Agnico Eagle - Another Gold Miner on Sale

Panic spike-like sell-offs are occurring in larger Gold stocks right now. This is what I have been waiting for since last spring and it never came - until now. I highlighted Kinross Gold (ticker: KGC) the other day. Here's another one: Agnico Eagle (ticker: AEM) a solid, blue chip producer with good growth potential.



Panic spikes lower are a great time to buy in the volatile Gold stock sector. I am looking to start buying Gold miners next week (need my paycheck to clear first...).

Gold: Cause For Alarm

The paperbugs need to fear the future. It is coming. It is inevitable. It is not gloom and doom, it is not guns and food in a wilderness cabin, it is not the end of the world, and it is not the inflation or deflation debate. It is simply a Gold bubble.

Of course, when I say that it is a Gold bubble, what I mean is that the Gold bubble has just begun. This occurred when Gold broke out above $1000 strongly, to create $1000/oz as a floor for Gold rather than a ceiling. This clears the way for much higher Gold prices. I don't mean to misrepresent myself as a prognosticator, as we are all just bozos on the speculation bus, but I think the path is now clear for Gold to go much higher. I believe that $2000/oz. is a conservative target for Gold, but $3000-$10,000/oz. wouldn't shock me. In any case, I use the Dow to Gold ratio to guide my thoughts and decisions. I believe the Dow to Gold ratio will reach 2 at a minimum and less than 1 this cycle wouldn't be surprising.

While I place no faith in the government to do anything correctly or in "the people's" best interest (I am not a paperbug that believes in magic government powers, after all), I do recognize the bureaucratic power to destroy a currency. Will they succeed or will we have a Prechterite crash that causes the U.S. Dollar to rise to heights unimagined? These are interesting academic exercises to me, but I am no longer interested in the academic.

What I know is this. The US Dollar provides unacceptable risk and doesn't compensate its holders to take that risk. Period. Cash is king, but one had better hold the correct form of cash! The US and UK are on a crash course with reality and I doubt, if history serves as a reliable guide, that the outcome will be pretty.

Stocks, real estate and corporate bonds are toast, and everyone knows it. In fact, those who invest in such assets are relying on governments to bail out the system many times more. When's the last time that relying on governments to do the right thing made for a wise investment decision over the longer term?

That leaves us with commodities. But the ironic thing is that commodities don't usually do well when the economy is moribund. Sure, they can do well if inflation is rampant and out-of-control, but this is a wish and not a guarantee.

I have cast my lot with Gold. It is an international currency and reflects a cash holding that cannot be debased by government decree or apparatchik stupidity. Is Gold money? Some say it cannot be spent at a Wal-Mart and thus is not money and yet go on to recommend government bonds or Swiss Francs in the same article! When's the last time you used Treasury Bills, foreign currency or stocks to pay for groceries in the United States? If Gold wasn't money, governments wouldn't hoard it and list it on their balance sheet as money.

Anyhoo, Gold is on the threshold of a MAJOR move higher in my opinion. This is not inflation or deflation or anti-Dollar, this is a secular bull market set to enter its mania phase. Gold has been on the rise steadily for ten years. Did I mention that it has trounced stocks, cash, and T-Bonds over the last decade? That's right, over a 10 year period, a piece of "worthless" metal has outperformed stocks. How can Bloomberg and other Wall Street mouthpieces take themselves seriously since this is the case?

Really think about the implications of this fact: Gold has outperformed stocks for 10 years (actually more, but let's stick with an indisputable fact to keep randy paperbugs from trying to argue on a technicality). A piece of metal is a better investment than a bunch of really smart guys with ties and computers. What does this mean?

Don't underestimate Gold here. Don't underestimate the cyclical and secular bull market that continues to astound the critics while remaining a hated and much-maligned asset class. You want love? Go watch CNBC. You want acceptance? Buy what Cramer tells you to buy. You want to make money? Buy an asset class that has gone up only 4 fold in the last decade, is at all time highs, and is hated by mainstream media sources. Every time Gold drops $10/oz., some clown from "traderbank" or some other unknown or even a known outfit has a sound reason why the Gold bull market is over.

From your experience, whatever it may be, does this sound like the way bull markets end? Does anyone remember the dot.com boom? Does anyone remember the oil and real estate bubbles? By the way, watching those who are still touting the oil and real estate bubbles is actually a good exercise. Listen to their wonderful arguments that are based on "sound" fundamental principles and then spook the reality: every asset class has its time under the sun. It is simply Gold's turn.

Gold is not a religion to me, though it is my passion to spread the word of where to put your money. Oil goes up 14 fold over ten years and then collapses. Gold only goes up 4 fold in 10 years, but now it is supposed to collapse without the final mania phase? Yeah, right. And I should buy stocks right now at the top for the long haul, right?

Here's a current 6.5 year daily chart to show you where I think we are in this current intermediate-term Gold bull market thrust, which is not over in my opinion. This ain't mainstream, people. This is calling for a bubble in a freakin' piece of metal. And believe me, investing in Gold is the optimistic scenario. I in no way would invest in Gold if I thought society was about to collapse. In the 1970s, Gold went up 24 fold and society didn't collapse. Investing to me is all about accepting that various asset classes fall in and out of favor. This is what the Dow to Gold ratio is all about. I am not advocating trying to eat Gold, oil, stocks or paper currency instead of food! Without further rambling, here's the Gold chart with my thoughts:



I think we hit $1200-$1600 before spring is over. Could I be wrong? Of course! Could the Gold bull market be over? No. Not possible. An asset class bull market does not end with an absence of public participation and mainstream media scoffing. We are just getting warmed up. The herd still wants to buy Apple, not Gold. Have you purchased any physical Gold yet?

The End of the Recession

Mainstream articles like this one are announcing the end of the recession due to a rise in Gross Domestic Product (GDP). This the folly of modern mainstream economics and why it fails to predict much of anything when it comes to investing or the actual economy. You see, government spending is included in the GDP report.

So, if we put our children and grandchildren on the hook by borrowing even more money at the federal level that we don't have and then spend it on a mountain of consumer goods, our economy will continue to grow and we will never have to have a recession again because the GDP will continue to rise. In fact, if we just hand citizen in this country $100,000, we could have a GDP report of economists' dreams. Paul Krugman might even be happy about the levels of stimulus. Of course, the borrowing would have to accelerate every quarter in perpetuity until our currency was destroyed and our lines of credit cut off.

