World Money Analyst: Europe....Cliff Ahead?

By Dirk Steinhoff
When Kevin Brekke, managing editor [of World Money Analyst], contacted me last week, I knew it was time again to survey the investment landscape. This month, I will focus on Europe and its decoupled financial and real economy markets.

Globally, the last two years were marked by booming stock exchanges of developed markets, disappointing bond markets, and devastation across the precious metals markets.

Since June 2012, the EURO STOXX 50 Index, Europe’s leading blue chip index for the Eurozone, has advanced by approximately 50% and outperformed even the S&P 500 and the MSCI World indices.

Over the last six months, European stock exchanges have seen a surprising change of leadership: The major stock market indices of the “weaker” countries, like Portugal, Spain, and Italy, have outperformed those considered stronger, like Germany. One of the top performers was a country that was and still remains in “bankruptcy” mode: Greece.

The question at this point is: Can these outstanding European stock market performances continue?

In our search for an answer, let’s start with a closer look at the economic conditions within the European Union (EU), where approximately 2/3 of total “exports” (internal and external) of the EU-28 are traded. And then let’s have a look at the economic setting of some major trading partners, such as the US and BRIC countries, which account for roughly 17% and 21%, respectively, of the external exports of the EU-28.
Although the EURO STOXX 50 Index has soared since June 2012, certain key measures of the underlying real economies paint a different picture.

To start, the GDP of the EU-28 is not really growing. In 2012, it contracted by 0.4% and grew by the smallest fraction of 0.1% in 2013. The GDP growth numbers for the countries in the euro area are even worse: -0.7% in 2012 and -0.4% in 2013. Whereas Germany’s GDP was up in 2013 by 0.5%, economic growth was down in Spain, Italy, and Greece by -1.2%, -1.8%, and -3.6%, respectively.

Real GDP Growth Rates 2002-2012
	2002	2003	2004	2005	2006	2007	2008	2009	2010	2011	2012
EU	1.3	1.5	2.6	2.2	3.4	3.2	0.4	-4.5	2.0	1.6	-0.4
Germany	0.0	-0.4	1.2	0.7	3.7	3.3	1.1	-5.1	4.0	3.3	0.7
Spain	2.7	3.1	3.3	3.6	4.1	3.5	0.9	-3.8	-0.2	0.1	-1.6
France	0.9	0.9	2.5	1.8	2.5	2.3	-0.1	-3.1	1.7	2.0	0.0
Italy	0.5	0.0	1.7	0.9	2.2	1.7	-1.2	-5.5	1.7	0.5	-2.5
Portugal	0.8	-0.9	1.6	0.8	1.4	2.4	0.0	-2.9	1.9	-1.3	-3.2

The EU unemployment rate stood at 10.2% at the beginning of 2012 and stands at 12.1% today. That the European Union is anything but a homogenous body that moves in unison can be seen in the following chart:

Where Germany has a current unemployment rate of 5.2% and a youth (under 25) unemployment rate of 7.5%, the numbers for other countries are worrisome: Current unemployment in Spain is 26.7%, and 12.7% in Italy, with youth unemployment in Spain at an incredible 57.7%, and 41.6% in Italy. And don’t forget Greece, which is mired in a historically unparalleled economic depression where unemployment is 28% and youth unemployment is a shocking 61.4%. Keep in mind that all of these numbers are those officially released by bureaucratic agencies. The real numbers, as we know, would likely be even worse.

Recent EU industrial production numbers have shown some slight improvement. Nevertheless, industrial production has only managed to recover to its 2004 level, and remains way below its 2007 heights (see next graph).

Source: Eurostat

So let’s see: a shrinking GDP, high and rising unemployment, and stagnant production significantly below 2007 levels. Those are not the rosy ingredients of a booming economy (as indicated by the stock exchanges) but of one that is struggling.

Europe is not in growth mode.

This verdict is further supported by the export numbers for trade between EU countries, known as internal trade. In 2001, internal trade accounted for 67.9% of EU exports. Today, this share is down to 62.7%. In an attempt to compensate for sluggish European growth, EU companies had to develop other export markets, such as the US or the emerging markets.

Will these markets help rescue European companies?

Time to Taper Expectations

With regards to the U.S., two important developments are worth mentioning. The first key development, which will have severe consequences for the global economy, was brought to my attention by my friend Felix Zulauf, an internationally well-known investor and regular member of the Barron’s Roundtable for more than 20 years. Running ever-increasing deficits in its trade and current accounts for almost 30 years, the US thus provided an enormous amount of stimulus for foreign exporters. Since 2006, however, the US trade deficit has shrunk, with deteriorating trade data for many nations as a consequence.

The second key development is that the newly appointed head of the US Federal Reserve system, Janet Yellen, seems determined to continue the taper of its bond buying program. This fundamental shift in monetary policy could be questioned if the economic numbers for the US begin to show significant weakness. But in the meantime, the reduction of economic stimulus in the US should lead to a reduced appetite for European export goods.

The emerging markets had been seen, not too long ago, as the investment opportunity and alternative to the fiscal and debt crisis-stricken countries of the developed world. Today, on a nearly daily basis, you hear bad news about the situation and developments in the emerging countries: swaying stock markets, plunging currencies, company bankruptcies, corruption scandals, and even riots.

