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Louis James' background in physics, economics, and technical writing prepared him well for his role as senior editor of the International Speculator and Casey Investment Alert. Like Doug Casey, Louis constantly travels the world, visiting highly prospective geological targets, grilling... More
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  • The Bottom Line On Gold, The Dollar, And The Euro

    One of the points we've made several times over the last year is that traders stuck in an old paradigm are frequently selling gold for the wrong reasons.

    The most egregious (or just plain silly) example is that gold often drops when the euro drops.

    This happens, not because there's anything wrong with gold at such times, but because gold is priced in dollars. Instead of being thought of as a store of value in many investors' minds, gold is viewed as a hedge against weakness in the dollar.

    But what are dollars priced in?

    Nothing, actually. Purchasing power is the underlying reality any "price" for dollars should get at, but that's hard to measure - and the government can't be trusted to report the truth about this.

    Unfortunately, in today's world currencies are valued in many people's minds by their "strength" in foreign exchange markets.

    Maybe that's in part because nobody believes CPI statistics anymore.

    At any rate, the dollar is frequently valued in relation to its main competitor for reserve currency status. In other words, to many players in the market, the dollar is priced in euros.

    So when the euro gets slammed, the dollar rises, and this apparent "strength" of the dollar makes gold seem less attractive as a hedge, and gold sells off.

    You can see this inverse correlation between gold and the dollar - as well as a very tight correlation between gold and the euro - in this chart of recent price action.

    (click to enlarge)

    The pattern is very strong. The inverse correlation between the dollar and the euro is extremely high, at -0.92. The inverse correlation between the dollar and gold is not as high, but still very strong: -0.78. And the correlation between gold and the euro is also very high: +0.74.

    In our view, this set of relationships clearly shows the error of those caught in this trading paradigm.

    The euro is not backed by gold, nor anything at all.

    It's a floating abstraction, even more nebulous than the dollar. Gold is a solid commodity, the ultimate safe haven people all around the world turn to when the acceptance of paper currencies and other assets is in doubt.

    There's no valid reason for gold to gain and lose value in concert with the euro - it's merely an artifice of both gold and the euro being "not the dollar."

    This point is clearly evident in a longer-term chart of the same variables as above.

    (click to enlarge)

    As you can see, while in the short term gold and the euro seem alike (alternatives to the dollar), over the long term, the euro and the dollar are much more alike, while gold is a beast of an entirely different nature. The euro and the dollar take turns winning and losing against each other, but both are being debased, both are losing ground in the real world, and both have lost a lot of ground against gold.

    Now, which of these three would you like to trust your savings to?

    And which would you like to speculate on, going forward?

    The answers are crystal clear to us here at Casey Research, and they form the basis of our recommendations in our metals newsletters.

    Holding precious metals is an excellent way to preserve wealth. Investing in specific mining companies that are poised for growth and/or a takeover by a larger company can be a way to increase your wealth many times over. But not every junior mining company offers such promise... and timing is an essential key to successful investing with this strategy.

    Louis James, Casey Research's metals and mining investment strategist, knows the ins and outs of the junior mining sector and has an uncanny ability to sniff out the best prospects. Learn how he does it - and more important, how you can put his expertise to work for you.

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

    Sep 14 3:31 PM | Link | Comment!
  • The Key Way To Make Money In The Prospecting Business

    Making money is first and foremost about backing the right people.

    Next, it's about timing.

    Casey Research readers have had great success by identifying, following, and backing up-and-coming stars. The best of the best in the business.

    In this video, Louis James from Casey Research introduces you to two innovators of tomorrow.

    These are two people whom smart investors are following very closely.

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

    Aug 20 10:08 AM | Link | Comment!
  • How Is Dr. Copper Feeling?

    By Louis James and Andrey Dashkov, Casey Research

    Copper is sometimes referred to as "Dr. Copper," because the metal is used in so many industrial applications and is essential for many different sectors of the economy, from infrastructure to housing to consumer electronics. That usually makes its price action a good indicator of the state of the global economy.

    The chart below illustrates the degree to which copper follows economic health - as opposed to gold, which is a traditionally a contra-cyclical commodity. Have a look.

    (Click on image to enlarge)

    This illustration paints a convincing picture: over the past five years, copper (and the economy) stagnated, while gold was on a steady uptrend. No surprises here: gold has always been a reliable hedge against economic and financial turmoil.

    In 2012, copper demand started out quite strong. The International Copper Study Group (ICSG) published Q112 numbers that showed a healthy uptrend in demand: year-on-year, apparent usage grew by 9%, while refined production increased by 4%. (This is defined by ICSG as refined production + refined imports - refined exports + refined beginning stocks - ending stocks.)

    China, responsible for about 40% of global copper demand, almost doubled its net imports, with a 99% annual growth rate in Q112. This does not mean, however, that the metal was used right away by industry: ICSG indicates that high import levels were accompanied by growing inventories in bonded warehouses.

    This will lower demand in the near term. And it's not just China: other major sources of demand were largely stagnant in the first quarter, with the US growing by only 1%, European demand decreasing by 9%, and Japanese down by 6%.

    Some analysts expect the European market to be "dead" for the rest of this year, due to the lack of trading volumes. Chinese demand is projected to soften, and its output of copper products is estimated to grow by 10-15% year-on-year. That may seem robust, but it was 18% last year, according to Beijing Antaike, a state-run metals research company. As with many official numbers coming out of China, we take these with a grain of salt, and thus expect output to be even lower than projected.

    (Click on image to enlarge)

    On average, the stocks of these copper companies have dropped about 35% since the end of June 2011. The stocks are more volatile than the metal itself, and in a weak economy that means rebounds are unlikely.

    But are they still profitable? Yes, they are. Despite the global economic uncertainty and the volatility in the copper price, copper producers have had strong margins since Q310.

    (Click on image to enlarge)

    In the past three years, the net income margin of our 20 copper producers remained, for the most part, above zero. The chart shows the post-2008 growth very clearly, as well as the weakness in the second half of 2011. You can also see that the first quarter this year was a good one for copper producers, though again the results for Q2 may be disappointing due to economic uncertainties.

    This pattern is exactly in line with our expectations, and it's the reason why we have not only stayed away from most copper plays the last few years, but other industrial metals as well. It's not that we only like gold and silver, but that our bearish near-term economic forecasts are bearish for Dr. Copper as well. So we've stayed away, even from well-run, profitable companies, opting instead to put them on our shopping list for when the economic situation looks so dire that they become good contrarian picks.

    We are not there yet, so we still view the precious metals as the best bets for the foreseeable future.

    Of course, not just any precious metal producer is a "best bet" - and with the current volatility, very careful due diligence is required. One of the best indicators of a stock poised to produce stellar gains is its takeover potential - something savvy analysts can sniff out and use to good advantage.

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

    Jul 06 9:09 PM | Link | Comment!
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