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Wednesday
Feb102010

Gold Forms Bullish Declining Wedge Pattern

In recent trading, gold prices appear to have made a declining wedge formation, which is good news for gold bulls since a falling wedge formation after an uptrend usually means a break out to the upside, rather than one to the downside.

Gold Forms Bullish Declining Wedge Pattern

In addition to this, technical indicators such as the MACD, STO and RSI are in oversold territory. So whilst there could still be some sideways action ahead, it appears that the worst of this correction is over and an excellent buying opportunity is upon us.

The question is, how to best play the next leg up in this gold bull market?


For the conservative investor looking for good long term gains, the physical metal is the obviously choice, or a gold ETF if you would rather own the metal that way. However for those chasing a more leveraged position to the gold price, other vehicles that derive their value from gold should be considered.

A popular way to gain this leverage is by taking long positions in gold stocks. Whilst we see merit in some of the quality mid-large cap gold mining companies, we think there is a more efficient way to gain the required leverage on gold and profit from the next gold rally.

We have been using options with great success, and they have performed better than many of our gold stocks. This is down to a few reasons, but generally it is because the value of the options contract is solely determined by what the gold price does. Whereas a gold stock has other factors that influence its value such as the variance in the profitability of projects, quality of management, resource estimates, geopolitical stability and so on. Whilst these factors can sometimes be a positive force, such as extending a resource base or increasing profitability. However the flip side of this is when your favorite gold stocks are hit by a CEO leaving, or geopolitical instability in their mining region, which cause the share price to drop off even if gold is going up. In fact, if gold is on the rise they often fall harder on bad news since traders who are using gold stocks to ride the underlying rally in gold, instantly dump the stock in favour of other gold stocks.

Therefore we are aiming to minimise our exposure to risks such as those stated above, and in return for a more direct and leveraged return on gold, we are prepared to forgo some of the benefits that come with owning a successful mining company. Our key objective is profiting from a rising gold price, not from a successful miner or explorer. So in anticipation of this coming rally, although we are buying positions on some of our favourite gold miners, we are focusing a lot more on options directly on gold in order to get the biggest bang for our buck!

For those interested in Options Trading please click here.


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.

For those readers who are also interested in the nuclear power sector that is currently coming back to life, you may want to subscribe to our Free Uranium Stocks Newsletter, just click here.






Wednesday
Feb102010

An Insider’s View of the Real Estate Train Wreck

Real Estate Crash.JPG


By David Galland, The Casey Report

The first time I spoke with real estate entrepreneur Andy Miller was in late 2007, when I asked him to serve on the faculty of a Casey Research Summit. As John Mauldin, a former faculty member himself, knows, we’re very selective with our speakers. And there was no one in the nation I wanted more than Andy to address the critical topic of real estate.

My interest in Andy was due to the fact that he has been singularly successful in pretty much all aspects of the real estate market, including financing and developing large projects – such as shopping centers, apartment communities, office buildings, and warehouses – from one end of the country to the other. His expertise has also allowed him to build an impressive business providing assistance to large financial institutions that need help in dealing with problem commercial real estate loans. As you might suspect, business is booming.

Back in 2007, however, what most intrigued me about Andy was that he had been almost alone among his peer group in foreseeing the coming end of the real estate bubble, and in liquidating essentially all of his considerable portfolio of projects near the top. There are people that think they know what’s going on, and those who actually know – Andy very much belongs in the latter category.

In fact, he initially refused to speak at our event, only agreeing very reluctantly after I had hounded him for several months. The reason for his refusal, I later found out, was that he had spoken at several industry events before the real estate collapse and had been all but booed off the stage for his dire outlook.

The happy ending of this story is that Andy’s speech at our Summit was a rousing success, and he enjoyed it so much that he has now spoken at several, and has kindly agreed to sit for periodic interviews to keep our readers up to date on the latest developments in this critical sector. So far, Andy’s real estate forecasts continue to come true.

