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What goes down must go up

Bob Moriarty
Archives
January 10, 2005

I get really really nervous when everyone agrees with me. Last April 2nd I called the top to the day, last May 10th I called the bottom to the day, and in late November I called for a correction in gold and the dollar. We even bought some silver puts when silver hit $8 in early December and closed the last one out last week with a 450% profit. This Saturday I was back buying silver bars.

But I'm nervous, everyone now agrees the dollar will correct up and gold will go down. And when everyone agrees with me, I get nervous. The mob is wrong, always wrong.

So let's see if I can call it right five times out of five. If you go here, you will read something from one of the best minds in the business, Mark Hulbert. He points out that goldbugs are now more negative than at any time in the last seven years. So I suppose it's time for me to change my tune. I'm going back to positive on gold, silver and the mining shares. With some caveats.

The gold COTs reveal some stubborn bullishness. If I'm going to be wrong, I suspect it will be here. The dollar and gold have been joined at the hip since the lows for gold in 2001. I suspect the dollar rally will continue but for the first time, gold will break step and actually go up at the same time as the dollar goes up. That's far more bullish than you can even imagine.

The fewer people I agree with, the more I believe I am correct but I'm forced to admit I think Adam Hamilton has nailed silver in this piece we just posted. In any case, I was happy to sell in the $8 range. I put my money where my mouth was and I'm just as happy to buy in the $6.40 area. Silver was this high in 1978. I can't think of anything else which has gone up so little. If the Chinese stop dumping it, silver is capable of making the very low double digits before dramatically increasing supply. Don't let anyone kid you, there's lots of silver to be found, we aren't running out of silver any time soon. There just hasn't been any economic reason to look for it. There was too much around and the price didn't support exploration.

So I think gold will go up, starting pretty soon, I'm happy to be a silver buyer and I still believe we are in for a lot more positive action on the part of the dollar. There are way too many dollar bears and Mr Market has a nasty habit of kicking the butts of those wedded to investing as a religion.

The gold and silver shares have been correcting since the beginning of December 2003 and anyone who made money on mining shares last year did damn well. John Embry is about as good as anyone out there and I think I read that he was down 20%. When the best are down 20%, so are the rest.

Commodities aren't controlled by conspiracies. Commodities are controlled by supply and demand. Right now the marginal demand (and price) for everything from moly to sugar, concrete, gold and silver is coming from China. One day gold and silver will reassume their real role as money but it's not today. If you want to invest for a profit rather than to espouse some political position, try to learn everything you can about China. Because China and Chinese demand is what is driving the world's economy.

Watching current events is like watching the slow motion collapse of the American Empire. While President Bush describes the deaths of 1300 American soldiers in Iraq, he says, "It's going great." That's probably news to the soldiers and their grieving families. Vice-President Cheney calls the deficit, "meaningless." And our latest candidate for Attorney General of the United States refers to the concept of obeying international law as, "quaint."

We live in a topsy turvy world where even the concept of right and wrong has been stood on its head. Saddam was a murderer and torturer so we depose him so we can murder and torture. What's that all about? In the end, we shall reap what we have sowed and the butcher's bill will be paid in kind.

For 99.9% of Americans, the end of our Empire will come as a surprise. The middle-class is being and has been destroyed for many years. We will end up with a lot of poor and a few rich. It's all up to you as to which class you end up in.

As far as mining stocks go, the best time to invest is either just before a giant discovery (which nobody can figure out anyway) or as they go into production. Massive infusions of capital over the past few years are just now showing an effect. Here are some stocks I find attractive.

Excellon is finally talking about doing a roll-back. (EXN-V $.17 Canadian 120 million shares outstanding; website). I was at their Mina Platosa site in late August as they were preparing to blast a portal on September 1, 2004. I haven't seen any changes lately on their website but they are scheduled to begin mining in February of a high grade 65,000 ton deposit. It's 3,000 gram silver and it seems to me about 30% combined lead/zinc. On their website they have a link to a PowerPoint presentation with low, medium and high prices shown for the three metals. Current prices for silver, lead and zinc are all higher than they forecast. They will spend the next 14 months mining and the numbers will be awesome.

I am expecting a slowdown in Chinese demand and I expect commodity prices to drop, but I don't call a collapse in demand or crash in the Chinese banking system though it's always possible.

Desert Sun is still showing production scheduled to begin in the 1st quarter of 2005. Which is real close to right now. (DSM-T $1.92, Canadian (DEZ on the Amex) 73 million shares; website). They will be producing about 102,000 ounces a year at a cash cost of about $200. [corrected]

And of course I have to mention my current favorite silver company, Endeavour Silver. (EDR-V $1.57 Canadian 18 million shares; website). Endeavour will formally take over the Santa Cruz mine and the Guanacevi processing plant when they hand over over a check on January 28th to formally pay the remainder of their 51% interest. Their goal is to get up to 3.5 million ounces of silver production a year within two years. They should be profitable even at today's more meager production. I really like the management and vision of this company.

If you like copper, you have to like Cardero (CDU-V $2.98 Canadian 39 million shares; website). They begin drilling on a massive multi-billion ton target at San Fernando in Northern Baja in late January. Expect results in 2-3 months.

If you like mining stocks in general and aren't smart enough to hand your money over to John Embry at Sprott Securities, maybe you should consider Endeavour Mining Capital. (EDV-T $3.20 23 million shares; website). They think of themselves as a merchant bank. You should think of them as a mutual fund. They get paid on all the deals they cut, in shares and warrants. If you like buying some of the best mining companies in the business, it makes more sense to buy some of the best mining companies in the business at a discount.

The stocks I have mentioned are hardly the only stocks to consider. If I am right and the mining shares are about to climb, it won't matter all that much what you buy. In fact, tax selling of the stocks which went down the most last year has now stopped and expect a rebound across the board. Our comments are neither suggestions to buy or to sell shares. We hope our readers will remember each of us is responsible for our own due diligence. Many of the companies we mention are advertisers, we happen to know more about them than most stocks we don't mention. We own shares in all the companies mentioned above and obviously are biased in our feelings towards them. We own many other stocks we are just as biased on and haven't mentioned.

I am off to Chile on Wed. Jan. 12, then straight to the Vancouver Show on 22nd, back in Miami on Wed. Jan 26th. I will be out of email contact for a lot of the time so I'd appreciate your not emailing me until Jan 26th.

January 10, 2005
Bob Moriarty
President: 321gold Inc
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