Precious Metals, Watch Asia

Posted on October 19, 2007 , filed under Stocks | Print This Post

Investors should pay special attention to what Asian gold investors are doing. Ironically while Asia is one of the biggest buyers of gold, media coverage is sparse and sometimes ignored. Why would a gold investor ignore what the buyers are doing?

As gold has risen past $750, gold equities in many major Asian exchanges, particularly in Shanghai and Hong Kong, have risen 300-400%. Needless to say, China is one of the biggest buyers of gold and Asian investors are betting that stock prices will continue to rise. Comparatively since the rate cut on September 18th, 2007, US Gold equities have risen 20-50%. While 20-50% is a great increase, it pales in comparison to the typical 300-400% gains we are seeing in Asia. What this spells out is a difference in expectations. Money is flowing into the mining industry and into gold shares in Asia. Let’s look at Zhaojin Mining (1818.hk), a leading Chinese gold miner I would compare to Barrick Gold [[ABX]] or Newmont Mining [[NEM]].

Shares of Zhaojin moved from a low of $11.40 on August 17th to a high of $44.90 on October 15th, a roughly 294% gain. Zhaojin Mining is a mature gold miner with a P/E of 61. This is definitely not an isolated incident, there are many other Asian gold miners that have also scored a few hundred percent gain in the past two months. Imagine the prices of Barrick or Newmont stock with a P/E of 61, they would both more than double from current prices. Zhaojin Mining is a typical example of what some investors are achieving in terms of investment return.

At some point US equities should play catch up to Asia gold equities. US gold equities may double or triple as investor sentiment experiences a swift shift to irrational bullish momentum.

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