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29
Jan
2012

Top 10 gold price predictions for 2012

by Fred Marion

The gold market got a powerful jolt last week when the Federal Reserve announced plans to keep interest rates at historic lows through at least 2014. It was a sign, perhaps, that the gold rally has more than a year’s worth of climbing to do (until the Fed gets serious about combating inflation). The news has helped push gold prices up 10 percent in January alone, and that’s got us wondering what’s in store for the metal in 2012. Let’s take a look then at the Top 10 gold price predictions for 2012:

1) An average price of $1,765 an ounce. A Reuters survey of 45 analysts predicted an average spot gold price of $1,765 an ounce in 2012. That’s 14 percent higher than last year’s average spot price for gold.

2) New all-time high for gold. After getting pressed in an interview with the Washington Post, Puru Saxena, chief executive officer of Puru Saxena Wealth Management, didn’t name a price target for gold, but he did say: “My best guess is the price of gold could reach a new high.”

3) $2,300 an ounce. That prediction comes from Peter Schiff, a former U.S. senatorial candidate from Connecticut. He believes 2012 will be the year the dollar finally starts to “fizzle” out (per ETFDailyNews). “We’re a long way from a blow-off top that you would get at the end of a bubble,” Schiff said in the interview. “We might eventually get there, but we’re years away and thousands of dollars an ounce away.”

4) $1,845 an ounce. Global banking giant Morgan Stanley revised their gold price predictions lower on Jan. 17. They believe gold will average $1,845 an ounce in 2012.

5) $1,681 an ounce. Investment bank Goldman Sachs was more bullish than Morgan Stanley. On Jan. 9, they were predicting gold would hit a new record of $1,940 an ounce in 2012 (per Bloomberg). Two weeks later, they were revising that figure down to $1,681 an ounce in 2012.

6) $1,892 an ounce. Barclays Capital believes the yellow metal will surge 21 percent on the year. That said, they also believe the gold price could go even higher by Q3 2012: “Gold is likely to reach a new all-time record high above $2,000 per ounce during the third quarter of 2012.” (per IBT).

7) $1,450-$1,750 an ounce. Jeffrey Wright, senior research analyst at Global Hunter Securities, believes gold will remain range bound for the year between $1,450 and $1,750 an ounce (per NuWireInvestor). He echoes many other analysts, though, in arguing that we will likely see a sprint north of $2,000 an ounce in 2012 at some point during the year.

8) $1,000 an ounce. The bulls are tempered by Jon Nadler, a senior analyst at Kitco.com. Nadler argues gold will hit $1,000 an ounce before it hits $2,000 an ounce. “The question will remain for 2012, to what extent will investment demand be able to remain the principle driver and continue to attract interest from speculators and investors,” Nadler told TheStreet.

9) $3,000 an ounce. John Ing of Maison Placements Canada Inc. expects to see gold at $3,000 an ounce in 2012. “There’s just a lack of compelling investment alternatives,” Ing writes.

10) A Long-Term Prediction: $3,600 an ounce. Frank Holmes, CEO of U.S. Global Investors, believes gold prices could double in the next five years to $3,600 an ounce (per NuWireInvestor). “Does anyone really believe in the long term strength of the U.S. dollar … We’re just going to have to live with this volatility for another 12 months,” Holmes told NuWire.

The biggest beneficiary of high gold prices in 2012 could be gold and silver mining stocks. See which companies we think our poised for success in our BRAND NEW book: the Top 500 gold and silver mining stocks.

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21
Oct
2011

$10,000 gold doesn’t sound that crazy anymore

by Fred Mason

I’ve been listening to The Financial Sense Newshour with Jim Puplava for about two years now. The host is unabashed about his bullishness on gold, but he backs it with logical arguments, and it’s been difficult to argue with his stance that gold is going to keep going up until we see some new form of non-fiat currency.

It wasn’t until this week, though, that I heard Mr. Puplava actually give a price target on the metal:

“We aren’t even close to where I see the price of gold and silver going. We’re probably in the second phase of this bull market. Wait until we get to the third phase of this bull market where I think you’re going to see prices closer to $10,000. I know people probably think I’m nuts saying that, but I can make all kinds of fundamental reasons why we think that’s where we’re eventually going to end up.”

