Gold Call Options: Sold For 100% Profit in 44 Days!

We purchased a significant position and signalled a strong BUY on the January 2009 call options with a $95.00 strike price for GLD, the gold ETF, at $3.40 on the 6th August 2008.

We have now sold these contracts for $6.80, doubling our money as planned, as gold hits $900.

Through this trade we have generated a 100% profit in 44 days, which just goes to show how fast these options can turn around.



Although we still believe gold prices are heading much higher in the future, our strategy for this options trade was to double our money and we have achieved this goal.

We may purchase these calls back at a later date, but for now we are happy to take the 100% profit and wait and watch for a while.

Well done to anyone who followed us in on this trade, you should now be seeing the benefits. As for our other call options, we expect them to reach to the 100% profit mark soon, so hold on to them.

We haven't sold any gold stocks, as gold prices are heading much much higher in the coming months in our humble opinion.

Also, it may be of interest to see our latest comments which were published on Marketwatch, although more details are available on this website.

These are fast changing times and its essential that you stay up to date with what is going on in the market. For our latest commentary and trading signals on gold, click here to subscribe to The FREE Gold Prices Newsletter and click here for The FREE Silver Prices Newsletter.

AEM Call Options: Sold For 100% Profit in 36 Days!

We bought JAN 17, 2009 $ 60.000 CALL OPTIONS on AEM (Agnico Eagle Mines) on the 14th of August at $5.50, and we have just take our 100% profit, as planned, by selling the contracts at $11.00.

Through this trade we have generated a 100% profit in 36 days, which just goes to show how fast these options can turn around once gold starts moving up.


Although we still believe gold prices are heading much higher in the future, our strategy for this options trade was to double our money and we have achieved this goal.

We may purchase these calls back at a later date, but for now we are happy to take the 100% profit and wait and watch for a while.

Well done to anyone who followed us in on this trade, you should now be seeing the benefits. As for our other call options, we expect them to reach to the 100% profit mark soon, so hold on to them.

Note: We still hold AEM stock and have not sold any shares.

Also, it may be of interest to see our latest comments which were published on Marketwatch, more details are available on this website.


These are fast changing times and its essential that you stay up to date with what is going on in the market. For our latest commentary and trading signals on gold, click here to subscribe to The FREE Gold Prices Newsletter and click here for The FREE Silver Prices Newsletter.

From Nausea To Euphoria, What a Day for Gold!

What a day for gold. And what a day for gold bugs everywhere.

Gold prices up around $80, our gold stocks putting on 10-15% and some of our more speculative positions in calls options posted daily gains of up to 168%.

We think we speak on behalf of all those invested in precious metals when we say; its about time too!

Having suffered a severe correction that had our stomachs turning, feelings were reversed today and, as one of our readers put it, our feelings went from nausea to euphoria! (Excellently put David!)

Lets have a look at a snapshot of the crisis unfolding in front of our eyes at the moment:

Fannie and Freddie effectively been nationalized, along with AIG.
Lehaman Brothers bankrupt.
Merill Lynch rescued in a BofA takeover.
Morgan Stanley in merger talks.
Washington Mutual selling itself to the highest bidder (if any)
Lloyds TSB buying HBOS in another rescue.
JPMorgan paying off Lehman’s debt obligations, just to stop the whole derivative system falling apart...

…this is history in the making, a crisis of epic proportion.

It is also what anyone who has been investing in gold has been preparing for, and our preparation appears to have paid off today!

Here are our comments on the markets at present:

Financial concerns will undoubtedly continue, and will probably worsen, over the coming months. The money that the Fed are other central banks are recklessly pumping into the system in bailouts and as extra liquidity is adding to inflationary pressures, and even if these pressures are not showing up in CPI figures yet, they are certainly showing in gold.

This recent $80 jump in gold prices can be attributed to large amount of money fleeing to the yellow metal as a safe haven in these troubled times. Money had been moving from stocks and commodities into the US dollar, causing the recent rally in the greenback. However, events in the US financial sector this week have reminded people just how poor a state the American economy is in right now and, coupled with no rate rises from the Bernanke, has followed in a flight from the US dollar and US markets into gold and gold stocks.

