Showing posts with label Gold. Show all posts

July 12, 2016

Dow Theory Development of the Week

With the Dow Jones making new all time highs, we NEED the transportation index to confirm.

Like a kick in the face

For any precious metals investor who isn't a lightning fast HFT robot or the Bank of Nova Scotia, investing in Gold has been a proverbial and perpetual kick in the face.

But this might be ending ...

Here's all of the reasons why

Top US banks are now offering essentially 0% down mortgages. This is as, if not more risky than the subprime stuff that nearly tanked the global economy.
Foreign Central Banks are dumping US debt at the fastest rate since the 70s.
Central banks (except Canada ...) are still net buyers of Gold.
China now has one of the largest Gold exchanges in the world.
Smart money has been moving away from Riskier high yield bonds toward safer assets to the tune of billions of dollars in the last few months.
Brexit happened. This is a black swan sort of event in the sense that there is a lot of uncertainty now that the UK is officially out. Conservative economists are screaming bloody murder over Brexit.
Debt to GDP ratios in just about every developed nation is utterly insane. Japan is up over 400%, the US is close to 200%, Greece and Ireland are up to 300%. It was thought that at 120%, your country's currency would collapse. Perhaps in the new math of the global economy, this is no longer the case. If all of the big players are adding debt liberally, then debt will perhaps become the new normal (or I'm thinking that's the hope). Perhaps the debt numbers will get so utterly massive that they will become an irrelevant abstraction. Perhaps they already are.

Each of these things leads me to believe that Gold is in prime position for a huge run.

September 8, 2013

Is the Manipulation in the Metals About to Begin Again?

Posted: 07 Sep 2013 03:36 PM PDT

By Toby Connor

http://goldscents.blogspot.ca/2013/09/is-manipulation-in-metals-about-to.html

The answer to the question above unfortunately is maybe. There are definitely warning signs springing up.

The first sign of trouble popped up last week when the miners generated a key reversal on huge volume, and on a day when gold was actually positive. Something about that day smells very fishy to me. It looks like big-money traders had advance notice that a false breakout to new highs was going to be manufactured to give insiders an exit after a two-month 40% rally. The high volume follow through the following day confirms that something is not right.

Looking at the weekly chart only confirms my suspicion. The last week of August was the highest volume week in GDX's history. When that kind of volume appears at the top of a two-month rally, after a 40% gain, there's a good chance its signaling smart money just snuck out the back door. We should only see this kind of volume at the bottom of a serious decline, not the top of a two-month rally unless something is wrong.

Another warning sign is the potential topping candle on the weekly charts of $GOLD followed by an indecision candlestick this week.

I'm starting to get quite nervous that this intermediate cycle topped on week nine and the bear raid is about to continue.

As most of you know I'm not a big conspiracy buff. Other than short-term stuff around options expiration, pretty much all of the pullbacks in this bull market can be explained away as normal corrective moves that happen in all bull markets. Unfortunately, this has not been the case since last December. Nothing about the decline after the QE 4 announcement has been natural.

First off, the intermediate cycle length was stretched ridiculously far, which would never occur during a down trend. During down trends intermediate cycles shrink, not stretch.

Secondly, sentiment extremes which would normally generate bear market rallies had no affect during this decline. The lack of any significant counter trend moves to relieve selling pressure during this bear market are another sign in my opinion that this was not a natural move.

And finally, the repeated massive volume take downs in the overnight and pre-market hours to push gold below significant technical levels thereby triggering stop loss orders would never occur if traders were trying to maximize profits. That 400 ton dump in the pre-market on April 12th to run the stops below $1523 was so far from a natural market event it's not even questionable that it constituted blatant manipulation.

There's no doubt in my mind that big-money knows gold is going to enter the bubble stage of this bull market sometime soon. What started out probably as an attempt to create a selling panic so Germany could get their physical bullion back, has now turned into a high-stakes game of let's see how far we can lower the starting point before the bubble phase begins.

I have noted before the difference in profit potential if the starting point of the bubble phase could be artificially lowered. I'm convinced that if allowed to trade freely the next leg up in the gold bull market began last summer as all assets started to respond to QE 3& 4. That rally had a starting point at about $1550. Assuming a minimum secular bull market top of at least $5000, the profit potential from that move beginning at $1550 is about 200%. However, if the starting point could be artificially lowered to $1000, the profit potential jumps to 400%.

Considering the warning signs from the mining stocks last week and this week, I'm starting to get extremely concerned that the bear raid is about to resume. The first goal will be to take gold back down to test this summer's $1179 bottom. If that bottom can be broken (and if gold gets anywhere near that level I think we can automatically assume we're going to see another massive contract dump in the overnight market to make sure it does get broken), gold will collapse in another waterfall decline that drops it all the way back to the prior C-wave top at $1030.

