Precious Metals Market Mainly Steady

February 12, 2008 | By | Reply More

Last weeks price action in the precious metals market was mainly steady, unlike the stock market, with platinum and palladium reaching all time highs and with gold largely unaffected by profit taking.

The electrical power problems that South Africa is experiencing now seems likely to affect mine output for the next two years or more. Experience suggests to us that the electrical supply situation is likely to get progressively worse before any improvement becomes noticeable.

And let’s not overlook the political outlook, union and labor involvement and, last but not least, the health and safety issues. 

Although the country has lost its place as the worlds largest gold producer, it remains by far the principal source of platinum and other PGMs and that accounts for the onward and upward march of the metals with expectations of an increasing shortfall of supply to meet a surging demand.

One question that investors in PGMs should be asking themselves is whether the demand for the metals is likely to be sustained as global recession looms or are the BRIC nations able to stand on their own economic feet and remain aloof from the travails of the US and Europe?

Get the answer to that question right and you could put a lot of money in the bank.

Turning to gold we learn that fund managers of every hue are entering the market and that there substantial positions being built up as the yellow metal bucks the downward trend of the stock market and the expected further deterioration in the value of the greenback.

It is interesting to note the conservative forecasts for gold in 2008 by such as Credit Suisse and others. They range from $910 to $950 an ounce for the year, whereas many other pundits who know the gold market well are looking at upwards of $1000 an ounce.

Do these major banks know something that we don’t? We have written about the conspiracy theory, held by some, of the market being rigged and there are occasions when the price action suggests that maybe some shenanigans are going on that are being kept from the public domain.

We have avoided writing about precious metal miners for some time as the issue is somewhat clouded but many may be wondering why many miners have followed the stock market’s downward trend when the metals they produce have been soaring in price.

The major mining companies have operations in many more than one country and many of those countries are experiencing increasing political uncertainty.

Unfortunately the West, led by the good old USA, is becoming less and less the flavor of the month. African and South American political leaders seem to be taking every opportunity to create difficulties for miners, even going so far as compulsory acquisition of leases/ mineral rights etc.

It behoves every investor in mining companies to carefully study every country that they operate in and balance the pros and cons of the politically stable countries, Canada and Australia for example, against the uncertainties of every African country, many South American nations – you get the picture.

Despite the huge increase in the price of precious metals, it has been a long-term policy of miners to hedge against a falling metal price by undertaking to sell futures at a price that ensures that they can mine profitably without being dependent upon fluctuating prices.

Clearly those that have long-term safety-first contracts will not be reaping the rewards of the prices prevailing over the last 12-24 months. This also applies to Uranium producers.

Mining companies whether major producers or junior explorers are and have always been a high risk investment, but get it right and the rewards can be phenomenal.

At the present time there is plenty of potential M & A activity, think Rio Tinto, but also the majors are looking for promising juniors to snap up or finance.

Those with an appetite for risk could think about putting say 10% of their resources into carefully analyzed juniors, if you have only one winner in five you are still likely to be doing very, very well.

These are hazardous times but big money can be made in these volatile markets.   

Good luck and take great care with your investing.

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