As you’ll read in the following excerpt from my latest interview with Andy, who now spends considerable time each day helping the nation’s biggest banks cope with growing stacks of problem loans, he remains deeply concerned about the outlook for real estate.

David Galland

No one has been more right on the housing market in recent years. So, what’s coming next? Some of the housing numbers in the last few months look a little less ugly. Could housing be getting ready to get well?

MILLER: I don’t think so.

For all intents and purposes, the United States home mortgage market has been nationalized without anybody noticing. Last September, reportedly over 95% of all new loans for single-family homes in the U.S. were made with federal assistance, either through Fannie Mae and the implied guarantee, or Freddie Mac, or through the FHA.

If it's true that most of the financing in the single-family home market is being facilitated by government guarantees, that should make everybody very, very concerned. If government support goes away, and it will go away, where will that leave the home market? It leaves you with a catastrophe, because private lenders for single-family homes are nervous. Lenders that are still lending are reverting to 75% to 80% loan to value. But that doesn’t help a homeowner whose property is worth less than the mortgage. So when the supply of government-facilitated loans dries up, it's going to put the home market in a very, very bad place. 

Why am I so certain that the federal government will have to cut back on its lending? Because most of the financing is done via the bond market, through Ginnie Mae or other government agencies. And the numbers are so big that eventually the bond market is going to gag on the government-sponsored paper.

The public doesn’t have any idea of the scale of the guarantees the government is taking on through Fannie, Freddie, and FHA. It’s huge. If people understood what the federal government has done and subjected the taxpayers to, there would be a public outrage. But you can't get people to focus on it, and it's very esoteric, it's very hard to understand. But it’s not something the bond market won’t notice. The government can’t keep doing what it has been doing to support mortgage lending without pushing interest rates way up.

Refinancings of single-family homes are very interest-rate sensitive. Consumers have their backs against the wall. They have too much debt. Refinancing their maturing mortgages or their adjustable-rate mortgages is very problematic if rates go up, but that's exactly where they’re headed. So anyone who’s comforted by current statistics on single-family homes should look beyond the data and into the dynamics of the market. What they’ll find is very alarming.   
On that topic, recent data I saw was that something like 24% of the loans FHA backed in 2007 are now in default, and for those generated in 2008, 20% are in default, and the FHA is out of money.

MILLER: Fannie Mae had a $19 billion loss for the third quarter of 2009, and they are now drawing on their facility with the U.S. Treasury. We have all forgotten that Fannie and Freddie are still being operated under a federal conservatorship. On Christmas Eve, the agency announced that they were going to remove all the caps on the agencies.

So what about commercial real estate?

MILLER: When I saw what was happening in the housing market, I liquidated all my multifamily apartments, shopping centers, and office buildings. I liquidated all my loan portfolios, and I'm happy I did.

Then it occurred to me in 2005 and 2006 that the commercial world had to follow suit. Why? Because it's a normal progression. Obviously, when single-family homes decline in value, multifamily apartments decline in value. And when consumers hit the wall with spending and debt, that's going to have an impact on retailers that pay for commercial space.

Furthermore, the financing for retail properties had gotten ludicrous. The conduits were making loans that they advertised as 80% of property value when they originated them, but in reality the loan-to-value ratios were well over 100%. And I say that to you with absolute, categorical certainty, because I was a seller and nobody knew the value of the properties that I was selling better than I did. I had operated some of them for 20 years, so I knew exactly what they were bringing in. I knew what the operating expenses were, and I knew what the cap rates were. And, you know, the underwriting on the loan side and the purchasing side of these assets was completely insane. It was ludicrous. It did not reflect at all what the conduits thought they were doing. They were valuing the properties way too aggressively.

I became very bearish about the commercial business starting in late '05. In fact, I think I was in Argentina with Doug Casey, sitting on a veranda at one of the estancias, and he and I were lamenting what was going on in the real estate business, and I said there was going to be a huge adjustment in the commercial market.

