Friday, March 18, 2011

Gold After the Earthquake, Tsunami, and Nuclear Disruptions

Gold After the Earthquake, Tsunami, and Nuclear Disruptions
You the reader are obviously looking at this because, you too would like to know what is next for Gold.  Well, after the recent dip since the beginning of March and culminating in the "Ides of March" (March 15th), an examination of the Gold price in USD is in order to determine the next phase for Gold:  (Click on the chart to enlarge)
The chart above shows a steep drop happening on the Ides that showed a spread of $60 USD in the drop to just touching the blue 50 day moving average line and then bouncing back.

Today is Saint Patrick's day and this may be a good omen for Gold investors; so using the green theme, the author sees an about-face for the Gold/Silver and mining sectors.  The fall on the 15th was enough and Gold held steady yesterday, March 16th, around the $1400 USD level.  The fundamental drivers for Gold and precious metals have not changed.  For review from an earlier post, these driving forces are:
1. Inflation of Paper Currencies
The markets interpret the FOMC's previous pronouncements as inflationary for paper currencies, and this effect is expected to continue until there are some indications of inflation being reined in. This currency inflation is a fundamental driver for the precious metals.
2. Rise of the World's Middle Class Supporting Gold Prices
There is a rising middle class as the world's emerging markets continue to grow and gain parity with the world's developed markets. The size of the world's middle class growth is largest in the Asian economies and of a scale that the world has never before seen. Asians have a particular affinity for the precious metals due to their history and culture of precious metals being a store of wealth. This buying by emerging middle classes provides a strong base of support for precious metals prices.
3. Peak Gold Is Coming Due to Higher Costs and Lower Grades
Barrick Gold's (ABX) chief executive Aaron Regent already declared a state of "peak gold" in 2009. The thesis is that gold mining is difficult, and the challenges of increasing costs, lower gold grades, and difficult operating environments all coalesce to decrease gold production supply. This "peak gold" dynamic is ensuring that the new production supply of precious metals will be constrained in the future.
It seems, that the author's call for another "Bull Run for Gold" was disrupted by the natural Earth disaster of the Japanese earthquake, the resulting tsunami destruction and the follow-up nuclear debacles.  The resulting stock markets disarray disrupted the upward path for the rise of Gold.
Not to belittle the human suffering impacts of these events, but the news of these happenings should have now been priced into the markets. Other market factors would include the Copper price, which is recovering after being oversold in February due to the Asian Lunar New Year.   Also, the Steel ETF  SLX is bottoming and is showing signs of moving up.  And finally the  TSX Venture has bottomed and is slowly moving higher. These three equities and indices are leaders for the general markets and may be signs that the S&P is due to recover.  The regular markets have had a good shakeout.  Most of the gains in 2011 for most stocks have evaporated due to this shakeout. 

Japan has injected upto $170 Billion equivalents to calm and support the financial markets after the severe drop on March 15th.  The Japanese will repatriate their world-wide investments to fund the re-construction, and the impact will be felt in world markets, but recovery shall prevail.  The FOMC sees no further need for monetary injections in the US as the recovery is strong enough.

In the author's opinion, with the general markets coming back, the Gold Bull Run shall continue.  So, therefore, the Gold/Silver stocks should move forward from here.

Disclosure: The author is long Gold and precious metals and other mining equities.
Important Disclaimer
The information and opinions contained within this document reflect the personal views of the author and should be viewed as food for thought and amusement only. The author may from time to time have a position in any of the securities mentioned. There are no guarantees of the accuracy, reliability or completeness of the information contained herein. Independent due diligence and discussions with one’s own investment and business advisor is strongly recommended. These writings are not to be construed as an offer or solicitation with respect to the purchase or sale of any security or as an endorsement of any product or service. We do not request or receive compensation in any form in order to feature companies in this publication. It is prohibited to copy or redistribute this document to any type of third party without the express permission of the author. This document may be quoted, in context, provided proper credit is given.

