Mining and Resource Stocks Examined

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A glance at the relative damage following Thursday's further carnage; quality gold and platinum stocks the least hurt, while uranium and platinum developer stocks lead the losers.

A glance at the relative damage following Thursday's further carnage; quality gold and platinum stocks the least hurt, while uranium and platinum developer stocks lead the losers.

Global resources stocks reached a shorter-term cyclical peak on March 7, as investors of all classifications continued to pile into the resources theme, on a weaker dollar, expectations that the US central bank, the Federal Reserve, would continue to boost liquidity on incessant fears of further troubles in global credit markets, and perceptions that emerging markets demand for raw materials would more than neutralise slowing economic growth in the US.

The Bear Stearns debacle, which hit the markets on Monday, March 17, prompted heavy profit-taking across the global resources arena, on fears that commodity and metal prices had overrun fundamentals. The theme continued with a vengeance on Wednesday after the Federal Reserve cut interest rates by a smaller-than-expected margin, undermining the theme of reopened liquidity following the US housing bust, dated to the implosion of US subprime products in August 2007.

On Thursday investors ganged up on the resources theme, and sold off right across the complex, and across the world, from metals and grains to gold and resources stocks. Gold bullion was sold down as low as $904.70 an ounce on Thursday after touching a record in nominal terms just three days earlier, at $1,033.90 an ounce. For some experts, the sell off was not unexpected. The Bank Credit Analyst has argued that efforts to boost liquidity had been "sending precious metals surging as investors aggressively discount the magnitude of liquidity creation that will ultimately be needed".

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