Junior Mining Stocks to Beat Previous Highs

Junior Mining Stocks to Beat Previous Highs

By Laurynas Vegys, Research Analyst

Despite last week’s pullback, the precious metals market is off to an impressive start in 2014. Gold is up 10.6%, silver 4.3%, and the PHLX Gold/Silver (XAU) 17.1%. Gold, in particular, had a great February, rising above $1,300 for the first time since November 7, 2013.

This has led to some very handsome gains in our Casey International Speculator portfolio, with a few of our recommendations already logging triple-digit gains from their recent bottoms.

Why Junior Gold Mining Stocks Are Our Favorite Speculations

One of Doug Casey’s mantras is that one should buy gold for prudence, and gold stocks for profit. These are very different kinds of asset deployment.

In other words, don’t think of gold as an investment, but as wealth protection. It’s the only highly liquid financial asset that is not simultaneously someone else’s obligation; it’s value you can liquidate and use to secure your needs. Possessing it is prudent.

Gold stocks are for speculation because they offer leverage to gold. This is actually true of all mining stocks, but the phenomenon is especially strong in the highly volatile precious metals.

Most typical “be happy you beat inflation” returns simply can’t hold a candle to stocks that achieved 10-bagger status (1,000% gains). In previous bubbles—some even generated 100-fold returns. And we may see such returns again.

It’s Not Too Late to Make a Fortune

Here’s a look at our top three year-to-date gainers.

What’s especially remarkable is that all three of these stocks shot up much more than gold itself, on essentially no company-specific news. This is dramatic proof of just how much leverage the right mining stocks can offer to movements in the underlying commodity—gold, in this case. Two of the stocks above are on our list of potential 10-baggers, by the way.

So have you missed the boat? Is it too late to buy?

Looking at the chart, two bullish factors jump out immediately:

  • Gold stocks have just now started to move up from a similar level in 2008.
  • Gold stocks remain severely undervalued compared to the gold price. A simple reversion to the mean implies a tremendous upside move.

Now consider the following data that point to a positive shift in the gold market.

  1. After 13 consecutive months of decline, GLD holdings were up over 10.5 tonnes last month. The trend is similar to other ETFs.
  1. Hedge funds and other large speculators more than doubled their bets on higher gold prices this year.
  1. Increase in M&A—for example, hostile bids from Osisko and HudBay Minerals to buy big assets.
  1. Apollo, KKR, and other large private equity groups have emerged as a new class of participants in the sector.
  1. Gold companies’ hedging of future production—usually a sign of insecurity among the miners—shrunk to the lowest level in 11 years.
  1. China continues to consume record amounts of gold and officially overtook India as the world’s largest buyer of gold in 2013.
  1. Large players in the gold futures market that were short have switched to being long.
  1. Central banks continue to be net buyers.

To top it off, there’s been no fallout (yet) from the unprecedented currency dilution undertaken since 2008—and we don’t believe in free lunches.

The gold mania train has not yet left the station, but the engine is running and the conductor has the whistle in his mouth. This means…

Any correction ahead is a potential last-chance buying opportunity before the final mania phase of this bull cycle takes our stock to new highs, well above previous interim peaks.

In spite of the good start to 2014, most of our 10-bagger gold stocks are still on the deep-discount rack. And you can get all of them with a risk-free, 3-month trial subscription to our monthly advisory focused on junior mining stocks, the Casey International Speculator.

If you sign up today, you can still get instant access to two special reports detailing which stocks are most likely to gain big this year: Louis James’ 10-Bagger List for 2014 and 7 Must-Own Stocks for 2014.

Test-drive the International Speculator for 3 months with a full money-back guarantee, and if it’s not everything you expected, just cancel for a prompt, courteous refund of every penny you paid. Click here to get started now.

I hope you will take advantage of this opportunity in front of us—while shares are still relatively cheap.

The article Junior Mining Stocks to Beat Previous Highs was originally published at caseyresearch.com.

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Gold Investors Weekly Review

In his weekly market review, Frank Holmes of the USFunds.com nicely summarizes for gold investors this week’s strengths, weaknesses, opportunities and threats in the gold market. Gold closed the week at $1,334.21, down $48.84 per ounce (3.53%). The NYSE Arca Gold Miners Index lost 8.05% on the week. This was the gold investors review of past week.

Gold Market Strengths

A recent survey by the Silver Institute shows that 73% of U.S. jewelry retailers reported increased silver sales in 2013. Furthermore, 92% of the retailers said they are optimistic that the current silver demand growth will continue for the next several years.

