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THE ADEN FORECAST
P.O. Box 790260, Saint Louis, MO 63179.
Monthly, 1 year, $195. www.adenforecast.com.
Gold is still cheap
Gold has been in a solid bull market since reaching its lows in 2001, almost three years ago. In other words, gold has been performing like it usually does in a bull market and we'll stay invested in gold and gold shares as long as that's the case.
Gold is hot, and gold and silver shares have been even hotter since last April. Gold shot up to a 7-1/2 year high in late September, while gold shares reached a six-year high. Gold has essentially wiped away it's weakness since 1996 and gold shares, based on the XAU, have retraced half of the entire bear market since 1980. This alone is impressive for a bull market that's just gaining notoriety.
Fundamentals Are Solid
Newmont Mining is the world's largest gold mining company and it moves closely to the XAU and HUI gold share indexes. Its president, Pierre Lassonde believes gold is re-bounding from a 20 year bear market that began with a war on inflation in 1980, and ended with a war on terrorism and a loose fiscal policy that is flooding the world with dollars. Plus, the 20 year bear market weeded out marginal gold producers and cut down production. Even at a higher gold price, it still takes four to seven years to open a mine.
On the demand side, we have China and India who are prospering and understand the power of gold. India, home to a billion people, is increasingly affluent and they're buying more gold. He adds, China by itself could become 40% of the entire gold market, which is the most important thing that's happened to gold in the last five years.
China, as you know, has been deregulating gold. A year ago the Shanghai Gold Exchange (SGE) opened, starting free trade in gold for the first time in China's history. More recently, China's allowing its 1.3 billion citizens to buy gold. And considering the high savings rate in China, gold is a logical investment, especially because the SGE hit record highs in September, and it's risen more than 15% since its inception. It's estimated that about a $36 billion dollar equivalent in Chinese private money could move into gold.
Plus, the Chinese government is moving to increase its low 2% gold reserves. And it certainly makes sense when you consider the huge dollar reserves that're piling up. Gold demand looks very bright and we believe a golden era is starting, which in many ways is similar to the early 1970s. In other words, gold is still cheap.
After reaching multi year highs, gold and gold shares could remain under pressure for a couple months, providing another good buying time. In our October 1 update, we recommended selling some of your gold shares, but keep at least half. If you didn't sell, it's not too late. If you prefer riding through weakness, that's fine. Don't sell gold and silver. Keep a 50% position in gold, silver, and gold and silver shares. Wait to buy new positions on weakness.
Of our recommended gold shares and funds, the strongest are: Scudder Gold (SGDBX), Tocqueville Gold (TGLDX), Goldcorp (GG), El Dorado (EGO), US Global World Precious Minerals Fund (UNWPX), IAMGOLD (IAG), Newmont Mining (NEM), Wheaton River Minerals (WHT), Golden Star Resources (GSS) and Placer Dome (PDG). Also doing well: Glamis Gold (GLG), Anglogold (AU), Rangold (RANGY), Gold Fields (GFI) and Kinross Gold (KGC). Barrick Gold (ABX), (ASA), and Harmony (HMY) are weaker. We're adding Cambior (CBJ), Wolfden Resources (WLF) and Buenaventura ADS (BVN) to our list. Silver shares had a steep correction and they're near oversold. Coeur d'Alene (CDE) is the strongest. We still like Silver Standard Resources (SSRI), PanAmerican (PAAS) and Hecla Mining (HL). Apex Silver Mines (SIL) is the weakest."
SILVER-INVESTOR.COM
21307 Buckeye Lake Ln., Colbert, WA 99005.
Monthly, 1 year, $112. E-mail: $99.
Warren Buffett's silver
David Morgan: "The biggest question we received this month is about Warren Buffett's silver, and some have quoted Bill Fleckenstein as reporting that Buffett did sell his silver. I did receive a reply from Bill and he told me he had no hard evidence of this, but felt it was true and the silver fundamentals were to strong that it would not matter in the long run. The fact remains neither Bill nor I know for certain, so based upon my substantial amount of research on Buffet and silver, it is still my contention that he holds 90 million ounces and title to 129,700,000 troy ounces of silver.
It is important to note that the most important single action the silver bears could take to make their case would be to significantly increase the amount of silver at the Comex. If the Silver Users Association, for example, could gather several million ounces and place it in the Comex, there would be headline news across all the financial media about silver being a poor investment. If Buffett had sold his silver wouldn't at least some of it show up on the Comex?
Barrons, CNBC and Kodak came out with negative press about silver. Interesting that such a small market as silver would receive so much press at what is in real terms a very low price. If silver truly is nothing but an industrial commodity, why all the press? The price projections from the Barrons article implied that $5.50 might be the most to expect. This is the area that most worries the Bears because the $5.50 level has been the top for silver over many years. Once the $5.50 level is penetrated to the upside most silver investors are holding at a profit and will hold more tightly, because at that point no one knows what height silver might achieve."
INVESTOR'S EDGE
774 Mays Blvd., Ste. 10, Incline Village, NV 89451.
Monthly, 1 year, $149. E-subscription, 1 year, $99. www.investorsedge.us
I Do Love The Pick & Shovel Providers
Joseph Shaeffer has made a lot of money for his subscribers over the years buying the companies that supply some essential service to other firms. "Why take the risks inherent in more aggressive industries like biotech or other bet-the-company industries when you can buy companies that provide them with the basic tools they need? The same is true even in one of my favorite industries, energy production," says Shaeffer.
"I strongly recommend energy companies and have for 30 years. But, since lately they've gotten a little ahead of themselves, I've been looking for a firm that's moved in concert with the industry, but at a lesser velocity. I've found it in Teppco Partners, L.P. (TPP), a limited partnership that operates in three "pick and shovel" business segments: (1) gathering (near the well-head) refined gas, oil, liquefied petroleum gases (LPGs), and petrochemicals; (2) transportation of all these; and (3) storage, and marketing of all these.
That means they operate pipelines, an increasingly favorite investment area of mine; gathering systems (somebody's got to get the stuff from the wellhead to the pipelines!); and storage and processing facilities (somebody's got to do something with it when it comes out the other end of the pipeline...)
