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What's Ahead For Gold-Mining Stocks? (FCX, ABX, NEM, GFI, PCU)

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mancovaldez

The Case for Precious Metals Is Only Getting Stronger

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(09/21/09 23:06:07)

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The Case for Precious Metals Is Only Getting Stronger

by: Hyperinflation September 21, 2009 | about: ABX / AEM / AUY / AZK / CDE / COSWF.PK / DBS / DGL / FNNVF.PK / FRMSF.PK / FXA / GG / GLD / GOLD / JAG / KGILF.PK / LIHR / NEM / PGH / RGLD / SLV / SLW / SSRI / SU / TLM / UDN

Whoever thinks we are out of the woods is in for a rude awakening. We are merely in the eye of the storm. I won't even get into the catastrophe that will be commercial real estate, rather the next likely current bailout experiment which is the FHA or perhaps the next round of banking crisis (see below). The following facts would be actually quite entertaining if the bailout money wasn't coming directly out of the taxpayers' pockets --> the printing press (more inflation).

The FHA now controls over a trillion in existing / recently originated mortgages.

They are requiring a 3% (which almost 0% when tax credits are included) down payment for new home loans. That being said, there will be a flurry of new eager individuals wishing to own a home.

NOW FOR THE KICKER..... FHA has a mere $35 BILLION!, yes only $35 BILLION! in loan loss reserves before they go broke as well (reminiscent of Amtrak, The Postal Service, etc). This all comes in the face of ARMs about to reset in the coming year and 2011, unemployment headed towards double digits... Get the point? Did I mention they own over a trillion dollars of mortgages, a number that is climbing by the second?

This calamity will result in hundreds of billions of mortgage defaults... and do you think the government will just let them roll over and die? Past precedent tells me NO, but that is just my gut speaking.

It is not enough that they only have a mere $35 billion to cover future defaults, but rather that they continue to originate loans at a torrid pace. Easy money and reckless lending got us into the mess in the first place. Maybe I'm just the crazy one but this seems to me that this can only exacerbate the current situation. Now let's incorporate our trading partners' public remarks (imagine what is being said behind closed doors) of 2009. In other words, our foreign money spigots are being taken away - which can only include debt monetization (whether publicly announced or through a phantom agency the Fed will or has been using to purchases debt securities).

Recent headlines of the new Japanese regime send a strong signal they will no longer subsidize the U.S economy via purchasing our debt (which only has weakened the Yen as they borrow money from their own citizens to prop up the illusory economy we have seen in the U.S over the decade). Let's not forget the China-Brazil agreement which more or less says trade among these two respective countries will be done using Remimbi /Yuan and Real.

It is also worth noting the actions taken by the Chinese this year apart from the aforementioned China-Brazil news. Though China has continued to purchase U.S debt (though at a much slower pace), they have been swapping longer term maturities i.e. 10, 30- year for much shorter term i.e. 1, 5-year. This speaks for itself! They have caught on to our devious strategy of paying them back with incredibly depreciated dollars, but have slowly and intelligently moved into debt that will mature in a much more timely manner negating to some extent the debasement of the currency they will be re-repatriated in. It is also quite interesting that the Chinese government has recently been promoting their citizens to purchase much safer stores of value i.e. the precious metals. This most likely has to do with the fact that they will wait for the U.S to begin raising the FED Funds rate (Yes pigs do have wings) before they increase their prime rate. This paragraph is laying the foundation for China's eventual exit strategy (yes, it is China which has an exit strategy, not the U.S).

My take on the situation: Now is not the time to be complacent unless you are comfortable with watching the purchasing power of your savings disappear before your eyes. By this, I am referring to that held in both government or any other U.S debt and the US Dollar. I have gone from hearing "we are in a deflationary spiral" one year ago to forecasts from individuals from every school of economic thought expecting a long term downtrend in the dollar. These statements (deflation and a falling dollar) are contradictory as deflation would manifest itself in a strengthening dollar (which we have obviously not seen as the U.S dollar index has gone from a 2009 high of about 89 to the current level of 76 or YTD decline of over 14.5%). Facing reality is often a tough thing to do but how many people expect no more banking crisis? I gather the Fed very much expects these illustrated from the 700+ Billion in excess reserves lying dormant in the system. Now I think at least 75%+ of that will be used to cover future loan losses but these are very inter-related as the inability to cover off the loan losses will cause the next round of bank failures or more eloquently referred to as BAILOUTS.

Not to sound redundant, but the brief list is my best strategy to protect your wealth from the inflation tsunami about to hit.

Physical bullion - both Silver and Gold - Those closer to retirement would likely prefer all or a significant percent weighting in this asset class to Gold due to the less violent day-day volatility. Though silver will likely outperform due to the substantial industrial aspect as well as its monetary value, Gold should be a part of every individual's holdings. Like Marc Faber recently said "You have to be your own central bank". These can also be owned electronically via the SPDR'S Gold ETF (GLD) and the silver counterpart (SLV). For those who are skeptical of mining equities, leverage can be found in the double gold ETF (DGL) and double Silver ETF (DBS).

The Precious Metal Royalty Companies: Franco- Nevada (FNNVF.PK), Royal Gold (RGLD), and Silver Wheaton (SLW). These provide leverage with reduced mining risk as they put forward an initial capital outlay to a precious metal miner in exchange for a pre-determined percentage of that which is mines for a specific amount of time.