The emerging markets are dealing with the unintended consequences of the Quantitative Easing (including liquidity easing and credit easing) programs in the West. The increased liquidity spilled over into the emerging markets in the hunt for yield. This flow of capital into the emerging markets lowered capital costs, inflated asset prices like stocks and real estate, and boosted commodity prices. All that, and more, sparked the emerging markets boom.

Now, this process has reversed. The natural conclusion to exaggerated credit-driven growth, the tapering of QE programs, the shrinking US trade deficit, and lower commodity prices has been an outflow of capital from emerging markets, triggering lower asset prices and exchange rates. The attempt of some countries to defend their currencies by raising interest rates will only exert further pressure on their economies.

With weaker emerging market economies and currencies, there will be no big added demand for European exports. Revenues and profits for EU companies (measured in euros) will fall.

When Trends Collide

So, over the last two years we had opposing trends—booming European stock markets and weak underlying real economies. This conflicting mix was mainly fostered by easy money that drove down interest rates to historic low levels. Plowing money into stocks, despite the poor fundamentals, was the only solution for most investors.

At their current elevated levels European stock markets appear vulnerable, and it seems reasonable to doubt that we will see a continuation of booming stock markets. Of course, such a decoupling can continue for some time, but the longer it continues, the closer we will get to a correction of this anomaly. Either the real economy catches up to meet runaway stock prices, or stock prices come down to meet the poor economic reality. Or some combination of the two.

Because of the economic facts that I discussed above, in my view, we may be seeing just the beginning of a stronger correction in stock prices.

Dirk Steinhoff is chief investment officer of portfolio management (international clients) at the BFI Capital Group. Prior to joining BFI in 2007, Mr Steinhoff acted as an independent asset manager for over 15 years. He successfully founded and built two companies in the realm of infrastructure and real estate management. Mr Steinhoff holds a bachelor’s and master’s degree in civil engineering and business administration, magna cum laude, from the University of Technology in Berlin, Germany. 

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The article World Money Analyst: Europe: Cliff Ahead? was originally published at Mauldin Economics

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What Is Worse Than Being at Risk?

By Dennis Miller

You may have heard the old adage: “What is worse than being lost? Not knowing you are lost.” In that same vein: What is worse than being at risk? You guessed it! Not knowing you’re at risk. For many investors, portfolio diversification is just that. They think they are protected, only to find out later just how at risk they were.

Diversification is the holy grail of portfolio safety.

Many investors think they are diversified in every which way. They believe they are as protected as is reasonably possible. You may even count yourself among that group. If, however, you answer “yes” to any of the following questions, or if you are just getting started, I urge you to read on.

• Did your portfolio take a huge hit in the 2008 downturn?
• Was your portfolio streaking to new highs until the metals prices came down a couple years ago?
• Do oil price fluctuations have a major impact on your portfolio?
• When interest rates tanked in the fall of 2008, did a major portion of your bonds and CDs get called in?
• Are you nervous before each meeting of the Federal Reserve, wondering how much your portfolio will fluctuate depending on what they say?
• Has your portfolio grown but your buying power been reduced by inflation?
• Do you still have a tax loss carry forward from a stock you sold more than three years ago?

There are certain lessons most of us learn the hard way—through trial and error. But that can be very expensive. Ask anyone who has a loss carry forward and they will tell you that the government is your business partner when you are winning. When you are losing, you are on your own.

The old saying rings true here: “When the student is ready to learn, the teacher shall appear.” Sad to say, for many investors that happens after they have taken a huge hit and are trying to figure out how to prevent another one.

Alas, there is an easier way. Anyone who has tried to build and manage a nest egg will agree it is a long and tedious learning experience. The key is to get educated without losing too much money in the meantime.

Avoid Catastrophic Losses

The goal of diversification is to avoid catastrophic losses. In the past, we’ve mentioned correlation and shared an index related to our portfolio addition. The scale ranges from +1 to -1. If two things move in lockstep, their correlation rates a +1. If the price of oil goes up, as a general rule the price of oil stocks will also rise.

If the two things move in the opposite direction (a correlation of -1), we can also predict the results. If interest rates rise, long term bond prices will fall and generally so will the stocks of homebuilders. At the same time, a correlation of zero means there is no determinable relationship. If the price of high grade uranium goes up, more than likely it will not affect the market price of Coca Cola, ticker $KO, stock. So, your goal should be to minimize the net correlation of your portfolio so no single event can negatively impact it catastrophically.

General Market Trends

An investor with mutual funds invested in Large Cap, Mid Cap, and Small Cap stocks may think he is well diversified with investments in over 1,000 different companies. Ask anyone who owned a stable of stock mutual funds when the market tumbled in 2008 and they will tell you they learned a lesson.

Mr. Market is not known to be totally rational and many have lost money due to “guilt by association.” When the overall stock or bond market starts to fall, even the best managed businesses are not immune to some fallout. While the Federal Reserve has pumped trillions of dollars into the system, there is no guarantee the market will rebound as quickly as it has in the last five years. The market tanked during the Great Depression and it took 25 years to return to its previous high.

If you listen to champions of the Austrian business cycle theory, they will tell you the longer the artificial boom, the longer and more painful the eventual bust. Mr. Market can dish out some cruel punishment.
Diversification is indeed the holy grail, but there are some risks which diversification cannot mitigate entirely. No matter how hard you try to fortify your bunker, sooner or later we will learn of a bunker buster. There are times when minimizing the damage and avoiding the catastrophic loss is all anyone can do.

