bull market

Out in the Open

Clipping from Richard Russell’s “Dow Theory Letters”

March 24, 2011 — “There is only one certainty regarding paper money — the longer you hold it, the less it will buy in terms of real goods or real money — gold.” Richard Russell.
Yesterday was a banner day for the precious metals. Gold closed at an all-time high in terms of dollars. Silver moved into the 37 dollar zone for the first time since the precious metal bull market of the 1970s (today it’s above 38 dollars an ounce!).
But there’s a big difference between the current precious metals bull market and the bull market of the 1970s. The 1970 bull market drew tremendous interest (I was there). Everybody I knew (even the gold haters) were watching that bull market with keen interest, particularly during the wild “blow off” days of the late 1970s, when silver was rocketing higher — rising every day by “limit up.”
In comparison, today’s huge precious metal bull market is greeted with yawns, that is, if it is greeted at all. I’ve been calling the current gold/silver market the “great stealth bull market.” Ask the average man or woman on the street what’s happening to precious metals, and they’ll give you a blank stare and maybe a “Duh.” Ask them if they own any gold or silver, and they’ll give you a sheepish “Nah.”
Gold (April) closed on March 2 at 1437.40, a record high. On March 9 silver closed at 36.04, highest since 1981. Yesterday both marks were bettered. Where’s the excitement, where’s the interest, where are the articles in the newspapers?
Time to study the chart below. As I’ve been saying, gold in its advance has periodically tested its 150-day moving average over the past few years (150-day MA is shown as the blue line on the chart). Note that on the most recent “correction,” gold didn’t even test its 150-day MA. When I saw this, I realized how powerful the forces under gold were. 

Gold is now “out in the open” with no overhead resistance and no overhead supply. So far the bull market advance since 1999 has been steady, quiet, and orderly. Except for its spectacular slow and relentless climb, there’s been no excitement in the gold bull market.
I don’t think this is going to continue. Somewhere ahead the precious metals bull market is going to turn wild and speculative. Only one phenomenon will serve to create this excitement. That phenomenon is HIGHER PRICES. The public can resist anything in markets except steadily rising prices.
As for steady higher prices and excitement, I suspect that silver is about there. As for gold, maybe not yet. But somewhere ahead gold is going to catch fire. That will be the time when the great American public will decide that they have to have some gold, maybe just a coin or two, or maybe just a few shares of GLD — but that time is coming. 

Question — As a new subscriber what should I do?
Answer — Buy a position in GLD or SGOL or SLV. Assume a conservative position, one that you can sit with.
Question — “What about older subscribers? What should we do?”
Answer — Never mind timing this bull market. It can’t be done, even by Goldman. You can add to your gold position. If possible, buy some one-ounce gold coins. One advantage of coins is that you’re probably not going to trade them in and out. Sit tight with your coins, Put them in a place that’s difficult to get at; in that way it will be a nuisance to sell them, even if you’re tempted to.
Richard Russell

Rob McEwen, CEO of U.S. Gold and creator of Goldcorp, may be too soft-spoken and cautious ever to be caught wearing a tin-foil hat, but in a brief interview broadcast yesterday with TheStreet.com’s Alix Steel he forecast a gold price of $5,000 per ounce….


By Egon von Greyerz
September 7, 2010

Fundamental and technical factors for gold are now in total harmony and gold is entering a virtuous circle that will drive the price up at its fastest pace since this bull market started in 1999.
  • It is a fact that gold in US dollars (and many other currencies) has gone up 400% in eleven years or 16% per annum annualised.
  • It is a fact that the US dollar has declined 80% in value against gold since 1999.
  • It is a fact that the dollar and most other currencies have gone down 98-99% against gold since 1913 when the Federal Reserve Bank of New York was created.
  • It is also a fact that the Dow Jones (and many world stock markets) has declined over 80% against gold since 1999.
  • It is a fact that gold has made a new all time monthly closing high in dollars in August 2010.
Gold trend
We expect gold to start a substantial rise now which will continue for 5-10 months before any major correction. Gold’s technical picture is extremely strong with a continuous rising pattern of higher highs and higher lows with the steepness of the curve increasing. From much higher levels we are likely to see a correction that could last up to a year before the next rise which will last several years before we see a significant peak. Once gold has topped we do not expect the same kind of decline as after the 1980 peak since gold is likely to become part of a future reserve currency. At that point gold will be a solid but unexciting investment with very little upside potential. But that is likely to be a few years away.
For the full article please click the following link: GoldSwitzerland Market Update

September 2010
Egon von Greyerz
Peter J. Cooper, a Dubai based economic journalist, has recently posted an excellent analysis of why and how to make the best of the coming (and rather overdue) junior mining shares price explosion.

