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Jeff Clark is Editor of BIG GOLD and Explorers’ League at Casey Research (http://www.caseyresearch.com). Having worked on his family’s gold claims in California and Arizona, as well as a mine in a place to remain nameless, these days Jeff Clark focuses on following some of the most successful... More
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  • Inflation Is Coming, What To Do—NOW

    We've all heard of the inflationary horrors so many countries have lived through in the past. Third-world countries, developing nations, and advanced economies alike-no country in history has escaped the debilitating fallout of unrepentant currency abuse. And we expect the same fallout to impact the US, the EU, Japan, China-all of today's countries that have turned to the printing press as a solution to their economic woes.

    Now, it seems obvious to us that the way to protect one's self against high inflation is to hold one's wealth in gold… But did citizens in countries that have experienced high or hyperinflation turn to gold in response? Gold enthusiasts may assume so, but what does the data actually show?

    Well, Casey Metals Team researcher Alena Mikhan dug up the data. Here's a country-by-country analysis…

    Brazil

    Investment demand for gold grew before Brazil's debt crisis and economic stagnation of the 1980s. However, it really took off in the late '80s, when already-high inflation (100-150% annually) picked up steam and hit unsustainable levels in 1989.

    YearInflationInvestment
    demand
    (tonnes)
    1986167.8%20.0
    1987218.5%42.8
    1988554.2%61.5
    19891,972%*86.5
    1990116.2%**-74

    Source: The International Gold Trade by Tony Warwick-Ching, 1993; inflation.eu
    *Measured from December to December
    **Year-end rate

    During this period, investment demand for bullion skyrocketed 333%, from 20 tonnes in 1976 to 86.5 tonnes in 1989.

    And notice what happened to demand when inflation began to reverse. Substantial liquidations, showing demand's direct link to inflation.

    Indonesia

    Indonesia was hit by a severe economic crisis in 1998. The average inflation rate spiked to 58% that year.

    YearInflationInvestment
    demand (t)
    19976.2%11.5
    199858.0%22.5
    199924.0%11.0
    20003.7%8.5

    Sources: World Gold Council, inflation.eu

    Gold demand doubled as inflation surged. It's worth pointing out that investment demand in 1997 was already at a record high.

    Also, total demand in 1999 reached 120.8 tonnes (not just demand directly attributable to investment), 18% more than in pre-crisis 1997. But overall, once inflation cooled, so again did gold demand.

    India

    While India has a traditional love of gold, its numbers also demonstrate a direct link between demand and rising inflation. The average inflation rate in 1998 climbed to 13%, and you can see how Indians responded with total consumer demand. (Specifically investment demand data, as distinct from broader consumer demand data, is not available for all countries.)

    YearInflationConsumer
    demand* (t)
    19968.9%507
    19977.2%688
    199813.1%774
    19994.8%730

    Sources: World Gold Council, inflation.eu
    *Includes net retail investment and jewelry

    Gold demand hit a record of 774.4 tonnes, 13% above the record set just a year earlier. In fairness, we'll point out that gold consumption was also growing due to a liberalization of gold import rules at the end of 1997.

    When inflation cooled, the same pattern of falling gold demand emerged.

    Egypt, Vietnam, United Arab Emirates (UAE)

    Here are three countries from the same time frame last decade. Like India, we included jewelry demand since that's how many consumers in these countries buy their gold.

    YearEgyptVietnamUAE
    InflationConsumer
    demand (t)
    InflationConsumer
    demand (t)
    InflationConsumer
    demand (t)
    20066.5%60.57.5%86.110%96.0
    20079.5%68.58.3%77.514%107.3
    200818.3%76.824.4%115.820%109.5
    200911.9%58.47.0%73.31.6%73.9

    Sources: World Gold Council, indexmundi.com

    Egypt saw inflation triple from 2006 to 2008, and you can see consumer demand for bullion grew as well. Even more impressive is what the table doesn't show: Investment demand grew 247% in 1998 over the year before. Overall tonnage was relatively modest, though, from 0.7 to 2.5 tonnes.