The next week or two are going to be dangerous in my opinion. If the bears can get some downside traction, traders need to get out of the way, get back to cash, and prepare to jump on board the bull at $1000 which I believe is probably the ultimate goal of this manipulation event that has been going on all year.

I advised subscribers to exit o n Tuesday morning into strength based on these warning signals. We are now in wait and see mode in case the manipulation resumes. If it does, then we want to stay on the sidelines until the big-money is finished jerking the sector around, and we want to re-board the train at the bottom along with the insiders who have manufactured this whole criminal process.

I invite you to consider a $10 trial one month subscription to my daily and weekend reports. The topics covered (with charts) include analysis of the precious metals, miners, stock market, currencies, bonds, the Fed, sentiment and cycles.

May 11, 2013

Three Reasons to Buy Gold Equities Today

By Frank Holmes
CEO and Chief Investment Officer

U.S. Global Investors

Source: http://www.usfunds.com/investor-resources/investor-alert/three-reasons-to-buy-gold-equities-today/

A strong stomach and a tremendous amount of patience are required for gold stock investors these days, as miners have been exhibiting their typical volatility pattern.

That’s why I often say to anticipate before you participate, because gold stocks are historically twice as volatile as U.S. stocks. As of March 31, 2013, using 10-year data, the NYSE Arca Gold BUGS Index (HUI) had a rolling one-year standard deviation of nearly 35 percent. The S&P 500’s was just under 15 percent.

I believe the drivers for the yellow metal remain intact, so for investors who can tolerate the ups and downs, gold stocks are a compelling buy. Here are three reasons:

1. Gold Companies are Cheap.

According to research from RBC Capital Markets, Tier I and Tier II producers are inexpensive on historical measures. Based on a price-to-earnings basis, RBC finds that “shares are currently trading not far from the recent trough valuations observed during the 2008 global financial crisis.”

And on a price-to-cash-flow basis, gold stocks are trading at bargain basement prices. The chart below shows that average annual cash flow multiples for North American Tier I gold companies have fallen to lows we haven’t seen in years. Since January 2000, forward price-to-cash-flow multiples have climbed as high as 26 times. This year, we see multiples at the high end that are less than half of that.

On the low end, today’s price-to-cash-flow of 6.5 times hasn’t been seen since 2001.

click to enlarge

Tier I and Tier II companies “offer investors an attractive entry point from an absolute valuation perspective with respect to the broader market,” says RBC.

2. Gold companies are increasing their dividends.

With the Federal Reserve suppressing interest rates, investors have had to adapt and reallocate investments to generate more income.

That’s where gold companies come in. I have discussed how miners have become much more sensitive toward the needs of their investors as they compete directly with bullion-backed ETFs and bar and coin buying programs.

In response to shareholders’ desire to get paid while they wait for capital appreciation, gold companies have rolled out dividend programs and increased payouts. “The growth in dividend payout has been spectacular when looking at the industry as a whole,” says my friend Barry Cooper from CIBC World Markets. His data shows that over the past 15 years, the world’s top 20 gold companies have increased their dividends at a compound annual growth rate of 16 percent. By comparison, gold only rose 12 percent annually.

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Not only are gold companies increasing their payouts, the yields offer a tremendous income value to investors compared to government bonds today. Whereas investors receive a 1.5 percent yield on a 10-year Treasury, the stocks in the Philadelphia Stock Exchange Gold and Silver Index (XAU) are paying a full percentage point more!

This is a significant change from the past: In April 2008, the Treasury yield was nearly 3 percent more than the dividend yield of the XAU. In addition, the yields of gold stocks have been climbing over the past year while the 10-year Treasury remains low.

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3. Enhanced returns in a diversified portfolio.

We have long advocated a conservative weighting of 5 to 10 percent in gold and gold stocks because of the inherent volatility you are seeing today. But despite the extreme moves, there’s a way to use gold stocks to enhance your portfolio’s returns without adding risk.

Take a look at the efficient frontier chart below, which creates an optimal portfolio allocation between gold stocks and the S&P 500, ranging from a 100 percent allocation to U.S. stocks and no allocation to gold stocks, and gradually increasing the share of gold stocks while decreasing the allocation to U.S. equities.

The blue dot shows that from September 1971 through March 2013, the S&P 500 averaged a decent annual return of 10.34 percent.

What happens when you add in gold stocks? Assuming an investor rebalanced annually, our research found that a portfolio holding an 85 percent of the S&P 500 and 15 percent in gold stocks increased the return with no additional risk. This portfolio averaged 10.96 percent over that same period, or an additional 0.62 percent per year, over holding the S&P 500 alone. Yet the average annual volatility was the same.

