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Wednesday
Nov042009

Why Gold Has a LONG Way to Go

Gold Coins.JPG

An interesting read provided by Jeff Clark, Casey’s Gold & Resource Report

A couple weeks ago, I had my TV tuned to a business show that loves to give predictions on the markets and the economy. On that day, one of the program’s regular guests declared it was time to “short” gold, that it had reached its top, and that the precious metals bull market was over. I’ll try to be nice in my rebuttal.

So, what was his reasoning: technical analysis of wave counts? falling demand? a telling ratio? sun spots? No, he noted that upscale department store Harrods in London began selling gold bullion and coins “over the counter,” ergo, the top was in. Nice try, “Bert,” but this is amateurish. You really shouldn’t be playing with the big boys if that’s the basis of your call.

Yes, gold will someday put in a top, and since the gold price is largely determined by psychology, the end of the bull run will be marked by behavioral types of signals. But calling a top in gold now is like declaring that WWII was over because the Allies won a small skirmish in early 1942. To have made such a statement, based on a small, isolated event, ignored the greater forces that had yet to play out and would have made any journalist or military strategist look foolish indeed.

And here’s why Bert looks equally silly today…

If the top were in, we’d be in the midst of an all-out Mania. Are we? Do you get the impression there’s a rush into gold by the greater public right now? Are headlines blazing the covers of major magazines pronouncing gold as the new investment king? Has Wall Street gone gaga over gold and silver? I ask because these are the true signs that a trend has entered its final blow-off top and would signal it’s time to get out.

I decided to put Bert’s prognostication to the test, and I invite you to play along.

First, I struck up casual conversations with my friends, neighbors, relatives, acquaintances, my wife’s co-workers – heck, even my seatmates on airplanes – angling to learn how much gold they were hoarding, about the killing they were making in gold stocks, and how they were getting rich from all their precious metal investments. (In fairness, I had to exclude my dad, who is an award-winning gold panner, but he’s the only one.)

I found no one – not one person – who is actively investing in anything gold or silver, let alone rushing to buy or hoard the stuff. I had two people who confided that they did own gold, but in both cases it was inherited. A few were curious how they would go about doing such a thing, and fewer asked if I thought they should. Most everyone looked at me blankly when I asked; they didn’t seem to know what I was talking about. When I got a reaction like that, it was pointless to ask about gold stocks. Of the handful I did ask, most had never heard of Barrick Gold, the world’s largest gold producer.

Now ask yourself the same thing: how many of your family, friends, neighbors, and co-workers are buying gold and silver coins? Are any of them giving you hot stock tips about a fantastic gold producer, or telling you about the latest gold discovery made by a company in China? Have any fellow investors told you they’re dumping their brokers because they can select gold stocks better on their own? Anyone telling you they’re going to night school to learn the gold mining business?

Next, I surveyed a large sampling of print media looking for some of these signals that Bert surely had spotted. Over the past couple weeks, not one of the major business magazines I reviewed had anything on the cover about gold or silver. Further, there were no articles on precious metals, such as the best ways to buy or store all this gold everyone is buying.

One magazine ran an article about ways to prepare for inflation, and gold wasn’t even mentioned! I did see an ad from the U.S. Mint in another, along with a couple small ads in the back that said they had the best prices on bullion (right beside the teasers for buying a Russian wife), but that was it. Even the portfolio allocation models recommended in the articles I read made no specific mention of precious metals (one recommended a “resource” fund, but their discussion of it was centered around energy investments).

Other than the articles you seek out, how many mainstream magazines do you see extolling the virtues of gold and silver on their cover? How many bestsellers are prominently displayed at your nearest bookstore that scream at you to buy gold stocks? Are you getting fed up with all the junk mail you get about gold and silver?

