What are some of the most important trends you’ve seen in the precious metals markets lately?
It’s been another difficult time. For more than a year, the prices of valuable metals have been stuck in a range and not moving much. Gold is trading at a very healthy level right now (around US$1,950–US$1,960), but it has hit US$2,000/oz several times in the last two years, which is surprising. The price trend for gold seems to be edging closer and closer to this psychologically important level, which is somewhere between US$2,000 and US$2,100/oz. Based on our valuation models, at that level, producing companies are making a lot of good free cashflow. They are also making a lot of money, some of which they have started giving back to shareholders as dividends. They have fixed their books and paid off their debts. They are in a great situation to deal with any market weakness that might happen.
When we look at the earlier stage projects that are being pushed toward production, they also have a pretty good outlook for value, which is again due to the medium-term state of gold prices. For most projects, the total cost of running the business is between $1,000 and $1,200 per ounce. With gold prices around $1,900 an ounce, they are making a lot of money. So, the investors are very interested in giving large amounts of money to projects that are still in the planning stages.
There is a problem, and this is how I have seen the market for the last year or so: generalist buyers don’t care about gold at all. Investing in gold is not something they are interested in. That is really what is slowing down the market as a whole, because asset prices can’t go up without the large amounts of capital that kind buyers can bring to the market.
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