You cannot borrow your way out of a debt crisis. Yes, you may be able to destroy the value of the currency by being more reckless than a drunken sailor, but you cannot create prosperity by borrowing from Dick to pay Harry and then borrowing from Jane to pay Dick, etc. We are creating another tower of debt in the public sector to replace the collapsing tower of debt in the private sector. The non-federal, for-profit federal reserve corporation is happy to have a new debtor lined up and could care less if the debtor is private or public, as long as the bankstaz make their money.

This path of public borrowing has never worked in history and isn't going to work now. These things are not helpful to speculators, where timing is important. Those "in it for the long haul" need to recognize, however, that the general stock and real estate markets are not where you want to be for the next 5 years (10 years?). A few companies that are closer to the government money spigots (e.g., Goldmun Suchs) may do better than others, but companies are suffering and will continue to suffer because the "real" economy is in shambles right now.

Over the longer term (i.e. years, not months), the stock and real estate markets will continue to reflect this reality. The paperbugs don't want to hear it, but a shiny piece of metal called Gold will continue to outperform the stock market for some time to come (as it has for the past decade). Until the Dow to Gold ratio hits 2 (and possibly below 1 this cycle), general stocks are to be avoided other than as a trade. Gold is not about to collapse, but stocks are. This is the big picture that continues to expose the folly of apparatchiks and their court economists.

For when it is all said and done, the real economy is going to continue to contract and all that will be left at the end is mountains of unnecessary public debt for the next generation. The "stimulus" will help a few in the short term at the expense of the country's economic long-term future. At least we know the for-profit, non-federal, private federal reserve corporation will have enough interest payments coming in from the public kitty to keep their counterfeiting franchise going for another few years.

Kinross Gold Buy Alert

For those seeking a blue chip producing Gold miner. Gold stocks are getting hit right now, creating buying opportunities. I think Kinross Gold (ticker: KGC) has hit a level that has been a successful buy point in the past and it is a good company for the longer term investor. Here's a 30 month daily chart:



Nothing is guaranteed when investing, but investing in a blue chip Gold miner with good growth potential when it is oversold and near its 200 day moving average is as safe as it gets in the Gold sector. I differ from most of the herd in that I think Gold stocks are going to shake of the stock market weakness, hold their ground, and move higher along with the price of Gold. I could be wrong, of course (it wouldn't be the first time...).

The First Indices to Crack

The Russell 2000 small cap index ($RUT) has clearly broken its multi-month trend line as of the time of this post. Here's a 1 year daily index thru part of today's action:



The Dow Jones Transportation Average ($TRAN) is right there with the Russell 2000 (daily 1 year chart):



The first major cracks in this general stock bear market rally have occurred. Other indices are soon to follow. The decline may or may not be orderly and may or may not be fast, but it will be devastating to investor psychology. This cyclical-within-a-secular general stock bear market has a long ways to go. Gold and Gold stocks will weather the storm this time, unlike last year, but will still have corrections. This cyclical-within-a-secular Gold and Gold stock bull market has a long ways to go. Today is actually a good buying opportunity in Gold and Gold miners. The Dow to Gold ratio will get to 2 and may very well go below 1 this cycle. Nothing has changed, but investor sentiment is about to turn majorly negative on the stock market. The US Dollar may rally, but the Gold price will hold firm and I believe will rise significantly over the next several months.

Junior Gold Miner Stock List Feedback

has been fantastic. The internet is a wonderful tool. I have saved and stored every one's feedback and will be updating the list soon. Several more companies will be added to the list.

I also hope to get info on float, market cap, and price into the spreadsheet soon. Eventually, I would like to be able to chart this list as a quasi index on a weekly basis. Please keep the suggestions coming and anyone interested in improving the spreadsheet I posted and sending it back to me for re-posting here is more than welcome!

Again, I am no mining expert but I am looking to play the junior Gold sector and it's fraught with peril. I appreciate every one's help and comments very much. I didn't know so many interested people were out there.

Cheers!

Inflation, Deflation or Just Gold?

The whole inflation versus deflation debate is actually much less important to me now that I understand the role of Gold. Gold protects against financial and fiat currency instability and a loss of confidence in "the powers that be." It is Gold's time to shine as an asset class during this Kondratieff Winter, whether the Dollar does a Prechter deflationary death dance higher first or a straight Sinclair inflationary flop down to the 52 U.S. Dollar Index level (from the 75 close on Friday). People who only see "Dollar Up, Gold Down" and vice versa are missing the bigger picture. All global fiat currencies are sinking together, just at different rates. It is simply Gold's turn as an asset class. Cycles. Greed. Fear. Gold will be a lousy investment again in 5-10 years, but it's WAY TOO EARLY in the cycle to be worried about "the" top in Gold. Wake me when we get to $1500/oz. and I'll be happy to revisit the issue (with another bullish commentary about how the next stop is $2,000).

So, whether its deflation or inflation or both, Gold is going higher. This a confidence issue and a secular cyclical phenomenon. "Gold good, stocks bad" is a trend set to continue.

Having said this, I still enjoy the inflation versus deflation debate. From a practical standpoint, as Martin Armstrong has said (see below), big money that moves currency markets can flow almost anywhere in the world to find a safe haven. In the early 1930s, capital flowed into the United States once the major economies like Britain and Switzerland abandoned the Gold standard, causing a crisis in confidence in these previously "good as Gold" currencies. This global flow of capital into the U.S. Dollar caused our Dollar to rise in relative value, aggravating the natural state of deflation we were experiencing at the time.

Naturally, Europeans sought the safety of a foreign currency backed by Gold once their own currencies were aggressively devalued by discontinuing their respective Gold pegs. In fact, if the United States stuck to its guns, it probably would have lost all its Gold to the hoards of paper note-bearing European souls looking for real money. American citizens followed suit and traded their notes for Gold (benefit of a true Gold standard: no commissions or premiums!) - these evil Gold hoarders of course had to be stopped and/or punished. Gold was thus confiscated from American citizens (with safety deposit boxes at times watched by officials to prevent clandestine Gold ownership) and the American Gold standard was finally weakened to help break the cycle of Gold loss and deflation. An overnight 69% currency devaluation ($20.67/oz. to $35/oz.) and the criminalization of private Gold ownership in the United States (ending a "true" Gold standard period in this country) was all it took. As destructive as they were to confidence and people's savings, these Roosevelt mandates helped fuel a weak reflationary cyclical general stock bull market (1933-1937 was not a weak cyclical bull market for Gold miners, by the way).