Mr. Puplava attributes the rise in gold to one thing: money-printing at, not just the Federal Reserve, but by central banks and governments around the world.

“The debt issue, as Reinhart and Rogoff have told us in This Time Is Different, it takes about 10 years to work those things off.

“We’re only four years into a 10-year debt cycle work-off. So we have another six years to go, and does anyone believe that governments are going to stop printing money? I mean just take a look at what they’re talking about bailing out, back-stopping, quantitative easing, they have all kinds of fancy names for it, but we all know what happens when they do this kind of thing.”

It turns out Jim Puplava’s not the only one who thinks we could see gold at $10,000 an ounce. Nick Barisheff (the CEO of Bullion Management Group Inc.) is actually working on a book titled “$10,000 Gold – Why it will get there sooner than you may expect.”

“Unless current monetary policy is drastically changed, it will almost certainly rise to $10,000 an ounce and beyond,” Barisheff writes (per ResourceInvestor).

He believes three facts are contributing to gold’s ongoing march toward five digits:

  • The loss of purchasing power of global currencies
  • The inflationary effects of money creation
  • Irreversible trends (an aging population, peak oil and outsourcing) will continue to cause gold to rise

Barisheff goes onto point out what I think most outsiders fail to miss when they’re thinking about gold: it doesn’t rise in value. It’s only going up in price because the value of our dollars, euros and yen are falling.

And, if you fall in their camp, you’ll probably come to the same conclusion they have: the fiat currency system that President Nixon implemented in 1971 is on the verge of collapse. And until we get a new currency, gold, silver and other hard assets will be the only vehicles we’ll have to protect the assets we’ve a worked a lifetime to accumulate.

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08
Oct
2011

Four signs gold prices are being suppressed

by Fred Mason

Recently, I blogged about why the U.S. government has a vested interest in keeping gold prices low (see my post What is gold price suppression? for more). Today, I offer up four signs that gold price suppression is actually happening:

1) Swiss miss? One of the strangest impacts of the news that Switzerland was pegging its currency to the Euro was the downward pressure it put on the price of gold. Before the news, the Swiss franc was generally regarded as one of the last strong currencies in the world, and the fact that it would no longer serve as a safe haven should have pushed gold up according to Hinde Capital CEO Ben Davies.

“Why was (gold) selling off just ahead of a really bullish announcement?” Hinde asked in an interview with King World News. “You have to believe that there was some coordinated action. When I say that, the central banks will all have been in on knowing ahead of time that the Swiss were going to announce this. So there was central bank selling because they really didn’t want the price of gold to skyrocket on what is incredibly bullish news for gold.”

Even Goldman Sachs’ head gold trader Zak Dhabalia was perplexed. “The immediate aftermath was in complete contradiction to prior recent episodes of intervention and what anyone would have expected,” he said (per Fool.com). “Instead of spurring a further gold price rally on the basis that it was one of the few remaining safe haven ‘currencies’ we saw a USD$50 collapse in minutes.”

2) Collusion among central banks. GATA.org is one of the most forceful advocates for transparency in the gold markets. And they’ve been trying for years to draw attention to comments by William S. White, former head of the monetary and economic department at the Bank for International Settlements. At a convention of central bankers in Basel, Switzerland, in 2005, White declared that a major purpose for cooperation between central banks is “the provision of international credits and joint efforts to influence asset prices – especially gold and foreign exchange.” GATA’s went as far as taking out a $264,000 full-page ad in the Wall Street Journal re-printing White’s comments (along with a few others).

3) Gold margin requirements. I constantly go back and forth on whether or not the COMEX is attempting to manipulate commodity prices by raising and lowering gold and silver margin requirements. On the one hand, the COMEX exists to make money for its parent company, the CME Group. When prices get too volatile the CME Group tries to shake out weak hands (and protect itself from losses) by raising margin requirements.

On the week of Sept. 19, though, news leaked out that the COMEX would be raising margin requirements on gold at the close of trading on Sept. 23. This information got out even after gold prices were already falling rapidly (and the rumors likely accelerated those losses dramatically). Having followed the gold and silver markets closely for four years, this is the first time I’ve heard of the COMEX “leaking” news about margin requirements. Granted, it could have been an accidental leak by a rogue insider, but the whole thing feels fishy – particularly since it helped contribute to one of the biggest sell-offs in gold since 1987.