Beyond the obvious, that the real estate market has taken pretty significant hits and some banks have been dragged under by their bad loans, what has really changed in real estate since the crash? 

MILLER: I think the first thing that changed was that people learned that prices don’t go up forever. Lenders also saw that underwriting guidelines for commercial real estate loans, especially in the securitization markets, were erroneous. They realized that some of their properties had been financed too aggressively, but still, I don't think even at the fall of Lehman, anybody was predicting a wholesale collapse in commercial real estate.
But they did see they should be more circumspect with loan underwritings. In fact, after the fall of Lehman, they completely stopped lending. I think they realized we had been living in fantasy land for 10 years. And that was the first change – a mental adjustment from Alice in Wonderland to reality. 

Today it's clear that commercial properties are not performing and that values have gone down, although I've got to tell you, the denial is still widespread, particularly in the United States and on the part of lenders sitting on and servicing all these real estate portfolios. People still do not understand how grave this is.

Right now there are an awful lot of banks that do an awful lot of commercial real estate lending, and for about a year now you’ve been telling me that you saw the first and second quarter of 2010 as being particularly risky for commercial real estate. Why this year, and what do you see happening with these loans and the banks holding them?

MILLER: It's an educated guess, and it hasn’t changed. I still think that it's second quarter 2010.
The current volume of defaults is already alarming. And the volume of commercial real estate defaults is growing every month. That can only keep going for so long, and then you hit a breaking point, which I believe will come sometime in 2010. When you hit that breaking point, unless there's some alternative in place, it's going to be a very hideous picture for the bond market and the banking system.

The reason I say second quarter 2010 is a guess is that the Treasury Department, the Federal Reserve, and the FDIC can influence how fast the crisis unfolds. I think they can have an impact on the severity of the crisis as well – not making it less severe but making it more severe. I will get to that in a minute. But they can influence the speed with which it all unfolds, and I’ll give you an example.

In November, the FDIC circulated new guidelines for bank regulators to streamline and standardize the way banks are examined. One standout feature is that as long as a bank has evaluated the borrower and the asset behind a loan, if they are convinced the borrower can repay the loan, even if they go into a workout with the borrower, the bank does not have to reserve for the loan. The bank doesn’t have to take any hit against its capital, so if the collateral all of a sudden sinks to 50% of the loan balance, the bank still does not have to take any sort of write-down. That obviously allows banks to just sit on weak assets instead of liquidating them or trying to raise more capital.

That's very significant. It means the FDIC and the Treasury Department have decided that rather than see 1,000 or 2,000 banks go under and then create another RTC to sift through all the bad assets, they’ll let the banking system warehouse the bad assets. Their plan is to leave the assets in place, and then, when the market changes, let the banks deal with them. Now, that's horribly destructive.


Just to be clear on this, let's say I own an apartment building and I've been making my payments, but I'm having trouble and the value of the property has fallen by half. I go to the bank and say, "Look, I've got a problem," and the bank says, "Okay, let's work something out, and instead of you paying $10,000 a month, you pay us $5,000 a month and we’ll shake hands and smile." Then, even though the property’s value has dropped, as long as we keep smiling and I’m still making payments, then the bank won't have to reserve anything against the risk that I’ll give the building back and it will be worth a whole lot less than the mortgage.

MILLER: I think what you just described is accurate. And it’s exactly a Japanese-style solution. This is what Japan did in '89 and '90 because they didn’t want their banking system to implode, so they made it easier for their banks to sit on bad assets without owning up to the losses. 
And what’s the result? Well, it leaves the status quo in place. The real problem with this is twofold. One is that it prolongs the problem – if a bank is allowed to sit on bad assets for three to five years, it’s not going to sell them. 

Why is that bad? Well, the money tied up in the loans the bank is sitting on is idle. It is not being used for anything productive.