Last, I went out of my way to look for stories on gold and silver on TV and radio. About all I could find were the same ads that popped up after last year’s Super Bowl commercial by Cash4Gold. A couple programs quote metals prices, and I was able to find another that actually used the word “gold” in a sentence. It might just be me, Bert, but I can’t find any news anchors talking about the latest gold discovery or that “must own” gold stock. No in-depth special reports from investigative journalists on the hot Canadian junior mining sector. Nothing on my radio about the best ways to store all the silver every smart investor has been buying.

How about you – are you feeling bombarded by TV and radio ads and segments on precious metals? Do you have the clear impression gold and silver are the hot new investing trend around the world? Are you Tivo-ing certain TV shows because of all the great info they provide about picking the next great gold stock?

If we were in a Mania, Bert, all of this would be happening. But it’s not. Those who buy gold coins in the U.S. are still largely viewed as members of a fringe group. There is no public discussion on gold, no insider tips on the latest hot gold stock, no special reports on how to store all the bullion you’ve collected. The psychology isn’t on our side yet. One signal does not a Mania make.
Last and perhaps most important, Bert, are you sure the dollar is done falling? You’re absolutely convinced we won’t see price inflation? Our current debt load won’t pose any future problems? No more worries about foreigners buying all that debt? Obama and Bernanke really have saved the day?

Bert, send me your shorted gold positions, I’ll buy them from you. And although the gold price could see a correction in the near term, and several more along its journey to “the top,” remember that battle in early1942 and all that had yet to occur before the war was over.

And one more thing: when you finally become breathless to buy gold stocks, I just might be ready to sell them to you.

Are you convinced you have the right gold and silver investments for what lies ahead? For just $39/year, you can be sure you have the best gold and silver stocks, along with specific recommendations on the best places to buy bullion. Check out Casey’s Gold & Resource Report.


Have a good one and stay calm.

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Tuesday
Nov032009

Agnico-Eagle Mines Limited: Bought a few Call Options

AEM logo 20 feb 09.JPG

On the 1st November 2009 we signaled our intention to acquire more of this stock and some Call Options when we posted an article entitled Agnico-Eagle Mines Limited (AEM) Buy, Sell or Hold following the hammering that the stock had just taken and concluded as follows:

In conclusion we think that the punishment does not fit the crime and that the selling has been overdone. So we see it as a buying opportunity. This week we will seriously consider making another purchase of the Agnico’s stock and may also buy a few of the longer dated Call Options.

Our approach was to wait until the carnage had settled and the panic selling had subsided with Agnico showing signs of recovery. The trading session started with Agnico looking a little sluggish so we low bid the Call Options with no luck. Then gold popped up and Agnico followed at a rattlingly good pace, we tried to be patient and reviewed the charts and our research again and decided that this stock should be trading at $75.00 or so so we took the plunge, rightly or wrongly and acquired some Calls.

We bought the JAN 2010 series at a strike price of $60.00, symbol AEMAL for an average price of $5.10. The series finished the day with a bid price of $5.50 and an ask price of $5.70, so not too bad a start. If you pop back to the 13th October 2009 these very same contracts were trading at $16.22 so they have fallen dramatically of late. Lets hope that they can bounce back to those levels and quickly.

For those of you bought on the strength of our recent article many thanks indeed for taking the time to email us the details of your purchase, you should be wearing a huge smile on your face today.

Back to it: The news of the day would be that the over hanging gold sales from the IMF of 403 tonnes was cut in half today when a central bank purchased 200 tonnes. All eyes were focused on China when first past the post with a cheque for approximately $7 billion dollars was India.

So there we go.

Heres a snippet from the Daily Reckoning who sent out this missive today:

--Well how about that! India pipped China at the post to walk away with 200 tonnes of IMF gold. Granted, India had to pay US$6.8 billion for the yellow metal. But with China steadily accumulating gold as a reserve asset (at the household AND central bank level), everyone thought China has this one in the bag. Not so!

--Something more than meets the eye is going on here. The IMF sale was part of a plan to unload 403.3 tonnes of gold. It's halfway there, and will use the proceeds to fund itself and loans to the developing world (or perhaps Britain and America when they go broke). But what else is going on?