Gold and Silver Mining equities, which can be broken down as follows: The largest gold producers - Barrick Gold (ABX), Newmont Mining (NEM), Goldcorp (GG), and a few others. The next group consists of the emerging seniors - Yamana Gold (AUY), Agnico- Eagle Mines (AEM), Lihir Gold (LIHR), RandGold (GOLD) among others. This group provides the most leverage to the underlying metals relative to those mentioned thus-far but also carry some additional risk. The next group (emerging mid-tier/ juniors) is in my opinion are the most lucrative assuming you put forth your own due diligence i.e assessing the qualitative and quantitative aspects of the company. That being said I prefer such miners as Jaguar (JAG), Aurizon (AZK), Kirkland Lake (KGILF.PK) and many others.

In my humble opinion I feel it will be the often relatively overlooked SILVER miners who end up outperforming in this industry. My favorites are Coeur d'Alene Mines (CDE), Silver Standard Resources (SSRI), First Majestic Silver (FRMSF.PK) and a host of others.

Some other ways to play this are of course the oil complex and my favorite (next to mining), Agriculture. I particularly like the Canadian Oil Trusts and Canadian Oil Sands. The Following is a brief list of some of favorite ways to plays this (though not my top picks): PennGrowth (PGH) , Canadian Oil Sands Unit Trusts (COSWF.PK), Suncor (SU), Talisman (TLM) and New Zealand Oil and Gas (NZO.AX). I think my ramblings have dragged on a bit too long but my favorite agriculture plays are wheat and corn (I have yet to put in the necessary time to explore the supply-demand fundamentals of other potentially profitable investments in the complex).

Other ways to play a falling dollar Australian Currency Shares (FXA), Canadian Currency Shares (CAD), Ultra-Bearish USD (UDN).

Disclosure: Long: (AUY), (AEM) 2011' Calls, (KGILF.PK), (JAG), (CDE), (SLW) (SSRI) Calls, (FRMMSF.PK), (FNNVF.PK), (PGH), (COSWF.PK), (SU), (TLM) Calls, Wheat Futures, Mini-Silver Futures

Last Edited By: mancovaldez 10/12/09 22:43:02. Edited 1 times.

MickyScars

USAA’s Johnson Sees Gold Mining Stocks Outshining the Metal

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(09/23/09 02:32:14)

USAA's Johnson Sees Gold Mining Stocks Outshining the Metal

By Charles Stein

http://www.bloomberg.com/apps/news?pid=email_en&sid=asv5MmNQx9Ds

Sept. 22 (Bloomberg) -- Mark Johnson, whose precious-metals mutual fund topped all rivals over the past decade, is betting gold-company stocks will rise faster than bullion as miners' profit margins widen.

"For every 1 percent move in gold, the stocks should gain 2 to 3 percent," Johnson, 59, said in a telephone interview from San Antonio, where his USAA Precious Metals and Minerals Fund is based. As gold prices climb, production costs advance more slowly to yield bigger profits, he said.

The $1.2 billion fund has about 80 percent of its assets in mining stocks, which it picks based on balance sheets, ability to expand production, political risks and valuation. Johnson, who travels to mines to find details that can't be found in financial reports, such as whether workers are idle, says gold will rise as the dollar falls and inflation accelerates.

Johnson's fund, up 51 percent this year through Sept. 18, averaged 23 percent returns in the 10 years ended Aug. 31, first in its category and second among all U.S. mutual funds behind ING Russia, data from Chicago-based research firm Morningstar Inc. show.

Gold for delivery in December rose to an intraday high of $1,025.80 on Sept. 17, the most since March 2008, and investors are betting the price may rise further. Futures for delivery in December 2013 traded at $1,109.20 yesterday on the Comex division of the New York Mercantile Exchange. Analysts are less bullish, forecasting a drop to $750 by 2013, according to the median of seven estimates compiled by Bloomberg.

Drop Seen

"The economic fundamentals don't support what we have been seeing," Miguel Perez-Santalla, sales vice president at Heraeus Precious Metals Management in New York, said in a telephone interview. The dollar may "firm up" and gold may drop in the coming months because inflation fears are overblown, he said.

So far, Johnson's strategy has paid off. The USAA fund's total return over the past decade was more than four times that of the gold and silver index, according to data compiled by Bloomberg. The Philadelphia Stock Exchange Gold and Silver Index of 16 mining companies surged 34 percent this year, compared with a 14 percent increase for the metal.

"For investors who insist on having exposure to precious- metals stocks, this fund is a great option," Jonathan Rahbar, a Morningstar fund analyst, wrote in a July note on the company's Web site. He attributed the fund's gain over the metal to savvy stock-picking.

USAA Precious Metals, which was started in 1984, raised its stake last year in Centerra Gold Inc., a Toronto company with a mining project in the Kyrgyz Republic, the Central Asian country Johnson called politically risky.

Politically Risky

Centerra soared 62 percent this year. The company, which represented 1.1 percent of the fund as of May 31, reached a settlement with the Kyrgyz government in April over legal disputes threatening the project.

