Hi-Ho Silver; Gold & Mining
Shares to Follow
March 3, 2006
So far, 2006 has been a very volatile year for gold stocks. After
soaring 20% in January, the XAU declined by 15% in February,
despite the fact that gold only declined 1% during the month.
Many analysts have interpreted this "weakness" as being
bearish for the metal itself. No doubt if gold makes a new high,
unconfirmed by the XAU, those same analysts will claim the divergence
signifies yet another top.
However, those of us who have been long mining shares for the
entire move realize that this leg up has been characterized by
the metal leading the shares. While it is widely believed that
mining shares are a leading indicator for the metal, these shares
are more commonly owned by speculators than is the physical metal.
Thus, the restraint shown by speculators reflects a healthy degree
of skepticism with respect to gold prices. As a result, the market
climbs a classic "wall of worry" as speculators, nervous
about gold prices falling, are reluctant to bid mining shares
too high. Then, the subsequent divergence is seen as further
evidence of a potential top in the gold market, making the "wall
of worry" that much more difficult to climb.
This current market in gold reminds me of the course taken by
oil and oil shares during the three year period between June
of 2001 and June of 2004. During that time, despite oil prices
having doubled, the Philadelphia Oil Services Index (OSX) barely
budged. The high degree of skepticism that existed regarding
the legitimacy of oil's new bull market was able to keep share
prices in check. (In fact, the wide-spread belief that oil prices
were about to collapse allowed the Government and Wall Street
to convince a gullible public to exclude energy prices from the
It wasn't until skeptics accepted that higher oil prices were
permanent that oil stock prices finally began to rise. Similarly,
it took a while for the oil company executives themselves to
come to the same conclusion, resulting in an increased willingness
to plow higher profits into increased exploration and development.
The result was increased earnings in the oil services sector
and higher share prices.
In retrospect, the sluggish move in oil stocks proved to be a
false indicator. Rather, the divergence merely demonstrated just
how wrong stock investors had been with respect to their forecasts
on oil prices. I am convinced that the same will hold true with
respect to gold. The recent weakness in the shares despite the
underlying strength in the metals themselves merely indicates
just how few investors actually understand the dynamics driving
the gold market or just how high gold prices are likely to rise.
Rather than looking to what mining share speculators think might
happen to metals prices in the future, look at what is actually
happening today. With gold prices once again approaching $570
and silver prices above $10 per ounce for the first time in twenty-two
years, it is clear that real money is moving into precious metals,
and that it will be there for the duration. With central bankers
around the world printing a lot faster than producers are mining,
the flows will only intensify.
The U.S. dollar will likely
be biggest casualty of this scheme and gold the biggest beneficiary.
To learn the best ways to get out of the dollar, download my
free research report available at www.researchreportone.com
and subscribe to my free, on-line investment newsletter at http://www.europac.net/newsletter/newsletter.asp
To discover the best way to buy gold, visit www.goldyoucanfold.com
March 3, 2006
C.E.O. and Chief Global Strategist
Euro Pacific Capital, Inc.
Mr. Schiff is one of
the few non-biased investment advisors (not committed solely to
the short side of the market) to have correctly called the current
bear market before it began and to have positioned his clients
accordingly. As a result of his accurate forecasts on the U.S.
stock market, commodities, gold and the dollar, he is becoming
increasingly more renowned. He has been quoted in many of the
nation's leading newspapers, including The Wall Street Journal,
Barron's, Investor's Business Daily, The Financial Times, The
New York Times, The Los Angeles Times, The Washington Post, The
Chicago Tribune, The Dallas Morning News, The Miami Herald, The
San Francisco Chronicle, The Atlanta Journal-Constitution, The
Arizona Republic, The Philadelphia Inquirer, and the Christian
Science Monitor, and has appeared on CNBC, CNNfn., and Bloomberg.
In addition, his views are frequently quoted locally in the Orange
Mr. Schiff began his investment career as a financial consultant
with Shearson Lehman Brothers, after having earned a degree in
finance and accounting from U.C. Berkley in 1987. A financial
professional for seventeen years he joined Euro Pacific
in 1996 and has served as its President since January 2000. An
expert on money, economic theory, and international investing,
he is a highly recommended broker by many of the nation's financial
newsletters and advisory services.