There’s not much action in the stock market for speculators, unless you’re trading the index. Enthusiasm for stocks always goes in waves and the only group that’s experiencing any upward momentum in this market is, of course, gold and silver stocks. Other precious metal stocks are holding up well, but none are performing with the same robustness as gold.
The spot price of gold really doesn’t have to do much going forward. It only has to stay where it is in order for gold companies to produce significant profit growth this year. Even the junior producers are now participating in the current rally for gold stocks. This is a sign that institutional investors are paying much closer attention to a sector that is often ignored.
Again, enthusiasm for stocks or even specific groups of stocks always occurs in waves and the key to making big money from equities is being in the right sector at the right time. Very often, the best returns aren’t about owning individual stocks, but the right sector that’s experiencing positive industry momentum.
The mining business has that momentum now and it’s most pronounced in gold. As individual investors, however, we don’t tend to identify with the industry, because mining operations are often in foreign lands and in secluded locations. Companies have head offices in financial centers in order to more easily raise money, but everything else is on location on a remote property. Combine this with the volatility inherent in commodity prices and it’s no big surprise that most investors tend not to be interested in this group for investing purposes.
This is why institutional participation makes up most of the investors in a public mining company and why financing a mining business is tailored to meet institutional needs. This often means that a company will raise regular equity capital and attach sweeteners like warrants to an offering in the hopes of attracting more institutional money.
I believe that the gold mining business is only at the beginning of a long run of prosperity. The global fundamentals are in place to sustain high gold prices. As well, the money is there to finance production growth. It’s the best of both worlds for the industry and it’s the best of both worlds for gold equity speculators.