TPP has probably not advanced as fast as other pipeline firms because of its parent-age: the general partner is Duke Energy (DUK), which has had its nose bloodied trading the energy markets. But the other parent is Conoco Phillips (COP), which we've owned more than once in our model portfolios. Even if not for "the COP" on this beat, DUK is unlikely to try to unload its problems into the TPP portfolio they aren't allowed to sell any of their assets to TPP unless the outside directors agree. That's unlikely these days! The company yields just over 7% and sells at a PE of 20. Unlike the LPs in our portfolios that consist of wasting assets and pay 20%-plus yields, TPP is growing assets daily. I consider it a growth situation, not a yield play."
DELIBERATIONS on World Markets
P.O. Box 40097, Tucson, AZ 85717.
1 year, 18 issues, US$225. Introductory Trial: 4 issues, US$49.
Even the best of long-term trends
suffer extended periods of correction
Ian McAvity: "At the standing room only NY Gold Show I voiced some caution for those with excessive exposure that periods of indigestion often follow substantial fund raising rushes such as we saw this summer. Vociferous opposition of many newer converts/traders, who see everything as an "either/or" situation, really struck me. I kept repeating that my view would be to lighten up perhaps 1/4 to 1/3 of positions, depending on how overweighed one might be after such a fruitful run. I don't doubt we are in a long-term secular uptrend for the sector, but I kept reminding that even the best of long-term trends periodically suffer extended periods of indigestion and correction.
In NYC, I observed that if/as/when China does un-peg from the Dollar; it may coincide with a potential top in the gold market. Probably of intermediate, not major trend proportion. I suspect a lot of Chinese based capital flowed to gold, and currencies I call mirrors of the Dollar (Euro, Pound, C$, A$, Rand, etc.) If China lets the Yuan go from 8 per Dollar to 6 or 5, that may spark some Chinese profit taking from the alternatives, including gold (like collecting, at least in part, on previously issued insurance).
An amazing surge in Comex Open Interest, also reflected in Large Traders net longs is impressive, and confirms substantial new money inflows to gold. The huge rise in Commercials net shorts is an ongoing worry from a purely technical perspective. I'm wondering if some of the new money is using Comex as a "cheap storage" facility for positions with longer-term perspectives.
In February, Comex daily trading volume averaged about 30% of the Open Interest (I looked at 20 day moving averages, but it fluctuates a lot due to contract expiries). Lately it's been down to 15.5%, to imply much less frantic trading, despite the price surge. Big commercial shorts versus patient longer term focused Larger Traders will be an interesting battle to watch.
I continue to fear that we may probe into the $400/415 area before this surge is done, but I'll wait for the market to convince me that it can clear this broad resistance area with conviction before getting too excited. This run is getting a little long in the tooth and could exhaust itself with too early a probe at $400. When widely publicized gold bears start talking of gold hitting $400 soon, I get doubly nervous. (If it's that widely accepted, I contrarily ask why isn't it there?)
Silver's recent chart action has improved, attracting quite a surge of Open Interest too. The Market Vane Bullish Sentiment levels for silver haven't reached the extremes gold has been ranging between for the past two years, but further progress might lead to it.
Platinum marginally broke out to new highs but has stalled, while the Palladium rebound has finally crossed its still falling 40wk MA. It may bounce to $300, but forget the old highs, they're unlikely to recur for a few lifetimes."
M.M.A. CYCLES REPORT
PO Box 250012, West Bloomfield, MI 48325.
1 year, 18 issues, $249.
Silver $7 by next summer?
Raymond Merriman: "Silver is now entering a time band for a primary cycle trough. The 538 high of Friday, September 12, could have been the primary cycle crest. If so, the price target for the primary cycle trough would be 492 +/- 11. The prior half-primary cycle trough was 484, so a test of this (and slightly lower) might be possible. If December Silver does move to 484 or lower while Venus is in Libra, and Gold holds above 342.50, it will be an intermarket bullish divergence signal and a sign to prepare to buy again, especially if occurs during a critical reversal period. Keep in mind last issue's thoughts, which stated: "But my bias remains bullish longer-term. I believe the 4.34-year cycle is still pointed up, and won't top out until Jupiter is in Virgo. As long as Silver remains above 415, I think the 4.34-year cycle can eventually get to 700 or higher by next summer. Only a move below 440 would begin to alter that outlook. The 4.34-year cycle low is not due until 2005 2006. Prior to that, the crest of this cycle is due, and I think it will be in the next 13 months." In the event that December Silver can rise back above 538 before falling under 505, then the primary cycle crest is still unfolding, with a price target of 561.50 +/- 14."
Editor's Note: MMA's annual Forecasts Book, written by Raymond A. Merriman since 1976, is one of the most unique, affordable, and accurate glimpses into the coming year. Utilizing the study of cycles and geocosmic factors, the annual Forecasts book presents an overview of trends pertaining to political, economic, and financial markets throughout the world for each forthcoming year. Special sections are included on Interest Rates, Stock Markets, precious Metals, Currencies, Weather and Grain markets. And, of course, the all important and highly accurate Critical Reversal Dates for financial markets in 2004. To order Forecasts for 2004 send $39.95 to: The Merriman Market Analyst, Inc., PO Box 250012, West Bloomfield, MI 48325 or order online at www.mmacycles.com.
Bernie Schaeffer's OPTION ADVI$OR
1259 Kemper Meadow Drive, Cincinnati, OH 45240.
Monthly, 1 year, $200.
Goldcorp: Potential buying strength
Bernie Schaeffer: "Goldcorp (GGDV) Exceptional Analysis®: Goldcorp operates mines in South Dakota and Ontario, churning out around 600,000 ounces of the yellow metal each year. Technically speaking, the equity recently overcame resistance at the 13 region, which had thwarted the stock's advances in December and August. This level, which should now serve as support, is also the site of the stock's 10-week moving average. Today, GG reached a new annual high at 15.10, but succumbed to selling pressure in the broader market. As contrarians, we like to see signs of skepticism as a stock is trending higher, for therein lies potential buying strength. The speculative crowd is wary of GG, as evidenced by Schaffer's put/call open interest ratio (SOIR), which stands at 0.47, in the 77th annual percentile. Wall Street is also a cautious bunch. While there are 20 brokerage houses following the shares, according to Zacks, only three have named GG a "buy."