Due to the fact that the gold sector is relatively small compared with other markets, the sudden influx of money has caused a dramatic spike in prices. This is a sign of just how serious this situation is, gold moves up when there's trouble, and a big move up like the one we just witnessed, means there's big trouble.

However, we suspect that only a small proportion of investor funds have been moved to gold so far, so expect much higher gold prices in the coming months as investors move out of almost everything else, and into gold.

Historically gold has been a safe haven in tough economic times, especially those where inflation is a serious issue, and the situation is the same today. This is a crisis of historic proportions and is propelling gold prices higher and higher as investors lose confidence in stocks, commodities and even cash, and flock to the strongest currency in the world, gold.

Technically gold was extremely oversold and was overdue a bounce above the $850 level. We expect gold to consolidate around $850 before making a new high over $1000 in early next year if not before

Note:
We would like to extend our recognition to guts that every gold investor has shown through this extremely rough ride, a big well done from all the team here to anyone who managed to hold on through the turbulence and a thank you for all the readers that stuck by us during the storm, this resilience is now being rewarded and will continue to be rewarded in the coming months, and gold moves back towards $1000 and beyond.

Gold-Prices.biz: Portfolio Update 14 September 2008

We have not managed to update this portfolio since 22 June 2008 and we know it has been pulverised since then, largely due to the price of oil retreating and the US Dollar rallying to challenge its old highs.

A quick look at gold’s chart and we can see that a $200/oz drop in gold prices has dealt a hammer blow to the gold producing stocks. The technical indicators of the RSI, MACD and STO remain severely oversold so hopefully this sell off has now run its course.

Oil has retreated from around the $148/barrel level to trade at around $100/barrel recently, which has reduced some of the inflationary pressure on gold. However the $100 mark is both a technical and psychological support level, so perhaps the worst is over.

The US dollar has rallied to challenge its resistance level of ‘80’ but failed to get above it on Friday, which no doubt helped to support the gold stock prices. Despite the sabre rattling we cannot see that a rate rise is on the cards and so the dollar's strength will be tested shortly.

In the June update we wrote the following:

“A wild card in all this is the stability of the financial system. It is sailing along like a ship with large holes in the hull on a stormy night. Another credit crunch lies in waiting to scare us witless once again. No doubt the powers that be will answer the problems by increasing the liquidity in the system. As we have said before liquidity is not the answer to insolvency and such actions is the same as giving a drunk another drink or putting a fire out with gasoline”.

Freddie and Fanny are the latest to fall victim of the credit crunch with others such as Lehman Brothers staggering along close to the edge.

We also wrote:

“As investors in gold and its associated mining stocks we will need to steel ourselves during the next credit crunch as the dash for cash could well result in mining stocks being sold off regardless”

This has transpired but the severity of the sell off has gone beyond what we thought was possible.

Our portfolio as been updated as follows:

Randgold Resources Limited (GOLD) On the 18th of June we bought Randgold Resources Limited for $37.65. This stock quickly rallied to $55.00 before being caught in the ensuing sector sell off to close at $35.61 on Friday. We are back to where we started but will continue to hold and wait.

Agnico Eagle (AEM) we paid $30.88 and it now stands at $52.70, showing a vastly reduced gain of 70.66%. On 31st January 2008 we reduced our exposure to this stock and sold about 50% of our holding for an average price of $63.27, locking in a profit of 104.8%. On the 24th July 2008 we bought again at $59.17 doubling our position with the average cost now standing at $45.03. Agnico Eagle closed at $52.70 on Friday.

Kinross Gold (KGC) we originally acquired Kinross at $10.08, Kinross then went through a bit of a pull back so we signalled to our readers to “Add To Holdings” at those discounted levels of around $11.66. We also gave another ‘Kinross Gold BUY’ signal when we purchased more of this stock on the 20th August 2007 for $11.48. On 31st January 2008 we reduced our exposure to this stock when we sold about 50% of our holding for an average price of $21.96 locking in a profit of about 93.60%. On the 24th July 2008 we doubled our holding with a purchase at $18.28 giving us a new average purchase price of $14.50. Kinross closed on Friday at $13.78.

Silverado Gold Mines (SLGLF) we bought at $0.08 and it now stands at $0.026. We are disappointed in the poor performance of this stock. The B.C. Securities Commission had issued a cease-trade order against the company, citing a host of filing deficiencies. On the 5th August 2008 this order was revoked the B.C. Securities Commission. However this stock continues to limp along for now.

