September 30, 2023

The Bright Side Of Plunging Gold Stocks

Each day another gold stock blows up.  Last week it was NovaGold (NG) and then Newmont Mining (NEM) and before that a long list too painful to mention.  Although I strongly prefer holding physical precious metals over mining companies, the gold stocks that I do own have put in less than a sterling performance.

I won’t bother going through the reasons why gold stocks could recover or mention the fact that many of them are trading at a fraction of what they were worth when gold was a thousand dollars lower.  Stocks are ultimately valued on earnings and for a variety of reasons, many of the mining companies have not been able to translate higher gold prices into higher dividends or earnings.

To put this all into perspective, I was pondering on two innate character traits I possess that can be confirmed by anyone who knows me.

First and foremost, I procrastinate on everything in life, but actually have a very profound theory to validate the benefits of a trait that many would view as indolence.  Despite the occasional guilt for not doing something today instead of next week, I have conclusively proved to myself that a large percentage of those “today to do list” items somehow resolve themselves without my intervention.  Perhaps just a rationalization but it seems to work.

My second dominate character trait, and this one actually relates to plunging gold stocks, is my innate belief that somehow there is a blessing lurking next to each catastrophe.  What often times seems like Armageddon may be a benefit.  So how exactly do plunging gold mining stocks wind up benefiting long term gold investors?  The answer is actually in the details of each poor earnings report delivered regularly by gold miners.  When you drill into the core reasons for poor earnings, the answers all correlate  to lower gold production due to overestimates of ore reserves, mining difficulties and the higher cost of mining lower grade ore reserves.

The fundamental fact is that the quantity of high grade ore reserves has declined dramatically making it much more costly and difficult to produce gold.  In a recent article the Wall Street Journal estimated that at current production rates, all known gold reserves would be depleted within ten years.  It wouldn’t take much of a bump in demand to eventually propel gold to multiples of today’s price.

Here’s a neat info graphic from  Note that net gold supply has been static for the past decade and large scale high grade gold deposits are rarer than ever.

Gold Part II: Mining and Supply 

Would Auditing The Fed Send Gold Higher?

By Vin Maru

The House Passes H.R. 459 Bill from Ron Paul to Audit the Fed

July 25, 2012 should go down in history as the date the Federal Reserve may become fully accountable to the US government. A motion to pass the bill as amended was unanimously approved by the house to require a full audit of the boards of governors of the Federal Reserve System and banks. This will be done by the Comptroller General of the US before the end of 2012 and they are required to issue their report within 12 months of enactment.  The votes in the House in the bill’s passing this was 326 yea votes to 99 nay votes with 7 non votes.  Interestingly enough it was the Republicans that strongly supported this bill with 239 yea and 1 nay vote, while the Democrats voted 88 yea and 98 nay.

There are many hurdles ahead of this bill before it takes effect; it still has to be ratified by the Senate and the President.  However, finally getting approved in the House is a step in the right direction.  Even if it does pass how much effect will the audit have in reality?  Probably not much since the banking institution known as the Federal Reserve operates outside of any law.  Even if they are found guilty of any wrong doing in managing the value of the US dollar or being involved in rigging the Libor rate, who will be there to prosecute them?  Remember they operate outside the law, so even if they are found guilty, it will be the US citizens and holders of paper/digital US dollars that will somehow pay for it.

In a world where bank’s losses are socialized, the Federal Reserve (the banker for banks) misconducts have always been socialized on the people.  Of course, this socialization of losses by the Fed has been taking place ever since its illegal inception.  In 1913, the Federal Reserve stole the power to issue and control money by introducing the Federal Reserve note, something we call the US dollar.  Since then, it is estimated that the dollar has lost 95% of its purchasing power by way of inflation (the increase of the money supply), so it really has only 5% left to go.   As the value of the US dollar moves towards its intrinsic value of zero, gold and silver as true money has only one way to go and that is up.

Usually first reactions are correct and looking at this news the value of the US dollar reacted negatively, while gold went higher in most major currencies around the world.

Could This be the Catalyst that Gold Needs for a Major Break Out to the Upside?

In a manipulated market, it’s tough to say, but the fact that there is support for auditing the Fed and making it accountable is definitely a step in the right direction.  With the recent news about major banks manipulating the Libor rate, any investigation into the Fed’s involvement is most welcome and has to be gold-positive.  Recently, we have been writing about how gold is moving towards the financial system with several different proposals for making it a tier 1 asset class and its use as collateral by financial institutions. If these proposals take effect, they are planned for January 2013, which coincides nicely with this audit being completed by the end of 2012.