4) The Chinese have figured us out. It’s interesting that gold price suppression gets sneers in the U.S., but the U.S. embassy in Beijing was alarmed enough by a newspaper editorial in China to forward it to the U.S. State Department. That happened in 2009 (according to a cable leaked by Wikileaks). The Embassy forwarded on the following snippets from the editorial that ran in a State-sponsored newspaper in China:

“The U.S. and Europe have always suppressed the rising price of gold. They intend to weaken gold’s function as an international reserve currency. They don’t want to see other countries turning to gold reserves instead of the U.S. dollar or Euro. Therefore, suppressing the price of gold is very beneficial for the U.S. in maintaining the U.S. dollar’s role as the international reserve currency.”

It’s important to remember why central banks want gold prices suppressed: they need investors to maintain their faith in fiat currencies. Without that faith, an economy collapses, and few things erode faith in fiat currencies like a rapidly rising gold price.

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07
Oct
2011

Short-term gold and silver price targets

by Fred Mason

Despite a two-day rally in stocks and precious metals, I’m still bearish in the near-term (see my post 8 signs we’re headed for a bear market in stocks for more). One of the biggest indicators that we’re in for a rough patch is the rapid climb in the volatility index (the so-called “fear gauge” for the stock market). The VIX spiked early in August and it’s yet to taper off:

(Click to enlarge)

Typically, gold and silver act like hedges against market uncertainty, but the recent turmoil in stocks has me feeling like this isn’t typical market uncertainty. It feels like it could be something worse.

And when things really go south in the markets, there is no true hedge outside of cash. We learned that in 2008 when gold slumped 30 percent from $1,010 to $700 an ounce and silver shed nearly 60 percent from $21 to $9 an ounce.

Of course, history might not repeat itself (despite warnings of a recession from the ECRI). And there are quite a few investors who are still bullish in the near-term for gold and silver prices.

MF Global’s Tom Pawlicki is calling for gold to advance to $1,700 and silver to move toward $33 an ounce in the short-term (per Barron’s). Technical traders argue gold’s still in a four-week-old downtrend (per Kitco). If gold closes both $1,535, expect more selling. If it closes above $1,705, it could be time to get bullish.

For silver, bulls are looking for a close above $33.58 and bears are looking for a close below $26.15 (again per Kitco).

Today’s non-farm payroll report could determine the direction for gold and silver prices for the rest of the month. “Many think (the jobs number) could dash recession expectations or rekindle widespread macro economic uncertainty,” the CME Group said in a statement yesterday (per IBTimes).

It’s clear we seem to be at a turning point in the markets. And that’s evidenced by lower silver price predictions from leading analysts. TD Securities expects silver to average $36.11 per ounce this year and $39 an ounce in 2012 (per ResourceInvestingNews). That’s roughly in line with predictions from Credit Suisse. They expect silver to rise to $33.70 in 2012 and taper off to $30.60 an ounce in 2013. Credit Suisse also points out that another silver price sprint to $50 an ounce appears to be “increasingly unlikely.”

Natixis Commodity Markets sees silver averaging a ho-hum $27.50 an ounce in 2012 on decreased industrial demand, and gold at $1,450 an ounce.

The only thing that has me feeling like we might be near a bottom in silver prices is the fact that no one’s making bold predictions of $100 silver or $250 silver like they were this spring. That only happens when prices are in a strong uptrend, and the lack of bold predictions and media coverage could be the perfect buying opportunity as the precious metals consolidate.

“It would be quite conceivable to see silver test the strong support area at $20, but that gift would really be too much,” writes Warren Bevan at Goldseek. “Already, with this nice decline refiners are struggling or simply can’t keep up with demand.”

Indeed, the only place we’ve really seen increased demand for precious metals is in the physical coin and bar market. Those are investors who are in for the long-haul, though, and that doesn’t necessarily bode well for the short-run.

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06
Oct
2011

What is gold price suppression?

by Fred Mason

A few weeks ago, I might have argued that gold price suppression is a myth. The more I learn about it, though, the scarier I find the concept.

Gold price suppression refers to coordinated efforts to lower the price of gold. On the face of it, that sounds like a meaningless goal. Dig deeper, though, and you’ll see there’s a whole lot at stake; namely, the future of the U.S. economy.