Tuesday, March 15, 2011

Sample email sent March 14, 2011

Sample email sent March 14, 2011

Goombarh 42 - Mar 14, 2011
Good morning,
I have seen so many optimistic gold/Silver commentaries, that I feel a comment from the Goombarh may be in order.

My situation is different this year, than last.  Last year, I was taking further risks to reap the opportunity that I saw from the rising metals/mining markets, that were driven by the rising regular markets.  This year, I am sitting on sizable gains from last year, plus decent gains from some good decisions in the fall and early this year.  Therefore, my main aim at present is not for max gains but to preserve the gains already reaped.

As those who looked at Ken Fisher's commentary will know, he forecasts a stock picker's year; in other words, you have to make the right moves; do not expect everything to continue to move up.  Right now, I am cautious, as the SLX, copper and the TSX-v are indicating a fall in the general markets coming, similar to April of 2010; where everything declined until mid-Summer, for the next move up in the general markets.  Also Gold/Silver declined until July.  Therefore, my take, is that most of this optimistic commentary, of staying the course in regular markets or Gold/Silver may be wrong, and if you are in the market, right now, you need to be conscious that there may be declines ahead.

This may seem like heresy to you, but I am presently out of my two favorite stocks (regular followers will know which two that I mean).  I am not against these stocks, and I will buy them again, but I just think that possibly there will be lower prices ahead for them, and I do not want to risk my previous gains by holding them.  This timing is just not right for gains in these two presently.  The gains will come later this year.

As for holdings right now, I am holding the 3 small miners with small stock prices and small market capitalization:  Adex Mining, Belvedere Mining and Zaruma Resources.   I am also holding core positions in Tarsis Resources, Shore Gold, Atac Resources, Anvel Gold, Victoria Gold, Western Zagros, Primary Petroleum, Almaden Resources, Canadian Zinc, Selwyn Resources and  Gold Port Resources. 

What is the difference with these small guys?  Mainly, they are speculative, and I am holding for possible upsides.

I am holding larger positions in HOD (double bear Oil), HMD (double bear Mining) and HED (double Bear oil equities).

I am also trading Goldcorp warrants.

Attached are three charts showing why I am a bear presently.

Until next time,
Marco G.

Saturday, March 5, 2011

This Guy is Chief of Company managing $58 Billion in Hedge Fund.

Very interesting views, Ray Dalio has.  Note his strong view on holding Gold and he believes large funds and sovereign wealth and other should hold a portion.  This view must be catching, and bodes well for precious metals going forward from here.

What is also amazing is that his fund returned 40% in 2010.  It is a known fact that as your holdings becomes larger, that it becomes harder and harder to give strong returns, as the large opportunities are just not there.  Therefore for his huge fund to return 40%, he is probably making multiples on many of their investments, and the average works out to 40%.

Tuesday, March 1, 2011

Goldcorp Warrants (, TSX:G.wt.g)

Goombarh Flash 18,  Feb 25th, 2011

Good Morning,
Though I have been a critic of Goldcorp, I am not against making money on this glamor stock.  They released terrific results yesterday, and as I have said previously, they are doing the right things with divesting low grade Osisko and buy high grade Andean.

Note the chart above, their soon expiring warrants are seriously lagging the stock, probably funds divesting after  year end with close expiry in June 9th, 2011.  There are 8 million of these critters and they have become seriously leveraged to the stock price ~ 16. Goldcorp warrants (GG.WS, TSX: G.wt.G) should move with the stock price upwards and with the Gold price upwards and maybe peak in May before expiry in June. Pricing is sub $3 presently and strike price is $45.75 Cdn which is the price right now.  Therefore, no value in warrant except as an option should the price move upwards beyond $49 Cdn, then these warrants become breakeven.  Beyond $49, each $1 stock moves, the warrant should move $1 also giving a 16 to 1 leverage.

This is definitely risky as if GG doesn't move up, then you lose your whole investment.  However if GG moves to $62, $52, then you have a double.  I have bought and am holding.

Until next time,
Marco G.