Mineweb reports the Indian government eased import regulations to allow some of the country’s private sector banks to buy gold from abroad in a move that could boost gold imports in India and bring down physical premiums considerably. The Reserve Bank of India has allowed five private sector banks to participate in the import programs, as the country seeks to prevent the flow of illicit money and smuggled gold ahead of the primary elections this year.

In the platinum group metals space, platinum and palladium have benefitted from platinum strikes in South Africa, as well as the threat of sanctions in Russia, the world’s main palladium producer. Standard Bank is seeking to profit from the instability by launching palladium and platinum ETFs to be listed on the Johannesburg Stock Exchange.

Gold Market Weaknesses

Gold fell after the Federal Reserve indicated that it will raise interest rates next year. The Fed’s tone was deemed as being more hawkish than expected, which contributed to a sharp rise in the dollar. As a result, gold traders turned bearish with a majority of them expecting gold to fall next week.

U.S. domestic mine gold production in 2013 has dropped 3 percent, or 128,602 ounces, from the prior year, according to estimates released by the U.S. Geological Survey. Production coming from the states of Nevada (the U.S. gold output leader), Arizona, and California decreased in 2013.

A Wall Street Journal article shows European central banks may end a 15-year-old restriction on sales of their gold holdings. Under the agreement, central banks were limited to selling a maximum of 400 tonnes over a five-year period. According to a Bundesbank board member, the agreement may not be extended because over the past five years central bank gold sales have decreased significantly, making the policy unnecessary.

Gold Market Opportunities

On Thursday, gold recorded a golden cross when the 50-day moving average crossed above the 200-day moving average. A golden cross is traditionally associated with the breaking of a bear market trend and the beginning of a bull market, where the 200-day moving average becomes a support level in the rising market. Our analysis shows that, going back to 2000, a golden cross in gold has been followed on average by a 50 percent rally lasting on average 15 months.

Gold Golden Cross March 2014 investing

David Rosenberg, Gluskin Sheff’s Chief Economist, is of the opinion that the Fed appears to be looking at inflation in the rear-view mirror, not through the front window as it should be. Rosenberg agrees that inflation appears benign today; however, the signs of imminent rising inflation cannot be ignored any longer. According to Rosenberg, the National Federation of Independent Business plans to raise selling prices, which has a 70 percent correlation with inflation. In addition, the non-financial commercial paper lending has exploded at a 43 percent annual rate, not a particularly deflationary statistic. As a result, Rosenberg believes we have no “anchor” to hold inflation back.

Michael Gray, head of Macquarie Mining Research in Canada, commented on the newfound energy of the gold space in an interview with The Gold Report. According to Gray there are three reasons to believe the sector has turned a corner: (1) few people expected gold prices to rise so quickly into 2014, (2) the environment is fertile for equity deals and M&A transactions, and (3) Goldcorp’s bid for Osisko effectively removed an overhang. In addition, Dennis Gartman, one of the most senior and widely-respected newsletter writers, remains bullish on gold, arguing the curtailing of production by senior miners signals the end of the bear market.

Gold Market Threats

Goldman Sachs’ head of Commodities Research Jeffrey Currie has reiterated his view that gold will fall to $1,050 by the end of the year, leading numerous analysts and investors to question his conclusions. According to Currie, gold’s rally this year has been driven by unsustainable factors, such as the weather-induced slowdown in the U.S., increased geopolitical tensions, and Chinese credit concerns. According to Lawrence Williams, a Mineweb contributor, Currie has avoided any comment related to the continued strength of Asian physical buying and the decided reversal of ETF redemptions, the two most important gold drivers of 2013.

As a result of the speculation on Chinese commodity trade financing in copper and iron ore unwinding due to capital tightening, UBS published a report on gold-trade financing. In conversations with market participants, UBS has found evidence that gold is also being used for trade finance, albeit to a small degree. This is because gold has proven harder to use for financing as it is more closely monitored by regulators, and its value makes storage arrangements more complicated and costly.

JPMorgan Chase announced the sale of its physical commodities trading unit to the Mercuria Energy Group. The move was announced as Wall Street Banks are moving out of the commodities trading business to avoid tighter scrutiny by regulators who are currently investigating price fixing allegations. Morgan Stanley and Deutsche Bank have announced similar moves in recent weeks. These transactions, however, are shifting the commodities trading business into the even less regulated market of private companies, at a time when the sector has seen consolidation. The end result likely will be a market with fewer players and less transparency – hardly desirable for commodities producers.