--In the past, larges sales of gold - mostly by European central banks - swamped the gold price and kept it in check. The European CBs either felt like they had too much gold doing too little work on the balance sheet. Or, they were manipulating the price of gold down by increasing the supply to the market whenever the gold price began rendering its verdict on global fiscal and monetary policy.

--India's central bank is now the proud owner of 557 tonnes of gold. That gives it the tenth largest gold holdings among central banks. But it probably isn't finished. Gold makes up just six percent of India's foreign exchange reserves. There's plenty of room for that to grow.

--But don't forget China. China has $2.3 trillion in foreign exchange reserves. But 70% of those - or $1.6 trillion - are in U.S. dollars. It owns over just a 1,000 tonnes of gold. That makes up less than 2% of China's reserves and makes China the seventh largest holder of above ground gold. In fact the gold exchange traded fund (NYSE:GLD) owns more gold than China. France, Italy, the IMF, Germany, and the United States round out top five (from fifth to first).


To read the missive in full please visit their web site by clicking here, you might also want to sign up for their free email service – its well worth it.

Have a good one and stay calm.

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Monday
Nov022009

High River Gold (HRG) Financing Covers Debts, Has Downstream Implications!

HRG Logo 31 July 2009.JPG

We now have the latest update from Chris Charlwood which is not only interesting but it also calls for some action on your part.

To all Minority Shareholders of HRG,
 

By my calculations, upon closing of the $57M financing with Troika (via Polenica Investments, announced 10/27/09), HRG is essentially debt free on a net basis ('net' being debt minus cash & 3rd party shares). At the end of Q2, HRG stated their debt position was $135M. Deducting cash at that time, debt was $112M. If on Nov. 13 HRG reports $26M in positive cash flow from operations for Q3 (an approx. average of the 1st two quarters) then debt is down to $86M. With this $57M financing, it brings the debt down to $29M. The shares HRG owns in third party companies including Detour Gold are worth approx. $50M based on current market prices. Hence, HRG has more than enough cash and shares now to cover all debts as they come due plus fund the exploration program at Buryatzoloto and for general corporate purposes. When the debt is cleared, the company looks like it will be producing over $100M/yr in free cash flow from operations.

With Friday's closing price at $.39, HRG's current market cap sits at (an extremely low) approx. 3 times cash flow from operations. HRG's peer group of West African and Russian mid-tier public gold companies (Polymetal, Randgold Resources, Petropavlovsk - formally Peter Hambro Mining, Golden Star Resources, Red Back Mining, Semafo Inc., Highland Gold) is trading at an average of approx. 19.3 times Q2 Operating Cash flow on an annualized basis. If HRG were trading at this average multiple, the share price would be C$2.95. HRG was trading at $3.40 early last year. The minimal 5% discount to market price and zero warrants negotiated in this financing may suggest a floor in share value at $.38.

There are several other aspects of this financing. It provides cash to keep all facilities with Nomos Bank and Royal Gold current. With the Severstal debt being retired with some of the proceeds, it takes away the risk of them calling in their loans due to breached covenants. It is interesting to note that rather than Severstal increasing its shareholdings by converting its debt, this transaction reduces its ownership from over 61% to just over 50%. Upon closing of this financing, HRG will have approx. 798.9M shares outstanding. Severstal owns approx. 400.7M shares (50.16%). Minority will own approx. 398.2M shares (49.84%) including Troika and approx. 248.2M shares (31.06%) excluding Troika.

