The Gold Report: At a recent investor conference in Vancouver you said that the market is at the “bottom” for gold and other metals. Please give us some reasons why this is the bottom.
Gwen Preston: First, the price of gold can’t go any lower. The current range of $1,170–1,210 per ounce ($1,170–1,210/oz) represents gold’s lower-end price range. That’s because all-in sustaining costs for the industry now average about $1,100/oz when you include the interest that major gold producers pay on their debt. There absolutely is demand for physical gold, and the price has to be at least what it costs to produce the metal.
So there is a supply-driven, cost-driven bull market outlook for gold. A gold-driven rally for mining stocks would be OK, but even better would be a rally that’s supported by higher prices for a range of metals—and that’s what we’re looking at. A good number of metals will have supply constraints over the near to medium term, which should result in gains in value. That list includes zinc, platinum, nickel, uranium and diamonds. It’s not just gold that’s going to go up.
Then there’s the fact that the sector is so reliably cyclical. Investors are moving in and deals are being made. You can see it in things like the volume in the Market Vectors Gold Miners ETF (GDX:NYSE.Arca) or the Market Vectors Junior Gold Miners ETF (GDXJ:NYSE.Arca). You can see it in the merger and acquisition (M&A) activity and in the new vehicles being established for experienced mining management teams, whether it’s a small producer buying a bankrupt gold mine because it’s available for such a ridiculously low price or it’s China buying hard assets. These things happen at the bottom of the cycle.
TGR: The Market Vectors Junior Gold Miners ETF has certainly been trending higher …read more