    Vietnam and the United Arab Emirates saw similar patterns. Gold consumption increased when inflation peaked in 2008. Again, it was investment demand that saw the biggest increases. It grew 71% in Vietnam, and 27% in the United Arab Emirates.

    And when inflation subsided? You guessed it: Demand fell.

    Japan

    Prime Minister Shinzo Abe's plan to kill deflation pushed Japan's consumer price inflation index to 1.2% last year-still low, but it had been flat or falling for almost two decades, including 2012.

    YearInflationConsumer
    demand (t)
    2012-0.1%6.6
    20131.2%21.3

    In response, demand for gold coins, bars, and jewelry jumped threefold in the Land of the Rising Sun.

    One of the biggest investment sectors that saw increased demand, interestingly, was in pension funds.

    Belarus

    Unlike many of the nations above, citizens from this country of the former Soviet Union do not have a deep-rooted tradition for gold. However, in 2011, the Belarusian ruble experienced a near threefold depreciation vs. the US dollar. As usual, people bought dollars and euros-but in a new trend, turned to gold as well.

    We don't have access to all the data used in the tables above, but we have firsthand information from people in the country. In the first quarter of 2011, just when it became clear inflation would be severe, gold bar sales increased five times compared to the same period a year earlier. In March alone that year, 471.5 kg of gold (15,158 ounces) were purchased by this small country, which equaled 30% of total gold sales, from just one year earlier. Silver and platinum bullion sales grew noticeably as well.

    The "gold rush" didn't live long, however, as the central bank took measures to curb demand.

    Argentina

    Argentina's annual inflation rate topped 26% in March last year, which, according to Bloomberg, made residents "desperate for gold." Specific data is hard to come by because only one bank in the country trades gold, but everything we read had the same conclusion: Argentines bought more gold last year than ever before.

    At one point, one bank, Banco Ciudad, even tried to buy gold directly from mining companies because it couldn't keep up with demand. Some analysts report that demand has continued this year but that it has shown up in gold stocks.

    What to Do-NOW

    History clearly shows there is a direct link between inflation and gold demand. When inflation jumps, or even when inflation expectations rise, investors turn to gold in greater numbers. And when gold demand rises, so does its price-you can guess what happens to gold stocks.

    With the amount of money the developed countries continue to print, high to hyperinflation is virtually inevitable. We cannot afford to believe in free lunches.

    The conclusion is inescapable: One must buy gold (and silver) now, before the masses rush in. The upcoming inflationary storm will encompass most of the globe, so the amount of demand could push prices far higher than many think-and further, make bullion scarce.

    Your neighbors will soon be buying. We suggest beating them to the punch.

    Remember, gold speaks every language, is highly liquid anywhere in the world, and is a proven store of wealth over thousands of years.

    But what to buy? Where? How?

    We can help. With a subscription to our monthly newsletter, BIG GOLD, you'll get the Bullion Buyers Guide, which lists the most trustworthy dealers, thoroughly vetted by the Metals team, as well as the top medium- and large-cap gold and silver producers, royalty companies, and funds.

    Normally I'd suggest that you try BIG GOLD risk-free for 3 months, but right now, I can offer you something even better: ALL EIGHT of Casey's monthly newsletters for one low price, at a huge 55% discount.

    It's called the Casey OnePass and lets you profit from the huge variety of investment opportunities we here at Casey Research are seeing in our respective sectors right now-from precious metals to energy, technology, big-picture trend investing, and income investing.

    Click here to find out more. But hurry-the Casey OnePass offer expires this Friday, April 4.

    The article Inflation Is Coming, What to Do-NOW was originally published at caseyresearch.com.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Mar 31 1:03 PM | Link | Comment!
  • Gold Is Seasonal: When Is The Best Month To Buy?

