Market Opportunity
“In the coming years one of the best sectors for investors will be the mining industry for reasons you already know about. Progress in China and India, paper money, derivatives, extreme governments, debt, etc. all point towards much higher metal prices for perhaps a decade. Don’t shortchange yourself. Stay with the companies that have the real goods in the ground.” Kitco, “Big News on The Gold Stocks and Notes on The Juniors You Need to Know”, April 25, 2008
Gold's near vertical climb to historic highs around the key $1,000 mark has been fuelled by bullish forces including a sinking dollar and record high oil prices. Fears that expensive oil will stoke inflation combined with worries over stock market losses and economic recession will propel gold higher still, according to sector analysts.
"Don't be surprised to see gold trade up to $1,100 [an ounce] or even $1,200 before year-end 2008," said Jeffrey Nichols, managing director of American Precious Metals Advisors. "And, with the right confluence of economic and geopolitical developments, we could see gold spike to $1,500 or even $2,000 in the next few years," he said. (Reuters, “Demand high even as gold nears $1,000”, March 07, 2008)
In 2005, the world's mines produced 2,550 tonnes of gold. In 2007, production had declined to 2,447 tonnes. Production, in fact, has been in steady decline for a number of years. As a primary indicator of the strong overall demand, gold has risen sharply over the last five years in every major currency -- the U.S. dollar, the euro, pound sterling, the Swiss franc, Japanese yen and Canadian and Australian dollars. The surge in demand has been accompanied in each of these nation states by rapid commodity inflation (particularly oil), general price inflation/stagflation, currency depreciation and an international credit crisis. In particular, the exodus from the dollar which has gathered pace over the last few years has led both private and institutional investors globally to ratchet up their gold acquisitions. (USA Gold, “Golden Gut Check: Why gold is likely to keep moving higher over the long run”, April 7, 2008)
The fundamentals lead to the conclusion that there has been real substance to the gold rally of the past two years -- a rally which has taken the price 75% higher. The fundamentals hold out promise for the future in that none of the trends in place are likely to reverse anytime soon. We are left with the impression that the gold bull market is likely to stay on course in 2008, even if we experience a short-term correction or two. (USA Gold, “Golden Gut Check: Why gold is likely to keep moving higher over the long run”, April 7, 2008)
According to the Citigroup North America Mining & Precious Metals report published February 13, 2008: "Gold is coming into its own: With discourse dominated by credit crisis, derivatives dislocations, currencies, inflation and self-reinforcing financial negatives, we believe gold is entering friendly macroeconomic territory," said the report. "Investment dominates demand ... with macro-driven investment demand taking prices higher, and Eastern jewelry/fabrication filling in during periodic pullbacks.
"We remain positive on gold, based on a mix of macro and supply-demand drivers; the forces that have propelled gold for the past five years are in place, and intensifying," said the report. "Appreciation remains muted relative to other metals and oil, with prices barely regaining long-term constant-dollar averages .... Corrections are expected along the way, and buying on weakness is recommended, which seems to be the central lesson of the past five years."
The financial situation with the banking system is without a doubt enough to convince even a small portion of non gold bug portfolio managers that a small allocation to the gold miners is probably a good idea. Since they control tens of trillions of dollars, even a small portion in mining shares will eventually create a substantial market. (Kitco, “Big News on The Gold Stocks and Notes on The Juniors You Need to Know”, April 25, 2008)
Further, there are also thousands if not tens of thousands of money managers and hedge fund managers that missed the first leg up of the gold market and the gold shares and have been patiently waiting for a correction to finally get in. These people are now aware of how bad the possible financial repercussions of the leverage and derivative craze could become and will certainly want some exposure to the metals and the shares. Corrections will allow them an entry point.
With global mine supply constraints and rising demand, major gold producers are looking to add ounces through buyouts. As Oxbow Resources works to explore and define its potential resources, it could become an excellent acquisition candidate.
Gold’s traditional role as a hedge against inflation and political uncertainty, its tendency to move in the opposite direction of the dollar, its role as a store of value, and use as an alternative currency make it an extremely hot asset.