Recommendation: Buy the April 12.50 call.
INVESTECH MARKET ANALYST
2472 Birch Glenn, Whitefish, MT 59937.
1 year, 17 issues, $190.
Gold and US Dollar bear watching
James Stack: "Both gold and the U.S. Dollar "bear" watching. The Dollar is in a bear market giving back all the gains of the late 1990s. At the same time, global pressure is increasing on Japan and China to let their currencies float more freely against the Dollar (the Central Bank of Japan has been attempting to suppress the Yen, and China's Yuan is still fixed to the Dollar). This 19% decline in the trade-weighted dollar is only half as severe as the 39% drop, which occurred prior to the '87 Crash. But it's the trend that's most bothersome
Nonetheless, it has certainly had a positive affect on gold prices and and our holding in Newmont Mining, which is up 45% year-to-date. Is gold measuring higher inflation ahead or fear of the Dollar's demise? We think it's the latter. But regardless of the cause, the higher gold climbs, the more potential damage by the next bear on Wall Street. The price of gold is amazingly close to breaking out to 15-year highs."
PRECIOUS METALS ADVISORY
CPM Group, 30 Broad St., 37th Fl, New York, NY 10004.
Monthly, 1 year, $2,400.
Silver: High level of interest
Jeff Christian: "At present, the positive views of gold and other commodities is being shared by investors toward silver. Silver fabrication demand is seen as increasing after two years of weak markets. The photographic market has lost and is losing more market to digital, but the silver market also is well aware that the vast majority of photographs still are being taken with conventional silver-halide film and paper. The market had focused on the shift to digital imaging earlier this year, overlooking much of the cyclical weakness in film and paper sales. As the third quarter advanced, the market took a more balanced view of conditions in the photographic sector.
The high level of investor interest in silver is reflected in the large gross long position of commodity funds in silver, and the small gross short position.
Open interest in the active December silver contract on Comex totaled 463.6 million ounces as of 5 September. This is up sharply from early August, although total open interest across all futures contract months had fallen from around 559.7 million ounces on 1 August to 508.6 million ounces as of 4 September.
Even so, the open interest in the December contract will bear watching later in November. It is not likely to be a problem until then. Total reported Comex silver inventories totaled 105.9 million ounces as of 5 September. This was up only slightly from 105.7 million ounces as the start of August. During this time there was a clear shift of metal from eligible but unregistered stocks to registered stocks. Registered stocks rose from 37.1 million ounces on 1 August to 43.7 million ounces on 5 September. Eligible inventories dropped from 68.5 million ounces to 62.1 million ounces during the same period. This reflects a sale of silver from long-term investors to market makers and bullion banks. It flies a bit in the face of the concept of investors pouring into these markets, but that is explained by the difference between the long-term physical silver investors who were selling during August and the shorter-term institutional fund managers and others that were buying.
There also were rumors of strange and enormous metals transfers of silver during August, but nothing particularly unusual was apparent. Some of the vaulting facilities that serve as Comex depositories also are important transit points for physical silver being delivered by producers and refiners, and later taken up by industrial users. Large shipments into and out of these vaults are not at all unusual, and in fact are common. The stable total figures for reported stocks mask these regular fluctuations, however."
APOLLO SMALL CAP STOCK REPORT
10680 Treena St., Suite 163, San Diego, CA 92131. Monthly, 1 year, $99.
Oil producer Quicksilver Resources
beats analyst earnings estimates
Burgess Hallums: "An independent oil producer in the energy sector, Quicksilver Resources (KWK $24.75) is a small cap growth company based in Fort Worth, TX. KWK's principal activity is to acquire, develop, explore, produce and sell natural gas, crude oil and natural gas liquid. In addition, Quicksilver is engaged in the gathering, processing and transmission of natural gas through the pursuit, acquisition, and development of oil and gas mineral leases, gas gathering systems and producing natural gas and crude oil properties. The Company's assets include interests in natural gas and crude oil mineral leases, and pipeline transmission system, gas gathering and processing facilities and wells producing hydrocarbons that are located principally in the states of Michigan, Wyoming, Montana and Indiana as well as in Canada. Quicksilver holds or owns 5,100 producing wells and operate 41% of these wells. Natural gas sales accounted for 80% of 2002 revenues; oil sales, 18% and natural gas liquid sales, 2%.
Following a small pullback, KWK's stock price is again climbing and remains above the 50-day and 200-day moving averages. Earnings growth in the past year has accelerated moderately compared to earnings growth in the past three years. Relative price change and consistency is high. P/E to growth ratio suggests stock may be undervalued, and in last month's earning report KWK beat analyst earnings estimates.
In addition to Apollo recommending Quicksilver as a possible addition to your portfolio, Lehman Brothers has initiated coverage with a price target of $30, which is inline with our $33 expectations based upon 2004 earnings estimates. Recently, we have witnessed a decrease in the earnings estimate spread, which gives us added confidence in our expectations of KWK.
There are a couple of cautionary indicators as well. Relative strength is falling, the short percentage is a little high, and institutions control 45% of the outstanding shares, which means that they can affect the stock's price downward, relatively quickly. While none of these issues are of serious concern, they do indicate a slightly higher level of risk than what would be suitable for conservative portfolios. Therefore, Apollo has added Quicksilver Resources to its moderately aggressive, Atalanta, and aggressive, Mercury, portfolios."
OIL/ENERGY STATISTICS BULLETIN
P.O. Box 189, Whitman, MA 02382.
1 year, 24 issues, $185.