The disappointing aspect of this financing is that minority shareholders communicated to HRG management that they would be interested in participating in a Rights Offering to prevent dilution. It seems like these requests have been ignored by HRG management in favor of a financing with Troika. Herein lies the main concern. Troika has arranged and consulted on many financings and other transactions for Severstal in the past. Although Troika may have sold off part of this financing to its investors, they may choose to use influence to have these shares tendered to or voted with Severstal in a future minority buyout transaction. If Troika were a related party they would not be permitted by Securities Commission's policies to vote as part of the minority on the transaction. Policies of the Securities Commission will require in most circumstances a valuation and a majority of the minority vote in an amalgamation proposal. The valuation can be challenged by the minority. Almost 90% of minority holding approx. 248.2M shares did not tender to Severstal's previous attempt to take HRG private at $.30. Those holding approx. 165M shares indicated in writing that they would only tender at an average price of $1.41. If Severstal decides to make another minority buyout bid in the $.60 range, they will be up against a heavy resistance campaign from current minority shareholders. The good news is that excluding Troika votes, the remaining minority still own more than the 199.1M shares required (over 50% of minority) to block any amalgamation attempt.

A group of institutional shareholders have written to the TSX to ask that a rights issue should be brought to all shareholders and this transaction cancelled. At the very least, they believe that these shares, due to "related party status" should be deemed "non-voting" in any further buyout transaction attempt by Severstal. If this potential state of affairs also troubles you, I suggest that you write to the TSX and the Ontario Securities Commission expressing your concerns and putting them on notice that in any subsequent transaction this issue will come to a head. Visit this website for OSC https://web1.osc.gov.on.ca/en/ContactUs/ct_cat-form.jsp and e-mail TSX at info@tsx.com. Time is of the essence.

If you have not done so, please send me an e-mail to my address below if you would like to be included in future communications. Communication amongst us will become important if there is an amalgamation attempt.

References:

Financing announcement

http://media3.marketwire.com/r/FinancingAnnounce

Q2, 2009 Financials

http://media3.marketwire.com/r/Q2Financials

For more information, please contact

Chris Charlwood
Retail Investor
604-718-2668
Rainerc7@gmail.com
Click here to see all recent news from this company



Have a good one and stay calm.

Got a comment – then fire it in.

To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address.

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Sunday
Nov012009

Agnico-Eagle Mines Limited: BUY, SELL or HOLD?

AEM Chart 01 November 09.JPG


Last week closed with one of our favourite gold producers, Agnico-Eagle Mines Limited (AEM) taking a hammering as this sector took a breather and Agnico released poorer news than the market anticipated. As we see it the initial sell off has been followed by stop loss programme selling taking the stock down to $53.53.

First of all we will take a quick look at the results and try and assess if the sell off is justified or not, starting with the opening paragraph:

TORONTO, Oct. 28 /CNW/ - Agnico-Eagle Mines Limited ("Agnico-Eagle" or the "Company") today reported a quarterly net loss $17.0 million, or $0.11 per share, for the third quarter of 2009. This result includes a non-cash foreign currency translation loss of $22.9 million, or $0.15 per share, as well as stock option expense of $5.1 million, or $0.03 per share. Additionally, the result included a gain on the sale of marketable securities of $5.9 million, or $0.04 per share. In the third quarter of 2008, the Company reported net income of $14.0 million, or $0.10 per share.

We draw your attention to the net loss of $0.11 per share for the third quarter which is enough to scare any analyst into issuing a down grade notice.

Digging a little deeper we have this snippet:

Full year production is now expected to be approximately 500,000 ounces of gold. The decrease from previous guidance is due to the slower than expected ramp up of the Kittila mill, the mining of lower grade blocks at Goldex and the higher than expected ore dilution at the start-up of Lapa. The early stages of commissioning the plant, specifically the filter presses in the mill, at Pinos Altos is also taking longer than expected. However, as detailed below, each of these operations made significant progress late in the third quarter of 2009. As these operational improvements continue into the fourth quarter, record quarterly gold production of approximately 170,000 ounces is expected.

So the above tells us that they have failed to meet their guidance notes and therefore deserve the negative market reaction. However it also says that the fourth quarter production is expected to be at record levels, which is very positive and should have added some balance to any review.

To read the news release in full please click here.