Normally, the summer doldrums represent the lows in price for precious metals with a significant rally occurring in the fall and winter.  With this recent down turn, we have most likely seen the lows, and there are many catalysts for G&S to move higher into next years.

For example:

1. Food inflation is rising with this drought.

2. Gold could carry a zero risk weighting on bank books by Jan 2013 (BIS and FDIC are proposing this).

3. Paper currencies are Fiat, essentially worthless, but they will be used to create inflation, there is no other choice at the moment—QE to Infinity.

4. Market manipulation by bullion banks will be overrun by physical buyer (mostly now coming from central banks).

5. The investment community is only 1% invested in gold; historically this has been 5-10%.

6. Political tensions with Iran could heat up again later this year or early next, causing higher oil prices and as such gold.

7. More banking manipulation and scandals are emerging this summer, the Libor scandal is just the tip of the iceberg.

8. They system for true price discovery is broken, regulators have failed and the LBMA & Comex have lost all control and credibility.

9.  The price suppression by the west will be overrun by the East and physical buyers. The West cannot win this paper game.

10. MOST importantly: GOLD and SILVER is a hard asset and it has a history of over 5000 years being REAL MONEY. This paper/digital money has been only in place over the last 100 years and is doomed to fail.

Now is the time to be investing in gold and silver, during this consolidation.  A long period of consolidation is usually followed by a major move either to the upside and downside.  Given gold and silver’s favourable fundamentals, the break out will most likely be to the upside as gold moves towards the financial system.  Today’s positive price action could be the start of a new trend higher going into the fall and early next year.  If this trend plays out, there will be several opportunities to trade in and out of several precious metals ETFs.  The gold miners are great value compared to gold and we have been evaluating several that have great upside potential and production growth.

The key is to be ahead of the curve before it happens, take a position and place a tight stop loss in case this is a fake break out and gold continues to correct lower against its fundamentals.  If the correction in gold is over and we are at a start of a new trend higher over the next year, this summer will prove to one of the best buying opportunities we have seen in a very long time.  Significant profits could be made buying gold and many of the producers during the summer doldrums and then selling into the fall and winter, the only question is are you positioned to take advantage of a trend change in gold when it happens.

If you enjoyed reading this article and are interested in protecting your wealth with precious metals, you can receive our free blog by visiting TDV Golden Trader.


Have Gold Stocks Hit Bottom Yet? Richmont Mines Latest Disappointment

The price of gold is almost exactly unchanged on the year.  The first trading day of the year saw gold close at $1598 per ounce.  After reaching a high of $1781 on February 28th, gold has drifted lower and at today’s closing price of $1604 gold is up a fraction of a percent on the year.


The story has been quite different for stockholders in gold mining companies.   Gold stocks have gone through a brutal sell off during 2012 despite the neutral price action of gold bullion.  Stock prices of the junior gold miners have been particularly brutalized as shown by the Market Vectors Junior Gold Mine ETF (GDXJ) which is down over 50% from its high late last year.


GDXJ - Courtesy

The shares of the largest gold miners have also seen major losses during 2012.  The PHLX Gold and Silver Index (^XAU), comprised of 16 major gold and silver producers, has decline by 21% from its peak reached in early February.


XAU - courtesy

The latest casualty in the junior gold mining sector was Richmond Mines (RIC) which recently lowered its estimate of reserves and production and took a major write down on assets.  Richmond, a highly regarded gold mining company with excellent reserves and earnings prospects, was only one of the latest blowups in the junior gold mining sector.  Richmond Mines has collapsed 70% from its $13 per share price in late January, closing today at $3.97.



Is the decline in gold mining shares a harbinger for the future trend in gold bullion or is the latest sell off a major buying opportunity?

Here are some thoughts from two of the brightest minds in the industry who both have superb long term track records.

Legendary gold investor John Hathaway of the Tocqueville Gold Fund (TGLDX) remains bullish as discussed in his latest Gold Strategy Investment Letter.

Why would anyone own them other than for the possibility of a higher gold price?  While we do not wish to minimize such issues as capital spending cost pressures, resource nationalism, or competition from GLD and similar instruments, we believe those concerns will fall by the wayside with the resumption of the bull market in the metal.  If gold were to trade at $2,000/oz. later this year, and should the ratio of gold mining shares (XAU basis) return to the mid -point of its range since the launch of GLD in 2004, or roughly 15% versus the current level roughly 10%, mining stocks could  double on a 25% increase in the gold price.

