By Trace Mayer, on December 20th, 2011
Few assets are as volatile as BitCoins have been. Over the past 365 days they have ranged from about $0.05 to over $30. After a solid consolidation BitCoins have now broken out and the next upleg appears to have appeared with a 35% rise in the past 10 days.
BitCoin makes this payment efficiency possible because it is based on cryptographic protocol where its security is grounded in the laws of mathematics not laws of men which may or may not be enforced profitably.
THE BITCOIN RANGE
Back in June 2011 I wrote about how I supposedly missed the trade of the year where I could have “with a completely non-levered investment that would have turned [$5,000] into slightly over $550,000 in 8 months. $550,000 in a completely anonymous account with neither a paper or audit trail nor a 1099 and the asset would have been purchased with $5,000 of physical cash.”
Some say hindsight is 20/20, but I do not think so, because it still takes the gathering, analyzing and understanding of the data before one can get a picture and sense of what has happened. Before there were no data points to use in predicting the sustainability of the unsustainable BitCoin upleg. But this time around we can make slightly more grounded prognostications.
Filtering out the daily noise of the markets is essential if one is going to hone in on the signal. One of my favorite tools to accomplish this is the simple 200 day moving average. Taking into account almost seven months of data it is long enough to filter out daily noise, like the MF-Global or MyBitCoin fiascoes, but still close enough to capture the general trend of long-term secular markets, whether bullish or bearish. To derive a relative price I take the current price divided by the 200 day moving average.
In BitCoins case we now have a tremendous upleg and crash in the history books. An analysis of the data reveals the low end of the relative price is around 0.35x (cheap) while the high end was about 12x (expensive).
To create the organized cryptographic hash required energy which had value in the market.
BITCOINS PROVIDE UTILITY AND ARE VALUED
BitCoins are a decentralized peer to peer digital currency. They are the most efficient and safest form of currency I am aware of. Sure, they have neither the intrinsic value nor depth of volume like gold but they are still harmonious with the regression theorem. To create the organized cryptographic hash required energy which had value in the market just like gold had value in the market for jewelery before it acquired additional value from its utility from moneyness and currency applications.
For example, I was reading a blog which recommended the application Total Finder. Total Finder allows one to open multiple tabs in the Mac Finder which makes dragging, dropping or locating folders and files much easier. It is a feature that should be built into the OS but is not so a creative entrepreneur saw a market need and filled it.
I immediately recognized that this application would save me time and decided to purchase it. The price was $18 and it is available in the Apple store. Then I did a Google search for “Total Finder bitcoin” and found the author’s article Trade Total Finder for BitCoins. As expected there was a discount, 50%. Why is that?
Because the current payment systems are too expensive. Apple takes 30%, the credit cards and processors take 1-7% and require the identity of both the buyer and seller along with sales and income taxes which are much easier to enforce plus your accounts can be arbitrarily frozen like with the Wikileaks banking blockade. By removing all these middlemen moochers and looters from the transaction both parties are better off with a 50% discount in price.
BitCoin makes this payment efficiency possible because it is based on cryptographic protocol where its security is grounded in the laws of mathematics not laws of men which may or may not be enforced profitably.
I think everyone should hold some BitCoins, perhaps at least 0.1% of their net worth, in their portfolio.
BITCOIN VOLUME HAS INCREASED TREMENDOUSLY
The rise in BitCoin’s exchange rate has surprised me. First, BitCoins are currently being inflated at approximately 42% per year. That is quite the increase in the currency supply. Second, early adopters are sure to control tremendous amounts of BitCoins and I would think they would be divesting themselves as the market would bear without sinking the price too drastically and third the BitCoin economy is still in its infancy.
Over the last six months I have watched the average transactions in the public block explorer grow to about $1 million per day. The exchanges have increased their trading volume from about 40,000 coins per day to approximately 200,000 on 19 Dec 2011. With about 8 million BitCoins in circulation there is plenty of volume to provide a bid for any early adopters who decided to disgorge large amounts of coins.
BitCoin is an illusion like the FRN$, Euro or Yen. The market is deep enough that I would place it in the cash portion of your balance sheet. Additionally, if you take the proper steps it is the most portable money ever. For that element of safety and liquidity therefore I think everyone should hold some BitCoins, perhaps at least 0.1% of their net worth, in their portfolio.
CONCLUSION
Watching this breakout and ensuing upleg in BitCoins is going to be exciting. Since the last rally in June there have been real life applications developed from mobile payments to massive online stores with hundreds of thousands of items, entrepreneurs have stepped in to accept BitCoins as payment, the client has been greatly improved, exchange security has been enhanced, with proper privacy hygiene your cryptographic hash is more secure than even a gold coin and more people understand what BitCoins are, how they work and why they want some.
Taking the current price of $4.00, the 200 day moving average of about $8.50 and extrapolating this upleg with a 12x 200dma top we could see a price of around $80.00 per BitCoin. Is this speculative? Yes. Would I bet on seeing $80 per BitCoin by around June or July? Maybe if the odds are around 5%. But I would take a bet for BitCoins to hit $7.50 by June or July at around a 50-70% probability.
So, if you want to buy any Run To Gold products using BitCoins just contact me and we can make a deal with a substantial discount. If you need a place to get any BitCoins then I recommend the Tradehill exchange.
By The Gold Report, on November 21st, 2011
 Every investor knows that it’s hard to time the market. But Ron Struthers, editor of Struthers’ Resource Stock Report and a 25-year investment veteran, has been able to weave his way in and out of the market with aplomb this year. In this exclusive interview with The Gold Report, Struthers tells what he’s seeing in his technical analysis that is signaling it’s time to buy back in after selling off many gold equities in April.
The Gold Report: Ron, you said in your report that you’re buying back most of the equities you sold in April. Why is it time to get back into the market?
Ron Struthers: Most of these stocks have been valued at $1,100/ounce (oz) of gold. They’re not pricing the rise in the price of gold at all yet. There’s a disconnect or disbelief in the market.
Precious metal stocks have corrected way too far, to valuations we have not seen since the 2008 credit crisis. Following that crisis our average yearly return on my precious metal picks was 155% in 2009 and 99% in 2010. I see this opportunity again.
TGR: Is that because the market is expecting the price for gold to come down?
RS: That is the expectation, of course not among a lot of the goldbugs, myself included. Some see higher prices, but the general view of the mainstream investment community is the gold price is expected to come down. It is seen by them as rising too far, they do not understand what influences the gold market, and they mostly hear that it is another bubble.
TGR: Canaccord Research uses a sentiment indicator based on insider trading tracking by INK Research. The sentiment indicator uses a ratio of companies with buy-only transactions from insiders divided by companies with sell-only transactions from insiders over 30-day and 60-day periods. Some recent results from the sentiment indicator look quite positive.
RS: Insiders typically know best because they’re running the companies, so it’s always positive when there is more insider buying. I like the sentiment indicator ratio. A lot of companies have insiders buying and selling, which produces a clouded picture. By using the ratio of buy-only to sell-only, it gives a clearer picture of what insiders are doing. I don’t necessarily say they time the market that great, but it’s another positive sign that the insiders think the stocks are too cheap.
TGR: Are there more insiders buying than selling across the board?
RS: That’s what that ratio is saying in regard to precious metal stocks: Insiders are buying more aggressively into the market; they see the best place to put their cash is in these companies.
TGR: You rely heavily on market charts to time your investment decisions. What charts do you rely on most?
RS: I always look at the broad-based market by using the S&P 500. Then look at the PHLX Gold/Silver Sector index (XAU:NASDAQ) and the AMEX Gold Bugs Index (HUI:NYSE). I also track the TSX Venture Exchange, which is a good benchmark for the junior resource market.
TGR: What key things are those charts telling you right now?
RS: They’ve all come down a fair bit. The S&P had a nice run from a bounce off support around 1,100 points in early October, but it has pulled back. That market is in a sideways pattern, which is just fine for gold equities. Steep sell offs in the general equity market have often in the past been negative for gold equities, so I watch this and for signs that gold stocks are breaking free from the influence of the general market.