Temporary weakness in natural gas prices
generates a good opportunity to
buy shares of gas-rich producers
John McGilvray: "A pullback in natural gas prices, accompanied more recently be declining oil prices, prompted some profit-taking in the energy group although the trend seems to be reversing. However, to sell the shares of solid natural gas producers based on a temporary phenomenon such as the recent lull in gas markets is, in our view, extremely shortsighted. The price erosion was caused by a bigger than expected buildup in gas inventories over the summer, which was facilitated by slack demand from industry. Some manufacturers responded to the combination of a sluggish economy and historically high gas prices by closing plants temporarily, sharply reducing gas demand. Already, however, these plants are beginning to fire up again and that will aid demand as, of course, will the nearby onset of the heating season. Therefore, we look for natural gas prices, which are still high by historical standards, to be very strong once again this winter. There are good signs, too, that the oil price has bottomed out as indications are that OPEC will cut its production ceiling by nearly a million barrels a day when it next convenes in December. Some of the stocks that we feel are especially attractive in light of recent moderate share price weakness include Cimarex Energy, Devon Energy, EOG Resources and XTO Energy.
From Canada's Oil Patch
The Canadian oils, which had been performing better than their U.S. counterparts through most of 2003, came under some profit-taking pressure in recent weeks. The weakness in Western oil stocks is pretty much the result of some short-term weakness in natural gas markets which has been brought about by a bigger than expected buildup in inventories by utilities this summer. The decline in gas prices, however, still leaves them at very healthy levels overall and prices should recover with the onset of heating season not that far off. So, we would take advantage of this entirely temporary phenomenon to buy the shares of strong gas producers like Canadian Natural Resources, EnCana Corp., Petro-Canada and Talisman Energy.
On the subject of natural gas, we should note that EnCana Corp. (NYSE ECA $35.28) has completed the acquisition of about 500,000 net acres of gas-prone acreage in the Canadian Rocky Mountain foothills. The lands, which straddle the Alberta/British Columbia border in an area called Cutbank Ridge, are estimated to contain more than 4 trillion cubic feet of natural gas. The company said that it expects this property to be an important factor in allowing it to continue to achieve steady production growth. Even without including any output from Cutbank Ridge, EnCana is looking to end this year with gas production in the 3.2 billion to 3.3 billon cubic foot a day range with the outlook being for even higher-levels in 2004. Thus, EnCana is in absolutely no danger of losing its position as one of the best-positioned North American gas producers and we would buy the shares for that reason.
FINANCIAL INSIGHTS
P.O. Box 793-Z, Oakhurst, NJ 07755.
Monthly, 1 year, $175.
Silver will outperform gold
Dr. Richard Appel: A few months ago I discussed a sharp increase in the long positions held by the commercials. These are the gold mining companies, bullion banks, large gold consumers, etc. gold was rising at the time and I viewed that as an indication of a deviation from their normal positions during gold advances. Before my printed words had time to dry, the commercials reversed themselves and greatly increased their gold shorts. In fact, within a span of several weeks they actually advanced their short position to its highest level in a number of years.
Normally, the commercials are correct! They have a long history of being the most astute traders in the gold arena. However, given the great underlying and aggressive buying that we have been experiencing, I believe that they may be defending a losing position. If further buying and accumulation by the gold interests continues it is only a matter of time before the shorts will be forced to cover. If this occurs, my $400 plus target before the New Year will likely be left in the dust.
Silver is acting beautifully. It is driving the longs crazy while steadfastly holding above its earlier resistance at $5.00. I continue to believe that the white metal will outperform the yellow one. Further, it is only a matter of time before silver gets into gear and begins to more closely mirror gold's price action."
INVESTOR'S DIGEST of Canada
133 Richmond St., W., Toronto, Ontario M5H 3M8.
1 year, 24 issues, $137.
Bull market in resource stocks
has two more years
The Investor's Digest of Canada, voted the World's Best Investment Advisory by the Washington-based Newsletter and Electronic Publishers Foundation, presents opinions and recommendations deemed to be of interest to Canadian investors. Guest columnist, David Mason, geologist and CEO of Augen Capital Corp. contributed the following:
"There are many reasons to buy metals stocks, of late. The least of which is the fact that the price of gold is breaking into a new seven-month high, following a seven-year slump.
By our reckoning, the bull market in resource stocks may have two more years to run, with due consideration given to a "mini bear market" that occurred from February of this year until the middle of the summer.
All factors taken into account, any bullish market sentiment in the past four years has been relegated to short fits and starts.
Market sentiment has swung from a wild stock market roller-coaster ride of so-called high-tech stocks of the 1990s and early 2000s, to an appreciation of the merits of commodity investment. Two early examples of the emerging commodity investment trend are: BMS Millennium Bullion Fund (Toronto-based); and Roger's Commodity Index Fund (U.S.-based).
It is not our place to make predictions on commodities in general, but here are some reasons to be bullish on most of the metals.
For one, the Iraq ware may only prove to be a mild stimulus to metals consumption directly, but it will trigger many spin-outs that could have a major impact on overall demand for metals.
For instance, the energy supply uncertainly alone has created an impetus for alternate-energy projects. Wind power, solar energy and micro hydro development are all metal-intensive (and ironically, for these to be moderately economic they require traditionally low-cost energy sources such as coal and petroleum to fuel the extractive process).
Consequently, the demand for cheap power will probably focus public opinion on nuclear power as a feasible, environmentally acceptable alternative that can compete with hydroelectric plants (at least in order of magnitude). The construction of these plants will spur steel and allow consumption.
The blackout in Ontario and the Northeast U.S. in August demonstrated the vulnerability of our antiquated electrical distribution system. Since many components of this hugely important supply system date back to the early 1900s, it prompted U.S. President bush to declare that significant funding would be directed to refurbishing the system.
It is significant to note whilst fibre optics have displaced copper in many applications, high-tension electrical cable distribution remains a buoyant market for the red metal. We have been in an eight-year dearth in new copper mines and extractive facilities, and there is a seven-year lag between discovery and new production coming on stream. Shortages appear imminent.
Gold producers have clearly been active stock market performers for quite some time, and gold exploration companies less so. However, it is now time to critically review the junior explorers that have attractive gold as well as base metal prospects.