    Many investors, especially those new to precious metals, don't know that gold is seasonal. For a variety of reasons, notably including the wedding season in India, the price of gold fluctuates in fairly consistent ways over the course of the year.

    This pattern is borne out by decades of data, and hence has obvious implications for gold investors.

    Can you guess which is the best month for buying gold?

    When I first entertained this question, I guessed June, thinking it would be a summer month when the price would be at its weakest. Finding I was wrong, I immediately guessed July. Wrong again, I was sure it would be August. Nope.

    Cutting to the chase, here are gold's average monthly gain and loss figures, based on almost 40 years of data:

    Since 1975-the first year gold ownership in the US was made legal again-March has been, on average, the worst-performing month for gold.

    This, of course, makes March the best month for buying gold.

    But: averages across such long time frames can mask all sorts of variations in the overall pattern. For instance, the price of gold behaves differently in bull markets, bear markets, flat markets… and manias.

    So I took a look at the monthly averages during each of those market conditions. Here's what I found.

    Key point:

    The only month gold has been down in every market condition is March.

    Combined with the fact that gold soared 10.2% the first two months of this year, the odds favor a pullback this month.

    And as above, that can be a very good thing. Here's what buying in March has meant to past investors. We measured how well gold performed by December in each period if you bought during the weak month of March.

    Only the bear market from 1981 to 2000 provided a negligible (but still positive) return by year's end for investors who bought in March. All other periods put gold holders nicely in the black by New Year's Eve.

    If you're currently bullish on precious metals, you might want to consider what the data say gold bought this month will be worth by year's end.

    Regardless of whether gold follows the monthly trend in March, the point is to buy during the next downdraft, whenever it occurs, for maximum profit. And keep your eye on the big picture: gold's fundamentals signal the price has a long climb yet ahead.

    Everyone should own gold bullion as a hedge against inflation and other economic maladjustments… and gold stocks for speculation and leveraged gains.

    The greatest gains, of course, come from the most volatile stocks on earth, the junior mining sector. Following our recent Upturn Millionaires video event with eight top resource experts and investment pros, my colleague Louis James released his 10-Bagger List for 2014-a timely special report on the nine stocks most likely to gain 1,000% or more this year. Click here to find out more.

    The article Gold Is Seasonal: When Is the Best Month to Buy? was originally published at caseyresearch.com.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: gold, buy
    Mar 10 1:40 PM | Link | Comment!
  • What 10-Baggers (And 100-Baggers) Look Like

    Now that it appears clear the bottom is in for gold, it's time to stop fretting about how low prices will drop and how long the correction will last-and start looking at how high they'll go and when they'll get there.

    When viewing the gold market from a historical perspective, one thing that's clear is that the junior mining stocks tend to fluctuate between extreme boom and bust cycles. As a group, they'll double in price, then crash by 75%... then double or triple or even quadruple again, only to crash 90%. Boom, bust, repeat.

    Given that we just completed a major bust cycle-and not just any bust cycle, but one of the harshest on record, according to many veteran insiders-the setup for a major rally in gold stocks is right in front of us.

    This may sound sensationalistic, but based on past historical patterns and where we think gold prices are headed, the odds are high that, on average, gold producers will trade in the $200 per share range before the next cycle is over. With most of them currently trading between $20 and $40, the returns could be stupendous. And the percentage returns of the typical junior will be greater by an order of magnitude, providing life-changing gains to smart investors.

    What you're about to see are historical returns of both producers and juniors during three separate boom cycles. These are factual returns; they are not hypothetical. And if you accept the fact that this market moves in cycles, you know it's about to happen again.

    Gold had a spectacular climb in 1979-1980, and gold stocks in general gave a staggering performance at that time-many of them becoming 10-baggers (1,000% gains and more). While this is a well-known fact, few researchers have bothered to identify exact returns from specific companies during this era.