Agnico-Eagle Mines Ltd., the fund's largest holding at 5.1 percent of the portfolio as of Sept. 10, will benefit from a "very steep growth profile," Johnson said.

The company's gold output may grow to 1.2 million ounces in 2010 from an estimated 550,000 to 575,000 this year, Sean Boyd, chief executive officer of Toronto-based Agnico-Eagle, said in an August interview.

USAA Precious Metals holds AngloGold Ashanti Ltd., Africa's largest gold producer, on the belief that Chief Executive Officer Mark Cutifani can "turn around a troubled operation," Johnson said. AngloGold shares gained 52 percent in 2009. The company represents 5.1 percent of Johnson's fund.

'Opposite of Dollar'

Paulson & Co., the hedge-fund firm run by billionaire John Paulson, bought 40 million AngloGold shares in the second quarter, Bloomberg data show, making him the company's largest shareholder.

Johnson declined to offer a specific forecast for gold, saying only the metal would climb as the dollar weakened. The Dollar Index, a six-currency gauge of the greenback's value, fell 5.6 percent this year.

"Gold is the opposite of the dollar," Johnson said. "It is the ultimate hard currency."

Platinum, the metal used in automobile emissions-control parts, climbed 40 percent this year and may outperform gold over the next few years because of a recovering global economy and the tightening of pollution standards by more countries, Johnson said. Platinum stocks make up about 8 percent of the USAA fund.

Johnson, who has worked on the fund since 1994, holds a bachelor's degree and master's in business administration from the University of Michigan in Ann Arbor. Dan Denbow, 42, became co-portfolio manager of the fund last year. USAA Investment Management oversees more than $70 billion.

mancovaldez

Gold ETFs see large inflows

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(10/04/09 20:28:07)

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Gold ETFs see large inflows

Story by: Oliver Shah
Magazine: InvestmentAdviser
Published Monday , October 05, 2009

ETF Securities has seen more than £500m of net inflows into its physically gold-backed exchange traded funds (ETFs) in the past six weeks as investors have sought out an inflation hedge.

The firm attributed fears over the effects of quantitative easing on major currencies and medium-term inflation risks to flows of $1.1bn (£691m) into exchange traded commodities (ETCs) tracking the precious metal, which helped push group assets under management up to more than £9.4bn.

ETF Securities now holds 8.4m ounces of gold. The company also saw physically backed palladium and platinum ETC holdings rise in tandem over the period.

Last week, an ETF Securities spokesperson said: "Flows into the gold ETCs have shown low sensitivity to downward movements in the gold price, highlighting that the largest buyers of gold ETCs are institutional investors buying the metal as a long-term hedge against inflation, US dollar depreciation and other risks, rather than as short-term trading instruments.

"The signal ETC holdings are sending is that most large investors believe these risks may continue to rise."

The popularity of ETCs has not been confined to precious metals, ETF Securities added.

Natural gas ETCs have seen more than $1bn in inflows this year, pushing up assets under management in natural gas trackers to $1.3bn, while agriculture ETCs have seen total assets rise by 134 per cent to $1.4bn.

"Expected supportive long-term price fundamentals and potential near-term supply disruptions from a possible El Niño weather event later this year also appear to be playing a role in driving investor flows," the spokesperson said.

mancovaldez

Grab This Gold Bull by the Horns

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(10/06/09 23:48:34)

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Grab This Gold Bull by the Horns

By Christopher Barker
October 6, 2009

You may wish to mark today's date on your calendar. When you look back on the tragic deterioration of the U.S. dollar and its role as a global reserve currency, this will stand out as a pivotal moment.

Gold exploded through an 18-month corrective trading range Tuesday, officially terminating an epic test of wills for seasoned precious-metal investors. They stood by their analyses of the fundamental landscape for the dollar, even as pundits clamored to declare an end to this nine-year bull market for gold and silver. Surpassing $1,040 per ounce, gold replaced the previous highest price of $1,033 set back in March 2008.

Shares of the popular SPDR Gold Shares (NYSE: GLD) exchange-traded fund reached a fresh 52-week high in early trading. Agnico-Eagle Mines (NYSE: AEM), meanwhile, remains $13 below its March 2008 highs above $83 per share, and I recently pointed out the sizeable disconnect between the price of Yamana Gold (NYSE: AUY) shares and their respective historical prices.

I understand that many investors have approached gold and silver with extreme caution, and that some have awaited confirmation of the bullish trend with a breakout like the one now under way. As I have done since 2006, I encourage Fools to grab this gold and silver bull by the horns. But do so methodically, selectively, and with the expectation of increasing volatility as the bull market progresses.

At this watershed moment in the precious metals bull market, I recommend that Fools continue to focus on the fundamental macroeconomic drivers behind this technical breakout. I documented a series of meaningful developments in Asia that helped to propel the early stages of this surge last month, and now I turn your attention to the Middle East.

The Independent reports secret meetings between key Gulf Arab states and China, Russia, Japan, and France about ceasing the trade of oil in U.S. dollars in favor of a multicurrency basket. If true, that would be a major development in the deterioration of the greenback's strength and viability as a means of trade. However, a top official from the Organization of Petroleum Exporting Countries denied this revelation, calling it "just speculations" and saying that OPEC is "not in any sort of discussion over pricing of oil." True or not, we still remain in the mother of all currency crises.

