Gold & Precious Metals

Silver Up & S&P Down

Posted by GE Christenson - Deviant Investor

on Tuesday, 22 April 2014 14:54

Silver has had three bad years while the S&P has had five good years. It is time for both markets to reverse.

Examine the following graph of Silver versus the Silver to S&P ratio. It tells me the ratio has returned to levels seen in 2008 and that the ratio follows the price of silver. This is interesting but not that helpful.

Screen Shot 2014-04-22 at 7.56.32 AM

Now examine the second graph in which the same ratio is plotted against the 14 month Relative Strength Index of the ratio. The RSI is a timing indicator that ranges between 0 – 100 and indicates buy zones when the indicator is low and sell zones when the RSI is high. Currently the RSI of the index is about 23 – quite low and indicating that the silver to S&P ratio should increase from here. Either the silver price should go up or the S&P should come down, or more likely, both will occur.

…continue reading HERE

Short sellers take aim at gold miners

Posted by Andrew Wilkinson via Resource Investor

on Tuesday, 22 April 2014 1:00

gold nugget-resize-380x300Two of the most shorted securities by IB customers this morning in the Basic Materials sector according to IB Stock Loan Borrow (SLB) data, are the parties involved in the merger that would have created the world’s largest gold miner: Barrick Gold Corp. (Ticker: ABX) and Newmont Mining Corp.

However, over the weekend talks between Barrick and Newmont Mining resulted in the abandonment of a merger agreement, which investors had been expecting to be announced as soon as Tuesday. Yet the fortunes for both stocks in Monday’s trading pinpoints weakness for Barrick (down 3.45%) but strength for Newmont (up 6.50%).

Discussions between the two were wound up prior to the weekend with no sign that the falling price of gold that created the catalyst for a defensive merger, was showing signs of changing course.

Gold fell to $1285 per ounce on Monday. The combination of the world’s two leading gold producers would have had a joint market capitalization of $60 billion. Both companies may need to further pare production in the face of reductions by the Fed in its monthly purchase of bonds. At the same time gold miners have announced impairment costs related to projects running into difficulties.

wilk1

 

ABOUT THE AUTHOR

Andrew is a seasoned trader and commentator of global financial markets. He worked for several London-based banks trading cash and derivatives before moving to the U.S. to attend graduate school. Andrew re-joins Interactive Brokers following a two-year stretch at a major Wall Street broker-dealer as their Chief Economic Strategist. His coverage of stocks, options, futures, forex and bonds regularly surfaces in global media, and over the last several years Andrew has made many TV appearances on Bloomberg, BBC, CNBC and BNN and Yahoo Finance.

Unlike the majority of the companies in the mining sector, Sandstorm Gold (TSX:SSL,NYSE:SAND) is not a mining company.

To help investors better understand the role of a royalty and streaming company, Gold Investing News (GIN) spoke with Sandstorm Gold’s CEO, Nolan Watson.

GIN: To start on an educational note, Sandstorm is different than most companies in the resource sector because it is a gold royalty and streaming company. What does that mean exactly?

NW: What does that mean exactly? Great question. The royalty part of the business model is a much smaller portion of our business model. It’s effectively where we have the right to a certain percentage of a mining company’s revenue, whatever that may be. For example, if we have a 1-percent royalty, we get 1 percent of the revenue. Having royalties on various mines around the world accounts for 10 to 15 percent of our cash flow every year.

The stream is similar to a royalty, but has important differences. Stream is where we will have the right to purchase a certain percentage of their production at a fixed price. So for example, we might have a stream that says we have the right to buy 17 percent of a company’s production at $400 an ounce. They’re selling 17 percent of it to us at $400, and we buy it at $400 and we sell it at whatever the market price happens to be on that day. Today the price of gold is approximately US$1,300 an ounce. We’ll buy it at $400. We’ll sell it $1,300. It will make the difference, which is $900 an ounce. So we call it a stream because it’s sort of a stream of cash flow that’s coming to us as we’re buying and selling gold under those contracts.