    Digging up hard data from before the mid-1980s, especially for the junior explorers, is difficult because the information wasn't computerized at the time. So I sent my nephew Grant to the library to view the Wall Street Journal on microfiche. We also include information we've had from Scott Hunter of Haywood Securities; Larry Page, then-president of the Manex Resource Group; and the dusty archives at the Northern Miner.

    Note: This means our tables, while accurate, are not at all comprehensive.

    Let's get started…

    The Quintessential Bull Market: 1979-1980

    The granddaddy of gold bull cycles occurred during the 1970s, culminating in an unabashed mania in 1979 and 1980. Gold peaked at $850 an ounce on January 21, 1980, a rise of 276% from the beginning of 1979. (Yes, the price of gold on the last trading day of 1978 was a mere $226 an ounce.)

    Here's a sampling of gold producer stock prices from this era. What you'll notice in addition to the amazing returns is that gold stocks didn't peak until nine months after gold did.

    Returns of Producers in 1979-1980 Mania
    CompanyPrice on
    12/29/1978
    Sept. 1980
    Peak
    Return
    Campbell Lake Mines$28.25$94.75235.4%
    Dome Mines$78.25$154.0096.8%
    Hecla Mining$5.12$53.00935.2%
    Homestake Mining$30.00$107.50258.3%
    Newmont Mining$21.50$60.62182.0%
    Dickinson Mines$6.88$27.50299.7%
    Sigma Mines$36.00$57.0058.3%
    Giant Yellowknife Mines$11.13$39.00250.4%
    AVERAGE  289.5%

    Today, GDX is selling for $26.05 (as of February 26, 2014); if it mimicked the average 289.5% return, the price would reach $101.46.

    Keep in mind, though, that our data measures the exact top of each company's price. Most investors, of course, don't sell at the very peak. If we were to able to grab, say, 80% of the climb, that's still a return of 231.6%.

    Here's a sampling of how some successful junior gold stocks performed in the same period, along with the month each of them peaked.

    Returns of Juniors in 1979-1980 Mania
    CompanyPrice on
    12/29/1978
    Price
    Peak
    Date
    of Peak
    Return
    Carolin Mines$3.10$57.00Oct. 801,738.7%
    Mosquito Creek Gold$0.70$7.50Oct. 80971.4%
    Northair Mines$3.00$10.00Oct. 80233.3%
    Silver Standard$0.58$2.51Mar. 80332.8%
    Lincoln Resources$0.78$20.00Oct. 802,464.1%
    Lornex$15.00$85.00Oct. 80466.7%
    Imperial Metals$0.36$1.95Mar. 80441.7%
    Anglo-Bomarc Mines$1.80$6.85Oct. 80280.6%
    Avino Mines0.335.5Dec. 801,566.7%
    Copper Lake$0.08$10.50Sep. 8013,025.0%
    David Minerals$1.15$21.00Oct. 801,726.1%
    Eagle River Mines$0.19$6.80Dec. 803,478.9%
    Meston Lake Resources$0.80$10.50Oct. 801,212.5%
    Silverado Mines$0.26$10.63Oct. 803,988.5%
    Wharf Resources$0.33$9.50Nov. 802,778.8%
    AVERAGE   2,313.7%

    If you had bought a reasonably diversified portfolio of top-performing gold juniors prior to 1979, your initial investment could have grown 23 times in just two years. If you had managed to grab 80% of that move, your gains would still have been over 1,850%.

    This means a junior priced at $0.50 today that captured the average gain from this boom would sell for $12 at the top, or $9.75 at 80%. If you own ten juniors, imagine just one of them matching Copper Lake's better than 100-bagger performance.

    Here's what returns of this magnitude could mean to you. Let's say your portfolio includes $10,000 in gold juniors that yield spectacular gains such as the above. If the next boom cycle matches the 1979-1980 pattern, your portfolio could be worth $241,370 at its peak… or about $195,000 if you exit at 80% of the top prices.

    Note that this does require that you sell to realize your profits. If you don't take the money and run at some point, you may end up with little more than tears to fill an empty beer mug. In the subsequent bust cycle, many junior gold stocks, including some in the above list, dried up and blew away. Investors who held on to the bitter end not only saw all their gains evaporate, but lost their entire investments.