Yamana Gold Incorporated (AUY: NYSE) we paid $9.37 on 27 September 2006, it is now trading at $15.22 for a gain of 62%. We bought again at $12.89 on the 7th December 2007 and so our average price moved up to $11.13. On 31st January 2008 we reduced our exposure to this stock and sold about 50% of our holding for an average price of $16.50 locking in a profit of about 49.41%. Then on the 3rd April 2008 we bought our Yamana position back at $14.43 in expectation of a bounce, which arrived on The 23rd May 2008, and we sold for $16.00. On the 11th July 2008 we bought again at a price of $14.95 taking our average purchase price up to $13.04. This stock closed at $8.57 per share on Friday, leaving us licking our wounds.

High River Gold Mines: (HRG: TSX) We bought this at $2.49 and we increased our position in the company on December 7th, 2007 when we wrote;
We strongly believe in the company’s long-term fundamentals, especially with rising gold prices. However it has been a victim of this recent sell off, which has dragged the price down to $0.60 yesterday, rendering another hammer blow to our portfolio. HRG is a small gold company and so its stock price is very volatile, but this pullback has been devastating. Production last year of 140,000 ounces, this year 280,000 ounces, next year 350,000 ounces going to an estimated 600,000 ounces by 2012. We will hold and watch for now.

Fronteer Developments Group (FRG) Fronteer was originally bought as both a uranium and gold play as FRG owns the lion’s share of Aurora Energy Resources making it a gold/uranium play. On the 24th September 2007 we sold 50% of this stock for an average price of $10.44, banking a profit of 122%. Fronteer is currently trading at US$2.37, which shows the importance of taking profits in a bull market. Our original purchase was made on the 15 July 2006 at around the $4.70 level, which is now showing a large lose. Again we are looking for FRG to establish a bottom and make some progress.

Options Trades;

On the 28th June 2008 we sold our Call options in KGC for 100% profit, which was achieved in two weeks.

On the 24th July 2008 we re-purchased the KGC JAN09 Call options at a strike price of $20.00 for $2.50, they closed at $0.70 on Friday

Also on the 24th July 2008 we purchased the Yamana JAN09 Call options at a strike price of $12.50 for $2.25, they closed at $0.70 on Friday.

On the 06 August 2008 we purchased the GLD (gold EFT) JAN09 Call options at a strike price of $95.00 for $3.40, they closed at $1.00 on Friday.

On the 14th August 2008 we purchased the Agnico-Eagle JAN09 Call options at a strike price of $60.00 for $5.50, they closed at $4.62 on Friday.

As we can see we now need some rapid upward movement in gold prices to push the stocks higher and save our options from a giving us a financial bath. It is worth noting that these contract are extremely volatile and can move 50%, even double or halve in a single day. If gold prices begin to tick up again, these options will be quick to move back into the profit zone.

It is said that fortune favours the brave so we are now searching through the wreckage looking for quality stocks that have suffered too much in this sell off with the view to acquiring them.

Trading decisions belong entirely to you as your circumstances are different from ours and we trade to suit our investment criteria and cash position.

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.

Gold: Hanging by a Point!

The flight to cash has pushed the US Dollar up by around 10% since mid July 2008 and to within one point of its major resistance level on the US Dollar Index (EOD) INDX.

From the chart above we can see that the '80' level was previously the support level for the dollar, once penetrated it becomes the resistance level. Should the dollar break through this resistance level it could go a lot higher. Taking a look at the technical indicators we can see that the RSI, MACD and STO are at the top of their respective overbought ranges. This normally suggests that this mini rally has ran its course and the dollar should at least pause for breath.

However these are not normal times as evidenced by numerous factors including the credit crunch, which is not over yet, the spot light just moves from one troubled financial institution to another. We are also heading into the last furlong of the race for the presidency and as we all know the picture must look rosy in order to give the incumbent party another shot at holding power. So a strong dollar and a steady stock market are the order of the day from their perspective.

