The sustained castigation in the stocks is not without reasonable cause. The falling price of gold stands nearing $1,315 an ounce which was down nearly $500 from its highest peak in 2011 made the industry’s economics very precarious and weary.
Some analysts, however, wonder whether we have seen the worst and better days ahead for the beleaguered gold miners. The numbers are so bad right now that the euphoria of gold is clearly waning away and people investing in the precious metal are in total despair.
Since the entire sector has been whipped, its relatively futile to identify individual haggles amid the wreckage. Spreading the risk by sticking to exchange-traded funds are a good way to minimise the chances of losses.
Dangers are becoming very real and abound since the industry is highly capital intensive wherein many investors have loaded up on their debts in order to help fund operations and launch new projects which ultimately means leaving them very vulnerable in times of falling gold prices, rising borrowing costs and economic contraction that gathers demand.
In order to avoid the falling knives, metal and mining analysts suggest that it would be prudent to simply focus on names that are not locked into massively expensive projects and have operating costs that are below the industry average.
Another strategy to taper down is to look for gold royalty companies without taking on operational costs in exchange for upfront capital in order to generate income generated by projects in a global scale. However, don’t expect to have an immediate turnaround in the fortunes of gold mining.
Mining companies have to make certain their assumption about the price of gold, when it falls at a significant level, they have to go back to the drawing board and figure out which projects could still make feasible financial sense and which aren’t.
When sentiments do turn within their favour, it is very interesting to place gold at prime companies such as those found in Canada, United States, Mexico and Argentina. With trades being done among any of the aforementioned countries the growth prospects stand out in an industry where mines get depleted of gold relatively much quickly.
Despite the severely bad outlook of the precious yellow metal, if you decide to purchase gold right now, there is a limited downside if you something should go wrong but if you do get it right, there is a whole lot of potential on the upside.