Will we repeat a 1930s deflationary "collapse" scenario? Will we have a major currency event? Though deflationary forces are strong due to real estate and banking/credit/debt fiascos, confidence in the Dollar is low. The world's greatest debtor nation has not inspired much confidence in global market participants seeking a safe haven. And I am not talking about bear market currency rallies here, I am talking about the dominant long-term trend.

Will Bernanke and his U.S. Treasury lackeys finally destroy the last shred of confidence in Uncle Buck with their idiocracy? Will capital flow into or out of the United States when the next wave of the global crisis occurs? Again, not talking about dead cat bounces here, talking about the dominant long-term trend. Global capital flows have more control over the fate of the Dollar (and every international currency) than Ber-spank-me, but Benny's actions can certainly cause some of our creditors to figure out sooner that it may be better to walk away and simply write off their bad debts. Whether you've chosen sides on the inflation/deflation debate or not, this debate does allow you to recognize the nasty war of fundamental forces that is sure to cause further economic chaos in any scenario.

Me, I see further capital flight away from many financial casinos/markets around the world coming. I see a further loss of confidence in bankstas, Wall Street hustlers and paper magic notes designed to explode. I think some of this global money will be seeking a safe haven in Gold. I am not talking massive amounts of money, as Gold is a small market. I am talking about a few more "elephant" investors (i.e. governments, large private institutional funds) around the world deciding to up their physical Gold insurance from 1% to 5% of their portfolio. That's all it would take to start/continue a big move higher in the Gold price from current levels.

Gold is safe, it is reliable, it requires no government assurances or bail-outs to stay in business, it does well when there is little confidence in the system and it is not debt-based. These are all things you want during a contractionary secular bear market in general stocks and real estate. Sure, governments can try to further tax or even confiscate Gold (again), but the government historically gets too tyrannical in trying to tax or confiscate all kinds of personal property at this stage of the economic cycle (including stocks and real estate). This is hardly a unique problem for those who take the plunge with Gold, despite paperbug concerns. At least Gold can be held quietly "off-ledger" until more rational minds prevail (this is not as easy with stocks and real estate).

In fact, if the government does "ban" Gold or tax it more excessively than it already does, nothing could be more patriotic than to completely ignore such a decree as a moral act of civil disobedience. By the way, if anyone in officialdom is reading, I sold all my Gold last year and this is just an academic intellectual exercise designed to make sure Americans follow everything their mama guvmint sez by pointing out the insanity of messing with Big Brother, who is all-knowing, all-powerful, and should never be disobeyed. I am a paperbug after all, I swear.

I believe the global paper fiat system is breaking down. I believe people will increasingly trade their paper for Gold regardless of whether we undergo deflation or inflation. After a 20 year bear market from 1980-2000, Gold ain't done after a 4 fold gain. Has everyone forgotten how paper fiat market bubbles and Gold manias work?

I suppose that the economic events of the 1930s or 1970s, both inducing Gold and Gold stock manias, could not possibly happen again. Ever. 40 year intervals (if this is, perhaps, say a normal repetitive cycle) would put us at the 2010s for a new Gold mania, but Gold is dead as an asset class forever. Gold will never again have a serious bull market. Oil can go up 14 fold in 10 years but Gold couldn't possibly go up even 10 fold in the same rough period (which would put us at $2500/ounce). The last bull market in Gold on a fiat paper system took Gold prices up 24 fold in 9 years ($35 to $850). The S&P 500 went up 16 fold from 1980 to 2000. This time, a 4 fold gain over a decade in a hated asset still considered worthless by the mainstream crowd is a bubble mania waiting to pop any second and take the Gold price back to Prechterite levels?! No sale, sorry...

I believe $2,000/oz is a minimum conservative upside target for Gold and it wouldn't shock me to get to $10,000/oz. Until the Dow to Gold ratio gets below 2, I wouldn't even consider that the Gold bull market might be over. We've got a long ways to go. Ignore the short-term noise and the paperbugs. Forget the $25-50 swings. Sit tight and be right.

Below is a Martin Armstrong essay that inspired this post, courtesy of Scribd:

Deflation or Inflation--Which is More Likely? 9/29/09

Junior Gold Mining Stock List

I have created a junior Gold Miner stock list/index for my own use and thought I would share it for those who may be interested. I was hoping that by sharing this list, I may get some feedback and suggestions for improving this list. This list is very important to me for one reason: I plan to use it to make money.

I believe the Gold mania phase of this secular Gold bull market is fast approaching, which means that junior Gold stocks are going to start flying higher, as many already have since the terrifying fall of 2008 lows. Those lows were the buying opportunity of a lifetime for those brave enough to take the plunge. However, in my opinion, the party in junior Gold miners is just getting started. Getting back to last year's highs is just the first step for this sector.

The Van Eck Global junior Gold mining ETF should be out before the end of the year and for many, this is a much easier way to play the sector. I will certainly be participating in this ETF once it becomes available (pending ticker: GDXJ and see my previous post on this index here). However, this ETF has some flaws that include leaving out some good junior Gold miners and having a strange position in some larger silver miners that will at least initially make up the ETF's highest percentage holdings.

This list I created is a way for me to track the junior Gold stock sector. It is comprised of multiple sources, as I am not a geologist and do not have a mining background. I used the opinions and leg work of others to create this list. The various sources are included in the list and some stocks came from more than one source. Some of these sources may be more informed than others. Some of these companies are riskier than others (e.g. explorers versus early producers). All of these companies are listed on Canadian and/or American exchanges.

The charting opinions are mine alone and you can take them or leave them. I am approaching this sector from a broad diversification strategy standpoint and leaving the fundamental analysis to those who have more mining experience than I. My goal is to have a readily available list to consult from so that when I have more capital to invest, I immediately have a very short list of candidates to choose from without spending a lot of time doing research.

I have made the decision that from this point forward in the Gold and Gold stock secular bull market, I will be putting a larger portion of my speculative funds into junior Gold miners and a smaller portion into my favored larger cap Gold miners (I currently like Royal Gold [RGLD], Kinross Gold [KGC], Agnico Eagle [AEM], Yamana Gold [AUY] and Goldcorp [GG] as larger cap stocks). I had previously only put my speculative money into larger cap Gold stocks. Physical Gold bullion is the anchor of my portfolio but I don't trade it, whereas I plan to buy Gold miners on corrections and sell them when I think they are significantly overbought on an intermediate-term basis.

