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The Who, What,
When, Why, & Where...
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WHO:
Which investments will
deliver the most?
Investors will enjoy lucrative returns on both gold and
gold mining stocks. However,
investors who invest in junior mining stocks (at the bottom) will
receive the greatest returns simply because of the multiples.
Junior mining shares (penny or micro/small cap stock) trade at
pennies as compared to major mining companies or gold bullion.
Your money can buy more junior mining shares and it is easier to
get a double (i.e. $0.20 to $0.40 per share).
With an investment in major mining companies, the same money buys
fewer shares and it is more difficult to realize a double (i.e. $30 to
$60 per share.)
WHAT:
What to do?
Buy – It’s a buyer’s market.
The prices we’re seeing for assets now, whether it’s stocks,
commodities, or gold, do not reflect the underlying value of those
assets. People are selling them simply because they “have to” - whether
because of margin calls or redemptions from hedge funds or otherwise,
the assets have to be sold.
It’s a sale!
WHEN:
When do you buy?
Now! Buy at the bottom.
History has proven that true fortunes are made during times of
economic distress or financial corrections.
The depressed valuations of the companies right now allow you to
purchase shares at a fraction of what they have been selling for a year
or two earlier.
WHY:
Why gold?
Fundamentally, supply and demand is the key.
Gold supply is dropping.
Gold demand is rising. In
addition, history has shown that gold has a “proven”
ability to provide a shelter from such negative market effects as
inflation, catastrophic events and political unrest; gold stocks have
outperformed any other type of investment during these times.
WHERE:
Where to put your money?
Gold bullion for safety and steady returns; gold stocks for
dramatic returns. |
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These are the
kind of markets that test the courage of investors.
Markets run on fear and greed.
Recent market volatility has never been greater and, in fact, is
unprecedented. Because it is
unprecedented, no one knows or can predict what will happen next.
It takes more than insight to see “opportunity.” It also takes
guts to act on it. |
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Fundamentals on gold remain intact.
If anything, they have improved under today’s widespread crashing
credit conditions, inflation and material shortages.
The long-term fundamentals for gold look healthy.
The long-term supply constraints have not disappeared and demand
continues to remain robust.
The fact that gold did not head higher during the
current leg of the [global financial] crisis seems to reflect a
combination of the rise in the U.S. Dollar, de-leveraging of commodity
positions, sales to meet margins calls on other assets and the unwinding
of the long gold-short dollar trade by some investors.
This situation will not continue much longer.
In today’s world of massive deficit spending, political
unrest, inflating currencies (i.e. “fiat money” or excessive printing of
paper currency) and financial/credit crises, gold’s monetary role is
reasserting itself. |
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Since July 2008, the U.S. dollar has staged its most dramatic rally in
years. However, from a fundamental standpoint, the dollar’s position has
worsened significantly. Trillions
of dollars of are being created to bail out financial institutions and
local economies.
When the dollar was taken off the gold standard in
1971, there no longer was any discipline on the money creation
(“printing”) process. As a
matter of act, two years ago, the U.S. changed its laws so that it no
longer had to report how much money was printed.
No one knows exactly how much is printed. Once a currency is on
this path…
The U.S. federal government is already operating at
the mercy of foreign creditors because domestic savings have already
been consumed. What was at
one time the richest country in the world, the U.S. is now the biggest
debtor in the world. The federal government’s debt is growing the
fastest and politicians are spending the country into bankruptcy.
There is a “currency bubble” caused by the U.S. Federal
Reserve System creating money out of thin air, without any substance
underneath it. As with any bubble
(i.e. high tech, dot com, etc), they eventually pop. |
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History - The Greatest Teacher (aka "Wisdom")
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True fortunes are made during times of
economic distress or financial corrections.
Only one year before J.P. Morgan
completed the formation of U.S. Steel (which financial historians have
called the deal of the 20th century), he said that such a feat could
never be accomplished by any man - until the markets crashed.
The depressed valuations of the
companies involved allowed him to purchase the business entities at a
fraction of what they had been selling for twelve months earlier.
During the Great Crash of 1929, investors who
diversified their portfolios with a few
Homestake shares (gold) were
able to travel through the Great Depression relatively unscathed, while
those who owned only the Dow Jones Industrials, were devastated.
Investments in gold mining shares were islands of economic refuge during
the grueling years of the Great Depression.
The stock price of Homestake Mining soared relentlessly upward
during the entire bear market.
The share price of Homestake Mining rose continuously from $80 in
October 1929 to $495 per share in December 1935 – which represents a
total return of 519% (excluding cash dividends) during this devastating
period. In addition, during
the six years (1929 – 1935) Homestake paid out a total of $128 per share in
cash dividends. |
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Commentary - Recent Market Activity
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The relentless selling we have seen over the past
months in precious metals was kicked off by the manipulative
interventions occurring right around the time of the Fannie Mae and
Freddie Mac implosions in mid-July. Yamana Gold, one of the most
successful gold companies around, saw short interest rise 72% in the
first two weeks of August. This stock has been a star performer. Why, or
more appropriately, who, would short it? Many investors have thrown in
the towel and portfolio managers are now forced to sell due to
redemptions. These disillusioned investors believe that the market
is telling them a message and don't realize it is not a market message
but a heavily controlled manipulation to make them believe so and to
dupe them out of their positions.
It is no accident that we haven’t been able to take
refuge under the safe haven of Gold as tradition would have it. It is a
planned policy known as “the strong dollar policy” that runs against all
the natural forces in the real world, dooming it to failure.
Gold production was down 5% last year from its peak
in 2003 despite steadily rising demand. Production will likely
decline even more this year. The four largest gold producers are
expected to produce 18% less gold this year than in 2006. These are not
the signs of a bubble. Any further declines in the price of these
and other commodities will result in even bigger shortages. The
rapidly growing smaller producers that are helping to offset these
declines in the larger producers are being seriously handicapped by the
continuous price capping of gold which delays and cuts off badly needed
capital to deliver what the world is demanding. The US Government
has stopped selling gold coins also, so how does the price plummet when
there is demand yet no supply? There is overwhelming evidence that
the recent declines in gold and silver are a fraud.
The stocks are certainly selling at giveaway prices but will surely
break free of the suppression when the physical markets break free.
We have heard that many gold stocks in Canada are being
shorted without borrows by brokerage firms with almost no limits.
This is how they are dislodging stocks from even the most strong-handed
precious metals investors.
There is a saying that a gold bull will do what it takes to throw off
as many riders as it can and we are seeing it demonstrated before our
very eyes. It was the same in the 1970's despite gold rising 26 times
and many stocks rising from pennies to over $500 per share! It is sad
to see investors give up on the very few areas of the stock market with
such strong fundamentals that can allow them to do well despite the
onerous future we face. Gold is certainly a commodity that will stand
the test of time. |
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Suite 314 - 800
West Pender Street * Vancouver British Columbia Canada * V6C 2V6
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