Efficient-Frontier-Portfolio-of-S&P-500-index-and-Toronto-Gold

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Although 0.62 percent doesn’t seem like much, it adds up over time. Assuming the same average annual returns since 1971 and annual rebalancing every year, a hypothetical $100 investment in an S&P 500 portfolio with a 15 percent allocation in gold stocks would be worth about $7,899. This is greaterthan the $6,246 for the portfolio solely invested in the S&P 500 while adding virtually zero risk.

Case Study: Alamos Gold (AGI)

Not all miners are worthy of your investment, and the task of picking quality gold company candidates isn’t simple. One company we currently like is Alamos Gold, which reported first-quarter 2013 results last week.

To the delight of many mining analysts, the company beat analysts’ expectations on both the top and bottom line. Alamos grew its production to 55,000 ounces of gold from 40,500 ounces in the same quarter last year.

In addition, AGI boasts an 8.76 percent free cash flow yield, allowing executives to build the business through paying off debt, making acquisitions or returning money to shareholders. In Alamos’ case, the company announced a stock repurchase of 10 percent of its float over the next 12 months.

While the company trades at a premium to most junior producers, it may be well worth the extra coin, as its low cost profile, cash generation and self-funding capabilities, as well as its discipline in returning capital to shareholders fit our growth at a reasonable price (GARP) model.

Happy Mother’s Day!

As we honor and celebrate mothers this weekend, we thank them for their unconditional love and support. Alfred Lord Tennyson wrote, “Love is the only gold.” That may be true, but it wouldn’t hurt to stop by the jewelry store on your way to see Mom.

Recent Posts About Gold:
This Chart Answers a Classic Question About Gold
Gold Buyers Get Physical As Coin and Jewelry Sales Surge
Four Important Facts to Remember About Gold

Gold Market SWOT Analysis

Gold shows no sign of a bubble compared to tech and oil bubbles

click to enlarge

For the week, spot gold closed at $1,448.20, down $22.55 per ounce, or 1.53 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, rose 0.47 percent. The U.S. Trade-Weighted Dollar Index rose 1.24 percent for the week.

Strengths

At the risk of sounding like a broken record, there is yet more evidence of the unprecedented demand for physical gold. Christopher Wood in his Greed & Fear report this Thursday notes that Chinese gold imports from Hong Kong in March more than tripled from a year ago, from 62.9 metric tons to 223.5 metric tons. Similarly, India is heading for its second-straight month of 100 plus metric tons of gold imports according to the Bombay Bullion Association. There is only one way to view this data, and it is bullish for gold.
Franco-Nevada announced that it has acquired a 1.2 percent NSR royalty on Pretium's Brucejack project for $45 million. The royalty covers both the Valley of the Kings and West Zone and becomes payable after approximately 500,000 ounce. The investment by Franco-Nevada is certainly a vote of confidence in the project and serves to remind investors that there is value in junior mining stocks.

Timmins Gold reported first-quarter results this week; the company’s operating earnings beat analysts’ expectations reflecting strong gold sales and lower than forecast costs.With production ramping up in the course of the year and a decline in capital expenses as the drilling season ends, the company is in a strong position and will likely see rising free cash flow and cash balances through the remainder of the year.

Weaknesses

India’s silver imports slid 80 percent in 2012 and have continued falling in 2013. Despite producing sizable silver, unlike gold where the country is totally import dependent, the fall in demand is almost fully attributed to a decline in purchases for investment purposes, according to data from the All India Gem and Jewellery Trade Federation. Unlike gold which attracted massive physical buying after its historic fall mid April, silver has failed to garner any buying interest in India.
Investors pulled $8.7 billion from gold exchange traded products (ETPs) globally in April, Blackrock's data showed, after bullion plunged half-way through the month. It appears the strong demand for coins, bars, and jewelry has not been enough to arrest the levels of institutional selling. In fact, ETP investors are net sellers into May, which Ole Hansen, head of commodity strategy at Saxo Bank, continues to attribute to institutional accounts. Wealth managers have been rotating out of commodities and into high-dividend equities and bonds as they look for yield.
Despite having unbundled some of its labor-intensive, wildcat strike-prone mining assets earlier in the year, Gold Fields reported earnings per share 5 percent below estimates and 66 percent lower than last quarter. Production from the company’s mines came in 11 percent below last quarter at 477,000 ounces, making the once controversial split even more unappealing to investors.

Opportunities

Drew Mason of St. Joseph Partners noted in his Weekly Gold Review how equity investors are holding on to the single most negative viewpoint on gold in the market today, which is that central banks are on the verge of ending their money printing and again becoming responsible. However, the first days in May brought a broad amount of economic data which showed how weak the economy continues to be. At some point the consensus will remember the Fed has repeatedly broken its exit promise. The view will shift from the Fed “will be exiting QE any minute now” to the realization the Fed is trapped and cannot exit which should be very positive for the metals.

