Gold strategies pre-y2k and during the aftermathgreenspun.com : LUSENET : TimeBomb 2000 (Y2000) : One Thread
I'm not sure about this advice - take it or leave it - Andy ===========================================================
This article is focused on how to profit most from the coming gold boom for the individual.
There are times when gold shares precede bullion in rising in value. And there are times that bullion precedes the shares. In the period from December 1979 till the end of January 1980, bullion soared, leaving shares way behind. As I recall, bullion reached US$680.- on January 22rd, and touched US$850 (for only a few minutes) on January 23, 1980 - never to see those levels again.
Belatedly, gold shares only started to react hesitantly in January 1980, but the following month advanced strongly. After the gold price had not reacted in the slightest on the Persian hostage crisis not a single gold guru of that time I know of had been able to forecast the coming gold price explosion, whatever he might claim now in retrospect. If one had invested in bullion, option or futures first, sold out on January 23, 1980, and then moved into gold shares, one would have gained twice. The other way round one would have missed the boat completely!
Except for crisis situations, I expect bullion this time to do nothing spectacular at the start of the upturn. Most likely it will advance just enough to prime the gold share market for take off. I guess $315 would be needed.
During the last twenty years gold bullion has been so hammered that it is difficult to imagine it zooming as rapidly again as happened in December/January 1980. There are too many entrenched interests working against gold - and market psychology will need time to change from gold negative to gold positive. The gold mines on the other hand, which have lately put their houses in order, and reduced their production costs to the minimum, will see profitability shoot up. Consequently, their shares will sky-rocket to catch up with only moderately higher bullion prices.
Mining shares will be the ball game of the next five to ten years. But once profitability improvement relative to bullion's advance will start to descend, bullion is going to steal the show from the shares.
For example. With the share price at $1 and a profitability at $5 per ounce with gold at US$ 285, and the gold price advancing from there to $ 330, a mine's profitability would increase ten fold - and its share price could theoretically jump from $1 to $10 or beyond, depending on the carry-through euphoria, the recalculated future reserves at the higher gold price, and eventual hedge obligations. The more marginal the mine, the higher could its shares will rise relative to bullion's advance. In the past one had to search hard to find marginal mines. Today, most mines are marginal!
The well-known blue chip mines are going to take the lime light at the beginning of the upturn. The medium sized mines and exploration companies will need time to become sufficiently known by the public, before they can join the uptrend. Thanks to the Internet, however, the flow of information available will considerably shorten the lag time. Stockscape.com has done an excellent job of getting many of the smaller companies on the Web. Extensive information is now available for everybody. The total cost price per ounce, the proven reserves, the mine's life expectancy, the available working capital, the efficiency and capability of management, track record, company policy, who the influential share holders are, and all relative financial information should be available either on the web or through a broker. BEWARE if data are incomplete or not readily available!
There are many important factors to be evaluated. Check for the number of shares outstanding, market capitalization, fully diluted shares outstanding, fully diluted market capitalization, and debt to equity ratio. Also Important is how many shares are freely circulating for trading, and how much is being held by company insiders. The South African conglomerates, through cross holdings, leave only room for a small percentage of their shares to be traded freely, and are thus in a position to manipulate the price of their own shares.
There are many penny stock mining companies which might be literally considered "gold mines," but are on hold until market conditions improve. Gold is where you find it. However, today one might rightfully say, 'where the Canadians find it!' Whereas some US companies have been "sleeping," the Canadians especially have used the last twenty years well. Canadian mining companies developed highly effective three dimensional cad-cam computer programs, which combine all the different prospecting methods into one presentation. They researched libraries all over the world for historic mining data. They visited hundreds of old mine works and analyzed tailings. Subsequently, small high-tech prospecting companies today can attain the same level of exploration and development precision as the giant firms. The size of a company is no longer relevant in the exploration stage. Only when project financing begins, are the 'men' separated from the 'boys!'
It is important to recall the old clichi that a gold mine, "is a hole in the ground with a liar on top" is still applicable in many cases! But there are little liars and big ones. Most miners are like fishermen! Therefore, it is just a question of guessing who are the more honest ones. Big mining companies have a tendency of neglecting the investor, whereas small fledging firms need the investor. There are companies with over one hundred years of solid mining tradition. On the other hand there are questionable predator companies, grown out of acquisitions and hedging. And there are fly-by-nights. Some companies concentrate on exploration, while others on exploitation. Some are only local, while others roam the globe in search of the shiny yellow. Expected gold reserves tend to "grow" in direct relation to their distance from civilization (i.e. the further the mine is from population centers, the greater are the estimated gold reserves - Bre-X is a poignant example in the extreme).
For everything "above board", read "above ground". Above ground is usually Considered reliable, because it is easy to see what is going on. That is why placer and open pit mines are usually the more honest ones. But what ever goes on "under-ground" is another matter. (And this is especially true in the vaults of the Central Banks!) There the manager manages! He can for example concentrate in mining the high grade ore, when he wants results to help move the company's share price up. Or he can leave the high grade for later in reserve, when he wants the share price to decline. He can speed up development work to the detriment of present production, or vice versa. He can even try to flood a whole mine on purpose, like it happened in the movie "Gold" of 25 years ago (and which showed a strange similarity to what really happened on the West Driefontein mine around the same time!). In short, the manager with or without his superiors having a finger in the pie can do underground what ever he likes. In short, he can 'manipulate' the stock price - almost at will.
