Western Mining Industry in Serious Crisis

Bullion banks extracting physical gold from COMEX, GLD

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Two months ago, resource analyst John Kaiser made perhaps the call of his lifetime on the Financial Sense Newshour when he warned that gold investors should be prepared for a coming washout and correction in the gold market.

His prediction came true and within a week, as many of you probably remember, gold plunged by its largest recorded amount in 33 years. The Gold Miners ETF (GDX), which tracks the price of gold mining companies worldwide, similarly lost around 25% of its value in the weeks following.

Picking up where he left off in the last interview, he now says that if gold and commodities don't start to turnaround in the next 2-3 years, the western mining industry is facing a serious crisis:

The situation has become extremely dire. On Kaiser Research Online we cover about 1800 companies that are involved in the resource sector. As of June 12th, 738 have less than $200,000 left. That’s barely enough money to exist as a publicly listed company…and the inflow to these companies, it’s not happening. In May, we had the lowest financing activity for the resource sector since early 2003…there is no money whatsoever available except in very unusual situations, and then typically on very dilutionary, predatory terms. In the absence of higher real prices, in the case of gold, and a rebound in the global economy, in the case of base metals and specialty metals and so on, we have a serious crisis facing the mining industry, especially the western mining industry where the profit margin is the basis for everything. It’s not going to be a problem for Chinese state-owned entities who stand to basically inherit the mining industry unless there is a turnaround in the next 2-3 years.

In terms of gold itself, John doesn’t believe that it’s entered a long-term bear market, saying instead that he believes the recent large declines are due to bullion banks desperately attempting to extract physical gold out of a tight market through the COMEX and major gold ETF, GLD.

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