If governments, institutions and individuals lose faith in the dollar as a reserve currency, the Greenback’s value will plummet. It will be much harder for the U.S. to borrow money, and government services will have to be slashed. With 48.5% of the U.S. living in a household that receives some form of government benefits (per the Wall Street Journal), slashing benefits could collapse the U.S. economy.

Here’s what really changed my mind about gold price suppression: a single diplomatic cable released by WikiLeaks (click here to see the gold price suppression cable from Wikileaks). In it, the U.S. Embassy in Beijing wrote to the U.S. State Department, warning that the Chinese government was proactively dumping dollars in favor of gold reserves in an attempt to undermine the dollar and raise the clout of the Chinese Yuan.

The cable highlighted an article titled “China increases its gold reserves in order to kill two birds with one stone” from a State-sponsored newspaper in China. It was apparently alarming enough for the U.S. Embassy to send it straight to the State Department. Here’s an excerpt from the story:

“The U.S. and Europe have always suppressed the rising price of gold. They intend to weaken gold’s function as an international reserve currency. They don’t want to see other countries turning to gold reserves instead of the U.S. dollar or Euro. Therefore, suppressing the price of gold is very beneficial for the U.S. in maintaining the U.S. dollar’s role as the international reserve currency.

China’s increased gold reserves will thus act as a model and lead other countries towards reserving more gold. Large gold reserves are also beneficial in promoting the internationalization of the RMB.“

Of course, right now, the yuan is tightly controlled by the Chinese government. It’s difficult for retail investors to even invest in the yuan (see our post How to buy Chinese Yuan for more), but China’s showing signs of loosening that control.

It’s not in their interest to de-couple the yuan and dollar yet, since tying it to the Greenback keeps Chinese exports cheap. It is interesting, though, that China’s could be building up enormous leverage over the U.S.

“When they [China] want the dollar to fall, they will let it,” Mark Weisbrot, the co-director of Washington’s Centre for Economic and Policy Research, told Al Jazeera recently.

In the meantime, China’s accumulating gold, even while they realize that the U.S. could be working to suppress gold prices. Should the U.S. economy continue to stagnate, suppressing gold prices looks like a losing battle.

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29
Sep
2011

Revising gold price targets for 2012 after the plunge

by Fred Mason

It’s difficult to downplay the severity of the sell-off in gold. Just a week ago, the yellow metal closed at $1,805 an ounce. Since then, it’s fallen as low as $1,540 – a loss of 14 percent. Silver prices have performed even more dismally dropping 35 percent from a peak of $40 an ounce.

After the sell-off, gold is still up 15 percent on the year while silver’s just about flat. The scary part is (as Eric Fry at Daily Reckoning points out), U.S. Treasuries have actually out-performed precious metals! The 20+ Year Treasury Bond ETF (NYSE:TLT), for instance, is up nearly 25 percent since Jan. 1.

“That’s right,” Fry writes, “the debt securities of the now-AA-rated and heavily indebted US government remain the safest safe haven around.”

That’s a sign that investors are losing faith that the recovery we’ve been promised – despite the near-zero interest rates and the $2.3 trillion the U.S. government has pumped into the economy since 2008 – isn’t coming.

Fears of a 2008-style global financial meltdown feel almost palpable. In the words of Nouriel Roubini, we’re facing “unending stagnation, depression, currency and trade wars, capital controls, financial crisis, sovereign insolvencies, and massive social and political instability.”

It’s hard to stand by your investments when you hear economists telling you to stock up on food and make sure you have access to an isolated safe house. The moves in gold prices have even hardened gold bugs wondering whether or not they should stick with the metal.

And no one seems to know for sure where prices are going to go in the near-term. Daily Reckoning’s founder Bill Bonner sees the potential for gold to tumble as low as $1,000. Momentum traders see gold prices touching $1,517 an ounce and silver hitting $22.45.

“Following this rebound (in gold prices), which I expect to get underway this week, there will be a longer slowdown,” GloomBoomDoom analyst Marc Faber told CNBC Tuesday. He says the metal could fall as low as $1,100 an ounce.

Famed commodities trader Jim Rogers seems to concur. “I have no idea what is going to happen this year. I doubt if it will go to $2000 an ounce in 2011, it is more likely to have a correction which will last for several weeks, several months,” he told India’s Economic Times.