Sectors

Allocating too much of your portfolio to one sector can be dangerous. This is particularly true if a single event can happen that could give you little time to react. While no one predicted the events of September 11, people who held a lot of airline stocks took some tough losses. Guilt by association also applied here. After September 11, the stocks of the best-managed airlines, hotels, and theme parks took a downturn.

When the tech bubble and real estate bubble burst, the stock prices of the best-run companies dropped along with the rest of the sector, leaving investors to hope their prices would rebound quickly.

Geography

One of the major factors to consider when investing in mining and oil stocks is where they are located. It is impossible to move a gold mine or an oil well that has been drilled. Many governments are now imposing draconian taxes on these companies, which negatively impacts shareholders. In some cases, this can be a correlation of -1. If an aggressive government is affecting a particular oil company, other companies in different locations may have to pick up the slack and their stock may rise in anticipation of increased sales.

Many governments around the world have become very aggressive with environmental regulation, costing the industry billions of dollars to comply. If you want to invest in companies that burn or sell anything to do with fossil fuels, you would do well to understand the political climate where their production takes place.
Investors who prefer municipal bonds must make their own geographical rating on top of the ratings provided for the various services. States like Michigan and Illinois are headed for some rough times. I wouldn’t be lending any of them my money in the current environment no matter what the interest rate might be.

Currency Issues

Inflation is public enemy number one for seniors and savers. One of the advantages of currencies is they always trade in pairs. If one currency goes up, another goes down. If the majority of your portfolio is in one currency, you are well served to have investments in metals and other vehicles good for mitigating inflation.

Tim Price sums it up this way in an article posted on Sovereign Man:

“Why do we continue to keep the faith with gold (and silver)? We can encapsulate the argument in one statistic.

“Last year, the US Federal Reserve enjoyed its 100th anniversary. … By 2007, the Fed’s balance sheet had grown to $800 billion. Under its current QE program (which may or may not get tapered according to the Fed’s current intentions), the Fed is printing $1 trillion a year. To put it another way, the Fed is printing roughly 100 years’ worth of money every 12 months. (Now that’s inflation.)”

It is difficult to determine when the rest of the world will lose faith in the U.S. dollar. Once one major country starts aggressively unloading our dollars, the direction and speed of the tide could turn quickly.

Interest-Rate Risk

The Federal Reserve plays a major role in determining interest rates. Basically they have instituted their version of price controls and artificially held interest rates down for over five years. Interest-rate movement affects many markets: housing, capital goods, and some aspects of the bond markets. While it also makes it easier for businesses to borrow money, they are not likely to make major capital expenditures when they are uncertain about the direction of the economy.

While holders of long term, high interest bonds had an unexpected gain when the government dropped rates, their run will eventually come to an end as rates rise. Duration is an excellent tool for evaluating changes in interest rates and their effect on bond resale prices and bond funds. (See our free special report Bond Basics, for more on duration.)

While interest rates have been rising, when you factor in duration there is significant risk, even with the higher interest offered for 10- to 30-year maturities. Again, having a diversified portfolio with much shorter term bonds helps to mitigate some of the risk.

Risk Categories of Individual Investments

While investors have been looking for better yield, there has been a major shift toward lower-rated (junk) bonds. Many pundits have pointed out that their default rate is “not that bad.”

At the same time, the lure of highly speculative investments in mining, metals, and start-up companies with good write-ups can be very appealing. There is merit to having small positions in both lower-rated bonds and speculative stocks because they offer terrific potential for nice gains.

So What Can Income Investors Do?

There are a number of solid investments out there that offer good return, with a minimal amount of risk exposure and that won’t move because of an arbitrary statement by the Fed. It’s not always easy to find them, but there is hope for people wondering what to do now that all of the old adages about retirement investing are no longer true.

There are three important facets of a strong portfolio: income, opportunities and safety measures. Miller's Money Forever helps guide you through the better points of finance, and helps replace that income lost in our zero-interest-rate world—with minimal risk.

This is where the value of one of the best analyst teams in the world comes into focus. We focus on our subscribers’ income-investing needs, and I challenge our analysts to find safe, decent-yielding, fixed-income products that will not trade in tandem with the steroid-induced stock market—or alternatively, ones that will come back to life quickly if they do get knocked down with the market. They recently showed me seven different types of investments that met my criteria and still withstood our Five Point Balancing Test.

My peers are of having holes blown in their retirement plans. While nuclear bomb shelter safe may be impossible, we still want a bulletproof plan. This is what we’ve done at Money Forever: built a bulletproof, income generating portfolio that will stand up to almost anything the market can throw at it.

It is time to evolve and learn about the vast market of income investments safe enough for even the most risk-wary retirees. Some investors may want to shoot for the moon, but we spent the bulk of our adult lives building our nest eggs; it’s time to let them work for us and enjoy retirement stress free. Learn how to get in, now.

The article What Is Worse Than Being at Risk? was originally published at Millers Money

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Inflation Is Coming, What to Do NOW

By Jeff Clark, Senior Precious Metals Analyst

We’ve all heard of the inflationary horrors so many countries have lived through in the past. Third world countries, developing nations, and advanced economies alike—no country in history has escaped the debilitating fallout of unrepentant currency abuse. And we expect the same fallout to impact the U.S., the EU, Japan, China—all of today’s countries that have turned to the printing press as a solution to their economic woes.