The AMEX Gold Bugs Index had a breakout to a new high over 600 points about two months ago. What I’ve noticed on the AMEX Gold Bugs Index is that the gold stocks have not been going down with the market every time. They’ve been holding or rising. They’re bucking the trend, which is a really positive indicator. For example, at the end of October, the S&P sold off big two days in a row while the AMEX Gold Bugs Index bounced back the second day, completely recovered by the third day and went on to much higher levels from the selloff while the S&P has yet to recover to its previous October high.
The Venture Exchange had quite a correction from about 2,400 to 1,350 points. The juniors corrected much further than the senior and midtier golds. In September, the Venture Index was at its high from last year, about 1,750 points, a support level, and then there was a big sell-off in gold at the end of September as the gold price was knocked down about $300/oz with central bank Intervention. The index also took a quick, sharp drop on that sell-off in gold. That really hammered a bottom into that market, down to 1350. Since then, it’s rallied up a fair bit, but I’m still looking for about another 200 points. I’d like to see it get over 1,800 to be sure that it’s in a new bull move for the juniors. That would be a higher high, above the level where it fell from in September.
TGR: Is that what you’re anticipating?
RS: Yes, but I want to see proof or confirmation that it happens. I want to see a move in that index. That will seal the case that it’s going much higher. But if it gets to that 1,800 level and isn’t able to go through that, I might take a more conservative stance on the junior market, lighten up a bit, and go more to cash.
TGR: What did you notice in April that caused you to start liquidating your portfolio?
RS: The biggest influence on my decision to time the selling then was the price of silver. It was having a very strong move. I figured silver wanted to get to that $50/oz mark, which was the old historic high, but would then see a good correction. It moved up so strongly and so fast, so a good correction would be normal. Gold and silver equities had both been strong up to that point, the TSX Venture Index had a 1,000-point rally, the Amex Gold Bugs Index 200 points, so my feeling was silver was going to have a peak in the intermediate term when it reached that $50/oz mark and its correction could be a catalyst for a good correction in both silver and gold stocks.
TGR: You noted over the summer that some strength was coming back into the gold price. Why didn’t you jump back in then?
RS: Actually, we were starting to buy back in during July and August, just not that aggressively. I was looking for a bottom around then, but in hindsight the bottom came later. We’ve started buying more aggressively these last couple of months. It’s always difficult to time the market exactly.
TGR: There are a lot of concerns about sovereign debt problems in Greece and Italy. In a Nov. 2 research report you said, “Greece deserves to go bankrupt and will go bankrupt in time along with all of Europe followed by Great Britain and the U.S.” That’s a bit extreme. Some well-known economists believe that there may not be any bankruptcies necessarily, but there could be 20 years of static growth.
RS: Europe is prolonging this in the hopes that the economies will pick up, tax revenues will grow again and things can continue as they always have. The real problem is simply too much debt and the debt problem can’t be fixed by adding more debt. The only way to fix that problem is to settle the debt, liquidating to pay down and/or restructure defaulting on some or all of the debt as what happens in a bankruptcy.
In the case of Greece, it’s not called a bankruptcy, but when debt holders accept pennies on the dollar or, in the Greece case thus far, 50% on your bonds, it is basically a default or like a bankruptcy agreement. At 50%, this is still not enough and will not work; even with rosy projections the Greece debt will be back up to 120% of GDP in a few years. Assuming this agreement goes through, it will default again and more debt will be defaulted on; in the end it will probably work out that bond/debt holders receive closer to $0.20 on the dollar. Call it what you like, I say bankruptcy.
This excessive debt problem, either way too much sovereign debt like Greece or too much private debt like we have seen in the U.S.—and a combination of the two—is a problem around the world, including most of Europe, Ireland, Britain, Japan and the U.S. All this debt will be defaulted on within the next several years.
The U.S has not resolved the debt problem that came to light in 2008. It has basically moved the bulk to the Fed balance sheet. The U.S. has 50 states and many of them have a larger GDP than Greece and just as bad of a debt problem. Perhaps the U.S. has 25 Greece-like problems yet to deal with, on top of the private sector debt problem and eventually a sovereign debt problem because it will keep piling on $1+ trillion Federal debt a year, as long as the bond market allows it. In other words, it is just like a ticking clock with a too short fuse.
TGR: What are some of your favorite companies?
RS: With the seniors, I more or less have kept them on my list a long time. I don’t trade them much. I like Goldcorp Inc. (G:TSX; GG:NYSE) and Barrick Gold Corp. (ABX:TSX; ABX:NYSE). Goldcorp is one I haven’t had on my list for quite a while, but I added Barrick back on last year. Barrick took the hit writing off its hedge book and has some big new mines coming onstream, so I expected cash flows and earnings would rise. Barrick’s latest quarter showed that, and the stock now pays over a 1% dividend yield, but like most gold stocks, it has yet to show much of this in the share price.
I also like Agnico-Eagle Mines Ltd. (AEM:TSX; AEM:NYSE). In silver, there’s Pan American Silver Corp. (PAA:TSX; PAAS: NASDAQ). I Iike First Majestic Silver Corp. (FR:TSX; AG:NYSE; FMV:Fkft) as more of a senior producer as well.
TGR: Earlier this year, Pan American had production guidance of 23–24 million ounces (Moz) of silver. It revised that around the middle of the year to about 22.5 Moz. Nonetheless, its third-quarter profit was $0.49/share or $52.5 million (M). It’s getting unprecedented revenue. Is that sustainable?
RS: I think so because the silver price has come down and has been in a sideways pattern, so it has really built a base now at higher levels. I think it will be moving higher with just the strong growing demand from the solar industry, and then there is the growing demand as a currency or investment, the poor man’s gold. That is obviously going to help all of these producers. What I find with Pan American, and some other more senior stocks, is that they are under-owned. From various analysis I have seen, total investment funds have less than a 1% allocation in precious metals. Once buyers come back into the market, these are among first things the funds are going to buy in the underweight sector. Meaning Pan American is a go-to silver stock that a lot of those funds would buy.
TGR: Would you purchase Pan American over Silver Standard Resources Inc. (SSO:TSX; SSRI:NASDAQ)?
RS: I would have to compare the two charts, but they’re both major silver producers that funds would consider in the silver market. Both have been way oversold compared to action in the silver price.
TGR: Some of the senior companies are having record quarters in terms of free cash flow. What do you like about these companies on a long-term basis?
RS: With the seniors, I’m always looking for a good pipeline of new projects coming on so there will be growth in gold production. That way there is not only the valuation rise on the price of gold, but increasing production. That’s one thing I liked about adding Barrick back on. It has some new mines coming on, like Donlin Creek and Cerro Casale. Kinross Gold Corp. (K:TSX; KGC:NYSE) is another one I have on my list for that reason. It has a few new mines coming onstream, the Tasiast project, Fruta del Norte, Lobo-Marte and Dvoinoye.
TGR: Do you think some of the intermediates and the senior producers will merge or suggest takeovers?
RS: Yes. I’m expecting to see more activity there. It’s getting harder to build and find producing mines. Especially with these valuations, it’s much easier just to buy them on the stock market. I think there will be increased merger activity in the next several months.
TGR: It’s interesting, too, when you look at a company like Agnico-Eagle—its executives Sean Boyd and Ebe Scherkus are not young men anymore. You have to wonder about their long-term appetite for this game at this point.
RS: That’s a widespread problem in the industry. Not a lot of young people are coming up. There’s definitely a shortage of those skill sets, another reason that mergers might make more sense.
TGR: What about some intermediate producers on your list, Ron?
RS: I have a number there that I like: Richmont Mines Inc. (RIC:TSX; RIC:NYSE.A), B2Gold Corp. (BTO:TSX; BGLPF:OTCQX), and Claude Resources Inc. (CRJ:TSX; CGR:NYSE.A), which is another one that we recently bought back. These are more small-to-intermediate producers, because I think there’s better value in the smaller producers.
Claude Resources is actually a junior producer in Saskatchewan, where its Seabee mine is located. Its production is pretty good and will be expanding with the Santoy mine within trucking distance. Claude is acquiring the remaining percentage of the Amisk project from its partner, so will have 100% of about 1.5 Moz defined there. In Red Lake, another mine advancing is its Madsen project, which it has been exploring and ramping up, currently up to about 1.2 Moz gold. Madsen was a past-producing mine, which makes it quicker to permit to production; the company should experience a significant bump in production when that comes onstream. That is a ways out yet, but Claude is not even being fully valued on its current mining operation. Its total gold resources in the ground are just being valued at about $70/oz. Investors are really getting one of the other projects, Amisk or Madsen, for nothing.
