As gold prices plunged, gold mining stocks have taken a beating too.
We saw a brutal sell-off on Friday, and the Market Vectors Gold Miners ETF has been down 49.5% year-to-date.
In the second of our two-part interview with Jim Rogers, the commodities guru told us about the biggest headwinds for gold miners.
Also, he's not convinced that the commodities supercycle has ended just yet.
Business Insider: What's next for gold miners and mining stocks?
Jim Rogers: I don't own gold mining stocks. There's so many other easy ways for people to buy gold now that the miners have stiff competition. And there's lots and lots of competitive situations in mining.
30 years ago if you wanted to buy gold, you were almost restricted to gold mining shares. That's not true anymore. You can buy all sorts of coins. In those days only Krugerrands were available, 30 years ago. Nobody even made gold coins except Krugerrands. Now many countries have them. [There's] All sorts of ETFs, ETNs, futures, now there's many ways to buy gold. So the miners have a serious competitive situation and of course there's hundreds of them.
Mark Twain said the definition of a gold mine is 'a hole in the ground with a liar standing at the top of the hole,' because there's just so many of them. Somebody once did a study, and I think he determined that more money has been lost in gold mining shares than any other industry in America, including airlines and railroads at one time. So miners are going to have a very difficult time ahead of them.
If I'm right about the price of gold, that's one huge headwind and the other is there's too many of them. If you can find a gold mine that can make money, that has good management and that has good reserves, sure. But even that's going to be difficult because gold is going to take a while to make a bottom.
BI: The price of gold is now below the cost of production for many mines. Do you think that could cause tightness in supply and push prices higher?
JR: Of course that would happen eventually. I've been in the investment world a long time and I know that things can stay below the cost of production for years. It takes a long time for people to believe they have to close their mines. It costs money to close a mine, it costs money to re-open a mine, so people are reluctant to close mines. So you can see any commodity staying below the cost of production for a while, especially if it's something like a mine which is expensive to close, and expensive to open.
Some people are not going to be able to open mines because of what's happened. But then you're going to eventually have people close mines, and eventually, like I said it's going to work its way out in 2014, 2015, gold will make a nice bottom and off we'll go again with the assumption of a bull market.
BI: The word on Wall Street is that the commodities super cycle is now over. Do you subscribe to that view?
JR: Well I'm very keen to hear that, especially since none of these people saw the bull market coming. All those people who didn't see it coming and weren't convinced it was happening, are now saying it's all over. I'm sure you know that bull markets climb a wall of worry and we're certainly having a wall of worry and skepticism which is good.
In 1987 stocks around the globe fell 40% and many people said the bull market was over. Then in 1989, 1990, 1994, 1997, 1998 there were many times when stocks collapsed and everybody was convinced the bull market was over. The bull market wasn't over. It eventually ended in a bubble. In my view that's happening with commodities. I don't see major sources of new supply coming in on stream. Most commodities don't have massive new supply yet. For instance, agriculture has produced record levels for the past few years and yet inventories are the lowest in 40 years because consumption keeps going higher and higher, faster than production does. We have serious fundamental problems developing in agriculture. I don't see enough new supply to cause the bull market to end other than a temporary consolidation, especially since so many people are convinced and quick to rush out and write that the bull market is over. But we'll see.
Most bull markets have lasted for a couple of decades, or nearly a couple of decades. And in my view supply is not there yet. By the way if economies slow down, it would affect demand for all commodities but then Mr. Bernanke and his friends are going to print a lot more money. It's the wrong thing to do but unfortunately that's all they know to do, and they'll do more.
More From Business Insider