You may be like me, moving from base metal mining stocks into precious metal mining stocks. I've been ignoring precious metals for years as being the domain of gold nuts. Now I'm trying to understand the fundamentals of the gold market. Redburn Partners "Gold War" (click here) is the best introduction I've found.
Like many free analyst reports its definitely "spinning". I find it comical that when touting gold for safety they pump a gold mining stock whose mines are in Russia!
But there is also a lot of really valuable analysis of why gold is moving and what's going on with gold. Here's a sample quote that I think is really valuable:
"Precious metals have a slightly different character as an asset class. Gold has both a monetary (financial) nature and a commodity nature:
- During periods of fiscal and monetary responsibility in the world economy, gold acts in a similar fashion to other commodities: for example, prices are largely determined by industry cost curves.
- The monetary nature of gold increasingly exerts itself when governments abuse the issue of paper currency and financial assets and during periods of financial or economic stress – as is happening currently."
Its pretty clear from this what's driving the price of gold to record levels: We are in a time when "governments abuse the issue of paper currency and financial assets" and in a time "of financial or economic stress". Now the tricky part is going to be determining when this has peaked, because when the abuse and stress receded gold is going to have a big (and probably precipitous) fall back to the marginal cost of production. This will be just like we have seen this year with Nickel and Zinc.
So, I'm going long gold, but I'm playing it as a trade, not as something I'm getting married to.
Leave a comment if you find something valuable in the report.