Wouldn’t banks know that ultimately the piper must be paid, and so they'd be trying to build cash – trying to build capital to deal with the problem when it comes home to roost?

MILLER: The more intelligent banks are doing exactly that, hoping they can weather the storm by building enough reserves, so when they do ultimately have to take the loss, it's digestible. But in commercial real estate generally, the longer you delay realizing a loss, the more severe it’s going to be. I can tell you that because I'm out there servicing real estate all day long. Not facing the problems, and not writing down the values, and not allowing purchasers to come in and take these assets at discounted prices – all the foot-dragging allows the fundamental problem to get worse. 

In the apartment business, people are under water, particularly if they got their loan through a conduit. When maintenance is required, a borrower with a property worth less than the loan is very reluctant to reach into his pocket. If you have a $10 million loan on a property now worth $5 million, you’re clearly not making any cash flow. So what do you do when you need new roofs? Are you going to dig into your pocket and spend $600,000 on roofing? Not likely. Why would you do that?

Or a borrower who is sitting on a suburban office property – he's got two years left on the loan. He knows he has a loan-to-value problem. Well, a new tenant wants to lease from him, but it would cost $30 a square foot to put the tenant in. Is the borrower going to put the tenant in? I don't think so. So the problems get bigger.

Why would the owner bother going through a workout with the bank if he knows he’s so deep underwater he’s below snorkel depth?

MILLER: It's always in your interest to delay an inevitable default. For example, the minute you give the property back to the bank, you trigger a huge taxable gain. All of a sudden the forgiveness of debt on your loan becomes taxable income to you. Another reason is that many of these loans are either full recourse or part recourse. If you're a borrower who’s guaranteed a loan, why would you want to hasten the call on your guarantee? You want to delay as long as possible because there’s always a little hope that values will turn around. So there is no reason to hurry into a default. None.

So that’s from the borrower's standpoint. But wouldn’t the banks want to clear these loans off their balance sheets? 

MILLER: No. The banks have a lot of incentive to delay the realization of the problem because if they liquidate the asset and the loss is realized, then they have to reserve the loss against their capital immediately. If they keep extending the loan under the rules present today, then they can delay a write-down and hope for better days. Remember, you suffer if the bank succumbs and turns around and liquidates that asset, then you really do have to take a write-down because then your capital is gone.
 
So here we are, we've got the federal government again, through its agencies and the FDIC, ready to support the commercial real estate market. They’ve taken one step, in allowing banks to use a very loose standard for loss reserves. What else can they do?

MILLER: Well, obviously nobody knows, but I can guess at what’s coming by extrapolating from what the federal government has already done. I believe that the Treasury and the Federal Reserve now see that commercial real estate is a huge problem.

I think they’re going to contrive something to help assist commercial real estate so that it doesn’t hurt the banks that lent on commercial real estate. It’ll resemble what they did with housing.

They created a nearly perfect political formula in dealing with housing, and they are going to follow that formula. The entire U.S. residential mortgage market has in effect been nationalized, but there wasn’t any act of Congress, no screaming and shouting, no headlines in the Wall Street Journal or the New York Times about "Should we nationalize the home loan market in America." No. It happened right under our noses and with no hue and cry. That's a template for what they could do with the commercial loan market. 

And how can they do that? By using federal guarantees much in the way they used federal guarantees for the FHA. FHA issues Ginnie Mae securities, which are sold to the public. Those proceeds are used to make the loans.

But it won’t really be a solution. In fact, it will make the problems much more intense. 
Don’t these properties have to be allowed to go to their intrinsic value before the market can start working again?

MILLER: Yes. Of course, very few people agree with that, because if you let it all go today, there would be enormous losses and a tremendous amount of pain. We're going to have some really terrible, terrible years ahead of us because letting it all go is the only way to be done with the problem. 