My readers know that I anticipate a gold price of at least $2,000 before this bull stops bucking, and the dollar's unfortunate outlook continues to support this position. Beyond those noted above, I continue to highlight equities like Goldcorp (NYSE: GG) and Royal Gold (Nasdaq: RGLD) as solid long-term prospects. Within the silver realm, where I maintain the slingshot effect will yield still-greater price appreciation, Silver Wheaton (NYSE: SLW) and Coeur d'Alene Mines (NYSE: CDE) are noteworthy contenders.

Whichever vehicle you ultimately choose, know that this bull will not be a smooth ride, and try not to get bucked off by corrections along the way.

mancovaldez

Why Gold Didn't Go Down Under

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(10/07/09 23:39:35)

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Why Gold Didn't Go Down Under

By STEVEN M. SEARS

The yellow metal entered a new price range following Australia's rate hike.

AUSTRALIA IS MOSTLY known for koala bears, kangaroos and Foster's beer. The central bank in Sydney rarely figures prominently as a major actor in global financial markets.

Yet, the Reserve Bank of Australia's surprise decision to raise interest rates Tuesday set off a global surge in gold prices and provided new evidence that emerging economies will likely recover from the global credit crisis before developed nations such as the U.S. Australia increased rates 25 basis points to 3.25%, while U.S. rates remain between zero and a quarter percent.

Australia's decision created massive trading in gold options, futures, and stocks as a hedge against U.S. inflationary pressures and weakening U.S. dollar. Similar trading occurred in European and English markets where investors also fear a hangover from coordinated central bank efforts to stabilize the global economy after the credit crisis.

Indeed, Australia's rate hike, coupled with ongoing fears of Israel bombing Iran, may prove to be a milestone in how gold trades in the options market and elsewhere. By all accounts, gold has entered a new trading range that portends higher prices.

"No one knows how far gold prices will increase," a top options market maker said. "Remember what happened to oil last year? It kept powering higher and stocks surged as short sellers were taken out."

In the past, many traders reflexively sold short-term call options or used other trading tactics to profit from gold's inevitable loss of momentum every time it surged higher. Panic peak prices are typically followed by price declines because everyone has spent all of their money chasing gold higher, and they have nothing left to spend. But buyers remain active for gold and related companies even as the price of SPDR Gold Shares (GLD), the primary proxy for gold, was recently unchanged at about $102.

Upside call buying also is active in Newmont Mining (NEM), Barrick Gold (ABX), Yamana Gold (AUY), Gold Fields (GFI) and Harmony Gold Mining (HMY).

Real-world economic concerns, rather than trading tactics, seem to be increasingly weighing upon traders who want to own gold -- not trade it -- so that they can protect themselves against the inflationary effects of the U.S. Federal Reserve printing money to end the credit crisis.

Some options traders say there is now ever-present demand to buy gold as a hedge against macroeconomic and geopolitical concerns. In the past, options were primarily used to take advantage of gold's price swings, rather than as a tool to cost-effectively buy gold.

The persistent demand for gold is firmly reflected in the prices of options on SPDR Gold Shares.

The implied volatility of GLD's call options, which increase in value if GLD's price rises, are incredibly expensive. This reflects demand for bullish calls, and also shows the reluctance of market makers who are forced to sell calls into a powerful rally to maintain an orderly market. In normal markets, the price of out-of-the-money puts tends to exceed call prices. Why? Because investors tend to be more afraid of losing money, rather than missing an opportunity to make money.

That Australia figures so persuasively in this ongoing conversation about how the world recovers from the credit crisis will surprise many people. Australia, however, is a backdoor play on fast-growing Asian markets. Australia is rich in the commodities that Asia needs to propel its growth.

As economic expansion in major countries is expected to be modest due to the legacy of the credit crisis, Glenn Stevens, governor of Australia's central bank, said prospects for his nation's Asian trading partners appear noticeably better.

"Growth in China," Stevens said in a statement announcing the bank's rate hike, "has been very strong, which is having a significant impact on other economies in the region and on commodity markets."

For now, everything that is wrong with the world is reflected in the price of gold. As it seems those problems are not likely to subside anytime soon, traders say it is unlikely gold prices will significantly decline in the near future.

mancovaldez

5 Mid-Tier Miners With the Midas Touch

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(10/08/09 22:53:28)

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5 Mid-Tier Miners With the Midas Touch

By Christopher Barker
October 8, 2009

Time provides the ultimate test of any investment strategy. When that strategy is long-term, the wait can seem endless.

No matter when you boarded the precious-metals train, or even if you're still waiting at the station, Fools participating in the nine-year-old bull market for precious metals will require a steady hand and an iron constitution. If you're just getting started now, you will find supportive fellow investors at Motley Fool CAPS -- like blogger binve -- who are happy to share their experiences.

Size matters
As I constructed my own approach to the sector years ago, I became convinced that the largest-scale miners could find it challenging to replace or sustain their production volumes in a world with diminishing new discoveries. Although I have consistently recognized Newmont Gold (NYSE: NEM) as a high-quality titan of the gold mining scene, my CAPS pitch from January 2008 conveys my preference for the mid-tier space:

I have owned Newmont and several other large-scale miners for a few years now, and they've done extremely well. […] I foresee the mid-tier miners outperforming the big guys for the next couple of years. […] I own a basket of mid-tier and juniors, many of which will be purchased by the Newmonts of the world. If I end up owning more Newmont next year because they purchase IamGold (IAG) or Gammon Gold, then so be it.