Now, it seems obvious to us that the way to protect one’s self against high inflation is to hold one’s wealth in gold… But did citizens in countries that have experienced high or hyperinflation turn to gold in response? Gold enthusiasts may assume so, but what does the data actually show?

Well, Casey Metals Team researcher Alena Mikhan dug up the data. Here’s a country-by-country analysis…...

Brazil

Investment demand for gold grew before Brazil’s debt crisis and economic stagnation of the 1980s. However, it really took off in the late ‘80s, when already-high inflation (100-150% annually) picked up steam and hit unsustainable levels in 1989.

Year	Inflation	Investment demand (tonnes)
1986	167.8%	20.0
1987	218.5%	42.8
1988	554.2%	61.5
1989	1,972%*	86.5
1990	116.2%**	-74

Source: The International Gold Trade by Tony Warwick-Ching, 1993; inflation.eu
*Measured from December to December
**Year-end rate

During this period, investment demand for bullion skyrocketed 333%, from 20 tonnes in 1976 to 86.5 tonnes in 1989.

And notice what happened to demand when inflation began to reverse. Substantial liquidations, showing demand’s direct link to inflation.

Indonesia

Indonesia was hit by a severe economic crisis in 1998. The average inflation rate spiked to 58% that year.

Year	Inflation	Investment demand (t)
1997	6.2%	11.5
1998	58.0%	22.5
1999	24.0%	11.0
2000	3.7%	8.5

Sources: World Gold Council, inflation.eu

Gold demand doubled as inflation surged. It’s worth pointing out that investment demand in 1997 was already at a record high.

Also, total demand in 1999 reached 120.8 tonnes (not just demand directly attributable to investment), 18% more than in pre-crisis 1997. But overall, once inflation cooled, so again did gold demand.

India

While India has a traditional love of gold, its numbers also demonstrate a direct link between demand and rising inflation. The average inflation rate in 1998 climbed to 13%, and you can see how Indians responded with total consumer demand. (Specifically investment demand data, as distinct from broader consumer demand data, is not available for all countries.)

Year	Inflation	Consumer demand* (t)
1996	8.9%	507
1997	7.2%	688
1998	13.1%	774
1999	4.8%	730

Sources: World Gold Council, inflation.eu
*Includes net retail investment and jewelry

Gold demand hit a record of 774.4 tonnes, 13% above the record set just a year earlier. In fairness, we’ll point out that gold consumption was also growing due to a liberalization of gold import rules at the end of 1997.

When inflation cooled, the same pattern of falling gold demand emerged.

Egypt, Vietnam, United Arab Emirates (UAE)

Here are three countries from the same time frame last decade. Like India, we included jewelry demand since that’s how many consumers in these countries buy their gold.

Year	Egypt		Vietnam		UAE
	Inflation	Consumer demand (t)	Inflation	Consumer demand (t)	Inflation	Consumer demand (t)
2006	6.5%	60.5	7.5%	86.1	10%	96.0
2007	9.5%	68.5	8.3%	77.5	14%	107.3
2008	18.3%	76.8	24.4%	115.8	20%	109.5
2009	11.9%	58.4	7.0%	73.3	1.6%	73.9

Sources: World Gold Council, indexmundi.com

Egypt saw inflation triple from 2006 to 2008, and you can see consumer demand for bullion grew as well. Even more impressive is what the table doesn’t show: Investment demand grew 247% in 1998 over the year before. Overall tonnage was relatively modest, though, from 0.7 to 2.5 tonnes.

Vietnam and the United Arab Emirates saw similar patterns. Gold consumption increased when inflation peaked in 2008. Again, it was investment demand that saw the biggest increases. It grew 71% in Vietnam, and 27% in the United Arab Emirates.

And when inflation subsided? You guessed it: Demand fell.

Japan

Prime Minister Shinzo Abe’s plan to kill deflation pushed Japan’s consumer price inflation index to 1.2% last year—still low, but it had been flat or falling for almost two decades, including 2012.

Year	Inflation	Consumer demand (t)
2012	-0.1%	6.6
2013	1.2%	21.3

In response, demand for gold coins, bars, and jewelry jumped threefold in the Land of the Rising Sun.

One of the biggest investment sectors that saw increased demand, interestingly, was in pension funds.

Belarus

Unlike many of the nations above, citizens from this country of the former Soviet Union do not have a deep-rooted tradition for gold. However, in 2011, the Belarusian ruble experienced a near threefold depreciation vs. the U.S. dollar. As usual, people bought dollars and euros—but in a new trend, turned to gold as well.

We don’t have access to all the data used in the tables above, but we have firsthand information from people in the country. In the first quarter of 2011, just when it became clear inflation would be severe, gold bar sales increased five times compared to the same period a year earlier. In March alone that year, 471.5 kg of gold (15,158 ounces) were purchased by this small country, which equaled 30% of total gold sales, from just one year earlier. Silver and platinum bullion sales grew noticeably as well.

The “gold rush” didn’t live long, however, as the central bank took measures to curb demand.

Argentina

Argentina’s annual inflation rate topped 26% in March last year, which, according to Bloomberg, made residents “desperate for gold.” Specific data is hard to come by because only one bank in the country trades gold, but everything we read had the same conclusion: Argentines bought more gold last year than ever before.

At one point, one bank, Banco Ciudad, even tried to buy gold directly from mining companies because it couldn’t keep up with demand. Some analysts report that demand has continued this year but that it has shown up in gold stocks.

