Big Gold Has Its Proponents, too


". . .gold remains one of the few commodities still trading at higher levels in dollar terms than it was pre-metals price meltdown."

The big gold companies have perhaps lagged their ferrous and base metals counterparts in building shareholder value and have also commanded investor premiums that do not necessarily justify their positions in the markets. Yet to an important extent this ignores the continuing lure of the yellow metal for investors and realistically such premiums are likely to continue.

Furthermore, in many people's minds, gold—and by association the big gold miners—is/are considered by many to be a safer short- and long-term investment than their industrial counterparts, which are more subject to the vagaries of global growth patterns—as witness the collapse of metals prices and metals stock prices in the October 2008 meltdown. True gold and major gold stocks suffered too—but to nowhere near the extent of their industrial metals mining counterparts. Indeed gold remains one of the few commodities that is still trading at higher levels in dollar terms than it was pre-metals price meltdown.

The problem facing big gold is that it is becoming increasingly difficult to maintain resources and production without expending huge capital sums on new mine development, and putting them into what Barry Sergeant calls a net cash flow deficit (effectively operating profit less capital and other expenditures). The gold companies are themselves great believers in the future of gold and while few gold company chief executives may seriously consider some of the stratospheric price increases for bullion predicted by some of the more way out gold proponents, they do believe that there are good price increases ahead which will justify their capital spending and ultimately substantially increase shareholder value. They are in the gold business for the long term and, as with any investment, there are times when the long-term viewpoint seems less inherently profitable than the shorter term view.

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