As it turned out, the latter half of 2008 saw the entire business world crippled by frozen credit and paralyzed by panic, and the precious-metals sector plagued by a monster correction. The timeline for an inevitable consolidation trend was delayed, until Newmont sprang to life with a huge deal for the Boddington mine in Australia.

While recognizing the greater upside potential of smaller operators relative to their large-scale kin, it is necessary to consider the relative risks as well. The universe of junior miners, a classification that also includes exploration-stage companies, is vast and varied in quality. This Fool finds the greatest compromise between potential risk and reward within the universe of mid-tier miners.

Standing out … in the middle of the road
Although I focus much of my attention upon quintessential intermediate producers like Yamana Gold (NYSE: AUY), several quality gold and silver miners populate this mid-tier space. Prompted in part by a rush of recent developments that merit analysis, I bring the following five miners to your Foolish attention:

Eldorado Gold (AMEX: EGO) is one of the longer-running holdings in my own precious-metals basket. The company's recent move to acquire Australia's Sino Gold leaves Eldorado the premier choice for Western investors seeking exposure to Chinese gold production.

Gammon Gold (NYSE: GRS) is another longtime favorite that is gaining momentum, now that an expansion of the flagship Ocampo mine has achieved commercial production. The company raised $100 million this week in bought-deal financing, and reiterated improved, low-cost production targets. Creating value with the drill, Gammon also encountered a bonanza-grade strike of 318 grams-per-tonne gold within the Ocampo area.

IAMGOLD (NYSE: IAG) has remained in an impressive growth spurt since it merged with Cambior in 2006, and the company's bold move to cancel royalty claims during the worst phase of the correction made IAMGOLD a lean, mean cost-cutting machine. IAMGOLD is targeting robust production growth from nearly 1 million ounces to 1.8 million ounces by 2012, and watching for accretive acquisitions.

Coeur d'Alene Mines (NYSE: CDE) is the turnaround story of 2009. After gazing into the abyss of potential failure, Coeur shares have multiplied more than six times from their split-adjusted low of $3.60 recorded last November. With the Kensington gold mine back on track, and on the heels of two world-class silver mine launches, Coeur is now looking to expand ore-processing activity at its Rochester mine in Nevada for an additional 2.9 million ounces of annual silver production.

Taseko Mines (AMEX: TGB) is a primary copper producer with a relatively puny market capitalization, so perhaps it doesn't technically belong on this list. Although Taseko just revealed a hiccup in ore concentrations during the third quarter, the company mines enough low-cost copper at Gibraltar to ensure a stable and reliable revenue stream. I consider Taseko one of the greater values in the mining space, and I believe that the market continues to price shares as though the Prosperity property -- with its 4.7 million ounces of gold reserves and 2 billion pounds of copper -- does not exist.

With gold yet again reaching new heights above $1,050 per ounce, and venerable voices such as Jim Rogers urging caution (despite forecasting much higher long-term prices), I am not advocating an abrupt move into new positions at these levels. On the other hand, I consider it more important to have some exposure to the sector than to get the timing perfectly right. Whatever Fools decide, I hope the above discussion helps to inform due diligence.

mancovaldez

Bullish Sentiment Continues for Gold and Silver Stocks

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(10/08/09 23:00:39)

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Bullish Sentiment Continues for Gold and Silver Stocks

by: Jordan Roy-Byrne October 08, 2009 | about: AEM / AU / AUY / CDE / EGO / GDX / GG / HL / KGC / NEM / PAAS / RGLD / SLV / SLW

In analyzing the sentiment towards gold stocks, I am going to start with a tactic from Bernie Schaeffer of Schaeffer's Research. I believe he espouses the idea of looking at the consensus view of analysts. If most analysts are bullish on a stock or sector, then where is the money going to come from to push shares higher? Conversely, if a sector is rising but the analysts are not bullish, they can change their mind and that provides further buying power.

As far as the gold and silver shares, I was curious as to the consensus analyst rating, 2010 earnings growth forecast and price target. In the graph below, I show the current analyst rating on the stock, the consensus forecast for 2010 earnings growth and how far above the current price, the mean price target is. Remember that analysts rate stocks 1.0 (strong buy) to 5.0 (strong sell). A 3.0 means hold, while a 2.0 means buy or accumulate. Since Wall Street is naturally optimistic, a 3.0 basically means "sell" and a 2.0 means "hold".

Only Silver Wheaton has a rating below a 2.0. Most gold and silver shares rate from a 2.3 to 2.8. The next two columns are very interesting. The second column is the consensus 2010 earnings growth forecast and the third column is how far above the price target, the stock currently is. Analysts are expecting very good earnings growth in 2010, yet they don't expect the stocks to move very much? In recent days, the stocks have gained a lot. It seems that the rating and price targets don't fit with the earnings growth.

This is a good sign if you are a bull on gold and silver shares. Analysts have yet to jump on board and that means that clients at those firms are not invested or at least underinvested in gold and silver shares. Moving along, let's take a look at some options data.