There is greater leverage in junior Gold stocks once the mania begins, but there is also greater risk. The sector is certainly not for everyone and provides little to no dividends/income. Higher risk = higher reward for those inclined to speculate. Once Gold fever hits (we're getting close but we're not there yet), small cap Gold stocks will outperform large cap Gold stocks. However, some of the firms in my list will likely go bankrupt and/or be de-listed, creating complete loss of capital. This is why diversification is so important in this sector for anyone who is not an expert investor/analyst.

I would really appreciate anyone who gets any benefit from this list or who has interest in this sector passing on any relevant information, which I will add if appropriate. Perhaps you know of the next "big" junior Gold miner not on this list or know additional information about a stock already in this list. I do not and have not ever subscribed to any letters, etc. from any of the analysts listed as references for the list.

If there is sufficient interest, I will be happy to post an updated list periodically with updates on my "charting"/technical analysis take on these firms, as I will be doing it anyway for my own benefit/use. I will only buy those firms ranked as a "1" in the charting column, will hold those marked as a "2", and will consider taking some profits or even completely exiting positions in those stocks ranked as a "3" on this list. I own some of the stocks in this list currently, but I do not currently own a majority of the stocks on this list.

Also please note that I am not interested in putting silver stocks into this list. Though I know silver stocks will have their day in the sun and I will be interested in them later in this economic cycle, my focus is on Gold stocks right now, not silver stocks.

I also currently am not including stocks that are not listed on American or Canadian exchanges for selfish reasons: the charting site I use (stockcharts.com) doesn't provide me a way to chart issues from other countries (it also doesn't seem to allow me to chart five letter pink sheet ticker symbols). There is enough global geographic representation in this list where I don't feel I'm missing out too much, but this is a another weakness in the roster creation process to be aware of. I also have NOT done my fundamental homework on these firms and you are thus left to do your own diligence on any stock you are thinking of investing in - some of these stocks may end up being "dogs" and may wallow near their lows or go out of business even as Gold rockets higher.

Without further ado, here is the list of 124 junior Gold mining stocks, courtesy of Scribd:

Junior Gold Mining Investment Spreadsheet

I have this list as an Excel spreadsheet, which is how I created it and use it so that I can do data sorts and other manipulation. It seems easier to use and review to me. If anyone is interested in obtaining a copy of this Excel file, drop me a line via my blog in the comments section or email me at abrochert@yahoo.com (no charge for this list and please put "junior Gold stock list request" in the email subject line if you email me so I know it's not spam). I would be happy to post the Excel spreadsheet file, but I don't know how to do this currently.

[EDIT: A reader more tech savvy than I pointed out that if you download this list from Scribd, you can just select ".xls/Excel" as the file type and voila! I am still happy to email those who don't want a Scribd account or have any trouble getting this is Excel format]

Happy speculating!

Gold - Ultra-short term

Gold looks great right now. Another day comfortably above $1000/ounce, further establishing this psychological price level as a floor instead of as a ceiling. Once you're into 4 digits, changing the first number in the four digit sequence no longer seems impossible. Currently, we are in a short-term consolidation pattern that looks very healthy.

Here's a 1 year daily chart of the GLD ETF, used instead of the Gold price because it shows volume patterns:



Next stop for Gold is $1100 and there's only psychological resistance at this level (i.e. may not actually stop at $1100 for any length of time). The GDX ETF looks like it is about to head for its all time highs:



The opposite volume pattern is happening in the Dow Jones Industrial Average. Volume has fallen off a cliff over the past 6 months as the Dow moves higher while GDX volume has expanded to new impressive highs over this time.

Gold often corrects towards the end of October (a seasonal pattern) as it is doing now. This is healthy and normal. I don't think we'll have to wait more than a week or so for another move higher. If the consolidation lasts longer, that would actually be even more bullish, as this means it is a major correction in this intermediate-term bull trend rather than a minor correction. A major correction that moves sideways without a significant price retracement lower suggests that the upside move that follows it will be extremely strong, so another 2-3 weeks of sideways action would not upset me at all, I just think it's less likely.

Today's commitment of traders report continues to show expanding open interest (i.e. greater number of open contracts), which is bullish. People focusing on the "high" short position don't get it. They should be focusing on the fact that every short needs a long to go with it, so why aren't they calling it a high "long" position? The Gold bears are scared right now, not the bulls. Expanding open interest in the futures market is a healthy sign during a bull run, not a bearish sign.

The institutional investors are starting to herd into Gold and Gold stocks (articles like this are becoming more and more frequent). This is pre-mania type of fundamental news. The big money moves in and the price starts to rise strongly and inexorably for a while. After this occurs for several more months to a few years, retail investors will finally show up in droves and grab the bull by its horns for the final zany rush higher. We are currently a long way away from this point. For now, Gold bulls should just relax, stay the course and enjoy the ride higher.

Gold Against the Dow - The Forest

Those who have read my rants are probably tired of hearing about the Dow to Gold ratio, yet my realization of the significance of this ratio and my desire to spread its message began my blogging journey. Please excuse me if I continue the theme. If you are not familiar with the Dow to Gold ratio, start with this link for background information.

Ratio charts get into an important concept of relative value and relative gains. These things are extremely important in a paper currency world where the value of money itself is constantly changing. In 95% of cases, this is due to a loss of value in the currency, as all paper money (i.e. fiat) systems are abused until the currency becomes worthless and is replaced with a new currency. No historical exceptions actually.

In other words, breaking even when investing may mean you are losing money and potentially lots of it. An example of this concept can be found using a nominal versus an inflation-adjusted chart of the Dow Jones to show two very seemingly dissimilar bear markets - the 1930s and the 1970s. Deflation versus inflation. The worst bear market of the last century (the 1929-1932 bear, during which the Dow Jones lost 89% of its value) versus the choppy 1966-1982 bear market where the Dow Jones stayed in the 600-1000 range. First is a nominal (i.e. non-inflation adjusted) chart (courtesy of chartsrus.com) of these two bear markets:



Next, an inflation-adjusted chart of those same bear markets (courtesy of Steven J. Williams at CyclePro):



Once you understand the significance of these two different charts, you understand the reason for the significance of ratio charts. The Dow has been at 10,000 a few times over the past decade and each time it gets there, that 10,000 is worth less in purchasing power. Ultimately, money is a means to an end and its value must be determined by what it can purchase. An investment that gains 10% a year when inflation is 20% a year is a terrible investment. In other words, nominal gains must be put into context versus the value of the currency in which the gains are denominated.

