Governments around the world especially in the emerging economies are now beginning to worry about inflation and currency devaluation. Turkey and India have taken emergency measures to increase rates and the U.S. is tapering as there are growing concerns about significant declines in their respective fiat currencies. Even the Russians and Chinese are concerned. The ruble and yuan are hitting new lows. Paper currencies may be on the verge of failing. Eventually, a new currency backed by gold (COMEX:GCJ14) or silver (COMEX:SIJ14) could be established to restore trust.
Globally, governments have been debasing the currencies of their economies since the 2008 crash to stimulate financial markets. The U.S. has been the most active at quantitative easing and have artificially spiked the equity and housing market. We may begin to see governments trying to take emergency measures to reverse these hyper-inflationary moves through rate hikes but it may be too little, too late.
Interest rates may soon drastically rise as the U.S. dollar, Ruble, Yuan, Euro and Yen turn lower. Look for nations to play hardball for tangible natural resource assets. Don’t be surprised to see a rise of resource nationalism where governments expropriate mines from private companies. Countries may look to expand their territories for their mineral wealth.
What is going on in Crimea and the South China Sea may be just an appetizer. Governments can devalue fiat currency and manipulate financial markets over the short term but it can’t fight the long term upward trend of metals and commodities.
Remember what Yogi Berra said, “A nickel isn’t worth a dime anymore.” The dollar, dimes and nickels have lost more than three quarters of its purchasing power in the past 30 years. I remain steadfast in my approach to accumulate the best mining assets in stable jurisdictions.
Precious metals and particularly industrial metals continue to maintain its value over the long term. Despite the slowdown in the East, growth over the long term will continue its upward rise. I continue to look for undervalued commodities trading at multi-year lows that could have a few catalysts to drive the price higher. For instance, I have liked uranium (URA) and rare earths (REMX) for years as they are cheap compared to technology stocks and real estate (XHB).
Many of the junior resource miners (GDXJ) are incredibly discounted especially when considering long term supply demand fundamentals and the risk of inflation. Some commodities such as copper, uranium and nickel are way off their highs from a few years ago. Most investors chase the commodities when they are rising or breaking out into new highs. Don’t forget them now when they are on sale and are being almost completely ignored by the investment community. Eventually, the masses will return to our sector and the winners will be the early ones like us.
Our junior resource miners are some of the top in their field and many have outperformed despite the recent downturn. Don’t think that just because some are significantly cheaper doesn’t mean that they are not worth owning anymore. The opposite may be the case, these miners may be more valuable and better bargains then in the past. Each year we lose value in our paper currencies. Our mining assets should grow in value over the long term especially when the commodity prices turn higher which I expect they will be very soon.
Some of us who have invested in commodities and mining stocks remember past frenzies and price spikes as shortfalls loomed. In the late 1990′s, it was palladium that went 5-6 times its original breakout point. Remember when the industrial metals, oil and uranium spiked in 2007 based on explosive China demand? Or when rare earths soared after China cut off supply to China? Or when silver ran from $18 to $50 in 2010 following QE2?
In late January I told all my subscribers that its time to watch nickel as Indonesia instituted an export ban cutting off possibly a quarter of global supply. Now six weeks later the nickel price powers through the critical $7 mark and Bloomberg writes an article entitled “Nickel Heads for Bull Market…” Its better to be early, then late. Why is nickel so important and breaking out past $7?