GIN: How do you decide when to do a stream or a royalty deal?

NW: When we do a stream it’s when someone is either already in production or they are about to go build the mine right now, so they’re very close to production. We could buy a royalty on an asset that’s producing, we could buy a royalty on an asset that’s about to go into production or we could buy a royalty on an asset that we think will go into production one day, but it might not be for many years. That’s the one difference between a stream and royalty. We typically won’t complete a streaming transaction on an asset that’s many, many years from production.

GIN: How is investing in Sandstorm beneficial for investors?

NW: There are a couple disadvantages of investing in mining companies. One is that you don’t get very much diversification. A mining company might have one, two or three mines. If that one mine goes down, then the company is in very serious trouble temporarily. Whereas at Sandstorm, we have 35 different streams and royalties and 13 of those are cash flowing right now. Our aim is to be a company that provides mining-like returns, but with much less risk and much more diversification. We are in countries all over the world, we’re associated with assets all over the world. So we’ve got a lot more stability in our base level of business and cash flow.

The second disadvantage would be that the mining industry is challenging and costs continue to go up. We are much less affected by that because we buy at a fixed price per ounce for all of our streams. The cost of mining will double over the next 15 years because central banks are printing lots of currency and inflation causes costs to go up. Our cost that we’re buying the ounces at does not go up. Again, more leverage to the upside and more stability.

GIN: What are the most important things Sandstorm looks for when it evaluates companies?

NW: Well, we look first and foremost for assets that are what we call “management-proof assets.” Those are just solid, strong assets that will have a low cost of production and are simple to execute from a technical perspective.

We try to stay away from things that are overly complex metallurgically or very complex from a how-they-mine-it perspective. We try to focus on assets that are so simple that anybody could run them. Having said all that, we still try to invest in assets that we think have reasonable management.

GIN: Like you mentioned earlier, there are risks involved in mining. As Sandstorm invests in a portfolio of companies, do you try to mitigate the risks, particularly geopolitical, in the basket of companies in which the company invests?

NW: Yes, certainly we try to diversify our geopolitical risk. From the perspective of the actual mine and the quality of the mine itself, we try not to do deals on assets that are going to be high-cost producers. So if someone comes to us and says, “we’re going to build a mine and we think we can produce gold for $1,200.” We’ll say, “no, thank you. That’s too expensive. What if the gold price goes below $1,200, in which case you’re out of business and we’ve lost all of our money?” We try to focus on assets that can produce gold that are something less than $1,000.

GIN: Yes, I can imagine. So how are royalty and streaming deals impacted by mergers and acquisitions? Or are they not affected?

NW: The way the contracts are always structured is that they go with the mine, whoever owns the mine. If the company merges or gets bought out, then the stream just goes with the mine.

GIN: Okay, so it doesn’t really impact the company in the end.

NW: Usually mergers and acquisitions are good things for us. If someone is buying the company that we’ve made a deal with, it’s usually a bigger company, which means it’s usually stronger. It could put more money into the development of the asset.

GIN: I noticed that although 2013 has been pretty challenging for the mining sector overall, Sandstorm managed to come out with record gold sales. What made that possible?

NW: We started the business five years ago and over the last five years we’ve been making various investments. With some of those investments it can take awhile to build the mine, and so some of those mines are just ramping up their production now as they come into their own. Every year, year over year, we’ve been able to recognize higher production from investments in the past. We’re going to continue to make investments and we’ve got $120 million of cash on our balance sheet. We’re continuing to look into acquiring new streams and royalties. We hope to have record sales every year.

GIN: That’s a positive way to end each year. Now, on the not so positive side, 2013 also brought the collapse of Colossus Minerals. What did Sandstorm learn from its investment in Colossus?