Despite their dire warnings about gold prices in the near-term, though, all of the traders mentioned above are unanimous in arguing that this is just a temporary set-back for precious metals.

“Silver has been one of your favourites, but that is down 24% in the past week,” the Economic Times asked Rogers. “Are you still buying?”

“Not yet,” Rogers replied, “but if silver continues to go down as we have discussed before, I will buy more silver too. Do not sell your silver, do not sell your gold unless you are a short-term trader, but anybody who is in this for a long term, silver and gold will both go much higher over the next few years.”

While the pros haven’t started down-grading their gold price targets for 2012 yet, they’re certainly not saying we’re going to hit $2,500 an ounce anytime soon. One ominous research fact points that it could be a long time before we even see gold at $1,800 an ounce again: The gold market has only dropped 20 percent peak-to-trough twice in the past 10 years (per the Financial Times). It happened once in 2006 and once in 2008. In both instances, it took about 18 months for prices to re-touch their highs.

We’ll eventually see gold at $2,000 an ounce (reference my post 10 reasons why we’ll see gold over $2,000 an ounce). These dips are painful, but they’re definitely buying opportunities for patient and disciplined investors.

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23
Sep
2011

Up 180%? 10 best gold and silver stocks returns year-to-date

by Fred Mason

Picking winning gold and silver stocks is notoriously difficult. Not only are mining stocks influenced by volatile precious metals prices, they’re also subject to natural disasters, political risk, worker strikes, misinformation and poor assay results. If you can find the right companies with the right management (see my post How to pick gold stocks that outperform the market), the gains can be extraordinary.

Here’s a list I put together of the top 10 biggest gainers in the gold and silver market year to date. I pulled only from the 100 largest gold and silver stocks by market cap:

Stock YTD Gain
NEWSTRIKE CAPITAL INC. (PINK:NWSKF) 181.24%
Midway Gold Corp. (AMEX:MDW) 177.48%
NGEX RESOURCES INC. (PINK:NGQRF) 144.63%
Richmont Mines Inc. (AMEX:RIC) 129.55%
WILDCAT SILVER CORP (PINK:WLDVF) 114.23%
SCORPIO MINING CORP (PINK:SMNPF) 97.62%
PRETIUM RESOURCES INC ORD (PINK:PXZRF) 63.02%
Samex Mining Corp. (OTC:SMXMF) 51.39%
Vista Gold Corp. (AMEX:VGZ) 48.54%
Minefinders Corp. Ltd. (AMEX:MFN) 44.75%

The year-to-date gains listed above are particularly impressive considering the steep losses gold and silver stocks suffered yesterday. Several of the stocks on the list lost nearly 20 percent in a brutal day of trading. Here are my guesses as to why these stocks have out-performed their peers this year:

NEWSTRIKE CAPITAL INC. (PINK:NWSKF): Newstrike’s Ana Paula project in Mexico continues to show impressive drill results. Most recently, the company announced 119.60-meter interval grading 3.76 g/t gold. That’s after results of 230.95-meter interval grading 7.5 g/t gold in April. The Ana Paula project has good pedigree. It was purchased from Goldcorp Inc. (NYSE:GG) last year. Goldcorp still has a robust mine there in Los Filos, and Torex Gold Resources Inc.’s (TSX:TXG) Morelos project is nearby. All three are part of the Guerrero Gold Belt.

Midway Gold Corp. (AMEX:MDW): Company insiders have been big buyers over the past six months snagging 100,000 net shares (per DailyFinance). Analysts have a price target of $3.71 on the stock as drill results from Nevada roll in. Midway’s gained a lot of investor interest thanks to a joint venture with Barrick Gold Corporation (NYSE:ABX).

NGEX RESOURCES INC. (PINK:NGQRF): The company’s Josemaria copper-gold deposit in Argentina has 460 million tonnes of gold (0.30 g/t gold) in the ground. NGEx’s also drilling for potash in Eritrea with results expected next month.

Richmont Mines Inc. (AMEX:RIC): Richmont’s Wasamac gold deposit just seems to keep mushrooming. Most recently, the company intercepted 7.28 g/t gold over 31.40m. The company has interests in 14 projects in Ontario and Quebec.

