Mining is the Greece of investment sectors - The Daily Reckoning

Mining is the Greece of investment sectors

Jul 30, 2015

- By Bill Bonner

Bill Bonner
Toronto, Canada

Dear Diary,

"This is the worst I've seen in 30 years."

The scene was the Sprott-Stansberry conference in Vancouver. The subject was the mining/resource market. And the opinion was becoming familiar. Mining stocks are down 90%. Executives say banks won't return their calls. Promoters say they are thinking about taking their firms into cloud computing, video games, or Chapter 11.

"What do you know about cloud computing," we ask.

"Nothing, but I know gold mining. And I know it's no place to make money."

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In the broader markets, everything was green yesterday -- almost. The Dow was up. Oil was up. Shanghai stocks were up.

But gold was down a few pennies.

Here at the Diary, we are champions of the down-and-out...we support diehards and last-ditch campaigns. Part of it is simply a romantic and poetic attachment to the underdog. But there's a practical aspect too - there's often money to be made.

In global stock markets, for example, we now favor Russia and Greece. Both economies are said to be at death's door. Greece, because it has lived beyond its means for too long and borrowed too much. Russia has been hit by a double whammy. The first whammy came when energy prices collapsed. Russia is one of the world's leading exporters of gas and oil. Low prices mean low foreign currency earnings. And then, piling on, US and other Western came up with a provocative plan to impose economic sanctions for alleged misbehavior.

Greece and Russia may be down. But they are not likely to be out forever.

Nor is mining. Unloved. Unbought. Unwanted. Mining is the Greece of investment sectors.

Particularly unloved is mining for gold.

Chris has begun to prepare a weekly internal memo, sent to our editors and researchers around the world, which highlights particularly absurd trends in the popular financial trend. This week's memo focuses on the intense loathing in the gold market.

Gold is down 17% over the past 12 months. And it's down almost 40% from its August 2011 peak.

And as you can see from the chart below, the gold price recently fell off a cliff in July. It's lost 7% of its U.S. dollar value over the past month.

The Washington Post, for example, recently ran an article under the headline "Gold Is Doomed."

Bloomberg says gold is "a textbook short."

And Jason Zweig in the Wall Street Journal claims gold is nothing more than a "pet rock."

Also unloved, but definitely not in the pet rock category, is copper.

"Copper is the most important metal in the sector," said Robert Friedland on Tuesday. "More important than gold. Because copper is in everything. Houses. Autos. Computers. The internet functions on copper. So if the price of copper goes down, it tells us that the whole world economy is soft."

Our guess is that the whole world economy is dying downward. Here's Stephanie Flanders at the Financial Times:

    The latest World Trade Monitor showed the volume of world trade falling in May by 1.2 per cent. It has slid in four out of five months in 2015 and risen just 1.5 per cent in the past 12 months - less than the growth in global output and far below the long-term average of about 7 per cent a year.

    The problem has been getting worse for some time. Trade bounced back fairly well in 2010 after the global recession but it has disappointed ever since, growing by barely 3 per cent in 2012 and 2013. Now it seems the world cannot manage even that. investment demand continues to fall short. For several years, emerging market economies bucked the trend but capital spending has now slowed in such countries as well.

    ...policymakers should not kid themselves that trade is going to rescue them from their domestic economic travails, as it did in the past.

And if the whole global economy is slowing there may be little reason to expect a comeback in copper any time soon.

On the other hand, there's no way copper is going to disappear from the world economy. It's essential. And it is always cyclical. Prices go up, miners produce more. Prices go down, they cut back until supplies are tight again. So, while the price may be down...copper is not out. And count on the feds to count on the feds to exaggerate the cycle!

We doubt that gold is out either. Because, the thing that set off the crisis of '08-'09 was excess debt. And now there's even more excess debt. It is only a matter of time before today's counterfeit stability gives way to genuine panic.

Then the 'pet rock' will turn out to be 'man's best friend.'

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

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