The management have moved quickly with a damage limitation exercise such as this appearance on BNN by Sean Boyd, CEO, Agnico-Eagle Mines Ltd., who appeared on BNN to discuss the company's third quarter earnings results.

Sean Boyd, CEO, Agnico-Eagle Mines Ltd.JPG
Sean Boyd pictured on BNN

In a nutshell Sean explains that they have had start up problems, mechanical difficulties, tailings problems and various technical difficulties. These appear to be have been largely resolved. La Rhonde mine is still going well and he mentions costs going down from $450 to $350 in 2010. To see this 5 minute interview just click here.

Next we will take a quick look at the chart and as you can see it is something of a disaster with around twenty dollars being wiped off the stock price on very heavy turnover. Also not the the technical indicators are on the floor and the RSI is at its lowest for some time, standing at 22.53. This is deep into oversold territory which we interpret as a buy signal.

We don't know how next week will pan out, it could be more of the same as investors despairingly throw the towel in and further stop loss limits are triggered. The management team needs to go into overdrive and hit the road with a very good explanatory message. And, of course there is the on-going battle between gold and the dollar which will also influence our fortunes. Finally there are the broader markets which appear to have peaked and a sell off there could also impact on precious metal producing companies. This is the way we see it and yes we have not mentioned politics or the price of oil and a myriad of other factors, but we are aware of them.

In conclusion we think that the punishment does not fit the crime and that the selling has been overdone. So we see it as a buying opportunity. This week we will seriously consider making another purchase of the Agnico's stock and may also buy a few of the longer dated Call Options.

Hope this note helps.









Have a good one and stay calm.

Got a comment – then fire it in.

To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address.

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Wednesday
Oct282009

Gold, the DOW and the USD

Gold, DOW, USD Chart 29 Oct 09.JPG

A quick comparison between gold prices, the DOW Industrial Index and the US Dollar raises a few tricky questions as gold has slipped back below its previous resistance level of $1033/oz. We can all remember last year when the broader markets tanked and the gold and silver stocks were also dumped regardless of golds performance.

As we see it the DOW will correct at some point and that point appears to have arrived at the 10,000 level, although pierced, it has not been held, with the DOW closing at 9,762.69 today. This sell off has been accompanied by a small but significant rally in the dollar which in turn has put a cap on gold and silver prices as evidenced by the HUI which has dropped from 450 to 380.
The broader markets could well continue to head south as they have put in a terrific rally since March and should be due for a breather.

Also note that this rally would appear to based on stimulus and not economic activity as it has been described as a jobless recovery. A recovery without an increase in jobs lacks the foundation of a true recovery in our humble opinion. A stock market rally based on quantitative easing is one to be cautious of as a retraction could be upon us just as quickly as the rally. Assuming that the broader market sectors will head south we are left pondering the possibility of the mining sector being thrown out with the bath water.

Our opinion for what it is worth is that the DOW will endure some retraction but not on the scale that we had last year. The mining sector is suffering right now but we expect it to be short lived as their 'worth' will be seen as dependent on the performance of gold and silver and not connected to the industrials. Again the performance of the precious metals producers is still inversely linked to the dollar and the dollars rally will also be short lived before it resumes its trek south.

In conclusion hold fast to your core position and ride this one out, its not the first time and it wont be the last time that we get buffeted and pressured to part with our holdings. Our tiny sector has suffered this sort of thing all the way up to this record level in gold prices and has recovered to trade higher each time.

Also note that a number of stocks are now considerably cheaper and the next few days and maybe weeks could present us with some bargain prices so make use of this 'dip' to acquire a few more of your favourite stocks in an orderly manner.

Have a good one and stay calm.

Got a comment – then fire it in.

To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address.

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Monday
Oct262009

Kinross Gold Corporation Update 26 October 2009

KGC Logo 06 May 09.JPG

Kinross has released an update on its Paracatu expansion project in Paracatu, Minas Gerais State, Brazil, as follows:


The Company has revised its overall guidance and now expects to produce approximately 2.2 million gold equivalent ounces at an average cost of sales per ounce of $435-450 for full-year 2009.