The policy challenges facing the Volcker Fed and the Reagan administration that ultimately capped the previous bull market in gold seem mild by comparison to those of today.  We believe that gold remains under owned and misunderstood notwithstanding a thirteen year bull market.  It is considered a fringe strategy to most, a little bit exotic and slightly risqué to the mainstream investor.  While policy makers attempt to buy time by inventing solutions that are incomprehensible to most, the dream of mainstream investors for robust growth amidst stable economic conditions remains alive.  Faith in half-baked policy improvisations that are nothing more than repackaging bad debt in the envelope of sovereign credit, along with hope that ever increasing quantities of sovereign debt will generate growth is, in our opinion, delusional.

Peter Grandich gives an excellent in-depth analysis on both gold stocks and gold bullion in a recent post on the Grandich Letter website.  The full post is a must read – here are some of his latest thoughts.

Despite general metals prices much, much higher than a decade or two ago, the mining and exploration industry is far more challenged now than ever before. This is especially true as you move further down the food chain in the junior resource sector.

I’m certain there are other reasons, but I believe the above is a good part of why we’re where we are today. The question now is does this mean the mining and exploration stocks are no longer worthy?

The “mother” of all bull markets continues thanks to four key reasons:

  • Once dominant sellers that capped any advances, Central Banks are now net buyers.
  • Gold producers, who once “cut their noses to spite their faces” by selling forward large quantities of future production and helped capped the price by doing so, now operate under the belief hedging is a “four-letter” word among investors.
  • Gold Exchange Traded Funds (ETFs) greatly changed the balance between supply and demand. Investors who never or rarely sought exposure to gold beforehand (because of difficulties associated with physical bullion buying) and/or who ended using mining shares for exposure only to see them not come close to correlating movements in the gold price themselves, embraced ETFs in a big and powerful way in order to have exposure to gold. Whether or not those ETFs are really direct ways to physical ownership doesn’t concern them, but their large-scale appetite for them combined with the changes among Central Banks and gold producers greatly altered the supply versus demand in favor of demand.
  • Gold is money. There’s no Central Bank printing it like it’s going out of style. There’s no government(s) borrowed up to their eyeballs in it. Where you find real growing wealth in the world you find those people acquiring it are using gold as a storer of their wealth.

Correction In Gold and Gold Stocks Spells Opportunity For Long Term Investors

It is no secret that the price of gold has been declining since reaching almost $2,000 per ounce last year.   After rallying in the early part of the year, gold prices have now fallen to $1,556, representing a decline of $42 per ounce or 2.6% below the closing price on the first trading day of 2012.

The devastating declines in the stock prices of major gold mining companies since early 2012 have been far out of proportion to the decline in the price of gold bullion.  Viewing the gold stocks in isolation, one would assume that the price of gold had collapsed by hundreds of dollars per ounce.

While opinions vary on where we go from here, the deeply bearish price action and bearish press articles on gold and gold stocks lead this writer to believe that we are setting the groundwork for a major rally at some point in the future.  Actions by global central banks to prevent a collapse of the financial system via the creation of oceans of newly printed paper currencies leads to the inevitable conclusion that at some point gold and gold stocks will soar far beyond the most bullish gold price forecasts.  As always, however, the question is the timing of gold’s ascent.

TDV Golden Trader has examined the current factors impacting the gold market and cautions that a return to new highs in gold, gold stocks and silver, although inevitable, may not be imminent.

Is This The Bottom For Gold and Gold Stocks? Not So Fast…

Since the speculative highs of 2011, the precious metals are continuing to correct and head lower, even in the face of Operation Twist and the ECB’s Long Term Refinancing Operation (LTRO) printing.  And with the elections in France and even more socialism on its way, it looks like Euroland is ready to run the printing press again and the Fed will join the party. But I am not convinced that gold and silver will take off right away.  Everyone knows that the central banksters are running the printing presses on overtime, so in effect, we always had and always will have QE, yet the price of the metals continues to drift lower.

When comparing the 2007-2008 peak and crash to what we are dealing with now, I think we have to look beyond the chart patterns and timing.  Looking at market conditions and sentiment for clues to turning points is just as important.  Back in ’08 we had a liquidity event which caused the nose dive in the markets.  Once the system was liquefied by TARP and then QE, the precious metals came bouncing back fairly quickly and then went on to make new highs right after QE2.