WILDCAT SILVER CORP (PINK:WLDVF): One of a handful of precious metals stocks that’s focused exclusively on silver, Wildcat Silver Corp. has an 80 percent interest in the Hermosa silver project in Santa Cruz, Arizona. The project has an indicated resource of 36 million ounces of silver and an inferred resource of 85 million ounces. Recent drilling results showed an impressive 230.9 g/t silver.

SCORPIO MINING CORP (PINK:SMNPF): Headquartered in Canada, Scorpio’s mines in Mexico are already in production. Fifty-five percent of the company’s revenue comes from silver – with the rest a mix of zinc, copper and lead. In addition to their operational Nuestra Señora mine, Scorpio has its eyes on more than 40 other exploration targets.

PRETIUM RESOURCES INC ORD (PINK:PXZRF): Much of the excitement around Pretium surrounds the company’s Snowfield deposit. Pretium could join up with mining major Seabridge Gold, Inc. (AMEX:SA) to further explore the project. On top of Snowfield, there’s the “Bonanza-grade” results the company recently announced at its Brucejack Project (5,740 g/t gold and 2,750 g/t silver).

Samex Mining Corp. (OTC:SMXMF): Samex is an early-stage exploration company that’s drilling in the Los Zorros District in Chile. Four out of 46 holes drilled at the Milagro project yielded 4.26 to 5.56 g/t gold.

Vista Gold Corp. (AMEX:VGZ): Impressive results from the company’s Mt.Todd Gold project pushed shares up nearly 20 percent in a day last week. Measured mineral resources were bumped up 23 percent to 353,000 ounces of gold. Indicated resources climbed 14 percent to 506,000 ounces of gold.

Minefinders Corp. Ltd. (AMEX:MFN): Minefinders’ massive Dolores gold and silver mine in northern Mexico is in production and has proven reserves of 1.2+ million ounces of gold and 68+ million ounces of silver. The company’s also evaluating the viability of a mine at its La Bolsa property.

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13
Sep
2011

How to pick gold stocks that outperform the market

by Fred Mason

1) Don’t bet the farm on a junior mining stock. When you first start learning about investing in gold mining stocks, you’ll hear these phrases tossed around a lot: junior, mid-tiers and majors. The major gold and silver producers are the Exxon Mobils of the industry. Companies like Barrick Gold Corporation (NYSE:ABX), Goldcorp (NYSE:GG) and Newmont Mining Corporation (NYSE:NEM), for instance, all have market caps north of $30 billion. They’ve got numerous projects already producing gold and dozens of other projects and partnerships in the works. If gold prices collapse, they should weather the storm better than smaller, more speculative stocks.

Below the majors, you’ve got mid-tier companies that have brought at least one mine online or are very close to pouring gold with gobs of cash reserves in the bank and proven reserves in the ground. A promising mine in a politically stable country is as good as money in the bank for a lot of mid-tier miners as they’re solid buyout targets for the majors.

Below the mid-tiers, you’ve got juniors. They’re the small, thinly-funded, living-on-prayer-type companies (typically with market caps less than $2 billion) that buy up interests in large tracts of land, then start the long process of assaying the land for provable reserves. Know that when you’re investing in juniors, you could lose money just as easily as you could make it. The results of pre-feasibility studies can make or break a company – and you want to make sure you’re not broken along with a risky stock. Mix your gold stock holdings between majors, mid-tiers and juniors.

2) Make sure the execs have top-notch resumes. If you’re going to pour your cash into an unproven gold stock, take the time to find out who’s running the company. Almost all mining stocks have web sites touting the experience of the company’s employees and directors. Ideally, those managers, board members and geologists should have long track records with experience at major or mid-tier mining companies. There should be more than a handful of employees on the payroll, too. Some sites recommend only investing in companies with at least 10 employees.

3) Pay attention to the numbers. Kenneth J. Gerbino at Gold-Speculator offers some guidelines when it comes to evaluating just how great that new mining discovery is. A mine with less than 2 million reserve ounces, he argues, is likely not worth the investment it will cost to mine it (although, keep in mind, Gerbino wrote those numbers in 2009 when gold was much cheaper). When it comes to mines, bigger is better. Ten million tonnes at an open pit gold mine sounds large, but it’s not. Three-hundred million tonnes is large. Each of those tonnes should yield at least 1 gram of gold (or, better yet, 2 grams).

