Banks Showing No Reluctance To Lend To Gold Miners

February 4, 2009 | By | Reply More

Unlike in other business sectors, banks are showing no reluctance to lend to gold miners.

Both major and junior producers are finding little difficulty in raising finance to develop their businesses. No other sector has shown the resilience of gold to the current stock market meltdown, currently little more than 10% off from its all time high in early 2008.

Despite the odd snippet of good news, today’s being some welcome uplift in buying activity in the US domestic housing market, the outlook for Anglo American economies and their currencies continuous to deteriorate, strengthening the appeal of gold as a safe haven asset.

Clearly the banks share this view and are eager to finance acquisitions and new projects in the sector. Buy gold and its miners would seem a reasonable interpretation of their thinking.

Cynics amongst us may be forgiven for thinking that banks, through their greed, ignorance and negligence of lending principles are responsible for the mess that global economies are now suffering. In which case, is lending to the gold mining sector just another error of banking judgement?

Amongst a number of other bullish indications is the increase in closures of unprofitable base metal producing mines, a number of which have gold (or silver) as a minor by-product and the cut back in exploration as costs soar. This on-going situation will surely only aggravate the annual decline in global gold production.

As much of the increasing investment money flows into the Gold ETFs that then purchase and store the physical metal, demand is likely to continue to increase unless unforeseen circumstances dictate otherwise.

On the downside demand from India, is reported to be unseasonably weak. Traditionally the Indian bullion and jewelry trade makes up a significant proportion of annual global demand, peaking in the wedding season starting after the harvest in September.

Among the factors accounting for the fall off are said to be concerns over a slow down in the countries economy, an increase in recycled gold in circulation and the price of the metal.

In the view of a number of influential analysts and bullion dealers, it has been many years since the outlook for gold has been so bullish with miners following suit, giving astute pickers that extra leverage denied to investors in bullion and ETFs.

Sooner or later the Indian market will recognise and accept that the odds are that the price of gold is unlikely to drop much below the $900 an ounce level for any length of time and may well see $1000 an ounce before very long. The possession of gold is too ingrained in the Indian psyche for them to stop buying for any length of time.

When they start again it will add further impetus to the metals bull run.

Buy gold and its miners now, on balance the odds are strongly in favour of a profitable run for 2009.

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