We have said on this site that we believe that the gold bullion price has hit the bottom. But the stocks have suffered a far worse period than gold bullion over the last three years. Pay attention as many mining stocks offer the opportunity for exceptional capital gains. I try to speak to as many people who follow the mining stocks and most importantly geologists and engineers who work in the industry.

1-The fundamentals for gold and hard assets could not be more positive. The U.S. is running a deficit of $5,000,000,000 every day. And note that Japan is doing a “QE” as well that is equal to over twice the percentage to their economy of the QE that the U.S. is doing. The U.K., China, Poland, Hungary and Sweden are engaging in the QE game as well. Read that as printing fiat money.

2-The supply/demand statistics for gold bullion could not be more positive. China has been buying over 100 tonnes of world gold production per month recently-that is half of all of the world’s gold production. Moreover, we do not know what the Chinese are buying of their own “in country” Chinese gold production. China, by the way, is now the world’s largest gold producing country. Holding over $3,000,000,000,000 (that’s $3 trillion!) in U.S. dollar assets and another $1 trillion in value in other countries’ currencies.

3-Recently, a sector with noteworthy insider buying (officers and directors) is the mining and resources sector. Yet, for the major industrial stocks including the S&P 500 companies, selling has been constant recently. Last week reported $456 million of insider selling of their own personal company shares with only $38 million in purchases. Officers and directors have better insight than the public does-they work at those very companies! Keep that in mind.

4-Offerings on Market screens for most junior mining stocks are often very thin. There are very few shares available for purchase. Any increase in buying volume could cause a large percentage move in many mining stocks.

5-“Pas efficace”….The market for mining stocks is “not efficient” in that important news releases are usually not reflected in the stocks’ prices right away.…… Today, excellent drill results or major news announcements in mining stocks often receive no investor attention nor buying interest. That will change.

6-The large U.S. brokerage houses’ greatest ability is recommending their favored stocks (often their corporate finance clients) well after they have reached fully valued price levels…just as they did the internet stocks and techs fourteen years ago. They never fail do they?

7-The same large brokerage houses overlook stocks when they are undervalued and offer the greatest potential for capital gains. When many mining stocks are selling at less than their cash value and at mere fractions of their asset values, the major brokerage houses fail to notice them. That has been aptitude record for years.  The bottom line too often is that if they have no financial interest such as underwriting or corporate finance in the companies, they do not follow them on a research basis.   

8-The final cost (“all in cost” or total cost) for many mining companies is between $1300 to $1500 to produce an ounce of gold. So with gold at $1200 an ounce, most companies are struggling as the selling price is below the cost of production. That leads us to our reasoning for number 9.

9-When the price of gold is at a low price level that offers low profit potential, such as we see occurring today; there is little enthusiasm to buy the shares of the mining stocks whether they are large cap producers or the juniors. Additionally, larger mining companies that normally would be bidding up undervalued assets often sit “in wait” to bid as the smaller mining companies struggle to survive during the bear market phase.

10-The papering over of debt is not going to work over the long run. Keep in mind that a 1940 United States dollar has .04 cents of buying power today. When Ronald Reagan took office in 1981, $100,000 of cash then has a purchasing power of $38,000 today. The answer, in time, is hard assets like gold.

11-By the way……We are asked all the time if a stock that has dropped in price from let’s say .85 cents a share to .08 cents has any value at all; or if another stock that was selling at $1.15 and has dropped to .14 cents has any value.  The answer is that  many of them are exceptionally undervalued. Since there are no longer market makers that lend support to stocks by truly “making a market” as specialists did at one time and research coverage is rare for most stocks, they can plunge on little volume. You can find stocks selling well under their asset values with adequate cash positions and heavy insider buying. Do your research, it it well worth your time. 

             So do your homework, there is so much free information available on the mining industry and the individual mining stocks.  Put in some time and you may be well rewarded……..Oh yes, watch the insider transactions; they are reported within 3 days of any insider buy or sell. That is the law.  Thank you, K.C. Grainger