Do you think the U.S. will come out of this crisis? I mean, do you think the country, the institutions, the government, or the banking sector are going to look anything like they do today when this thing is over?

MILLER: I know this is going to make you laugh, but I'm actually an optimist about this. I'm not optimistic about the short run, and I'm not optimistic about the severity of the problem, but I'm totally optimistic as it relates to the United States of America.

This is a very resilient place. We have very resilient people. There is nothing like the American spirit. There is nothing like American ingenuity anywhere on Planet Earth, and while I certainly believe that we are headed for a catastrophe and a crisis, I also believe that ultimately we are going to come out better.

Andy Miller is the co-founder of the Miller Frishman Group (www.millerfrishman.com), which includes three companies serving different sectors of the real estate market – from mortgage brokerage and banking, to the building, management, and marketing of commercial real estate across the United States. His firm is currently deeply involved in the distressed real estate business, assisting lenders across the nation with their growing portfolios of non-performing loans.

Real estate crashing, unemployment rising, sky-high government debt – is there any silver lining in all of this? There is, and the editors of The Casey Report are pros in locating it. Analyzing tomorrow’s mega-trends and finding the best opportunities to profit from them is what they do. Learn how these expert trend hunters can help you make money even in the toughest crisis… click here.





All the best.

Got a comment then please add it to this article, all opinions are welcome and appreciated.

For those interested in Options Trading please click here.


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
Feb092010

Agnico-Eagle Mines Limited Call Options Up 18% in 18 Days

AEM logo 20 feb 09.JPG

On January 25th, 2010, we purchased more stock of Agnico-Eagle Mines Limited (AEM) at an average price of $53.24 and we also acquired a few Call Options and they are the MAY 2010 series at a strike price of $60.00, symbol AEMEL for which we paid a price of $2.85 per contract. At the close of trading in NYC today the last price for these Options was $3.40 so we finished in positive territory by about 18%.

The stock is up slightly since we made this purchase and closed at $54.61 today (up 4.44% today) in response to gold prices climbing to around $1075.50 as we write. It is important that gold trades above this level for the next week or so to give us some confirmation that it is indeed heading much higher. We will do more on the charts later.

On our silver-prices site we recently wrote the following:

Sticking our necks out we don’t expect to see the dollar go much higher than ‘80′ however as the broader market sells off the dollar strengthens. As a currency we think that its future is bleak, but the alternative currencies especially the Euro appear to be performing just as badly with problems in Greece and Spain grabbing the headlines. As currencies go its a race to the bottom with the occasional upward spike to keep us all on our toes.

Fortunately the dollar has come down a tad from Fridays high of 80.60 on the US Dollar Index to trade at 79.78 as we write.

Gold is still a ‘dollar’ play so keep at least one eye on it.

We have also placed a trailing stop at $0.40 in order to protect ourselves and lock in a small profit should things turn to custard.



All the best.

Got a comment then please add it to this article, all opinions are welcome and appreciated.

For those interested in Options Trading please click here.


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.

For those readers who are also interested in the nuclear power sector that is currently coming back to life, you may want to subscribe to our Free Uranium Stocks Newsletter, just click here.





Tuesday
Feb092010

Randgold Resources Limited: Bought a few Call Options

Randgold chart 09 Feb 2010.JPG



Having trailed our intentions regarding Randgold Resources Limited (GOLD) today we decide to pick up a few Call Options and they are the June 2010 series with a strike price of $75.00 (GUD Jun 19 '10 $75 Call) and we paid $5.50 per contract for them. Todays trading range was between $5.30 and $5.50 per contract.

We have made this purchase in anticipation of gold prices steadying and then making some headway in a northerly direction. If and when this happens Randgold should respond accordingly with some decent gains.

Taking a quick look at the chart we can see that Randgold has taken tea with its 200dma having dropped from a recent high of $86.00 to trade at $67.85. The technical indicators are in the oversold zone which suggests a bounce back, hopefully soon.