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Gold’s Protection Against Counterparty Risk Is Coming Alive

History repeats itself. Although it does not repeat exactly in the same way, it rhymes. Consider this, exactly one year ago, on March 16th, Cyprus reached the newswires globally with the announcement of its bank bail-ins.

One year later, the geopolitical escalation between Ukraine and Russia is front stage. Just moments ago, the long awaited referendum in Crimea resulted in an overwhelming 95% of votes to join Russia, according to Reuters. The Western world, even before the closing of the referendum, has officially stated that it denies the results.

Think about this. Crimea has 2 million inhabitants, a GDP of $4.3 billion, an average monthly salary of $290, a budget deficit $1 billion. Its GDP is 0,02% of the US GDP. Yet, the US government, along with “its friends and allies”, feels the need to intervene in Putin’s backyard. Why?

Motives of the West become much more clear when looking below the surface, in this case literally. It appears that Crimea has a capacity of 7 million tons of oil production per year. Moreover, ExxonMobil and Royal Dutch Shell have closed a deal (although currently on hold) worth $1 billion. As far as Ukraine is concerned, it is a central hub of energy supply to the West, in particular gas.

Now there is nothing new to this. All geopolitical tensions of the last decades were centered around oil, gas or other commodities. Think of Iraq two decades ago, Syria very recently, and a dozens of other examples in between. However, there are important reasons why “this time could really be different.”

Next to the tensions in Russia, there are signs that the Chinese credit bubble, the biggest credit bubble in history, is cracking. Chinese bank assets expressed in US Dollars currently exceed 25 trillion, while US bank assets are close to 14 trillion USD. Chinese credit doubled since 2009. The most concerning news, however, is under the hood. Zerohedge cited Bank of America, when they discovered that one of the large trusts (CITIC) “tried to auction the collateral but failed to do so because the developer has sold the collateral and also mortgaged it to a few other lenders.”

The fundamental issue here is that an economic crisis, which seems developing, could be very different this time. The effect could really be dramatic. The reason why “this time is different” is directly related to the worsening debt crisis, which is inherently linked to the currency wars. The US is playing a key role here. Why? During all previous escalations, the US, with its global dominance, was in a better economic shape than it is today. And so was the rest of the world. Think about these global facts and figures:

  • Global debt in the financial system is at historic highs. It recently surpassed $100 trillion, as reported by Bloomberg based on BIS data.
  • US government debt alone has surged to $12 trillion up from $4.5 trillion at the end of 2007.
  • The interest rates on government debt, especially in the US with a zero interest rate policy, is at 5,000 year lows.
  • Global derivatives have a notional value of around $700 trillion (latest official BIS data from mid 2013), the highest point historically.

What this means in plain simple terms is that the financial system is extremely leveraged, highly sensible to an external shock. All major economies and, hence, the whole world, is inherently vulnerable. Unfortunately, the first signs of cracks are there, as evidenced by several facts in the last two weeks.

First, Friday’s reported data about US Treasuries from foreigners held by the Fed, has shown a drop of $104.5 billion. Zerohedge notes: “This was the biggest drop of Treasurys held by the Fed on record, i.e., foreigners were really busy selling. This brings the total Treasury holdings in custody at the Fed to levels not seen since December 2012, a period during which the Fed alone has monetized well over $1 trillion in US paper.” The following chart says it all.

Treasurys custody foreign accounts 14 March 2014 money currency

Why is this important? US Treasuries are the backbone of the world monetary system, at least as long as the US dollar is the world reserve currency. Think about this: China held $1.269 trillion of US Treasuries and Japan $1.183 trillion at the end of December, while Russia held $138.6 billion. After the US sent out warnings to Russia, China openly chose the side of Russia. Below the surface, however, “someone” sent a very strong signal to the US, and, by doing so, to the world, by withdrawing record amounts of US Treasuries. This is economic warfare at a level not seen to date, because of the current extremes in the monetary system.

Second, in terms of international currencies, Russia is very likely to engage with China more actively in bilateral trade with the ultimate goal to transact in their own currencies, not the US Dollar. It is not unthinkable that they will use gold.

As Ambrose Evans noted this week, the latest financial ructions go beyond Russia, they reek of stress in the international system. “Countries are intervening all over the place to defend their currencies, which means they are tightening. Their central banks built up huge war chests of reserves for a rainy day, and now it is raining,” said the currency chief at HSBC.

