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What's great about being a journalist- is that if you are the type of writer who does analyses rather than reportage- you can really take bird's eye view of just about any industry you look at

For many years I wrote just about high tech. Having given that up a few years ago- I turned my attention towards the mining industry. Although I had just recently published my first articles in this new area- I was recently afforded the opportunity to get a great glimpse at the "state of the mining industry"

I just returned from a week long visit to London, England- home of the London Metal Exchange. For the first time in a very long time- a mining conference was held in the city of London
The "Mines and Money" conference sponsored by the granddaddy of reporting on the worldwide mining industry, The Mining Journal

It was the first event put on by the new owners of the publication in an attempt to breathe new life into a very well-established industry publication. Thankfully there is some life out there- and someone with the initiative to put a financial conference on the mining industry in the UK (or even all of Western Europe for that matter). That hasn't happened much in the past decade- and we hope to see more of them throughout Western Europe to promote investor interest in public mining stocks.

What the conference gave me was a great oversight as to how and what is happening in the world's mining industry and the price gold- and the price of gold's role in the success of the mining industry. Here are my conclusions:

The current price of gold

After talking to some of the leading precious metal analysts in the world, people such as Barclay's Capital's Kamal Naqvi, Jim Lennon of Macquarie Bank, and Sarah Marsden at Virtual Metals, and hearing from them what they see as the "current reality"- I realized that the world that the "gold bulls" see and talk about in the US- is not the gold market these people view. To them- there is not "fiat currency crash" happening in the future and therefore gold being "the only refuge against mass currency devaluation". They see gold in terms of just one thing, basically- the strength or lack of it- of the US dollar. Yes, jewelry comes into play- and hedging as well- which appears in all their reports. Investment demand- which they claim really hasn't happened yet as most of the demand in past year as come from producer de-hedging

I figured, hey, they actually could be right. At least for the time being- gold is simply behaving as a precious commodity- and at least not yet- as a refuge of last resort".

Then at the conference all I heard was South African and Australian mining executives complain that for them- gold being based on a devalued US dollar, sucks. Their costs are related to the strength of their currency which they have to pay wages and expenses in. Let's be honest: it is only those who held US dollars 12 or 18 months ago and which bought gold with those US dollars- who have profited from the rise in gold price. Anyone with Euros, Rands or Aussie dollars did not had they put their money into gold. Gold has done nothing for any of the currencies in the world- i.e., the rest of the world other than the US. With all the hoop-ha in the gold bulls at the investment conferences in the US these days- that is not the way the people over here are viewing it- and they are the producers of the precious metals- not the private investors like so many of the gold bulls are writing on the Net of the great marvels of what gold has done

I asked a few of the executives what they would like to see gold to do for their business: most of them said a steady rise of 10% each year- never below $350. Now, how many gold bulls in the US have that as their goal for the price of gold? You can now see how there are two groups of people pushing gold in this world: the gold bulls in the US, and the producers of the metal. Their interests are not really aligned as a huge spike in gold won't have any effect on their bottom line because by the time gold spikes high- it will come down eventually- and thus the gold producers want steady rises- and not huge spikes in the price

During the conference it was announced that the first gold security was traded in the UK. Nothing makes more sense than this type of investment vehicle- especially pension funds- which can put down 10% of their assets as a total hedge against inflation- not just currency fluctuations- (or perhaps they are both ultimately the same thing). Finally there is no longer a huge penalty to pay to hold gold as an investment option. Bravo

To move the industry ahead- other media communications companies need to take the lead and put on investment conferences which bring the companies into contact with analysts and institutional and retail investors- in London, Paris, Frankfurt, and Geneva- just like the investors conference in New York, San Francisco, Las Vegas and Vancouver

China and the world's base metals commodities

What was also clear to me is that nearly the entire base metals commodities business worldwide- i.e., much of the mining industry- is being driven by China's fantastic growth. It is now a fact to anyone who wants to look that in ten, fifteen years at the most- China will be the world's most dominant nation- economically. An interesting thing that Jim Lennon said to me was that because of China's growth and its consumption of base metals, which he expects to continue for another 7-10 years, base metal mining cycles will be longer- and the booms and busts won't come so close together. The highlight of the presentations was when Robert Freidland of Ivanhoe Mines graphically tried to show the audience just how much copper could potentially be used in China over the next ten years as the Chinese discover the marvels of western civilization- air conditioning.

So it was pretty clear that without China driving the markets- the base metals mining industry would be screwed. Even so- the rises in price are only in US dollars- and so remember- there are very, very few American mining companies who have employees who are paid with US dollars. Other than nickel- all the base metals have seen huge increases over a year or two ago- but most if not all of that- is due to the US dollar. Sure- the value of the end product is still high enough to make it worthwhile for the mining company to take it out of the ground. It wouldn't be able to do so if it weren't for China's demand for these metals- and if that support wasn't there- tons of mining companies would be going under. The situation with precious metals is completely different where China is not playing much of a roll at all. In base metals- they are the most important world customer for base metal production- and probably will be for the next 10 years or so at least- so that is promising for the mining industry (what happens to the rest of the world when China is the dominant world power- is another question). Yet like gold- we should all be cautious when we gloat about "a bull market in nickel and copper" because it is only a bull market because of the weakened US dollar.

Perhaps one eventuality of the weakened US economy will be its demise of the dollar as the unit which all precious and base metals are calibrated to. One hopes that in the future all commodities would be priced as a measurement of a basket of currencies so that a more accurate portrayal of the state of the market can be presented.