Anyway, the reason the Dow to Gold ratio is important is because Wall Street is selling and marketing the wrong investment plan. Many working age people put the bulk of their savings in the stock market because it is what everyone else is doing and what conventional mainstream financial "analysts" preach over and over again. Dollar-cost-averaging, stocks for the long haul, etc., etc.

But what the ratio chart comparing the Dow Jones to Gold tells us is that there are actually multi-year periods where a piece of shiny metal is a better investment than the stock market! In fact, it has been resoundingly true over the past decade. How smart does Wall Street seem now?

We are in a long-term secular stock bear market in inflation-adjusted terms that is far from over and we are in a long-term Gold bull market in stock market terms that is far from over. In other words, forget the nominal prices of Gold and the Dow Jones (or S&P 500, etc.) for a minute. Concentrate on the ratio of Gold to the Dow Jones and take a peek at this tremendously bullish 29 year monthly chart of the Gold price divided by the "price" of the Dow Jones Industrial Average:



We are headed back towards parity in this ratio. If you don't believe this, ask yourself why history cannot repeat. It happened with inflation and it happened with deflation. Our financial system is now more out of control than ever and I personally don't think it is an unreasonable prediction that it may take even less than one ounce of Gold to buy the entire Dow Jones Industrial Average once this mess is over. Now if you'll indulge my premise that we are going to get back to a ratio of 2 (I think one or less, but I'll use the conservative figure of 2 for now), let's say that based on yesterday's closing prices you sold all your stocks and immediately bought Gold with the proceeds (ignoring the tax implications of doing so for now).

This means that within 5 years, which is as long as it should take for this ratio to reach its target range, you will be able to buy 5 times the number of stocks you can afford today. This is a relative increase in stock market wealth of 400% in 5 years or less. And if we get to 1 in this ratio, we are talking about a relative increase in stock market wealth of 900% from current levels. If I told you about an investment that would gain 400-900% within the next 5 years, wouldn't you be interested? This is a massive shift of relative wealth for those who hold physical Gold instead of general U.S. stocks (in aggregate). Cash is king during a bear market, but only if one holds the right form of cash (hint: it ain't the U.S. Dollar and it's yellow and shiny).

It is also important to remember that it is at the end of bull markets where things get frantic and crazy to the upside. We are not there yet in the Gold bull market, but we are now getting close. The break above $1000/ounce was important psychologically to this Gold bull market. Do not lose the forest through the trees in this long-term bull market. All real risk is to the upside in Gold. There will be corrections all along the way, but we are rapidly approaching the mania phase that will undoubtedly develop in the Gold sector.

When one thinks in terms of Gold versus Dow, the inflation versus deflation debate becomes much less meaningful in a practical sense. We have reached the stage where Gold is doing well because of loss of confidence in Wall Street and government policies. This loss of confidence, which will reach critical mass during the next leg down in the stock market, is what will continue to fuel the Gold bull market.

Gold stocks - Overbought?!

Sometimes (often times, actually), it helps to step outside one's usual patterns of looking at markets to see things from a different perspective. I did this recently with a major "blue chip" global Gold mining index known as the "TSX Global Gold Index" ($SPTGD) from the Toronto exchange (here's a link to a list of the constituents in this index)

A chart of this index may help make things "clearer" for the bullish case on the current intermediate-term bull market move in the price of Gold and Gold stocks. Here's an 18 month daily chart of this index ($SPTGD) that is up thru Monday's close:



And how about this proprietary speculative junior mining index chart reprinted without permission from the Long Wave Group up thru about 9-10-09 (by the way, read their latest missive for a Gold price prediction during what they are calling a deflationary depression):



We've had an 8 month uneventful and healthy correction from a "global" perspective in the senior Gold mining sector as well as in the speculative small cap junior Gold exploration and mining sector. In fact, these charts suggests that many Gold miners have missed the ENTIRE party in global stock markets since March! That is about to change. The Gold bull is raging and the ongoing secular credit contraction is far from over. A nasty drop in the stock markets will add kerosene to the Gold bull as people dump stocks and scramble for safety at a time when T-Bill yields are essentially zero. A yield of zero means even paperbugs would have to admit there is no value in holding T-Bills and no real opportunity cost in holding Gold. Gold will fulfill its historic role in preserving wealth as the scramble for safety intensifies. Those who dig wealth out of the ground will be rewarded.

Paperbugs

It is now time for the tables to turn once again. It is now time for the paperbugs to take their medicine. It is now time for the "Don't Worry, Be Happy and Invest in Stocks Forever" crowd to come to realize they were not only wrong, but arrogant in the face of overwhelming evidence to the contrary.

The paperbugs, as I am now going to start calling them, place all their belief in a paper system destined for failure. Paper fiat money has never worked throughout history and central banks have never benefited society over the long term. Kenneth Gerbino exposes the ridiculousness of paper money in one brilliant quote:

"If you don't trust [G]old, do you trust the logic of taking a beautiful pine tree, worth about $4,000 - $5,000, cutting it up, turning it into pulp and then paper, putting some ink on it and then calling it one billion dollars?"

Yet, such is the logic of the paperbugs. They believe confidence in men is eternal and more reliable than nature. Hasn't history exposed the folly of such beliefs over and over? Gold is money not because any one individual calls it that but because people and societies over the past few thousand years have figured out that it functions well in this role for multiple reasons. The main reason is basic: people in power are not to be trusted! Why is the collective wisdom of millions of people and hundreds of societies less valuable than the decree of a few scheming bankstaz and their paid-for bureaucratic bozos?

I am not saying that we will return to a Gold standard monetary system any time soon. I am saying that this crisis exposes the folly of the paperbug. Believing in paper money when it can be created out of thin air with no work required is childish. If it is not childish, then it can only be nefarious (i.e. if one is an insider, paper money makes perfect sense). The ability to print money out of thin air is intoxicating and highly addictive. Our government and its drug dealer, the federal reserve, have taken the road more frequently traveled and are now in the terminal stages of addict and enabler, respectively.