Penny stocks are high-risk , and on average only one in ten makes it. Vancouver is penny stock paradise. Since Hong Kong and Indian speculators are slowly returning to Vancouver, we could well see fireworks there one day soon. Penny stocks are "promoted". Either because there is a bonanza or just for promotion's benefit. Watch the trading volume going up. In many cases jumping in at the beginning of a surge in volume, and moving out shortly after, can make money. Bonanza or not, the public is greedy. A much safer bet is to wait until a new mining district has been discovered, then buy into one of the surrounding exploration companies. Usually there is more to find than just one good mine near a discovery site.
The underground mines fall roughly into three categories: firstly, the vein mines; secondly, the reef mines - both with or without dissemination into the adjoining rocks; lastly, the massif ore bodies - also with or without dissemination around.
The vein mines are by far out the riskier ones. Anything can happen to veins: either bonanza or sudden disappearance of the vein itself, its gold content or its promoters. Reef mines, usually of sedimentary origin, are rather consistent in their gold content but also they can fizzle out. The South African Witwaters Rand mines are reef mines. The massif bodies are the safest bet, even the ones with low gold content, especially when near surface and suitable for open pit bulk exploitation. Secondary minerals in the ore have to be taken into account to estimate the ultimate viability. They can make or break the mine. Their market prices can fluctuate considerably during the life time of the mine! Scarce, strategic and high tech metals like the platinum group metals, uranium (South Africa!), rare earth minerals, thorium, titanium, lithium, cobalt and tantalite might even have a greater future than gold!
Junior companies with an established production base and steady income are better cushioned for eventualities than pure exploration companies. There are three juniors in Peru which have made recent deals with major companies by ceding them their prime prospects in exchange for steady incomes, which they can now apply to some new and exiting projects only known to them.
Mines generally are not isolated, but usually are part of mining districts: Witwaters Rand (gold), Sudbury (nickel) , Ruhr (iron and coal), Merensky reef (platinum), Zambian copper belt (copper) etc... Some minerals have higher occurrences in specific regions. Gold: around Johannesburg. Tin-wolfram: in a circle through Thailand, South China, Burma, NW Indonesia. And silver and molybdenum: predominantly stretched along the whole Eastern Pacific coast. North America has been rather well explored and the chances of finding new surprises there are less probable. Nevada and Hemlo are two of the newer gold mining districts of the last twenty years. The Kilometro-88 in Venezuela, Yanacocha in Peru, the Victoria Greenstone belt in Tanzania, Burkina Fasso, New Guinea are all examples of recently discovered new mining districts. The most interesting developments are at present happening in the Argentine. This country never cared much about minerals before as its pampas provided everything its population needed. But regional jealousies provided the incentive. Chile next door has managed to build up a prosperous mining industry and its ore belts were found to extend straight into Argentine territory. The recent discoveries by Argentina Gold, (which Barrick tried to pocket but goofed and lost it to Homestead) are a prolongation of the "El Indio Belt" ( or as Argentina Gold now claims: El Indio is an annex to Argentina Gold!) Modern prospecting methods and new investor friendly mining laws are helping to open up Argentine's virgin mining territory. The provinces of Santa Cruz in the South, Salta and Cajamarca in the North and San Juan are beginning to look like interesting new districts. Mexico, Peru and Bolivia have old mining traditions, but were long kept back by years of political uncertainties, excessive nationalism and outdated mining laws. All that has changed in recent years. To be sure the whole mining climate in Latin America has changed in the investor's favor.
About Russia and China I have only one thing to say: I do not know of any company that ever made money there. The Chinese look after their interests the intelligent way, and the Russians the brute way. However, both hate to see foreigners making money at their expense. Recently, several companies have already burnt more than their fingers there.
Why is the discount price of South African (S.A.) gold shares so high? In my opinion it is so, because the established S.A. companies have nothing else in mind other than to "get out"! Their activities and their money. And every penny foreigners bring into the country, they will manage to switch back out again. Like the Russians are doing with the IMF money. The South African conglomerates are too big to be controlled by the Reserve Bank, and are above the S.A. foreign exchange controls. The restructuring of S.A. companies has less to do with efficiency improvement and economics than with exodus. Take Gencor, Sappi, SA Breweries, Liberty Life ad infinitum.
Of the four main possible scenarios which might bring about a strong rise in the gold price are a collapse of the Western stock markets, a default of the massive short and leasing positions in gold, a Russian debt default or the closure of the Witwaters Rand mines,. And if that does not happen we will still see inflation creeping in again. Slowly in the beginning, and then faster and faster heralding the rebirth of multiple "Weimar Republics".