One of the biggest concerns for the US in particular would arise when Russia, backed by China, will start trading oil for gold, as we wrote in “Russia Touches U.S. Achilles Heel: Petrogold instead of Petrodollar.” Similar attempts of other countries in the past were not very effective. Think of Iraq or Turkey recently. But with major countries like Russia or China front stage, this has the potential to truly disrupt the US Dollar, and, hence, the world monetary system.

Note that the US Dollar has been a safe haven currency in the last years and even decades. Political tensions and wars have resulted in a flight to the dollar. Not so this time. In fact, since the tensions in Ukraine started a couple of weeks ago, the US Dollar index has turned down.

Now what is the key take-away of all this? We see a confirmation of three fundamental (big picture) trends.

First, central bank control is an illusion. As hard as central banks are trying to achieve some specific goals, think of zero interest rates, inflation or GDP growth, it is ultimately the market that will determine what will happen. Look at the recent evolutions as described above. Even the most powerful countries on this planet cannot control market forces. Their power looks convincing in “normal market circumstances,” but the truth is they are powerless in times of stress in the market.

In that context, we think it is appropriate to quote John Williams, researcher at Shadowstats.com, when he recentlyexplained what would happen if there was a massive dollar dumping globally. “It would be disastrous for our markets. All those excess dollars coming in, with bonds being sold, interest rates would spike. The stock market would sell off and we would see inflation. To prevent that and try and keep things stable, the Fed would tend to buy up those Treasuries. It would intervene wherever it could to stabilize the circumstance.”

Second, paper assets are in a secular decline. It really does not matter that US and some European equities are at trading at all-time highs. They are doomed to fail till the bear cycle is over. Why? Because the inherent weakness of our financial system, with the US Dollar vulnerability at its heart, built on fiat.

The fact that Russia’s stock market is being hit recently seems not to be of the highest importance for Putin. We agree with Zerohedge when they wrote that “for Putin it is orders of magnitude more important to have the price of commodities, primarily crude and gas, high than seeing the illusion of paper wealth, aka stocks, hitting all time highs.”

It really is no coincidence that most countries, including Russia, China, and the likes, have been adding to their gold reserves for several years. This brings up the third long term trend: gold is in a secular uptrend. Yes, the gold price sold off in 2013. No, the price of gold is not the only aspect that matters. What is far more important is the protection one gets from physical gold.

Gold’s protection serves individuals as well as countries. The “Golden Rule” will continue to be relevant to countries: he who holds the gold rules. Quoting Michael Noonan: “The transition of physical gold from West to East is disrupting the elites domination of the entire financial world. The East has been saying “Enough is enough.” In our view, that is reflected in Eastern physical gold accumulation.

To individuals, what matters is that physical gold is immune to counterparty risk. And this, ladies and gentlemen, we believe is the key take-away from the ongoing economic and financial turmoil. All those dollars, Treasuries, stocks, derivatives, e.a., running a risk to become the object of the new economic warfare, in the context of extreme leverage and excess liquidity, has one and only one antidote: unencumbered ownership of physical gold and silver.

 

Precious metals in physical form, outside the banking system, are the antidote against what is happening in the world today. Protect yourself, there is still some time to do it (before it is too late). Here is one excellent way to protect your savings with physical gold and silver outside the banking system.

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Gold Investors Weekly Review

In his weekly market review, Frank Holmes of the USFunds.com nicely summarizes for gold investors this week’s strengths, weaknesses, opportunities and threats in the gold market. Gold closed the week at $1,382.65, up $42.67 per ounce (3.18%). The NYSE Arca Gold Miners Index lost 0.36% on the week. This was the gold investors review of past week.

Gold Market Strengths

Gold rose $43.07 per ounce in the last trading week fear about Chinese macroeconomic data and geopolitical tensions in Ukraine. Furthermore, as shown on the following chart, the 50-day moving average closed less than $10 below the 200-day moving average, which implies that barring a gold collapse below $1,300 next week, we should see gold making a golden cross before the end of the week. Our analysis shows that, going back to 2000, a golden cross in gold is followed on average by a 50% rally lasting on average 15 months.

GOLD golden cross 14 march 2014 investing

Gold ETFs appear to be back in fashion, as total known gold ETF holdings are now 870 thousand ounces higher since bottoming at 55.8 million ounces in mid-February. The ETF data comes as the situation in Ukraine reinforces gold’s safe haven status and the weak macroeconomic data coming from China highlight gold’s hedging properties amid a risk-off investing environment.

