Daily Gains Letter

gold mining companies


Two Factors Suggest Problems in Gold Market Will Get Bigger?

By for Daily Gains Letter | Dec 6, 2013

Gold Market Will GetGold bullion prices are taking a big hit. The precious metal continues to slide lower, and sits at the lowest level since July; negativity towards it is exuberant. There’s a significant amount of noise that says gold bullion prices will go much lower, and those who are against it can be found saying that it’s not worth the investment—those who are bullish on the precious metal are ridiculed.

As I have said before, I continue to be bullish on gold bullion prices going forward. It is certainly difficult to take this stance, but the odds are stacking higher with this notion; time will be the better judge.

One of the factors that affect prices is the supply. At the end of the day, gold bullion prices—or the price of any other commodity or stock for that matter—are very dependent on the supply. If there’s an abundance of the commodity, you’ll see prices go lower; if the supply is dismal, one can expect prices to go higher. This is Economics 101.

I see constraints to the supply of gold bullion going forward, with demand remaining robust.

One way to assess the future supply of gold bullion is to look at the exploration costs of gold mining companies. At their very core, increasing or decreasing exploration costs tell us if there will be more production. As it stands, we see companies reducing their exploration costs, meaning they are not as active in looking for more gold bullion.

Consider Yamana Gold Inc. (NYSE/AUY). In the first nine months of this year, the exploration and evaluation costs at this company totaled $83.9 million. In … Read More