What to Do—NOW

History clearly shows there is a direct link between inflation and gold demand. When inflation jumps, or even when inflation expectations rise, investors turn to gold in greater numbers. And when gold demand rises, so does its price—you can guess what happens to gold stocks.

With the amount of money the developed countries continue to print, high to hyperinflation is virtually inevitable. We cannot afford to believe in free lunches.

The conclusion is inescapable: One must buy gold (and silver) now, before the masses rush in. The upcoming inflationary storm will encompass most of the globe, so the amount of demand could push prices far higher than many think—and further, make bullion scarce.

Your neighbors will soon be buying. We suggest beating them to the punch.

Remember, gold speaks every language, is highly liquid anywhere in the world, and is a proven store of wealth over thousands of years.

But what to buy? Where? How?

We can help. With a subscription to our monthly newsletter, BIG GOLD, you’ll get the Bullion Buyers Guide, which lists the most trustworthy dealers, thoroughly vetted by the Metals team, as well as the top medium- and large-cap gold and silver producers, royalty companies, and funds.

Normally I’d suggest that you try BIG GOLD risk free for 3 months, but right now, I can offer you something even better: ALL EIGHT of Casey’s monthly newsletters for one low price, at a huge 55% discount.

It’s called the Casey OnePass and lets you profit from the huge variety of investment opportunities we here at Casey Research are seeing in our respective sectors right now—from precious metals to energy, technology, big-picture trend investing, and income investing.

Click here to find out more. But hurry—the "Casey OnePass" offer expires this Friday, April 4.

The article Inflation Is Coming, What to Do NOW was originally published at Casey Research

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Why Junior Gold Mining Stocks Are Our Favorite Speculations

By Laurynas Vegys, Research Analyst

Despite last week’s pullback, the precious metals market is off to an impressive start in 2014. Gold is up 10.6%, silver 4.3%, and the PHLX Gold/Silver (XAU) 17.1%. Gold, in particular, had a great February, rising above $1,300 for the first time since November 7, 2013. This has led to some very handsome gains in our Casey International Speculator portfolio, with a few of our recommendations already logging triple digit gains from their recent bottoms.

Why Junior Gold Mining Stocks Are Our Favorite Speculations

One of Doug Casey’s mantras is that one should buy gold for prudence, and gold stocks for profit. These are very different kinds of asset deployment. In other words, don’t think of gold as an investment, but as wealth protection. It’s the only highly liquid financial asset that is not simultaneously someone else’s obligation; it’s value you can liquidate and use to secure your needs. Possessing it is prudent.

Gold stocks are for speculation because they offer leverage to gold. This is actually true of all mining stocks, but the phenomenon is especially strong in the highly volatile precious metals. Most typical “be happy you beat inflation” returns simply can’t hold a candle to stocks that achieved 10 bagger status (1,000% gains). In previous bubbles—some even generated 100 fold returns. And we may see such returns again.

It’s Not Too Late to Make a Fortune

Here’s a look at our top three year to date gainers.

What’s especially remarkable is that all three of these stocks shot up much more than gold itself, on essentially no company specific news. This is dramatic proof of just how much leverage the right mining stocks can offer to movements in the underlying commodity—gold, in this case. Two of the stocks above are on our list of potential 10 baggers, by the way.

So have you missed the boat? Is it too late to buy?

Looking at the chart, two bullish factors jump out immediately:

• Gold stocks have just now started to move up from a similar level in 2008.

• Gold stocks remain severely undervalued compared to the gold price. A simple reversion to the mean implies a tremendous upside move.

Now consider the following data that point to a positive shift in the gold market.

1. After 13 consecutive months of decline, GLD holdings were up over 10.5 tonnes last month. The trend is similar to other ETFs.

2. Hedge funds and other large speculators more than doubled their bets on higher gold prices this year.

3. Increase in M&A—for example, hostile bids from Osisko and HudBay Minerals to buy big assets.

4. Apollo, KKR, and other large private equity groups have emerged as a new class of participants in the sector.

5. Gold companies’ hedging of future production—usually a sign of insecurity among the miners—shrunk to the lowest level in 11 years.

6. China continues to consume record amounts of gold and officially overtook India as the world’s largest buyer of gold in 2013.

7. Large players in the gold futures market that were short have switched to being long.

8. Central banks continue to be net buyers.

To top it off, there’s been no fallout (yet) from the unprecedented currency dilution undertaken since 2008—and we don’t believe in free lunches. The gold mania train has not yet left the station, but the engine is running and the conductor has the whistle in his mouth. This means…..

Any correction ahead is a potential last-chance buying opportunity before the final mania phase of this bull cycle takes our stock to new highs, well above previous interim peaks.

In spite of the good start to 2014, most of our 10 bagger gold stocks are still on the deep discount rack. And you can get all of them with a risk free, 3 month trial subscription to our monthly advisory focused on junior mining stocks, the Casey International Speculator.

If you sign up today, you can still get instant access to two special reports detailing which stocks are most likely to gain big this year: Louis James’ 10 Bagger List for 2014 and 7 Must Own Stocks for 2014.
Test drive the International Speculator for 3 months with a full money back guarantee, and if it’s not everything you expected, just cancel for a prompt, courteous refund of every penny you paid.

Click Here to Get Started Now

I hope you will take advantage of this opportunity in front of us—while shares are still relatively cheap.