The question on when is the right time to step into the gold market and pick up stocks has been asked too frequently. The quantitative analysts at GMP Securities provided an interesting view this week. When the ratio of gold bullion to gold stocks is falling, it means gold stocks are appreciating at a higher rate than bullion, and that is exactly when you want to be in stocks. The ratio of gold relative to stocks as measured by the HUI Index has been rising constantly since early 2011 and is now at 5.65. From a statistical standpoint, the current level is above the two standard deviation level—despite the current gold weakness—implying a correction is imminent. During the correction you want to be long gold stocks.
Peter Schiff, outspoken author of The Real Crash, permanent bear, and head of Euro Pacific Capital, is now an official gold supporter. On Friday Schiff released a video stating that the same unprecedented negative sentiment in the space will provide the “wall of worry” gold needs to climb back. In his opinion, he is now convinced the fundamentals have never been better for the yellow metal as the pace of currency debasement only accelerates, regardless where you are looking at.

Threats

This month, the South African Chamber of Mines will sit down with unions to hammer out its next set of wage agreements. Despite recent questioning of the role of unions by workers themselves, who are worried that leadership has lost touch with its members, the National Union of Mineworkers spokesperson asserts they are prepared to fight for double-digit figure raises, leveraging on their opinion that companies acted in bad faith following negotiations last year. Costs have increased to a point where further, significant wage hikes are just not an option if the sector is to stay above water.
The province of Quebec has defined the new hybrid royalty tax model applicable to mining companies. The levy will require producers to pay the greater of two amounts: a royalty on output, also deemed the minimum mining tax, or a tax on profits, deemed the progressive mining tax on profit. Minimum taxes will range from 1 percent to 4 percent depending on the size of the project, and profit taxes will range from 16 percent to 28 percent. Although the plan appears less damaging than initially thought, it adds pressure at a time when falling metal prices have already cut into the tight margins in the mining sector.
The Colombian government has officially postponed a highly anticipated auction for 50 million acres of strategic mineral concessions. Thom Calandra reports that mining regulators in Colombia appear to need more time to gather information about the properties, which were to have gone to bid later this year. Other properties, known as concession applications, which have long been delayed, appear thus far not to be at risk of postponement.

May 5, 2013

The Dollar's Collapse Has Begun, and the Stock Market Keeps Stretching, Stretching, Stretching

By Toby Connor

www.goldscents.blogspot.com

I've been pointing out for several months now that the recent rally in the dollar was a mirage, an illusion generated by the yen, euro, pound, and Canadian dollar all dropping into yearly, or intermediate cycle lows together. This selling pressure in the four major currencies that make up the dollar index spawned what looked like a strong dollar.

With Bernanke printing 85 billion of them a month, there is no such thing as a "strong dollar". I've been saying for months that once these four currencies completed their bottoming cluster it would be the dollar's turn to crash. The recent collapse in the yen was 23%. The Pound 9%. I think the dollar will be somewhere in between with a loss of 9-12% as it drops down into its yearly cycle low.

As this process starts to accelerate over the next couple of months the dollar bulls are going to get a rude awakening, as our currency shows its true colors. The acceleration began today as the dollar has now completed a lower low and a lower high.

Once major support is breached at 78.50 there will be nothing to stop, what I think will be a waterfall decline, until the dollar reaches the 73-75 zone.

And don't forget this is just the beginning. The much larger degree, 3 year cycle low, isn't due until late next year.

It's time for the unintended consequences of QE infinity to come home to roost.

This should drive either another C-wave in gold. Or as I'm now starting to believe, gold may be in the initial stage of the bubble phase of the bull market. 2015 will be 15 years. That's about a normal during for a secular bull run.

Let's face it, common sense would tell most people that you can't just print 85 billion dollars a month and not have something bad happen. The last time the Fed embarked on this kind of insane policy it was during the real estate bubble implosion. Instead of rescuing the housing market the Fed drove oil to $150 a barrel and spiked food prices around the world, triggering riots and wars in many third world countries.

I expect the same game plan this time is going to reap the same results.

We have all the ingredients in place. Gold has probably completed its yearly cycle low. The COT is showing a max bullish position by commercial traders. Before every bubble phase there is always a devastating correction that convinces everyone that the bull is over. I would say that describes pretty much what has happened over the last 6 months.

And to top it all off the recent manipulation to run the stops below $1523 has triggered massive shortages in the physical market, especially in silver.

Now add to that a collapsing dollar over the next year and a half and everything is in place for gold to generate at the very least another C-wave advance and in my opinion we probably have the conditions necessary for the bubble phase to begin.

The runaway move in the stock market that we have been watching over the last few months continues to stretch higher and longer. Let me emphasize again, these things always end badly. Usually in some kind of crash, or semi crash.

I strongly advise traders not to chase this move. It's way too late and risk is extremely high. If you don't time the exit perfectly you risk getting caught in the crash.