TGR: What about Avino Silver & Gold Mines Ltd. (ASM:TSX.V; ASM: NYSE.A; Gv6: Fkft)?
RS: That’s one of my favorite silver juniors. It is just starting production. There is typically a boost in stock price when production starts because the company is moving into a phase of cash flow from a long period of no cash flow. I like it for that reason, but it’s also undervalued as well.
TGR: It’s mining the Avino Mine in Durango, Mexico. There is further potential to expand the resource through the Guadalupe deposit, which is part of Avino. Tell us about that.
RS: In addition to starting production, I like a company that can increase that production and reserves. Avino Silver & Gold can easily do that at the Avino Mine. The zones at both Guadalupe and San Gonzalo are still open, so they can be expanded along strike and depth. A lot of the other zones on the property have not been drilled that much, so there’s room for expansion on practically all the zones there, including the original Avino vein still open at depth.
TGR: In some areas, it’s getting about 300 grams per ton (g/t) of silver and the recoveries have been around 80%. That’s certainly well above average.
RS: Both are certainly very good numbers. It’s typical of what can be found in Mexico—very rich veins as long as there is good-enough width and Avino has that so we can expect a very profitable mine operation.
TGR: What about some junior names that are offering a strong value?
RS: One of the recent ones I’ve picked is Sandspring Resources Ltd. (SSP:TSX.V). Its Toroparu deposit in Guyana has been growing steadily. It’s up to 9–10 Moz Indicated and Inferred. That stock’s price is between one-half and one-third of its high.
TGR: Sandspring has millions of pounds of copper there, too, but the market’s not really giving it credit for that.
RS: It’s not even giving a good value for the gold. When I looked at the company, I said to myself, “Just ignore the copper because it’s not getting valued at all for that.” Why? It’s the same thing with all these stocks that are valued so low. They’re just out of favor and not getting the valuation they deserve. It’s just market sentiment, not anything specific with Sandspring.
TGR: In July, Agnico-Eagle made a foray into the Red Lake Camp by investing $70M in Rubicon Minerals Corp. (RBY:NYSE.A; RMX:TSX). In 2008, Agnico lost out on a bid for Gold Eagle Mines with Goldcorp. Now both senior producers have a presence in the Red Lake camp. Agnico’s corporate secretary Greg Laing holds a seat on the board of Hy Lake Gold Inc. (HYL:CNSX; HYK:Fkft), which is also in Red Lake. But Hy Lake has a joint venture with Goldcorp. What do you think about the prospects for Hy Lake given its relationship with both producers?
RS: I think that’s ideal. That is really what a junior needs to do. Down the road, when it has proven out the reserves, it wants to have competition to buy it out. Agnico-Eagle and Goldcorp are the two gorillas in that neck of the woods. They are the two you want to have fighting over your stock when you discover a mine. It’s an excellent move.
TGR: What do you make of the Rowan property?
RS: It’s excellent. There were three past-producing mines near Rowan and the adjacent properties, so we know there’s still gold there. And it is finding robust gold grades in the drill results all the time. It’s just a matter of time to do enough drilling there before it proves up a mineable deposit.
TGR: Paramount Gold and Silver Corp. (PZG:NYSE.A; PZG:TSX) has a new resource on its Sleeper gold deposit and it’s had some good results from the San Miguel project in Mexico. What do you make of it?
RS: Those are two excellent projects and I like them both. The Sleeper project still has a lot of room to expand its resource numbers. So does San Miguel. The company has been actively drilling both projects. There should be an updated resource number on San Miguel within a few months.
TGR: Sleeper has about 3 Moz outlined. How does that compare to other projects in the area?
RS: It compares very well. Although the grade is a bit lower than many, the recoveries are good, up to 89% and with just $1,100/oz gold used in most studies currently, it can be very profitable. It needs to get up to the 3–5 Moz mark, where it is headed to really interest the major producers. The seniors need fairly large mines to have any impact on replacing their reserves. The 3–5 Moz mark is a minimum, but 10 Moz would be ideal.
TGR: What do you expect the new results on San Miguel to clock in at?
RS: The last time it was calculated around 1.7 Moz; it only updated some of the zones. I understand this next calculation is going to include all of the zones on the property and new discoveries. I’m looking for the number to get up to 4–5 Moz. These new resource calculations that still have plenty of room to grow will soon get the company up in the league of 10 Moz with the two projects.
TGR: What’s one last investment idea that you could leave our readers with?
RS: I like Levon Resources Ltd. (LVN:TSX.V; L09:Fkft; LVNVF:OTC). It’s proving up a Penasquito-type target that Goldcorp is mining in Mexico. It’s growing very quickly with a current phase 4, 130,000-meter drill program underway; that is a huge drill program. It has about five drills running and it already has over 300 Moz silver Indicated, almost 1 Moz gold and billions of pounds of zinc and lead. Its stock got sold off steeply in this correction, so it’s an excellent buying opportunity now. Levon has no need to finance as it has about $66M in the bank and only $20M budgeted in the current program.
TGR: With so many unvalued names, how are you choosing among them?
RS: I look at management, of course. You want good mining management that is experienced, has put mines into production, or has brought them up to a point of being producing. The jurisdiction is important. Right now, you can find good values in a lot of the primary areas, like Nevada, Canada, Mexico, and other mining-friendly jurisdictions. I look in those jurisdictions first when there’s great value in the market. I look farther out as the market gets pricier. I look for companies with ample cash on hand because it is difficult to raise money without a fair bit of dilution.
TGR: That’s one thing about Levon that investors might question. It has about 200M shares outstanding.
RS: The stock was up over $2/share even with 200M shares outstanding. It all speaks to the size and quality of the asset. I’m not too concerned when a company has a solid asset the size of its Cordero project; it is a monster already, around 11 Moz gold equivalent Indicated and will probably end up over 20 Moz equivalent. The larger share float also attracts institutional investors since it’s a more liquid stock.
TGR: Thanks for your time.
Ron Struthers, editor of Struthers’ Resource Stock Report, retired at an early age from IBM, where he spent many years as a system, business and inventory analyst. He began investing over 25 years ago. He began the Struthers’ Resource/Tech Stock Report almost 20 years ago. With his background as an analyst for a multinational computer giant, he is able to research and analyze vast amounts of investment data with the aid of the most technically advanced computer hardware and software. He also has numerous inside contacts.
By The Gold Report, on July 19th, 2011
 As a geologist by training, it’s no surprise that S&A Resource Report Editor Matt Badiali takes a data-driven approach to investing. In this exclusive Gold Report interview, he shares calculations for trailing stops and strategies to take profits with prospect generators and points to the signs of gold price manipulation.
The Gold Report: Matt, in the June edition of S&A Resource Report, you wrote that resource stocks could see some pullback once quantitative easing (QE) was no longer injecting money into the system. QE2 ended last week. Is your thesis proving correct and what are your strategies to mitigate post-QE2 portfolio risk?
Matt Badiali: A lot of the resources—silver, oil and even gold—pulled back at the end of April. We felt there was enough commodity risk that we wanted to be careful investing in a lot of those companies. However, we jumped back into several silver companies because they just got too cheap not to take action. It looked like they had been oversold.
I still feel oil is inflated. I think gold is still in a bull market, but no bull market goes straight up. With the end of QE2 we could see gold reverse a little bit. My recommendation this month was coal. With European countries jumping out of nuclear power, coal is a fairly bulletproof market; it has less commodity risk than the rest of the group.
TGR: The headline on that article was “Ignore the Noise and Focus on the Big Trend.” What is the big trend?
MB: For one, gold is still a fantastic long-term investment. That won’t change until the U.S. and Europe get their financial houses in order. That’s when I’ll start looking bearish on gold and silver. We’ve seen a spectacular run in the silver price, then a big correction. Eric Sprott, for one, makes the case that silver will appreciate more than gold over the next year or two.
TGR: But for silver to return to its long-held ratio of 16:1, it would have to accelerate at a rate more than double that of gold. That’s a steep climb.
MB: I think inflation is still one of the best arguments; silver remains a good store of value. But silver also has one foot in industry, where demand is rising.