We have highlighted the overall production figures first as that is as much as some of our readers want to know, the snippet below captures the jist of the news release but if you do want to read the whole message then please click here.


As a result of lower than expected production from Paracatu, the Company has revised its regional guidance for Brazil, where production for the full year 2009 is now expected to be 420,000-440,000 gold equivalent ounces at an average cost of sales per gold equivalent ounce of $645-670.

Based on the expansion plant’s current operating levels and an expected production run rate of approximately 35,000 gold equivalent ounces per month in the fourth quarter of 2009, the Company expects full-year 2009 gold equivalent production at the Paracatu operation to be approximately 340,000-360,000 ounces, at an average cost of sales per ounce of $700-735.

Kinross Gold Corporation trades on the Toronto stock Exchange under the symbol of ‘K’ and on the New York Exchange under the symbol of ‘KGC’

Have a good one.

To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address.

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Saturday
Oct242009

When Will Inflation Really Hit Us?

Inflation 25 oct 09.JPG



Some interesting reading this weekend is this 'take' on inflation by Terry Coxon, Editor, The Casey Report

Most of us are gathered at the station, watching for the Inflation Express to come rumbling in. But we've been waiting for a while now. Just when should we expect the big locomotive to arrive and start pushing the prices of most things uphill?

We’d all like to know the exact date, of course, but no one can know for sure. Not even a careful reading of the Mayan calendar will help. What we can do is estimate a time range for price inflation to show up, and that alone should have some important implications for investment decisions.

Why It’s Expected

The reason for expecting price inflation is the recent, rapid growth in the money supply and the deficit-driven likelihood that more such growth is coming.

As of July, the M1 money supply (currency held by the public plus checking deposits) had grown 17.5% in a year's time. That's not just unusually rapid, it's extraordinarily rapid. Since 1959, M1 has grown more rapidly in only one other 12-month period – and that was the one ending last June, when the M1 money supply jumped 18.4%. Even in the inflation-plagued 1970s, growth in M1 never exceeded 10% in any 12 months.

Dropping large chunks of newly created money into the economy leads to price inflation, because the recipients are likely to find themselves overprovisioned with cash. As they try to unload the excess, they bid up the prices of the things they buy, whether it be stocks, shoes, gasoline, silver coins, or granola. The sellers of those things then find themselves cash rich and start doing some buying of their own, and so the wave of excess money and the bidding it inspires propagate through the economy.

The process isn't instantaneous. It takes time. Just as each player in the economy has a sense of how much of his wealth he wants to hold in the form of money, everyone will move at his own speed to make adjustments when his actual cash holdings seem to be off target.

And the process can seem to stall, especially when fear is growing. When people are worried or otherwise feel a heightened sense of uncertainty, they will gladly hold on to abnormally large amounts of cash – for a while. But when fear abates, as it will when the economy begins to recover from the recession, that temporary demand for extra cash will also fade, and the hot-potato process of trying to pare down cash balances will emerge to do its inflationary work.

But when?

The speed at which the public tries to unload excess cash and the timing of the effects have actually been measured, in the work of the late Milton Friedman and his monetarist colleagues. The method was indirect and roundabout, and so the results, unsurprisingly, were nothing as precise as nailing down the value of a physical constant.

What the monetarists (or the first of them to be equipped with computers) found was that when the growth rate of the money supply rises:

The initial effect is on the prices of bonds and stocks, an effect that comes within a few months.

The peak effect on the growth rate of economic activity comes about 18 to 30 months after the pick-up in the growth rate of the money supply.

The peak effect on the rate of consumer price inflation comes about 12 to 18 months after that, which is to say it comes 30 to 48 months after the peak growth rate in the money supply.
As Friedman famously put it, the lags in the effects of changes in monetary policy are "long and variable." He might have said, "It's a big, wide blur, but we're sure we've seen it."

