EXECUTIVE SUMMARY
Precious metal mining equities underperformed their metal equivalents by at least 20 percentage points over the first three quarters of 2011, which has led many investors to reconsider whether they should take exposure to metals via mining equities.
Depleting reserves, increased energy costs, nationalization and increased taxation are all risk factors that led to the underperformance this year. Moving forward, we expect rising labor strife and increased taxation to add further weakness to the sector.
Independent industry surveys identify “resource nationalism” as the single most important threat faced by the mining sector. Mining executives report “increasing hostility” in 80% of the jurisdictions in which they operate.
We show mathematically that the levered exposure to the metal offered by equities falls with higher metal prices and tends to 1 at the limit, challenging one of the historical reasons that led investors to prefer equities.
We show how our quantitative indicator, which measures oversold / overbought conditions for retail investor participation in mining equities, is a useful buy signal for Gold and Gold mining equities. The indicator is signaling that now is a buying opportunity.
Read complete article COMMODITIES MONTHLY – October 2011 on www.ubp.com
Precious metal mining equities underperformed their metal equivalents by at least 20 percentage points over the first three quarters of 2011, which has led many investors to reconsider whether they should take exposure to metals via mining equities.
Depleting reserves, increased energy costs, nationalization and increased taxation are all risk factors that led to the underperformance this year. Moving forward, we expect rising labor strife and increased taxation to add further weakness to the sector.
Independent industry surveys identify “resource nationalism” as the single most important threat faced by the mining sector. Mining executives report “increasing hostility” in 80% of the jurisdictions in which they operate.
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