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GOT GOLD? |
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November 12, 2008 - St. Elias Mines Ltd. |
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Do you have the guts to be rich? Are you a rule breaker? Do you have what it takes? Are you willing to go against the flow or are you going to mosey along with the herd? Your choice not the markets.
The late Sir John Templeton preached that investors should buy at the "point of maximum pessimism," when market sentiment stinks and no one wants to hold anything but cash. A pessimist sees the difficulty in every opportunity, while an optimist sees an opportunity in every difficulty.
In these markets, daily mayhem can cost you dearly, wipe you out entirely OR provide tremendous opportunity. | |
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The Who, What, When, Why, & Where... |
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WHO: Which investments will deliver the most? Investors will enjoy lucrative returns on both gold and gold mining stocks. However, investors who invest in junior mining stocks (at the bottom) will receive the greatest returns simply because of the multiples. Junior mining shares (penny or micro/small cap stock) trade at pennies as compared to major mining companies or gold bullion. Your money can buy more junior mining shares and it is easier to get a double (i.e. $0.20 to $0.40 per share). With an investment in major mining companies, the same money buys fewer shares and it is more difficult to realize a double (i.e. $30 to $60 per share.)
WHAT: What to do?
Buy Its a buyers market. The prices were seeing for assets now, whether its stocks, commodities, or gold, do not reflect the underlying value of those assets. People are selling them simply because they have to - whether because of margin calls or redemptions from hedge funds or otherwise, the assets have to be sold. Its a sale!
WHEN: When do you buy? Now! Buy at the bottom. History has proven that true fortunes are made during times of economic distress or financial corrections. The depressed valuations of the companies right now allow you to purchase shares at a fraction of what they have been selling for a year or two earlier.
WHY: Why gold? Fundamentally, supply and demand is the key. Gold supply is dropping. Gold demand is rising. In addition, history has shown that gold has a proven ability to provide a shelter from such negative market effects as inflation, catastrophic events and political unrest; gold stocks have outperformed any other type of investment during these times.
WHERE: Where to put your money?
Gold bullion for safety and steady returns; gold stocks for dramatic returns. |
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These are the kind of markets that test the courage of investors.
Markets run on fear and greed. Recent market volatility has never been greater and, in fact, is unprecedented. Because it is unprecedented, no one knows or can predict what will happen next. It takes more than insight to see opportunity. It also takes guts to act on it. |
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Fundamentals on gold remain intact. If anything, they have improved under todays widespread crashing credit conditions, inflation and material shortages. The long-term fundamentals for gold look healthy. The long-term supply constraints have not disappeared and demand continues to remain robust.
The fact that gold did not head higher during the current leg of the [global financial] crisis seems to reflect a combination of the rise in the U.S. Dollar, de-leveraging of commodity positions, sales to meet margins calls on other assets and the unwinding of the long gold-short dollar trade by some investors. This situation will not continue much longer.
In todays world of massive deficit spending, political unrest, inflating currencies (i.e. fiat money or excessive printing of paper currency) and financial/credit crises, golds monetary role is reasserting itself. |
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Since July 2008, the U.S. dollar has staged its most dramatic rally in years. However, from a fundamental standpoint, the dollars position has worsened significantly. Trillions of dollars of are being created to bail out financial institutions and local economies.
When the dollar was taken off the gold standard in 1971, there no longer was any discipline on the money creation (printing) process. As a matter of act, two years ago, the U.S. changed its laws so that it no longer had to report how much money was printed. No one knows exactly how much is printed. Once a currency is on this path
The U.S. federal government is already operating at the mercy of foreign creditors because domestic savings have already been consumed. What was at one time the richest country in the world, the U.S. is now the biggest debtor in the world. The federal governments debt is growing the fastest and politicians are spending the country into bankruptcy. There is a currency bubble caused by the U.S. Federal Reserve System creating money out of thin air, without any substance underneath it. As with any bubble (i.e. high tech, dot com, etc), they eventually pop. |
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History - The Greatest Teacher (aka "Wisdom") |
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True fortunes are made during times of economic distress or financial corrections. Only one year before J.P. Morgan completed the formation of U.S. Steel (which financial historians have called the deal of the 20th century), he said that such a feat could never be accomplished by any man - until the markets crashed. The depressed valuations of the companies involved allowed him to purchase the business entities at a fraction of what they had been selling for twelve months earlier.
During the Great Crash of 1929, investors who diversified their portfolios with a few Homestake shares (gold) were able to travel through the Great Depression relatively unscathed, while those who owned only the Dow Jones Industrials, were devastated. Investments in gold mining shares were islands of economic refuge during the grueling years of the Great Depression. The stock price of Homestake Mining soared relentlessly upward during the entire bear market. The share price of Homestake Mining rose continuously from $80 in October 1929 to $495 per share in December 1935 which represents a total return of 519% (excluding cash dividends) during this devastating period. In addition, during the six years (1929 1929) Homestake paid out a total of $129 per share in cash dividends. |
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Commentary - Recent Market Activity |
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The relentless selling we have seen over the past months in precious metals was kicked off by the manipulative interventions occurring right around the time of the Fannie Mae and Freddie Mac implosions in mid-July. Yamana Gold, one of the most successful gold companies around, saw short interest rise 72% in the first two weeks of August. This stock has been a star performer. Why, or more appropriately, who, would short it? Many investors have thrown in the towel and portfolio managers are now forced to sell due to redemptions. These disillusioned investors believe that the market is telling them a message and don't realize it is not a market message but a heavily controlled manipulation to make them believe so and to dupe them out of their positions.
It is no accident that we havent been able to take refuge under the safe haven of Gold as tradition would have it. It is a planned policy known as the strong dollar policy that runs against all the natural forces in the real world, dooming it to failure.
Gold production was down 5% last year from its peak in 2003 despite steadily rising demand. Production will likely decline even more this year. The four largest gold producers are expected to produce 18% less gold this year than in 2006. These are not the signs of a bubble. Any further declines in the price of these and other commodities will result in even bigger shortages. The rapidly growing smaller producers that are helping to offset these declines in the larger producers are being seriously handicapped by the continuous price capping of gold which delays and cuts off badly needed capital to deliver what the world is demanding. The US Government has stopped selling gold coins also, so how does the price plummet when there is demand yet no supply? There is overwhelming evidence that the recent declines in gold and silver are a fraud.
The stocks are certainly selling at giveaway prices but will surely break free of the suppression when the physical markets break free. We have heard that many gold stocks in Canada are being shorted without borrows by brokerage firms with almost no limits. This is how they are dislodging stocks from even the most strong-handed precious metals investors. There is a saying that a gold bull will do what it has to, to throw off as many riders as it can and we are seeing it demonstrated before our very eyes. It was the same in the 1970's despite gold rising 26 times and many stocks rising from pennies to over $500 per share! It is sad to see investors give up on the very few areas of the stock market with such strong fundamentals that can allow them to do well despite the onerous future we face. Gold is certainly a commodity that will stand the test of time. | |
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Suite 314 - 800 West Pender Street * Vancouver British Columbia Canada * V6C 2V6 |
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