April 30, 2013 10:40 AM – The eurozone is one shock away from a Japan-style deflation crisis after a key measure of prices fell to the lowest since the launch of the single currency.
Read the full article at the Telegraph…
April 30, 2013 10:40 AM – The eurozone is one shock away from a Japan-style deflation crisis after a key measure of prices fell to the lowest since the launch of the single currency.
Read the full article at the Telegraph…
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The majority of analysts*maintain that gold will reach a parabolic peak price somewhere in excess of $5,000 per troy ounce in the next few years. Given the fact that the historical movement of silver is 90 – 98% correlated with that of gold suggests that a much higher price for silver can also be anticipated. Couple that with the fact that silver is currently greatly undervalued relative to its average long-term historical relationship with gold and it is realistic to expect that silver*will eventually*escalate dramatically in price. How much? This article applies the historical gold:silver ratios to come up with a range of prices*based on specific price levels for gold being reached. Words: 691
So says Lorimer Wilson, editor of www.munKNEE.com in an article outlining the historical price correlation between gold and silver and what it means for the future price of silver as the gold bull runs it course. Please note that this complete paragraph, and a link back to the original article*, must be included in any article posting or re-posting to avoid copyright infringement.
How both gold and silver perform, in and of themselves, does not tell the complete picture. More important is the price relationship – the correlation – of one to the other over time, the gold:silver ratio.
Let’s look at the gold:silver ratio from several different perspectives:
since 1985 the mean gold:silver ratio has been 45.7:1
during the build-up to the parabolic blow-off in 1979/80 the ratio dropped from 38:1 in January 1979 to 13.99:1 at the parabolic peak for*both metals in January, 1980.
Let’s now look at the various price levels for gold and the various gold:silver ratios mentioned above, one by one, and see what conclusions we can draw.
First let’s use the current ball-park price of approximately$1,600 for gold and apply the gold:silver ratios mentioned above in approximate terms and see what they do for the potential % increase in, and price of, silver.
Gold @ $1,600 using the 45:1 gold:silver ratio puts silver at $35.56
Gold @ $1,600 using the 13.99:1 gold:silver ratio puts silver at $114.37
Now let’s apply the projected potential parabolic peaks of $2,000,*$3,000, $5,000 and*$10,000 to the various gold:silver ratios and see what they suggest is the parabolic top for silver.
Silver’s Potential Price Range With Gold At $2,000
Gold @ $2,000 using gold:silver ratio of 45:1 puts silver at $44.44
Gold @ $2,000 using gold:silver ratio of 14:1 puts silver at $142.85
Silver’s Potential Price Range With Gold At $3,000
Gold @ $3,000 using the gold:silver ratio of 45:1 puts silver at $66.67
Gold @ $3,000 using the gold:silver ratio of 14:1 puts silver at $ 214.29
Silver’s Potential Price Range With Gold at $5,000
Gold @ $5,000 using the gold:silver ratio of 45.1 puts silver at $111.11
Gold @ $5,000 using the gold:silver ratio of 14:1 puts silver at $357.14
Silver’s Potential Price Range With Gold at $10,000
Gold @ $10,000 using the gold:silver ratio of 45:1 puts silver at $222.22
Gold @ $10,000 using the gold:silver ratio of 14:1 puts silver at $714.29
It would appear that, any way we look at it, physical silver is currently undervalued compared to gold bullion and is in position to generate substantially greater returns than investing in gold bullion.
Gold:Silver Ratio Conclusion
History will look back at the artificially high gold:silver ratio of the past century as an anomaly caused by the world being deceived into believing that fiat currencies are real money, when in fact they are all an illusion.
This fiat currency experiment will end badly in a currency crisis and when that happens, as it surely will, gold will go parabolic and silver along with it but even more so as the gold:silver ratio adjusts itself to more historical correlations.
1. Coming Move In Gold Will See It Reach $3,200 by Late 2014 or Early 2015
The breakdown after the QE4* announcement, and now the extreme move into a yearly cycle low has, I* daresay, convinced everyone that the gold bull is over. I would argue that it is impossible for the gold bull to be over as long as central* banks around the world continue to debase their currencies [and that] gold is just creating the conditions – a T-1 pattern – necessary for its next leg up to what I expect to be…around $3200 sometime in late 2014 or early 2015. [Let me explain.] Words: 560; Charts: 3
2. Past Bubble Movements Suggests a Parabolic Peak Price of $9,000 for Gold & $250 for Silver Is NOT Unreasonable – Take a Look
Bubbles tend to follow the 80/20 ratio indicated in the Pareto Principle where approximately 80% of the price move occurs in the LAST 20% of the time. That being the case it would appear that gold and silver could conceivably top out around $9,000 per troy ounce and $250/ozt respectively .This is not a prediction of future prices of gold and silver; it is an indication of what could happen in a speculative bubble environment based on the history of previous bubbles. Words: 1280; Charts: 1
3. Moolman: Long-Term Chart Suggests Silver Will Comfortably Pass $150 By End of 2013
The Energy Report: You work for a London-based research organization, and I imagine that you have a somewhat broader outlook on the oil and gas investment arena than most firms do in North America. Tell us a little about what you see ahead for energy markets.
Peter Dupont: Actually, some of the most interesting developments over the past year or two have taken place in North America. North America experienced a production increase of about one million barrels per day (1MMb/d) last year, whereas output dropped about .5MMb/d in other parts of the world. The North Sea was a major contributor to that. I see North America driving the global increase in output in 2013-2015.
I see the global supply/demand picture as pretty comfortable, barring natural, political or technical disasters. Those are always the wild cards. The demand side of the picture looks about the same as 2012, with a fairly subdued increase of perhaps 1MMb/d or a bit less. Demand growth is clearly constrained by recessionary or quasi-recessionary conditions in Europe and sluggish economic activity elsewhere in the OECD countries, including North America. China should see similar increases to recent years, maybe 3–4%. Overall, I don’t think we’re looking at particularly large increases in demand, which is just a function of the global economic situation.
TER: Politics are playing an increasingly important role in resource development. What do you see ahead that’s significant in this respect?
PD: Politics and nationalism concerns have always been there to some degree since the formation of OPEC. That’s inevitable.
TER: Are there any areas you’re watching that could have some significant upsets as a result of government greed?
PD: I think that risk applies wherever oil is produced in significant quantities. It applies here in the North Sea, where you get changes in the tax regime that to some extent reflect movements in share prices. One reason why the U.S. and Canada are perceived as being attractive is you don’t have the same degree of nationalism reflected in taxes. State production taxes and royalties vary, but the situation is vastly different compared to a place like Russia, where it’s very easy to find the revenue completely consumed by taxes and local operating costs. It’s no great surprise that the shale revolution has taken place in North America. In addition to geological conditions and the great fund of expertise available in the U.S. and Canada, the tax regime for oil and gas is more favorable than in other parts of the world. Even if you take into account the discounts on West Texas Intermediate (WTI) against Brent, there’s still a pretty good margin after all the associated production costs and taxes are factored in.
Furthermore, North America is one of the most favorable places to operate now because of all the infrastructure and oil field services already in place. The terrain lends itself to oil field development. A lot of people are also very experienced in the business. Breakthroughs in tapping into shales certainly makes it one of the most interesting places to operate because the resources are there and you don’t have major problems dealing with governments and tax regimes. At the end of the day, you’ve got to go where the oil is—or where you think it is.
TER: What other jurisdictions do you find interesting at this point?
PD: Shale probably has very big opportunities outside North America. The most interesting area, arguably, is Argentina, which has very substantial resources. There are political issues there, but you have to go where you think the opportunities are and Argentina is high on my list. Colombia is another shale opportunity. Australia has very big potential, with a combination of shale and conventional onshore opportunities.
China is also getting a lot of attention now. Theoretically, it has very large shale oil and gas opportunities, generally in tight reservoirs. The Chinese are very keen on tapping into shale gas to limit their import exposure and emissions.
Europe also has shale possibilities. Because of high population density, it’s more difficult to operate onshore in Europe than in the Great Plains of North America. In Europe, you also have all sorts of planning and socio-political issues with any form of oil and gas development onshore. Another factor is sometimes a lack of oil field services, although this is not an insuperable problem.
Most countries are very envious of North America’s shale production, and want to emulate it. Ukraine, for example, is going down this route and announced a big joint venture several weeks ago with Royal Dutch Shell Plc (RDS.A:NYSE; RDS.B:NYSE) to potentially unlock the country’s shale resources. Efforts should gather momentum in many countries to unlock shales. It’s mainly an engineering and economic issue. Some places are obviously easier than others.
In Argentina, the shales are very much laterally continuous, as they are in the U.S., which makes development much easier. Argentina also has low population densities, terrain similar to the Great Plains, good highway infrastructure, adequate oil field services and people who know something about the industry. It’s a very hot area at the moment and I think it will continue to be.
TER: What companies look most interesting at this point?
PD: One situation I’d like to mention in particular is CBM Asia Development Corp. (TCF:TSX.V). It’s basically a play on coal bed methane opportunities in Indonesia that’s still at a fairly early stage. Momentum is increasing rapidly there following the joint venture with Exxon Mobil Corp. (XOM:NYSE) that CBM Asia announced at the end of last year. Development and derisking is likely to get underway in Q2/13, which potentially should provide some very interesting news flow over the year. It’s already announced nearing a trillion cubic feet (Tcf) of resources, which has been independently audited by Netherland, Sewell. There could be further announcements on the resource base by the end of the year.
TER: What could be the potential impact on the company and the stock price?
PD: If it all comes off, it could move from being a junior valued at about $40 million ($40M) to something that starts becoming a midtier, possibly valued in the hundreds of millions. We would reckon that there’s a resource, based on the existing projects, which is about 14 Tcf net. That’s a big number in gas circles. The work program is to derisk and unlock that potential. If CBM can do that, then it will have a very substantial business. I think CBM Asia has indicated that it would possibly spin off projects as they are derisked.
Indonesia is interesting from a gas perspective because the coal reserves there are very gaseous, with very thick and reasonably permeable and porous seams. CBM’s management believes that Indonesia’s coal seams have superior characteristics to the Powder River Basin (PRB) in Wyoming, the second-largest source of coal bed methane in the U.S. The coal seams in Indonesia tend to be laterally continuous and are not heavily impacted by faulting, as they are in China, where development is very difficult and expensive.
TER: Would this gas be used mainly domestically or would CBM Asia try to export it?
PD: There’s a big domestic market. Indonesia has a very big population and some of CBM’s projects are near infrastructure. There are also export opportunities for liquified natural gas. Conventional oil and gas production has been going down while the economy’s growing at probably 5–6% a year. The domestic price is around $7.50 per million cubic feet. Coal bed methane development and operating costs are low in Indonesia. It’s important to note that CBM Asia actually is in the driving seat (it is the operator) as far as the ExxonMobil joint venture is concerned, which says a great deal about the technical capabilities of the company.
TER: What about some other companies that may have good upside?
