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If there
is an agreement reached by Congress and the debt ceiling is raised Gold and
Silver will go up. If there is no agreement reached by Congress and there is
a default, Gold and Silver will go up but in a parabolic move. Either way
Gold and Silver will continue to rise as the U.S. and European economies
continue to debase their currencies by the printing of fiat paper money to try and
pay off their debt with paper that is of a lesser value. Indeed, the West has
gone so far as to not even bother to print fiat money into paper but instead
they have created new vehicles like gold and silver derivative products that
are nothing more than digital bytes that are traded across international
borders. As Gerald Loeb taught us it is human nature to open your 401K and
see more dollars than there were last month and feel that all is well. What
Gerald Loeb also taught us however, is that we should not be fooled by how
many dollars we have but instead determine what the true value of the dollars
we have are?
As I have often
written “the market will do what it has always done, misdirect, confuse
and confound.” Last week I was feeling confused and confounded. Then on
Sunday morning it occurred to me that the political partisan bickering being
played out in Congress over the debt ceiling is nothing more than a well
orchestrated charade by both parties to prepare the masses for what will be a
an eventual default on our credit rating. I must admit that I never connected
the dots but I now firmly believe this thesis is right. “I once was lost, but now I’m found, was
blind but now I see.”The die has been cast.
That ship has already sailed. We can only work to protect ourselves and our
families from the eventual tsunami that will wipe out those who have not
positioned themselves properly in precious metals.
I remember well back
in the sixties being in kindergarten and doing drills by hiding under our
desks to protect us from a nuclear bomb as the two super powers, the United
States and the USSR played a Cold War game of chicken with nuclear arms. It
is laughable now when I think that of a 6 year old hiding under a desk to
save himself from a nuclear Armageddon.
Well those days are
long gone and now the nuclear arms race has been replaced with a new war.
This war is now being played on a different battlefield as the East and the
West race to accumulate physical gold and physical silver reserves. Those of
you that read me on a regular basis already know that I have been a gold and
silver bug for 50 years. I think that while it is prudent to hold physical
gold and silver it is also dangerous as it is not unprecedented for
governments to confiscate gold and silver holdings while they write you a
bogus check for what they perceive is the true value of the metals. We only
need to look back to Executive Order 6102 on April 5th, 1933 to see
evidence of it happening in our country. There are those who would say that
they have buried their treasure in secret hiding places and have a little
treasure map for their family to use if they need to find it. While this
seems like a sensible idea and I do advocate the holding of physical Gold and
Silver if the government has satellites that can see into the earth’s
crust to locate deposits of ores and precious metals, what makes you think
that they will not be able to use this technology to find your buried
treasure. Add to that you’d be amazed what you will say when you are staring
down the barrel of a gun.
So this begs the
question, how do we hold gold and silver? While there are reports that the
Gold and Silver ETF’s GLD and SLV do not actually hold the physical assets
they purport their paper represents I feel that these rumors are a bit
overdone and we are not close to that nightmare yet. If it makes you feel
safer I would recommend that you hold the Sprott fundsPHYS (gold) and PSLV (silver) which have the gold and silver
held by the Canadian Mint and conduct a physical audit on a yearly basis. The
downside to these holdings is that there is a premium of 18% for PSLV and
about a 5% premium for PHYS but you can choose at anytime to take possession
of the physical so for the premium you are paying you are able to feel
comforted knowing that it is not a shell game and you really do own a piece
of the underlying asset.
Another way to hold
Gold and Silver is to hold the underlying mining companies that have lagged
the physical asset. I have holdings in Barrick (ABX) and Goldcorp (GG) and would recommend
a position in these companies on any pullback. They are the cream of the crop
in Gold and Silver mining companies. If your time frame is a little longer
(2015), I would also recommend US Gold (UXG) which will soon be
McEwen Mining. I urge all readers to Google US Gold and CEO Rob McEwen. Mr.
McEwen is one of the brightest CEO’s in the PM space and the truth is
that if Rob McEwen was the CEO of a company that sold ice pops to the Eskimos
I would probably be invested in it. He is that good! The stock has run up to an intraday
high of $7.15 in the last week and closed on Friday at 6.90 but I would be a
buyer under $7.00 as this will be a long term winner but if you invest in
this you must do so knowing that the payday will be in 2015. Another stock
that has a high probability of doing well is Novagold (NG). The flagship
project of this company is the Donlin Creek project which they sold a 50%
stake to Barrick for $127 million Dollars. Novagold has agreed to repay
Barrick $63.5 million dollars once the mine comes into production which could
possibly be as soon as the end of 2011. While this stock closed Friday at
$10.24. The fundamentals of the company support a buy at $9.00 or below. If
it does not pull back to this level the risk to reward ratio is too high. I
recommend Novagold as a buy at $9.00 or below. If it doesn’t pull back
to this level – take a pass.
So while my long term
thesis is the timely accumulation of Gold and Silver, I recommend that you
choose any of the vehicles above.
Before I conclude this
essay I want to address some reports from the mainstream media that gold at
$1600.00 an ounce and silver having already reached its high of $50.00 an
ounce are in a bubble. I will go on record right now and say that this is
nonsense. A bubble is not determined by price. A bubble is created by a run
up that is not supported by fundamental reasons. I remember back in the 2000
during the dot.com tulip mania. I remember very well driving in my car when
an ad came on the radio for a company called Seashells.com. They said just go
to their website and purchase sea shells. This was madness. I immediately
called my broker and told her to immediately dump my tech portfolio. What
ensued was a very heated discussion that ended with my threat of pulling all
of my accounts from her company and filing charges with the SEC. She sold my
Tech portfolio while the Nasdaq was at 4700 and several months later I
watched as it cratered to 3600 and in 2003 it was at around 1500. That was a
bubble. There was no fundamental reason for these companies to be trading at
the levels they were. It was sheer “irrational exuberance.” The
prices of gold and silver based on the debasement of currencies are in my
opinion very cheap. I will go on record right now and say that by 2015 gold
will be $5000.00 an ounce and silver will be $125.00 an ounce and I have had
some very smart people tell me that my projections are too low. What has and
will continue to drive the prices of gold and silver up are the continued
debasement of currencies as a debtor governments look for a way to pay off
debts with paper of lesser value. My recommendation is to keep buying
physical gold and silver and to keep trading ETF’s and Gold and Silver
mining companies.
Current
Recommendations
1. U.S Gold (UXG) Buy
under $7.00 Target price: $30.00 by 2015( July 21, 2011)
2. General Moly (GMO) Buy
under $5.00 Target price: $10.00 by end of 2012. (July 21, 2011)
3. Quest Rare Minerals
(QRM) Buy under $6.00 Target price: $15.00 by 2015 (July 21, 2011)
4. Tasman Metals (TASXF)
Buy under $5.00 Target price: $16.00 by 2015 (July 21, 2001)
5. Avalon Metals (AVL)
Buy under $6.50 Target price: $13.00 by 2015 (July 21, 2011)
6. Sprott Silver ETF
(PSLV) Buy under $18.00 Target $25.00 (July 21, 2011)
7. Sprott
Gold ETF (PHYS) Buy under $14.00 Target $20.00 (July 21, 2011)
8. Cameco
Uranium (CCJ) Buy under $26.00 Target $48.00 (July 21, 2011)
9. Silver
ETF (SLV) Buy under $40.00 Target $60.00 (July 25, 2011).
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