TGR: You’ve also written about the manipulation of the gold price. You made your case by looking at single day jumps in the price of gold and other commodities over the last 10 years. Over that span, gold had gone up more than 5% in 1 day only 3 times, oil went up more than 5% on 53 days and silver on 32 days. More to the point, gold never went up more than 10% in a single day over the previous 10 years. That would suggest the gold market is being controlled. Are you concerned about placing so much faith in a market that is being controlled by non-market-related events?
MB: Well, let me preface this by saying I went into this as a skeptic. I’m a geologist, a scientist. I looked at the gold price at Eric Sprott’s suggestion; he gave me an idea that I could test with data from Datastream. When we did the math, I was shocked. So, now I do believe that the gold price is being manipulated somehow.
As to my concern about investing in a manipulated market, I do my absolute best to hedge commodity risk by finding companies that are undervalued. You can’t argue with the long-term trend: the price of gold has gone up every year for the last decade. Either the manipulators are doing a terrible job or the trend is so inevitable that all they’ve managed to do is dampen it a little bit. The implication is that if the manipulators lose their ability to manipulate, gold prices could soar.
TGR: Let’s move on to your specialties. You recommend using trailing stops to lock in profits on equities. A trailing stop is triggered when an equity goes below a certain percentage of the previous day’s closing price. Given resource stocks’ inherent volatility, how do you determine trailing stops for junior resource equities?
MB: My colleague Steve Sjuggerud helped design a computer model we use to determine the most effective trailing-stop price. Trailing stops work off the high price. So, we base our percentage on the highest price that the equity achieved at the close of the day’s trade. For example, an investment in ExxonMobil would use a 25% trailing stop.
TGR: Because that’s not a volatile stock.
MB: Exactly. For juniors, we use 50%. Really, it’s about protecting yourself against major losses. We believe 50% is as much of a loss as we want to take on any position. To me, the trailing stop is a great way to take profits. If you start with a 50% trailing stop on your volatile stocks, you can tighten it to 25, then to 15 and 10 as you make money.
TGR: How do you determine how much to tighten?
MB: This is when the strategy has to go beyond the company. So, say we bought a junior miner operating in the Yukon. We made a big gain during the field season and in September we’re sitting on 60% or 70%. This is a great time to ratchet down your trailing stop because news flow is the life blood of junior miners. You can take a profit and plan to get back in the next summer.
TGR: Let’s talk names. Stansberry & Associates Investment Research developed a list of the Top 10 Prospect Generators. What are some prospect generators you’re following that might be considered undervalued at this point?
MB: Mirasol Resources Ltd. (TSX.V:MRZ) has been one of my favorites for years. It’s a silver explorer working in the Deseado Massif in Argentina. Marisol has smart, experienced folks who explore using cutting-edge technology. For example, Marisol has used satellite imagery and high-altitude aerial photography to explore. This allowed them to make two discoveries.
They just put out a resource on the first property, Joaquin, which is a joint venture with Coeur d’Alene Mines Corp. (NYSE:CDE; TSX:CDM). I suspect that Joaquin is going to become a mine.
I should add that one of the ways that I value prospect generators is the quality of their partners. Some companies will look for discoveries just to sell the project to someone else. Coeur d’Alene, on the other hand, has a vested interest in building a mine at Joaquin. They are serious, committed partners.
The other discovery is called Virginia, 100% owned by Marisol right now. That’s progressing very well; it has high grades. This year, the share price has been as high US$8; now it’s below US$5. If this discovery begins to grow in size, I could see Coeur d’Alene buying the entire company.
TGR: Given that Marisol was at US$8, would you consider it undervalued at US$5?
MB: Yes, and it’s because they’re in between field seasons.
TGR: What are some other prospect generators?
MB: One that’s been a rock star for me is ATAC Resources Ltd. (TSX.V:ATC). ATAC is a junior miner exploring gold projects in the Yukon. In 2008, the company made a big discovery in the Rau Gold Project, Rau is part of the Rackla region. In early July, ATAC put out game-changing results: 82 meters at 4 g/t gold within an interval of 115 meters at 3.1 g/t. That really proves continuity on this project.
TGR: So, that’s a 100m step-out hole from the original discovery hole that was found at Rackla in November 2010. Are there plans for infill drilling in the meantime?
MB: I’m heading up to Vancouver the end of this month to get the entire story. They have a lot of rigs on site, but I just don’t know what their plans are. It’s important for them to get a feel for the size of it.
Right now, I believe it’s time to sit back and see which mining company or companies decide they need to own this project. I think ATAC will be the story that we go back to over the next 5 or 10 years and say, “Wow, what an amazing discovery all the way through its buy up.”
TGR: With a market cap of over US$800M, it will have to be a pretty major player to buy out ATAC. Any idea who some suitors might be?
MB: I’m not sure who the suitor will be. I don’t think you’ll see somebody like Kinross Gold Corp. (TSX:K; NYSE:KGC) sneak in and buy ATAC for its current market value. I think you’re going to see competition. And I’m hoping that it is north of US$2B. That would be pretty nice.
TGR: Do you have one more prospect generator before we move on?
MB: There’s a new company called Renaissance Gold Inc. (TSX.V:REN). This is another company where the people are the most important thing. The CEO is Richard Bedell and AuEx’s former CEO, Ron Parratt, is on the management team as well.
Renaissance has an exciting copper-gold project in Spain called Baza. It’s a partnership with Concordia Resource Corp (TSX.V:CCN) (previously Western Uranium Corp. TSX.V:WUC). The company is drilling there now. It also has several grassroots projects in Nevada that are comparable to Long Canyon. Lastly, it has an exploration agreement with Agnico-Eagle Mines Ltd. (TSX:AEM; NYSE:AEM) on four projects in Patagonia, Argentina.
TGR: Are there some juniors that may be underperforming right now, but could see a bump by the end of the year based on drill results?
MB: I’m expecting great things from Kaminak Gold Corporation (TSX.V:KAM). The company has a real discovery in Coffee; it’s a company-maker. Kaminak made a series of discoveries in the Yukon and named each one after a different kind of coffee drink. Kaminak really needs to find out if the discoveries are connected. I was up there last year and was very impressed with the size. I think that this is going to be their field season.
The CEO is Rob Carpenter. He’s a Ph.D. geologist, a very, very, very smart guy. Up in the camp, where everyone lives in tents, the company used a satellite dish with an XRF fluoroscope to do rough assays on site. It was really exciting to see him applying this new technology in the field on an active discovery.
Another junior that I like and own is Miranda Gold Corp. (TSX.V:MAD). It has a project called Pavo Real in Colombia and it is drilling in Nevada right now. I think that a little success will go a long way in improving their share price.
TGR: Could you comment on Kiska Metals Corp. (TSX.V:KSK)?
MB: I’ve known the management group at Kiska since 2006 when they were Rimfire. I have a lot of respect for them. They got away from the prospect generator model when they merged with Globex in 2008. Their Whistler project in Alaska is a series of gold sniffs. It’s copper-gold porphyry, which tends to be large and low-grade.
Comparable projects might be Northern Dynasty Minerals Ltd.’s (TSX:NDM; NYSE.A:NAK) Pebble project and Seabridge Gold Inc.’s (TSX:SEA;NYSE.A:SA) Kerr-Sulphurets-Mitchell deposit. These are all low-grade, but really, really big projects.
The Whistler project is relatively underexplored, so it has a lot of potential. If they get a couple of good drill holes, the share price could rise quickly. The company has a resource on it now.
TGR: Whistler has about 5.5 Moz., indicated and inferred combined.
MB: I think it has the potential to double. This could be one of those long, slow explorations. The average grade there is half a gram, so they need to string a lot of holes together. That’s what we saw with Seabridge. It took several field seasons, but they wound up with more than 30 Moz. just from drilling and delineating the deposit. That’s what Kiska will have to do.
Kiska does have a new technique for drilling that they think might speed things up, and a new target area. The company is going to do more than 30,000m of drilling this year. Kiska is worth speculation at this point. Their high was US$1.74 last fall and their 52-week low was US$0.65. Now, it’s around US$0.77. Unless they have some sort of calamitous accident, this is pretty close to a likely bottom. It looks like this is a company that you can speculate on.