PD: Although I don’t follow it closely, one of the most interesting shale stories is another Canadian company called Americas Petrogas Inc. (BOE:TSX.V), which has one of the biggest shale development projects in Argentina. The main focus of shale development there is on the NeuquÃ©n basin in central-western Argentina. Americas Petrogas has joint ventures with Exxon Mobil. Apache Corp. (APA:NYSE) has made some very significant discoveries, including the very promising Los Toldos II in the west of the basin. It has significant exposure to the Vaca Muerta shale formation, which, according to industry estimates, could have 23 billion barrels in recoverable reserves. Americas Petrogas has a lot of upside and there’s good potential for a takeout as well. I think it’s a very interesting shale play.
There are a number of companies that have done very well in recent years in Colombia, most significantly Pacific Rubiales Energy Corp. (PRE:TSX; PREC:BVC), which is a Canadian company founded by Venezuelans. Gran Tierra Energy Inc. (GTE:TSX; GTE:NYSE) and Amerisur Resources Plc (AMER:LSE) are two other companies that have been highly successful in Colombia in recent years. Gran Tierra also has exposure to the NeuquÃ©n basin in Argentina.
Another company we’re a bit closer to is Range Resources Corp. (RRC:NYSE). It has made a significant move into the Caribbean and Latin America over the last couple of years, principally by buying some assets in Trinidad, which it’s now developing. Despite a few operational problems, the performance of the wells it’s been drilling has been very good. It has also bought into some acreage in the south of Colombia near Gran Tierra’s and Amerisur’s blocks that holds considerable potential.
Range has also recently bought an interest in some assets in Guatemala. Guatemala is not particularly well known as an oil province, but there has been oil production there for quite a few years. Perenco, a French private company, is the operator. Range has reported some very positive test results from the Atzam 4 well in Guatemala of late. The shares had come under a lot of pressure in Q4/12 and the early weeks of 2013 because of financing issues and some exploration plays elsewhere that didn’t come to fruition. With development activity in Trinidad gaining momentum, and with the other interests in Latin America appearing to offer considerable promise, the share price has recovered significantly of late, albeit from a low base. The development story in Trinidad is underway, with production scheduled to rise from about 1,000 barrels per day (1Mb/d) currently to maybe 6Mb/d by year-end 2014. By 2015, it could be more like 8Mb/d if all goes well.
TER: There’s also a lot going on in Australia. Who is on your radar there?
PD: What we’re looking at now are developments onshore in the central part of Australia, where there’s been relatively little exploration historically. Admittedly, over the last 40 years or so, the Cooper basin has generated highly significant production but there are other large basins in various parts of Northern Territory, Queensland and Western Australia that offer both conventional and shale potential.
One company that has very considerable acreage is Central Petroleum Ltd. (CTP:ASX), with about 60M gross acres or so in areas where there’s been relatively little exploration and development activity. This is an early-stage play with both shale and conventional opportunities. It announced the Surprise discovery about a year ago in the Amadeus basin in the Northern Territory. We’re expecting it to soon announce a reserve estimate for that project, which should be quite interesting.
To unlock the opportunities, particularly for the shale projects, it announced two big joint ventures at the end of last year. One is with Santos Ltd. (STO:ASX), a major Australian independent that was instrumental in developing the Cooper basin in South Australia and Queensland, and the other is with Total S.A. (TOT:NYSE). We’re expecting the work program on these opportunities, particularly in the south Amadeus basin, to begin during the Q2/13.
TER: With a land package that big, the upside has to be huge.
PD: It’s had to concede some of the acreage through joint ventures. Nevertheless, Central Petroleum still has about 40M net acres. Near term, the stock is a play on the scale of Surprise’s reserves, but longer term there is the potential blue-sky upside relating to the joint ventures with Santos and Total.
An additional point you have to remember here is that there are other companies operating in the central and western Australian basins and creating news flow. Santos remains the key local player in the Cooper basin (and it also has exposure to the Amadeus basin) but Beach Energy Ltd. (BPT:ASX), Drillsearch Energy Ltd. (DLS:ASX), New Standard Energy (NSE:ASX) and Senex Energy Ltd. (SXY:ASX) are all examples of growing independents with a focus on the central and western Australian basins. Among U.S.-based companies, Hess Corp. (HES:NYSE) and ConocoPhillips (COP:NYSE) have exposure to the region. Importantly, Central Petroleum has the largest gross land position spread across the Amadeus basin, the Pedirka basin, the Georgina basin and the Lander Trough.
TER: Can you summarize where you think investors should be looking over the next year?
PD: Both in 2013 and 2014, I expect quite significant increases in non-OPEC oil production capacity to be brought onstream. We should be looking at 1MMb/d or more in both years. Over the next decade, I believe there are major exploration and development opportunities globally in unconventionals and, particularly in shale. I think that companies like CBM Asia, Central Petroleum, Range Resources Ltd. and Americas Petrogas all present interesting opportunities at this time.
TER: Thank you very much for talking with us today, Peter.
PD: Thank you for the opportunity.
Peter Dupont is an energy analyst at Edison Investment Research in London. He has been involved in investment research for 30 years in the industrial and resource sectors. Between 1983 and 1998, he worked for Union Bank of Switzerland (UBS) in London covering engineering and metals stocks. In early 1998, Dupont moved to Commerzbank to head its research activity in the European and U.K. metals and natural resources sector. Between 2005 and 2009, he worked as a consultant analyst for a London-based boutique investment bank, Libertas Capital. Since 2009, Dupont has worked for Edison Investment Research covering the oil and gas sector. Dupont produces regular macro oil and gas studies and covers developments in the “unconventionals” field. He has a Bachelor of Science from the London School of Economics.
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( Companies Mentioned: BOE:TSX.V, AMER:LSE, APA:NYSE, BPT:ASX, TCF:TSX.V, CTP:ASX, COP:NYSE, DLS:ASX, XOM:NYSE, GTE:TSX; GTE:NYSE, HES:NYSE, NSE:ASX, PRE:TSX; PREC:BVC, RRC:NYSE, RDS.A:NYSE; RDS.B:NYSE, STO:ASX, SXY:ASX, TOT:NYSE, )
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Put Yourself on the Gold Standard. Get the World’s only True Gold & Silver Debit Cards.
Precious metals have historically been excellent ways to preserve one’s purchasing power over the long term.* However, in today’s world, they do not act well as a medium of exchange. To solve this problem Peter Schiff and his teams worldwide have worked out a totally new service: the first Gold and Silver Debit cards that gives bank customers access to their gold and silver*holdings.
So says Peter Schiff (www.europac.net) in edited excerpts from his online promotion* for his new offering in an article entitled Peter Schiff Reveals CPI Propaganda By Calculating Real Price Inflation.
*This article is presented compliments of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!) and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.
Schiff goes on to say in further edited excerpts:
Below are the unique features these*debit cards*offer:
It looks like a traditional debit card, but it has some unique features that help people protect their purchasing power and profit from the real benefits of precious metals:
Purchasing power is stored in gold or silver, protecting holders against price inflation.
Ease of access to the metal: the holder can easily buy and own precious metals
Metals are stored outside the banking system, solving the risk of safe storage.
The holder is protected against capital controls.
The risk for confiscation is minimized as the metals are stored in Australia at the Perth Mint.
Delivery of the metal can easily be requested.
The cards are accepted by millions of merchants worldwide
The cards can be used*in over 210 countries except in the U.S.
Unfortunately this card is not available to American citizens, or foreign citizens residing in the United States.
Euro Pacific Bank’s gold- and silver-backed debit cards give bank customers access to their gold and silver*holdings that has not been offered in any service before. It is an example of innovation in a way that stimulates usage of the metals.
If you are interested in learning how the program works and would like to receive an application please email us at firstname.lastname@example.org.
More about the Gold Debit Card* |* More about the Silver Debit Card Editor’s Note: The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.
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1.*You Can Now Buy Gold & Silver on eBay!
Bay thinks there’s potential for its marketplace to be a trusted seller of gold, silver and other precious metals and is making a major bet on this vertical as a sales generator via a new exclusive partnership with AMPEX Bullion Center which they introduced just this past Wednesday. Read on for more deals about this introduction. Words: 257
2. BullionVault Has 43,000 Customers: Now They’ve Cut Their Fee By 37.5% So You Will Buy From Them Too!
believe it is important to mitigate the risk of loss with your physical bullion by diversifying the locations where you hold it.* To this end, I think it is wise to have some bullion on your property, some in secure storage off site, a portion stored with an ETF like CEF and ideally at some stored at a location overseas. In order to obtain the overseas diversification, I [recommend BullionVault* because, while their 43,000 customers have already done business with them at some of the lowest costs available, they have just reduced their initial commission fee by 37.5% – from 0.8% to just 0.5%! Let me explain further some of the advantages of doing business with Bullionvault.] Words: 796
3. These 2 Sites Are the* BEST Places to Buy Gold & Silver Online – Here’s Why
One of the most common questions I receive is about where to buy gold. There are countless small and large sized dealers, each claiming to have the best prices, best inventory, best service, etc. Of course, you can’t take them on their word — you need outside analysis and a good old-fashioned review. In this article, you’ll find just such a review. Words: 532
*4. Compare & Save When Buying Gold: Check Out These Dealers First!
Compare and save! Who is the most reputable, cheapest and most reliable precious metals dealer to buy your physical gold and silver from? Their are hundreds of dealers touting their wares but when it comes to direct comparisons only a few rise to the top of the list. Here they are. Words: 262
5. What Do Gold Measurements “Troy” Ounce and “Karat” Really Mean?
You have no doubt read countless articles on the price of gold costing x dollars per “troy ounce” or perhaps just x dollars per “ounce” but the difference between the two measurements is significant. For that matter, what’s the difference between a 24 karat gold ring and an 18 karat gold ring? Let me explain. Words: 863
6. There is a MUCH Better Way to Own Gold Than Via ETFs and ETRs – Here’s How
Late last year the Royal Canadian Mint intoduced an Exchange Traded Receipt (ETR) in another long line of paper-gold investments that are now trading on securities exchanges worldwide. It, like all of the other programs, comes with a slew of fees and risks. [Why not take personal physical possession of your gold or silver, store it in an allocated and secure non-government vault, be able to have any or all of it shipped to you immediately upon request – and for dramatically less than any ETF or ETR? Let me explain how easily it is to do just that.] Words: 1601
7. Vaulted Gold: What Is It and How Does It Compare With Other Gold Investments?
The infographic below on vaulted gold explains what vaulted gold is and visualizes key facts relating to investments in gold that is stored on behalf of investors in high-security vaults.