Here’s some appetising excerpts.

The big gold and silver producers are preparing to unleash a round of bidding for junior exploration companies that will bid up the value of the whole sector, and stocks that are good, bad and indifferent will jump in value. You have been warned. Now is the time to buy. It is so obvious with gold and silver prices on the march…

Gold and silver equities have been disappointing performers over the past couple of years. Cost inflation has dented profit margins for the big producers, and capacity expansion has been subject to delays. But these fears may have been overdone, and rising precious metal prices will now begin to feed straight through to the bottom line.

Market anomalies are how investors make big profits. The price of silver is another example of a market anomaly, as this column argued last week. Silver has underperformed every other metal, except gold in this commodity price boom and yet its supply and demand situation is arguably the weakest of all.

So if you want to hedge your position in the junior explorers with a second opportunity to achieve leveraged performance to the rise in price of the underlying metals, then again silver stocks are to be recommended. The smaller companies might well deliver the best performance but unless you want to deeply diversify you could stick to the bigger names.

Please click HERE to read P.J. Cooper’s analysis titled “Time is running out to buy junior exploration stocks” while the junior shopping season still lasts…

$1000 Falls. Quo Vadis?

Good Afternoon,

The countdown to $1,000 gold finally ran out at 10:35 am New York time today as spot bullion reached a historic high of $1,000.25 bid amid the global market conditions that had emerged overnight. The final push to the peak came on the heels of a slump in US retail sales and following a lack of reassuring words or offer of aggressive remedies for the credit black hole by the Mr. Paulson this morning. This was an achievement of a lofty objective, as well as a long-standing one. Very long.

Gold prices appeared to be all primed to finally achieve the $1K mark as early as last night, when background market conditions shifted from bad to worse overnight. Today’s spike will likely become known as the “Carlyle/Drake Rally” (or cave-in, depending on your preference). The imminent doom of the Washington-based bond fund and probable demise of the hedge fund sent icy shivers through the financial markets that way overshadowed the (nanosecond-brief) cheer we witnessed following the Fed’s term facility plan the other day.

Today, the Treasury’s Mr. Paulson offered the President’s Working Group on Financial Markets no more than lip service by concluding his remarks with platitudes such as: ” We will continue to re-assess conditions, monitor progress, put forward new recommendations and take additional steps as necessary.” US President Bush himself managed to say about the current predicament of the greenback only that it was not ‘good tidings'(?!)

However, a retreat in the commodity complex emerged shortly after cues from the Dow (previously down 215 points) showed a reversal in sentiment and the index went into positive territory by 60 points. Stocks erased all of their earlier losses after Standard & Poor’s suggested that the “bulk of write-downs linked to bad home loans may be behind for banks.” As we said earlier, every bit of news counts these days, and has twice the impact it may normally have. Bad news, as well as good news. We have also opined that once the credit vortex is assigned a final dollar figure, the markets will not feed off of uncertainty like pirahnas anymore. They will have to take into account fundamentals as well. Tall order these days…

A quick scan of values recorded at gold futures closing time in New York revealed crude oil prices at $109.76 per barrel and the dollar off of the 72 mark on the dollar index. New York spot gold was up $6.90 per ounce, showing at $990.30 bid per ounce ( a full $10 under the historic high seen earlier) and related metals were still rising in concert, albeit with more moderated gains of their own. Silver was up 29 cents at $20.30, platinum was up $17 at 2088 and palladium rose $7 to $510 per ounce. Commodities markets continued in a state of disarray, with huge sums of fund money being thrown at them, while still trying to absorb the pyramid of long positions which has already been piling skyward in previous weeks.

Keep an eye on the Dow and on gold’s closing levels. Dollar-denominated commodities have all benefited from the intense fund attention. It has taken an estimated $600 billion credit debacle and six months to lift gold from $730 to $1,000. The same funds will now become increasingly conflicted on whether to push the envelope further based on potential further billions being added to the problem or whether to scale back from the sector as some corners begin to be turned. At such a juncture, we may expect volatility of a much larger order of magnitude in these markets and every single news item to matter much, much more. Keep very alert and take nothing for granted. Even on a day of such celebration. We already know how we got here. The bigger/better question is: “Whither Goest Thou?”

