The most wonderful feature of gold is that it's a bitch to print
As those of you know who have written me and asked my opinion on how a bit of news affects gold or the gold stocks, I am not a believer in the CNBC/GATA talking head approach to news and the markets.
News has next to nothing to do with price movements of anything. It's only something that talking heads use to explain price movements when you would be far better off understand the underlying forces in play. All things move up and down from day to day. In a bull market prices move up more and more often than in a bear market where they move down more and more often. But bear markets contain violent bull moves and bull markets contain even more violent bear moves.
I'm doing all this convoluted explanation because we clearly are in a gold bull market just as I have been saying for 18 months but commercial shorts are getting near the level found at the end of bull markets or at least at the beginning of strong corrections. People who hated gold 18 months ago when I was a lone voice in the wilderness have now jumped on board the train in the hopes of catching it before it leaves the station.
Normally, with things this bullish, I would be getting lighter or selling the gold stocks I use for trading. But as bullish as some measures are, all the confirmation information is not giving a danger signal at all. Last week was one of the most bizarre weeks in gold and gold stocks movements I have even witnessed. Gold shot up to $355 (Wasn't someone predicting the collapse of the financial system right around there?). A lot of fairweather gold bugs panicked and couldn't unload gold stocks fast enough. That doesn't happen at tops. Ever.
We have an interesting document produced for us weekly by 4figureAU. It lists over 100 gold stocks. In the latest report only 6 showed a new high for the year. That is not the top of a market. At the top of a market, you might see 80-100 new highs. Gold bugs need a little more starch in their shirts.
So this bull move has legs. But we are due shortly for a major correction. For once, I will concede a bit of news may have a major, albeit, short-term effect on the gold market.
It should be obvious by now that the flock of chickenhawks ruling this country are already at war with Iraq, they just haven't admitted it. Our forces, together with British aviation forces, bomb Iraq daily. Just because war hasn't been declared on Iraq doesn't mean it isn't taking place. We are at war.
But one day soon, probably in mid-January, the war will become official and ground forces will formally enter Iraq. Since gold bugs believe the war with Iraq will shoot gold to new highs, chances are it will do exactly the opposite. Remember, these same gold bugs were selling shares right into the highest gold prices in 5 1/2 years. Look for a formal declaration of war to ignite a short and violent correction in gold and gold share prices. But lower gold share prices will attract new buying and gold shares will not go down as much as gold will. We could see a $20-$40 correction in gold. It won't last long but it will be brutal.
As I write this piece (Wed PM Dec 25th), the dollar is about to plunge through 103. It had major resistance at 104 which it went through like a hot poker through butter. For the direction of gold shares, watch gold. For the direction of gold, watch the dollar, the two are connected at the hip.
I suspect the fairweather gold bugs and sunshine patriots will wake up in a couple of days and realize gold is indeed in a bull market and gold shares are along for the ride. I think the next couple of weeks could surprise everyone on the up side. The bump up to $355 was nothing more than a little short squeeze in Japan. It should be obvious that there is a very big player manipulating (eeek, I've used that M word) the gold market higher, and if he did it in Japan, he could easily squeeze the commercial shorts here until the pressure makes their ears bleed.
I looked over one of my stock statements this evening and even I was amazed at how high the gold stocks have gone so far. It should be obvious that gold stocks have far higher to run. They have been the only game in town for two years and Joe Couch Potato still doesn't even know they exist. So we are good for another 500-1000% before the herd wants in on the game.
We are at the easy-money stage. I know of so many red hot stocks I just can't keep them straight. Here's a few.
1. Endeavour [EDV] [website] Selling for $2.22 Canadian and probably has a NAV of $3.40-$3.50. This stock is for gold bugs who want to own a fund and not even think about gold shares. Buy it and put it away. You are getting one of the best minds in the business at a 40% discount. It doesn't get any easier.