One of the star performers depicted is Wolfden Resources Inc. (TSX WLF $4.10, 807-346-1668, www.wolfdenresources.com), which has both gold and base metals prospects.
Recently, Pure Gold Minerals Inc. (TSX PUG $0.10, 604-687-2038, www.puregold.ca) has staked a major claim block in close proximity to WLF's Nunavut base metal project. Therefore, while PUG is primarily involved in diamond exploration, and gold to a lesser degree, it is about to crate news on its base metals prospect.
GLR Resources Inc. (TSX GRS $0.66, 705-567-5351, www.kasnergroupco.com) has a well-balanced group of prospects in Ontario and northern Saskatchewan, and this company has demonstrated the ability to produce results in the past.
Combined with the more recent recommendations, these three companies should provide some strategic upside to your portfolio.
Bear in mind that speculative investments should not exceed more than five percent of your assets. Also, spread the risk over several picks. Some portfolio managers call this the "bar-bell" approach, wherein fixed income and senior equities provide you with the largest consistent return, on one extreme, and the "specs" a potential bulge on the other. Good luck!"
Sy Harding's STREET SMART REPORT
505 East New York Ave., Suite 2, DeLand, FL 32724.
1 year, 17 issues, $250.
Gold Indicators remain on Buy signal
Sy Harding: "Our indicators for gold and the gold stocks remain on the timely July 23 buy signal. Our upside target for gold bullion at the buy signal was $390 an ounce, which seemed a long way away at the time, but gold did reach that level last week before pulling back.
Our upside target for the XAU Index of Mining Stocks at the buy signal was 90. It reached 97.50 a few days ago, before pulling back, but is now rallying again.
The indicators remain on the gold buy signal, at least for the moment. But we are watching closely. Stay tuned to the hotline!"
Editor's Note: Sy Harding is ranked as the #1 Gold Timer in the U.S. by Timer Digest.
STOCK TRADER'S ALMANAC
184 Central Ave., P.O. Box 2069, Old Tappan, NJ 07675.
Monthly, 1 year, $295.
Gold stocks are on fire
buy when they cool down
Robert Cardwell: "Remember the deflation story that was such a prominent feature of the business news just a couple of months ago? Take a look at the metals charts they sure don't look as if inflation were in the works. Some people on Wall Street (and more important, at the Federal Reserve) remain quite worried about deflation or disinflation. As we'll see, that's a good reason why gold and other commodities should keep going up.
Gold has been a store of value and hedge against uncertainty for thousands of years. As such, it moves have major psychological as well as economic significance. Whether you're a gold bug or a skeptic, ignoring gold would be foolish.
The metal has made a convincing long-term double bottom and embarked on a powerful bull move. After two years, this move shows no sign of flagging (though we are approaching important resistance in the $400 area). Gold was supposed to be an inflation hedge but the last two generations of Americans have never seen inflation as tame as it is right now. So what's going on?
It's a combination of simple supply and demand plus rather complicated economics. On the supply side, the most important immediate factor is the end of producer hedging. During the long bear market in gold, it seemed smart (and for a time was smart) for producers to sell their gold forward. Using the futures market or more complicated schemes, they would sell gold before they mined it.
That gave them a certain price and usually a higher price. Of course, that strategy is a loser in an advancing market and it has been a disaster for a few companies that got caught with huge short positions. Hedging is over, and de-hedging (producers buying back short positions) has been a substantial factor in demand.
Mine production was down last year. It probably will be up a bit this year, and rising prices may encourage additional production next year. But there is a limit, particularly for the large South African mines, some of which are already on life support. They are running out of economically mineable ore leaving aside the political problems that also make South African production tenuous.
It's not generally appreciated that jewelry fabrication alone takes up more gold than all of the world's mines turn out. So changes in investment demand, scrap sales and other "marginal" factors make a big difference in the equation. Central bank sales are down. They are always unpredictable, but selling hasn't looked smart lately, an we suspect the bankers won't be anxious to unload more gold.
Looking at economic fundamentals, we find reasons that gold is likely to remain strong. Fighting deflation, the Fed has kept the monetary spigot wide open. Those excess dollars have not spurred inflation yet, but they might. In any case, the dollars are there to support commodity prices.
In the second quarter, the U.S. current account deficit was $138 billion. We continue to buy from foreigners at a prodigious and increasing rate that far exceeds our exports. Thus foreigners must hold increasing amounts of dollars not a comfortable position with the dollar declining. Among the few alternatives to converting some of those bucks to gold. The sudden swing to a huge federal deficit exacerbates the problem, as we have to finance the budget cap.
Economic recovery will spurt further demand for metals whose supply-demand picture is favorable already. Platinum's recent record prices reflect growing use in anti-pollution catalysts, fuel cells and elsewhere. Sister metal palladium is still depressed but also has a bright future. Copper demand and production are about matched right now. Even without global economic recovery (which will happen sooner or later) the industrialization of China, India and other nations will create huge demand for copper and other metals.
So investments in mining can benefit both from things going right and things going wrong. At the recent New York Institutional Gold Conference we were able to meet with managements of quite a few junior mining companies, getting updated on situations we knew and investigating additional opportunities.
Here is our pick of stocks we judge to have the best risk-reward ratios. Note, however, that we want to buy on corrections. Most mining stocks have already tacked on substantial gains. Further, there tends to be seasonal weakness in October. This may allow us to get in at favorable prices.
Orezone Resources (TSX ORZ) is the only gold stock currently in our portfolio. It's been good to us; we've already taken our original investment off the table and we expect to be further rewarded. We were attracted originally by a very low valuation. Orezone was selling at about the lowest price per proven ounce of any gold stock. Despite a big gain, the stock is still not expensive on that basis, and there is the potential to develop much bigger reserves.
The company can be compared with Nevsun Resources (TSX-V NSU), a company with similar but somewhat more advanced projects in Africa that carries a market cap and almost four times higher. The ultimate goal is to be another IAMGOLD (TSE IMG), which has just three times the measured ounces but is in production and boasts a market cap 15 times as large. Orezone has very large and prospective concessions in Burkina Faso, a stable country as African nations go. More discoveries are likely.