Happy Trading,

Jon Nadler
Senior Analyst
Kitco Bullion Dealers Montreal

This interview from Seeking Alpha:
Part I of a two-part interview with Louis James, Senior Editor with Casey Research. James talks about the gold and silver markets, and shares his views on several interesting companies. In Part II, to be published next week, Louis discusses five more gold and silver companies he likes and why.
TGR: Where do you think gold is headed over the next 12 months?
JAMES: There are two different ways of looking at the gold market. One has to do with the fundamentals of supply and demand. The other has to do with the speculative value of gold. Regarding the first view, the supply side is easier to grasp. And right now, there are very clear signs of difficulties ahead on the supply side. Newmont Mining Corp. (NYSE: NEM) has already announced that production is going to decline by many millions of ounces. Demand is a little trickier to forecast. Silver and the base metals have industrial uses, so industry drives demand. However, the value of gold is based largely on perception — what people feel and what they fear, as opposed to what manufacturers need.The turmoil of the last year has made it very clear that there are good reasons to hold onto gold because it has a long and established history of solid value. While weak supply and recent market turmoil may not justify the current price of gold, they certainly explain it. And those factors were not assuaged by the Fed’s little rate tweak last week. I have to believe that despite some short-term fluctuations, the fundamentals of supply and demand — such as they are — are very bullish for gold, at least over the next year or two.
So that’s one side of the story. The other side has to do with the speculative value of gold. What happens when people start fearing for the value of their paper assets and their fiat currencies? It’s a totally different question than which way is gold heading, and what happens if this project or that project is successful. At Casey Research, we think that the conditions are almost, but not quite, approaching those of the late 1970’s. We think the government vastly understates inflation, and we see the kind of economic forces that drove gold prices to record highs in the 1980s converging again. They’re not obvious yet — average people on the street are not worrying too much about the value of the dollar yet, but we think it won’t be long before they start.The average man in the street is not yet worrying about the US dollar and the economy as much as he perhaps should be. But when that happens, as it did in the late ’70s, when everybody and their cousin was worried about hyperinflation, when your bartender was telling you about the gold coins he just bought, and so on—when the average person was getting into the picture— that’s when we had the real mania stage. That’s when you have a spike in gold. So far, we haven’t seen anything like this. It’s just the basics of supply and demand for gold in the current context. But the second part of the story is that we believe that big spike is still ahead, and it will be even bigger than the last time because the stakes are even higher now.

TGR: Do you want to venture a guess what that spike will be? I understand $850 price spike in 1980, adjusted for inflation, would be about $2,200 now.

JAMES: That’s about right.

TGR: Do we see a spike going beyond that?

JAMES: Actually, I am not sure we will see quite the spike we saw in 1980. It’s interesting that back then gold held over $800 for only four days, and two of those days were weekend days. I don’t actually see a spike quite like that. Things will fall apart more gradually this time. I think this time we will see more of a gathering surge that will take the price quite high. There will be a spike somewhere—who knows where? But that spike won’t be as important as the tidal surge that will easily take gold over $2,000. And if you use the shadow government’s inflation figures for what that $850 would be worth in 2007 dollars, it’s over $4,000 to even match that 1980 spike.

When will that happen? I think it’s a fool’s errand to try to call that exactly. I’m confident enough that it will be within a year or two, max three, that it makes sense to me to buy gold now. I am not at all worried about gold being close to record highs now. Not just because in inflation terms, it’s cheap, but because of where I think that surge will take the gold price. I think gold is still cheap, even in the $800 range.

TGR: Let’s talk about some companies, starting with Bravo Venture Group Inc. [TSX.V: BVG].

JAMES: One of the things to remember about Bravo it that has a management team that has done it all before. From the boardroom to the people in the field, the people are experienced. And Bravo has multiple kicks in the can. The company generated a lot of excitement over a project in Nevada that ultimately didn’t work out, which sometimes happens. Exploration is never a sure thing. But the company is pursuing the generative model very well. It has projects in different jurisdictions, different metals even, but it’s mostly focused on gold.

TGR: What do you mean by a generative model?

JAMES: It means the company generates projects that it either advances or sells. Bravo identifies a project in its early stages, then maybe polishes it up, or develops it a little before handing it off to another mining company. And the classic structure for this model is the joint venture [JV] —using other people’s money to take on the high-risk, exploration stage, which makes a lot of sense to us.

If you look at the simple odds of finding an economic gold deposit out of a prospect— I believe these are on the order of 1 in 300— it just makes sense to shift that risk onto someone else. When it comes to the big finds, I can’t think of many instances where the first company that stumbled on the scene hit it big. Most of the big projects have been owned by several companies before the big discovery was made. Even the current darling of the market, Aurelian Resources Inc. [TSX: ARU], with its big find at Fruta del Norte, didn’t know what it was looking for. That was a blind find that occurred while the company was exploring off the edges of another deposit.