NW: I think we’ve had a number of takeaways. The number-one takeaway we’ve had from it is from a due diligence perspective. Most people refer to what they call fatal flaws — a thing that if it happens, then it’s not a mine at all. We were certainly looking for all types of fatal flaws, but then there’s also a second-level type of risk — things that you go, “yeah, that might happen. It could happen. If it does happen though, they’ll just be able to raise more money and fix it. ” For example, water was a problem. We said, “water is a problem. It can absolutely be dealt with. It just needs some more time. It needs more boreholes and more pumps to pump the water out and that will be fine. It might cost more money, but they’ll be able to raise it.”

Lo and behold, 2013 came along and no mining company in the world could raise any amount of money. Water became a problem and Colossus couldn’t raise the money. Water is still a solvable issue there, but they got killed because they needed the money during a time when no one could raise any money.

We decided that we no longer want to count on the capital markets when we make an investment decision. We want to invest only in assets that we think either have enough money to get into production or the potential risks are small enough that we can cover the difference.

GIN: That’s a pretty good way of looking at it. As far as areas of interest, is Sandstorm currently looking at any countries for further investment?

NW: We’re looking all over the world. We do have a list of countries that we won’t invest in at any given time. That list changes as governments around the world change. We’re looking in North America, South America, Africa, Europe and Asia. The countries we won’t invest in would obviously be Russia, Venezuela and countries like that.

GIN: So you’d stay away from countries that are more prone to resource nationalism.

NW: Absolutely.

GIN: Good plan. Now, as far as commodities prices go, gold hasn’t fared too poorly this year. Can you share with me some of your thoughts on what we might see for 2014?

NW: I think 2014 is going to be a year of small ups and downs, and generally sideways markets. I think there will be times where we go, “finally the gold market’s coming back.” There’ll be days where we go, “oh, my gosh. I didn’t know. I thought we hit the low and we haven’t.” Excitement and fear all in the same year. I think we’ll probably end the year not too far from where we are right now.

I am bullish on the longer-term basis. I do think that central banks are going to continue printing money around the world. Whether or not the Fed continues its tapering or not, I’m not sure. But I do think that the Europeans are going to have to continue printing money, as are some Asian countries. I think that there’s going to be a lot of uncertainty in China. One of the largest sources of demand for gold right now is China, and uncertainty there causes the gold price to go higher. I think that 2015 and 2016 should be better years for gold.

GIN: I guess 2014 is just going to keep us on our toes. Is there anything I’ve missed that would be good for our investor audience to know?

NW: I think the one main message that we’re trying to get across with Sandstorm right now is that this is the first time that all of the material assets that we’ve invested in are now up and running in commercial production. We’re pretty steady from a development risk perspective. We’ve got lots of cash flow coming in, we have tremendous amounts of cash in the balance sheet and we’re now looking for our next phase of growth.

GIN: Perfect. Thank you very much for speaking with me. 

NW: Thank you.

Securities Disclosure: I, Vivien Diniz, hold no investment in any of the companies mentioned in this article. 

Editorial Disclosure: Interviews conducted by the Investing News Network are edited for clarity. The Investing News Network does not guarantee the accuracy or thoroughness of the information reported. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

Mining Shares I Like Ahead of the Gold Rush

Posted by Larry Edelson: Swing Trading

on Monday, 21 April 2014 13:32

Mark my words:

A. Gold and silver are now in their final bottoming process, with a bottom not too far off in time or price.

B. Once the bottom is confirmed, gold will be on the launching pad for a move to $5,000 plus over the next few years; silver, to more than $125.

C. Most investors will miss a good portion of the metals’ next bull runs higher. Chief reason: They will be waiting for signs of inflation to reappear, when inflation will actually have little to do with the next leg up in the precious metals.

D. Most investors, just as importantly, will be buying the WRONG mining companies as another way to profit from the next bull run higher in the precious metals.

They’ll focus on tiny, beat-up junior exploration companies, when, in fact, only a select handful of juniors will reap the benefits of the next precious metals bull market.

Or, they’ll focus on senior miners, laden down with too much debt, or seniors that have started to re-hedge their resources and reserves, thinking gold and silver are in long-term bear markets.

Which brings me to the focus of today’s column: A list of mining companies I want you to have that are now on my radar screen. Companies that I may soon be pulling the trigger on.