We appear to be in a period where the gold price will not run away quickly anytime soon, but we are also in the midst of a long drawn out liquidation of the metals as the central banksters keep accumulating gold at lower prices. Many central banks have been net buyers and importers of gold, and that trend looks sure to continue.  So, where is the selling coming from?


The paper selling we are witnessing is most likely squeezing the weak hands into coughing up their gold. Hopefully it’s only paper gold that is getting liquidated.  Investors in gold and silver may get frustrated and then capitulate into selling as the paper pushers continue to force them out of their positions.  But there are two potential catalysts that could reverse this trend:

1. If the shorts are forced to cover their position and decide to jump on the long side
2. The paper traders are forced to deliver the physical, which will most likely never happen.

Black swans are always lurking in the background, but they have yet to rear their ugly heads and the gold market is not anticipating any of them at the moment.  Until they appear, the precious metals may continue to drift lower.

The metals have been in a great bull run for the last decade.  But, what we haven’t seen yet is a 1974 style peak and trough that lasts for a couple of years. That is where we could be heading with precious metals right now.  In September of 2011, the price of gold peaked over $1900 and ever since then has been correcting lower (now almost nine months later).  During 1974 the peak price was just under $200 at which point it went into a tail spin falling to just above $100 in the summer of 1976.  After the negative trend continued for almost 2 years and then a sideways base during 1977, the gold bull market raced to its 1980 high around $850.

Until we see the fundamental shift back to gold, we are more than likely to continue correcting and then build a base just like in the mid 1970s.  The one thing to note is that gold peaked in early 1974, corrected for about six months and then went on to make a high by the end of 1974 before the major correction started that lasted almost two years. If a similar scenario plays out, then the correction we are currently in may end at the support and third test of the $1550 price range.  If this is the case, we could see a strong rally which would take the price of gold right back up to $1900 or higher before starting another bear phase in the long term bull market.


This standstill could last for some time still.  Especially since all the “speculators” are getting wrung out of the system as they have been taken to the cleaners in the last year.  More than likely, the average investor will stay away from precious metals until we have a major currency crisis.  Something that is more than just the problems that we currently see in Euroland. Until then we can expect the downtrend to continue and move sideways. If this scenario plays out like it did in the mid 1970s, we could still be in a period of time where the gold price continues to correct lower. This could bring the price of gold towards $1200-$1400 in the coming year.

If gold can hold support at $1530, then this correction may be over and the price of gold will continue higher toward the end of this year or early next year.  If the broader stock market continues to sell off, the Fed may pull the trigger on more easing, which could reverse gold’s negative trend and then we are looking at a target price of around $2100.

There seems to be no consensus among investors or analysts on which way the price of gold will go from here. But if the mid 1970s bull market in gold is any guide, be mentally prepared for a lower price. Then be ready to take advantage of the coming basing period and average down on your physical holdings at these lower prices. If the correction is over and we get a strong bounce from here, expect higher prices and a much better opportunity to sell.  We are currently in the eye of the storm of The End Of The Montetary System As We Know It (TEOTMSAWKI).  The pain is not over yet and neither is this gold bull market, the looming currency and debt crisis will make sure of that.  Just remember that the hardest thing to do as a trader and investor is to stay long for the full extent of the bull market.  This rough patch is again testing the mettle of investors.


We have been lucky to have played the last six months almost perfectly.  We were strong buyers of the junior gold stocks throughout December and then after they rose significantly on March 2nd we issued a dispatch to TDV Golden Trader subscribers entitled, “Trade Alert: Close Out Many Of Our Trading Positions”.  We sold most of our trading positions on that day… something that has worked out tremendously well as shown by the chart of Market Vectors Junior Gold Miners ETF (GDXJ).

Will this be the bottom?  Nobody knows.  But we are remaining patient and waiting until we see the whites of their eyes before we reload and buy back in.  In the meantime we are advising subscribers to do the same and looking for stink bid opportunities to buy some of our favorite gold stocks at ludicrously low prices should a seller need to get out in an illiquid market.

The Gold Barbarians Talk Back

According to Warren Buffett, the decade long rally in gold has been based solely on fear and the greater fool theory.  Buffett, believed by many to be one of the greatest investors of all time, has gone out of his way lately to ridicule gold investors.

In his recent 2011 Letter to Shareholders of Berkshire Hathaway, Buffett notes that the purchasing power of the dollar “has fallen a staggering 86% in value since 1965”.  According to Buffett, the three major investment categories available to investors  are productive assets (such as stocks), currency based investments (such as bonds and bank deposits) and assets that will “never produce anything” (such as gold).

