The momentum crowd has been running up gold and silver based on superficial beliefs about QE3. This group of investors is not known for deep study or paying heed to rigorous analysis. Now a major player in the metals business is sending a signal loud and clear that gold and silver prices are not about to skyrocket.
Freeport-McMoRan Copper and Gold Inc. FCX is spending $9 billion not to buy another metal company, but to diversify into energy.
Proven reserves of Freeport include 33.9 million ounces of gold, 330.3 million ounces of silver, 119.7 billion pounds of copper, 3.42 billion pounds of molybdenum, and 0.86 billion pounds of cobalt. It stands to reason that if Freeport believed that QE will cause gold and silver prices to skyrocket, it would have made acquisitions of gold and silver miners. Instead, Freeport is buying Plains Exploration & Production PXP for about $6.9 billion and McMoRan Exploration for about $2.1 billion.
It is worth examining market caps of some precious-metal miners to see what Freeport could have bought in the precious metals space for nine billion dollars. Here are a few examples:
Pan American Silver with a market cap of $2.75 billion.
Coeur d’Alene with a market cap of 1.99 billion.
Hecla Mining with a market cap of $1.60 billion.
Kinross Gold with a market cap of $10.84 billion.
Eldorado Gold with a market cap of $9.52 billion.
In the meantime, the SPDR Gold Trust ETF GLD and the iShares Silver Trust ETF SLV fell below technical supports. Market Vectors ETF Trust Market Vectors Gold Miners EFT GDX and Market Vectors Junior Gold Miners ETF GDXJ also lost ground…Read more at MarketWatch
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