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Marco G.
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A veteran of the small cap wars, the Goombarh has survived both the glory and collapse of the internet boom and the 2008 bust. Now he is focused on oil, mining and commodity junior stocks. The world has evolved with the rising tide of demand from the emerging markets growth of their middle... More
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  • Gold After the Earthquake, Tsunami, and Nuclear Disruptions

    You the reader are obviously looking at this because, you too would like to know what is next for Gold.  Well, after the recent dip since the beginning of March and culminating in the "Ides of March" (March 15th), an examination of the Gold price in USD is in order to determine the next phase for Gold:  (Click on the chart to enlarge)

    http://stockcharts.com/c-sc/sc?s=$GOLD&p=D&b=5&g=0&i=t45046485290&r=3596

    The chart above shows a steep drop happening on the Ides that showed a spread of $60 USD in the drop to just touching the blue 50 day moving average line and then bouncing back.

    Today is Saint Patrick's day and this may be a good omen for Gold investors; so using the green theme, the author sees an about-face for the Gold/Silver and mining sectors.  The fall on the 15th was enough and Gold held steady yesterday, March 16th, around the $1400 USD level.  The fundamental drivers for Gold and precious metals have not changed.  For review from an earlier post, these driving forces are:

    1. Inflation of Paper Currencies

    The markets interpret the FOMC's previous pronouncements as inflationary for paper currencies, and this effect is expected to continue until there are some indications of inflation being reined in. This currency inflation is a fundamental driver for the precious metals.

    2. Rise of the World's Middle Class Supporting Gold Prices

    There is a rising middle class as the world's emerging markets continue to grow and gain parity with the world's developed markets. The size of the world's middle class growth is largest in the Asian economies and of a scale that the world has never before seen. Asians have a particular affinity for the precious metals due to their history and culture of precious metals being a store of wealth. This buying by emerging middle classes provides a strong base of support for precious metals prices.

    3. Peak Gold Is Coming Due to Higher Costs and Lower Grades

    Barrick Gold's (ABX) chief executive Aaron Regent already declared a state of "peak gold" in 2009. The thesis is that gold mining is difficult, and the challenges of increasing costs, lower gold grades, and difficult operating environments all coalesce to decrease gold production supply. This "peak gold" dynamic is ensuring that the new production supply of precious metals will be constrained in the future.

    It seems, that the author's call for another "Bull Run for Gold" was disrupted by the natural Earth disaster of the Japanese earthquake, the resulting tsunami destruction and the follow-up nuclear debacles.  The resulting stock markets disarray disrupted the upward path for the rise of Gold.

    Not to belittle the human suffering impacts of these events, but the news of these happenings should have now been priced into the markets. Other market factors would include the Copper price, which is recovering after being oversold in February due to the Asian Lunar New Year.   Also, the Steel ETF  SLX is bottoming and is showing signs of moving up.  And finally the  TSX Venture has bottomed and is slowly moving higher. These three equities and indices are leaders for the general markets and may be signs that the S&P is due to recover.  The regular markets have had a good shakeout.  Most of the gains in 2011 for most stocks have evaporated due to this shakeout. 

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

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

     

    Disclosure: The author is long Gold and precious metals and other mining equities.

    Important Disclaimer

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

     

      

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

    Additional disclosure: The author is long gold and precious metals and other mining equities
    Mar 17 11:43 AM | Link | Comment!
  • Emerging Markets Middle Class - Emerge

     

    Bull Market, Supercycle, Commodities Bull, Precious Metals Bull, Gold Bull, Silver Bull, Emerging Markets - these are all catch-words for the stock markets at the present time.  Sure, but what does it all mean an investor today?  Well, Standard-Chartered Bank, a bastion in the (South Africa, India, China, Australia) emerging markets has put out a superlative report last fall that documents their reasoning of what a "SuperCycle" is and what is happening because of it.  The link to the report is at the bottom of this article.

    Here is the teaser opening paragraph of the overview section of this comprehensive report:

    One of the present big issues is who will compensate for the US consumer, often the

    driver of global demand? Of course, the world should not rely on a heavily indebted

    American consumer, but it adds to the worries about global demand deficiency. Yet,

    not only has the world economy rebounded to its pre-recession levels, helped by

    policy in the West and spending in the East, but on our analysis, the rate of change in

    consumer spending in China is already high, albeit from a much lower base than US

    consumption. Assuming nominal consumer spending growth, for instance, of 11% in

    China and 4% in the US, the increase in China’s consumer spending will overtake the

    US by 2017-18 in USD terms. The scale of that country is huge. But, as should be

    made clear from this report, the super-cycle is much more than a China story.

    Moreover, the lesson of this crisis is not just the need for a more balanced global

    economy, as we allude to below; it has also reinforced pressure on more emerging

    economies to move up the value curve, and this is likely to prove another feature of

    the years ahead.

    Now this report is consumption for sophisticated financiers (of which I am not), and it discusses currencies, and bonds and such, but it is the later part of the opening paragraph where it states "emerging economies to move up the value curve", that catches my eye.  What is that term that they teach you in business school "self-validation", where one searches for opinions that matches your own.  Eureka, I have just found a sophisticated financial analysis from a reputable bank operating in the emerging markets, that matches my own thesis of the emerging markets growing and creating strong demands for metals and commodities.  Their in-depth analysis of the "Supercycle", provides validation and support for my investment themes of concentration in the materials sectors.