8. Before Buying a Gold-related ETF Check Out These Alternatives
There are many legitimate reasons to trade in gold and its derivatives. Gold has been proven time and time again to be an excellent “safe haven” investment, a holding that will appreciate in value during times of economic uncertainty. As such, gold may offer some valuable hedging and diversification benefits for a long-term portfolio. A number of exchange-traded products offering exposure to gold prices but not all gold ETFs are created equal. Here’s a quick rundown of factors to consider when making an investment in a gold ETF. Words: 1268
9. Surprise! A Close Look at GLD Reveals What it IS and is NOT
The most common misunderstandings regarding the primary gold ETF, SPDR Gold Trust (NYSE:GLD) is that it buys and sells gold. That is not the case. It is just a paper asset. It is not a way to buy gold and have someone else store your holdings for you. It is just an innovative way to “own gold.” [Below I outline more of just what GLD is and is not:] Words: 1470
10. All Gold & Silver ETFs Are NOT the Same: a Lease vs. Own Comparison
I have always been leery of the two big exchange traded funds, SLV and GLD, because they lease the gold and silver that they sell you. I much prefer the ETFs SGOL, CEF, PSVL and PHYS which actually own the gold and silver they sell you and store it for you segregated vaults. Words: 717
11. All Gold and Silver ETFs are NOT Created Equal! Here’s the Best
Whole oceans of ink have been spilled detailing the good and not-so-good points of the closed-end fund CEF (Central Fund of Canada) and the twin ETF’s GLD (SPDR Gold Trust) and SLV (iShares Silver Trust) funds. My goal here is to distill the salient points down to the fewest words possible to help make your due diligence task somewhat less…well…tasking. [Let’s go!] Words: 650
12. Protect Yourself From Inflation With Gold or Precious Metals Funds
Investing in some form of precious metals is the preferable way to protect oneself from rising inflation/decrease in the value of the U.S. dollar and here are 10 ETFs and ETNs and 5 mutual funds to do just that. Words: 879
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While George Soros*spent over 40 years managing funds at Soros Fund Management, racking up an incredible average annual return of 20%,*he is arguably most known for the huge bets he made against the British pound in 1992. He felt that the European Exchange Rate Mechanism overvalued the pound and that the system was inherently unsustainable so he bet $10 billion on this view and*reaped more than $2 billion in profits from his trades. [This article outlines his the life – both professional and personal – of this epitome of a hedge fund manager.] Words: 972
So writes Stephen D. Simpson (www.commodityhq.com) in edited excerpts from his original article* entitled Commodity Fund Profile: George Soros.
This article is presented compliments of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!) and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.
Simpson goes on to say in further edited excerpts:
It is impossible to write the history of hedge funds or American investors without including George Soros. Though Soros*did not invent the hedge fund, he was among a very select group to show how a well-run fund employing significant leverage could generate outsized returns for prolonged periods of time. Due to a particular combination of success, aggression and willingness to speak to the press, Soros found his name tied to two major financial events of the 1990s and he became, for many, the epitome of a hedge fund managerâ€¦.
According to the most recent Forbes numbers, Soros*is the 15th richest person in the world, with a $19 billion net worth.
Soros*grew up in Hungary, surviving both the Nazi occupation of Hungary and the intense fighting in Budapest between Soviet and Nazi forces near the end of World War II. Soros emigrated to England in 1947 and attended the London School of Economics, graduating in 1952.
Soros*emigrated again, to New York City, in 1956, and began his career on Wall Street. Soros’ first opportunity to run money would come in 1967 with First Eagle Funds. He left to establish Soros Fund Management in 1969, launching the Quantum Fund later in 1973 with Jim Rogers, another now-noted commodity investor.
Soros*spent over 40 years managing funds at Soros Fund Management, racking up an incredible average annual return of 20%, while the Quantum Fund itself boasted returns in excess of 30%.
For better or worse, though, most of Soros’ investments garnered relatively little individual notice. Soros was an omnivorous investment opportunist, willing to invest in stocks, bonds, commodities, currencies and virtually any other financial instruments that seemed mispriced according to the firm’s models. Soros made extensive use of leverage and was willing to invest with both very short and longer time horizons.
Soros*is arguably most known for the huge bets he made against the British pound in 1992. Soros*felt that the European Exchange Rate Mechanism overvalued the pound and that the system was inherently unsustainable. Betting $10 billion on this view, Soros reaped more than $2 billion in profits from his trades, with reportedly $1 billion coming on a single dayâ€¦.
The Bank of England capitulated on September 16, 1992 (now known as “Black Wednesday”), and Soros*henceforth carried the nickname of “the man who broke the Bank of England.” It was later revealed that the Bank of England lost about 3.3 billion pounds defending the pound, and while there were other investors besides Soros involved, the event was a visible sign that international financial markets now carried more ultimate power than individual governments.
Soros’s name would again appear prominently during the Asian financial crisis during the summer of 1997. A full retelling of the crisis is beyond the scope of this article, but Soros was publicly named by Malaysian Prime Minister Mahatir*Mohamad*as a prime cause of the crisis, and Mahatir further alleged that he was attempting to ruin the economies of Southeast Asia through currency speculation. According to Soros, his firm and funds were involved during the crisis, going both long and short Southeast Asian currencies like the Thai baht and Malay ringgit at various pointsâ€¦.
Jim Rogers left Soros*Fund Management in 1980 and Soros began to hand over more day-to-day responsibility throughout the ‘80s and ‘90s before officially retiring in 2011.
With all due respect to Mr. Soros, at age 82 there are probably not too many chapters left to his story. Soros*officially retired in 2011, returning about $1 billion to investors. Soros currently devotes his time to his charitable and foundation endeavors, as well as writing projects and speaking engagements.
Soros has been married and divorced twice, with five kids between the two marriages, and is presently again engaged to be married.
While Soros*earned his professional fame as a bold trader willing to make huge bets on binary outcomes, Soros has increasingly received notice for his extensive charitable efforts. Forbes estimates that he has donated more than $8 billion since 1979, with substantial sums going towards fighting poverty and supporting democracy and human rights around the world. So successful were some of these pro-democracy efforts in places like the former Soviet republics that Soros’s actions reportedly compromised U.S. foreign policyâ€¦.
Soros*has also incurred the wrath of conservatives in the United States for his vocal support of the Democratic Party, and Soros can claim the questionable honor of having an entire Wikipedia page dedicated to various conspiracy theories tied to him.
The Bottom Line
Though Soros*has officially retired from the professional investing world, he still has a lot of projects that keep him busy. Outside of his philanthropic work, Soros has also taken a financial interest in professional sports, and in the last 10 years he’s been involved in everything from the Washington Capitals baseball team to the English football club Manchester United.
Regardless of Soros’s professional involvement in the investing world, as an outspoken financial critic–with a successful and prolific career to back up his theories–Soros’s public pronouncements can give insight into the markets and investors should pay attention.
Editor’s Note: The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.
*http://commodityhq.com/2013/commodit…-soros/*(Don’t forget to subscribe to their free daily commodity investing newsletter and to*follow*them on Twitter @CommodityHQ.)
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1. Soros Fund’s Latest Buys Suggest Gold-related Investments to Move Sharply Higher in 2013 – Here’s Why
http://www.munknee.com/wp-content/up…;65.jpgâ€ alt=â€bullion-coins-stacked_303x259â€³ title=â€bullion-coins-stacked_303x259â€³ />George Soros’ hedge fund, Soros Fund Management LLC, states in its Nov. 14th 13-f filing that, among other major moves related to gold, the fund has added a $9 million call option position on the GDX*which means that management of the fund believes that gold mining equities are extremely undervalued on a short-term*basis and that major money to be made over the next 6-12 months, via a sharp move higher in the GDX. Words: 405
2. George Soros’ Speech on the Euro Crisis Has Gone Viral For Good Reason – It’s Brilliant
http://www.munknee.com/wp-content/up…;65.jpgâ€ alt=â€euroâ€ title=â€euroâ€ />If you see yourself as someone who ‘thinks for yourself’ and have wealth to protect I strongly recommend you spend time listening to George Soros. I particularly recommend this given that he delivered this address in June, and because I believe we are now getting to the point where we can see the lights of the train as it comes ever closer to where we are standing on the Euro zone (and world) economic track. Words: 655
3. Soros Selling Stocks and Stacking Gold! Should We Be Buying More Gold Too?
http://www.munknee.com/wp-content/up…;65.jpgâ€ alt=â€gold_price_surges_weak_jobs_dataâ€ width=â€90â€³ height=â€65â€³ data-lazy-src=â€http://www.munknee.com/wp-content/up…;65.jpgâ€ data-lazy-type=â€imageâ€ />When a major global player with direct ties to the White House, Wall Street, and the banking system starts off-loading stocks and starts stacking gold, it suggests a very serious market move is set to happen – and that is just what George Soros has done according to his latest 13-F report filing. [Should we buy more gold too?] Words: 484
4. George Soros Predicts Economic Chaos/Conflict in Europe and Riots in the U.S.!
http://www.munknee.com/wp-content/up…;65.jpgâ€ alt=â€r-EUROPE-DOWNGRADES-large570â€³ width=â€90â€³ height=â€65â€³ data-lazy-src=â€http://www.munknee.com/wp-content/up…;65.jpgâ€ data-lazy-type=â€imageâ€ />George Soros…is more concerned with surviving than staying rich…He doesn’t just mean it’s time to protect your assets. He means it’s time to stave off disaster. As he sees it, the world faces one of the most dangerous periods of modern history—a period of “evil.” Europe is confronting a descent into chaos and conflict. In America he predicts riots on the streets that will lead to a brutal clampdown that will dramatically curtail civil liberties. The global economic system could even collapse altogether. [Perhaps] we should be, too, [but as] we have often explained, [such comments ar nothing more than] the fear-based promotions of the power elite to frighten the middle classes into giving up power and wealth to globalist institutions. Let us explain.
5. Words of Wisdom From the Most Brilliant Investors Ever
http://www.munknee.com/wp-content/up…;65.jpgâ€ alt=â€investing4â€³ width=â€90â€³ height=â€65â€³ data-lazy-src=â€http://www.munknee.com/wp-content/up…;65.jpgâ€ data-lazy-type=â€imageâ€ />There’s a bewildering amount of advice on how to invest…so it’s worthwhile, especially in today’s volatile markets, to take a look at what has actually worked, as opposed to what people claim works. We’ve collected some of the finest wisdom on markets from the most respected and successful investors, past and present. Words: 865
6. Soros and Rogers Agree: Greater Returns from Farmland Than Gold! Here’s Why
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Observations on a sound retirement and kicking the can.
Vedran Vuk here, filling in for David Galland. I had an article ready for today, but at the last moment, our own Bud Conrad sent me his recap of the fiscal-cliff fiasco. To make sure this issue doesn’t set a record in length, I’m making way for Bud’s wisdom and always-excellent analysis. To hear more from Bud, also make sure to check out his recent interview with Jim Puplava on our growing debt and the end result of it, which is baked in the cake at this point.
Then we have an article from Dennis Miller on getting serious about your retirement goals. For those readers who aren’t familiar with Dennis yet, he’s the editor of our newest letter, Miller’s Money Forever. Unlike just about any other newsletter writer, Dennis is already in his retirement years. To take a jab at myself, I’d rather hear retirement advice from Dennis than some writer with thirty years till retirement.
Speaking of Dennis’ new letter, the latest issue of Miller’s Money Forever is coming out soon, in about ten days. Every monthly issue tackles another subject facing those in retirement or planning for it. We recently discussed the costs and benefits of annuities and reverse mortgages. In the upcoming issue we examine the pros and cons of owning real estate while in retirement. Furthermore, we’ve got a new pick in the portfolio with a great yield. Last month, we added a stable pharmaceutical with a 3.9% yield and have a few other good ones paying 5.4% and 4.8% yields. If you haven’t had a chance to do it yet, check out an issue for yourself. Now let’s get to Bud’s take on the fiscal cliff – perhaps it was a bullet dodged in the short run, but an opportunity was missed to hit the real target: runaway spending.