Randgold Resources Limited has a market capitalization of $6.11 billion, a 52 week trading range of $40.41 to $90.30, a P/E ratio of 114.65 with an average volume of 1.0 million shares traded.

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

Have a sparkling day.

Your thoughts are of course most welcome.

Got a comment then please add it to this article, all opinions are welcome and appreciated.

For those interested in Options Trading please click here.


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.

For those readers who are also interested in the nuclear power sector that is currently coming back to life, you may want to subscribe to our Free Uranium Stocks Newsletter, just click here.





Tuesday
Feb092010

An $8bn bet against Euro

euro.JPG

Thats a fair old bet which reflects the markets view of the Euro, should the Euro continue to go down the dollar could well be the beneficiary and gold could lose out. However, the Euro has taken a dive lately and sooner or later all this news about Greece etc, must get baked into the cake making a Euro bounce a possibility.

This is an extract from the FT on the matter:

Traders and hedge funds have bet nearly $8bn (€5.9bn) against the euro, amassing the biggest ever short position in the single currency on fears of a eurozone debt crisis.

Figures from the Chicago Mercantile Exchange, which are often used as a proxy of hedge fund activity, showed investors had increased their positions against the euro to record levels in the week to February 2.

The build-up in net short positions represents more than 40,000 contracts traded against the euro, equivalent to $7.6bn. It suggests investors are losing confidence in the single currency’s ability to withstand any contagion from Greece’s budget problems to other European countries.

Thomas Stolper, economist at Goldman Sachs, said: “ Behind this intense focus on Greece obviously is the long-standing unresolved issue of how to enforce fiscal discipline in a currency union of sovereign states.”

To read the whole article please click here.

So there you have it.


Got a comment then please add it to this article, all opinions are welcome and appreciated.

For those interested in Options Trading please click here.


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.

For those readers who are also interested in the nuclear power sector that is currently coming back to life, you may want to subscribe to our Free Uranium Stocks Newsletter, just click here.





Monday
Feb082010

Randgold Resources Limited: A Record Year

Randgold logo.JPG


The latest news release from Randgold Resources Limited (LSE: RRS) (Nasdaq: GOLD) one of our favourite gold producers is good news indeed as the following excerpt reveal:

Randgold crowned a year in which it expanded its flagship Loulo operation, progressed the development of a new mine at Tongon, advanced two major new discoveries and completed the Moto acquisition by posting a 79% year-on-year profit increase on the back of record production at Loulo.

Randgold results for 2009, published today, show a profit of US$84.3 million (2008: US$47 million) for the year. The fourth quarter profit of US$38.7 million was up 185% quarter-on-quarter and 315% up on the corresponding quarter in 2008. Given the profit increase, the board increased the annual dividend by 30% to 17 US cents per share. The company’s balance sheet remains strong, with US$590 million in cash and no net debt.

Attributable group gold production for the year was up 14% at 488 255 ounces, boosted by a strong fourth quarter performance from Loulo, where the recently completed plant expansion significantly increased throughput. Loulo’s production for the year was 351 591 ounces (2008: 258 095 ounces), of which 106 564 ounces came in the last quarter. The Morila joint venture - successfully converted to a stockpile retreatment operation at the beginning of 2009 - produced 341 661 ounces, slightly higher than forecast due to better than planned recoveries and grade.

Chief executive Mark Bristow commented as follows:

“The year ahead is going to be another testing one, in which we aim to increase production at Loulo further, pour first gold at Tongon and progress the Kibali, Massawa and Gounkoto projects. We’ll also be maintaining our strong focus on the exploration programmes which have already delivered so much and will continue to be the main driver of our organic growth.”

To read the news release in full please click here or alternatively you can watch Mark Bristow on BNN discussing earnings, cash costs and the future, please click here.



Got a comment then please add it to this article, all opinions are welcome and appreciated.