TGR: What would the trailing stop be?
MB: I would use a 50% trailing stop.
TGR: Let’s close by going back to a more strategic topic: management groups. What’s your approach to evaluating a management group?
MB: Doing your homework really pays off in this industry and not doing your homework will ruin you. There’s an old saw that says the best way to make a million investing in junior miners is to start with two million. That’s true.
I do the homework—and the legwork—for Stansberry. I make the phone calls. I go to Vancouver and attend the conferences. Meeting management is crucial; I go to their offices. I go out to the projects and kick the rocks. I keep a contact list of industry experts from geologists to brokers to successful speculators to retired geologists that aren’t in the field anymore. I vet projects and companies as thoroughly as I can before we ever invest in them.
TGR: Matt, thanks for helping our readers get a start on their homework.
Matt Badiali is the editor of the S&A Resource Report, a monthly investment advisory that focuses on natural resources—from small exploration outfits, to equipment companies, to the biggest commodity companies in the world. As a geologist, Matt focuses on all natural resources including silver, uranium, copper, natural gas, oil, water and gold. He’s also a regular contributor to Growth Stock Wire, a free pre-market briefing on the day’s most profitable trading opportunities. Matt has real-world experience as a hydrologist, geologist, and a consultant to the oil industry and he holds a master’s in geology from Florida Atlantic University.
By The Gold Report, on February 15th, 2011
 Gold in the Carolinas? “Absolutely,” says Jefferson Financial President and CEO Brien Lundin, who also publishes the Gold Newsletter. It’s just one region where historic discoveries, ignored when gold prices were low, are now being re-examined with modern exploration techniques. The results, he says, are promising. Learn more about his take on the economy, the seasonal effect on gold prices and the “frothy” metals market in this exclusive interview with The Gold Report.
The Gold Report: When we last talked in September, you said there were “very good arguments for significantly higher gold prices.” Have those arguments changed? And, if so, how?
Brien Lundin: They have changed a bit. Back then, the investing environment was tough because it was so uncertain. There weren’t any clear trends. We didn’t know if the economic recovery was really taking hold.
At this point, we’ve firmly established that the economy is in a fairly steady uptrend. This is good for gold in the long term, though I believe it’s a bit bearish for gold in the short term. As the economy rebounds over the long term, we’ll see a lot of pent-up monetary pressure unleashed. For example, the Federal Reserve is now holding about $1 trillion in excess bank reserves. Right now, that doesn’t count as money; but once the banks begin lending and those reserves are turned into loans, they instantly become currency and have a multiplier effect on the economy. We’ll see a resurgence in monetary inflation as the economy rebounds and gets into a higher, more stable rate of growth.
Also, as the economy strengthens, we’ll see more intense use of metals and commodities. There will be a wealth effect, which will be good for gold and for the rest of the metals complex, as well. But until we get there, it’s a bit negative for gold because investors will perceive strength in the economy as negative for gold, anticipating that the Federal Reserve will begin to hike interest rates.
TGR: In the December/January issue of Gold Newsletter, you said that at $1,380/oz. there was $100–$200 of pure speculation in the gold price. How much pure speculation would there be at $1,300?
BL: Not much. Frankly, I think the decline from $1,420–$1,320/oz. pretty much wiped out a lot of the speculative excess. It blew away a lot of the froth, and we’ve essentially run out of sellers. Just yesterday I issued an alert saying that gold appeared to be bottoming, but that soon—for some reason yet to be discovered—it would be ready for a rebound. I was thinking in terms of days, not necessarily hours. Come to find out, today [February 3] gold is up $20. I’ve likened the market, as it stands now, to a stack of dried tinder just looking for a flame. The gold market is looking for a fundamental spark to carry it higher.
TGR: But you see a lot of fundamental support above $1,300/oz.
BL: Absolutely. I think we have strong resistance in the $1,320/oz. area. That’s been established by previous corrections. I doubt there’s more than another $50 of downside in gold from these levels. There really isn’t much speculative fervor left in the market and not many sellers either.
TGR: How cautious should investors be about the emerging rebound in the U.S.?
BL: We’ve learned that anything can happen. The economic rebound, as it stands now, is not rock solid. It’s vulnerable to a number of exogenous shocks, globally and internally. But I don’t think we have the potential for a credit crunch like the one we saw in 2008. The Fed has demonstrated to the markets that it won’t allow that. If anything resembling such a situation occurs again, I think the resulting flow of money from the Fed, and the Fed’s track record from the last go-around, would lead to tremendous investment in gold.
TGR: Of all the ways the economy could go from here, what is the best- and worst-case scenario for gold?
BL: The best case for gold would be to muddle along with a bit of economic bad news here and there. That would signal the Fed’s intention to keep loose monetary reins on the economy and continue flooding it with more liquidity. Frankly, I think we probably won’t see that.
The worst case for gold over the short term would be major evidence of strong economic growth and a decline in U.S. unemployment. The Fed is watching the unemployment rate like a hawk. That will be the primary determinate of whether it decides to curtail quantitative easing 2 (QE2) and whether it decides to implement a third dose.
TGR: Were you in favor of the tax-cut measures invoked at the end of 2010?
BL: Absolutely. That was necessary for any prospect of an economic rebound. The tax cuts are one of the primary drivers of the strength we are seeing right now. We need these relatively lower tax rates to see some growth in the U.S. Just as importantly, it was necessary to get that question resolved and out of the way. The market hates uncertainty.
TGR: In the February issue of Gold Newsletter you discuss how the Bollinger Bands for gold often predict movements in the gold price. Briefly explain that concept to our readers, please.
BL: I’m not much of a technical analyst, but every now and then I find things that seem to be fairly compelling. This is one of them. Bollinger Bands are the lines that are drawn by, say, one standard deviation above and below a certain moving average. With my good friend Ron Griess at thechartstore.com, I have been tracking this technical indicator for some time. We noticed that when the Bollinger Bands for a moving average for gold start to pinch or tighten, it has historically signaled an impending price breakout. It works in other markets, as well.
In the February newsletter, we featured a 50-day moving average for gold and the associated Bollinger Bands, which began to pinch once again. There are a lot of ways to interpret this, but to me it signals that the market is figuratively coiling like a spring. When this happens, typically, there is a price breakout in one direction or the other. As in any consolidation pattern, that breakout is usually in the direction of the major long-term trend. With gold, especially over the last 10 years, that trend has been up.
TGR: So, when these bands contract, it signals that there could be a price breakout either to the upside or downside.
BL: Correct.
TGR: You also suggest there is evidence—from both a contrarian and a seasonal gold demand perspective—that gold should break to the upside. Can you talk about those two arguments?
BL: That’s a good way to put it. From a contrarian standpoint, the sentiment in the market has fallen severely. Some of the indicators, such as the Hulbert Gold Newsletter Sentiment Index (HGNSI), had dropped considerably recently while gold was still trading at fairly high historical levels. The market was primed, from a contrarian perspective, to rise. It wasn’t overbought by any means; if anything, it was oversold. From a sentiment perspective, that was a positive indicator for gold.
From a seasonal standpoint, we’re in the midst of the Chinese Lunar New Year celebration as we talk, which historically is a period of strong demand for gold in Asia. We’re also entering the Indian wedding season. Typically, springtime is a very positive period for physical gold demand, and that’s usually reflected in the price.
Ron Griess and I were discussing this the other day. He compiled the most comprehensive study of seasonality in gold prices that I’ve ever seen, and turned up some surprises. Looking at the average one-month percentage rise or fall in the gold price from 1968–2010, we see that January and February are strong months, as are April and May. I was surprised to see that March is typically a down month for gold. Summer is slow, as we know, and it perks up in August. The best month of the year, on average, has actually been September.
TGR: Let’s look now at some companies that may be able to capitalize on this potential movement upward. This month you recommended a junior with a gold play in North Carolina. Could you share that pick with our readers?
BL: I’ve recommended companies all over the world, but never one in the Carolinas. I was really unfamiliar with the area from a geological standpoint; but when I looked into it, I discovered a historic gold-mining district going back to the early 1800s. The problem has been fractured land ownership. There aren’t huge slabs of land available for the taking. It takes a lot of legwork and luck to assemble property positions, and now some companies have done this. Romarco Minerals Inc. (TSX.V:R) has done it in recent years, and made a 4.5 million-ounce (Moz.) discovery there.