Buffett’s clear preference is to own productive assets.  Currency based investments are “the most dangerous of assets” according to Buffett and gold (the major asset  in the category of investments that  “will never produce anything”) is described as follows in Buffett’s Letter to Shareholders.

This type of investment requires an expanding pool of buyers, who, in turn, are enticed because they believe the buying pool will expand still further.  Owners are not inspired by what the asset itself can produce – it will remain lifeless forever – but rather by the belief that others will desire it even more avidly in the future.

The major asset in this category is gold, currently a huge favorite of investors who fear almost all other assets, especially paper money (of whose value, as noted, they are right to be fearful). Gold, however, has two significant shortcomings, being neither of much use nor procreative.  True, gold has some industrial and decorative utility, but the demand for these purposes is both limited and incapable of soaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end.

What motivates most gold purchasers is their belief that the ranks of the fearful will grow. During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis.  As “bandwagon” investors join any party, they create their own truth – for a while.

Charlie Munger, Berkshire Hathaway’s Vice-Chairman, in a recent CNBC interview, expounded on Buffett’s gold comments by stating that “Civilized people don’t buy gold.  They invest in productive businesses.”  By essentially calling gold investors “barbarians”, Munger turned things up a notch which elicited very compelling counterpoints from around the blogosphere.

The Munger Games – New York Sun

The fact is that people who bought gold a decade ago were far better positioned than those who put their money in Mr. Munger’s company, Berkshire Hathaway. For the value of a share of Berkshire Hathaway has collapsed over the past decade to barely more than 74 ounces of gold from the 238 ounces it was worth a decade ago.

Hmmm. Was it Ayn Rand on which Mr. Greenspan overdosed? In 1966, the future Fed chairman wrote for her newsletter an essay called “Gold and Economic Freedom.” It begins with the sentence “An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense — perhaps more clearly and subtly than many consistent defenders of laissez-faire — that gold and economic freedom are inseparable. . .”The essay ends with the assertion that “[i]n the absence of the gold standard, there is no way to protect savings from confiscation through inflation” and that “[t]he financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.”

And maybe the reason that Berkshire Hathaway shares have collapsed in value is that neither he nor Mr. Munger were paying attention to the civilizing effect of gold and economic freedom.

Financial Lexicon – “Civilized People Don’t Buy Gold”

For reasons about which a doctoral thesis could likely be written, humans have a long history of completely mismanaging fiat currencies. Throughout the countless historical examples of the leaders of nations destroying the value of that nation’s currency, gold, as a store of value, has stood the test of time.

Being aware of the historical inability of those who run nations to manage a fiat currency over an extended period of time without eventually destroying the purchasing power of the people is something that certain investors might not appreciate, understand, or care about. Warren Buffett admits that he won’t invest in things he doesn’t understand. And based on his and his colleague Mr. Munger’s comments on gold (not just the ones quoted in this article), it is quite clear they do not understand gold. Hence, they do not invest in it.

Warren Buffett clearly missed the first ten years of the gold bull market and his disdain for gold prevented him from achieving his primary investment goal of preserving purchasing power for his shareholders.  Over the past decade, Berkshire Hathaway (BRK.A) has underperformed both gold bullion and gold stocks.


After over 10 years of being wrong, Buffett faces a major dilemma.  Can he afford to continue rejecting the one asset class able to escape the government’s pernicious efforts to destroy the purchasing power of the dollar?

Gold Stocks Remain Frozen In Time

Investors in gold mining stocks have had a tough five years.  Since 2008, the price of most gold stocks have remained frozen in time even as gold bullion has doubled in price.  Is the disparity in price performance between gold stocks and gold bullion a bullish set up or another false dawn for gold stock investors?

Gold - courtesy

The PHLX Gold and Silver Index (XAU), which is comprised of 16 major gold and silver producers, is no higher than it was during the last quarter of 2007.   The large cap gold stocks represented by the Market Vectors Gold Miners ETF (GDX) have shared the same fate with no gain for the past five years.

GDX - courtesy

Beginning in 2011, the divergence between the price of gold bullion and gold stocks has widened even further.  Comparing the SPDR Gold Trust (GLD) to the PHLX Gold and Silver Index, we see that gold has dramatically outperformed gold stocks by a factor of five since early 2007.

XAU vs GLD - courtesy

At this point, gold stocks are incredibly oversold and, in addition, represent sound fundamental value based on the price of gold bullion.  Given the notorious volatility of gold stocks, a move by gold above its high of last year could be the spark that ignites a huge rally in the gold stocks.

