After an upbeat first three months of this year, investor sentiment toward resources has again cooled. While the overall mood is less upbeat, companies that are adding shareholder value are still getting investor attention.
The market sentiment is evidenced by the TSX Venture Index over the past year. It is worth re-iterating that the index is effectively showing the net result of two different trends: many junior resource companies, especially those that do not have a high quality project and have little or no cash, are still seeing their shares trending down. Companies with good projects, where management is adding value, are getting investor recognition and remain on solid up-trends.
The gold market continues to oscillate on a daily basis in reaction to headlines. For example, the situation in Ukraine has led some people to buy gold as a safe haven. Offsetting that trend, the strengthening US economy is pointing to further reductions in the quantitative easing program and lessening inflationary expectations, thereby reducing interest in gold.
An enormous amount of brainpower is consumed in trying to predict the near-term outlook for metal prices, especially gold. There are simply too many variables involved, and the variables change too quickly, to get those short term forecasts right on any sort of consistent basis.
Taking a longer-term perspective, the picture is much clearer. The world will continue to consume metals and the mining industry will continue to struggle to find new sources of supply, which are critical to replace depleting mines and to keep up with growing demand.
Only a few investors are paying attention to the mining industry at this moment: Those are knowledgeable investors who are quietly accumulating stakes in the better quality companies.
We do not need higher metal prices to make money in the mining business. We just need to own companies with high quality metal deposits, especially if those deposits are attractive to larger companies.