Over the last year, the mining industry and some of the biggest global miners have benefited greatly from the rapid growth in value of metals they extract. Futures of various metals have surged, with platinum futures gaining 32% in the past 12-month period, silver futures adding 51% and copper futures gaining 62%.
Citigroup analyst Ephrem Ravi forecasts that the sector is bound to improve even further with the dollar’s decline. A weak dollar environment boosts the purchasing power of crucial commodity-consuming markets, such as China, while a lower dollar also allows global monetary conditions to loosen, as majority of the corporate debt globally is denominated in U.S. dollars.
Ravi adds that the sector will also be boosted by the increase in the copper-gold ratio. Over the last 12 months, the copper-gold ratio has slowly been rising, which suggests global growth optimism. Gold is commonly used as part of a diversified investment portfolio and is useful in times of financial distress while copper is essential for construction and manufacturing.
DoubleLine Capital CEO Jeffrey Gundlach stated that the ratio of copper-gold closely follows government bond yields in the United States, which tend to increase as the country’s economy improves.
The European mining and metals industry had underperformed the market by 7.4% yearly when the economic outlook is worsening but surpassed it by an average yearly 9.7% gain when the economic outlook is better. This is according to data that dates back to 1995 from Ned Davis Research.
An analyst at Ned Davis Research, Mark Phillips, stated that it made sense for miners to undergo busts and booms, explaining that a boom would begin when a surge in demand for products prompts an increase in prices, while supply in the short-term remains fixed. He continued, explaining that as increased prices persist, companies are incentivized to invest in new projects that had previously been deemed uneconomical.
Phillips goes on to explain that because many companies are investing in new projects at the same time, this results in a supply excess and cost pressures, which may occur at the same time that demands starts to diminish. This causes a decline in prices, with mining and metals companies that are high up the cost curve going out of business.
The sector’s gains can also be attributed to talk on commodities super cycle, which is basically moving products as a whole, in a cycle that will last many years, resulting in high growth.
This positive outlook is likely to add ballast to the operations of GoldHaven Resources Corp. (CSE: GOH) (OTCQB: GHVNF) whose recently acquired Chilean gold properties cover a stretch of about 22,600 hectares.
NOTE TO INVESTORS: The latest news and updates relating to GoldHaven Resources Corp. (CSE: GOH) (OTCQB: GHVNF) are available in the company’s newsroom at http://ibn.fm/GHVNF
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