The article Junior Mining Stocks to Beat Previous Highs was originally published at Casey Research

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Doug Casey: “There’s Going to be a Bubble in Gold Stocks”

By Doug Casey

The following video is an excerpt from "Upturn Millionaires—How to Play the Turning Tides in the Precious Metals Market." In it, natural resource legends Doug Casey and Rick Rule discuss the deeply undervalued junior mining sector and the rare opportunity for spectacular returns it offers investors right now.

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Discover for yourself how to make life changing gains in the new bull run in junior mining stocks. They still trade at deep discounts, but not for much longer.


To learn more, watch the full "Upturn Millionaires" video here.




This may be your last time to catch the replay...."Being the Architect of the Big Trade"

Doug Casey on Gold Stocks

By Doug Casey, Chairman

The following is an excerpt from famous contrarian speculator and libertarian freethinker Doug Casey's latest book, Right on the Money. The interview with Casey Research Chief Metals & Mining Analyst Louis James took place on September 30, 2009, when gold stocks were clearly rebounding from their post-crash lows. Doug's thoughts are just as timely and true today as they were then, presenting a perfect picture of this most volatile and most rewarding of sectors.....



Louis: Doug, we were talking about gold last week, so we should follow up with a look at gold stocks. If one of the reasons to own gold is that it's real, it's not paper, it's not simultaneously someone else's liability, why own gold stocks?

Doug: Leverage. Gold stocks are problematical as investments. That's true of all resource stocks, especially stocks in exploration companies, as opposed to producers. If you want to make a proper investment, the way to do that is to follow the dictates of Graham and Dodd, using the method Warren Buffett has proven to be so successful over many years.

Unfortunately, resource stocks in general and metals exploration stocks in particular just don't lend themselves to such methodologies. They are another class of security entirely.

Louis: "Security" may not be the right word. As I was reading the latest edition of Graham and Dodd's classic book on securities analysis, I realized that their minimum criteria for investment wouldn't even apply to the gold majors. The business is just too volatile. You can't apply standard metrics.

Doug: It's just impossible. For one thing, they cannot grow consistently, because their assets are always depleting. Nor can they predict what their rate of exploration success is going to be.

Louis: Right. As an asset, a mine is something that gets used up, as you dig it up and sell it off.

Doug: Exactly. And the underlying commodity prices can fluctuate wildly for all sorts of reasons. Mining stocks, and resource stocks in general, have to be viewed as speculations, as opposed to investments.

But that can be a good thing. For example, many of the best speculations have a political element to them. Governments are constantly creating distortions in the market, causing misallocations of capital. Whenever possible, the speculator tries to find out what these distortions are, because their consequences are predictable. They result in trends you can bet on. It's like the government is guaranteeing your success, because you can almost always count on the government to do the wrong thing.

The classic example, not just coincidentally, concerns gold. The U.S. government suppressed its price for decades while creating huge numbers of dollars before it exploded upward in 1971. Speculators that understood some basic economics positioned themselves accordingly.

As applied to metals stocks, governments are constantly distorting the monetary situation, and gold in particular, being the market's alternative to government money, is always affected by that. So gold stocks are really a way to short government—or go long on government stupidity, as it were.

The bad news is that governments act chaotically, spastically. The beast jerks to the tugs on its strings held by its various puppeteers. So it's hard to predict price movements in the short term. You can only bet on the end results of chronic government monetary stupidity.

The good news is that, for that very same reason, these stocks are extremely volatile. That makes it possible, from time to time, to get not just doubles or triples but 10-baggers, 20-baggers, and even 100-to-1 shots in these mining stocks.

That kind of upside makes up for the fact that these stocks are lousy investments and that you will lose money on most of them, if you hold them long enough. Most are best described as burning matches.

Louis: One of our mantras: Volatility can be your best friend.

Doug: Yes, volatility can be your best friend, as long as your timing is reasonable. I don't mean timing tops and bottoms—no one can do that. I mean spotting the trend and betting on it when others are not, so you can buy low to later sell high. If you chase momentum and excitement, if you run with the crowd, buying when others are buying, you're guaranteed to lose. You have to be a contrarian. In this business, you're either a contrarian or road kill. When everyone is talking about these stocks on TV, you know the masses are interested, and that means they've gone to a level at which you should be a seller and not a buyer.

That makes it more a game of playing the psychology of the market, rather than doing securities analysis.

I'm not sure how many thousands of gold mining stocks there are in the world today—I'll guess about 3,000—but most of them are junk. If they have any gold, it's mainly in the words written on the stock certificates. So, in addition to knowing when to buy and when to sell, your choice of individual stocks has to be intelligent too.

Remember, most mining companies are burning matches.

Louis: All they do is spend money.

Doug: Exactly. That's because most mining companies are really exploration companies. They are looking for viable deposits, which is quite literally like looking for a needle in a haystack. Finding gold is one thing. Finding an economical deposit of gold is something else entirely.

And even if you do find an economical deposit of gold, it's exceptionally difficult to make money mining it. Most of your capital costs are up front. The regulatory environment today is onerous in the extreme. Labor costs are far above what they used to be. It ’s a really tough business.

Louis: If someone describes a new business venture to you, saying, "Oh, it'll be a gold mine!" Do you run away?