Gold Market Weaknesses

The China Gold Association (CGA) said China’s gold demand may decline by 17 percent to 250 tonnes in the first quarter of 2014, from 300 tonnes in the first quarter of 2013. Despite this fact, CGA vice chairman Zhang Yongtao expects annual demand to remain strong at 1,176 tonnes, very close to the actual annual demand for 2013. According to HSBC Research, Mr. Zhang’s forecast indicates that China’s gold demand should be stronger for the rest of 2014 after the first quarter, when compared to the same period in 2013. This may indicate that China’s strong appetite for gold is likely to be sustained well into 2014.

Gold Market Opportunities

A Royal Bank of Canada report shows similarities between the 2005 to 2008 gold price rally and the current gold price environment, which analysts believe could lead to a sustained gold price rally over the next 12 to 24 months. While still early in gold recovering from its lows, Chinese and emerging market gold demand combined with the absence of central bank selling both offset any ETF liquidations. Given the volumes seen in China recently, and the fact the Chinese market is not as price sensitive – thanks to high savings rates – Chinese demand on its own could replicate the 2005-08 ETF-driven gold rally.

Gold Market Threats

The instability in Ukraine, together with the China hard-landing fears, has not changed Goldman Sachs’ bearish view on gold. According to Jeffrey Currie, the bank’s head of commodities research, the weakness in the U.S. and the turmoil in Ukraine are not driving gold. Instead, the lower mining costs mean it is more probable that gold drops below $1,000. Marc Faber on the other hand believes the near tripling of the S&P 500 since the end of the bear market in 2009, together with heavy insider selling, high valuations, and extremely high corporate profits should make any investor consider the possibility that we may be at a top of the U.S. equity cycle.

A wave of weak economic data released by the Chinese government agencies this week helped propel gold higher as U.S. and Europe markets weighed the risk of a deceleration in Chinese economic growth. The weak data points released show the risk of Chinese physical gold and jewelry buyers to defer consumption to a later date. As a matter of fact, Chinese retail sales data showed growth of 11.8 percent, missing analysts’ estimates for a 13.5 percent increase. As a result, gold demand from China may be lower in the short term, or until the festive and marriage season starts later in the year.

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Watch Gold Sentiment For A Confirmation Of Its New Bull Market

This article is based on the latest premium edition of the Sentimentrader report (click here for a free trial). Market sentiment towards gold and silver are analyzed and put into perspective.

In the last gold sentiment update some three weeks ago (read Gold and Silver Sentiment Improving Significantly), we noted that gold just crossed its 200 day moving average for the first time in a year. That happened on an improving sentiment score.

According to Sentimentrader, who analyzes sentiment in almost all markets, it was important to watch gold sentiment cross 70%. “Above-average and rising sentiment is good, as long as it doesn’t get excessive, which would occur on a move closer to 80%. Even in a bull market, that would suggest that at least some nearer-term caution would be warranted.”

Where do we stand today? The latest figures, released this weekend, show that gold’s sentiment is 75% and silver 50%. That’s almost identical as 3 weeks ago, although the price stands significantly higher. It is mainly platinum and palladium that went higher significantly.

metals sentiment 14 March 2014 investing

Zooming in on gold, the sentiment chart shows that gold is approaching “excessive optimism” territory, with a current reading of 75%. That’s on a par with the highest readings of the past few years, close to where it stood several weeks in the fall of 2012.

gold sentiment 14 March 2014 investing

From Sentimentrader:

Over the past 20 years, there have only been four other times that sentiment climbed to 75% while gold was still at least 10% below its previous 52-week high. Those dates were 3/4/97, 10/6/97, 2/2/98 and 4/3/98, all fairly clustered together during the metal’s last bear market.

Each of those times, the rally was close to petering out, leading to negative returns over the next month (at least) each time, averaging -4.6%. Gold wasn’t able to rally more than 2.3% before rolling over any of the four times, and three of the four it rolled over immediately.

As always, when a market shrugs off its typical reaction during a market cycle, then the probability increases that that market cycle has changed…meaning that if gold can hold steady in the coming weeks in spite of high sentiment levels, then the case for a new bull market will be bolstered even further.

Indeed, it is key to watch how gold sentiment will behave with the changes in the gold price in the coming weeks. If the price goes higher and gold sentiment remains close to its current readings, it would indicate to internal strength. If the sentiment readings go significantly higher, then a pullback in price is very likely.