TGR: With the Haile Gold Deposit in South Carolina, correct?
BL: Right. The company that I just recommended, Revolution Resources Corp. (TSX:RV), assembled a patchwork of individual land ownership into a leasehold that’s fairly extensive and covers some historic discoveries. Now it’s going back to confirm those discoveries with modern exploration methods. The company is getting good news—much better results than it expected.
TGR: The property had been examined by Noranda Inc. before, right?
BL: Yes, from 1989–1992. Noranda did about 3,000 meters of drilling and 23 drill holes. It got good results, but gold prices were low at the time—and falling. The company stopped work and it lay fallow until Revolution came in.
TGR: What makes this project—Champion Hills—worthy of a Brien Lundin recommendation?
BL: To earn my recommendation you have to have a couple of things: 1) A fairly low valuation starting out; and 2) A very large, world-class target. Revolution has both. The management team is also critical. I’m very bullish on this management team; it includes Michael Williams, who founded Underworld and started the whole Yukon gold rush. It also includes Rob McLeod. To my mind, there’s not a smarter geologist out there.
TGR: And Aaron Keay, who has the pull on the street to get the financing together.
BL: He really does. Aaron arranged $9 million in financing for Revolution, and it is well financed to explore the project for a couple of years. It’s gotten wonderful drill results. The trend right now is about 3 km., and they’re just scratching the surface of the project’s potential. I see this project as having world-class potential, perhaps even rivaling what Romarco uncovered.
TGR: What sort of news should we look for from Revolution in 2011?
BL: The best sort of news for a mining stock speculator is drill results. The company’s going to deliver a good bit of that to the market. Its next phase of exploration will encompass another 5,000m of drilling and another 22 drill holes. You’re going to get a steady diet of drill results—it’s a project that can operate 12 months a year. Nothing is going to slow this company down.
TGR: Let’s continue talking about new names involved in old plays or new districts. What names fit those criteria?
BL: Right now, I’m very positive on Treasury Metals Inc. (TSX:TML). The company’s got a bit over 1 Moz. gold at its Goliath Gold Project in Ontario. It’s going back to a previous discovery with new geological ideas and new funding. These are projects that weren’t working back when gold prices were much lower. Now Treasury is applying more advanced methods of exploration and development in a new environment for gold prices. It’s taken a fairly high-grade project, added in lower-grade surface resources and come up with a gold resource that’s over 1 Moz. at this point. The company is very well funded and has a great management team.
What’s been particularly interesting to me is that the play is in the Kenora Gold District, which hasn’t been as widely followed or developed as others in Ontario and in Canada at large. There are more than 20 companies and individual groups exploring in the Kenora area. Treasury has a central location, it will have central facilities and it has the largest resource. That makes it the natural choice to consolidate the entire district—and that’s actually in its business plan.
TGR: You talked about Treasury’s management, which has seen some changes. Scott Jobin-Bevans was president and CEO. The company hired Martin Walters, who’s got a pretty good reputation, and brought in another vice president of exploration. What do you know about those changes?
BL: I’ve been a big supporter of Scott. I know him very well and he’s taken the company a good ways. I think that the exploration and management teams are very impressive, and I think the financial and investment teams behind the company are just as impressive. Some very powerful interests in the mining industry are behind this company—people who can see the big picture and know how to go after large goals. As I’ve said, the consolidation of that district is a big goal and I think Treasury has the expertise and the support to reach it.
TGR: One of those names is Sheldon Inwentash at Pinetree Capital Ltd. (TSX:PNP).
BL: Yes and Marc Henderson is very big behind the company, as well.
TGR: What should we look for from Treasury this year?
BL: We’re looking for drill results, plus some refinement to the preliminary economic analysis (PEA). The original economic report was very conservative, so there’s tremendous scope to improve those numbers. Of course, the gold price will go a long way toward improving the economics of this and every other gold project. I think the market is starting to recognize this as a project that is going into production a bit quicker than previously assumed.
TGR: Could we see a revised resource estimate by year-end?
BL: It’s certainly possible, given that one goal of the current drill program is to upgrade the resources. The company’s trying to not only expand the global resource, but also upgrade its very sizeable inferred resources. That demonstrates to the market how serious Treasury is about progressing toward production.
TGR: What other companies are you bullish on heading into 2011?
BL: We’re fairly confident about strong economic growth in Asia and robust demand for commodities. Copper has been a big star recently.
Some of our copper plays have done spectacularly well, one of them being Hana Mining Ltd. (TSX.V:HMG). It recently reached a high of around $5.50/share, then went back into the low $4 range; now, it’s making an assault on its previous highs. We were, I think, the only newsletter to follow Hana Mining and recommend it. Our readers had a 15-fold gain in that recommendation.
Now another company has been spun out of Hana, called New Hana Copper Mining Ltd. (TSX.V:HML). New Hana’s property is also in Botswana, adjoining Hana’s Ghanzi property. The geology and geophysics are identical. It’s still early, but a number of people are betting that this company will end up having a deposit of similar size to Hana Mining’s Ghanzi deposit, which is an enormous, world-class copper and silver deposit. New Hana is actually a bit highly priced and a bit overvalued, in my view, for what it has. The company’s trading around $1/share right now, but I anticipate that the release of a private placement that was done in early December 2010 may change things. In early April, the stock will become free trading. I see that as a potential entry point.
TGR: Did some of the management team come over from Hana to New Hana?
BL: Hana Mining President Marek Kreczmer is steering the ship at New Hana, as well. That’s an example of one of the things I recommend companies do: When you have a major project that is the linchpin for all the market value, you might as well take the other projects that aren’t getting as much value and spin them out into other publicly traded vehicles. That gives shareholders another bang for their buck.
TGR: It’s certainly a pretty frothy market for copper, which recently hit $10,000/ton.
BL: Copper is trading at record levels. Although I’m very positive on copper prices for the long term, I am concerned about some overexuberance in the market right now.
TGR: So, temper that enthusiasm and wait on New Hana in April.
BL: Right. One of the early stage companies I like is Tintina Gold Resources (TSX.V:TAU). It has a very exciting copper project in Montana called the Sheep Creek Copper Property. This is another property that had historic results that it’s going back to confirm. The company is drilling off pods of mineralization that are high grade, shallow and fairly small in terms of tonnage—but also fairly large in pounds of copper, thanks to the high grades. The interesting thing is that, if they are developed, they’ll be high-grade underground copper mines. All the economics and the grades look very conducive to development. Tintina is going to advance toward development very rapidly. I don’t think the market has really appreciated the company’s potential at this stage.
TGR: Is there gold in that mineralization, or is it strictly copper at Sheep Creek?
BL: It’s really a copper/cobalt project with some silver credits that could be sold off in advance to help fund the project’s development. But the company also has some other interesting gold and base metals projects, which it’s in the process of spinning out into a separate company or companies. In other words, this is another instance where investors may again have a chance to get a couple of different plays—or different lottery tickets, if you will—out of one stock investment.
The chairman of Tintina Gold is Rick Van Nieuwenhuyse. He’s also the chairman and CEO of NovaGold Resources Inc. (TSX:NG; NYSE.A:NG). As you can imagine, the company has some very strong shareholders.
TGR: Rick has done a great job of developing a world-class gold deposit at Donlin Creek in Alaska, but Montana isn’t very friendly to gold mining. How friendly is it to copper mining?
BL: I’d be worried about that, too, if we were talking about the kind of project that would scar the landscape. But you’re dealing with private landowners here. You’re dealing with a project that would be an underground, high-grade mine with little surface disturbance. I don’t anticipate it being a problem.
TGR: Good to know. Can you give us one more name before we say goodbye?
BL: I like Gold Standard Ventures Corp. (TSX.V:GV; OTCQX:GDVXF), which has the Railroad Project in Nevada just south of the Rain Mine Project. It tied up a fairly large property position with some historic resources in the Rain District and just to the south. Vice President of Exploration Dave Mathewson was a former head of exploration for Newmont in Nevada. He developed the Rain model and discovered several deposits in the Rain District. Gold Standard’s management was able to secure its property position through some creative negotiation and, frankly, some good luck. Then they brought in Mathewson to apply his expertise.