Doug: Almost. And it's odd because, historically, gold mining used to be an excellent business. For example, take the Homestake Mine in Deadwood, South Dakota, which was discovered in 1876, at just about the time of Custer's last stand, actually. When they first raised capital for that, their dividend structure was something like 100 percent of the initial share price, paid per month. That was driven by the extraordinary discovery. Even though the technology was very primitive and inefficient in those days, labor costs were low, you didn't have to worry about environmental problems, there were no taxes on whatever you earned, you didn't have to pay mountains of money to lawyers. Today, you probably pay your lawyers more than you pay your geologists and engineers.

So, the business has changed immensely over time. It's perverse because with the improvements in technology, gold mining should have become more economical, not less. The farther back you go in history, the higher the grade you'd have to mine in order to make it worthwhile. If we go back to ancient history, a mineable deposit probably had to be at least an ounce of gold per ton to be viable.

Today, you can mine deposits that run as low as a hundredth of an ounce (0.3 g/t). It's possible to go even lower, but you need very cooperative ore. And that trend toward lower grades becoming economical is going to continue.

For thousands of years, people have been looking for gold in the most obscure and bizarre places all over the world. That's because of the 92 naturally occurring elements in the periodic table, gold was probably the first metal that man discovered and made use of. The reason for that is simple: Gold is the most inert of the metals.

Louis: Because it doesn't react easily and form compounds, you can find the pure metal in nature.

Doug: Right. You can find it in its pure form, and it doesn't degrade and it doesn't rust. In fact, of all the elements, gold is not only the most inert, it's also the most ductile and the most malleable. And, after silver, it's the best conductor of both heat and electricity, and the most reflective. In today's world, that makes it a high-tech metal. New uses are found for it weekly. It has many uses besides its primary one as money and its secondary use as jewelry. But it was probably also man's first metal.

But for that same reason, all the high-grade, easy to find gold deposits have already been found. There's got to be a few left to be discovered, but by and large, we're going to larger volume, lower grade, "no see um"-type deposits at this point. Gold mining is no longer a business in which, like in the movie The Treasure of the Sierra Madre, you can get a couple of guys, some picks and mules, and go out and find the mother lode. Unfortunately. Now, it's usually a large scale, industrial earth moving operation next to a chemical plant.

Louis: They operate on very slender margins, and they can be rendered unprofitable by a slight shift in government regulations or taxes. So, we want to own these companies… why?

Doug: You want them strictly as speculative vehicles that offer the potential for 10, 100, or even 1,000 times returns on your money. Getting 1,000 times on your money is  extraordinary, of course—you have to buy at the bottom and sell at the top—but people have done it. It's happened not just once or twice, but quite a number of times that individual stocks have moved by that much.

That's the good news. The bad news is that these things fluctuate down even more dramatically than they fluctuate up. They are burning matches that can actually go to zero. And when they go down, they usually drop at least twice as fast as they went up.

Louis: That's true, but as bad as a total loss is, you can only lose 100 percent—but there's no such limit to the upside. A 100 percent gain is only a double, and we do much better than that for subscribers numerous times per year.

Doug: And as shareholders in everything from Enron to AIG, to Lehman Brothers, and many more have found out, even the biggest, most solid companies can go to zero.

Louis: So, what you're telling me is that the answer to "Why gold?" is really quite different to the answer to "Why gold stocks?" These are in completely different classes, bought for completely different reasons.

Doug: Yes. You buy gold, the metal, because you're prudent. It's for safety, liquidity, insurance. The gold stocks, even though they explore for or mine gold, are at the polar opposite of the investment spectrum; you buy those for extreme volatility and the chance it creates for spectacular gains. It's rather paradoxical, actually.

Louis: You buy gold for safety and gold stocks specifically to profit from their "un-safety."

Doug: Exactly. They really are total opposites, even though it's the same commodity in question. It's odd, but then, life is often stranger than fiction.

Louis: And it's being a contrarian—"timing" in the sense of making a rational decision about a trend in evident motion—that helps stack the odds in your favor. It allows you to guess when market volatility will, on average, head upward, making it possible for you to buy low and sell high.

Doug: You know, I first started looking at gold stocks back in the early 1970s. In those days, South African stocks were the "blue chips" of the mining industry. As a country, South Africa mined about 60 percent of all the gold mined in the world, and costs were very low.

Gold was controlled at $35 per ounce until Nixon closed the gold window in 1971, but some of the South Africans were able to mine it for $20 an ounce or less. They were paying huge dividends.

Gold had run up from $35 to $200 in early 1974, then corrected down to $100 by 1976. It had come off 50 percent, but at the same time that gold was bottoming around $100, they had some serious riots in Soweto. So the gold stocks got a double hit: falling gold prices and fear of revolution in South Africa. That made it possible, in those days, to buy into short lived, high cost mining companies very cheaply; the stocks of the marginal companies were yielding current dividends of 50 to 75 percent. They were penny stocks in those days. They no longer exist; they've all been merged into mining finance houses long since then. Three names that I remember from those days were Leslie, Bracken, Grootvlei; I owned a lot of shares in them. If you bought Leslie for 80 cents a share, you'd expect, based on previous dividends, to get about 60 cents a share in that year.

But then gold started flying upward, the psychology regarding South Africa changed, and by 1980, the next real peak, you were getting several times what you paid for the stock, in dividends alone, per year.

Louis: Wow. I can think of some leveraged companies that might be able to deliver that sort of performance, if gold goes where we think it will. So, where do you think we are in the current trend or metals cycle? You've spoken of the Stealth, Wall of Worry, and Mania Phases of a bull market for metals—do you still think of our market in those terms?