The paperbugs believe in fairy tales like the fact that the non-federal, for-profit federal reserve corporation is smart and knows what it is doing. The paperbugs believe government apparatchiks know how to "stimulate" an economy. I guess this is because governments have always been the driver behind economic prosperity, growth and innovation in "free" markets, right? This is why communism, fascism and socialism have always produced the strongest and most innovative economies throughout history!

It is time for paperbugs to admit that their beliefs are bizarre and not worthy of serious economic discussion. Monopoly money cannot be the basis for a sound society. Look at what has happened to the United States since we severed the final tenuous link to Gold in our monetary system in 1971! We have lost our advantage over the world. We have lost our prosperity (no, it's not coming back soon for the "average" American), lost our manufacturing base, been through a horrible inflation (the 1970s) that required usurious interest rates to tame, and have been through serial unprecedented bubbles in stocks and then real estate that are now going to continue exploding for a decade or two.

I am not saying Gold would have prevented all of these things, but Gold brings stability. It is boring. Paperbugs know that paper money is never boring. It is a manic-depressive master over society. Loose money fuels a boom and tight money results when the speculation has exhausted itself. The swings are getting wilder precisely because our money is not real. Our monetary system is a fantasy better told as a bedtime story to gullible children than as a basis for a "modern" society.

Paperbugs believe CNBC and Larry Kudlow are telling the truth. Paperbugs believe the U.S. Dollar will maintain its grip over the world and is a viable global reserve currency. Paperbugs believe government "stimulation" is anything besides a complete oxymoron that drains the lifeblood of an economy. Paperbugs believe Gold is worthless and the paper promises of corporations are priceless. Paperbugs believe "stocks for the long haul" is something besides a marketing campaign designed to "rip your face off" over the long haul. Paperbugs believe Ben Stein knows something about economics and the stock market. Paperbugs are permabulls on financial markets.

What paperbugs don't understand is that promises have to be kept consistently by the entity making them to maintain their value. The U.S. government, in aggregate, has past the point of no return. They cannot live up to their promises. They have promised too much and cannot deliver. That means every promise inherent in the currency units of the United States has much less value to the rest of the world. Paperbugs fail to understand that paper is about confidence. Confidence in the United States and its financial system is declining rapidly, which means our paper games are being exposed for the fraud that they are. We can recover, yes, but it will take a decade or two and we will likely be a much weaker nation on the other side.

As the pendulum of time and greed swings in different directions, the Dow to Gold ratio will continue its inexorable decline towards one. Paperbugs will cry and scream and continue to call Gold worthless or a bubble until it is in its final blow-off stage. Then CNBC will tell the paperbugs to buy Gold and Gold stocks right near the top so that their corporate masters can sell to the frenzied paperbugs - sort of like what's happening right now in the general stock market.

The trick for Gold bulls will be to recognize when the final peak in the relative value of Gold is near, then to trade that Gold for stocks, real estate, or some other undervalued asset class of interest. We are a LONG way from that point.

Gold and the Stock Market

I know the hard-core deflationists and Prechter followers are still waiting for Gold to collapse when the stock market takes its next brutal leg down. While I agree with such persons when it comes to the stock market, I disagree on Gold. Gold has started another strong bull leg higher. The stock market won't stop it from happening. A rise in the US Dollar Index won't stop it from happening. The Gold bull market is an independent secular bull market with its own drivers that include things besides US Dollar weakness.

Here's a busy 4 year weekly chart comparing a green area plot of the price of Gold in US Dollars versus the S&P 500 (black line plot) to show you what I mean:



People think a declining stock market will drag down Gold, but this is only true during true "panic" liquidations where everything is sold indiscriminately to raise cash. The coming leg down in the stock market will be nasty, but it will happen in stages. The break-out in Gold is sending a powerful message and most Gold stocks will continue to respond to it. Yes, there will be corrections along the way. At least I hope so, because this gives the move strength to continue higher before exhausting. The important point is that being bullish on Gold and Gold stocks and bearish on the stock market are perfectly compatible views.

The general stock market continues to defy gravity for a few more days. Man, have I been humbled by this move. Even though I know the end is very near, it went higher and stayed high much longer than I thought was feasible. Here's a look at the equity put to call ratio over the past 4 years, using the 8 day moving average rather than the raw data to create a less noisy plot:



The Volatility Index ($VIX) dipped below 21 today! The bear market in general stocks is far from over but this rally has been extremely powerful and rapid. Bearishness is gone and so yesterday's news. It is almost heresy to say that this is still just a bear market rally. Anyone who still believes in the efficient market hypothesis should be labeled mentally unstable. The recent strength in Gold is warning of the next phase in the ongoing secular credit contraction and the next leg down in the general stock markets. It should prove to be quite interesting...

Senior Gold Miners - More Perspective

I am surprised at the lack of bullishness in the Gold community in regards to Gold stocks. Yes, risk is high. C'est la vie in the casino we call the stock market.

I wouldn't be putting new money into the senior Gold stock sector right now, but I would be getting ready to buy on any 4-8 week correction. It is important to keep a perspective of where we are in this secular Gold stock bull market. We are in the 2nd cyclical bull market and it just started in the fall of 2008. Gold stocks DO NOT MOVE the same way general stocks do, which is why they are a good countercyclical asset class when the stock market is mired in a secular bear market (as it is now).

The fundamentals for Gold miners are set to improve again as the economy sinks further into the abyss. This is the irony of Gold stocks - they often thrive when the economy is doing poorly. People concerned about Gold stocks crashing again with the stock market are ignoring history. Can corrections in Gold stocks be sharp and scary? You betcha. But they are buying opportunities and the next Gold stock correction will be no exception.

Here's a 10 year monthly chart of the Gold Bugs' Gold Mining Index ($HUI) to show you what I mean in terms of keeping perspective:



And please don't misunderstand my message: I am not advocating novice investors pile into senior Gold stocks right now. It's too far into a shorter-term upward move. But when the necessary 4-8 week correction occurs in this sector at some point (could even start later this month for all I know), don't get sucked into thinking Gold stocks are about to collapse. Ain't gonna happen. They will correct sharply and provide investors and speculators with another chance to buy more before the next thrust much, much higher. When looking at the above chart again, one quickly realizes that the bull market would have have helped bail out bad timing mistakes during a similar point of the last cyclical bull in Gold stocks. Me, I've got that trading bug in me that forces me to wait for a pullback before I'll buy anything.