And even that picture exaggerates the precision that's available to us. The emergence of money substitutes, such as NOW accounts and money market funds, has added its own muddiness to the picture of how growth in the money supply translates into growth in the level of consumer prices. It is only because the recent episode of monetary expansion has been so extreme that we can look to the results just listed for an indication of what's to come.

If you apply the findings of the monetarists to the present situation, here's what you get. The peak growth rate in the money supply occurred last December, so based on the general monetarist schedule:

Some of the effect on stocks and bonds should already have been felt.
The peak effect on economic activity should come between the middle of 2010 and the middle of 2011.

The peak effect on consumer price inflation should come between the middle of 2011 and the end of 2012.

A More Particular Schedule

This time around, should we expect things to move more rapidly or more slowly than average? My bet is on slow, which would push the peak inflation rate out toward the end of 2012. One reason for slow is that the government's rescue packages are delaying the process. Rescuing banks that are choking on bad loans postpones the day of reckoning for both the banks and the loan customers. It retards the pace of foreclosure sales (whether of real estate or other collateral) and puts the deleveraging that has been going on since last fall into slow motion. A wilting of the recent stock market rally would confirm this.

Investment Implications

The big plus about the Mayan calendar is that, right or wrong, it is very definite about things. Human civilization will come to an end, I'm told, on Dec. 21, 2012 – not on the 20th and not on the 22nd. There was no room for monetarists in those step-sided pyramids, but there still are few what-to-do implications from the monetarist findings.

1.When you hear would-be opinion leaders cite the current absence of rising prices at the supermarket as proof that all the new money isn't a source of inflation, don't believe them. It is much too early for the inflation bomb to be going off, even though the powder has been packed and the fuse has been lit.

2.If the large and growing federal deficits and the Federal Reserve's unprecedentedly easy policies tempt you to leverage up on inflation-sensitive assets, such as gold, give the idea a second thought. It likely will be a year or more until price inflation becomes obvious and undeniable (which is what it would take to bring the general public into the gold market). In the meantime, your inflation-sensitive assets could get paddled rudely as the deleveraging that began last year continues.

For at least the next year, the simple, fire-and-forget strategy is 50-50 gold and cash – gold for what looks to be inevitable but on its own schedule, cash to be ready for the bargains that may show up while we're waiting for the inevitable to arrive.

The editors of The Casey Report keep their ears to the ground, listening for the first rumblings of the inflation stampede coming in. But you can bet on rising inflation – and interest rates – right now and be way ahead of the investing herd. To learn more about investing in this all but inevitable trend, click here.

Have a good one.

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Wednesday
Oct212009

A Readers View of the Current Situation

Car for one hundred dollars.JPG


Enlightenment here it comes. Understanding around the world that paper money was a depreciating reality has been around for a long time, but understanding and realisation are two different things. The tipping point came with QE. The realisation that governments and bankers are the enemy of one's personal wealth has finally dawned upon an increasing amount of ordinary people turning them towards the only recognised form of safe value namely gold.

People are buying it, the real stuff not paper promises or ETFs a bit here and a bit there, none of which is reported. Two, the quoted jewellery sales are a complete fraud, 40% of "Gold' Jewellery is an alloy, add in 50 to 100% mark up and how much gold have you really got? But these are not the real factors. Far eastern governments have realised that their paper currency investments are at risk, not only are they diversifying but also planning a world currency based partly at least on gold.

At $1000 an ounce there is not enough gold around, however with a universally fixed price at $60000 an ounce there is. Ridiculous you say? Well step into my time machine to the year 1909, Along comes an analyst and tells you that in 100 years the dollar in your pocket will buy 100th of what it will buy today and that gold will be valued at fifty times the then present value. You would at least mentally have consigned that analyst to the funny farm. Fast forward today, if I tell you that the ounce of gold in your account will be worth 100 times as much in 100 years, knowing what you now know would you send that analyst to the madhouse? Particularly since what I am suggesting is only 60 times as much.