    Continuing on in this report there is more self-validation; the implications section at the end of the report uses the title:  Market Implications - Growth!  This is very easy for me to understand, just one word - "Growth".  And not just growth for the short term, but the authors of the report are extrapolating the growth into 2030, from a starting point of 2000 for their SuperCycle.

    In summary, this Standard-Chartered SuperCycle report validates the authors preference for investing in metals, commodities and precious metals sectors.  The emerging world is engaged in growth and development of their respective lifestyles.  This means infrastructure developments and a higher standard of living for their populations. 

    This growth from the emerging world is triggering demand for basic metals and commodities such coal, copper, iron ore, aluminum and may be even driving the demand for precious metals. Some possible investment vehicles that would rise in response would be the following:

    ·         EEM - Emerging Markets Index ETF

    ·         SLX - Steel producers ETF

    ·         KOL - Coal producers ETF

    ·         JJC - Copper Metal ETF

    ·         COPX - Copper Producers ETF 

    ·         SIL - Silver Miners ETF

    ·         AA - Alcoa Inc.

    ·         CLF - Cliffs Natural Resources

    ·         AWC - Alumina Ltd. (Australian ADR)

    ·         GLD - Gold metal ETF

    ·         GDX - Major Gold Producers ETF

    ·         GDXJ - Junior Gold Miners ETF

    ·         SLV - Silver metal ETF

    ·         SIL - Silver producers ETF

    Finally, the author stumbled upon a remarkable chart in the middle of the report that may just sum it all up...as they say "a picture may be worth more than a thousand words".  (click to enlarge)

    World Middle Class.jpg

    From the chart, note the large concentric dual green and white circles, that indicates the Asia Pacific middle class as of 2009 and the prediction for 2030.  The author will leave the reader to ponder the implications of that circle's size and the resulting growth implications.

     

    Hat tip to reader CB for notifying me about the Standard-Chartered Supercycle Report:

    www.standardchartered.com/media-centre/p...

     

    Disclosure: The author is long junior metals miners and commodities.

    Important Disclaimer

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

    •  


    Disclosure: I am long GDXJ, SIL.

    Additional disclosure: I am long junior miners.
    Feb 17 1:25 PM | Link | Comment!
  • Fight Low Inflation - Buy Gold Stocks!

    The author was perusing news whilst devouring his breakfast steak (well, maybe not breakfast, but real thick beef loin, as I had been surviving on only coffee for 5 hours this morning), and came across this: 

    The Federal Reserve's total asset base has risen to $2.5 trillion dollars in their treasury purchases as the second round of its quantitative easing program.  The objective was to spur economic growth and prevent "inflation from falling too low" (emphasis author's). 

    This initiated a thought train in the author's mind-- keeping inflation from going lower must mean that the Fed is trying to inflate.  The inflation referred to is the currency.  Then what benefits from this inflation is hard goods and the precious metals.

    This was what is driving Gold this morning, was the weird Fed statement of combating  low inflation.   I wondered how the chart looks for my bellweather Gold stock, Goldcorp (GG, TSX: G), displayed following:  (click to enlarge)

    G.TO (Daily)

    Sure enough, Goldcorp has bottomed and is turning higher.  The large white candles for this prime Prima Donna Gold stock lately stands in stark contrast to the declining red candles since December. 

    At the bottom of the chart, the CMF(Chaikin Money Flow) has even gone less negative, again indicating less money leaving this stock than previous.  (Eh, Marco, grasping at straws here --less negative, you are starting to talk in double negatives as what the Fed just did; rather than turning positive, tut..tut!). 

    Goldcorp is a high quality recognized Gold stock, and if smart money is moving in, then this bears paying attention to, I thought to myself.  

    In addition to fighting low inflation, the earnings report and fiscal year for all these large cap Gold and precious metals producer stocks is just around the corner.  The precious metals miners that are not hedged should be enjoying rather high prices for their commodities sold this past fall and winter, with the burgeoning Gold prices. 

    Okay, the bellweather Gold stock is moving, but what about the Silver sector?  Perhaps the author's call for Silver bottom last week was a little bit early.  The chart for SIL, the ETF of the top Silver miners in the world follows:  (click to enlarge)

    SIL (Daily)

    Sure enough again, the chart for SIL above is also displaying bottoming and white candles turning around from the decline of almost 30% since the beginning of the year. 

    I wonder, is not Silver expected to move more than Gold?  Are not the Silver mining equities expected to leverage upon the Silver price moves?  (Yes, the equities also leverage the Silver price moves downwards)  The early smart money seems to be investing now in the Silver equities.  The author posted  a previous listing of possible suspects a few postings back, here.  Yes Silver can be used to fight "Low Inflation" also. 

    Thanks to the Fed for coming to the rescue of the precious metals stocks.  Perhaps, this may be a wise time to position oneself in selected Precious Metals Junior mining stocks to aid in this fight against "Low Inflation"?

     

    Disclosure: The author is long Junior mining stocks.

    Important Disclaimer

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

     



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

    Additional disclosure: I am long junior mining equities
    Jan 28 2:48 PM | Link | 5 Comments
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