The way to correctly trade a runaway move like this, is to wait patiently for the crash to unfold, and then buy long as the Fed doubles down on QE in the attempt to reflate asset prices.

The crash could happen at any time, but based on the intermediate dollar cycle, which is due to bottom in late June or early July, I'm expecting the stock market swoon to correspond with the dollar rallying out of that major bottom. So my best guess is in late June or early July we will see this artificial rally come crumbling down.

Let me emphasize that while I think the crash is going to occur later this summer, there is no guarantee it can't happen sooner.

On a side note: I heard a commercial yesterday in Las Vegas for a seminar on how to get rich flipping houses. Seriously? Are we really stupid enough to go down that road again?

Source 1: http://goldscents.blogspot.com/2013/04/dollar-collapse-has-begun.html

Source 2: http://goldscents.blogspot.com/2013/05/stretching-stretching-stretching.html

April 18, 2013

Interactive Gold History Chart

Four Important Facts to Remember About Gold

By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors

April 18, 2013

When volatility prevails in the gold market, I love seeing so many different opinions because it promotes critical thinking and healthy markets. But because gold is unlike any other commodity, many perspectives can be extreme, such as “goldenfreudes” who take pleasure in gold bugs’ pain.

I continue to persuade readers to take a balanced and thoughtful approach to the yellow metal. With this in mind, here are four facts to remember about gold that should help neutralize those extreme bullish and bearish views.

1. You can’t print more gold

The Federal Reserve continues to print fresh, crisp stacks of U.S. dollars amounting to $85 billion every month, driving up the balance sheet to almost $3 trillion dollars. If Ben Bernanke continues churning out dollars at this rate, by 2016, the balance sheet will more than double to $7 trillion dollars.

And research has found that the price of gold moves in near-lockstep to each increase in the Fed’s balance sheet.

Even with the incredible two-day drop in gold prices, U.S. Global portfolio manager Ralph Aldis calculated that the correlation between the rise in gold and the U.S. balance sheet is 0.96. Perfect correlations of 1 are extremely rare in markets, but gold and the balance sheet have moved in sync with each other since 1999, before gold’s bull run began.

Fed Balance Sheet, February 15, 2013 $2.8 Trillion

click to enlarge

2. Gold is viewed as a currency by central bankers

As gold was falling on April 15, Carl Quintanilla from CNBC asked me what I thought about how investors viewed currencies. I feel investors should look at how central banks around the world are viewing their own reserves. Although Cyprus and Italy were possibly forced to sell their gold holdings to pay down debts, take a look at the actions of emerging countries central bankers who are scooping up gold.

The World Gold Council (WGC) reported that in 2012, central banks purchased 535 tons when only a few years ago central banks were net sellers of gold. And it’s important to keep in mind that these central banks love these corrections, as they can purchase gold at cheaper prices.

Russia bought 75 tons, bringing its gold holdings to the seventh largest in the world, with about 1,000 tons. Last year, Brazil, Paraguay and Mexico purchased gold, as did South Korea, the Philippines and Iraq.

Turkey is another country that has been building reserves, though not from purchases. Rather the WGC says its growing gold reserves “reflect the increasing role that gold plays more broadly in the Turkish financial system as these reserves are substantially pledged from commercial banks as part of their required reserves.”

While the tonnage is only a fraction of the overall gold market, it is widely acknowledged that central banks are building their supplies of gold as a means to diversify their holdings away from the U.S. dollar and the euro. As a percent of total reserves, many of these emerging countries mentioned above own very little gold. In fact, Pierre Lassonde, chairman of Franco-Nevada, has noted that even if emerging market central banks wanted to increase their gold reserves to 15 percent of total reserves, they’d have to buy 1,000 tons every year for the next 17 years!

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3. A lack of love from the Love Trade is affecting fundamentals

Too many people focus on the Fear Trade, which is when investors buy gold coins or a gold ETF out of a fear of the fallout that may result from governments’ rising debt levels and weakening currencies.

The Love Trade, on the other hand, is the buying of gold out of an enduring love for gold. Two emerging countries that make up almost half of gold demand—China and India—have had a long relationship with the precious metal that is intertwined with their culture, religion and economy. With half of the world’s population buying gold for their friends and family, it’s important to put into context what is happening in their countries.

It was announced this week that China’s income growth slowed in the first quarter of 2013, with urban household disposable income rising only 6.7 percent on a year-over-year basis. This is down from 9.8 percent in the first quarter of 2012, and “the slowest pace since 2001,” says Sinology’s Andy Rothman.

This is very important to gold, as China’s income growth has been shown to be highly correlated to the price of the precious metal over the past decade.

Strong Correlation Between Rising Incomes in China and India and the Gold Price from 2000 to 2011

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China’s weaker GDP also disappointed gold investors, but I believe this is only a temporary setback. It’s only a matter of how fast China will move to stimulate the economy, since this is a key to global growth.