The Fiscal Cliff: An Opportunity Avoided
By Bud Conrad
The label “the fiscal cliff” evoked the fear that something terrible was about to happen if the previously legislated spending cuts and tax increases came into effect. From my point of view, our nation’s deficits and debt are growing at an alarming rate and need to be cut back. The reason these laws were enacted was to offer markets some hope that we would eventually work toward eliminating our serious deficits. But the prevailing opinion that such drastic decreases in our deficit would slow our economy and bring recession created the impression that this “cliff” must be avoided.
The chart below indicates the size of our federal government’s budget deficit. The blue bars reflect what would have happened if there were no legislative changes, and the harsh measures of tax increases and spending cuts occurred. The red bars reflects potential tax increases, the green spending cuts, and the purple is additional interest paid on the expanded debt as a result of bigger deficits. The cliff is seen in the rapid drop of the deficit in the first few years of the blue bars.
(Click on image to enlarge)
The result so far is that tax cuts have been extended for families making less than $450,000 per year (for individuals, it’s $400,000). Spending cuts have been delayed for two months, and the debt ceiling will have to be raised at that time. Compared to last year’s structure, the main result is a relatively modest increase of $650 billion in taxes on the rich. Spreading this over 10 years means that the budget is roughly $65 billion less per year because of the higher taxes. In essence, after all the political discussion and finger-pointing, the politicians did what I expected: they kicked the can down the road and made very little change compared to last year.
The next chart shows the same baseline blue bars with the rather large extension of Bush-era tax cuts to the lower-income households, plus some small additional spending items. Since the blue baseline includes the expectation of sequestering of spending, it is my expectation that the actual deficits could be higher when no cuts are made with some future exercise of government can-kicking. While this chart appears to have lower deficits than shown in the previous range of possible outcomes, the more accurate conclusion is that we are still facing huge deficits, and the politicians really achieved very little in managing our long-term deficit problem. When they get back to meddling, the final deficits could be a lot worse than this analysis.
After the markets closed on Friday, January 3 (when we were less likely to be watching), the Congressional Budget Office released an updated calculation on the size of the cost of the new legislation: it is now $600 billion worse than discussed. They left out the accounting for paying interest on the increased debt for the period of the calculation. I’ve included the interest-rate cost in the chart below where I estimated it as being larger in the later years of the chart. $600 billion turns out to be only a modest addition. It will turn out to be higher when rates rise.
(Click on image to enlarge)
Here are a few more details on what was decided:
• Employees will have up to $2,000 more taken out of their paychecks annually due to the expiration of the temporary payroll tax cut
• The estate tax will increase from 35% to 40%, with the first $5 million worth of property exempt from being taxed
• Capital gains and dividend tax rates will increase from 15% to 20% for higher-income earners
• Alternative Minimum Tax will be raised to affect only higher-income households
• Doctors will not see big cuts for treating Medicare patients
• Unemployed workers will receive extended benefits
It is also sad to report that Washington has been operating as business as usual, including extending many strange programs like support for NASCAR racetracks, rum import duties, and even special support for buildings in New York City near the World Trade Center. While deplorable, these items are small in the macro picture. One new emergency-spending measure that was not included is $60 billion for hurricane Sandy relief, which will surely be added to the deficit soon. The beat goes on, with the inevitable result that the deficit continues. Fiat currency systems have no built-in limit.
World markets applauded this relatively modest package, because it confirms the short-term positive results of government deficit spending. The Dow Jones Industrial Average was up 300 points the day after the crisis was “eliminated.” That means that the Federal Reserve will back up the federal government with more QE to keep the government rolling for the time being. Another result should be further downgrading of the US government debt by the rating agencies. Can you see a progression over another cliff? Downgrading raises the interest rate required by investors on US Treasuries; that increases the cost and the deficit. See the purple in the above chart? It will get worse than the CBO is letting on when rates rise.
I had been trying to ignore the massive, blanketed coverage by our media of this political circus. I knew ahead of time what the result would be from this deficit-cliff exercise. When it comes to holding the line against more government deficits, spending, and taxing, our government is dysfunctional. This event is more seminal than the results indicate: we can expect the politicians to repeat this process in a couple of months, and so on until there is a major loss of confidence in the dollar. There will be no return to fiscal responsibility. My point is simply this: we are already beyond the point of ever returning to a sensible, balanced-budget system. We may be distracted by wars, some crazy or false-flag terrorist event, or by even a natural disaster, but the conclusion is already inevitable: The US dollar will be toast; Treasuries are a dangerous investment; interest rates will start rising; and even the massive Federal Reserve manipulation supported by the banking cartels will be unable to overcome that. We will likely start in a slow fashion his year and will escalate out of control in the decade ahead.
We need to understand the implications of this recent event, and – as this small step confirms – that promises of future fixes will be complete shams. Remember when President Johnson said that there would be no repercussions from removing silver coins from our currency? A silver quarter alone is now worth around $5.50. And that’s not because silver is different; it’s because dollars are heading into the toilet. Protect yourself!
In the long run, the fiscal-cliff deal should not be celebrated as if it were a positive event. It is far from balanced, considering the much bigger government-debt problems that we face as a nation. In essence, this action was an opportunity to take real measures to curb our deficits, but the action taken has drifted us further along the path of fiscal irresponsibility.
How Can Baby Boomers Reach Their Retirement Goals?
By Dennis Miller, Editor of Money Forever
In May 2012, the Transamerica Center for Retirement Studies released its 13th annual Retirement Survey. A survey of over 3,600 workers showed that 56% plan to work after age 65, and 54% indicated they would continue working after they retire. The lead paragraph of the press release states, “American workers, shaken by the realities of the Great Recession, have adjusted their visions of retirement…”
In the detailed research report, the authors offered a new definition of “retirement readiness”:
A state in which an individual is well-prepared for retirement, should it happen as planned or unexpectedly, and can continue generating adequate income to cover living expenses throughout his/her lifetime through retirement savings and investments, employer pension benefits, government benefits, and/or continuing to work in some manner while allowing for leisure time to enjoy life.
Over the Christmas holidays I had several discussions with my baby-boomer-age children on this subject. My youngest son commented, “If I had been called for the survey, I would have responded like the majority.” He feels that his peer group is very much aware of the fact Social Security is a big question mark when they get to retirement age. He pointed out that the baby-boomer generation is different from their parents’ generation before them. Many married much later in life and did not have children until they were in their thirties.
He saw his parents accumulate the bulk of their retirement savings after the nest was empty – the time I refer to as the “sprint to the finish line.” By the time boomers’ nests are empty, they will only have a few years left to accumulate their retirement savings.
In effect, he understands that saving for retirement is a huge problem. At the same time, starting in the 50s one may be moving into peak earning years, but they are also faced with their peak family-expense years simultaneously.
His response was, “Understanding the problem is one thing. Many feel they are unable to do something about it.” Much like the generation before him, the here and now takes priority over something down the road 20 years from now. “Dad, it is really tough to try to save money with children who will soon be driving and then off to college. That costs a lot of money.” On that issue we agree.
So where do you start?
I struggled with that question for quite some time. They were looking at Dad for answers.
The first thing that came to my mind was to define saving. For many of us, we were brought up with the phrase “save up,” meaning we were saving our money so we could purchase something we wanted. One of my children’s friends was proud of the fact that both husband and wife both stopped stopping at Starbucks twice a day for coffee – they now make coffee at home and carry it in a thermos. They went on to say that the money they save equals their current boat payment. We agreed that may be one type of saving; however, it really was nothing more than a reallocation of capital.
Saving for retirement is much different. We define it as “accumulating capital for the sole purpose of creating wealth, to accomplish the goal of being able to achieve what the survey called ‘retirement readiness.'” This was capital earmarked for 20 years down the road and would be used for no other purpose. This is capital that must be accumulated above and beyond your normal living expenses.
How do we accumulate this retirement capital?
Being particularly bored on a long-distance international flight many years ago, I decided to make a list of all the material things I wanted out of life. I had just departed the United Arab Emirates and had seen some of the ostentatious wealth enjoyed by the sheiks and was thinking that it would be cool to have that kind of money. It turned out to be a two-page list. Then I figured out the cost of acquiring all the items on the list, plus the cost of maintenance. I came to one conclusion: I needed to win the big lottery annually! It was time for a dose of reality.
Understand the difference between needs versus wants. One does not have to be a miser to keep things in perspective. Baby boomers were taught to buy the biggest, most expensive homes they could afford because it was guaranteed to increase in value. For a few decades that was true, but not anymore. By the time you can really afford the McMansion, do you really need it? How many folks have we seen buy a McMansion as their children are becoming teens? A decade later, the nest is empty and maintenance, taxes, and just keeping it clean becomes a real challenge.
Do you really need all the latest computer technology, particularly when your current computer is working just fine? Do you have to have a new car the minute you pay your old one off? When your closet is so full of clothes that you have to start hanging some in the guest bedroom, it might be a clue.
My children agreed that much of what we discussed was a different way of thinking. Many in my generation realized that living within – and below – your means is a good thing when we retired; better the baby boomers get a 20-year head start.
Pay yourself first and learn to live on the rest. As I look back, the single greatest words of advice from a mentor about how to save would be that simple sentence. My wife and I would be living from month to month, but doing OK, and then a nice promotion or raise would come along. Two years later we would ask ourselves, “Where did the money go?” Once again we were living month to month, hoping for the next raise or promotion.
We finally ‘fessed up to ourselves and determined that the piano which is seldom used and the pool table that was now primarily used for folding clothes were perfect examples of our theory: “The more you make, the more you spend.” I will also readily admit that I was probably the worst culprit; if money was available, there was always something cool I could find to spend it on.
When my friend discussed the sentence with me, he really emphasized that you have to pay yourself first. By that he meant save the money where it is not easily accessible, or you will not accumulate any wealth – just more stuff. He was right.
The first step was to look for ways to save money as he suggested. For baby boomers, there are two obvious places to start. First is this: if you have a mortgage, can you make extra or larger payments? At the time, I was paid a monthly draw and then got a commission check each quarter. One thing my friend taught me was to write an extra house-payment check the minute the commission check was deposited; then we could figure out what we would do with the rest.
The second area is some sort of IRA or company retirement plan. The goal is to maximize your contribution to that plan as quickly as possible. Doing it all at once may not seem possible, but you can incrementally increase your deductions. My son told me of a friend’s wife who went back into the job market after being a stay-at-home mom. They immediately upped his contribution to his company’s 401(k) plan by 10% of her salary. They knew they could live on his salary; they had for years. In addition, she’s setting up her own IRA.
Commit yourself to being committed. I borrowed that line from a book written by Dennis Connor called The Art of Winning, in which he talked about winning the America’s Cup yacht race. It was a book I particularly enjoyed and profited from. There were times in my life where my wife and I would have to both discuss an issue and jointly make a commitment to do something different. Then it became our job to encourage and reinforce each other as we embarked on our new challenge.
Saving money for retirement is a process, not an event. Baby boomers don’t have the means to do it all at once, but they have to start somewhere. Start small, but make the commitment. As you watch your savings grow, the natural process is to find ways to make it grow faster. Many savers have told me it becomes a self-fulfilling prophecy: the more it grows, the more excited they become and the more it accelerates. One advantage of saving is the compounding effect. Many folks look forward to the day that their savings earns 10%, then 20% above and beyond what they are contributing.
