junior miners on the various exchanges, but certainly the Canadian TSX Venture and TSX. There are roughly 500 gold exploring/developing/producing companies listed on these two exchanges with a NI43-101 registered resource estimate.

As gold has no fundamental supply/demand mechanism, but supposedly moves on the wildest drivers like banks and governments/central banks secretly regulating the gold price through large ETFs like GLD, India smuggling, India and China special occasions, European gold repatriation from the US, conflicts around the world, covert China politics to create a gold backed yuan based on gold reserves even superseding those of the US, QEs, US debt, negative interest rates, inflation, impending collapse of the US dollar or even all currencies for that matter, etcetc, none of those drivers has ever been able to influence gold prices in a consequent way so they could be worthy of being named "fundamental". Pricing of the yellow metal is therefore always surrounded with sentiment and speculation, and therefore is risky in itself. The only true market movers in gold are the futures traders, as their traded volume dwarfs any other trade in gold, ranging from physical to ETFs by 50 times or more. The trajectory of gold for the last 5 years is shown in this chart:

Market watchers assume that after the 2011 high of $1923/oz, the current AISC of $1000-1200/oz should be enough to provide a bottom under the price of gold (currently at $1120/oz at Nov 2015), but as capital expenditures (construction financing for mines) and AISC are falling because of less projects and operations and therefore less interest and demand for personnel, material and services, this bottom isn't rock solid. Fuel is going down as well on soft oil, and the strong dollar has created havoc among local currencies worldwide, bringing costs down even further. In my view this is an unsustainable situation, and the dollar will have to come down again as exports in dollars will become too expensive, and decrease, causing trade deficits. Therefore I tend to look for solid gold projects, capable of being profitable (= post tax IRR of at least 20%) at prices of max. $1000-$1100/oz.