What puzzled us today is that the dollar was not pushed straight through this hurdle in order to keep the momentum going and deal a hammer blow to gold bugs around the globe. Maybe we speak too soon but the dollars rise was suspended as it took a look at the hurdle in front of it. We know that this is only one point on a chart and cannot be extrapolated to produce some meaning full conclusion. However, some of the faster moving traders must be considering taking profits from the dollar at this point, which could be the pivotal point for a reversal in the dollars progress. After all the fundamentals for the dollar are still deteriorating and the outlook remains gloomy, in our humble opinion.

Should this be the case and the dollar re-commences its trek south the effect on gold and gold stocks could be electric! It’s said that the time to buy is when there is blood in the streets. The question is have we got the guts to take advantage of this opportunity if that is what it is?

These are fast changing times and its essential that you stay up to date with what is going on in the market. For our latest commentary and trading signals on gold, click here to subscribe to The FREE Gold Prices Newsletter and click here for The FREE Silver Prices Newsletter.

Randgold Resources Limited: Back to the Buy Zone!

As we can see from the chart the stock price has deteriorated as the dash for cash continues and has broken well below its 200dma and once again sits some $18.00 below its peak of about $55.00. This stock may decline a little more as the summer season has rendered gold directionless. However we believe that the downside for Randgold is limited, as the majority of the sellers have bailed out and the speculators will be considering another run at Randgold.

Back to the chart where we can see that the technical indicators are well and truly planted in the oversold zone and we can see just what a roller coaster ride this stock is experiencing. The volatility of the gold market is reflected in this stocks behaviour so don’t expect it to abate anytime soon. However we do anticipate that the upward trend will resume shortly for both the metals and the quality producing stocks with Randgold doing particularly well.

Randgold Resources Limited has a market capitalisation of $2.76 billion, a P/E ratio of 45.37 with 76.32 million shares outstanding and trades around 1.0 million shares per day.

Randgold Resources Limited trades on the London Stock Exchange under the symbol of RRS and on the NASDAQ under the symbol of GOLD.

Hang on in there.

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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Gold stocks: Buy, Hold or Sell?

The gold bugs index (HUI) closed at 301.15 with gold just managing to stay above the $800/oz level on Friday. What an aberration! The HUI is down to a level last seen in 2006 when gold was trading just above the $500/oz level.

Since the start of 2006 gold has gained around 60% in value with the stocks lagging behind slightly until this year when they give back about 80% of that gain to register a mere 10% gain for the same period. Its true that the dollar has rallied and the oil price has tumbled which no doubt has thrown a wet blanket over the precious metals sector, but the sell off in the mining sector has been devastating.

As regular readers will know we have been buyers through what we thought was a lacklustre summer season for gold mining stocks but even our most recent purchases have been hit hard over the last month or so. Producers such Yamana, which is down below $9.00 could have been purchased for the same price in early 2006. How a gold producer can trade for the same price when gold is $500/oz or $800/oz is just bizarre. We are either looking at the buying opportunity of a lifetime or there is something dramatically wrong here and we just have not seen it.

This is a gut wrenching pull back that has caused many investors to bail out some with heavy loses. Is it over now? Well we are struggling to see just what could cause the HUI to fall further but we have been wrong before. Its at times like these that we tend to get thrown off our plan and spend a period of time differing and then look back and regret selling our stocks or not buying more when the window of opportunity stared us smack in the face!

As ridiculous as this may this sound we have decided to hold on to what we have and tough it out. We have a small amount of cash remaining in our opportunity fund, enough for say one more purchase then we will be 100% fully invested.

So, for us we will search through this carnage with the view to picking up a quality gold producer at a rock bottom price. After that all we can do is sweat!

Does the same apply to silver stocks? Not quite! If we take a quick look at the silver sector we can see that Hecla mining is trading at the $6.00 level and it too could have been purchased for that very same price in early 2006. However silver has almost halved since it hit a recent high of $21/oz, which makes Hecla’s and other silver producing stock prices a little easier to understand.

These are very difficult and challenging times and its essential that you stay up to date with what is going on in the market. For our latest commentary and trading signals on gold, click here to subscribe to The FREE Gold Prices Newsletter and click here for The FREE Silver Prices Newsletter.

When Gold Sells Off, Think of the Big Picture

When gold, or whatever sector one is invested in, takes a sharp drop it shakes every investor to core. But when drops like what we have seen recently in gold happen, it is crucial to keep the big picture in mind and view these drops as healthy corrections within a major bull market.

