This Is When You Make Your Money

Louis James, Chief Metals & Mining Investment Strategist

Dear Reader,

Yesterday, as I was leaving the hotel where I attended the San Francisco Hard Assets conference, a Vancouver stock promoter I know came up and bemoaned how slow the show had been. "Oh well, it's a market bottom," he said.

The bottom was in July, if you ask me, but the more important thing is that market dips are not things to bemoan – they are opportunities to take advantage of. Jeff Clark's article below does a good job of explaining just how and why.

One more quick comment on the show. My 40-minute "workshop" overflowed the room, with people standing in the back and spilling out into the hallway. I got there early and took some questions, then gave my talk, and then answered more questions out in the hallway later. There were quite a few subscribers in the audience – I want thank you for reading and coming down to hear me speak.

Your Casey Metals Team will continue to do its best to deliver the most valuable, actionable information possible.

Sincerely,

Louis James
Senior Metals Investment Strategist
Casey Research

Rock & Stock Stats
Last
One Month Ago
One Year Ago
Gold 1,713.50 1,746.50 1,756.00
Silver 32.27 32.80 34.45
Copper 3.46 3.71 3.48
Oil 85.45 92.09 102.59
Gold Producers (GDX) 46.47 52.67 60.31
Gold Junior Stocks (GDXJ) 21.51 24.10 31.10
Silver Stocks (SIL) 22.26 24.95 23.60
TSX (Toronto Stock Exchange) 11,877.72 12,407.70 12,174.36
TSX Venture 1,235.34 1,299.78 1,633.22


This Is When You Make Your Money

By Jeff Clark, Senior Precious Metals Analyst

I remember one of my first big wins with a Casey Research stock, before I worked for the company. It was a junior gold stock Louis had recommended, and in less than a year I sold it for a double. It was exhilarating.

I proudly shared my success with someone at a conference a month later who'd owned the same stock. I was beaming – until he told me that he'd tripled his money.

How did he do that?! I wondered. I looked back at a chart and found the stock had briefly sold off at one point, and sure enough a triple would've been feasible if one had bought during that window. He did.

Last week's abrupt and unexpected sell-off in many precious metals stocks was a smaller version of that same opportunity.

While in the big scheme of things last week's 8.2% sell-off in GDX (Gold Miners ETF) was mild, and prices could certainly trend lower before bottoming, buying during dips and corrections can mean the difference between a double and a triple. Or a double and a ten-bagger. What it requires on your part is a well-researched conclusion that the bull market for precious metals and their stocks isn't over.

Here's a practical guideline. Buy gold anytime it drops by 12% from an interim high. This is the average correction from any big spike you'll find on an annual chart. For example, gold peaked at $1,781 on February 28 this year (London PM Fix price). If you followed the 12% correction rule, you would've bought at about $1,567. While gold fell as low as $1,540, you'd be sitting on roughly a 9.3% gain today. And your entry point would've been made with much less risk.

The 12% guideline doesn't always work because the metal doesn't always fall that much, but there's usually at least one of these opportunities every year. There have also been numerous corrections of between 7% and 8%, so that's another level to look for.

Here's what buying after significant declines could mean to you. If you need to sell some ounces when gold is at, say, $2,500, your gain – if you bought at $1,800 while the metal was surging – would be 38.8%. But buying at $1,567, during the sell-off, would yield a profit of 59.5%. That difference more than makes up for the tax bill.

I know many readers of this publication already practice buying the dips. I also know that some don't. For both groups, you might find my conversations on this topic with bullion dealers last week very interesting. We talked about the sell-off, the reactions of bullion investors to Obama's re-election, and the so-called fiscal cliff. I want to share their comments, which you'll see share some common themes…

