Precious Metals at A Glance

The precious metals industry is currently under siege, the low prices of gold has actually caused miners to restrict production as the cost of mining an ounce of gold edges closer to the precious metals market. However this is not the case for miners everywhere, in Australia for instance the price of gold in terms of Australian dollars has been spiking and has proven to be profitable for Australian miners, whereas the same cannot be said about those who are under the grip of the US dollar. This has created a paradox that is quite difficult to circumvent in a sense that the dollar’s strength has made it difficult for American miners to continue producing and as they cap production to coax prices up, other fluctuating currencies seem to gain from gold production based on the fact that gold prices are determined in USD. The Financial Review site even went as far as saying that Australian gold producers are having a picnic due to the decline of the AUD against the Greenback, which is true, as the nation reels from the weaker AUD due to the fact that imports in USD are getting more expensive.

This has lead to a situation where gold buyers from different regions react differently to gold price movements. For instance countries where currencies have plunged tremendously against the dollar has caused miners to increase productivity, despite weak demand as buyers find gold too expensive to buy, on the other hand USD based miners are slowing production amidst high demand, these situations have made speculating on the precious metal a complex task and until the USD settles and currencies take stock, predicting gold prices will be next to impossible. Investors have however realised that the current gold prices are low based on the fact that the mining costs of an ounce of gold is almost equivalent to its market price.

The low price/earnings ratios and high cash levels however have been observed to support a growing dividend stream. The cash margins have instigated vigorous exploration and many small cap companies have discovered new deposits which has extended the operation cycles of existing mines and avoiding closures. This situation has resulted in investors shifting focus from physical gold and other gold investment formats to gold stocks, especially small cap mining stocks which have been largely undervalued. In light of all this and in order to have a better perspective of what can be expected from gold in the near future, it becomes necessary to look at gold price movements at least 30 years or more and since 1970 right up to 2014 the precious metal has been on a sturdy upward trend for 28 years out of a total of 44 years, this cycle although not fixed, is likely to repeat itself when the Fed rate hikes slow down and the Chinese economy picks up – which is expected to happen anytime soon.

Regardless of where gold prices are at now, the best thing to do is to hold on to these assets as it is definitely going to be paying off.

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