In India, gold consumption has been hurt by both a weak rupee and government taxes on imports. In the first quarter of 2013 alone, gold imports declined 24 percent, according to Mineweb.

4. Corrections happen, but have historically offered buying opportunities

As of the end of April 15, the gold price on a year-over-year percentage change basis registered a -2.6 standard deviation. While minor corrections in the gold price happen frequently, a move this severe has never occurred before over the previous 2,610 trading days.

Year-over-year Percent Change Oscillator: Gold Bullion

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With gold’s standard deviation drastically below the “buy signal” blue band, we consider the yellow metal to be in an extremely oversold position on a 12-month basis. The probability that gold will move higher over the next several months is high.

Be Curious to Learn More About Gold
Gold is clearly unlike any other commodity on the periodic table. Its climb year-after-year has enraptured investors to learn more about what’s driving gold.

Watch my discussion with Carl Quintanilla from CNBC

See my interview with Daniela Cambone from Kitco

See the U.S. Global slideshow featured on Business Insider on the Many Amazing Uses of Gold

Make sure you receive my blog posts via e-mail

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. Standard deviation is a measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is also known as historical volatility. By clicking the links above, you will be directed to third-party websites. U.S. Global Investors does not endorse all information supplied by these websites and is not responsible for their content. The following securities mentioned were held by one or more of U.S. Global Investors Funds as of 3/31/13: Franco-Nevada

April 6, 2013

The Casey Downturn Millionaires' Message: Why David Galland Is Answering His Broker's Calls Again

By JT Long of The Gold Report
www.theaureport.com

The Gold Report: You are moderating a webinar for Casey Research titled "Downturn Millionaires: How to Make a Fortune in Beaten-Down Markets." This is going to air on Monday, April 8. It's an interesting title considering the current state of the precious metals market. Gold hasn't even flirted with $1,900/ounce ($1,900/oz) since 2011 and dropped below $1,600/oz. Silver fell from $43/oz that same year to below $30/oz. Will this conference deliver the painful message that the bull market is over or do you have some good news for listeners?

David Galland: We have some good news. The genesis of the webinar is somewhat interesting. Long-term friend Rick Rule, founder and chairman of Sprott Global Resource Investments Ltd., sent an e-mail saying, "Guys, this is a real market capitulation and one of those rare opportunities to make serious money on the rebound."

"The global demand for minerals is only going to continue to grow, and the role of precious metals is especially important given the complete lack of monetary and fiscal restraint on the part of the U.S. and other large governments."

The proverbial light went off in our collective heads because we, too, have seen this sort of extreme opportunity several times during our careers. And so we scrambled to pull this webinar together in about a week to help make our subscribers and friends aware of the importance of the market capitulation and how to take full advantage. Simply, this is one of those rare moments when absolutely no one wants anything to do with gold stocks, even though gold bullion itself really hasn't sold off all that much compared to the gold stocks, which are off by as much as 50%.

The overarching purpose of the webinar, therefore, is to serve as a gut check and to help people focus on the opportunity. After all, the global demand for minerals is only going to continue to grow, and the role of precious metals is especially important given the complete lack of monetary and fiscal restraint on the part of the U.S. and other large governments. The role of gold and silver is certainly not over, which points to a huge opportunity because the tremendous apathy and capitulation in the gold share market has knocked even the best companies flat on their backs.

TGR: The demand argument makes sense, but were the smart people in this group able to come up with the reason why the stocks are doing so poorly compared to the bullion?

DG: We discussed the stocks in depth, starting with the macro-picture for precious metals, and then, by extension, why people want to own the stocks. The speakers had some great insights about why we've gotten to this point. Then they focused on what they see ahead for the sector and specific ways to profit as the market bounces back.
TGR: One of the featured speakers is Doug Casey, chairman of Casey Research. When we interviewed him in January for "The World According to Doug Casey," he said "speculation is capitalizing on politically caused distortions in the marketplace." We've had years of quantitative easing, but none of the inflation he predicted. Is the government winning? Is that answered in the webinar?

DG: I wouldn't say we've had none of the inflation. The government does its very best to cover it up but we all know that prices have gone up considerably on a lot of things. Look at the basics—foodstuffs, energy and so forth. Are governments winning? No, they are just digging themselves and their respective economies a deeper and deeper hole. That said, you could certainly say that at this stage of the battle, people seem to have forgotten that there's a connection between money printing and inflation. It is baffling because deconstructing the Great German Inflation and other inflations around the world, it was clear to everyone that money printing was the primary culprit. Yet people seem to have once again forgotten that connection. The faculty in this webinar address the questions of where the inflation is heading, why hasn't it shown up and what can we expect when we see it. The consensus view among the faculty was that we're looking at inflation rates in the high double digits and maybe worse within the foreseeable future, maybe not tomorrow, but it will come.