Screen Shot 2014-04-21 at 6.34.56 AMOf course, specific recommendations are reserved for members of my publications — including the Real Wealth Report and its more active sister trading services, the Gold and Silver Trader and Power Portfolio.

Members will get all the details, including exactly what and when to buy, how much to buy, what price to pay, how to reduce risk, and how to maximize profit potential by trading in and out of them.

And many of the companies I recommend may not even be on the list I have for you today. They are strictly reserved for members only.

Plus, I am now seriously looking at warrants on mining company shares. Warrants are a bit like options, only you don’t have serious time decay when you purchase them, and unlike options, they can represent a convertible security that can be transformed into direct shareholdings.

And even better, many warrants are trading at fractions of a penny!

But since I’ve been inundated with emails asking me what miners I like going forward, I think everyone has a right to know what I am looking at.

So here we go. A list of 10 you might want to keep handy:

1. Goldcorp Inc. (GG)

2. Yamana Gold, Inc. (AUY)

3. Newmont Mining Corp. (NEM)

4. Agnico Eagle Mines (AEM)

5. Freeport-McMoRan Copper & Gold Inc. (FCX)

6. Hecla Mining Co. (HL)

7. Eldorado Gold Corp. (EGO)

8. New Gold, Inc. (NGD)

9. Franco-Nevada Corp. (FNV)

10. Randgold Resources Limited (GOLD)

[Editor’s note: To see more mining companies I’m looking at, head over to the Money and Markets Facebook page. Don’t forget to “like” it while you’re there.]

Now, on to a brief review of a few other markets.

First, the dollar: It’s bottoming and about to explode higher against the euro. Chief reasons: The war cycles, which favor the dollar, and the terrible condition Europe is in.

The best ways to profit: Consider a long dollar ETF, such as PowerShares DB US Dollar Index Bullish Fund (UUP) and ProShares UltraShort Euro (EUO) for a short position on the euro.

Second, the stock market: We now have the first leg down in place. Expect a bounce, then another leg down. Final support should come into play somewhere between 14,300 and 14,965 for the Dow Industrials. Then a big move up, to new highs.

For the next leg down, consider an inverse ETF such as ProShares UltraPro Short S&P 500 (SPXU) or the ProShares UltraPro Short Dow30 (SDOW).

Then, when the Dow bottoms, consider a leveraged ETF for the upside, such as the ProShares UltraPro Dow30 (UDOW) or the ProShares UltraPro S&P 500 (UPRO).

Third, commodities, in general. There’s a bit more downside coming, mainly in the ags, in base metals like copper, and in crude oil. But not all that much.

Precious metals should bottom first, but when the rest of the sector bottoms, fasten your seatbelts: There’s going to be tons of money to be made as the commodity sector enters its next bull run higher.

Best wishes and stay tuned …

Larry

P.S. I just put the finishing touches on a complete Dow 31,000 Preparedness Kit with five distinct reports for you, including Outrageous Opportunity: How to Position Yourself to Profit in the Bull Market of a Lifetime. To get them — absolutely FREE — turn up your speakers and click here now.

Larry Edelson

 

About Larry Edelson

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com/.

– See more at: http://www.swingtradingdaily.com/2014/04/21/mining-shares-i-like-ahead-of-the-gold-rush/#sthash.YZy3f9R7.dpuf

1st Most Viewed Article of the Week – Silver, Gold, & What Could Go Wrong

Posted by Deviant Investor

on Saturday, 19 April 2014 14:32

Richard Russell is almost 90 years old and has seen it all. He recently stated:

“My advice, as it has been, is to move to the sidelines while holding large positions in physical silver and gold. Regardless of what the markets do, silver and gold represent eternal wealth, and the bid to sleep undisturbed at night. No amount of money is worth the loss of peace of mind. The power of gold opened the American West and populated Alaska. Men have spent their lives searching for gold. You can own gold by the simple action of swapping Federal Reserve notes for the yellow metal. I advise you to do it.” Richard Russell – April 10, 2014

He stated on March 31, 2014:

“Here’s what I did last week. I took some unbacked junk currency called Federal Reserve Notes, and with them bought some constitutional money, known as silver. I consider gold and silver, now being manipulated, as on the bargain table.”