Options Data

The first chart shows the ISE Put/Call ratio for SLV and the cumulative Put/Call ratio (ISE) for all the Silver stocks we track. The bottom graph shows the price of SLV and price of GDX. We can see that GDX and SLV are basically flat throughout the period, yet the Put/Call ratios in both SLV and the silver shares are rising steadily. Often times, a spike in the put/call is a strong signal of a potential bottom.

In this chart we show the ISE Put/Call for GDX and a cumulative ISE Put/Call ratio for all of the gold stocks we track. The blue is the CBOE Open Interest Put/Call ratio. The signals are not quite as strong as for Silver but the ISE figures were steadily rising from September 11 to September 25.

Short Interest Data

In our Gold & Silver stock newsletter, we collect short interest data and use it to build these simple charts. The first chart is the cumulative short interest for all the silver stocks we track. We graph the changes in short interest with a silver index we made. It is considered bullish when short interest rises along with the particular market. Since the end of April, short interest in silver stocks has risen steadily.

Here we show the short interest for all of the gold stocks we track. Our price index is XGD, the Canadian Gold Stock ETF. The short interest surged 44% in the period of September 1 to September 15. New short interest figures are available Friday on NASDAQ's website.

Conclusion

Some sentiment data can give strong signals while some sentiment data has to be interpreted in a different way. I actually think that some analysts place too much importance on sentiment data. Remember that the crowd is actually right most of the time. It is best to use sentiment data to predict turning points and for market timing purposes. I prefer to use sentiment data in conjunction with technical analysis.

In looking at the various data provided here, one has to feel pretty good if you are a bull on gold and silver stocks. First, the analysts on the street don't have high expectations for the shares, despite the positive outlook for metals prices and profit margins. Secondly, we see constructive put-call data following the mid September peak. In other words, options data gives no sign of excessive bullish sentiment or even bullish sentiment. Finally, the surge in short interest shows strong skepticism about the ability of the shares to sustain these prices.

A daily close above 445 on the HUI should induce quite a bit of short covering.

Disclosure: Author owns junior mining stocks.

mancovaldez

Gold Spikes, Miners Go Higher

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(10/09/09 23:40:08)

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Gold Spikes, Miners Go Higher
Scott Nystrom 10.09.09, 7:00 PM ET

I've been saying that gold is in the middle of a long bull market and now is the time to pick up quality gold producing stocks. It sure does feel good to be right, and our timing couldn't have been better!

Since we launched the Gold Stock Strategist in August, the price of gold has risen from $954 an ounce to as high as $1,059 Thursday morning. The gains in shares of gold miners have been even more sensational, and mining stocks are poised to continue outperforming the metal as their profits pile up faster when gold prices are on the rise.

Check out what's happened over just the past 30 trading days. Physical gold is up better than 10%, but mining stocks like Barrick Gold and Newmont Mining have done even better. One big winner has been Yamana Gold, up 30% since Aug. 26. Yamana just announced production of a record 314,200 gold-equivalent ounces in the third quarter, an increase of 9% over the previous quarter and up 16% from the first quarter.

The prime driver of gold's strength has been the weakening of the U.S. dollar. There is a very strong inverse relationship between the U.S. dollar and gold prices. When the dollar falls, gold prices rise. Fueling the shrinking dollar was a report earlier this week from U.K. media company, the Independent, stating that oil-producing countries in the Middle East were initiating talks with Chinese, Russian, French and German finance officials to set up an alternative settlement currency to the U.S. dollar for trading oil.

Technical analysis confirms the trend. Gold has been in an upward trending trading channel from late October 2008 to late February 2009 with strong technical support at $860 an ounce along the 200 day moving average. From late February until late April of this year, the price of gold was consolidating. The consolidation ended with the watershed announcement on April 24 when the People's Republic of China announced they had secretly added 454 tons of gold over the past six years. That's a lot of gold to stockpile, and it makes you wonder how much more the Chinese are hoarding!

That was a signal that gold was going higher, and since the Chinese revelation of gold stockpiling, the price of gold has skyrocketed from $886 an ounce to $1,043, an 18% increase in just under six months. The price of gold has further upside potential into 2010. How high the price of gold goes is anybody's guess.

The whole world is now beginning to understand the forces that will drive the price of gold higher. Investment demand for gold is soaring amid dwindling production. Look at the investment data.

Holdings in the SPDR Gold Trust (GLD) are growing due to rising investment demand. This ETF must own real gold and holdings by the GLD holdings jumped to an all-time high of 1,109.31 metric tons, up 8.8 metric tons from the previous day.

Look at the boots on the ground evidence. The U.S. Mint has just canceled production of numismatic (proof and uncirculated) gold eagle coins amid unprecedented demand.

Last week's rally witnessed gold surpassing the previous record high of $1,033.20 set in March 2008. After weeks of being range bound and finally breaking the magic $1,000 level in September, gold is now probing new highs above $1,050.

Gold Miners Provide Positive Leverage to the Price of Gold

The basic rationale for investing in gold mining stocks is that they represent a leveraged play on the rising price of gold. If the price of gold goes up, the value of the stock goes up. Production costs provide gold stocks with leverage. The higher the cost of production is for any given company, the greater the leverage.