John Hathaway of the Tocqueville Gold Fund (TGLDX), who has produced fabulous investment returns over the past decade, had this to say in his latest Investment Update.

Gold and gold stocks appear to be bottoming in the wake of a four month correction which began in mid -August when the metal peaked at $1900/oz. Bearish sentiment is at extremes not seen in many years. This and a number of other indicators, such as stocks that have been hit by negative sentiment, the downtrend in gold prices since August, and tax loss selling, support our view that a rally lies ahead. This very bullish market set-up, in our opinion, mirrors the extraordinary investment opportunity of the despondent year end in 2007. Even though gold prices have been declining for several months, they finished the year with substantial gains. This suggests that the value represented by gold mining equities held in our portfolio could be extraordinary.

Disarray in Europe is, in our opinion, a slow motion version of the global market meltdown in 2007. It appears to us that the U.S. Fed is once again acting as the lender of last resort to European central banks in their efforts to save the euro. As in 2007, U.S. sovereign credit will be substituted for failing credits, in this case, peripheral European states. The fig leaf to justify such action on the Fed’s part is sado-fiscalism, or extreme austerity packages administered by technocrats. Tough restraints on profligate public spending, which has become a way of life in all Western democracies, will not go down easily. These measures are deflationary and will be ultimately met by howls of protests from mobs demanding renewed money printing and deficit spending. In our opinion, the fundamentals for gold are stronger than ever because the outlook for paper currencies is dire. The difficult correction of the last four months has shaken out all but the strongest holders, a perfect set-up for advances to new all-time highs in 2012.

Over the past ten years the Tocqueville Gold Fund has had an average annual return of 24%, far exceeding the 3% return by the S&P500.   The top ten holdings and percent of total assets of the Tocqueville Fund are listed below.

TGLDX Holdings

Gold and Silver News & Headlines – February 2012

Gold and silver continue their strong 2012 advance with relatively sparse mainstream press headlines.  Gold is now only $114 per ounce below the all time high of $1,895 reached on September 6, 2011 and silver looks more and more like it is getting ready to challenge the $50 range last seen in mid 2011.

Based on the closing London Fix Price, gold has advanced from $1,598.00 at the beginning of the year to today’s closing price of  $1,781.00, for a gain of 11.5% or $183 per ounce.  Silver’s advance has been even more dramatic.  Since the start of the year, silver has risen 23.7% to $35.60 per ounce, a gain of $6.82 per ounce.

Here are some recent links to excellent gold and silver related stories and blog posts:

One-Half Ounce Proof Gold Eagle Sold Out, Some Silver Products Suspended

The one-half ounce 2011 Proof Gold Eagles have sold out at the U.S. Mint.  The one ounce Proof Gold Eagle had previously sold out last October.  In addition, some silver numismatic product sales have been suspended pending pricing updates due to the rapid rise in silver prices.

The Financial System Is Sick – Are Precious Metals The Cure?

Over thousands of years, gold and silver are the only currencies that have not failed and have protected wealth.  With rampant worldwide money printing, the wealth of nations is being stolen through endless money printing.  Expect the severely undervalued gold stocks to rally strongly.

Gold Market of the 1970s Was A Dress Rehearsal

Jim Sinclair sees QE to infinity and persuasively argues that the only tool left in the toolbox is money printing which is required to prevent a global implosion from towering levels of debt.

Gold Should Be $2,100 – $2,200 Right Now

Great interview with Jim Puplava who discusses central bank money printing, financial repression, economic issues and why gold is undervalued by at least 22%.

Why The U.S. Government Confiscated Gold in 1933 – Can It Happen Again?

The U.S. government is already seizing the wealth of millions of Americans through financial repression.  Through executive order U.S. citizens were forbidden to own gold from 1933 through 1974.  Julian Phillips examines the reasons why this occurred and wonders if  it could happen again?

Silver Price Rises Twice As Fast As Gold As The Eurozone Floods With Money

Silver has been on a tear this year, up 24% compared to an increase of 12% for gold.  How should investors react to position themselves  if gold soars over $2,000 and silver spikes to over $50?