When the world falls upon hard times, governments will intervene again in everything that has or constitutes monetary value. Futures and option markets might become controlled. Mines might be forced to sell all their production to government agencies at fixed the prices. Borders will be closed to money and gold transfer. People might have to declare their gold holdings. Gold might be confiscated. It has been done before and it will be done again. Government power has risen many fold in the 20th century. And with the arrival of the computer, we better get prepared for life under the "Compu-State!" And in case you are looking for an escape, Atlas Shrugged's hidden valley will only be found off-shore.
The only way to keep individual freedom will be the undeclared anonymous ownership of gold or silver in species, either kept at home or somewhere over the border in a country where free gold trading can still be expected to endure. One sleeps exceptionally well on a mattress stuffed with gold coins! I have also heard of people hiding their coins in an undisturbed national park. Others who kept it on a boat they could sail away. Gold kept for emergency purposes should be saleable at all times. Collector coins carry a premium during prosperous times, in hard times it is the gold and silver content which counts. National coins have their local agio and marketability. In France keep "Napoleons". In England "Elisabeths" or Georges" (but not the ones coined in the Lebanon!). In the States keep "Eagles" In Mexico "Aguilas". Globally circulating one ounce coins are the Canadian Maple Leaf, the Krugerrand and the Panda. Very saleable are also the Swiss 100 gram etc gold slivers. If you wish to stay anonymous, establish now already a discreet relationship with a dealer in your neighborhood. That can be a small independent jeweler or even a pawn shop owner. The banks and bigger coin dealers should be avoided whenever possible because they have to submit too much information to the government.
Gold and silver are bulky and when you look for transportability then go for top class precious stones with a certificate from a top wholesaler. Each precious stone has its characteristics and can be identified. Do not go for diamonds, that is the world's biggest con business and there are too many diamonds around. Go for rubies, sapphires or emeralds above three carats. They are too big to be falsified profitably. It is amazing what value only a tea spoon full of precious stones can represent!
After the gold share bonanza reaches its peak, gold bullion will become the game of the day. Followed by silver, the poor man's gold. Their present sixty to one relationship could start returning to the more historical seventeen to one ratio as inflation picks up. And in the event the government might start restricting the local playing field, the game is going be played "off-shore".
Hans Schicht Lake Chapala, Mexico 26 April 1999
-- Andy (2000EOD@prodigy.net), May 03, 1999
I just paid $9.63 for sixty 1oz American Silver Eagles - did I get ripped off? Monex charges (apparently) about $7.50 if you buy them in batches of 500. Anyone gone that route?
-- Andy (2000EOD@prodigy.net), May 03, 1999.
Silver is the poorman's gold and percentage wise will make you a lot more money then gold, when the market in silver and gold goes up! However, If you have a few million, gold can be hid better than silver. A million dollars in gold will fit in a briefcase! The same in silver is impossible to hide or bury!
-- freddie (firstname.lastname@example.org), May 03, 1999.
Regarding gold shares - wasn't there talk recently of class action lawsuits against cartels manipulating gold - what would be the fall out from these if they succeeded?
-- Andy (2000EOD@prodigy.net), May 03, 1999.
Just paid $9 each for 1999 Silver Eagles (Very small qty) at gunshow. Regardless of value, etc., they are simply a beautiful coin, which FEELS really GOOD in your hand.
-- chuck, a Night Driver (email@example.com), May 03, 1999.
Andy, try Blanchard & Co they are one of the largest Rare Coin and Precious Metals firms in the country and quite competitive. I had a quote of $7.47 for 1999 Silver Eagles before this last run up in silver.
Blanchard and Company
-- Ray (firstname.lastname@example.org), May 03, 1999.
Thanks ray and Chuck - will do - agree about the coins - quite beautiful :)
Already given several away :(
-- Andy (2000EOD@prodigy.net), May 03, 1999.
Hans Schicht, the author of this article, has three more articles at gold-eagle.com. Here is the url.
-- Tomcat (email@example.com), May 03, 1999.
Both are run my Bill Murphy, a seasoned gold trader. Le Metropole is designed in the spirit of a French cafe with discussions at the various tables. Le Metropole offers a 2 week free period to browse the cafe.
GATA is the Gold Anti Trust Association. GATA has recently brought suit against several big Wall Street alledgedly led by Goldman Sachs. The suit claims that GS and others have been borrowing foreign gold at low interest to use as collateral to sell gold short. The suit also states the profit from the short sales was used to artificially suppress gold prices and to generate profits for the short sellers as the price fell - supposedly the profit from the short sales of gold were spent to cover other derivative exposures on Wall Street as in long foreign currency positions. The Open Interest on short gold is said to be well over annual world production. US Senator Jim Saxton has also taken up investiagtion of the Gold Shorts by Wall Streeters and spoken on the record to halt further US and IMF sales of gold reserves.
In my opinion, the Gold Shorts will soon have to cover their short positions by buying back gold contracts which will greatly increase demand and prices. It is quite possible that the whole charade will unwind with devesting effects on foreign currency values and extremely rapid increases in the price of gold (and by extension silver.)
-- Bill P (firstname.lastname@example.org), May 03, 1999.