Frankly, for a small company, even if the interest in the project were diluted down to 30 percent, or a major took the project all the way into production, leaving the smaller company with only 10 or 20 percent— that 10 or 20 percent of a project that is big enough to interest a major is a lot of value for a junior. The cash flow generated by that project will pay for the junior to produce all sorts of shareholder value in the future.

TGR: Does Bravo have any interesting projects right now?

JAMES: I really like the company’s Homestake Ridge project in British Columbia. It’s a very interesting project with high-grade results—the better part of a million ounces now. We also like the Woewodski Island project in Alaska, which involves a lot of very high-grade surface work. There’s no tonnage yet; there’s no ore deposit until you actually have drill holes outlining volume of rock, and that’s what’s happening now. Sure, it’s speculation but it’s in a company that already has some successful projects and plenty of blue sky in other areas.

TGR: What about Eaglecrest Explorations Ltd. [EEL-TSX Venture]?

JAMES: We are not formally recommending Eaglecrest; however, I’m comfortable talking about it. I’ve visited the site, I know the people and I have gone over the technical details with them. The main concern with Eaglecrest is, of course, the politics in Bolivia. The government just formally passed, and the judiciary just put the kiss of approval upon, a new tax measure. On the one hand, it’s positive because it puts an end to all of the questions about whether Bolivia is going to be anti-mining or not. The fact that they’re putting in this tax regime shows that they do want the mining revenue. On the other hand, it’s a tax increase. Although the government gives tax credits on royalties, the net result is that mining is now more expensive in Bolivia. If I were a mining company or an exploration company looking for more minerals right now, I would probably not choose Bolivia. That’s why I’m hesitant to recommend Eaglecrest right now.

That said, Eaglecrest has title to a very interesting prospect. . .I also like Eaglecrest’s technical people. And that’s paramount to me. The rocks don’t excite me if I don’t think good people are working on them. Eaglecrest’s new team has persuaded me that their interpretation of the geology of this project is perhaps better than the previous interpretation. And that lends new life to the deposit.

TGR: What about the recent no-confidence vote in Venezuela?

JAMES: I like Venezuela, which like Bolivia, is very interesting geologically. But Chavez is still president and he can still rock the boat. Just look at the deal he did with the petroleum companies—50 percent, take it or leave it. And of course, the oil companies have all that infrastructure in place. If they have a choice between 50 percent and zero, they’ll take the 50 percent naturally. But a guy who can do that is not really a guy who inspires a lot of confidence. So, we’re still leery of Venezuela, but, boy, there’s a lot of geologically interesting terrain there. And it sure would be nice to see that open up more.

TGR: In some ways, Venezuela under Chavez and Bolivia under Morales are alike, aren’t they?

JAMES: That’s true. When we were in Bolivia, we spoke with people in the opposition, which controls the Senate. We spoke with people from industrial concerns, and they control the four major provinces that produce most of the revenue in the country. And, of course, Morales ticked off the judiciary, too. So, there is significant opposition; it is quite possible that the guy could be out soon. If you just look at the history of Bolivia, the average term of a president lasts only a year or two. So odds are that Morales will be out soon. But as an investor, a speculator, I am not looking for change. I’m not looking for turmoil; I’m looking for stability. I want to know there’s a working mining environment and that it’s going to stay that way. The fact that there may be a change for the better is potentially good, but it tells me I don’t want to invest now. I want to wait and see if the change is good, and then see if it’s stable, and then maybe that’s the time to start taking a financial risk.

TGR: Any thoughts on Exeter Resource Corp.(AMEX:XRA)?

JAMES: I like Exeter a lot. We’ve had an interesting history with the company. We sold it when their former flagship project, Don Sixto, in Mendoza province, ran into political trouble there. We did it a bit early, when rumors about potential trouble were just starting. The rumors proved true and we were happy to be out. However, ultimately the company did an absolutely remarkable job of recovering and bringing forward its Plan B and Plan C projects, and D, E, and F, actually.

What I really like about Exeter is it has two very highly prospective projects right now. One is the super high grade Cerro Moro project in mine-friendly Santa Cruz province, southern Patagonia. The company was very focused on a small area of that project, but there are a lot more of those high-grade showings in the area. In a recent press release, Exeter announced fresh results from a new target area at Cerro Moro that appears to be just as high grade, just as exciting. So, the hypothesis is that this one area that the company has concentrated on is just the beginning.