Mathewson was looking for the right rock packages in the area, and the company hit those in its first drill holes this year. It didn’t get results that really pleased the market; they were fairly low grade. But the fact that it was able to hit gold intersections of, say, sub-1 g/t or around 1 g/t, over significant intersections in the right rock packages was a resounding technical success.
Right now, Gold Standard is vectoring in its drilling, closing into the projected higher-grade mineralization. It’s getting stronger and stronger results. This is a sleeper stock because the market doesn’t appreciate its technical success. There’s a very good chance that Gold Standard could uncover one of those really large-scale, world-class Nevada gold deposits that the market’s always looking for.
TGR: Given the number of other players in that market, is there a chance that Gold Standard could be taken over if it finds something significant?
BL: Oh, absolutely. Although Gold Standard would never say this, in my mind, if it made a discovery on the order of the Rain Deposit, there’s little chance it would be the company to develop the deposit.
TGR: Could you leave us with some thoughts on what’s happening in the gold market, and what people should expect over the next three to five months?
BL: I think that 2011 is likely to shape up as a very typical year for gold. We’re quite likely to see early seasonal strength this spring, but this will probably be another “Sell in May, Go Away” year. Later this year, as we begin to see more positive economic data in the U.S., that news will weigh heavily on gold. We’ll probably have a decline going into June and July, but I think we’ll see signs of growing price inflation ahead of rising interest rates by the fall. Essentially, I think it’s a case of play the market in the spring, get ready for a soft patch in the early to mid-summer and make sure you’re positioned in early August for what should be a very profitable fall.
TGR: Excellent, Brien. Thank you for your time.
With a career spanning three decades in the investment markets, Brien Lundin serves as president and CEO of Jefferson Financial, a highly regarded publisher of market analyses and producer of investment-oriented events. Under the Jefferson Financial umbrella, Brien publishes and edits Gold Newsletter, a cornerstone of precious metals advisories since 1971; he digs into not only small caps of every type but also macroeconomics and geopolitical issues that ultimately affect every resource investor. Brien also hosts the New Orleans Investment Conference, the oldest and most-respected investment event of its kind that, each year, gathers together the giants of investing, economics and geopolitics.
By Claus Vistesen, on January 7th, 2011
The signs are clear; risk is overloved, overbought and overextended but does this necessarily spell the inevitable correction?
(click for larger image)
Since Augsut 2010 the SPY has barely touched its 50 day moving average. Indeed, it has stayed well clear of it. Those, like yours truly, who entered 2011 fancying some bloodletting have so far been disappointed.
Plan B Economics points to the obvious that often times in the world of investing, a choir chiming for an event to unfold is the best bet that it will not occur.
I’ve had a pretty good sense in the past knowing when the “correction” trade is overcrowded. I gotta say that I definitely sense that now. Bulls are on guard for a correction and bears are calling for one too. In fact, I’ve never seen such a unanimous call for a correction as I do now in a long time. Near the low of the day I saw a headline from bigcharts.com that said some portfolio manager claimed the January correction has started. The market didn’t even go in the red for the year yet and this guy’s already saying the correction has started? Talk about being over-eager. I believe this group think call for a correction means that a correction either won’t happen or will be quite shallow, well below expectations.
As a good friend of mine noted; this is like second-guessing the second-guesser. Market timing is best performed when frontrunning the crowd, not standing in the middle shouting like everyone else. On the technical side, I would like to see two (or three) straight days of declines in the SPY before calling it.
The more interesting point is how deep (or shallow?) it will be. A move to the 50d ma marker would be something like 4.15% and come at around 1221 at current levels. Sounds about right to me.
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By Eldon Mast, on November 22nd, 2010
You may remember our famous chart that predicted the bottom for the bear market of 2007, 2008 and 2009 and then predicted the ensuing bull market to follow.
The methodology was simple. Compare a stock chart from the bear market of 1973 and 1974 with that of recent bear trends of 2008 and 2009.
The downward similarities were so striking that one would be led to believe that what happened next in the market in 1975 and 1976 would be a good prediction for what would happen in 2009 and 2010…
And what a prediction it has turned out to be. We published the chart three (3) days prior to bottom of the bear. We joked that we had no idea what would happen next and then showed the chart for the bull run of 1975 and 1976.
Since that chart was published, the graph has turned out to be the most visited page every day on The Good News Economist blog from that day back in March of 2009 until the present day!
So what did actually happen? Here you go… Look familiar?
Any guesses on what the 2011 chart might look like? (Hint: Take a peek at 1977)
Charts Source: Google Finance
By Trace Mayer, on July 27th, 2010
When allocating capital a successful method for increasing wealth is to buy cheap valuable assets and if you ever sell them then do so when the assets are expensive or very expensive. But how can one accurately perform mental calculations of value? I recommend using gold as the numeraire. This allows one to get a clearer view of the relationship between price and value.
When allocating capital for longer than a millisecond or two, like the parasitic high frequency trading operations, one of the key metrics I use is the 200 day moving average.
In the financial markets, the 200 day moving average exerts a force much like gravity on the current price.
WHAT IS THE 200 DAY MOVING AVERAGE
The 200 day moving average is actually fairly simple. The sum of the close from the previous 200 trading days divided by 200.
WHY THE 200 DAY MOVING AVERAGE
The decision to use 200 days instead of 199, 50 or 500 is fairly arbitrary and dependent completely on the preferences of the capital allocator. I like the 200 day moving average because (1) the numeraire par excellence is so heavily manipulated that price and value are bifurcated, (2) a static point with an undefined entity like the FRN$ is meaningless, (3) a moving average provides a dynamic figure and (4) two hundred days is long enough to filter out short term abnormalities providing objectivity.
Consequently, while gold may be extremely volatile day to day the 200 day moving average shows a completely different picture; a nice gently sloping bullish trend line. In the financial markets, the 200 day moving average exerts a force much like gravity on the current price.
HOW TO USE THE 200 DAY MOVING AVERAGE
The 200 day moving average is merely a technical tool in the capital allocator’s arsenal. For example, on 14 July 2009 in Platinum Liquidity Increases I argued the case for why platinum was undervalued, a good buy and made a recommendation to purchase it. Of course, the foundation was the market fundamentals; low worldwide production, scarcity, lack of stockpiles, durability, fungibility, industrial demand and legal tender status. Then came the technical factor, the 200 day moving average of the platinum to gold ratio.
THE RELATIVE PRICE
One way I use the 200 day moving average is to calculate the relative price of an asset which is the 200 day moving average divided by the current price. Then I look at the relative price over time to determine when an asset is cheap or expensive.
I have found that during this secular bull market, gold in relation to FRN$ is valued by the market as cheap when its relative price is around .99, average value between 1.00 and 1.25, expensive between 1.25 and 1.35 and very expensive above 1.35. This can be accomplished by looking at the relative price and using standard deviations to form trading ranges.
Money is made when you buy not when you sell.
APPLYING THE RELATIVE PRICE AND 200 DAY MOVING AVERAGE
Back in July 2009 platinum was trading at $1,118 per ounce with a 200 day moving average of 1.21 ounces of gold per ounce of platinum and a historical ratio closer to 2.0. Thus, with bullish fundamentals and being cheap relative to gold based on the 200 day moving average relationships I purchased platinum and it is currently at $1,540 per ounce with a 200 day moving average of 1.31. The trade has resulted in the goal: an increase of net worth when measured in gold ounces, the numeraire.
CHARTS TO HELP YOU QUICKLY VALUE PRECIOUS METALS
To be honest, I got tired of having to click a few times in order to quickly determine the 200 day moving averages for the various precious metals. Consequently, I had a gold price chart, silver price chart and platinum price chart (all three charts are available on this precious metals price page) created that contains the spot price, 200 day moving average and relative price along with a legend stating whether the metal is cheap, average value, expensive or very expensive based on historical trading ranges.
   PLATINUM IS CURRENTLY THE BEST VALUE
With the precious metals I recommend accumulating physical metal on a regular basis, either monthly or quarterly. I recommend using a reputable coin dealer like Gainesville Coins for smaller purchases like a single Silver American Eagle or a trusted third party vaulting service like GoldMoney for larger amounts when you do not want the headache of guarding it yourself.