Invest prudently. As you see your wealth begin to accumulate, you need to continually educate yourself about how to invest wisely. This too is a process, not an event.
A mentor once told me that I would accumulate wealth a lot quicker if I would quit trying to hit a five-run home run… there is no such thing. During the Internet boom, many of us wondered if we were the only ones not getting rich overnight. He used the baseball analogy to say that people who accumulate wealth are hitting singles and doubles regularly and consistently moving toward their goals. He was right.
In summary, for baby boomers the challenge is in front of you. You can control your attitude, your efforts, and your behavior. You have seen both boom and bust times and have learned how to survive in both environments. Savers will always find a way to save; the key is to get started now.
I hope you’ll consider following some or all of my tips above on savings. We all know that setting up a solid, reliable income stream is just as important to a comfortable retirement – and increasingly difficult in a world with 0% interest rates at the local bank. That’s why Vedran and I developed a simple 12-month investment income plan you can follow regardless of how much – or how little – you have to invest. And the best part is, if you follow the plan, you’re guaranteed investment income every month.
I’m not sure if this article will make you laugh or cry, but I’m sticking it into the Friday Funnies. The Washington Times chronicles the shock felt by many Democrats – and shared on several social-media sites – after seeing their higher payroll taxes after the fiscal-cliff deal was reached. I’ve copied a few of the choice reactions:
“What happened that my Social Security withholding’s [sic] in my paycheck just went up?” a poster wrote on the liberal site DemocraticUnderground.com. “My paycheck just went down by an amount that I don’t feel comfortable with. I guarantee this decrease is gonna’ [sic] hurt me more than the increase in income taxes will hurt those making over 400 grand. What happened?”
“My boyfriend has had a lot of expenses and is feeling squeezed right now, and having his paycheck shrink really didn’t help,” wrote “DemocratToTheEnd.”
“_Alex™” sounded bummed: “Obama I did not vote for you so you can take away a lot of money from my checks.” “Christian Dixon” seemed crestfallen: “I’m starting to regret voting for Obama.” But “Dave” got his dander up over the tax hike: “Obama is the biggest f***ing liar in the world. Why the f*** did I vote for him?”
Drive Thru Invisible Driver Prank
Correctly Forecasting Europe
What economic model correctly forecasts the outlook for the European economy: A double-dip recession, a V-shaped recovery, or something else?
The bathtub. A steep decline, then a period of stagnation, then it goes down the drain.
On Greece’s Tourism Economy
The economy of Greece is in ruins… but hasn’t it always been?
The Life of a Stock Trader
The pessimist sees the glass as half empty. The optimist sees the glass half full. The stock-market day trader just adds whiskey.
Bank Robbers and Robbers at the Bank
The good news is that, last year, the FBI reported a 20% decrease in the number of people robbing banks. The bad news is that there was a 100% increase in the number of banks robbing people.
The Banker and the Frog
A banker was walking in the park one day when she noticed a large frog sitting along the side of the pond.
As she was walking by, the frog suddenly piped up and said, ““Excuse me… but… ummm… would you happen to be a banker?”
The banker responded, “Why yes, I am a banker. Why do you ask?”
“Well,” says the frog, “I was a forecasting economist, and my forecasts didn’t turn out so well. The CEO I worked for put a spell on me and turned me into a frog. The spell can be broken if a banker will kiss me. Then I can return to being a forecasting economist.”
The banker paused for a moment, then reached out, picked up the frog, put him in her purse, and began walking along.
After a few minutes the frog piped up, “Hey, what are you doing? If you will just give me a kiss I can walk along on my own and you won’t have to carry me.”
The banker stopped, looked down at the frog, and said, “True… but you’re worth a lot more to me as a talking frog than as a forecasting economist.”
That’s it for today. David Galland should be back next week. But before I go, I have one more thing to share with you today. Upon occasion, David likes to share a cool song with our readers. Well, here’s a singer-songwriter who recently caught my ear – Slaid Cleaves. He might not be famous yet, but when you’ve got 68,000 hits on YouTube, you’re doing something right. Here’s his song Broke Down. Let me know what you think. Thank you for reading and subscribing to Casey Daily Dispatch.
Casey Senior Analyst
The Gold Report: When we last spoke in February, you were predicting a new round of quantitative easing (QE), which we’ve been seeing the last few weeks. Where do you think this is all going to end up?
Greg McCoach: The latest QE3 is open-ended, allowing the Federal Reserve to create money every month, indefinitely. QE3 was announced just a few weeks ago and already there is talk about QE4. So, in my opinion, this is the death spiral of the U.S. dollar.
The same thing is going on in Europe and Japan. It’s very troubling and, in my opinion, totally unsustainable. But, trying to predict a timeline for the ultimate demise is almost impossible. This stuff could last another couple of years. Adding in the derivative problems on top of all this debt, it’s just sheer insanity. So, where is gold going? It’s going way higher because this is the ultimate dynamic that will guide the investment world for the coming years.
TGR: Is there any realistic solution, or are they just getting us deeper into the hole, and ultimately everything is just going to cave in on top of us?
“At some point I know gold and silver prices are going to go way higher than where they are now.”GM: The days of being able to fix this are long past. I had a chance conversation with a U.S. senator and, when I asked him about the debts and deficit spending, he admitted that everybody in Washington and New York knows that there’s no possible way to pay this back. So, essentially all the politicians are hoping it doesn’t blow up on their watch.
I’m a student of history, which shows that no government that has taken on a fiat currency has gotten past the 41-year mark before it ended in inflationary panic and disaster. The U.S. dollar is now going into its 42nd year as a fiat currency and breaking the record. We’re right on the cusp of what history says is totally unsustainable and will eventually collapse.
Then there is the derivative problem on top of the debt. There’s no historical record of derivatives because they were created in the 1980s for large financial institutions to manage big risks. Unfortunately, the greed in the system overtook them, with everyone trying to make incredibly large returns. Now we have the derivative liability tracking through the world system.
TGR: Hardly anyone is even talking or worrying about derivatives at this time.
GM: Derivatives are the gigantic pink elephant in the room that no one wants to admit is there. As an example, the sovereign debt of Europe is $70 trillion. The derivative liability, that means the unsecured liability that’s associated with that debt, exceeds $700 trillion. It’s a ridiculous number. When we’re talking about trillion-dollar deficits and derivative problems in the hundreds of trillions, it just shows that there’s no possible way this can be fixed.
TGR: Another thing that is looming is the fiscal cliff that we’ll face in a few months. What do you think will happen there?
GM: I think the pressure on Congress to do something is critical. John Mauldin, a very bright economist who writes a newsletter, recently spoke at a conference I attended. He stated that if the U.S. Congress doesn’t deal with the deficit problem in the first six months of next year, it’s over. He said he would go from being an optimist about America to becoming a pessimist and that we’ll go into this death spiral, as he refers to it, of not being able to pay our debt or interest on it. But, he believes that Congress is going to do something.
I’m very pessimistic about that, though I’m more of a pragmatic optimist. I don’t see how Republicans and Democrats, who are so deeply divided, can handle the amount of deficit spending that would have to be cut out of the budget and how badly taxes would need to be raised just to try to have a chance of warding off what’s coming. The chances of that happening, in my opinion, are zero.
So, the fiscal cliff is coming. He and I believe that if we’re going to do the right thing, we have to go far beyond what the fiscal cliff is talking about. The way it’s set up right now, only about 5% will be cut from spending next year. That’s nothing. We have to do far more than that. Everybody’s going to have to pay more taxes and government spending will have to be drastically reduced, or we go into the death spiral. That’ll be very good for precious metals’ prices, but it’s a very sad commentary on where we’ll be in this world.
TGR: Do you think the recent prediction by Merrill Lynch for $2,400/ounce (oz) gold by 2014 indicates that the investment establishment is starting to see the light and realizes the dire situation, and that gold is going to have to go higher?
GM: The mainstream media, which has always been slanted against gold, is starting to acknowledge this. For them to make a positive comment about gold is really just a fraction of what’s probably coming. At some point I know gold and silver prices are going to go way higher than where they are now. When I tell people that they should be buying precious metals, they say, “Isn’t the price too high?” No, it’s dirt cheap compared to where it’s going.
After the elections, I think we’ll see gold and silver prices press for a new high. As currencies eventually collapse, it’s going to affect the whole world, and metals prices are going to go parabolic. People are always trying to guess how high that could be. The only justifiable rationale that I can give is to take how many ounces exist in the world aboveground today compared to how much fiat currency exists worldwide, and how many ounces of gold would be required to cover all that paper money? Well, my calculation comes out to about $19,750/oz, and that’s probably conservative.
“We have to focus on the best areas of the best jurisdictions that have existing and rational mining laws.”I think gold could hit at least that number when it goes parabolic, based on all the emotional craziness that would be going on at that point. The rush into precious metals would be one for the record books. You would have oceans of fiat money that were suddenly trying to find some form of safety. Gold, which has always been the safe-haven asset, is a tiny little market and couldn’t receive it. That’s why it will drive these prices into the stratosphere.
I can’t tell you when all this is going to happen and I could be wrong, but the precious metals bull market could continue for quite some time before we get to those parabolic moves. We might be at the end of that cycle right now and precious metals prices could start to go parabolic within the next few months or year.
TGR: So, when do you think the mining stocks are going to start benefiting from the higher metals prices and where should they be going?
GM: There’s been a real disconnect. The high gold and silver prices have enabled producing mining companies to make money hand over fist, but their lack of market performance relative to metal prices has been troublesome. In the nearly 14 years I’ve been doing this, I can’t remember a more difficult period for the junior mining stocks than the last few years. In August and September, the volume on the Toronto Stock Exchange started doubling and things were looking really good. I was expecting a favorable recovery this fall with higher metals prices, but our mining stocks are still really fragile, maybe because of the election.
TGR: There have been some setbacks recently with geopolitical issues affecting mining companies in certain areas. How is this influencing your investment recommendations and where should investors be focusing or avoiding at this time?
GM: It’s becoming more and more complicated. Some governments around the world are acting like extortionists. They see a profitable mining company in their country and say, “We own your asset now, goodbye and good luck.” This is a nightmare for investors. More and more countries are getting greedy and not wanting to allow mining in their countries unless they get an unfair portion of the profit, or they’re just outright nationalizing these mines. That trend is definitely on the rise.
“I’m looking at companies that can still deliver a big upside, yet have cash flow so they don’t have to be constantly going back to the market to do financings, which dilutes current shareholders.”What that means for junior mining stock investors is that we have to focus on the best areas of the best jurisdictions that have existing and rational mining laws. That was the topic of my talk at the Toronto Cambridge House Investment Conference. I think it’s so important that I wanted to highlight this issue and show people just how critical it is to invest in the right areas of the best jurisdictions. I’m not just talking about the best countries, but the best areas within those countries or jurisdictions.
TGR: Do you want to talk about some of the companies that you like?
GM: I divide my recommendations into exploration, development, production and permitting situations. In the first eight years, we had great success with exploration stories and a few development stories. Now I’m more oriented toward a combination in the portfolio, but looking more at companies that have cash flow. Because of the volatile nature of our markets, I’m looking at companies that can still deliver a big upside, yet have cash flow so they don’t have to be constantly going back to the market to do financings, which dilutes current shareholders.
