Gold Prices Should Stay High for Years to Come
It's about time the contrarians realize that the world has changed.
Gold continues to climb, closing at over $1400/oz this past Friday. And the word on the street is that this run is far from over.
Gold imports into China have soared this year, turning the country, already the largest bullion miner, into a major overseas buyer for the first time in recent history. China's hunger for gold (see Where the Billionaires Invest) shot gold prices to new levels this past week when the Shanghai Gold Exchange said that China's gold imports jumped almost fivefold in the first 10 months from the entire amount shipped in last year.
But despite record nominal gold prices, gold miners just can't keep up with the demand. And that's not a bad thing for us junior precious metals investors.
Time to Shine
It means that due to the demand of gold, and the limited available supply of low cost gold mining, prices should remain high for years to come - regardless of strong economic numbers (see The Next Big Boom.)
Back when gold fell to the low levels between 1997 and 2001, gold miners had to mine ore with the highest grades just to stay alive. During this time, many of them shut down. But things have changed.
With record high prices, gold miners are shining brighter than ever and are gradually mining lower grade ore. But mining lower grade ore not only means lower output, but higher costs as well. In the past five years, the average recovered grade has declined a whopping 30% - dropping from 1.8 grams per ton down to 1.3 grams per ton.
To add more fuel to gold prices, twice as much ore has to be found just to replace the gold being produced at current grades. The replacement ore being found are now averaging only 0.60 grams per ton. That means that what used to be considered wasted rock, are now being reevaluated as actual gold reserves.
It's no wonder the the junior gold market is flying and the dollars being spent on drilling and exploration are starting to skyrocket. If you take a look at this past year, drilling amongst the gold junior explorers has been hitting incredible numbers leading to incredible gains in share prices as budgets and financings for drill programs increases.
The Juniors Dominate
Just this past week, Evolving Gold (EVOGF.PK) hit 405.4 Meters at 1.31 gpt (grams per tonne) sending its stock up over 17% on the day. But even the previously stagnant penny stocks have seen tremendous climbs in share prices.
The list of juniors hitting big numbers and making incredible gains in the past months has been tremendous. The days of the junior mining explorers soaring on drill results are back. For months, we have talked about how the small cap market, in particular the junior miners, are going to make a big splash and create a lot of wealth for investors.
Both the S&P Midcap 400 and Smallcap 600 climbed to new highs this week, outpacing the performance of the larger S&P 500 by over 10%, which remains below its November closing high. Hedge funds and institutions are beginning to diversify their money into riskier, more profitable plays (see Doubling Down for the Big Bang.)
The Hottest Gold Plays
Africa remains one of the most productive and promising gold mining continents in the world.
Barrick Gold's (NYSE: ABX) African Barrick spin off, for example, has major plans in Africa - particularly in Tanzania, where Canaco Resources (CANWF.PK) has hit some strong grades. African Barrick already has four producing gold mines in Tanzania with tens of millions of ounces in resources.
Tanzania is one of the hottest gold exploration plays right now. With the African Barrick spin off earlier this year by Barrick Gold, things may just be heating up. Junior companies exploring in Tanzania have now turned into a target for many investors, as African Barrick's focus remains in Tanzania.
Other companies exploring in Africa have been hitting high grades and climbing significantly in share price. African Gold Group, Canaco Resources, Sunridge Gold (SGCNF.PK), and Great Quest Metals (GQMLF.PK) have all climbed to record highs this year and many of them are up well over 100%.
Canaco Resources, for example, traded as low as $0.36 earlier in the year but closed this Friday at $4.75! That's a gain of over 1200%! If you would have invested only $10,000, you could have made a return of $120,000 in less than a year based on those numbers.
See why do we love the juniors?
Of course, not every company has that potential and not everyone with great drill results will turn into a mine. But it goes to show you that drill results from these juniors can give you a serious return on your investment if timed the right way.
Disclosure: We do not own any shares in the companies mentioned
AI