    You have to play the cycle.

    Returns from that era have been written about before, so I can hear some investors saying, "Yeah, but that only happened once."

    Au contraire. Read on…

    The Hemlo Rally of 1981-1983

    Many investors don't know that there have been several bull cycles in gold and gold stocks since the 1979-1980 period.

    Ironically, gold was flat during the two years of the Hemlo rally. But something else ignited a bull market. Discovery. Here's how it happened…

    Back in the day, most exploration was done by teams from the major producers. But because of lagging gold prices and the resulting need to cut overhead, they began to slash their exploration budgets, unleashing a swarm of experienced geologists armed with the knowledge of high-potential mineral targets they'd explored while working for the majors. Many formed their own companies and went after these targets.

    This led to a series of spectacular discoveries, the first of which occurred in mid-1982, when Golden Sceptre and Goliath Gold discovered the Golden Giant deposit in the Hemlo area of eastern Canada. Gold prices rallied that summer, setting off a mini bull market that lasted until the following May. The public got involved, and as you can see, the results were impressive for such a short period of time.

    Returns of Producers Related to Hemlo Rally of 1981-1983
    Company1981
    Price
    Price
    Peak
    Date
    of High
    Return
    Agnico-Eagle$9.50$21.00Aug. 83121.1%
    Sigma$14.13$24.50Jan. 8373.4%
    Campbell Red Lake$16.63$41.25May 83148.0%
    Sullivan$3.85$6.00Mar. 8455.8%
    Teck Corp Class B$17.00$21.88Jun. 8128.7%
    Noranda$33.75$36.38Jun. 817.8%
    AVERAGE   72.5%

    Gold producers, on average, returned over 70% on investors' money during this period. While these aren't the same spectacular gains from just a few years earlier, keep in mind they occurred over only about 12 months' time. This would be akin to a $20 gold stock soaring to $34.50 by this time next year, just because it's located in a significant discovery area.

    Once again, it was the juniors that brought the dazzling returns.

    Returns of Juniors Related to Hemlo Rally of 1981-1983
    Company1981
    Price
    Price
    Peak
    Date
    of High
    Return
    Corona Resources$1.10$61.00May 835,445.5%
    Golden Sceptre$0.40$31.00May 837,650.0%
    Goliath Gold$0.45$32.00Mar 837,011.1%
    Bel-Air Resources$0.81$1.60Jan. 8397.5%
    Interlake Development$2.10$6.40Mar. 83204.8%
    AVERAGE   4,081.8%

    The average return for these junior gold stocks that had a direct interest in the Hemlo area exceeded a whopping 4,000%.

    This is especially impressive when you realize that it occurred without the gold stock industry as a whole participating. This tells us that a big discovery can lead to enormous gains, even if the industry as a whole is flat.

    In other words, we have historical precedence that humongous returns are possible without a mania, by owning stocks with direct exposure to a discovery area. There are numerous examples of this in the past ten years, as any longtime reader of the International Speculator can attest.

    By May 1983, roughly a year after it started, gold prices started back down again, spelling the end of that cycle-another reminder that one must sell to realize a profit.

    The Roaring '90s

    By the time the '90s rolled around, many junior exploration companies had acquired the "intellectual capital" they needed from the majors. Another series of gold discoveries in the mid-1990s set off one of the most stunning bull markets in the current generation.

    Companies with big discoveries included Diamet, Diamond Fields, and Arequipa. This was also the time of the famous Bre-X scandal, a company that appeared to have made a stupendous discovery, but that was later found to have been "salting" its drill data (cheating).

    By the summer of '96, these discoveries had sparked another bull cycle, and companies with little more than a few drill holes were selling for $20 a share.

    The table below, which includes some of the better-known names of the day, is worth the proverbial thousand words. The average producer more than tripled investors' money during this period. Once again, these gains occurred in a relatively short period of time, in this case inside of two years.