Reserves can be discovered or they can be bought. Buying is easier, and if the timing and deal making are intelligent, the result can be rewarding for shareholders. Northern Orion Resources (TSX NNO), long a South American exploration vehicle, recently was transformed by a change in control, a large financing and the addition of two key assets.
The new management bought 12.5% of the Alumbrera Mine in Argentina, a low-cost copper/gold complex that last year produced 440 million pounds of copper and 759,000 ounces of gold. In a related deal, Northern Orion increased its interest in the advanced Agua Rica copper/gold/molybdenum project to 100%. We believe Alumbrera was bought for a bit less than present value. Agua Rica's cost was way under net present value, and if things work out as planned, it will have been a steal.
Alumbrera has a well-defined further life of 8 10 years. The large Agua Rica deposit (7.5 billion pounds copper, 4.2 million ounces gold) is close enough that ore could be conveyed to the Alumbrera facility when its ore gives out, or preferably blended with that ore even before. While developing a full-scale mine and concentrator complex at Agua Rica would be feasible, using Alumbrera would save $500 million or more in capital cost, a compelling economic case.
There are a couple of other projects that have been on the back burner. Management will now have significant cash flow to work with, so if Agua Rica can't be moved forward soon, we expect to hear about other developments.
ValGold Resources (TSX-V VAL) is a small exploration company that's been somewhat adrift in the last few years. But VAL happens to own 1.8 million shares of Northern Orion plus more than one million warrants. With its cash and some other small investments, VAL has liquid assets worth about 35 cents (Canadian) per issued share. There's no debt, so VAL is trading at a discount to assets, even forgetting the rest of the company.
There's also an exploration project where some good results have been reported recently, plus some other projects in Canada. With its tiny market cap, ValGold will be a winner if they find something and the assets limit the risk.
Manhattan Minerals (TSX MAN) sells at one-tenth of its former price simply because its main project has been postponed. The company has a proven resource in Peru that is ready to be mined, but environmental and other problems put it on hold. Now the environmental and local political issues have largely been solved and it looks like a mine will be built. With expected low-cost production of 260,000 ounces of gold and 3.2 million ounces of silver a year, this is a big deal for a company like MAN, even assuming that a partner will be brought in.
There are other promising South American projects but the key thing is that Manhattan already has a very valuable resource. We think the market doesn't fully realize how much progress has been made toward getting it mined.
European Minerals (EPM.U) is a similar situation but completely off the radar screens. EPM has a gold deposit in Kazakhstan with 3.5 million ounces. Metallurgical and other work has been going forward, and there is a good change that a mine will be developed. EPM also has a head start in the under-explored and highly prospective areas of Eastern Europe. There's an advanced project in Bulgaria with (so far) about half a million ounces of high-grade gold.
European Minerals is quite undervalued just on these projects. But the company is now talking to potential financial allies, and we expect to see it take on more projects. Note that EPM is listed on the Toronto Exchange but is one of the few stocks that trade there in U.S. dollars.
Freegold Ventures (TSX ITF) offers a lot of exploration bang for the buck with its market cap of about $5 million U.S. In addition, there's the proven Almaden project in Idaho with 527.000 ounces of gold (and probably more) that will be economic at slightly higher gold prices.
Freegold has been exploring in Alaska for years. It's found a good bit of gold at its main project near Fairbanks, but not enough in one place to make a mine. Recent drilling results have been more promising, and the company has added several other interesting projects including a platinum exploration venture that's being financed by Lonmin (one of the major platinum producers). Freegold will soar if anything worthwhile is found.
Pacific Northwest Capital (TSX PFN) is a related company that we have recommended before. It wasn't particularly rewarding, but I think it will be sooner or later. PFN continues to advance its River Valley project, which has a good chance of becoming North America's third platinum group metals mine. At present, almost all platinum and palladium comes from South Africa and Russia, so we need some mines on this continent for strategic as well as economic reasons.
PFN recently announced its best hole yet from River Valley 154 feet of 5.02 grams per ton platinum/palladium. While measured and indicated resources already are 826,000 ounces, much of the prospective ground has not yet been drilled. PFN has another platinum project in Ontario for which Anglo is paying the way, and right now is busy accumulating ground in Alaska that it thinks is highly prospective. PFN is cheap based on River Valley alone, and the other projects are icing on the cake.
Newmont Mining (NYSE NEM) is being added for those who won't buy speculative or Canadian stocks. It won't move as far as our other selections, but is as solid as they come in the mining business and trades on the NYSE. Newmont is a major gold producer in Nevada, Peru, Australia, Indonesia and elsewhere. While it's a comparative giant, it is more leveraged than the other senior producers and should outpace them in a gold bull market.
The company's 87 million ounces of gold in the ground offer assurance to shareholders. Still, the current price is rich and we would buy only on a major correction.
Except for Newmont, all these stocks trade in Canada and all are speculative. However, every one but ValGold is listed on the senior Toronto Stock Exchange. Eight mining stocks are more than most people want or need. However, our buy limits are conservative and we don't expect to add all of them. We'll see what happens in the coming weeks and adjust our portfolio and buy limits depending on conditions. We are watching still more attractive resources issues, and will be commenting on them if they move to reasonable buy levels."
Editor's Note: Robert Cardwell is Director of Equity Research at the Hirsch Organization. At press time Mr. Cardwell was long European Minerals, Freegold Ventures and Pacific Northwest Capital.
INTERINVEST REVIEW & OUTLOOK
P.O. Box 1585, Boston, MA 02104.
Monthly, 1 year, $125.
Not buying gold stocks at these levels
Dr. Hands Black: "Along with the recent strength in the euro following the now famous G7 meeting in Dubai, gold has also remained buoyant. Here, too, we are somewhat skeptical, as we are witnessing an overheated market in Canadian gold stocks while sentiment in favor of gold is currently at extreme bullishness.