I like a company called SilverCrest Mines Inc. (SVL:TSX.V; SVLC:NYSE.MKT), located in one of the best areas of Mexico. There are certain areas of Mexico I don’t like, but this is in a good area. The company is currently working through all the startup bugs, but it’s banking money hand-over-fist, with over $35 million (M) cash and growing every month. It’s using that cash flow to find more ounces around its mine site.
SilverCrest also made a new discovery in another location in Mexico that’s looking very promising. The stock price was around $1.65/share over the summer and it’s at $2.39/share now. That shows it’s in a quality mining spot and is a company to watch. I think the stock will break out to a new all-time high along with silver prices. That should take SilverCrest to a $6–8/share buyout by a midtier company. I’m very bullish on SilverCrest right now.
TGR: How about other ones in Mexico or South America?
GM: Orko Silver Corp. (OK:TSX.V) is still looking very good. It has decent share structure with an NI-43-101-compliant resource in a very good part of Mexico and a new super-pit design with quite a silver asset that’s economic. I think Orko will be taken out as well.
In South America, on the exploration side, I like a company called Tinka Resources Ltd. (TK:TSX.V; TLD:FSE; TKRFF:OTCPK), which is currently drilling some very large, very high-grade base-metal anomalies: silver, lead and zinc. Originally, the company had 20 million ounces (Moz) silver in an NI-43-101-compliant resource that it has built further. In addition, it has found some other very high-grade lead and zinc resources. We’re hoping that this drilling really breaks open the understanding of these areas. This is on a major trend in central Peru going down into Chile that is known to host large volcanic massive sulfide (VMS) deposits, which are known to be very high-grade and highly profitable. I’ve been following the story for quite some time and I like what I’m seeing there. Drilling is currently underway and it should get some assays that could really move this story forward. Tinka is one to watch right now.
TGR: OK. Any other ones there?
GM: I’m going to be taking a trip to South America this winter to look around at some new projects. There are so many areas that I need to check out. If I really like something on paper, I try to visit the site before I make a recommendation. Once you get on site, there are always a lot of new questions that you didn’t realize you needed to ask when you saw everything on paper. So, it’s very important to do these site visits.
I really like Chile as a country that’s moving toward liberty and freedom. Mining law is well established in Chile. I think that’s a good area for investors to look at; Chile has some very big deposits of copper and gold.
I like central and southern Peru because the local people know mining and the mining law in those areas is very well established. That compares to northern Peru, where nationalization is going on. Just because I like a country doesn’t mean I like all areas of that country.
I like the Yukon where there are going to be a lot of big gold, silver and base metal discoveries. Right now we’re focused on the White Gold camp and what ATAC Resources Ltd. (ATC:TSX.V) is doing. The White Gold camp is going to have a lot of big new gold discoveries in the coming years. It will take time and there are infrastructure issues. Investors need to be patient. It’s going to take a lot of money because the lack of infrastructure makes for very expensive exploration. There is no problem getting permits and building mines, but you can’t get to them very easily and that gets very costly. For a junior mining company with no cash flow, that means you have to keep going back to the trough to raise money. If you don’t hit early on, it can get painful for the investor.
TGR: So, what other companies do you like in Canada?
GM: I like Ethos Gold Corp. (ECC:TSX.V; ETHOF:OTCQX). It hit high-grade narrow-vein gold drilling this summer, but it was not the bulk-tonnage targets it would like. It only drilled 60 holes. Kaminak Gold Corp. (KAM:TSX.V), which I also like, has had great success up there and drilled over 400 holes this summer. I also like a new discovery up there called Comstock Metals Ltd. (CSL:TSX.V), still in very early days. I think there are a lot of things that could happen in the Yukon, but it’s going to take time.
TGR: Any thoughts on Explor Resources Inc. (EXS:TSX.V; EXSFF:OTCQX)?
GM: Explor Resources is a company that’s in a great area. All the infrastructure is right there. It got a lot of attention over the last three years from investors and mining companies. Expectations were high to find a big high-grade gold deposit. So far, it’s hit on a lot of very expensive deep drill holes. For a junior mining company without a deep-pocket partner, this has gotten very expensive. Lately the company has had some of its best drill results. It hit 35 meters of 8 grams/ton gold, which is very good. Had it hit that years ago, when it only had 65 or 85M shares outstanding, it would’ve been a multi-dollar stock. Now, in this tough market, we have these great drill results but there are 160M shares out and it needs more money again. Timing is everything in these deals.
I do think Explor will do well because it will be coming out in late November or early December with around a 1.5 Moz NI 43-101 resource calculation, which should be a bankable asset. The rest of the assays on further drilling will be coming out later this fall and will be calculated in another NI 43-101 resource sometime in April/May 2013. I think that will be around 2.2 Moz. That’s a significant resource and the majors have to pay attention because it’s located just 10–15 minutes outside of Timmins, in an area with infrastructure, that doesn’t cost a lot to build a mine and has no permitting issues.
I do think that, ultimately, Explor will perform well. The stock is around $0.15/share today, after hitting a low of $0.12/share during the summer. As these NI 43-101 numbers come out, this stock will get back to a more respectable level and eventually will be joint ventured or possibly taken out by a bigger entity.
TGR: Definitely one to keep an eye on. So, are there any other ones you want to mention?
GM: Up in the Northwest Territories, Canadian Zinc Corporation (CZN:TSX; CZICF:OTCQB) has a mine that was built by the Hunt brothers in the late 1980s, with very high grades but not a lot of infrastructure. It looks like it’s getting a permit right now. If that comes through, I think the stock revalues from $0.39/share currently, to more like $2–3/share. Then it’s a development story with about a year and a half to two years to production. Sprott Asset Management is one of the biggest shareholders. If you believe that silver prices are going higher, here’s an operational mine that could be in production with very high-grade ore by 2014 or 2015. So, I like that one as well.
TGR: What should people be doing now to protect themselves and profit from what you expect is ahead?
GM: If you want to make money and not lose money, number one, you have to get out of U.S. dollars. If you hold U.S. dollars in a U.S. bank account, work for U.S. dollars at your job, or you’re hoping to retire in U.S. dollars, you’re going to be in trouble. This is what’s coming. This deficit issue is beyond sustainable. At some point it means collapse and devaluation of our currency.
TGR: We’ve never had it in this country, so that would be a real shock to people.
GM: A big shock. The only way to protect yourself, that I see, is to own physical gold and silver as the ultimate form of money, and take possession of precious metals, whether it’s American Eagles or Silver Eagles for Americans or Canadian Maple Leaf coins for Canadians. Don’t let other people store them for you or get involved with certificates, pooled accounts or ETFs, because they only have to keep a small percentage of the actual money they receive in the metal that they say they’re buying for you. When these metal prices go parabolic, how can they deliver to you if they don’t own the actual metals? That’s going to be a big surprise to people.
On top of that you’ve got to own the precious metal mining stocks, with their big upside leverage potential. Aside from that, my subscribers know that I’m very oriented toward preparedness. Get some food storage together. Our system works on a just-in-time three-day inventory system. If, for whatever reason, there’s a disturbance to that three-day delivery system, the shelves are empty. Get some canned goods and freeze-dried foods that last for a long time. It’s just a smart way to look at life, regardless of how you feel.
On a positive note, once we learn our lesson and the people keep the politicians accountable and don’t let them abuse a fiat currency as we have the last 40 years, I do believe that good things can happen again with a new age of prosperity that has never been seen in this world. So, that’s my positive note, after talking about the difficult times we’ll have to get through first.
TGR: We appreciate your thoughts today, Greg, and the next time we talk, we’ll know a lot more about how all this has turned out.
GM: Glad to be with you.
Greg McCoach is an entrepreneur who has successfully started and run several businesses in the past 23 years. For the last nine years, he has been involved with the precious metals industry as a bullion dealer, investor and newsletter writer (Mining Speculator and The Insider Alert). McCoach is also the president of AmeriGold, a gold bullion dealer. He writes a weekly column for Gold World.
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1) Zig Lambo of The Gold Report conducted this interview. He personally and/or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Gold Report: SilverCrest Mines Inc., Tinka Resources Ltd., Ethos Gold Corp., Comstock Metals Ltd., Orko Silver Corp. and Explor Resources Inc. Streetwise Reports does not accept stock in exchange for services. Interviews are edited for clarity.
3) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise. ( Companies Mentioned: ATC:TSX.V, CZN:TSX; CZICF:OTCQB, CSL:TSX.V, ECC:TSX.V; ETHOF:OTCQX, EXS:TSX.V; EXSFF:OTCQX, KAM:TSX.V, OK:TSX.V, SVL:TSX.V; SVLC:NYSE.MKT, TK:TSX.V; TLD:FSE; TKRFF:OTCPK, )
The Gold Report: Prices of the mining equities were languishing when we spoke in January, particularly precious metals equities, and we’ve had little respite since then. But you foresee potential for a bullish resurgence in gold equities. What’s your rationale behind that outlook?
Rick Mills: I believe we’re going to see higher levels of inflation. We’re going through a deflationary bout now because most of the money issued by the Federal Reserve is actually parked at the Fed. It isn’t out there being spent, so it’s not causing inflation. It’s basically just propping up the banks. When the banks start lending and when the money gets into circulation, we’ll see increased levels of inflation and, of course, that will be good for gold.
Derisking Gold Juniors, Step by Step: Rick Mills
How to Minimize Risk and Increase Returns on Juniors: Joe Mazumdar
Gold Producers in the Catbird Seat: Jay Taylor
TGR: Lack of access to capital for small business due to stringent credit requirements is one factor that has put a damper on the economy. What will prompt banks to ease up on credit standards?
RM: I’m probably going to stir up a little bit of controversy by saying so, but I firmly believe that the way out of the dilemma we’re in is to spend more money. A lot of people don’t agree. They think we should cut back on spending, raise taxes and go onto an austerity program. That is absolutely the wrong thing to do. Taxes should be reduced. I believe they should be spending a lot more money.
TGR: Who should be spending more money?
RM: World governments should implement massive global infrastructure maintenance and build-out programs, and put the money not into the banks but into the small businesses that will build the infrastructure. These small businesses are the ones responsible for most of the job creation. So, give the money directly to the small businesses. Hire them to do this infrastructure build.
“World governments should implement massive global infrastructure maintenance and build-out programs, and put the money not into the banks but into the small businesses that will build the infrastructure.”Take a look at our global water supply problems, our highways, our bridges, the brownouts because our hydroelectric power corridors are so outdated, the switching stations literally melt when they overload. We can actually spend our way out of this. In a fiat currency regime, because nothing is anchored to gold, the only way to move forward is to keep spending money. We saw this when the U.S. Quantitative Easing Two stopped and the lack of liquidity immediately upset the markets. If we undertake the infrastructure build-out program and give the money to the small businesses that create jobs, as people get back to work, they’ll have money, spend it and revive the economy. And it’s not only the U.S.—every country in the world has an infrastructure deficit.
TGR: What would more capital distribution among small business mean for the price of precious metals?