If you're not interested in playing in the casino, then physical Gold will remain a safe haven until the Dow to Gold ratio gets to the 1-2 range. But if you are interested in Gold stocks, don't lose the forest through the trees. The "big" shake out and correction was in the fall of 2008. It's gone. The new cyclical bull market in Gold stocks is in full force and it will have VERY LITTLE to do with the movements of the general stock market indices like the S&P 500. Risk is high right now for new money in the Gold stock sector only over the short-term, not the longer term. The kind of pending bull market moves remaining in the Gold stock sector are what dollar-cost averaging was made for if one is so inclined.

Gold Miners Playing Catch Up

to the Gold price. In other words, if Gold is $100/oz, all other things being equal, Gold miners should be cheaper than when Gold is $1000/oz. Of course, all other things aren't equal, but as a general rule of thumb, using a crude ratio chart of a Gold mining index divided by the price of Gold can be a useful guide when speculating to figure out if Gold miners are relatively over- or underpriced relative to the price of Gold.

This worked out fairly well during the first phase of the secular Gold stock bull market that began in late 2000. Suddenly, however, Gold miners were thrown out with the bathwater during the Great [fall] Panic of 2008. The Gold miner to Gold price ratios fell out of bed and went two standard deviations outside the normal range.

Now, Gold miners are playing catch up. With Gold at new all-time nominal highs and the "real" price of Gold near it's all-time highs for this secular bull market in Gold and Gold stocks, most Gold stocks are below their all-time highs and some far below.

Here's a ratio chart of the stodgy blue-chip conservative Philadelphia Gold and Silver mining index ($XAU) divided by the Gold price on a 10 year weekly chart to show the entire secular bull market so far:



We are almost back to the lower end of the previous "normal" range in this index a year after the crash. I think we'll reach the lower end and eventually re-test and probably exceed the top of the old range once the mania really gets going. But compare this with the juniors and it's a whole different ball game.

Now, I don't have a good chartable junior Gold and silver mining index to use. As a matter of fact, think about that as a contrarian. Really think about that:

AS OF TODAY, THERE IS NO "BLUE CHIP" OR OTHER READILY AVAILABLE ETF OR INDEX THAT CAN BE BROUGHT UP ON MOST CHARTING SITES ON THE WEB. THIS IS CRITICAL TO UNDERSTANDING HOW FAR WE HAVE TO GO IN THE JUNIOR GOLD STOCK MANIA! THERE IS A FUCKING CHART AND ETF FOR EVERY GODDAMN THING UNDER THE SUN! CONTRARIANS, DELIGHT!

Yes, I am aware of a few souls laboring away to create their own junior index (Barbera, Gordon, McEwen, etc.), but try finding these indices on stockcharts.com or Yahoo Finance. Anyhoo, I stand with others who have been in the game longer than I that the Toronto Venture Index ($CDNX), though far from perfect (because it includes non-mining companies and companies who mine things besides precious metals), is a reasonable proxy for junior Gold and silver companies. Again, not perfect, but because this bull market is still so young in the eyes of institutional and retail investors, there is no good and easy-to-chart proxy for the junior Gold miners yet (GDXJ is coming out soon from Van Eck Global - freakin' brilliant timing this firm has!).

Take a look at the $CDNX to Gold price weekly 10 year ratio chart to see the difference in the junior sector:



We will get back to that range at some point during this Gold stock bull market. If you have the risk tolerance and buy a broad basket of junior Gold miners, a 500% gain over the next 3-5 years is not an unreasonable goal in this sector. The pending junior Gold miner ETF (ticker: GDXJ) will provide a liquid way for the public and institutional investors to play this sector, and play they will! We are playing catch up in the Gold mining sector and we are not done yet.

By the way, I understand that people are nervous about the pending resumption of the bear market in general stocks. This is prudent. But Gold stocks are done following the stock market down, other than brief, normal corrections that will sometimes coincide with the steep part of the many pending bear market sell-offs that await general stocks. But take heart in what happened during the worst parts of the 2000-2002 stock bear market. Though Gold stocks took one final vicious plunge with the stock bear market before beginning their new secular bull market in the fall of 2000, they pretty much did their own thing and ignored the stock market after that. Here's a busy chart showing the Gold Bugs' Gold miner index ($HUI) as a green area plot versus the S&P 500 (black linear plot) during the worst plunges in the stock bear market ongoing on that time:



This time won't be different. Last year's highs in the senior Gold stock indices are dead ahead. Gold bulls, enjoy the move.

GDX Target Dead Ahead

And that target is it's all-time highs. Remember that Gold miner fundamentals are improving as the general economy fundamentals are collapsing. This is one of the reasons why Gold and Gold miners have been great countercyclical assets over the past century of American investing.

Yes, Gold and Gold stocks are simply running with the bulls right now, as everything is up but the U.S. Dollar, but there's a critical difference between the Gold patch and other asset classes: Gold and Gold stocks are in a secular bull market caused by the early stages of a new secular credit contraction, also known as a Kondratieff Winter. Other asset classes are largely in secular bear markets, with the most important ones being general stocks and real estate, which are terrible long-term investments right now. Commodities and the U.S. Dollar are wild cards still being argued over by financial experts as some are calling for deflation and others for inflation.

Me, I'm in the deflation camp for now but in the end I don't care, as I am sticking with Gold. Gold does well during a credit contraction, regardless of whether the U.S. Dollar holds up or not, and protects against a currency crisis that we all know is coming sooner or later. Gold stocks LOVE credit contractions because this causes the "real" (i.e. actual as opposed to the nominal) price of Gold to rise. This is because Gold is money and cash is king in a secular bear market and thus the purchasing power of Gold is rising and will continue to do so as this credit contraction grinds on. This deflationary trend increases Gold miner profits (for those not interested in quibbling about academic theory and definitions, this "deflation" is best thought of as asset price deflation relative to the Gold price in an anchorless paper fiat world).

