Time to Buy or Time to Wait?

Investors who feel the bottom is in for gold and now is the time to buy gold mining stocks should proceed with caution and purchase selectively.  Picking a bottom in any commodity is difficult at the best of times and selecting mining equities for investment is equally as risky. In any event, some mainstream media outlets are climbing on the gold bandwagon, suggesting gold could soon break to the upside. Barron’s Michael Kahn is one of them and you can read his latest missive on gold here.

Recently, someone asked me about Kinross Gold whose stock has been pummeled in the past year, partly because of falling gold prices but mostly because of some bad investment decisions. (Among the worst was the $7 billion purchase of the Tasiast Gold Project in Mauritania, an investment that has largely been written off).

It’s also worth noting that Russia accounts for about 25% of the company’s annual gold production which in the current geopolitical environment is hardly risk free. In Russia – not to mention some African countries including the Democratic Republic of the Congo – running a profitable mining operation is like giving the government a license to steal it.

VladmirPutinThe Russian president’s harassment of Western business interests in his country has apparently not extended to foreign mining companies but that could change. Putin has publicly stated his concern about the dominance of the US dollar in foreign exchange markets and Russia has been purchasing large quantities of gold, betting that US dollar dominance will soon be coming to an end. Should the political situation between Russia and the West deteriorate further, foreign mining companies, especially gold producers, would be prime targets for expropriation.

In the coming weeks, I’ll be looking at a few potentially good investments in the mining sector, mostly gold, but a few others as well in the base metals sector. I have no intention of recommending stocks but I will have a rating system from one to five for those companies I choose to cover. I will divide my coverage into three market segments: mineral explorers, junior producers, senior producers, with the ratings criteria reflecting the unique characteristics of each segment.

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