For those interested in Options Trading please click here.


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.

For those readers who are also interested in the nuclear power sector that is currently coming back to life, you may want to subscribe to our Free Uranium Stocks Newsletter, just click here.





Sunday
Feb072010

Dear Comrades In Golden Arms

Jim Sinclair.JPG

Jim Sinclair of jsmineset.com sent us this missive this morning about the attack on currencies that is currently unfolding before our very eyes.

1. Bretton Woods was folded.
2. The floating exchange rate system is about to be folded.
3. By default or design we are going to a one-world currency and a one-world central bank of central banks.
4. For Portugal, Ireland, Italy, Greece or Spain to break off from the euro would be an expansion of the floating exchange rate system under present conditions.
5. There are presently 3 major currencies. That is the US dollar, the euro and gold.
6. The SDR was an attempt to form a single reserve currency that never took flight.
7. The SDR is an accounting unit made up of an index of currencies much like the USDX.
 
There is no immunity now from the size of funds seeking to speculate or manipulate markets. This type of money is attacking the debt of the weaker euro states by intention or coincidence. Their success in the Iceland situation was only the first chapter of a multi chapter play.
 
Central bankers fear that this type of action, most certainly if it is as successful as it was on Iceland, succeeding against the weaker euro states could easily attack the present functional reserve currencies, the US dollar and the euro.
 
There is an implicit fear that if the ECB refuses to or cannot sustain the debt of Portugal, Ireland, Italy, Greece and Spain the next to fall will be both the US dollar and the euro.
 
The states of the US are no different, in form or short opportunity, than weak members of the euro. Already major money is short California, New York and Pennsylvania debt. A pounding of state debt is as easy as the pounding of the weaker members of the euro.
 
Attack of a currency is primarily an attack of the debt representing that currency.

To read the article in full please click here.




Got a comment then please add it to this article, all opinions are welcome and appreciated.

For those interested in Options Trading please click here.


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.

For those readers who are also interested in the nuclear power sector that is currently coming back to life, you may want to subscribe to our Free Uranium Stocks Newsletter, just click here.





Sunday
Feb072010

NovaGold Resources, Randgold, Agnico-Eagle and Kinross Gold

NovaGold Logo.JPG


One of our readers wrote and asked us is NovaGold Resources (NG) is undervalued so we took a quick look and compared their performance with that of Randgold Resources Limited (GOLD), Agnico-Eagle Mines Limited (AEM) and Kinross Gold Corporation (KGC).

First up we have to say that we are not on top of NovaGold Resources Incorporated (NG) in terms of knowledge and familiarity so we would appreciate any comments/insights that you may have, if for instance, you are a big fan and know the company well enough to add your two cents worth.

We will start with some comments received from one of readers who met up with NovaGold last week at the Orlando Money Show:

I had a chance to speak with IR for NG last week at the Orlando Money show. I ran their reserves with 160 / 30 / 20 and get a value of gold as B$2.9 compared to a market cap of B$1. Note that:

- These numbers assume no value for 9 B lb of CU and 3.5 B lb of ZN.
- The properties are in Alaska and Canada, with much lower political risk.
- They have deep pocket partners, so I am thinking that financing risk is average or less than average.

- The non Gold metals should bring the cost to produce way down and make them a very very low cost producer.

The 3 to 1 difference would be reasonable to me if this was a higher risk play, but I don’t see it. Am I missing something or is this just under valued?

Comment by BC — February 7, 2010


Our thanks and gratitude go to BC for taking the time to share this information with us it is very much appreciated. This comment was added to the recent article 'What’s a Company’s Gold Worth?'

At first glance it reads well and could be well worth a punt however when we compare NovaGold's performance to other gold producers it appears to be perfoming very well over the short term but not so good over the long term.

The following two charts compare NovaGold with Randgold Resources Limited (GOLD) Agnico-Eagle Mines (AEM) and Kinross Gold (KGC) over a one period and a six year period.