This concept is explained in the latest issue of BIG GOLD from Casey Research, and we have posted the article below as we think it is well worth a read, particularly at times like these.


What I Tell Myself When Gold Sells Off
By Jeff Clark
BIG GOLD – Casey Research

Psychologists say decisions aren’t made simply on what you hear from others but also on what you hear in your own inner dialog. With investing, that can be the kiss of death if you let either fear or euphoria dominate the conversation.

So what did you tell yourself this summer when gold plummeted 20% in 5 weeks and most gold stocks lost a third or more of their value? Did the dialog help you make a wise decision?

I’ll tell you what I told myself. When I saw a chart of gold’s mid-summer drop, it looked scary…



…then I told myself to take a longer look at gold’s history.



What I saw is that gold’s recent drop is a blip in the big picture. So I told myself, “Maybe you should relax a little.”

Then I thought about corrections in past gold bull markets. Compared to the historical record, does the recent sell-off look normal? Or is there something about it that suggests our gold bull market is over? Here’s what I found: past bull markets were interrupted by similar drops – and then they came roaring back.



And even within the current bull market, there have been other pullbacks similar to what we’ve just gone through. Gold dropped 21% in the summer of 2006 – but gained 45% by the end of 2007.



So I told myself, “Corrections, including large ones, are normal in bull markets. The sweet stuff is still ahead.”

But enough of charts. What we really want to know is, is the case for gold still intact, or have the fundamentals changed? And the answer, I believe, will give you some compelling things to say if the recent correction has left you arguing with yourself about buying gold.

Think back to mid-July, when gold was pushing higher and was again within spitting distance of $1,000. How did you feel? Were you optimistic? Excited? Of course, and so was I. But what did that optimism have to do with the reasons for gold’s rise? Nothing! You were happy and tingling because gold was moving your way – yet it was rising because inflation was climbing, the dollar had a long-term illness, the government was printing money, banks were failing, falling house prices were threatening the solvency of more lenders, long-term oil supply was dwindling, and the economy was faltering.

Don’t wait for me to ask. Ask yourself: which of those factors have changed in the last 30 days?

If the bull market in gold were over, it would mean that inflation was under control, the dollar’s long-term problems had been solved, the government had become restrained in printing new money, banks were healthy, house prices had stabilized, a surprising new source of energy had been discovered, unemployment was diminishing, and everyone was smiling. That’s not what I see.

So what do I tell myself? “Every fundamental reason that gold is sought as a safe haven is still growing in importance.”

What about gold’s behavior during the economic problems of the 1970s? From December 1974 to August 1976, gold dropped a whopping 48%, even as inflation and the economy’s condition were worsening. We all know what happened next: by the end of 1976, gold climbed 32%. And by January 1980, gold had risen more than 700%.

Today the U.S. inflation rate is 13.4%, almost as high as the worst of the 1970s. Wait, you say, I thought the CPI was 5.6%? According to John Williams of Shadow Stats, measuring inflation by exactly the same methodology the Department of Commerce used in 1980, shows that the true rate is more than double the bogus figures the government is currently publishing. That’s why gas pump and grocery aisle prices are making a mockery of the government’s numbers.

What do I tell myself? “Inflation is out of control and getting worse.”

Even so, gold’s recent reversal was matched by a recovery for the dollar, which the mainstream media attributed to weakness in European economies. With Europe headed for a recession, the dollar’s fall against the euro was over. But are the happy TV faces correct?

First, fundamentals in the U.S. remain weak, especially in the housing and finance industries. In addition, we still depend on borrowing overseas to finance our spending. This will cap the dollar’s gains. Meanwhile, MZM, the broadest measure of the money supply, has grown 16% in the last twelve months. Due to the bloating federal deficit and the big-dollar promises the politicians have made but that the U.S. can’t possibly pay, further rapid growth in the money supply lies ahead. And that means more inflation, which means the dollar’s recovery will turn out to be temporary. And more debasement of the dollar equals higher gold.

What do I tell myself? “The dollar’s ills haven’t been cured. In fact, we haven’t seen the worst of the currency’s decline.”

I interviewed Doug Casey earlier this month and heard the textbook description of a contrarian investor. Doug was reminiscing about how hard it was to get clients to buy gold and gold stocks in the mid-‘70s, how a client even refused to pay for gold stocks he’d just bought, and how the prospects for gold looked bleak to nearly everyone. What did one of the greatest speculators of all time advise?

