The Vet

Next Up for Paulson: A Gold-Focused Hedge Fund

The top will be in when all the pundits who are predicting that the top IS in, give up and become buyers again..

Precious Metals: Breakout, Fakeout or Shakeout?

A nicely balanced technical summary, but if the comment "Sentiment on the precious metals is almost uniformly bullish" holds up, then why is it that the majority of the comments made here in response to the article are actually bearish?

Hong Kong Recalls Gold Reserves: Why No News Coverage?

Someone in Hong Kong knows their history and want to avoid a repeat. When Britian went off the gold standard in the 1930's most gold reserves for many countries (especially the Commonwealth countries) were stored in London and denominated in British Pounds.

The pound was supposed to be as good as gold and directly convertible to metal but with a single swipe of the pen, that link was broken and every country which though it had real gold stored in London was left with paper pounds and England kept the actual metal for themselves and the pound was promptly devalued by repricing the gold. Of course the US saw what a good idea that was and soon followed suit, but they even added their own touch but confiscating the public's holdings of metal first!

Rick Rule: Market Malaise Signals Opportunity in Miners

This article and many like it seem to ignore the basic business strategy used by all responsible gold producers. When metal prices are low, the strategy is to high grade the depost, mining the high profit ore and ignoring the low grades in order to maintain margins and stay in business.

However when metal prices are high, the best long term approach is to "low grade" that is to mine and process the ore that wouldn't be profitable at times of low prices. This extends the life of the mine and maximises the recovery of metal from the ore body but of course profit margins suffer due to the utilization of this low grade material.

Sure other input costs have gone up, but lower profit margins of the miners are not solely due to this. Maximising mine life and recovery of all the PM in the ore body due to "salvaging" the low grade material left during the periods of low prices creates a significant drain on margins. However if high metal prices are maintained, the average ore grade will tend to rise and profits will return to more normal levels later in the bull market.

Thoughts About the Current Bear Market Among Junior Miners

Great insight, but of course this failure for the banks and the markets to commit to any risk is the same reason that commodities, metals, food and oil are in such demand right now. In the dot com days and before, paper projects and paper investments were short term, quick return and had a degree of certainty... until they failed!

Now commodities are high, costs are high and the time, expenditure and risk involved in getting a new mine off the ground is even higher than before, right at the time that the traditional risk taker, the small investor is feeling the pinch.

The need to get starter projects going so that the world will have adequate supply of commodities has never been greater, but investors time horizons have never been shorter, so where will it end.

IMO the solution lies with the few majors who are doing well with their high cash flows and diminishing reserves. They have to step up and start aquiring and investing in the junior sector. Only then will we get the investor interest returning. The majors are not doing themselves an favours with their current "just in time" mentality, as they well know that new projects always take longer and cost more the longer they delay commencement...

Once they start to lose production as mines become depleted, they will lose their income and the currency of their high stock price regardless of the current spot price of their production. Gold at $5000 an ounce is of no help if production has dropped to a pittance.

Gold Is Just a Brick ('Active Value Investing' Book Excerpt)

What the author completely ignores is the very real and ever present counterparty risk of all paper instruments. He touches on it in respect to gold shares and ETF type instruments in gold, but ignores it for his favourite paper instruments, bonds, TIPs etc.

It is true that strong governments will try to support their "official" paper in a numerical sense when it suits them, but they also actively devalue the base fiat unit of account when times get tough. You might be able to redeem the face number of fiat units but you never get back the real value invested regardless of interest payments.

For recent examples look at Argentina and Russia, historically, check out Germany in the first half of the 20th century, and Rome a couple of thousand years ago. The US government may look to be reliable now, but so did Rome and hundreds of other governments at various times in history. The only constant historical fact is that all of them have eventually failed and their fiat currency failed with them. Gold on the other hand has always retained value.

Closer to home, Americans who bought and held Continentals and paper denominated that way certainly would have wished they had bought gold instead at the end of the war...