    Returns of Producers in Mid-1990s Bull Market
    CompanyPre-Bull
    Market Price
    Price
    Peak
    Date
    of High
    Return
    Kinross Gold$5.00$14.62Feb. 96192.4%
    American Barrick$28.13$44.25Feb. 9657.3%
    Placer Dome$26.50$41.37Feb. 9656.1%
    Newmont$47.26$82.46Feb. 9674.5%
    Manhattan$1.50$13.00Nov. 96766.7%
    Cambior$10.00$22.35Jun. 96123.5%
    AVERAGE   211.7%

    Here's how some of the juniors performed. And if you're the kind of investor with the courage to buy low and the discipline to sell during a frenzy, it can be worth a million dollars. Hold on to your hat.

    Returns of Juniors in Mid-1990s Bull Market
    CompanyPre-Bull
    Market Price
    Price
    Peak
    Date
    of High
    Return
    Cartaway$0.10$26.14May 9626,040.0%
    Golden Star$6.00$27.50Oct. 96358.3%
    Samex Mining$1.00$7.20May 96620.0%
    Pacific Amber$0.21$9.40Aug. 964,376.2%
    Conquistador$0.50$9.87Mar. 961,874.0%
    Corriente$1.00$19.50Mar. 971,850.0%
    Valerie Gold$1.50$28.90May 961,826.7%
    Arequipa$0.60$34.75May 965,691.7%
    Bema Gold$2.00$12.75Aug. 96537.5%
    Farallon$0.80$20.25May 962,431.3%
    Arizona Star$0.50$15.95Aug. 963,090.0%
    Cream Minerals$0.30$9.45May 963,050.0%
    Francisco Gold$1.00$34.50Mar. 973,350.0%
    Mansfield$0.70$10.50Aug. 961,400.0%
    Oliver Gold$0.40$6.80Oct. 961,600.0%
    AVERAGE   3,873.0%

    Many analysts refer to the 1970s bull market as the granddaddy of them all-and to a certain extent it was-but you'll notice that the average return of these stocks during the late '90s bull exceeds what the juniors did in the 1979-1980 boom.

    This is akin to that $0.50 junior stock today reaching $19.86… or $16, if you snag 80% of the move. A $10,000 portfolio with similar returns would grow to over $397,000 (or over $319,000 on 80%).

    Gold Stocks and Depression

    Those of you in the deflation camp may dismiss all this because you're convinced the Great Deflation is ahead. Fair enough. But you'd be wrong to assume gold stocks can't do well in that environment.

    Take a look at the returns of the two largest producers in the US and Canada, respectively, during the Great Depression of the 1930s, a period that saw significant price deflation.

    Returns of Producers
    During the Great Depression
    Company1929
    Price
    1933
    Price
    Total
    Gain
    Homestake Mining$65$373474%
    Dome Mines$6$39.50558%

    During a period of soup lines, crashing stock markets, and a fixed gold price, large gold producers handed investors five and six times their money in four years. If deflation "wins," we still think gold equity investors can, too.

    How to Capitalize on This Cycle

    History shows that precious metals stocks move in cycles. We've now completed a major bust cycle and, we believe, are on the cusp of a tremendous boom. The only way to make the kind of money outlined above is to buy before the boom is in full swing. That's now. For most readers, this is literally a once-in-a-lifetime opportunity.

    As you can see above, there can be great variation among the returns of the companies. That's why, even if you believe we're destined for an "all-boats-rise" scenario, you still want to own the better companies.

    My colleague Louis James, Casey's chief metals and mining investment strategist, has identified the nine junior mining stocks that are most likely to become 10-baggers this year in their special report, the 10-Bagger List for 2014. Read more here.

    The article What 10-Baggers (and 100-Baggers) Look Like was originally published at caseyresearch.com.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: gold, stocks
    Mar 07 3:35 PM | Link | Comment!
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