“You don’t make money buying when you’re optimistic. You have to actually run completely counter to your own emotional psychology. It’s easy to talk about being smart in theory, but extremely tough to apply in practice when it’s real money and you’re scared. But what am I doing now? I’m buying.”

What do I tell myself? “$800 gold is nothing but a buying opportunity. Grab some cash, Jeff, and head to the local coin dealer while it’s still on the SALE! rack.”

We could not agree more, that last statement somes up our opinion of the gold market at the moment. BUY!


Jeff Clark is the editor of BIG GOLD, a newsletter focused on the safest ways to profit from the gold bull market. You can read his 8-page interview with Doug Casey in the August issue, where Doug has much more to say about gold. To position yourself to benefit from what will be the greatest gold bull market in history, try a 3-month risk-free trial to BIG GOLD. Learn more here.

The Casey Report Explains The Building Storm In Gold

In these turbulence times, gold investors can be forgiven for questioning the integrity of the bull market, but in reality nothing has changed. We still believe gold will challenge its previous high and even make a new all time high before rising towards $2000, and it is during painful pullbacks such as this that one should be buying. (Hence our multiple BUY signals recently.)

We are not alone in our bullish on gold and in David Galland’s latest article for The Casey Report, he shares the reasons why gold is still a great buy and what factors are set to propel gold prices upwards.


The Building Storm: Gold, the Dollar and Inflation
By: David Galland

One could hardly fail to notice that gold investors have suffered a little more than a “bit of pain” over the past month. More like a good kicking as gold moved down by about 20% from its recent high of $986 on July 15.

Making assumptions is often a bad idea, but I am going to go out on a limb here and make the assumption that those of you with an interest in gold are concerned over the latest setback, the depth of which has surprised even us.
Don’t be.

The evidence to support that statement would fill a telephone book at this point. Starting with the latest U.S. inflation numbers which, even using the government’s own crooked calculations, rang in the last reporting period at 5.6%. Quoting John Williams of ShadowStats.com from a recent email I received from that organization…

Reported consumer inflation continued to surge on both a monthly and annual basis, once again topping consensus expectations. The July CPI-U jumped to a 17-year high of 5.6% in July, while annual inflation for the narrower CPI-W — targeted at the wage-earners category where gasoline takes a bigger proportionate bite out of spending — annual inflation jumped to 6.2%. The CPI-W is used for making the annual cost of living adjustments to Social Security payments. The 2009 adjustment — based on the July to September 2008 period — remains a good bet to top 5%, more than double last year’s 2.3% adjustment for 2008. Such is not good news for federal budget deficit projections.

Based on William’s calculations, which use the same CPI formula used by the Fed prior to the jiggering of the Clinton years, the actual inflation rate is now running at 13.64%.

And on August 19, we learned that the U.S. Producer Price Index rang in at a month-over-month increase of 1.2%, the third month in a row where that leading indicator has topped the 1% mark. Meanwhile, in Europe, the latest numbers put inflation at a 16 year high. And these are not anomalies, but the norm as the inflation tide continues to rise literally around the world.

Dark Clouds

A good analogy to the global currency devaluation is a slow-moving hurricane that, once over warm water, gains energy.
Right now the global inflation is a huge storm, slowly circling off the proverbial coast where it is gathering strength from the hundreds of billions of dollars being fed into it by governments desperate to avoid economic collapse… and from pricing decisions being made by everyone from manufacturers to local shopkeepers looking to cover rising costs.

At this point the skies are dark, the wind is rising, and the torrential rains are beginning to sweep in. The radio is broadcasting warnings to move to higher ground, but the hurricane has yet to hit the shore.

But when it does, it will be a Category 5 and maybe worse.

That’s because, in addition to the straight-up consequences of the government monetary prolificacy and businesses raising prices to try and stay afloat, there is something else feeding power to the storm… something we have been warning about for years now: the rising odds that the global fiat currency system will fail.

Let me add some nuance to that remark.

In recent years, the global financial community, reflexively looking for an alternative to the obviously damaged U.S. dollar, has settled on the euro. But the euro is equally flawed, and maybe even more so, than the U.S. dollar. Now that the trading herd has also come to that conclusion, they are rushing back toward the dollar.