  • Border Gold told me that a lot of buyers had come into the market over the past couple of weeks, and further that there's "not much selling." They also "put together a few larger deals for American customers… clients are looking for alternative assets to equity markets, especially in light of Obama's plans to boost capital gains and dividend taxes."
  • A metals trader at EverBank said that "volume definitely increased." He indicated that the number of gold ounces purchased roughly doubled in the week after Obama's re-election.
  • The Coin Agent reported that sales are up about 30%, along with the size of orders. They noted that "a lot of sales are from first-time metals buyers."
  • Miles Franklin told me their call volume doubled last week. They also received several seven-figure orders immediately after the election.
  • Asset Strategies International said that while they saw a clear uptick in sales, they're also witnessing a new trend… "We have clients selling their metals to pay a lower tax rate now, and then re-purchasing them at a new higher cost basis" [the 30-day "wash rule" for stocks does not apply to physical commodities]. It isn't just a concern about the fiscal cliff, either: "Clients are very concerned about the future of the country. They know the debt will never be repaid and that there will be consequences."
  • GoldSilver.com says that "customers are more savvy these days – many know to buy the dips." Purchases jumped when gold briefly dipped below $1,700 earlier this month.
  • Our own Hard Assets Alliance reported that new deposits the week after the election were the second highest since inception, and purchases the third highest. Interest in HAA has been consistently growing since its founding, surely one reason being the fact that a client can buy, sell, and store physical metals as easily as any ETF, but with the security of knowing he owns – down to every single coin – all the metals stored in his name. Not only that – the Alliance also offers a variety of international storage locations, including London, Zurich, Melbourne, and now Singapore.
  • And the response has also been very strong to our offer on a discounted fractional gold coin in the current issue of BIG GOLD. If you're interested, they've still got coins available – there's no minimum and it comes with free shipping, making your total cost lower than buying a one-ounce coin. It's a very attractive deal that you won't find elsewhere, and a fractional coin will someday be very practical for smaller, day-to-day purchases.

I think those who've been buying recently will be well rewarded by the time this cycle is over... certainly more than those who tend to buy when prices are rising.

No one knows with certainty what the future holds. But our research, along with some clear lessons from history, tells us that precious metals are not only a good place for profits, but a must-own asset class.

Don't fear the sell-off. It's times like these when we make our money.


Gold and Silver HEADLINES

Global Gold Demand Reflects Challenging Global Economic Climate (World Gold Council)

According to the latest quarterly statistics from the World Gold Council, global gold demand in Q3 2012 was 1,084.6 tonnes (34.8 million ounces), down 11% from a year ago.

India market demand showed signs of recovery, rising 9% to 223.1 tonnes (7 million ounces) from 204.8 tonnes (6.5 million ounces) in Q3 2011. At the same time, China's demand declined 8% to 176.8 tonnes (5.6 million ounces), which was attributed to the country's slowing economy. Central banks continued their support of gold with quarterly purchases of 97.6 tonnes (3 million ounces).

Most sectors showed a decline in gold consumption, except for gold ETFs, which experienced a significant growth rate of 56% over the previous year.

On the supply side, recycling was down 2%, mine production decreased 1%, and total gold supply was down 2% in the third quarter compared to year-earlier levels.

Q3 results appear weak in comparison to the exceptional demand in Q3 last year. However, it was 10% above the five-year quarterly average of 984.7 tonnes (31.5 million ounces).

Montana Legislator: Money Is Worthless, So Pay Me in Gold (Mineweb)

Newly re-elected Montana state lawmaker Jerry O'Neil is asking to be paid in gold coins because he doesn't trust the US dollar. In his request to the state legislature he wrote: "It is very likely the bottom will fall out from under the US dollar. Only so many dollars can be printed before they have no value."

The lawmaker earns US$7,000 annually, which is about four ounces of gold at current market prices.

Another voice in support of gold as a monetary unit was heard this week. Turkey's prime minister suggested that the IMF use gold instead of US dollars because bullion is an "international constant" and "has maintained its honour throughout history."

Claims that gold is money are showing up in the news more regularly, though none of them have brought any kind of material result. However, we saw a precedent this year when Iran used gold as money in international transactions instead of foreign currencies that the country lacked due to sanctions. We think others will follow.

Ancient Thracian Gold Hoard Unearthed in Bulgaria (Reuters)

Bulgarian archaeologists found ancient golden artefacts at a Thracian tomb in northern Bulgaria. The golden stuff is dated back to the end of the fourth or the beginning of the third century BC. The findings include bracelets with snake heads, a tiara with animal motifs, a horse head piece, a golden ring, 44 applications of female figures, and 100 golden buttons.


This Week in International Speculator and BIG GOLD – Key Updates for Subscribers

International Speculator

BIG GOLD

  • A gold producer canceled a loan that was in process of being arranged. Is this bad news… or good?
Nov 19, 2012