Introduction to
Investing in the Resource Sector
With the growth of China and India, there has been a tremendous demand for commodities
(zinc, nickel, lead, copper, etc.), and energy (oil, gas and uranium). Prices for
some of these commodities have climbed over 10 times in the last six years.
Precious metals (gold, silver and platinum) have also climbed dramatically since
2001, based on the growth of the middle class in India, China and the Arab world,
which has great affinity for gold.
Is there room for greater price appreciation in these commodities?
If there is a recession in the US, which may lead to a global recession, then the
demand for base metals and oil and gas may decline.
But this will increase the demand for gold and silver as safe havens as a hedge
against the falling US $, inflation and economic uncertainty. In fact, a leading
Asian investment bank is predicting that gold could reach $ 3,400 in the next 3
years.
Your investment in this sector, then, depends on your view of the global economy
in the coming years.
The next question you may have is: why invest in mining companies rather than buy
the commodity itself, like gold?
Because investing in mining or energy companies can potentially give you a much
greater return on your investment. The HUI (an index of 16 of the leading gold and
silver companies) has increased by over 1,000% since January 2001,
while gold itself has only climbed about 200% in that period.
So, as an average, you can get 5 times the bang for your buck by investing in a
portfolio of diversified mining companies. But be warned: the sector is very volatile
and you need to keep taking profits and stop losses early as you invest in companies.
To help you learn about investing in this sector, I have included some articles
in this section which I found very useful.
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