They are doing so not because the U.S. dollar is healthy, but rather because that is all that they know… a heads-or-tails continuum running something along the lines of “If the ‘it’s-not-the-dollar’ play is over, then it must be time to go back into the dollar.”

The euro sinks, the dollar goes up.

And so gold, viewed by these same traders only in terms of its inverse relationship to the dollar, gets hammered.
What they are missing, but not for much longer, is that rushing back into the dollar is akin to heading for the vulnerable coast, and not to the higher ground now proscribed. They are also missing the point that gold’s monetary value is not limited to protecting only against a failure in the U.S. dollar, but against any faltering fiat currency… a moniker that the euro deserves in spades. Not only is it backed by nothing, but it is also backed by no one.

I hope that the above point is clear, because it is an important one. One way to think about it is to think about Zimbabwe. If you lived in that blighted country and a year ago you could have had an ounce of gold or a wallet full of that country’s failing currency, which would have been the better bet?

The answer, while obvious, is illustrative… because the wealth preservation role that the ounce of gold would have played for a citizen of Mugabe’s paradise had zero connection with how well gold did, or didn’t do, against the U.S. dollar over the period.

A Return to Sound Money

Gold is viewed as tangible money right around the world, and has been for millennia. When the trading herd wakes up to the fact that neither the U.S. dollar nor the euro, nor any other fiat currency, will protect them against the monetary storm that will soon begin tearing the roofs off their cozy offices, they’ll fall all over themselves in the rush for something that will: gold and other tangibles.

Those of you who have been Casey Research subscribers for some time know that the scenario just described is one that we have forecasted for some time. If you think the thing through, precedent to the global monetary crisis, the euro first had to stumble. Well, it now has. The next stage -- and given the volatility of the situation, I don’t think we’ll have to wait long for it – will be the realization that there is no safe fiat currency. It is at that point that the massive hurricane, a crisis of confidence in the entire fiat system, will begin ravaging the global economy in earnest.

The price action of gold and, especially, gold-related investments over the last year, have been frustrating… to say the least. But the scenario now unfolding remains step-by-step in sync with our base case. As such, the best way to view this latest correction in the price of gold is as a temporary setback of no real consequence from an investment perspective (unless you use it as a buying opportunity).

The failure of the euro, on the other hand, is not just important… it is as monumental as it was inevitable.


David Galland is Managing Editor of The Casey Report, the flagship publication of Casey Research. The current edition includes a lead story by Doug Casey on the Inflation/Deflation debate, as well as details on the single most profitable trade you can make in today’s investment environment.

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Agnico-Eagle Mines Ltd and the Golden Cross!

Agnico-Eagle Mines Ltd (AEM) Kinross Gold Corporation (KGC) and Yamana Gold Incorporated (AUY) all have similar chart patterns in that the MACD has recently experienced a golden crossover.



If we look at the chart above of Agnico-Eagle we can see that the black line on the MACD portion crossed over the red line in an upward movement. This is usually a very positive sign for the stock in that we would now expect it to continue heading north. However no signal indicator can be totally relied on to be accurate every time but it does give us some comfort that this stock may have bottomed for now. As regular readers will know we do have some of this gold producers stock and have also recently purchased the January 2009, $60.00 Call Options, so it is a white knuckle ride for us at the moment.

For those share holders who own Kinross or Yamana you can see a very similar pattern emerging on their charts which bodes well for both companies.

At the moment it is difficult for us to see through the economic haze, however it does appear that the rally in the US Dollar is faltering and it will soon be heading south again. The correction in the price oil could well be over too but we will still keep a close on it. We have to say though that the mainstream commentators think the opposite to us on both the dollar and oil.

We have tried this summer to get into position for the rally in precious metals which we believe will challenge and exceed their old highs, with the a series of stock and option purchases. We are almost 100% invested and have maybe one or two trades to implement and then its matter of patience mixed with a little editing.
Hope that you are all set and we wish you every success with own strategy and stock selections.

Agnico-Eagle Mines Limited trades on both the New York Stock Exchange and the Toronto Stock Exchange under the ticker symbol of AEM.

Yamana Gold Incorporated trades as AUY on the NYSE and as YRI in Toronto.
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’
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