RM: The moderate to high levels of inflation I anticipate will make gold a much more attractive asset. The banks will keep interest rates low to help stimulate business borrowing, and with low rates, typically below 2%, you’ve got higher rates of inflation than you are getting for interest. I wrote an article called “Six Percent Can Draw Gold from the Moon.” With high levels of real returns people don’t favor gold as an investment. But when rates are below 2%, the exact opposite happens, because the real rate of return is negative. For instance, if investors are getting 2% on bonds but the real rate of inflation is running at 3–3.5%, they actually lose purchase power because the real rate of return is negative 1–1.5%. So higher inflation just makes gold all that more attractive. It preserves purchasing power and, of course, the gold price is going up at the same time.
TGR: As we speak today, gold is up $25/ounce (oz), flirting with $1,600/oz. Given that—and the fact that gold is not only a store of value but also a hedge against inflation—where do you predict the gold price will go during the rest of the summer and into the fall?
RM: I honestly don’t have a price prediction except that gold will go higher. When we talked last year, I was perfectly comfortable with $1,500/oz gold and thought that was a good price for it. Of course, it immediately spiked up to $1,900/oz but has come back to my range. I’m still perfectly happy with $1,500/oz gold. As more people catch on to the fact that they need to own some gold, the price will slowly rise.
TGR: Some people believe one of the reasons gold will go higher is because of the whispers we’re hearing that the Bank for International Settlements (BIS) intends to reclassify gold as a risk-free asset in the context of the Basel III framework. Could you help our readers understand why that would be bullish for gold?
RM: Tier 1 capital is the core measure that regulators use to gauge a bank’s financial strength. It typically consists mostly of common stock and disclosed reserves or retained earnings but it might also include non-redeemable, non-cumulative preferred stocks. The Basel Committee for Bank Supervision, known as the BCBS, which is the maker of the global capital requirements, also implemented the Basel III rules that form the basis for global bank regulation. The BCBS is studying making gold a bank capital Tier 1 asset. Gold has typically been a Tier 3 asset, which means that it’s been discounted at 50% of its current market value. With that discount, banks really never had reason to hold gold as an asset. If the BCBS raises gold to the level of a Tier 1 capital asset, though, banks could operate with far less equity capital than is normally required and gold would be the ultimate backstop for debt, currencies and bank equity capital. It would be a huge move, and making it would really propel some superior interest in gold.
TGR: Certain central banks, such as China’s, are stockpiling gold already. If it becomes a zero-risk-weighted Tier 1 asset, countries all over the planet would start accumulating gold, which would of course drive up demand. What’s the timeline on the BCBS decision?
RM: We simply don’t know. But if it happens, you’re going to see substantial demand for physical bullion and it’s going to be a hugely important step toward gold’s re-monetization. Moving from a Tier 3 to a Tier 1 asset would have gold compete directly as a safe-haven investment against bonds issued by over-indebted governments and yielding less than zero in inflation-adjusted terms—those negative real interest rates we discussed.
“As more people catch on to the fact that they need to own some gold, the price will slowly rise.”Another factor to bear in mind, one that isn’t widely recognized, is that there is a huge shortage of good collateral; banks are increasingly accepting gold as collateral because they’re reluctant to take each other’s fiat currencies. So there’s another huge step toward the re-monetization of gold.
TGR: That would certainly suggest increasing value for the shares of companies searching for and producing gold. Some of them are producing gold very profitably at well under $1,500/oz, and a number of them, juniors in particular, have significant gold resources in the ground—but in both cases, their share prices remain weak. In this scenario, what are you able to identify as big opportunities for investors over the next several years?
RM: I can tell you about several juniors with some very exciting things happening this summer. They’re interesting companies that everyone should have on their radar screens.
TGR: Where shall we begin?
RM: Starting alphabetically, Altair Ventures Inc.’s (AVX:TSX.V) geologists and consultants (including Jim Oliver, former senior vice president, geology at Hunter Dickinson) have provided guidance on drill hole locations for the just-started minimum 5,000-meter (m) drilling program, as the company chases resources on two zones on its Kena gold property in British Columbia. Total Measured and Indicated (M&I) resources for the two zones comprise 549,000 contained ounces of gold, while total Inferred resources comprise 513,000 oz. Altair is going to twin some historical holes from these two zones, check results, make sure everything is good and then try and expand the existing, already sizeable, kernels of resources. Altair is looking to grow the two resource blocks and bring them together to form one large block.
Altair is well run. President and CEO Fayyaz Alimohamed—whom you’ve interviewed in The Gold Report—is very, very smart. Robert Archer, president and CEO of Cangold Limited (CLD:TSX.V) and Great Panther Silver Ltd. (GPR:TSX; GPL:NYSE.A), is on Altair’s board so the technical advice he receives is second to none. The company has been holding its own, but this is one investors should be looking at because the drill program has started and the results off of this beautiful property could really propel Altair upward.
TGR: Do you anticipate permitting being an issue with Altair?
RM: No, I don’t see any unusual problems cropping up.
TGR: Okay. What else do you have in your quiver besides this micro-cap gold explorer in B.C.?
RM: NioGold Mining Corp. (NOX:TSX.V; NOXGF:OTCPK) will be releasing its updated NI 43-101 resource calculation in early August. It has done lots of drillings, released lots of assays and still has lots of news coming on its Marban and Malartic Block properties in QuÃ©bec’s Abitibi region. NioGold finished its second-year program and, with $9 million (M) to spend, it’s planning its third year. It will get very aggressive with the Norlartic-Kierens. This thing is going to have a huge amount of news flow from its third year program.
TGR: And it has a joint-venture partner spending the money.
RM: That’s right. NioGold has $5M, but Aurizon Mines Ltd. (ARZ:TSX; AZK:NYSE.A) is spending the money, hitting on just about every hole drilled and growing the resource. I think the NI 43-101 that’s due in August is going to surprise a lot of people. In fact, NioGold is one of the few companies that’s having money spent on a project by another company and in this business, spending a lot of money means a lot of news flow. News is the lifeblood of a junior. If you want to move the share price, put out a lot of great assay results. This one has that kind of potential. I think it’s set to have a really great summer.
TGR: Who else is on your list?
RM: I really like Terraco Gold Corp. (TEN:TSX.V). It’s a unique company. Besides the exploration potential on its Moonlight property in Nevada, its Almaden project in Idaho already has a significant gold resource—and to this cowboy it certainly looks as if it’s increasing the resource by metallurgical studies and huge drill holes. Instead of putting down the skinny drill holes, Terraco put down a four-inch hole and the grade went up drastically, to 1.3 grams/ton. Judging just on the basis of the internals of the deposit, it looks as if the company can increase the grade and the resource size simultaneously.
TGR: That’s terrific.
RM: But it goes beyond the projects. Terraco has a royalty option—an option to acquire up to a 2.5% net smelter royalty (NSR) on the Spring Valley gold project, which adjoins Terraco’s Moonlight project in Nevada and is joint ventured between Barrick Gold Corp. (ABX:TSX; ABX:NYSE) and Midway Gold Corp. (MDW:TSX.V: MWD:NYSE.A). A royalty is simply a right to receive a percentage of production from a mine. So when you invest in a royalty you’re buying a percentage of the metal produced from a given property in exchange for an initial payment, but you’re not assuming any responsibility for the actual mining operation. So Terraco doesn’t have to contribute to the operating or capital costs at the mine after the initial payment is made. This is one of the things I like most about Terraco.
TGR: Could you elaborate? Some investors may not understand the value of these royalties.
RM: When thinking about how to value a junior gold company, you usually look at how many ounces it has in the ground. The company gets a certain amount of money for each one, say $90–113/oz in the ground. The market values royalties much higher, something like $800/oz and sometimes as high as $1,200/oz in the ground gold production. It’s 800% higher than a normal company would be valued.
TGR: What do you see when you look at Terraco in light of its royalty position?
RM: When you do the math on Terraco, you can see why I like this company so much. Even if Spring Valley were to remain at 3.5 million ounces (Moz), 75% recovery on $1,200/oz gold for the next 15 years at $650/oz gold cost at a 3% discount rate gives you $70M–80M net present value (NPV) minus the $12.5M to exercise the option. Using those very conservative numbers, that comes to about $57M NPV. These outstanding shares fully diluted put a $0.35/share base price on Terraco right now. You can see a minimum, a base that doesn’t even include Moonlight or Almaden, which has 1 Moz and growing in a shallow open-pit resource that could be a mine today.
TGR: And Terraco’s trading around $0.12.
RM: A very good value play for anybody to look at. Terraco offers the Moonlight exploration upside, 1 Moz of gold at Almaden with considerable upside because it’s looking for higher-grade feeder gold shoots coming up from underneath much like the Ken Snyder mine, and the royalty.
RM: It’s hard to find value like a NioGold or a Terraco and the upside of an exploration program such as Altier’s.
TGR: Now that we’ve heard about a few of your favorite gold mining companies, where shall we go next?
RM: I want to talk about one more, a silver company. Based on 15,000m of widely scattered drilling, the first resource estimate that Kootenay Silver Inc. (KTN:TSX.V) put out on its Promontorio silver project in Sonora, Mexico, showed 10 Moz silver. Total resource silver equivalent would be 21 Moz. Since then, the company has done another 35,000m of concentrated drilling, targeting the resource area in the pit and a 1 kilometer (km) strike length, and is about to release an updated resource estimate. I’m pretty excited to see what it’s going to be—I expect a real barn-burner of a resource. To top it off, the company now realizes its resource is in a diatreme system. These are large-scale, grouped systems, such as PeÃ±asquito. Not only does Kootenay have coming what I expect to be a significant upward revaluation in its early resource, but also some of the greatest blue-sky potential you’ll ever see on the exploration side. Management in all the companies I’ve mentioned is exceptional, and Kootenay has one of the best run teams out there. It’s definitely worth looking at just because of the quality of the management team, and it’s definitely another one that people should have on their radar screens.
TGR: And certainly, Mexico has been a great place to mine, whether it’s gold or silver. Are you as bullish on silver as you are on gold?
RM: Yes, I am, but I think you invest in these companies because of management, not because it’s either gold or silver. While I believe that silver trades more as an industrial metal than a monetary metal, it trades in lock-step with gold. Consequently, when gold goes parabolic for the reasons we discussed earlier, silver will ride right along with it. They’re both going to be fantastic.
TGR: You’re apparently bullish on uranium, too.
RM: Absolutely. The Japanese are turning reactors back on because the country has realized that the economy can’t survive without nuclear power. Germany is finding out that the decision to shut down its nuclear power plants was perhaps a knee-jerk reaction to what happened at Fukushima—a political decision made in the haste of the moment and it is bitterly regretting it. I think we’ll see a reversal there.
“I see this as a perfect time to be looking at companies with great management teams and projects that can really increase their share value at any time.”And, you know, the Megatons-to-Megawatts program with Russia will end next year. The American government did sell off some high-grade nuclear material but that was more of a political gesture in response to lobbying efforts on behalf of one of the more powerful Congressional districts to keep 1,200 people working. Uranium actually has been a very good contrarian play for a while, and now I believe we’ll see much higher uranium prices over the coming years.
TGR: Have you any companies you’d like to mention in that context?