Of course, leverage works against long positions when the price of gold goes down. I emphasize this dynamic leveraged relationship between the price of gold and gold mining stocks in the Gold Stock Strategist newsletter.

The thing to remember is that when the gold bull market comes to a close and gold prices break down, they will likely break down quickly. That is what happened in early 1980 when the price of gold dropped from $850 an ounce to $453 in three short months.

In the short term, anything can happen to the price of gold. For example, there are currently large and long speculative positions on the Commitment of Traders report published by the Commodity Futures Trading Commission. If speculators move away from these positions, it could drive the price of gold down--in a hurry! Many analysts expect some sort of correction in the price of gold soon, and this could be the catalyst for that action.

I still believe the price of gold is going to be much higher over the course of this bull market. The bull market could last for another decade or just for a year or two, but it could be very bumpy at times, shaking out the weak holders as the market escalates to a climax.

It pays to closely follow the underlying fundamentals that drive the price of gold.

For now, we remain in a long-run bull market for gold, and it is important to pick the stocks that are undervalued and relatively safe from political risk.

Scott V. Nystrom, Ph.D., is editor of the Gold Stock Strategist newsletter. He has worked as a policy adviser and economist for 25 years at the White House Office of Management and Budget, the U.S. Congress, academia and in the private

mancovaldez

3 Promising Gold Stocks

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(10/12/09 22:36:20)

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3 Promising Gold Stocks

by: Dr. Stephen Leeb October 12, 2009 | about: ABX / ASA / NG

This past weekend, I attended the 33^rd Annual Gold Show in New Orleans.

I was surprised, and also encouraged, that attendance at the Gold Show was very poor. Sure, the aftermath of Hurricane Katrina hasn't helped New Orleans' image as a tourist destination. But even compared to two years ago, very few investors showed up.

This seems strange, considering that gold has been the best performing asset this decade by a wide margin. Basically, the only people in attendance were the hard core gold bugs - the same people who came to the conference when gold was selling for $250 an ounce. The halls seemed almost empty. The rooms where miners had displays had only a handful of investors checking them out.

By contrast, in 1980 when gold had just made its biggest top of the 20^th century, attendance at the Gold Show was ten times higher. It was like going to a World Series game.

Ironically, this low attendance is positive for gold, in that it implies that gold didn't need a flood of new investors to make its recent gains. It also tells us that when the flood does arrive, it will push gold prices considerably higher than they are today.

All in all, the conference was a very friendly and informative. I have no financial interest in the success of next year's conference, but I honestly think serious investors would get a lot out of attending next year's.

I should point out that most people at the Gold Show were sympathetic to libertarianism, as are most believers in hard currencies and precious metals. For instance, while signing books, I sat next to Congressman Ron Paul, who once campaigned for President on the Libertarian ticket. I share some of the libertarians' interests, though not all. Nonetheless, Dr. Paul and his wife seemed like lovely people, and almost everyone I met seemed open to and respectful of other's ideas.

OUR 3 MOST PROMISING GOLD INVESTMENTS

More than ever, gold must be considered an asset class unto itself. For forty years, gold has performed basically in line with the S&P 500 and outperformed a number of overseas markets, including London. In today's volatile world, investors have little excuse for not owning gold.

That's not to say the stock market is ready to top out. Our guess is that stock prices will rise a little further. But when the top finally comes, the correction could be severe. On that day especially, you will be glad to own gold.

Incidentally, I recommended three gold stocks in my presentation at the Gold Show, which I'd like to pass on to you (even though you've probably heard them before).

The first is ASA, which we feel offers the best conglomeration of gold stocks available. David Christensen, the portfolio manager, is tops at finding precious metals miners who excel at increasing production. The fund offers a great combination of upside potential and risk control, in that the companies it buys are also low-cost producers.

We are also taking another look at Barrick (ABX) which used to be in our portfolio. The company recently eliminated its hedge program, which improves its potential to move higher alongside the price of gold. That makes Barrick more of a pure gold play, and one with a big portfolio of great assets. Barrick's outlook has improved and we may return it to our portfolio in the near future.

Finally, our top gold stock remains NovaGold (NG). NovaGold is partnered with Barrick on one of its key projects, and owns some of the largest copper and gold deposits in North America. The company has the potential to soar to 5X its current price. (Of course, with any junior, the risks are above average as well.)

So long as events like the Gold Show draw sparse crowds, you can be pretty sure the bull market in gold is a long way from a top. So for now, buy the dips in gold. Don't chase the rally in stocks.

When gold eventually peaks, it will be like tech stocks in 1999 - everyone will be clamouring to buy gold shares. That may be the time when we leave the sector with our profits in hand.

mancovaldez

Gold Overload

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(10/12/09 22:37:52)

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Gold Overload

By Christopher Barker
October 12, 2009

Opinions are like dollar bills: If you print too many of them, their value goes down.

Every time gold makes a major move in either direction, suddenly every casual observer becomes a soothsayer, and the whole mishmash of conflicting guidance leaves investors more confused than ever.

The truth is, there are no soothsayers, and no one can claim a monopoly on the truth. Even after tracking every heartbeat of the gold and silver markets over the past several years, this Fool remains humbled by the sheer unpredictability of short-term market swings, and the ruthless volatility of precious metals.