Ex-Fed Governor Warsh Again Confirms Gold Price Suppression

GATA highlights the role of governments in financial repression and suppression of gold prices.  Ex Fed Governor Kevin Warsh notes the growing call in Europe and the U.S. to devalue debts through money printing and higher inflation.  Warsh says that “Such an inflation tax would transfer wealth from those who have lent money, in good faith, to the borrowers.  Inflation is a blunt and inappropriate instrument for assigning winners and losers from profligate fiscal policy or excessive borrowing by private individuals and firms.”

If Gold Could Talk

Terrific article on the enduring characteristics of gold, why gold is money and how much gold should an investor own?  Be prepared to get your checkbook out after reading this article.  Whatever amount of gold you currently own, it’s not enough!

Gold Remains The Best Alternative To Paper Money

Two examples of the frustrations that some gold investors have gone through in the past year offers a valuable lesson to long term gold investors.

  1. During 2011, despite being heavily invested in gold, John Paulson’s Gold Fund wound up losing 11% of its value.  This despite the fact that gold bullion gained $142.50 during 2011, closing the year at $1,531.00, up 10.2% (see How Did An Investment Pro Lose Money Investing in Gold?).
  2. Investors in the $4.4 billion Vanguard Precious Metals Fund (VGPMX) which holds almost all of its assets in a diversified portfolio of precious metal mining stocks dropped by a stunning 27.4% last year, declining from $26.71 on January 3rd to $19.39 on December 30, 2011.

In both of the above cases, the declines in value were primarily due to the large under performance of gold stocks to gold bullion during 2011.  Nonetheless, nothing stings more than picking the right asset class only to somehow wind up losing.  An investor bullish on gold and investing completely in gold stocks would have had a disastrous year.  An investor with a large position in gold, diversified across gold mining stocks, gold bullion and gold ETFs would have performed substantially better.

Although gold stocks can often outperform gold bullion, many investors may lack the expertise to pick the best gold stock or gold mutual fund.  The best strategy for most small gold investors is to buy physical gold bullion at regular intervals with a commitment to a long term holding period.  Over the years, I have seen far too many uninformed investors who want a position in gold wind up trading speculative junior gold stocks, often times resulting in large losses.  Gold mining stock prices can be volatile and even when an investor selects quality gold stocks, the temptation to liquidate a position during  price weakness often results in losses.

The gold investor who has purchased gold bullion consistently over the past decade has been amply rewarded and there is no reason to expect this trend to change.

Meanwhile, John Paulson remains committed to gold and recently told Bloomberg News that he personally owns over half of the $1.2 billion Gold Fund he manages.

John Paulson, the hedge fund manager seeking to rebound from record losses in 2011, told investors his Gold Fund will outperform his other strategies over five years, according to a person with knowledge of the matter.

The billionaire, at a meeting yesterday at the Metropolitan Club in New York, said the metal is the best hedge against currency debasement as countries inject money into their economies, said the person, who attended the event and asked not to be named because the information is private. Paulson also cited gold as a hedge against the euro currency, as a breakup may occur, and an eventual increase in inflation.

The manager told clients his own money comprises 55 percent of the Gold Fund’s $1.2 billion in assets, the person said. The fund, which can buy derivatives and other gold-related securities, declined 11 percent last year after the metal slumped 14 percent in the final four months.

Europe’s sovereign-debt crisis may continue to affect bullion in the near term, Paulson, whose firm manages $23 billion, said this month in a year-end letter to investors. The metal serves as the best long-term alternative to paper currencies, he said.

“We remain excited about the outlook for the Paulson Gold Funds over the next few years,” he said in the letter. “We would argue that the potential upside in gold outweighs the potential downside.”

In addition to his Gold Fund, Paulson also holds a large position in the SPDR Gold Trust (GLD) ETF, valued at $2.9 billion.  As of February 24, 2011, the SPDR Gold Trust holds 41.3 million ounces of gold valued at $73.4 billion.

An Undervalued Gold Stock That Could Double In Price

Leveraged earnings gains from rising gold prices have historically resulted in gold stocks outperforming gold bullion.   From 2000 to the highs of 2008, the PHLX Gold/Silver Index (XAU) rose by 345% compared to a 252% increase in the price of gold.

Over the past two years, the out performance of gold stocks has come to a dead halt despite the surge in gold prices.  From $1,121.50 in January of 2010, gold has advanced to the current price of $1,781.10 for a gain of $659.60 per ounce or 58.8% while gold stocks have basically flat lined as represented by the Market Vectors Gold Miners ETF (GDX).

The divergence between gold bullion and gold stocks has resulted in a markdown of world class gold producers, resulting in the best buying opportunity since the 2008 sell off.  John Hathaway, who runs the Tocqueville Gold Fund and has the best track record in the industry recently said this in his Investment Update.

