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Gold Correction: Nothing To Fear, October is Over
Pinnacle Digest writes: Over the past 5, 15 and 30 years, gold has corrected more times than not in October. Holmes explains that when looking back 30 years the historical seasonality of the metal becomes obvious.
Gold's rise in September is almost as predictable. This ushers in a timely and expected correction for gold in the month of October.
Holmes has just returned from the New Orleans Gold Show where he was discussing the multiple forces squeezing the profits and earnings out of gold miners. This has caused equity investors to become the Rod Tidwells of the gold world, getting miners energized to “Show me the money!” In Holmes' opinion. This phenomenon highlights the importance of selectively choosing among those gold companies that exhibit the best relative growth and momentum characteristics to help obtain outstanding investment results.
According to CIBC World Markets, the replacement cost for an ounce of gold is now $1,500, with $1,700 as a sustainable number. Cash costs to produce an ounce of gold are rising and operating costs eat away the most, at $700 an ounce, while sustaining capital, construction capital, discovery costs, overhead and taxes eat up $800. At the October 24th gold price of $1,700 an ounce, only $200 is left over as profit, says CIBC.
This is a scary thought as many companies are beginning to see their costs rise and not fall. Searching out low cost producers is paramount.
Pierre Lassonde, chairman of Franco-Nevada and a living legend in the mining and resource world, says it took seven years for the gold industry to respond after the rise in price. Ironically, as the price kept falling over the next 20 years, production doubled.
Holmes leans on the Metals Economics Group for supporting information, which recently reported that of gold finds which contain at least 2 million ounces, there have been 99 significant discoveries between 1997 and 2011. Only 14 of the 26 major gold producers made these major gold discoveries. “Today, the major producers and their majority-owned subsidiaries hold 39 percent of the reserves and resources in the 99 significant discoveries made in the past 15 years. This amounts to less than half of the yellow metal needed to replace the gold companies’ production from 2002 to 2011” explained MEG.
Lassonde concludes that, "For as many challenges as gold companies face today, they have rarely experienced such a well-diversified consumer base and diversified demand for their product. It’s the best we could ask for.”
Read this article and learn more about how the lack of world class gold discoveries and the exploding money supply will benefit gold...