I may have called the present breakout in gold right before it occurred, but last year, the onset of a brutal 18-month correction took me completely by surprise. My own long-term investments in shares of miners like Agnico-Eagle (NYSE: AEM), Yamana Gold (NYSE; AUY) and IAMGOLD (NYSE: IAG) were pummeled into the ground, and only my conviction in the longer-term outlook prevented me from selling at a loss and walking away.

Tuning out the noise
Investors have heard it all lately, from Fortune's bold prediction of a gold bubble in the making to Peter Schiff's call for $5,000 per ounce.

In my opinion, any notion of a gold bubble flies in the face of overwhelming fundamental indicators that continue to mount, as the world perceives greater inevitability in the dollar's downward trajectory. Former Fed chairman Alan Greenspan himself recently characterized gold's ascent as "an indication of a very early stage of an endeavor to move away from paper currencies."

With increasingly vocal calls from the world's central banks to replace the dollar as leading reserve currency in favor of a basket of currencies, I submit that the latest bubble declarations will join their predecessors in a junkyard of failed calls issued throughout this nine-year bull market for precious metals.

As for long-term price targets, I would not presume to rule out truly enormous increases for gold if the U.S. government continues to spend, lend, and print dollars as if national solvency didn't matter to the world. While I continue to track these important macroeconomic developments carefully, I prefer to focus upon a long-term price target based upon the current state of affairs rather than hypothetical scenarios.

Get ready, set … get ready
We may very well get a pullback that presents another golden opportunity to build that long-term hedge against dollar devaluation, but then again … we may not. After wallowing in an 18-month range-bound correction before a convincing breakout, every day that gold spends here in unprecedented territory increases the chances that four-digit gold prices represent the "new normal."

One reasonable approach for the wary newcomer could be to obtain some measure of bullion exposure, utilizing a proxy like the SPDR Gold Shares (NYSE: GLD) ETF, and then hope for a pullback to sweeten the deal for a promising miner like Gold Fields (NYSE: GFI) or a royalty play like Royal Gold (Nasdaq: RGLD). While gold itself tends towards violent swings in price, the shares of miners often respond with even larger movements on a percentage basis.

Above all, please keep in mind my admonition voiced during a prior surge in gold some 18 months ago: "Be brave, Fools. There will be corrections along the way -- some of them substantial. Investing in this sector requires strength and conviction, and short-term movements are nothing but noise within the broader trend."

mancovaldez

Gold Spikes, Miners Go Higher

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(10/12/09 22:41:01)

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Gold Spikes, Miners Go Higher
Scott Nystrom 10.09.09, 7:00 PM ET

I've been saying that gold is in the middle of a long bull market and now is the time to pick up quality gold producing stocks. It sure does feel good to be right, and our timing couldn't have been better!

Since we launched the Gold Stock Strategist in August, the price of gold has risen from $954 an ounce to as high as $1,059 Thursday morning. The gains in shares of gold miners have been even more sensational, and mining stocks are poised to continue outperforming the metal as their profits pile up faster when gold prices are on the rise.

Check out what's happened over just the past 30 trading days. Physical gold is up better than 10%, but mining stocks like Barrick Gold and Newmont Mining have done even better. One big winner has been Yamana Gold, up 30% since Aug. 26. Yamana just announced production of a record 314,200 gold-equivalent ounces in the third quarter, an increase of 9% over the previous quarter and up 16% from the first quarter.

The prime driver of gold's strength has been the weakening of the U.S. dollar. There is a very strong inverse relationship between the U.S. dollar and gold prices. When the dollar falls, gold prices rise. Fueling the shrinking dollar was a report earlier this week from U.K. media company, the Independent, stating that oil-producing countries in the Middle East were initiating talks with Chinese, Russian, French and German finance officials to set up an alternative settlement currency to the U.S. dollar for trading oil.

Technical analysis confirms the trend. Gold has been in an upward trending trading channel from late October 2008 to late February 2009 with strong technical support at $860 an ounce along the 200 day moving average. From late February until late April of this year, the price of gold was consolidating. The consolidation ended with the watershed announcement on April 24 when the People's Republic of China announced they had secretly added 454 tons of gold over the past six years. That's a lot of gold to stockpile, and it makes you wonder how much more the Chinese are hoarding!

That was a signal that gold was going higher, and since the Chinese revelation of gold stockpiling, the price of gold has skyrocketed from $886 an ounce to $1,043, an 18% increase in just under six months. The price of gold has further upside potential into 2010. How high the price of gold goes is anybody's guess.

The whole world is now beginning to understand the forces that will drive the price of gold higher. Investment demand for gold is soaring amid dwindling production. Look at the investment data.

Holdings in the SPDR Gold Trust (GLD) are growing due to rising investment demand. This ETF must own real gold and holdings by the GLD holdings jumped to an all-time high of 1,109.31 metric tons, up 8.8 metric tons from the previous day.

Look at the boots on the ground evidence. The U.S. Mint has just canceled production of numismatic (proof and uncirculated) gold eagle coins amid unprecedented demand.

Last week's rally witnessed gold surpassing the previous record high of $1,033.20 set in March 2008. After weeks of being range bound and finally breaking the magic $1,000 level in September, gold is now probing new highs above $1,050.