RM: I do. Uranerz Energy Corp. (URZ:TSX; URZ:NYSE.A) potentially has two near-term catalysts that would drive up its share price. Uranerz is approaching its one-year anniversary for construction of its mine in Wyoming’s Powder River Basin. Everything’s going fantastically. The plant is erected; electrical work is ongoing. The only thing left is the plumbing; the only permit still to be issued is for the deep disposal well. The Environmental Protection Agency (EPA) wanted some clarification, which Uranerz supplied, and now the company is waiting for the EPA to come back and approve the permit. The share price has been a little beaten down because it doesn’t have the permit. Dealing with a government organization, you really can’t put a timeline on it but I expect the permit to be in Uranerz’s hands within a month. If that happens in August, the company will be in production in November. Those two catalysts—receiving the final permit and moving quickly into production—can put a swift kick in the butt of any company’s share price.
This is not going to be an insignificant producer, either. Uranerz will produce 300,000 pounds (lb) of yellowcake a year. It has a tolling agreement with Cameco Corp. (CCO:TSX; CCJ:NYSE) to process resin and an offtake sales agreement with Exelon Generation Co. LLC, a subsidiary of Exelon Corp. (EXC:NYSE) to buy product for $65–75/lb.
As I said, I believe all of this is potentially going to happen this year and it represents a fundamental change in the company’s prospects. In an industry that is in a turnaround phase, as a contrarian investment, Uranerz represents probably the best value in the uranium sector today.
TGR: Any other names outside of uranium and precious metals that you want to talk about?
RM: Yes, a district-size nickel play in Greenland. North American Nickel Inc.’s (NAN:TSX.V) Maniitsoq project basically comprises a whole nickel belt 75km long and several kilometers wide. It has 119 drill holes. There’s nickel tenor all along the length of it. The company just released news that the Geological Survey of Denmark and Greenland (GEUS) has announced that the Maniitsoq structure represents the remains of a gigantic meteor impact 3 billion years ago. There’s a lot of postulation that a meteor impact caused the nickel emplacement in the norites at Sudbury (Ontario), which fuels speculation that Maniitsoq could be another Sudbury.
TGR: That would be a real plus.
RM: It would be but I’m not presently overly concerned about how the nickel was emplaced. To me what’s important is that North American Nickel already has three extremely high-quality targets and scads of nickel tenor, it’s currently flying a Variable Time-Domain ElectroMagnetic (VTEM) survey and will be drilling within a month.
Then, if drilling results in good nickel intercepts and identifies nickel emplacements around the area that confirm that Maniitsoq may be another Sudbury, the stock will explode. It can’t help but happen.
What’s important is that North American Nickel drills and hits nickel—the basic, undeniable fact of this play is that North American Nickel owns it all. Other companies won’t be coming in and staking ground. There won’t be any sister plays or feed-off plays or anything like that. Hit nickel here and we’re going to experience potentially one of the biggest speculations that anyone has seen on the Toronto Venture Exchange. And that’s not an embellishment, North American Nickel will own the whole camp.
TGR: So you’re fond of this nickel play, bullish on uranium and clearly enthusiastic about the precious metals companies you talked about. Is part of the rationale behind your thinking the idea that emerging economies and developing nations will be implementing infrastructure programs that need more energy, more steel and more base metals? Would you say you’re generally a commodities bull?
RM: I am a commodities bull, and although everything you just said is true, it goes deeper. It goes to the fact that a discovery is a discovery, and the market rewards discoveries. It rewards finding a resource and doubling it and tripling it. It rewards companies that go from near-term producer status to producers with cash flow. It rewards management, those who go to work for shareholders, build value and run solid junior companies. It rewards those that run ahead of the herd.
To me it doesn’t matter whether we’re in a bull market for commodities or a soft market, this kind of quality, this kind of shareholder value-building, will be rewarded. It always has been and I see nothing going on now in the market to change that. When you add in what we talked about with inflationary pressures and gold potentially as a Tier 1 asset, I see this as a perfect time to be looking at these companies with great management teams and projects that can really increase their share value at any time.
TGR: Excellent summary, Rick. Thank you so much for your time.
Richard (Rick) Mills is the founder, owner and president of Northern Venture Group, which owns aheadoftheherd.com, as well as publisher, editor and host of the website. Focusing on the junior resource sector, Mills has had articles appearing on more than 400 different websites including: The Wall Street Journal, Safe Haven, Market Oracle, USA Today, National Post, Stockhouse, LewRockwell, Pinnacle Digest, Uranium Miner, Beforeitsnews, Seeking Alpha, Montreal Gazette, Casey Research, 24hgold, Vancouver Sun, CBS News, Silver Bear Cafe, Infomine, Huffington Post, Mineweb, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, Calgary Herald, Resource Investor, Mining.com, Forbes, FN Arena, Uraniumseek, Financial Sense, Goldseek, Dallas News, VantageWire, Resource Clips and the Association of Mining Analysts.
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1) Sally Lowder of The Gold Report conducted this interview. She personally and/or her family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Gold Report: Cangold Limited, Great Panther Silver Ltd., Aurizon Mines Ltd. and Terraco Gold Corp. Uranerz Energy Corp. is an Energy Report sponsor. Streetwise Reports does not accept stock in exchange for services. Interviews are edited for clarity.
3) Rick Mills: I personally and/or my family own shares of the following companies mentioned in this interview: North American Nickel Inc. I personally and/or my family am paid by the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview.
( Companies Mentioned: AVX:TSX.V, KTN:TSX.V, NOX:TSX.V; NOXGF:OTCPK, NAN:TSX.V, TEN:TSX.V, URZ:TSX; URZ:NYSE.A, )
The American age demographic profile is substantially better than its major trading partners, driven by the combination of a rising working age population as the children of the post-war Baby Boomers grow up and enter the work force and substantial immigration [legal or otherwise. This profile has major economic dividends as outlined in this article.] Words: 530
So says Cam Hui (http://humblestudentofthemarkets.blogspot.ca) in edited excerpts from his original article*.
Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), may have edited the article below for length and clarity – see Editor’s Note at the bottom of the page for details. This paragraph must be included in any article re-posting to avoid copyright infringement.
Hui’s article goes on, in part, as follows:
Advantage #1: Growth in Labor Force
Advantage #2: Workers per Retiree Ratio High
Despite the angst over dependency ratios, or the ratio of workers to retirees, the expected increase in American workers means that American dependency ratios are likely to stabilize in the decades to come, whereas those of many other countries continue to decline – which will strain the pension system and national finances.
Advantage #3: Immigration Influx
America’s relative youthfulness compared to trading partners isn’t just a product of its higher birthrate, it is also a function if its willingness to accept immigration. The United States and Canada are in the minority of major industrialized countries that openly accept immigrants.
Advantage #4: Mexican Immigrants
Indeed, BBVA research (via Business Insider) titled â€˜Immigrants rejuvenate the United States’ show that without the influx of Mexican immigrants, the demographic of the U.S. would be much, much older:
Advantage #5: Asian Immigrants
What’s more, America is attracting the right kinds of immigrants. A recent report indicates that Asian immigrants now exceed Hispanics. Asians are an enormous[ly] attractive demographic, largely because they tend to outperform. The latest BLS data shows (via Global Macro Monitor) that Asians are the top earning ethnic group and beat out Whites.
Advantage #6: Skilled Labor Potential
Canada’s Globe and Mail recently featured a series on immigration. Reporter Jon Friesen wrote that the shortage of skilled labour was a series of speed bumps to Canada on its way to achieving its growth potential.
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Advantage #7: Great Source of Innovation
Studies have shown that the children of immigrants tend to be sources of innovation and growth in an economy [emphasis added]:
When immigrants arrive, they not only fill gaps in the work force but pay taxes and spend money on housing, transport and consumer goods. Productive capacity increases and there is a ripple effect across the economy. Studies show that their offspring tend to be among the country’s best-educated and initiative-taking young people.
Forbes magazine reported that an astounding 40% of Fortune 500 companies were founded by immigrants or their children. The 40% figure is especially astounding when you consider that the foreign born population of the United States has been steady at 10.5% since 1850. Bloomberg highlighted a report that showed the inventiveness of immigrants:
[P]olicy makers should flag a recent study that found more than three-quarters of patents from America’s top ten patent-producing universities, including MIT, Stanford, and the University of Wisconsin-Madison, were the result of breakthroughs by immigrants. Those universities produced 1,466 patents—a fraction of the total awarded—but many were in such cutting-edge fields as information technology and molecular biology.
In other words, if you want to build a society of innovators and entrepreneurs, encourage immigration as a way to enhance, not only the growth of your work force, but the quality of your work force.
Editor’s Note: The above article may have been edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.
One of the main advantages of buying silver versus more costly precious metals like gold and platinum is that silver’s relative cheapness allows you to buy more metal for the money.
Furthermore, inflation is a reality that eats away at the value of all paper currencies, while boosting the value of hard currencies like silver.
Given the likelihood of ongoing paper currency devaluation and debasement, despite short term perceptual fluctuations in the basket of floating currencies, the U.S. Dollar you are holding today is more valuable in terms of its purchasing power today than it will be tomorrow or a year from now.
Putting Things Into Perspective
If you are skeptical about holding silver or need a way to determine what time frame you should be holding silver for, you can consider the following question:
Given the at least 95% loss of purchasing power in the U.S. Dollar seen since 1913, with the vast majority of that loss of value occurring over the last 40 years, what would you rather be holding one year from now: An ounce of silver or the amount of U.S. Dollars that can currently purchase an ounce of silver?
Now ask the same question over a three, five and ten year time horizon. If your answer is consistently silver, then you really should be stocking up now that its price has retraced substantially from its recently made long-term highs.
This type of analysis allows you to put things into perspective and tolerate the short-term noise as the silver market fluctuates with less anxiety.
Why Choose Silver Over Gold?
Silver is currently preferable to gold for a variety of reasons. One of the most compelling is the price to supply ratio. The current supply of investment grade silver is 1 billion ounces versus 5 billion ounces for gold, while the ratio of metal in the ground is below 20 to 1.
Furthermore, both metals are well below their inflation-adjusted highs, especially when you calculate inflation based on an older, simpler methodology. In fact, silver is even more attractive than gold from this perspective.
Another factor is that silver is actually a more strategic and necessary commodity than ever. Its growing use in electronics, health applications and solar power production assure strong industrial demand for years to come.
Traveling With Silver’s Bulk in Emergencies
Some investors who like to hold precious metals as an emergency get-out-of-town card are concerned about silver’s extra bulk compared to gold when traveling. Basically, a given dollar amount of silver is much heavier and bulkier than the equivalent dollar amount of gold — so silver is just not as portable as gold.
Nevertheless, silver is not really that bulky relative to its value since a bowling ball made of pure silver would be worth well over $20,000 at $30 per ounce. What else can the average person readily accumulate and store in their house with the equivalent size and value?
Still, if you really need to ‘get out of dodge’ in a hurry or on foot, it would admittedly be a lot easier to carry only 15 ounces of gold — until you can switch back to silver of course!
Fortunately, investment grade silver and gold share enough properties to make them easily convertible into each other in emergencies. Silver is also easier to spend in small quantities to pay for the necessities of life while traveling.
For more articles like this, and to stay updated on the most important economic, financial, political and market events related to silver and precious metals, visit www.silver-coin-investor.com
By Dr. Jeffrey Lewis
Silver Coins Are The Investment Opportunity Of A Lifetime