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A Golden Rocket – Best of the Breed

Gold and gold stocks have be stabilizing for months and have been quietly rising. Many gold stocks are up 30% even 50% in the past three months. The $HUI AMEX Gold Bugs Index is up over 30% from the lows.

If you think you have missed most of the move already you are wrong. The truth is most of the biggest rallies in stocks take place after a basing pattern with 30 -50% or more has formed. This is signaling massive accumulation in gold stocks and its happening right now by the institutions.

So in this exclusive report I want to share one golden rocket stock pick which I feel has huge upside potential “IF” the precious metals market and miners can breakout of this stage 1 pattern it has formed.

One thing that excites me is about precious metals and gold stocks is the fact that we have heard nothing about gold, silver or mining stocks in the media for months… almost like the big institutions have told the media to avoid putting the spot light on it until they accumulate all they can in terms of physical bullion and stock shares.

This is the same for a few other sectors I have been watching build massive stage 1 bases in over the past few months and will be investing and actively trading them also once they break out of the basing stage.

Gold Stock Trading & Investing Success Formula

1. KISS – Keep It Simple Stupid! – Non one likes or follows complicated trading strategies

2. Understand and know how to identify the four market stages – Read My Book: Click Here

3. Know why and how stages must be traded for timing your entry, profit taking and exits.

4. Scan the market for the top performing sectors and focus on stocks/ETFs within those sectors.

5. Review all stocks and funds to meet setup criteria and trade only the best looking charts primed to start a new bull market (low overhead resistance nearby, strong relative strength, strong volume on breakout, 30 week SMA moving up etc..) Get this done for you: Click Here

6. Sit back, watch and monitor position for possible change in the stage, to adjust stops and identify profit taking levels.

Golden Rock Stock Pick

The chart below is top quality gold stock which has all the characteristics of a big winner. Just to be clear, I normally do not mention individual stocks within public reports. I am not compensated in any way to post this report. This is nothing more than my technical outlook on a stock and not investment advice. I do plan on buying some shares of this company this week or next.

ANV-Gold-Forecast-Rocket

Gold Forecast – Gold Stock Picks

Golden Rocket Conclusion:

While it still my be a little early for precious metals to bottom, it looks as though the stage (pardon the pun) has been set for a precious metals bull market to start. As they say, there is always a bull market somewhere… the key is finding it and taking the proper action.

If you want simple, hassle free trading and investing join my newsletter today.

Chris Vermeulen – www.TheGoldAndOilGuy.com

Sincerely,

Chris Vermeulen
Founder of Technical Traders Ltd. – Partnership Program

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Gold Is Seasonal: When Is the Best Month to Buy?

Gold Is Seasonal: When Is the Best Month to Buy?

By Jeff Clark, Senior Precious Metals Analyst

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.

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Palladium Near Its Highest Level in Almost a Year

We observed earlier this week that Platinum and Palladium Have Broken Out from a year old trading range. Interestingly, the breakout has gone rather unnoticed. Sporadically, we have seen commentaries about the breakout. From an investing point of view, we consider this as very positive, as momentum buyers are not entering the market (yet).

One of the few commentaries this week came from Frank Holmes, who detected two global events affecting the palladium and platinum market. He believes that “the situation in Ukraine and Russia along with six-week-long strikes in South Africa began raising concerns that these palladium-rich countries may not be able to continue supplying the commodity at normal levels. Currently South Africa supplies around 37 percent of the world’s palladium; Russia supplies close to 40 percent of the world’s palladium.”

Palladium Breaking Out 10 March 2014 price

From USFunds.com:

You can see the effect the political landscape is having on palladium. Over the past year, the metal has mainly traded sideways, but this week hit its highest level in almost a year. The precious metal reached $775 per ounce while its sister, platinum, climbed to nearly $1,500 an ounce.

In January, I indicated that platinum and palladium looked extremely compelling. There were supply and demand drivers I felt would drive the metals higher.

Just this week, the U.S. Mint is “ending a four-year exit from the market” by selling one-ounce American Eagle platinum bullion coins, writes Frank Tang from Reuters. According to a wholesaler this week, initial demand is strong, as 1,000 coins have already been scooped up.

Like I discussed with Resource Investing News at the Vancouver Resource Investment Conference, industrial demand has been gaining strength. Take rising automobile sales in the U.S. that I talked about a few months ago. With interest rates on car loans so low, Americans have been replacing their clunkers with more fuel efficient cars, which is positive for platinum and palladium.

