The new CEO of the world’s largest precious metals miner is optimistic about the outlook for gold prices, saying, “Gold could definitely surpass previous highs and go above $2,000 and even higher in the next year.” (Read More: Current Gold Rally May Falter Near $1,730: Chart)
Barrick [ABX 39.3799 -0.0801 (-0.2%) ] has great leverage to higher gold prices, with every $100 increase in the price of gold adding an additional $500 million to earnings and cash flow, Sokalsky noted.
But gold mining stocks have failed to keep pace with the increase in the precious metal of late. Sokalsky said the industry needs to have more discipline in terms of how capital is invested. “We can’t just rely on gold prices to drive our earnings,” he said.
Barrick has instituted a disciplined capital allocation program focused on risk adjusted rate of returns and free cash flow, so that it can eventually return more cash to shareholders. “Every dollar we spend earns an acceptable rate of return and increases the quality of our portfolio,” Sokalsky said.
Barrick is opening two new mines that will increase that are going to add about 20 percent more production at attractive rates of return at an average cash cost of $100 per ounce, he said. ]
When it comes to basic logic and common sense, I don’t know that Barrick Gold’s CEO could make anymore sense than he has with his opening statement above! FED is planning on more stimulus and therefor gold will benefit. Central banks are planning ahead for inflation so gold will benefit. Gold prices have plenty of room to rise form their current price therefor buying gold makes solid sound investing sense. These principles of investing are among the most common sense aspects of sound investing but for some reason these types of common sense principles have somehow been shelved in order to make room for perpetual profit seeking paper trading as of late. But what can you expect when the business news channels work very hard to condition average investors to look for daily, if not hourly, movements in the markets to capture a few pips of gain all while high frequency traders are moving billions of dollars in an out of the markets in nano seconds around you. This appears to me as a way to keep constant money in motion so that these HFT are able to blend into the background while you think you are making headway in your investing portfolio.
The days of long term buy and hold investing have faded away over the decades but unfortunately most investors didn’t get the memo. Almost 100% of Americans have their retirement dreams tied up in 401Ks, annuities, pensions & IRAs that are by nature buy and hold investments. While roughly 86% of daily market trading volume is executed by computers that have absolutely zero human oversight or involvement what so ever. So how does the average guy with a 401K or an IRA stand a snowballs chance in hell if his retirement monies are in long term held stocks while over 3/4 of the daily volume is executed by high frequency computers wielding tens of billions of investing dollars collectively?
Then there are the investing options outside this system that offer true hedging capability to the average guy who is looking to protect their retirement funds. Those investing options range from simple property purchases to alternative forms of wealth preservation with tools that have intrinsic value such as gold & silver bullion and coins. While real estate has obviously lost some of its attractiveness thanks to the recent asset bubble collapse it has suffered when the housing crash began, it still offers some heavily discounted purchases that could serve as rent generators to function as positive revenue streams. This has been an option that has been heavily pursued as of late but I feel it has several downside variables that take it out of the winning column. For example, each time buying frenzies have emerged for discounted real estate we see banks become comfortable dumping foreclosure inventories they have been secretly amassing which only serves to drop prices more when new inventory is introduced. This option is dangerous in my opinion as it carries with it the risk that as bankrupt local govt.s become desperate as they watch tax coffers dry up pushing the property tax obligations to extreme levels that will force investors with 20 properties to make tough decisions down the road.
This brings us to gold & silver. The logical play in uncertain times is to retreat to stability and wealth preservation while the situation finds its stabilizing force. The dangerous element of this dilemma we are currently in is that nobody really has a good read on the true nature of the risk associated with the current economic downturn as we are not being given honest data. In my opinion this is all the more reason to retreat to the precious metals as they are money, they have intrinsic value, they are logical inflation hedges, they are as liquid as the ocean (unlike a price of real estate) and can be quickly converted back into cash at a bank, a jewelry shop or a coin dealer. Not to mention the fact that they have gone up in value every year that the FED has printed money and they haven’t passed on an opportunity in my lifetime so it seems to be a good bet. Central banks, pension funds, retirement funds, hedge funds, governments, nations and commercial banks are buying metric tons as they prepare for the latest round of QE by the federal reserve to factor into the markets and consumer prices. How much more proof do you need that Warren Buffet is wrong about gold and that you need to acquire precious metals in order to properly hedge your portfolio in these uncertain times? Establish your “Plan B” in physical gold & silver bullion and know that you have a true insurance policy against anything negative that may result from the FEDs risky Keynesian inflation play. Remember that it is a far better strategy to PREPARE your portfolio than to attempt to REPAIR your portfolio once the damage has begun. Tick, tock.