Article from Pinnicale Digest
Gold and Silver
Dear Member,
This week's volume will focus on the sustainability and long term potential associated with the mining industry. We are moving into the heart of the exploration, drilling and producing season for many mining and resource based companies. Every company has a unique, yet somewhat easily influenced position in this cyclical sector which is currently surging. There are many areas and regions set to take full advantage of this continuing bull-run for base metals and most commodities.
Although many companies have achieved exceptional share-value growth and have been rewarded substantially for their position, many companies operating in the mining sector have yet to do so. We would like to give you a unique look at this commodity boom and share our thoughts on some geographical areas set to benefit from this resurgence.
Pinnacle Digest has stated many times that we are strong supporters in the mining and resource based industry. We feel companies positioned strongly within these sectors, specifically mining have just begun to enjoy high metal prices and positive earnings. This is the case for several reasons. Many analysts are skeptical towards the price of copper, molybdenum, nickel and silver which are all trading at their highest levels in almost 20 years. Once these prices are established and their value is taken seriously, many stocks will be revalued upwards. This depends greatly on two factors. The first is that China is leading the world in a widespread economic and geographic expansion. And secondly we believe there will be a sustained tightness of supply and demand in the years ahead of us.
In past volumes we have repeatedly stated that it is the market's nature to constantly overreact to negative or positive news or developments. In some cases the market has reacted properly, adjusting to real increases in value, but in many cases it has failed to do so, being afraid of the seemingly dangerous high prices of the commodity world. Overreactions tend to take place over short periods of time and then usually correct themselves. Many investors are still very weary of the current prices and will be taking their time before asserting themselves in this cyclical sector which has experienced unprecedented growth. As investor's we must believe in a company's sector as well as the future demand of that company's main commodity.
When evaluating a company operating within the mining or resource sector, the region or area home to their properties can make all the difference. It is no question that there are more than enough undervalued companies operating within excellent political and social environments today. The added degree of risk associated with an unstable region or unfriendly government can lead to delays and ultimately failed objectives.
After years of reviewing companies operating under exceptional conditions, we have found that Canada and the United States are home to countless regions proving every year to be world class in all aspects. Keep in mind, there are many countries just as conducive to success in the mining industry as Canada and the United States, but they aren't as consistent (yet can be substantially more profitable). For instance, Mexico is a country attractive to foreign investors due to their outstanding geological potential, and favorable mining and foreign investment laws. Unlike Canada and the United States, Mexico has a climate conducive to year round exploration and mining. These facts combined with our strong opinion on some of their rich silver deposits have led our team to review some regions and companies operating within this country of late.
What types of commodities are we looking to invest in right now?
Gold and Silver
Gold has simply not performed well over the past year. Everyone is well aware of its impressive run from 2001 to mid-May 2006, when it shot from US$300 to a multi-decade high of US$730 an ounce. Currently it is worth US$655.30 an ounce. Many large gold producers have paid the price for gold's stagnant performance. The second largest producer in the world, Newmont Mining Corp. is down almost 20% this year.
We believe gold is mounting a comeback.
Why?
The factors have already aligned as the current economic environment has the US Dollar continuing to weaken. The threat of inflation is abundant, which should start to play a serious role in the value of gold.
In respect to silver, this metal's use has expanded widely over the past ten years and is predicted to fall under even more intense demand. Silver prices are at their highest levels in 25 years. The precious metal closed at US$13.00 a troy ounce Friday. Silver is a commodity in high demand mainly because it is used heavily in computers, cell phones and other electronics. Combine those factors with its consistent use for Jewelry and it is easy to understand why it is one of the hottest commodities available.
As you can see, the mining and resource industries have our attention right now. We are eager to find companies poised for discoveries and extensive growth this season. The location of a property is crucial to its development process and overall potential. Complications add to expenses, which negatively affect the value of a company. The key component in our selection for credible investment choices relies on low-cost producing companies.
As investors we must always remind ourselves that this window of opportunity will not exist forever. Next week we will be following up on a company enjoying many of the positives described in this volume. Until then we encourage all members to be in touch with us via email or phone if you have any questions or comments about our service or upcoming announcements.
All the best with your investments,
Pinnacle Digest