Precious metal prices over the last couple of weeks have been bouncing up and down, much to the frustration of gold and silver investors. We are so focused on the price that we forget to take a step back and look at the big picture. In this article I will attempt to give some very insightful background on the current state of the gold mining industry that are not always in the public eye. We find ourselves in a very unique financial and economic environment that we have never before experienced. We have the Covid-19 pandemic raging around us and impacting our lives in so many ways that we can hardly estimate or foresee the damage. There are currently 181 million covid infections in the world and 3.9 million deaths so far. The havoc that is caused amongst the average working class worldwide is immeasurable. Savings and reserves are getting wiped out on a daily basis and for many ,the future looks bleak.
A recent video by David Garofalo caught my attention. He is the ex CEO of Goldcorp and has been in the mining business for more than 35 years. You can watch the video here. I have taken the liberty to make a summary for my customers in case you do not have time to look at the video. David makes the following significant statement right at the start of the video and I quote” The gold mining industry’s balance sheets have never in my more than 35 years in the mining industry, been stronger than it is today. The gold mining industry is at a net zero debt level” This is actually a double edged sword. Being cash flush means the gold mines do not have to take on debt which is a very good position to be in given the higher interest rates that are on the horizon. On the flip side it means they now have money to start investing in exploration, which they haven’t been able to do for the last 10 years. New mines is essential as the current reserves ( gold ore that can be mined ) has dropped dramatically from 20 years to only 10 years. Can you imagine, 10 years from now the world will run out of gold! Have a look at the reserves of the biggest gold mines in the world here. The only thing that can change this is new gold mines. And herein lies a huge problem. From discovery of new gold deposits to production can take anything from 12 to 20 years. Investment in exploration and new mines have lagged severely over the last 10 years. The biggest threat to the gold mining industry today is adequate reserves. This is the main reason why Newmont and Barrick gold mines have recently merged in 2019. I will not be surprised if we see many more M&A activity in the gold mining industry going forward. It all has to do with saving costs and acquiring more reserves. For many years the mining industry have enjoyed very stable energy costs as well as very calm inflation world wide. These two factors however are starting to change which will have a severe impact on the profit and loss accounts of the mining industry. Looking back in history late 70 and early 80 when inflation went haywire, gold went up to $760 on 16 Jan 1980. With the Federal Reserve’s reluctance to put up interest rates, much higher inflation is certainly on the cards. We are also seeing a new generation of young investors who grew up with computers and believe the digital world can solve all out problems. They have been eating the gold industry’s lunch with Bitcoin and all the other cryptos. The recent drop in Bitcoin from $65,000 odd to $30,000 odd has come as a wake up call for these investors. Few assets have been more fragile than Bitcoin. It is also worth mentioning that the gold/silver ratio that is currently on 68 should come down to 40 which will benefit silver investors greatly. Silver should be able to hit $100 per ounce in the not to distant future. Two of the biggest obstacles for miners to get exploration licenses are water consumption and environmental studies. Litigation on these two issues are severely impacting the time from exploration to production. These issues will contribute greatly to the diminishing supply issues with gold and silver.
Owning physical gold and silver is the only way to protect wealth against the coming financial crises. Remember, gold and silver cannot be printed and cannot be destroyed. It is the only true store of value.
Gold & Silver Technical Analysis – The following gold & silver analysis is based on my many years of trading the markets and doing technical analysis. There are no guarantees of course but history has taught us that the analysis of past price movements almost always repeat itself. Gold – The next resistance level for gold is $1818. If the price goes above this level it could go to $1863 relative quickly. The support is at $1794 and failing this level the price could go down to $1750. Silver – The next resistance level for silver is $26.44, then $26.78 and then $27.22. There is some very nice upside potential here. The support is at $25.75 and failing that, the price might go down to $25.52.
Disclaimer – Precious Metal Bars (Pty) Ltd is not a registered investment, legal or tax advisor. All investment/financial opinions expressed by Precious Metal Bars are from the personal experience and research of the owner of this site and are intended as educational material. Although best efforts are made to ensure that all information is valid and up to date, occasionally unintended errors and misprints may occur. Unsubscribe
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