Richard Russell thinks the stock market is currently dangerous and that silver and gold are safe. He understands that gold and silver are eternal wealth with NO counter-party risk. What is counter-party risk? It is the risk that paper wealth is not real, that debts will not be paid, that dollars, yen, and euros will decline in purchasing power, that your employer will declare bankruptcy and your pension will be cut in half, that your brokerage account will be hypothecated by management, that your bank will declare bankruptcy and your deposits in that bank are unsecured liabilities of the bank and may not be paid either timely or in full. In short, there is counter-party risk in almost everything.

Examine the following graph of the S&P500 Index for the past 20 years. Does that graph inspire confidence in further gains in that index, or does it cause you to think about corrections and crashes?

SP20years1000

Yes, the Bernanke/Yellen “put” may support the market as the Fed does not want a market crash. But what happened to the power of the “put” in 1987, 2000, and 2007?

Now look at the following 20 year graph of silver. Instead of being at all-time highs, like the S&P, it is off nearly 60% from its high. Silver looks like a better place to park, as Richard Russell says, unbacked junk currency called Federal Reserve Notes, instead of in the S&P.

Silver20years1000

What do we know for certain?

  • The grass is still green.
  • The sun still shines.
  • The government is spending and spending and spending.
  • The Fed is injecting liquidity, monetizing bonds, creating currency swaps, and “printing money.”
  • Inflate or die remains the unspoken command.
  • Silver and gold will continue their rise as the purchasing power of fiat currencies declines.
  • Politicians talk.
  • Debt is increasing and people are realizing it can never be repaid.
  • Gold and silver are still real money, even if they are suppressed, denigrated, hated, and lied about. Why should we expect anything different? They are competitors to a paper currency backed only by the full faith and credit of a country that spends roughly $1,000,000,000,000 more each year than it extracts in revenue.

So what could go wrong? Let me count the ways.

  • Derivative crash
  • Another war in the Middle-East
  • Large scale dumping of US T-bonds
  • Failure of confidence in the dollar, caused by loss of confidence in either political or monetary leadership
  • More foreign policy blunders
  • Any war with either China or Russia
  • Loss of reserve currency status for the US dollar
  • Evidence that most of the gold supposedly stored at the NY Fed is gone, missing, leased, borrowed, or hypothecated.

What else could go wrong? Sarcasm alert!

  • Congress balances the budget in an election year and causes an immediate depression.
  • The US government admits it will not repay its bonds. Financial chaos overwhelms the nation.
  • China and Russia publicly apologize for criticizing the Fed’s “money printing” and agree to all US foreign policy objectives. The world is stunned into silence and then laughs.
  • Israel and Iran declare peace and mutual harmony. More stunned silence and laughter.
  • Politicians swear they will tell the truth and forego the use of Teleprompters. Wouldn’t it be nice?
  • China agrees to dump over 10,000 tons of gold on the market at sub $500 prices in the spirit of international cooperation. The S&P soars, gold crashes, and politicians sprain their arms patting each other on the back.
  • Goldman Sachs and JP Morgan announce they will donate 100% of their profits from Proprietary and High Frequency Trading in 2013 to charity. Financial stocks plummet and politicians worry about future payoffs.

 

Bottom line: There is an abundance of risk in the world that involves other parties, other countries, derivatives, debt, debt, and lots more debt. Gold and silver have no counter-party risk and will retain their value regardless of whether the debts are paid, regardless of political promises, regardless of monetary and fiscal policy, and regardless of the Bernanke/Yellen put.

Your cheerful but sarcastic blogger,

GE Christenson aka Deviant Investor If you would like to be updated on new blog posts, please subscribe to my RSS Feedor e-mail

© 2014 Copyright Deviant Investor – All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

 

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