Mining Sector Ripe for Consolidation Following Recent Corrections

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...Even more important, the market cap of physical gold of about $4 trillion is now only 4% of global financial assets. This historic low suggests that the metal and mining equities are likely undervalued relative to global financial assets remain substantially overvalued...

The mood at the Denver Gold Forum was reminiscent of the week following September 11, 2001. Both mining equities and metal prices continued their decline with much talk but little action by bullish investors. We were reminded of the adage that “a bear market ends with the capitulation of the last bull” which may suggest we are on the cusp of one of the greatest investment opportunities in years.

We have seen several points on the calendar as catalysts for the mining sector. One, being the Olympics in Beijing, where China demonstrated its determination to show itself as a leader on the world stage in culture, sports, and economics. China’s impact on the future, and appetite for precious, base, and industrial metals, is now apparent to anyone with a television. Secondly, as the summer holiday season comes to a close, the investment community is now back at work, and the seasonal period of increasing global gold demand has commenced. Lastly, the Denver Gold Forum provided the platform to for consolidation which might draw investment funds into the sector setting off the next bull market.

The keynote speech at the Denver Gold Forum presented both fundamental and technical justification for an inflection point for both metals and mining equities. Clearly, well discussed themes of declining gold production and increasing investment demand were reiterated. In addition, a macroeconomic environment including low real interest rates, global financial imbalances, and declining faith in global currencies remains an important component of the thesis for holding tangible assets. An imbalance exists where gold equities of $230 billion now represent only 0.02% of global financial assets. Even more important, the market cap of physical gold of about $4 trillion is now only 4% of global financial assets. This historic low suggests that the metal and mining equities are likely undervalued relative to global financial assets remain substantially overvalued...

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