Anyhoo, Gold stocks have been on a tear lately and senior Gold stocks are nearing their first major target level: last year's highs. Here's a 30 month weekly chart of the senior Gold miner ETF (ticker: GDX):



I don't know what happens after we get to last year's high in senior Gold stock indices, but I think we'll get there at a minimum. I do know that this would be a good place to either take some profits off the table or at least place some stop losses if one is a trader. Those in it for the long haul need to be aware of two things: first, this Gold stock bull market has a LONG way to go when one thinks in terms of years rather than days. Second, the corrections in Gold miners will continue to be steep and will test your resolve.

As a teaser of what's to come in all but the worst managed Gold stock companies, take a look at the IAMGOLD Corporation's (ticker: IAG) 30 month weekly chart:



Gold is overbought, but it can stay that way for a long time during a strong uptrending move. My Gold is not for trading so I'm just enjoying the move while it lasts. Until the Dow to Gold ratio reaches the 1-2 range, Gold is a long-term hold for me.

GDXJ Constituents Now Available

The anticipated new junior Gold miner ETF from van Eck Global, the firm behind the GDX Gold miner ETF, should be available for trading soon (within the next 1-2 months). The consituents of the pending ETF are now available via this link (click on "daily constituents" link at this site or just see my re-creation of the list below). I have to admit that I was disappointed that 3 of the top 5 holdings are predominantly silver miners. Once one gets beyond the initial disappointment and looks deeper into the roster, it looks like a great basket of junior Gold mining firms to own.

Not only that, but institutional and trader money will pile into this ETF once it is available and these firms will thus become more liquid. A decent play would be to buy any of these firms now if they look like they are in a correction still and haven't moved to the upside significantly recently. This ETF will create a bid for many of these small caps firms that otherwise wouldn't be there.

I for one, despite my disappointment in seeing Coeur d'Alene, Silver Standard and Hecla in the top 5 holdings by weight, plan to buy into this ETF once it becomes available. I think the timing of this ETF release is wonderful and should be celebrated by junior Gold mining investors, as it will allow big insitutional and retail money to help fuel the massive rally in junior Gold mining stocks over the next few years.

Saddle up, speculators. It's going to be a wild ride once it really gets going.

Here's a re-print of the list of miners that will be in the GDXJ, which again is not yet available for trading:

Company (Ticker)
Andean Resources Ltd (AND.TO)
Avoca Resources Ltd (AVO.AX)
Dominion Mining Ltd (DOM.AX)
Kingsgate Consolidated Ltd (KCN.AX)
Medusa Mining Ltd (MML.AX)
St Barbara Ltd (SBM.AX)
Alamos Gold Inc (AGI.TO)
Aurizon Mines Ltd (ARZ.TO)
Colossus Minerals Inc (CSI.TO)
Detour Gold Corp (DGC.TO)
European Goldfields Ltd (EGU.TO)
Fronteer Development Group Inc (FRG.A)
Gabriel Resources Ltd (GBU.TO)
Gammon Gold Inc (GRS.N)
Gold Wheaton Gold Corp (GLW.V)
Golden Star Resources Ltd (GSS.A)
Great Basin Gold Ltd (GBG.TO)
Jaguar Mining Inc (JAG.TO)
Kirkland Lake Gold Inc (KGI.TO)
Lake Shore Gold Corp (LSG.TO)
Minefinders Corp Ltd (MFN.A)
New Gold Inc (NGD.TO)
Northgate Minerals Corp (NXG.A)
NovaGold Resources Inc (NG.A)
Romarco Minerals Inc (R.V)
Rubicon Minerals Corp (RMX.TO)
San Gold Corp (SGR.V)
Semafo Inc (SMF.TO)
Silver Standard Resources Inc (SSRI.O)
Silvercorp Metals Inc (SVM.TO)
Ventana Gold Corp (VEN.TO)
Lingbao Gold Co Ltd (3330.HK)
Avocet Mining PLC (AVM.L)
Real Gold Mining Ltd (0246.HK)
Allied Nevada Gold Corp (ANV.A)
Coeur d Alene Mines Corp (CDE.N)
Hecla Mining Co (HL.N)
US Gold Corp (UXG.A)

Gold Technicals - Wow!

If you're not into technical analysis, you're not into it. I understand. Drawing squiggles on a chart seems like reading tea leaves to many. I get it. I personally believe that it increases your odds of success if you have the fundamentals right. In other words, technical analysis in isolation is not attractive to me, but laid over a solid foundation of fundamental analysis makes sense to me.

The Gold price chart, denominated in U.S. Dollars, makes sense to me. It is a thing of beauty. It is a Picasso for those who care to try their luck at reading price charts.

Here's a 2.5 year daily chart to show you what I mean:



The symmetry is perfect. The break-out is textbook. Can it fail to materialize and can Gold fall significantly from here? Yes. Investing/Speculating is never certain (I learned that when shorting the market last May and June). But those calling for a failure or steep correction here in the U.S. denominated Gold price are ignoring the dominant trend:



Gold has increased by 4-fold since the turn of the century. The mainstream sees Gold is going higher and is skeptical. Apparently it is a bubble according to some. Come on. You're telling me that an asset class that rises in value 4-fold over a decade is a bubble? Yeah, OK. We'll ignore the recent history of paper fiat-inspired bubbles and play pretend. Oh, wait. Let's look at an actual prior bubble that was unsustainable and ready to pop - the NASDAQ. Here's that historical 4-fold bubble waiting to pop in 1991:



Oh, yeah, and here's what happened next in the "unsustainable" tech bubble (20 year monthly NASDAQ chart from 1980-2000):



And how about oil? What does a paper fiat bubble in energy look like at the point when everyone is doubting it can happen? Here's oil on a weekly chart from 1999 to 2004:



And we all know what happened next with oil:



Those who think it is not possible for Gold to have a similar chart - I get it. No growth, no dividends, just a piece of metal, blah, blah, blah. But when the system breaks down due to too much debt and too many paper promises, the bubble swings the other way. Invest where you want. But me, I'll bet on Gold.

I'll bet that a shiny piece of metal will outperform the hubris of a small group of men and women willing to risk systemic failure to maintain profits. Call me cynical if you wish, but I believe one or two ounces of a shiny metal will be equal in value to the entire Dow Jones Industrial Average before this bust is over. It happened in the 1930s and it happened in the 1970s, both during the context of secular bear markets in stocks like the one we are smack dab in the middle of right now. The last secular Gold bull market under our current U.S. fiat paper monetary system went up 25 fold from bottom to top. We've got a long way to go. In my opinion, the bubble in Gold has just begun.