Whereas we had originally been looking for a retrace in gold bullion to $350 over the next one or two quarters, there is now a chance that a deeper correction may take place and lead gold down perhaps as low as $325 - $335. Time will tell, but at these levels we would not accumulate gold, and neither would we buy any further gold stocks at current prices, although we would retain current positions in our favorite companies, such as Newmont, Placer Dome, Eldorado and Orvana."
EMERGING GROWTH STOCKS
102 - 2020 Comox St., Vancouver, B.C. V6G 1R9 Canada.
1 year, 8 issues, US$99.
Gold subject to short sharp
scary corrections without warning
Louis Paquette: "The gold market is now reaching the point where investor sentiment and perception are now taking over from fundamentals as the main driving force in price action. That means that prices are now starting to include a significant degree of future price speculation, making them vulnerable to short sharp, scary corrections without warning. When resistance levels are taken out like they have been since last issue, sometimes prices just keep moving forward. Other times they need to consolidate before moving again. The picture is very mixed right now. On the positive side for gold stock investors, we've entered the strong seasonal period and the U.S. Dollar is beginning to "roll over" and die again. However, shorter term I am concerned about the extreme high commitment of traders in the futures markets heading into a "pause" in seasonal strength commencing around the second week of October ending the middle of November. So I'm doing what I normally do when conditions are mixed not too much. I'm certainly expecting a "pause" but not enough of one to begin cashing in core gold positions. Meantime, I'm keeping some cash aside in the event of market weakness and tax loss selling just around the corner. The open question for swing traders will be whether profits should be taken if gold prices suddenly run up very quickly to $400 - $420 well before year-end, possibly getting ahead of itself.
I believe European Minerals (EPM.U) still looks attractive. Firstly, just because it hasn't moved too far yet. Secondly, due to the phenomenal success of Bema Gold in Russia, suddenly investments in the post-Soviet Union aren't looking so bad after all. Third, because EDV's finally getting some recognition, and EPM.U is one of their client. Finally, even as the reason to hold this one is in anticipation of a "big deal" orchestrated by Endeavour, as the price of gold rises, EPM.U's 3.5 million ounce gold resource is also getting some recognition."
THE RICHLAND REPORT
P.O. Box 222, La Jolla, CA 92038.
1 year, 24 issues, $197.
Gold stocks are for trading
Kennedy Gammage: "It's my belief that the physical metal (most probably in coin form) should be held and not traded, but accumulated on dips, while the stocks (which are very volatile at times) are for trading, not holding. During a waterfall such as we saw in 1987, everything that was a stock fell, including the precious metals. It becomes a mechanical thing, having nothing to do with the merits of the individual vehicle. If it is a stock, it must be sold to raise cash period. The odds are that any stock that you sell now, into this rally, will probably be able to be bought much cheaper sometime later this year, overriding a 15% long-term gain tax consideration."
PEARSON INVESTMENT LETTER
6431 Rubia Circle, Apollo Beach, FL 33572.
Published monthly for clients of Pearson Capital Inc.
Golden Star Resources
producing gold in Ghana, West Africa
One of the recommended stocks by Walter Pearson is Golden Star Resources Ltd. (Amex GSS $4.17) an international gold mining and exploration company producing gold in Ghana in West Africa. "The properties, held through 90%-owned subsidiary Bogoso Gold Ltd., include the Bogoso mine and the Prestea property. The Bogoso/Prestea site has proven and probable reserves of around 2 million ounces of gold. Golden Star Resources acquired a third property in the area in late 2002, the Wassa mine. The company also owns 73% of Guyanor Resources S.A. ("Guyanor"), which has a gold mining project in development in French Guiana. Under pressure from low gold prices, Golden Star Resources sold its stakes in Omai Gold Mines Ltd. (Guyana) and the Gross Rosebel mine (Surinam). For the six months ended 6/30/03, revenues rose 46% to $27.8 million. Institutional Holdings: 18. P/E Ratio: 139."
THE STEVE PUETZ LETTER
2800 Wilshire Ave., West Lafayette, IN 47906.
Monthly, 1 year, $185.
Gold: Extremely bullish outlook
Steve Puetz: "The long-term outlook for gold and silver is extremely bullish. Short-term, there is a 50% chance of a substantial downward correction coinciding with a deflationary collapse in the economy."
ECONOMIC ADVICE
3910 N.E. 26th Avenue, Lighthouse Point, FL 33064.
Monthly, 1 year, $99.
Gold: A ten year bull market
James Rapholz: "The future for gold looks like this: Gold is going to be a sure bet for closing out 2003 at $400.00 or better. My long-term outlook is that the current precious metal cycle has nigh on about ten years to the upside. I look for gold to weigh in at $3,750 and silver to hit the $200 mark before it's all over!
My reasoning is as follows: Our economy is in horrible shape, Europe's is worse, Japan is still living in the land of the dead and China is rapidly taking over the manufacturing for the entire world. We are importing far too much "stuff" and we are losing too many jobs. Up until recently it was only the low paying jobs in manufacturing. But that picture has changed. We are now losing good paying jobs and mainly to India. Many U.S. companies are paying Indian engineers $20,000 a year to do jobs that the guys in this country get $100,000 for. If you call a major rental car company you're probably talking to a girl in India, who speaks perfect English and makes $2000 a year. Technology is wonderful, but it sure takes an awful lot of work away from an awful lot of Joe Sixpacs and Sally Allgoods, right here in our backyard!
The only answer our politicians have for the problem is to throw money at it and it will go away. And that is exactly what they have been doing and will continue to do. But, you can't keep making millions of more dollar bills very day without the value of them going down and that's what has been happening and will continue to happen. Gold trades in dollars, so as the value of the paper falls the value of the metal rises."
MONEYCHANGER
P.O. B0x 178, Westpoint, TN 38486.
Monthly, 1 year, 10 silver dollars or $18 in US 90% silver coin, or other gold or silver equivalents.
Al Thomas a Bull on Silver
Franklin Sanders recently interviewed Al Thomas, president of Williamsburg Investment Company and author of "If It Doesn't Go Up, Don't Buy It." Besides discussing trading strategies, mutual funds and stocks, Franklin asked Thomas what he thought about gold and silver.