NG Chart 1 year 07 Feb 2010.JPG



NG Chart for 6 years 07 Feb 2010.JPG

Over the last year or so NG has been on a roll and outperformed the other stocks by a long way, however, over the last 6 years or so, NG has lagged behind the other stocks showing very little in the way of price performance. It is perhaps worth noting that Donlin Creek’s gold production, a flagship NovaGold project, has costs pegged at $394 an ounce in the first five years of operation.


This could be a true aberration and a wonderful opportunity to cash in as NovaGold plays catch up but the lack of performance over the longer run is worrisome. There maybe reasons for this that we are just not aware of at the moment, so please feel free to enlighten us.

Conclusion: We might be missing something too and stand to be corrected, but for now its not for us, we would need to do a lot more work to thoroughly understand these inconsistencies and ensure that NG has turned the corner and not just spent its 15 minutes in the sun.

NovaGold Resources Incorporated trades on the AMEX under the symbol of NG, has a market capitalization of $1.03 Billion, a 52 week high of $6.98 and 52 week low of $2.11 with 184.70 million shares outstanding.


All the best if you do decide to go with it.

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Saturday
Feb062010

Gold remains a Dollar Play

USD Chart 05 Feb 2010.JPG

The inverse relationship between gold and the dollar remains intact as the improvement in the dollar has knocked gold back. The question now is just how much further can the dollar climb.


Taking a quick look at the chart of the US Dollar we can see that the USD has gained around 8% since hitting its low in December 2009 and that the technical indicators are now in the overbought zone with the RSI crossing above the '70' level to stand at 74.76. Of course the dollar can always go a lot further as being liquid in these times of uncertainty does have an attraction.

However, this gold bull is up and running and not to be involved will prove to be costly in the future as it makes new all time highs. Nothing has really changed in terms of the fundamentals and paper money will continue to lose its value as each government continues to magic it out of thin air.

Sooner or later one of these countries will default on its debt and if the white Knight does not appear it will signal the end to the way most people think about investment, savings, true value, etc. And what could a white knight offer, yes thats right, some more electronic currency as worthless as the last lot.

Stick with the PMs.


All the best.

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Friday
Feb052010

PM Stocks Fight Back with a 5.28% gain on the HUI

HUI Chart 06 Feb 2010.JPG

So far this year the stocks have performed abysmally so todays bounce came as some relief as the HUI was down around 26% since its recent peak. Gold and silver have both had a hard time to say the least and many investors who have been running tight stops have seen their positions closed out.

Gold traded down and below the all important support level of $1050/oz intraday, but managed to climb back and close at $1065.60, nerve jangling stuff and not for the fainthearted. Is this correction over yet? No-one really knows for sure, at such a micro level of analysis it is always extremely difficult to get it right on a day by day basis, however we must make the best of what we know and hit the buy and sell buttons accordingly.


Back to the HUI, the technical indicators suggest that it is now oversold with the RSI hitting '30' and bouncing back, the STO and the MACD are also turning in the stocks favour. For what it is worth we think that this dip is worth buying, but as always go gently.

Thanks for the all the emails that you have sent us and please accept our apologies if we have not replied to you as we are unable to get to all of them. We will try and respond to the comments in the comments box as and when we can.

For those who followed us into Agnico-Eagle when we bought both the stock and some Call Options the old buzzard did well today gaining 7.52%, not bad for a company with a market capitalization of $8.48 billion, who says the mid caps cant fly. The Calls put on 50% to catapult us back into the green with an overall gain of about 17% on this trade. (the MAY 2010 series at a strike price of $60.00, symbol AEMEL for which we paid a price of $2.85 per contract. At the close of trading in NYC today the closing bid stood at $3.35 and asking price was $3.45.)


All the best.

Got a comment then please add it to this article, all opinions are welcome and appreciated.

For those interested in Options Trading please click here.


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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