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A Gold Bull in a China Shop – Part 1
Part 1 of 2
Whenever I hear pundits on CNBC, or other outlets, talk about gold and gold stocks, it often makes me chuckle. They are what I call “reluctant bulls”, and they don’t seem to know a lot about gold or gold stocks.
Sure they can see that gold has outperformed every other asset class since around 2001, and after watching it go up for many years, they finally had to become bullish, although reluctantly. They have limited understanding of the space, but they can’t ignore the bullish market for gold, and they know it is not a good idea to fight the trend.
Even though they are interviewed often, despite their lack of knowledge of the gold market and the commodities space in general. They have to come up with investment ideas, and always defer to exchange traded funds, and entirely dismiss gold stocks, meanwhile they are considered expert stock pickers. If they are so talented, why don’t they pick some gold stocks that are primed to significantly outperform. The answer is they aren’t that talented, and they don’t know enough about gold and gold stocks to make those quality stock picks, but that doesn’t stop them from commenting.
What causes me to chuckle about these talking heads is that many of them during the 1990s were the same ones that dismissed gold as some sort of relic of the past, and not to be considered in the same league as the tech stocks of that era. The tech wreck of the early 2000s, and the beginning of the bull market for gold and other commodities that started around that time, didn’t seem to change their opinions for several years.
But the foundation for the big move in gold since 2001, was really set in the 1990s, and is what will keep the bull market alive for many more years. During the past few decades, the gold mining industry as a whole has chronically under spent on exploration for new discoveries. So the pipeline of new discoveries that can replace the mines that are being mined out is very weak, and poorly prepared for the future.
Mining companies that don’t replace what they mine each year with new mines will have trouble sustaining their mining production over the long haul, and that has been what is happening for the gold miners. It is very challenging to make new discoveries, if a lot of money doesn’t go into exploration every year the supply pipeline weakens, and then it takes years of assessment and development to bring a new discovery into production. This is a long term issue that is in no way even close to being resolved, and is a key reason that the gold bull has many years to go.
To be continued…
2012-11-13 14:22:29
Source: http://thestockvine.com/a-gold-bull-in-a-china-shop/
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