Gold and gold stocks appear to be bottoming in the wake of a four month correction which began in mid -August when the metal peaked at $1900/oz. Bearish sentiment is at extremes not seen in many years. This and a number of other indicators, such as stocks that have been hit by negative sentiment, the downtrend in gold prices since August, and tax loss selling, support our view that a rally lies ahead. This very bullish market set-up, in our opinion, mirrors the extraordinary investment opportunity of the despondent year end in 2007. Even though gold prices have been declining for several months, they finished the year with substantial gains. This suggests that the value represented by gold mining equities held in our portfolio could be extraordinary.

GDX - couresy

Gold price - courtesy

Will the glaring price disparity between gold and gold stocks continue?  I have argued in a previous post (see Gold Stocks are Positioned For An Explosive Move Up) that major gold producers with large proven gold reserves are on the bargain table.  The steeply discounted value of gold stocks will ultimately result in gold stock prices surging as the fundamentals of gold stocks are recognized by investors.

The gold stocks most likely to outperform are the ones with the strongest current relative price strength.  One gold stock that fits this criteria and has outperformed the gold stock indexes is Yamana Gold (AUY), a Canadian gold producer.


Yamana has producing, development stage and exploration properties in Chile, Mexico, Colombia and Brazil.  The Company recently announced record fourth and year end results for 2011.  Highlights of Yamana’s performance for 2011 are shown below.

  • Gold production increased by 5% to 916,284 ounces
  • Silver production reached 9.3 million ounces
  • Revenues increased by 29% to $2.2 billion
  • Cash margin increased by 28% to $1,517 per ounce
  • Earning increased by 59% to $713 million equivalent to $0.96 per share
  • Cash flow increased by 48% to $1.3 billion
  • The annual dividend was increased to $0.20 per share
  • The Company’s net earnings were equivalent to $497 per ounce with an average realized gold price per ounce of $1,670.
  • Yamana has industry low cash costs and operates in stable areas
  • Yamana management forecasts that annual sustainable gold production will increase by over 60% to 1.75 million ounces by 2014

Gold prices have surged thus far in 2012 and there is every reason to believe that gold will end the year far higher than its current price (see Fed Lays Groundwork For Price Explosion in Gold and also Why There Is No Upside Limit for Gold and Silver Prices).

The stage is set for an explosive move upwards in Yamana’s stock price based on the confluence of higher gold prices, soaring profits and increased gold production.   Based on the fundamentals, Yamana’s stock is dirt cheap.  The stock is on the verge of breaking out to a new all time high and could easily double in price during 2012.


Are Gold Investors Nuts?

How many of the countries best financial advisors are telling their customers to invest in gold?  Despite the fact that gold has gone up for the past eleven years, a Barron’s survey shows that gold remains distinctly out of favor by mainstream investment advisors.

Barron’s interviewed 51 of the countries most successful investment advisors from each of the fifty states plus the District of Columbia.  Although investment returns were not disclosed, Barron’s selected the best investment pros based on the amount of assets managed, revenues generated, gain in the number of clients and the quality of their practices.

The 51 pros selected by Barron’s are the best in the business, work hard, serve wealthy sophisticated clients and manage hundreds of billions of dollars of wealth.  According to the survey, the most common investment strategy of the top financial advisors was to generate income flows and potential capital gains by owing high quality blue chip stocks.  Most of the advisors were optimistic, predicting that dividend paying stocks would outperform government securities on which yields have plunged to all time lows.

Of the 51 advisors interviewed, only two specifically recommended a small portfolio allocation into gold.  The investment advisor from Iowa recommended that clients make “sure 3% to 5% of their portfolios are in gold” and the investment pro from Nebraska suggested a 10% position in gold mining stocks.

The number of investment pros recommending gold was surprising low, especially after considering the potential for another financial meltdown precipitated by sovereign debt crises, rampant money printing by central banks and towering levels of debt that threaten to crush the world economy.

Gold - courtesy

Gold has proven to be a vehicle for wealth preservation over thousands of years and is insurance against financial disaster.  Has the increase in gold since 2000 already fully discounted the worst possible economic and financial scenarios?

Barron’s smart money pros apparently think that gold’s run is over.  Are gold investors nuts to argue with the world’s best money managers, especially after an almost 7 fold increase in the price of gold since 2000?  What do you think?

More on this topic: Gold Bull Market Could Last Another 20 Years With $12,000 Price Target