But how does one quickly determine whether they should buy gold, silver or platinum? As you can see from the charts, currently gold with a relative price of 1.0366 is the most expensive relative to its 200 day moving average while silver is in the middle at 1.0267 and platinum is the cheapest at 1.0109. This is confirmed with the platinum to gold ratio which is currently 1.303 compared to 2.0. Thus, if you were to purchase any of the precious metals then I would recommend purchasing platinum because it currently appears to be the best value.
Remember, at all times and in all circumstances gold, silver and platinum remain money and currency. Consequently, you can always trade platinum for gold or gold for silver. The capital allocator’s goal is not necessarily to have the most amount of gold ounces but instead the highest net worth using gold as the numeraire.
CONCLUSION
When it comes to allocating capital I like to focus on intrinsic value. Buy low and sell high and I think money is made when you buy not when you sell. To accurately perceive value I use gold as the numeraire and the 200 day moving average to filter out daily noise and aberrations. Sure, as The Great Credit Contraction grinds on and being able to secure and multiple one’s wealth has become more difficult.
But there are always opportunities and deals to be made. The issue is whether you buy valuable assets on the cheap or when they are expensive. These precious metal price charts will allow you to quickly and easily discern the current prices of the metals and their relative value over the previous 200 days to determine whether to buy gold, silver or platinum.
DISCLOSURES: Long physical gold, silver and platinum with no position the problematic platinum, SLV or GLD ETFs.
By Bron Suchecki, on July 20th, 2010
It is always good to get different perspectives on the markets. Bruce Edwards has worked in the refining game for many years, currently with Sabin Metal Corp. As a way of keeping in touch with his former and current clients he has a web site where he posts his Chart Mysticism on the markets.
He has a chart at the bottom of the page called Gold Shares and Industry Ranking. Bruce explains it thus: “The chart is an index of Gold Mining Company Shares (upper line) and a 10 week moving average of their relative performance when compared with 98 other Dow Jones Industry Groups. I have been keeping this chart since 1993 and it has been excellent predictor of the future relative performance of gold and gold mining company shares. When the lower line is at the high end of its range everyone loves mining company shares and gold. When it is at the lower end of its range everyone hates the group. A long term investor should sell when the lower line is high and buy when it is low.”
By Trace Mayer, on January 19th, 2010
I like round numbers because they are easier to count. For example, on 14 July 2009 I recommended buying platinum at $1,118 and today it trades at $1,618. I like an unrealized gain of $500 per ounce, or 23.1%, in 6 months. But is platinum overvalued and how can we tell whether we should buy more, hold or sell? 
VALUE CALCULATION
Commodities are produced because they add value to society. Wheat is to eat, oil is for fuel, steel is for building and platinum is mainly for catalytic converters in automobiles. Why is gold produced? There are plenty of tons of it in aboveground stockpiles, decades based on annual consumption, so why burrow miles into the earth to bury it in a vault?
The value gold adds to society is in its ability to assist us in performing mental calculations of value. When using gold as the numeraire a much more accurate assessment can be made when allocating capital. The third round of this gold upleg is just starting.
TECHNICAL ANALYSIS
 In July 2009 the platinum to gold ratio was below 1.2 and currently it is around 1.41. The extrinsic value of platinum has risen about 17.5%, when priced in FRN$ about 45% and when compared to the earlier upleg in April platinum is looking pretty expensive. But as Professor Jastram explained in The Golden Constant all commodities tend to return to orbit around gold. So where is platinum’s natural orbit?
 The natural orbit for platinum is around 1.8 to 2.1 ounces of gold per ounce of platinum. But this is just a cursory technical analysis. To be sure of one’s assertion an analysis of the fundamentals under the Austrian school of economics is also important to undertake.
FUNDAMENTAL ANALYSIS
Platinum is an extremely rare but widely used precious metal. For example, the annual worldwide platinum mining production is valued at about $7.8B compared to about 75M ounces of annual gold production or the FDIC’s $0 of reserves and a $500B line of credit with the Treasury to cover $4,831B of insured deposits. In other words, platinum is a lot rarer than gold and gold is a lot rarer than little colored coupons.
According to the USGS 2006 Minerals Yearbook of the 239 tonnes of refined platinum sold in 2006, 130 tonnes were used for automobile emissions control devices, 49 tonnes were used for jewelry, 13.3 tonnes were used in electronics, and 11.2 tonnes were used by the chemical industry as a catalyst. The remaining 35.5 tonnes produced were used in various other minor applications, such as platinum jewelry, platinum rings, electrodes, anticancer drugs, oxygen sensors, spark plugs and turbine engines. Platinum uses, like uses of silver, are multitudinous.
The giant wealth destruction team headed by the Vampire Squid In Chief Obama thinks that destroying perfectly functioning automobiles, with perfectly functioning catalytic converters, is a recipe for economic prosperity. Additionally, billions of dollars of federal funds are being directed towards the Green Economy. What do new cars and the green economy need? Lots and lots of platinum.
And we all know the giant wealth destruction machine known as government always buys at a good price. As their little colored coupons continue evaporating in The Great Credit Contraction holders of capital will continue scrambling for tangible assets. But evaporating platinum takes a lot of effort because its melting point is 1,768.3 °C or 3,214.9 °F compared to gold’s 1,947.52 °F, silver’s 1,763.2 °F and it is important to remember that paper ignites at 451°F.
Because of the rising demand for platinum from both public and private parties, the shortage of alternatives for little colored coupons, platinum’s excellent monetary attributes and the ability to easily function as currency through innovations like GoldMoney therefore the future looks bright for the silvery-white metallic element. The same principles for buying gold or silver safely apply when considering how to buy platinum.
PLATINUM PRODUCTION
Platinum producers are extremely rare. There have been chronic problems with open cast deep underground platinum mining in South Africa. There is Angloplat (AMSJ.J) which produced 2.5M ounces in 2007, Impala Platinum (IMPUY.PK) which produced 1.9M ounces for year ending 30 June 2008 and is up about 50% since I recommended platinum, Lonmin and Norilsk Nickel (GMKN.MM). Stillwater Mining Company (SWC) is the only one domestic United States platinum producer, are majority owned by the Russian Norilsk and up about 137% from when I recommended platinum in July.
With commodity producers there tends to be a leveraged effect on earnings relative to the commodity price. Consequently, a significant rise in platinum without hedging will tend to exponentially affect their bottom line either positively or negatively.
CONCLUSION
Platinum has had a tremendous run over the past 6 months and I am pleased with the performance. Platinum is not nearly the incredible value today as it was then and the 50dma and 200dma are not at strategic entry points. Nevertheless, it is a prime substitute for little colored coupons, goes into the cash portion of the balance sheet, is easily purchased with low margins, is extremely rare relative to the other precious metals, has bright demand prospects and still appears to be undervalued relative to gold by about .4-.7 ounces of gold per ounce of platinum.
So I recommend doing what I have done since being bitten by the platinum bug: accumulating fully paid for physical metal on a consistent regular basis. While I have not exchanged my gold or silver for platinum, largely because of tax considerations, I have shunted most of my gold and silver demand into allocated physical platinum. After all, platinum, like gold and silver, can never become worthless.
DISCLOSURE: Long physical gold, silver and platinum with no interest the problematic SLV or GLD ETFs, the platinum ETFs or in the Angloplat, Impala Platinum (IMPJ.J), Lonmin and Norilsk Nickel (GMKN.MM) or Stillwater Mining Company (SWC).
By Eldon Mast, on September 16th, 2009
“For every action, there is an equal and opposite reaction.”
Newton’s statement implies that in every interaction, there is a pair of forces acting on the two interacting systems. The size of the forces on the first system equals the size of the force on the second system. The direction of the force on the first system is opposite to the direction of the force on the second system. Forces always come in pairs – equal and opposite action-reaction force pairs.
Last September 29th the Dow Jones Index posted its biggest point-drop ever. The drop wiped out $1.2 trillion in market value with the index slumping over 777 points, in the biggest single-day point loss ever.
But almost a year later the markets are up over 50% from their 2008 lows. And there is likely a lot more room for the markets to run even higher.
If one closely analyzes Sir Isaac’s third law of motion and a simple stock chart for the last year, it does not seem far fetched that the market could be poised for a very significant leg up.
(click to enlarge) (Source: Google Finance)
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