Thomas replied: Oh, I am a great big bull on gold and silver. In my book that was just published in March I say that this is the only bull market that we will see for several years. And I am very much in favor of establishing a long-term position here.
Moneychanger: How would you establish that position?
Thomas: You can do it any number of ways. You can buy gold stocks, but again, I don't like people to be stock pickers. You can buy gold mutual funds and gold coins. Or you can go on the commodity futures market and buy bullion, but you've got to take delivery or keep rolling over your position. I think mutual funds are the easiest way to do it. Every time that London gold fix or the gold index for London settlement gets anywhere near the 200 day moving average up, that's when I buy some more. I am looking 3 5 years down the road. I am sure you know Richard Russell. He thinks that Gold and the Dow will sell at the same price sometime down the line.
Moneychanger: Well, it has done that several times in the past. It was 1:1 in 1980 and 2:1 in 1932 and 2:1 in 1896 when the Dow began. That's a reasonable target and it doesn't have anything to do with the absolute level of either the gold or the Dow.
Do you have a favorite gold mutual fund right now?
Thomas: Well, the one I happen to own at the moment is called Rydex Precious Metals, but there are several of them that are good: US Global Investments, UNWPX, SCGDX, USAGX, PNPIX, but I think that's leveraged. Those are no load with no redemption fee."
Editor's Note: Bull & Bear readers can order Al Thomas' "If It Doesn't Go Up, Don't Buy It" and get a 20% off by ordering online at www.mutualfundmagic.com or send payment of $28.90 to Williamsburg Investment Company, 830 Waikiki Dr., Merritt Island, FL 32953 or call (321) 453-5300. Included with the order is a FREE 3-month trial to his e-newsletter, Over My Shoulder.
ALL STAR FUND TRADER
P.O. Box 203427, Austin, TX 78720.
Monthly, 1 year, $249.
Gold: A historic volatile sector
Ron Rowland: "There are numerous forces that are having a positive effect on the gold market this year. One of the most influential is the weakening of the U.S. dollar. On a short-term basis, the dollar is currently falling in relation to other world currencies. From a longer-term perspective, the government is shifting away from its anti-inflation policy of the past 20 years with an eye toward reinflating prices. This, of course, has the long-term effect of making today's dollar worth less in the future.
Gold has historically been one of the most volatile sectors of the market. Therefore, even if the fundamentals point to significantly higher gold prices in the future, you should expect funds that invest in gold to have large price swings along the way. Keeping positions small and being prepared to sell are two ways to help mitigate the risk of owning a fund like Fidelity Select Gold (FSAGX)."
GLOBAL INVESTING
1040 First Ave., Ste. 305, New York, NY 10022.
Monthly, 1 year, $365. www.global-investing.com.
Grasso and Goldfinger
Vivian Lewis: "The twin towers may have tragically disappeared from my NY City horizon, but the twin deficits are very much on the skyline and growing: the U.S. govt budget deficit, and the U.S. current account deficit. And despite the Bush administration's claims, neither deficit was caused by 9/11. Nor were they caused by over-generous govt social programs that can be blamed on the Democrats.
The twin deficits, politics aside, mean trouble for the parity of the dollar. There are specific strategies to make money (or at least avoid losing it) as inflation and monetary erosion again overwhelm our Washington policy-makers and the country. There is nothing unpatriotic about using international investment ways to protect against a falling dollar. Dick Grasso, who rather looked like the movie Goldfinger (or was it Mini Me?), can invest his ill-got $139.5 mn internationally or in gold stocks without running into more obloquy.
And (even if like me you are a good American) you are under no duty to stay with a sinking ship if there are plenty of lifeboats around: ADRs and foreign gold stocks traded in the U.S. or closed-end and exchange-traded funds for gold.
Over the next half year, because of the fall of the dollar adding to the intrinsic appeal of the most viable alternative holding, I expect the price of the yellow metal in dollars to break through the $400 level. This come about not only because gold is a haven; it will also come about because the dollar is not one.
Right now a big concern among gold bugs is whether Central Banks will continue their controlled gold sales beyond 2004, when the Washington Agreement to organize the gold market runs out. I find it hard to continue to worry about what major gold owning central banks are up to when gold prices are inching up. The largest gold holder is the Bundesbank, and I really wonder what they are supposed to sell their gold hoard for? Dollars? Yen? They can't buy Euros to back their currency since it is Euros. Clearly keeping the gold in bullion form is the best tactic."
M.M.A. CYCLES REPORT
PO Box 250012, West Bloomfield, MI 48325.
1 year, 18 issues, $249.
Silver $7 by next summer?
Raymond Merriman: "Silver is now entering a time band for a primary cycle trough. On September 25, Silver made a slightly higher cycle high at 539.50. This was a double top to the 538 high of September 12, and was probably the primary cycle crest. At the time, our momentum technical indicators were considerably lower than on the 12th. If so, the price target for the primary cycle trough is now 492.50 +/-11.
My bias remains bullish longer-term. I believe the 4.34-year cycle is still pointed up, and won't top out until Jupiter is in Virgo. As long as Silver remains above 415, I think the 4.34-year cycle can eventually get to 700 or higher by next summer. Only a move below 440 would begin to alter that outlook. The 4.34-year cycle low is not due until 2005 2006. Prior to that, the crest of this cycle is due, and I think it will be in the next 13 months."
Editor's Note: MMA's annual Forecasts Book, written by Raymond A. Merriman since 1976, is one of the most unique, affordable, and accurate glimpses into the coming year. Utilizing the study of cycles and geocosmic factors, the annual Forecasts book presents an overview of trends pertaining to political, economic, and financial markets throughout the world for each forthcoming year. Special sections are included on Interest Rates, Stock Markets, precious Metals, Currencies, Weather and Grain markets. And, of course, the all important and highly accurate Critical Reversal Dates for financial markets in 2004. To order Forecasts for 2004 send $39.95 to: The Merriman Market Analyst, Inc., PO Box 250012, West Bloomfield, MI 48325 or order online at www.mmacycles.com.
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