"The role of gold and silver is certainly not over, which points to a huge opportunity."

Governments around the world seem to think that their economies are like washing machines that can be fixed with a bit of tinkering, but they'll have serious trouble turning off the money printing machines. Social promises have been made, hundreds of millions of people now rely on governments for the bulk of their sustenance.

Yet it's important to remember that governments don't actually make anything, except maybe wars. Where is the money going to come from for all these social programs? It's going to be magically whipped up out of thin air essentially. That will have an effect on the purchasing power of the currency units already in circulation, and it will have a positive effect on the prices of tangibles, most importantly gold and silver.

TGR: Participant Bill Bonner, who is the editor of The Diary of a Rogue Economist, also watches macrotrends. Does he see any end to the emergency-of-the-week theme playing out on the global stage? And does he have any suggestions for how investors can protect themselves from the fallout?

DG: Bill completely understands the role that gold plays in preserving personal net worth, but doesn't usually discuss gold shares per se. Even so, in our webinar he said something that really got my attention, "The time to buy these shares is when nobody wants to own them, when even you don't want to own them." That struck home with me because I've been investing in this market since the 1970s, and long ago I learned that the time you really want to back up the truck is when you have exactly the kind of bombed out markets that we have today.

As Bill spoke, it really resonated because I, too, have been ducking calls from my broker, and I have a lot of respect for my broker. Worst of all, my broker is calling me offering me financings on great companies that come with five-year warrants, which is a very rare thing and only seen in periods of complete capitulation. But I didn't want to take the guy's calls because of the same mistake a lot of people are making at this point, which is just to assume that the market is dead forever when, in fact, that's very much not the case.

TGR: So when David's scared, that's the time to buy. Is that what you're saying?

DG: Well, not so much scared. I just didn't want to hear about the sector anymore. Listening to this webinar inspired me to spend time looking at stocks of companies that I know have great projects, and great management and cash in the bank. Universally, these great companies have sold off by 50-60% or more. Yet, there is nothing wrong with these companies other than this panic out of the risk-on trades in the junior resource sector. That was a real wake up call.

TGR: Webinar speaker John Mauldin, author of Thoughts from the Frontline, predicted, in a November interview with us, "John Mauldin's Roadmap to Surviving the Fiscal Cliff," that politicians would find a way around the fiscal cliff that was looming at that time, but he warned that the economy would be in for a bumpy ride. In this webinar, did he have any predictions for when or how things would get better?

DG: John jokes that even as a relative pessimist, he looks like an optimist when in the company of the Casey Research team. John still thinks there is the possibility of a political solution to the economic crisis. If there is, I haven't seen it, and nothing on the horizon looks like it's going to happen as far as I can see.
Despite his cautious optimism, John was absolutely in sync with the rest of the speakers' opinions about the great contrarian opportunity in gold and the gold share market, an opportunity that most people will miss, but shouldn't.

TGR: Another speaker, International Speculator Editor Louis James, stressed the importance of thinking long term when we interviewed him last September for the article "How Investors Can Protect Themselves in a Politicized Economy." He said the junior market was looking "bottomish" and it looked like a good time to buy. Will he be mentioning what companies he likes in the webinar?

DG: He talks about a couple of companies he likes as examples. He's also quite adamant about the criteria that people should use in deciding what precious metals shares belong in their portfolio and what shares people should be selling now. The reality is that a good number of these companies will not survive this downturn. If you're sitting on a company with no cash in the bank, an only so-so project and average management, there's a reasonable chance it's going to go to $0 even though it may have already gone down by 50%.

"We have a classic contrarian opportunity where pretty much everybody who is going to sell has sold, leaving only one way to move—up—for the companies with the right combination of attributes to survive."

In the webinar, Louis covers the specific aspects of companies you want to own in your portfolio and the ones you should lose. It's an important message because these things are, as Doug Casey likes to say, not family heirlooms but burning matches. And the ones that aren't going to make it just aren't going to make it. You have to come to that reality. But the good news is that by rotating into the certain winners you can claw back pretty quickly when the market sentiment shifts, as it most certainly will.

TGR: Another one of the webinar speakers, Rick Rule, is a very popular expert with The Gold Report readers. When he spoke to our president, Karen Roche, last November for an article titled "Be a Risk Manager, Not a Reward Chaser," he called gold "catastrophe insurance." Does he have any specific advice for how investors should adjust their portfolios in a downturn?

DG: I would say similar to Louis, his message is very clear. There are definitely companies that aren't going to make it, and then there are companies that are going to make it and make it in a very big way. It was interesting because I've known Rick for a couple of decades now and I have seen him give a lot of presentations, but he was very vocal in pointing to an urgency in this market that most people are missing.
Rick, Louis, Doug and all of the people on this webinar are really on the same page about this. Investors need a wakeup call. They need to really be paying attention at this moment because it's one of those rare, once-in-a-generation opportunities to, as John Mauldin says, get in front of a bubble.