2. Gallery Resources [GRY] [website] They are waiting for colder weather to resume drilling on a bog in Newfoundland. Gold is like a mama cat having kittens. Look for it in the most inaccessible places, that's where no one looked before. Gallery plan on resuming in mid-January. The stock is selling for $.10 Canadian. I'd buy a boatload if it came back down to $.09, the low for the year is $.06. This is about as good a play as you will ever find, it's barely above its yearly low. Gallery has brilliant management firmly committed to the company (16 million shares committed) and all the holes around where they are drilling are showing just the precursors you want for a major epithermal system. It's a stock which could run up 10-fold on a good hole.
3. American Bonanza (BZA) [website] They have not one, but two properties being worked on at this time. The decline has begun at Copperstone in Arizona and and they are drilling a likely prospect near Fallon. Simply great management. I really liked the company at $.12 a share, now they are $.22 and about to bust out to a new yearly high. They will be producing gold from Copperstone this year. (not much, but some) and are perfectly placed for a major run up with $400 and above gold. Anyone who bought this when I first said so has done well and those who really listened and bought more when it went down are up 100%.
4. Desert Sun Mining [DSM] [website] closed on Tuesday at $.83 after setting a new yearly high at $.93 last week. DSM has a drill program in progress in Brazil. Expect new drill results soon. Great management, great potential. I think I figured out you were buying gold at about $3 an ounce. Expect them to increase their resources from 3.6 million ounces to 10 million ounces and either sell out a lot higher or to restart their mill which shut down in 1998 due to the low price of gold.
5. Cardero [CDU] [website] One of the year's biggest advances. It has gone from $.27 to $1.65 on Tuesday. I think Cardero has set 27 new highs since May. Big buying from funds 'in the know.' This is going to be one of the biggest silver stocks in the world. Really great management. Easy 10-bagger.
6. Candente (DNT) [website] Joey Freeze has one of the finest teams in the junior field. Prudent Bear owns 20% of the shares and David Tice doesn't buy many bad companies. This is one of my favorite juniors and I have been itching to write them up for a year. But they don't have any 'knock you out of your socks stories,' just good management. I want knock you out of your socks stories to write, you should want good management. There is none better and Candente are going to blow the lid off the industry one day. This makes a really great trading stock. Selling on Tuesday for $.50 Canadian.
7. Lakota [YLA] Other than the fact they don't have a website yet, those in the know have been buying up this very tightly-held stock. Lakota hold the property next to Sutton in Tanzania, in elephant country. The stock split in December and the shares have already doubled again. This one's a sleeper and will make shareholders very well off. The stock is $2.90 a share and finally showing signs of decent liquidity.
8. McWatters and Apollo [MWA and APG] [McWatters website] and [Apollo website] Both are in production and valued at a small percentage of what they were worth at $300 gold. If I remember right, MWA is going to be doing about 90,000 ounces and APG about 200,000 ounces. This isn't Kansas and gold isn't $300 an ounce. The companies who will rocket the fastest are those who are the most highly leveraged to gold. Both McWatters and Apollo are highly leveraged to gold and in a bull market, will soar.
It should be obvious to anyone watching that the Fed has let the dollar sink. The Fed is sending clear signals that (1) they don't care about the dollar. We have a strong dollar policy the same way a marshmallow makes a great bowling ball. When they start mumbling about this wonderful new invention called a printing press, one of the alternatives is that they are trying to tell you something. The most wonderful feature of gold is that it's a bitch to print. Paper isn't.
And (2) "Sir" Greenspan mumbling about how gold actually might solve monetary problems is more than a hint. And the first sign that the US Government might actually go to a real form of money, the gold shares won't just rocket to the moon, they will make Amazon and AWL during the dotcom hay days look like a kids' picnic. Every gold share in the world could be bought today for $70 billion. Once the government gets behind gold, mining will be the most important industry in the US for the next 15 years and incredible fortunes will be made.
There are three ways to create real wealth. You can grow it. You can manufacture it or you can mine it. Everything else is some variation of the above three. We can't grow more, it's not possible, we don't have the competitive edge. We can't manufacture that much more, we have been exporting our manufacturing overseas for 30 years.
But we can mine more. Nevada alone was one of the biggest mining areas in the world for 80 years. It may well be again.
The gold rally has legs. Maybe a week, maybe three weeks, but it has legs. Gold shares will catch up shortly. I'll do my best to warn people when I feel we are at a temporary top.