4) Location is everything. Look for gold mining stocks that are located near old or existing gold mines to lower your risk and increase the probability that your pick will hit pay dirt. It’s not without reason that much of the mining activity in the world happens in just a few locations. Special geological conditions are required for the formation of gold, and those conditions occurred in a relatively small number of places around the world. China, South Africa and Australia currently produce more gold than anywhere else in the world (although the U.S. and Russia aren’t far behind).

5) Follow the mutual funds. One of my favorite methods for discovering unheralded gold mining stocks is browsing through the holdings of large gold investment funds. See which stocks large gold funds like Tocqueville’s Gold Fund, Oppenheimer’s Gold & Special Minerals Fund, Midas Funds and others are holding. If they initiate a large new position in a relatively unknown gold mining stocks, chances are, you can hop on for the ride.

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12
Sep
2011

Top 5 best Australian gold mining stocks

by Fred Mason

With the spot price for gold up nearly 50 percent over the past year, you’d think Australian gold mining stocks would be performing just as well. In fact, they should be doing better thanks to relatively fixed mining costs. As the price of gold move up in value, the profit margins for gold mining stocks are compounded.

Case in point: when UBS recently upped its estimates for gold prices in 2012 from $1,380 an ounce to $2,075 an ounce, they also upped profit expectations for Australia’s gold darling Newcrest Mining Limited (ASX:NCM) by 72 percent (per SMH).

UBS also named their five favorite Australian gold mining stocks (with Newcrest among them). Here’s my take on each of their picks:

1) Newcrest Mining Limited (ASX:NCM) Newcrest Mining is Australia’s biggest gold producer. The company recently reported a 63 percent surge in net profits for the fiscal year (per FNN). Late last fall, Newcrest took over Lihir Gold in a AUD$9.5 billion deal that’s panning out nicely on higher gold prices.

In addition to the Lihir deal, the company’s partnership with South African gold producer Harmony Gold Mining Co. (NYSE:HMY) could yield a $6-$8 billion mine in Papua New Guinea. A pre-feasibility study on the Wafi-Golpu gold-copper mine is expected to wrap up early next year and full-scale mining could begin as early as fiscal 2017. -1.4 percent YTD

2) Perseus Mining Limited (ASX:PRU). One of a few Australian junior mining companies that’s making strides toward mid-tier status, Perseus is rumored to be shopping for acquisitions. Perseus was named as a potential suitor to take over Teranga Gold Corp. (ASX:TGZ) (per The Australian). The rumors come on the heels of the company’s success bringing the Central Ashanti gold project in Ghana online late last month. +19.2 percent YTD

3) Adamus Resources Limited (ASX:ADU). Like Perseus, Adamus has pinned a lot of its future on projects in Ghana. Adamus didn’t pour its first gold until January of this year, but company could soon be producing as much as 100,000 ounces of gold a year from its Nzema Gold Project. They’ve now set their sites on landing additional projects and interests in Liberia. -4.3 percent YTD

4) AusQuest Limited (ASX:AQD). With its stock trading around 10 cents a share, it may take some time for AusQuest to pan out, but the company has a wide range of interest. All told they’re exploring 11 projects in Australia and Africa. Right now, most of their efforts are focused in the country of Burkina Faso, which lies just north of Ghana. Early studies at the Camoe Joint Venture show potential for as much as 7.75 grams of gold per ton at a depth of just 8 meters. That’s excellent as a good mine could yield as little as 2 grams of gold per ton and still be quite profitable (at shallow depths). -21.4 percent YTD

5) Bassari Resources Ltd. (ASX:BSR). The cheapest of the Australian gold stocks on the list, Bassari’s trading at just shy of .08 cents per share. The company’s focused on exploration at its Makabingui Project in Senegal. Initial assays are promising with a hole at 7 meters yielding 54.3 grams of gold per ton. The company believes the project will eventually produce at least 240,000 ounces of gold. -57.2 percent YTD

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11
Sep
2011

10 reasons why we’ll see gold over $2,000 an ounce

by Fred Mason

The burden of debt is large. While consumers have cut back on spending since the start of the financial crisis, governments have refused to do the same. It’s looking more and more like the government’s only way out of debt is through substantial and sustained money printing. And that’s fueling what UBS has dubbed an “explosive cocktail” for gold prices. Grumblings of a speculative bubble aside, I think we’re a long way from a top in the gold markets. Here are 10 reasons why:

1) Gold prices mirror the expansion of the monetary base. The image to the left shows the startling correlation between the expansion of the monetary base and the rise in the price of gold. Since the supply of gold remains relatively stable, it acts as a barometer for the purchasing power of the dollar. That means a rise in the price of gold isn’t strictly an indication of increased demand, but also an indication that the dollar just can’t buy as much as it did 10 years ago.