It’s a similar story in emerging markets. In Africa, the GDP without a leveraged economy is still growing at 5 percent, and you definitely need platinum and palladium for their vehicles, even if they are diesel.

In China, vehicle sales last year rose faster than expected, climbing nearly 14 percent compared to a year earlier, according to the China Association of Automobile Manufacturers. The country is already the biggest automobile market in the world and millions of new cars on the roads add up fast.

Furthemore, we have found an extremely interesting chart on Marketwatch. In Palladium Is The Metal To Own, the author compares the price evolution of the four precious metals. One common perception is that all precious metals move simultaneously. That is not true, as palladium and platinum have dynamics which differ from the ones of gold and silver, although that is not always reflected in the price evolution.

gold silver palladium platinum 2013 2014 price The chart shows how gold and silver were smashed down in the last 12 months while palladium has held up very well. Palladium looks extremely compelling.

The above chart also reveals that palladium’s fundamentals and its price are nicely aligning.

As a general rule of thumb, we all know that fundamentals are not always reflected in the charts. It mostly takes some time until the price follows fundamentals. For palladium in particular, there is a very high probability that its chart starts reflecting the strong supply/demand fundamentals. It this trend continues, then we are in for very interesting times, at least for investors who had the courage to get in at this price point.

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What 10-Baggers (and 100-Baggers) Look Like

What 10-Baggers (and 100-Baggers) Look Like

By Jeff Clark, Senior Precious Metals Analyst

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
Company Price on
12/29/1978
Sept. 1980
Peak
Return
Campbell Lake Mines $28.25 $94.75 235.4%
Dome Mines $78.25 $154.00 96.8%
Hecla Mining $5.12 $53.00 935.2%
Homestake Mining $30.00 $107.50 258.3%
Newmont Mining $21.50 $60.62 182.0%
Dickinson Mines $6.88 $27.50 299.7%
Sigma Mines $36.00 $57.00 58.3%
Giant Yellowknife Mines $11.13 $39.00 250.4%
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
Company Price on
12/29/1978
Price
Peak
Date
of Peak
Return
Carolin Mines $3.10 $57.00 Oct. 80 1,738.7%
Mosquito Creek Gold $0.70 $7.50 Oct. 80 971.4%
Northair Mines $3.00 $10.00 Oct. 80 233.3%
Silver Standard $0.58 $2.51 Mar. 80 332.8%
Lincoln Resources $0.78 $20.00 Oct. 80 2,464.1%
Lornex $15.00 $85.00 Oct. 80 466.7%
Imperial Metals $0.36 $1.95 Mar. 80 441.7%
Anglo-Bomarc Mines $1.80 $6.85 Oct. 80 280.6%
Avino Mines 0.33 5.5 Dec. 80 1,566.7%
Copper Lake $0.08 $10.50 Sep. 80 13,025.0%
David Minerals $1.15 $21.00 Oct. 80 1,726.1%
Eagle River Mines $0.19 $6.80 Dec. 80 3,478.9%
Meston Lake Resources $0.80 $10.50 Oct. 80 1,212.5%
Silverado Mines $0.26 $10.63 Oct. 80 3,988.5%
Wharf Resources $0.33 $9.50 Nov. 80 2,778.8%
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
Company 1981
Price
Price
Peak
Date
of High
Return
Agnico-Eagle $9.50 $21.00 Aug. 83 121.1%
Sigma $14.13 $24.50 Jan. 83 73.4%
Campbell Red Lake $16.63 $41.25 May 83 148.0%
Sullivan $3.85 $6.00 Mar. 84 55.8%
Teck Corp Class B $17.00 $21.88 Jun. 81 28.7%
Noranda $33.75 $36.38 Jun. 81 7.8%
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
Company 1981
Price
Price
Peak
Date
of High
Return
Corona Resources $1.10 $61.00 May 83 5,445.5%
Golden Sceptre $0.40 $31.00 May 83 7,650.0%
Goliath Gold $0.45 $32.00 Mar 83 7,011.1%
Bel-Air Resources $0.81 $1.60 Jan. 83 97.5%
Interlake Development $2.10 $6.40 Mar. 83 204.8%
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
Company Pre-Bull
Market Price
Price
Peak
Date
of High
Return
Kinross Gold $5.00 $14.62 Feb. 96 192.4%
American Barrick $28.13 $44.25 Feb. 96 57.3%
Placer Dome $26.50 $41.37 Feb. 96 56.1%
Newmont $47.26 $82.46 Feb. 96 74.5%
Manhattan $1.50 $13.00 Nov. 96 766.7%
Cambior $10.00 $22.35 Jun. 96 123.5%
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
Company Pre-Bull
Market Price
Price
Peak
Date
of High
Return
Cartaway $0.10 $26.14 May 96 26,040.0%
Golden Star $6.00 $27.50 Oct. 96 358.3%
Samex Mining $1.00 $7.20 May 96 620.0%
Pacific Amber $0.21 $9.40 Aug. 96 4,376.2%
Conquistador $0.50 $9.87 Mar. 96 1,874.0%
Corriente $1.00 $19.50 Mar. 97 1,850.0%
Valerie Gold $1.50 $28.90 May 96 1,826.7%
Arequipa $0.60 $34.75 May 96 5,691.7%
Bema Gold $2.00 $12.75 Aug. 96 537.5%
Farallon $0.80 $20.25 May 96 2,431.3%
Arizona Star $0.50 $15.95 Aug. 96 3,090.0%
Cream Minerals $0.30 $9.45 May 96 3,050.0%
Francisco Gold $1.00 $34.50 Mar. 97 3,350.0%
Mansfield $0.70 $10.50 Aug. 96 1,400.0%
Oliver Gold $0.40 $6.80 Oct. 96 1,600.0%
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
Company 1929
Price
1933
Price
Total
Gain
Homestake Mining $65 $373 474%
Dome Mines $6 $39.50 558%