We've seen this before. We saw this in July 1982, another classic capitulation with gold falling from over $800/oz in 1980 to below $350/oz. As you might imagine, the gold shares were completely sold off with the volume on the Canadian stock exchanges falling to next to nothing.

But then there were a couple of discoveries in the Hemlo district of Canada, coinciding with a rally in gold, and the market skyrocketed. One of the companies involved in a Hemlo discovery, Golden Sceptre, went from a low of $0.41/share up to $31/share in about a year. Another, Goliath Gold, went from $0.45/share in March 1982 to $32/share in March 1983, an increase of over 7,000%.

That sort of opportunity is pretty much only available following periods of market capitulation such as we are experiencing today. People have forsaken reason, and they don't want to know about gold stocks. That alone should point the way to a classic contrarian opportunity where pretty much everybody who is going to sell has sold, leaving only one way to move—up—for the companies with the right combination of attributes to survive.

TGR: So as painful as this has been for all of us over the last couple of years, after listening to these speakers, are you ready to say you welcome a down market for the opportunity it affords?

DG: Absolutely. And as I said, it was a complete wakeup call for me. Until participating in the webinar, I had completely stopped paying attention to the sector. Now I am completely re-engaged and talking to my broker again.

TGR: Thank you for taking the time to talk to us.

DG: It was nice to be with you.

The free "Downturn Millionaires: How to Make a Fortune in Beaten-Down Markets" webinar will go live April 8 at 2 pm ET. Sign up in advance to register.

David Galland is the managing director of Casey Research, LLC, a private investment research company serving a subscriber base of over 180,000 independent mining investors in over 180 countries. Prior to joining Doug Casey as a partner in Casey Research, Galland was a founding partner of EverBank, one of the world's most successful online banks. Galland cut his teeth in the natural resource sector by working at the Climax molybdenum mine while in his teens, and has previously served as managing editor of the Gold Newsletter, the Aden Analysis, the International Speculator and The Casey Report, among others. He is also a contributor to Casey's Daily Digest, which each business day features rotating articles on precious metals, energy, technology, politics and more.

International investor Doug Casey, chairman of Casey Research, LLC, has written several books on crisis investing, including the groundbreaking "Crisis Investing: Opportunities and Profits in the Coming Great Depression" (1979). He has appeared on NBC News, CNN and National Public Radio, and he's been featured in periodicals such as Time, Forbes, People, Barron's and The Washington Post. He has also written countless articles for his own publications.

Bill Bonner is co-founder and president of Brickburn Asset Management, a Calgary-based investment counseling firm largely focused on the Canadian energy sector. Prior to founding Brickburn Asset Management, Bonner was a founding director of Network Capital, the predecessor to Brickburn. His career also included 14 years with Peters & Co. Ltd., where he was a significant shareholder, member of the Executive Committee, and managing director of institutional sales and trading.

Louis James is the master of metals at Casey Research, where he's the widely read and well-respected senior editor of the International Speculator, Casey Investment Alert and Conversations with Casey. Fluent in English, Spanish and French, James regularly takes his skills on the road, evaluating highly prospective geological targets and visiting explorers and producers at the far corners of the globe and getting to know their management teams.

John Mauldin is the author of four New York Times bestsellers. They include Bull's Eye Investing: Targeting Real Returns in a Smoke and Mirrors Market, Just One Thing: Twelve of the World's Best Investors Reveal the One Strategy You Can't Overlook, and Endgame: The End of the Debt Supercycle and How it Changes Everything. He also edits the free weekly e-letter Outside the Box. Mauldin also offers The Mauldin Circle, a free service that connects accredited investors to an exclusive network of money managers and alternative investment opportunities. He is a frequent contributor to publications including The Financial Times and The Daily Reckoning, as well as a regular guest on CNBC, Yahoo Tech Ticker, and Bloomberg TV. Mauldin is the president of Millennium Wave Advisors, an investment advisory firm registered with multiple states. He is also a registered representative of Millennium Wave Securities, a FINRA-registered broker-dealer.

Rick Rule, founder and chairman of Sprott Global Resource Investments Ltd., began his career in the securities business in 1974. He is a leading American retail broker specializing in mining, energy, water utilities, forest products and agriculture. His company has built a national reputation on taking advantage of global opportunities in the oil and gas, mining, alternative energy, agriculture, forestry and water industries.

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Source: http://www.theaureport.com/pub/na/15132

March 28, 2013

The Gold Market Week In Review

By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors
www.unsfunds.com

For the week, spot gold closed at $1,596.82, down 18.06 per ounce, or 1.12 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, lost 1.42 percent. The U.S. Trade-Weighted Dollar Index gained 0.29 percent for the week.