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Gold Stocks: Gold Mining Margins to Expand
Pinnacle Digest writes: As gold equities continue to struggle amidst record high gold prices, one analysts believes these companies margins are about to increase.
Roy-Byrne analyzes oil in relation to gold. Oil (energy) represents about 25% of the cost of mining while industrial metals prices can be a proxy for the costs of trucks, chemicals and blasting agents (like cyanide).
Roy-Byrne and his team evaluate Gold relative to oil (bottom) and Gold relative to industrial metals (top). View the chart below. These ratios were quite low in 2007 when share prices were driven more so by positive sentiment and high valuations than by positive fundamentals.
Gold surged against oil and industrial metals when the financial crisis took hold and extended. During the weak recovery, these ratios held their ground and are now reaching higher levels once again.
Roy-Byrne believes his analysis to be straightforward and that gold mining margins should continue to expand. The commodities that represent mining cost inputs are not only trending bearish, but are little threat to move much higher anytime soon. Meanwhile, Gold is trading in a healthy range and once it breaks $1800 will be within a month or two of breaking to a new all time high.
Read this article and learn more about gold margins in relation to oil...
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Re: Gold Stocks: Gold Mining Margins to Expand
As has been noted by several analysts, mining costs have been rising faster than precious metals prices, but that trend may soon reverse as increasing pressure is manifested by demand for gold and silver as more people flee from paper investments as the Euro country crisis plays out along with the unpayable debt of the United States.
The interesting anomally is that it is not the low cost producers that will benefit the most. Counter intuitively it is the high cost producers whose margins will benefit the most if precious metals prices rise which is only a matter of time as demans continues to rise on a world scale.
thinker70