 

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.

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Why Increased Western Gold Demand Could Lead To A Gold Supply Shortage

Gold’s big news story of 2013 was undoubtedly the price drop, followed by the huge gold ETF outflows.

It seems that the tide is turning now, both for the gold price and the ETF gold holdings. There is a good reason to believe that the new appetite for gold ETF’s is fundamentally much more important than a rising gold price. This article makes the case for that.

After the steep gold price drop in April 2013, we discussed the mass exodus of gold holdings in the GLD ETF (see this article):

  • GLD holdings in the first week of January 2013: 43,149,400.96 ounces [1342,96 tonnes]
  • GLD holdings today: 33,386,040.80 ounces [1038,42 tonnes]

In addition, we wrote in the same article: “The difference of 10 million ounces of physical gold represents 302 tonnes. To put that figure into perspective, it is 30 times larger than the gold holdings of Cyprus; it would be the 18th largest gold holding in the world, comparable with the ones of Saudi Arabia and the UK.”

Fast forward to 2014, where do we stand with the gold holdings in the GLD ETF? According to this Mineweb article, the GLD ETF gold holdings were 793.16 tonnes on Jan 31st 2014  and they increased to 803.7 tonnes on Feb 27th 2014.  The author adds to it: “Between the beginning of January 2013 and the beginning of February 2014, this single ETF had shed a massive 557 tonnes of gold as investors deserted it in droves, supposedly in favour of the seemingly ever rising general equity markets.”

The blue line on the following chart represents the GLD gold holdings (chart courtesy Sharelynx, the most comprehensive gold chart center on the internet).

GLD gold holdings march 2014 physical market

Why is the break of this downtrend so important? The key lies in this question we asked in the same article we wrote a year ago:

The point is not the sale of the gold … The key question is who has been buying these gigantic amounts of physical gold? The gold is not being consumed, so it is in some hands right now. Which ones? We asked the question a couple of weeks ago, but it seems no clear answer exists at this point.

We have the answer to that question meantime.

The mainstream media has focused wrongly on the gold outflows. That made up for interesting headlines, but it was not the most relevant part of the story. The most crucial point was related to the buying. It is clear, meantime, that the physical gold has been flowing to Asia (primarily China) through Switzerland (where refiners have been working overtime since May 2013, melting down the large wholesale bars into smaller pieces for smaller investors and retailers in China).

All this implies that the gold that exited the ETF’s is in strong hands now. It is as sure as a fact that those gold owners will keep their metal in the years to come.

From where will the gold ETF source their gold once the ETF demand turns higher again? It is clear that a supply shortage is a very likely outcome of renewed interest in gold ETF’s. We know that newly mined gold is very limited compared to the existing above the ground gold, so it cannot meet Chinese and Western demand. In fact, above the ground gold IS the supply. So what happens if the appetite for gold in Asia remains strong, if those existing gold owners do not supply their gold to the market, and Western demand increases again? A likely outcome is that a supply shortage develops on top of an increasing demand, reinforcing the uptrend.

Do you hold your gold?

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