2) QE3. After the end of QE2 in June, much of the world’s wondering what the Federal Reserve’s next round of quantitative easing will bring. Chairman Ben Bernanke made sure to point out that he’s got a “range of tools that could be used to provide additional monetary stimulus” after the Jackson Hole symposium closed late last month. More quantitative easing means greater expansion of the monetary base, and that means higher gold prices.

3) Rock-bottom interest rates. The Fed’s also went on the record saying that the Federal Funds rate will be held near zero for at least another two years. By giving banks access to cheap cash, the Fed hopes to encourage lending, but there’s also a nasty side effect: a weak dollar. No one wants to hold the greenback in a low-interest environment. That pushes investors out of CDs and money market accounts and into riskier assets like stocks and inflation hedges like gold.

4) A brand new jobs package. Tax cuts in President Obama’s proposed $447 billion jobs plan have the potential to significantly boost consumer spending (which accounts for two-thirds of the national economy). Obama argues that the plan shouldn’t cost the government any money, but it’s yet to be seen how such a large decrease in Federal tax receipts will be covered. More than likely, the costs will be deferred, which will increase the strain on the Federal budget and dampen the prospects that the country can organically grow its way out of stagnation.

5) Keeping up with inflation. The government currently calculates the inflation rate at 3.6 percent. However, if you calculate that same rate using the methodologies in place in 1980, the inflation rate would actually be closer to 11 percent. Smart money knows that, and they’re moving into gold as a way to hedge against that inflation. So long as inflation remains high, so too will gold prices.

6) We’re not the only ones fighting inflation. As I wrote recently in a post titled “How to invest in the Swiss franc,” inflation has become a global problem. It’s not just the dollar that’s sinking, it’s the euro, the yuan and the pound. When currencies destabilize on a global scale, there is no safe place to stash your wealth outside of hard assets. That’s what makes the current market so worrisome. The run-up in gold prices in the early 1980s was largely a U.S. problem. This time, it’s gone global.

7) A niche market. Gold’s record-breaking string of price increases has garnered a lot of attention in the press. That exposure tends to make people think that everyone and their neighbor has invested in the metal. Eric Sprott of Sprott Asset Management (which happens to manage the Sprott Physical Gold Trust – NYSE:PHYS) argues that there’s a whole lot of investment potential left for the yellow metal. According to his numbers, just .75 percent of all financial assets are currently invested in gold. When a larger chunk of the public starts investing in the metal, prices could spike much higher, much faster.

8) Central banks are still buying precious metals. Last year was the first time in 20 years that central banks around the world became net buyers of gold. That trend is continuing in 2011 despite record prices. Just this week we learned Kazakhstan plans to buy all of that country’s gold production through 2014 (a quantity that could approach 100 tons). Even the Eurozone’s Central Banks are getting in on the action as they became net buyers of gold in June. That’s the first time that’s happened since the inception of the Euro.

9) A recession appears imminent. Evidence that we’re headed toward a recession seems to mount every day. The government reported zero job growth in August, consumer confidence fell to its second-lowest level of the year last week and – most troubling of all – bond prices are edging up as investors grow increasingly risk-adverse. Should the economy take a decided turn toward negative GDP growth, another financial rescue package seems inevitable. More government spending means a much weaker dollar (and much higher gold prices).

10) We haven’t seen a true bubble yet. The gold market has shown signs of overheating in recent weeks. The Comex has raised margin requirements twice and spot prices for the yellow metal have seesawed in high-volume trading. But the overall trend is intact. We’re in the midst of the eleventh year of the bull market in gold. There hasn’t been a blow-off top yet, and – until that happens – count me among the gold bugs.

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