Then there’s Caspiche, a project in Chile. In preliminary drilling, Exeter punched a 300-meter hole with 0.9 g/t gold. All of a sudden, there’s more potential. There are a few holes in this area that were all shallow. Several of them hit good bulk tonnage grades, maybe 0.7 g/t gold or so, over a very large width. Pretty good. It isn’t a slam-dunk, but it has the hallmarks. It has the alteration area; it has a few holes; and it has one really good hole that suggests that this could be one of those really big gold targets.

Exeter is not particularly cheap right now, but if either of these two speculations works out, it will be really, really good for the company. Plus, the company has a pipeline full of other projects. And who knows? The company may even get Don Sixto, its former flagship project, back. Mendoza has a new pro-mining governor.

So, I like Exeter a lot, but I have to stress that it is highly speculative; it doesn’t have a 43-101-compliant resource right now. It will have resources soon, but the market has already given the company a lot of credit for that. If either of those two exciting projects disappoints, it would be easy to get hurt on that stock. That said, the upside potential is very good based on outstanding results so far.

TGR: Let’s move on to First Majestic Silver Corp.(FRMSF.PK).

JAMES: I like this company also. I like the people involved — the technical people on the ground in Mexico are very experienced. Keith Neumeyer, the CEO, made his name with First Quantum Minerals (FM.TO), so he has a bit of a pedigree. Of course, he wasn’t the only one behind First Quantum’s huge success. But he was part of the management team, so he’s worth risking a bet on.

First Majestic raised high expectations from the get-go about how quickly it would be able to outline a lot of ounces of silver, and how quickly it would be profitable. The company didn’t deliver as quickly as it had intended to, but it is doing what it promised, and that’s important. It’s taken them longer than we hoped on many fronts, and it hasn’t done a great job of letting the public know when it’s reached milestones. One of those milestones was the addition of a zinc circuit to its flagship mine, La Parrilla. It’s taken a while, but the company is getting the costs down to where they need to be so that hopefully this coming quarter the numbers will be quite a bit improved.

So, that base of value is starting to solidify, and First Majestic Silver does have plenty of exploration potential. The stock got whacked pretty hard a couple of years ago, when one of the company’s major exploration projects delivered some really disappointing drill results. The market gave them a 50 percent haircut.

TGR: Wasn’t that a little severe?

JAMES: Exactly. We started buying the stock with both hands because it was clear that even though this was a serious and material disappointment, it was not worth 50 percent of the company. We issued a strong buy on that low, and within two months our subscribers who followed our advice had a 100 percent return on their investment.

TGR: What about going forward?

JAMES: First Majestic has a solid base of production now that finally seems to be coming into its own. There’s still plenty of blue sky, lots of projects still to explore. I think the company has prospects for reaching its 200 million ounces of silver equivalent potential this coming year.

TGR: In general terms, how would you characterize the silver market in Mexico?

JAMES: I think the whole subsector is ripe for consolidation. And First Majestic is well positioned. It has the resources, the connections in Toronto and elsewhere to raise the funds to be a consolidator. However, if the company gets gobbled up instead, it will be at a premium for existing shareholders. So either way, there’s also an M&A

TGR: What are your thoughts on Goldcorp Inc. (GG:NYSE)?

JAMES: That’s an interesting question. For a while, Goldcorp was regarded as not the best among the majors because it was doing such a good job. It was so profitable that it didn’t have much leverage to the rising gold price. However, with recent changes in costs for major projects and the perception of profitability after the great Galore Creek fiasco (Barrick/NovaGold), a lot of people are thinking that maybe a more profitable company like Goldcorp isn’t such a bad idea after all.

TGR: So you have a favorable opinion on Goldcorp?

JAMES: Absolutely.

“..Normally, for instance, you’ll see the so-called smart money go into a developing bull market first. This includes investors who understand the markets and the big picture, some professionals and so on.

As prices rise, more gold bugs will move in, usually followed by some early-bird Wall Street types.

This is basically where we are now, in the second phase. But as New Orleans illustrated, this bull market rise is still lacking investor and Wall Street enthusiasm. That’s still to come and we think that’ll probably happen once gold hits a new record high above $850.

 During the third phase of a bull market, the public jumps in. The public is usually late to the party and in their collective excitement, they’ll drive prices up to extreme levels. The most recent example of this happened in the late 1990s when tech stocks were all the rage. Everyone was “into high tech” and these stocks were going to keep rising in the “new era,” but of course they didn’t.

As for gold, the public is barely aware of gold’s ongoing rise and they’re not in the market. The reason that’s good is because the longer gold goes without attracting much attention, the higher it will ultimately go once the public starts moving in.

This suggests that the gold price could literally skyrocket at some point to levels far higher than most people are expecting. And with world tensions increasing on several fronts, it’s providing plenty of fuel for the markets…”

To read the article please click HERE

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