How would the central bankers get the gold? Confiscation? well no. Since as the price went up to say $5000 every one would rush to sell thinking what a bargain they got, not knowing that the price was to be fixed well above that. Fantastic speculation you say? Well maybe, but such a price would solve the problem of a world currency based upon gold would it not?  That is the basis now for the expectations. So far all the predictions of a reduction in the present gold price because of COTS and fancy lines drawn upon graphs are not happening in the way previous highs in the gold price have induced, this is because of personal physical buying at the local level, the heavy buying at governmental and central bank level, the realisation that much of the central bank gold is only 22 Carat if it is even there and the understanding that the criminal debasement of currency carried out around the world via QE in such a manner that makes Madoff look like a school kid is nothing more than bare faced robbery.

Finally the real risk that what has happened will persuade more and more persons to call their paper contracts upon maturity this December and later.  Do you think that I am mad? No madder than the analyst in 1909 and we know what happened since then do we not?   Think about it and use imagination, however much you use will not be enough. 


R


Have a good one.

To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address.

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Tuesday
Oct202009

Gold, Silver, HUI and the Dollar Compared

Gold Comparison Chart 21 Oct 09.JPG

A quick look at the above chart and we can see just which investment vehicle has performed the best over the year so far. The unhedged gold and silver producers as represented by the Gold Bugs Index, known as the HUI is in pole position with a terrific gain of 146%.

This is good news for the holders of stocks as for a while the stocks went through a lackluster period losing their leverage to the precious metals sector. It now looks as though a return to the norm is well and truly in progress as the stocks provide a better return to the investor then the physical metal, which they should as owning them carries a number of risks.

In second place we have silver which has put in a magnificent performance with a gain of 84%. Still nowhere near its all time high so silver has a long way to go, however we do expect it to have outperformed gold by the time this bull market comes to an end.

Gold is playing its part admirably despite the detractors and the knockers predicting much lower levels for gold. Inflation aside it is standing at record levels and we expect it to continue to be the trail blazer for the next few years.

The US Dollar is heading south and down about 12% over the same period. Many are looking for a bounce at this point and a recovery to take place. We expect the dollar to be drift lower despite putting in the occasional mini rally which will put a temporary cap on gold prices. However the time will come when the precious metals will rise regardless of the dollars behavior.

Your thoughts are of course most welcome and it would help if you can add your comments and questions via the comments section under each article as we just cant find the time to answer all the emails that we receive.

Have a good one.

To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address.

For those readers who are also interested in the silver bull market that is currently unfolding, you may want to subscribe to our Free Silver Prices Newsletter.

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Monday
Oct192009

USD To Rally Within Bearish Channel?

USD To Rally Within Bearish Channel?



The USD is in a strong down channel as shown on the chart above. Although the overall trend for the greenback is still firmly bearish, there are opportunities for the greenback to rally within this channel, and that is when buying/trading opportunities will appear in gold.

For instance, at present the US Dollar has been falling over recent weeks, and we have seen gold burst up to make new all time highs. However the greenback is now at the bottom of its down channel, so it is getting some technical support from the lower bound of this trading range. It is likely that the US dollar could rally to near 77, to the top of its down channel, before retracing its steps to fall yet further and make another lower low close to 75.
It would be with this US dollar rally, and the subsequent drop in gold that would accompany it, that those who aren't yet long the yellow metal to get long at a slight discount. Or those who are already long, this could be a time to add to your positions and increase your exposure.

With gold breaking up through $1033, we are confident that we are in the midst of a tremendous rally in gold prices, which will drag up gold stocks such as those detailed in our portfolio.


$1200 gold will be here sooner than you think, so get long and hold on!



To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address.

For those readers who are also interested in the silver bull market that is currently unfolding, you may want to subscribe to our Free Silver Prices Newsletter.

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