Doug: That's the big question, isn't it? Well, the last major bottom in this sector was from 1998 to 2002. Many of these junior mining stocks—mostly traded in Canada, where about 75 percent of all the gold stocks in the world trade, were trading for less than cash in the bank. Literally. You'd get all their properties, their technology, the expertise of their management, totally for free. Or less.

Louis: I remember seeing past issues in which you said, "If I could call your broker and order these stocks for you, I would."

Doug: Yes. But nobody wanted to hear about it at that time. Gold was low, and there was a bubble in Internet stocks. Why would anyone want to get involved in a dead-duck, nineteenth century, "choo choo train" industry like gold mining? It had been completely discredited by the long bear market, but that made it the ideal time to buy them, of course. That was deep in the Stealth Phase.

Over the next six to eight years, these stocks took off, moving us into the Wall of Worry Phase. But the stocks didn't fly the way they did in past bull markets. I think that's mostly because they were so depleted of capital, they were selling lots of shares. So their market capitalizations—the aggregate value given them by the market—were increasing, but their share prices weren't. Not as much.

Remember, these companies very rarely have any earnings, but they always need capital, and the only way they can get it is by selling new shares, which dilutes the value of the individual shares, including those held by existing shareholders.

Then last fall hit, and nobody, but nobody, wanted anything speculative. These most volatile of stocks showed their nature and plunged through the floor in the general flight to safety. That made last fall the second best time to buy mining shares this cycle, and I know you recommended some pretty aggressive buying last fall, near the bottom.

Now, many of these shares—the better ones at least—have recovered substantially, and some have even surpassed pre-crash highs. Again, the Wall of Worry Phase is characterized by large fluctuations that separate the wolves from the sheep (and the sheep from their cash).

Where does that leave us? Well, as you know, I think gold is going to go much, much higher. And that is going to direct a lot of attention toward these gold stocks. When people get gold fever, they are not just driven by greed, they're usually driven by fear as well, so you get both of the most powerful market motivators working for you at once. It's a rare class of securities that can benefit from fear and greed at once.

Remember that the Fed ’s pumping up of the money supply ignited a huge bubble in tech stocks, and then an even more massive global bubble in real estate—which is over for a long time, incidentally—but they're still creating tons of dollars. That will inevitably ignite other asset bubbles. Where? I can't say for certain, but I say the odds are extremely high that as gold goes up, for all the reasons we spoke about last week and more, that a lot of this funny money is going to be directed into these gold stocks, which are not just a microcap area of the market but a nanocap area of the market.

I've said it before, and I'll say it again: When the public gets the bit in its teeth and wants to buy gold stocks, it's going to be like trying to siphon the contents of the Hoover Dam through a garden hose.

Gold stocks, as a class, are going to be explosive. Now, you've got to remember that most of them are junk. Most will never, ever find an economical deposit. But it's hopes and dreams that drive them, not reality, and even without merit, they can still go 10, 20, or 30 times your entry price. And the companies that actually have the goods can go much higher than that.

At the moment, gold stock prices are not as cheap, in either relative or absolute terms, as they were at the turn of the century, nor last fall. But given that the Mania Phase is still ahead, they are good speculations right now—especially the ones that have actually discovered gold deposits that look economical.

Louis: So, if you buy good companies now, with good projects, good management, working in stable jurisdictions, with a couple years of operating cash to see them through the Wall of Worry fluctuations—if you buy these and hold for the Mania Phase, you should come out very well. But you can't blink and get stampeded out of your positions when the market fluctuates sharply.

Doug: That's exactly right. At the particular stage where we are right now in this market for these extraordinarily volatile securities, if you buy a quality exploration company, or a quality development company (which is to say, a company that has found something and is advancing it toward production), those shares could still go down 10, 20, 30, or even 50 percent, but ultimately there's an excellent chance that that same stock will go up by 10, 50, or even 100 times. I hate to use such hard-to-believe numbers, but that is the way this market works.

When the coming resource bubble is ignited, there are excellent odds you'll be laughing all the way to the bank in a few years.

I should stress that I'm not saying that this is the perfect time to buy. We're not at a market bottom as we were in 2001, nor an interim bottom like last November, and I can't say I know the Mania Phase is just around the corner. But I think this is a very reasonable time to be buying these stocks. And it's absolutely a good time to start educating yourself about them. There's just such a good chance a massive bubble is going to be ignited in this area.

Louis: These are obviously the kinds of things we research, make recommendations on, and educate about in our metals newsletters, but one thing we should stress for non subscribers reading this interview is that this strategy applies only to the speculative portion of your portfolio. No one should gamble with their rent money nor the money they've saved for college tuition, etcetera.

Doug: Right. The ideal speculator's portfolio would be divided into 10 areas, each totally different and not correlated with each other. Each of these areas should have, in your subjective opinion, the ability to move 1,000 percent in price.

Why is that? Because most of the time, we're wrong when we pick areas to speculate in, certainly in areas where you can't apply Graham-Dodd-type logic. But if you're wrong on 9 out of 10 of them, and it would be hard to do that badly, then you at least break even on the one 10-bagger (1,000 percent winner). What's more likely is that a couple will blow up and go to zero, a couple will go down 30, 40, 50 percent, but you'll also have a couple doubles or triples, and maybe, on one or two of them, you'll get a 10-to-1 or better win.

So, it looks very risky (and falling in love with any single stock is very risky), but it's actually an intelligent way to diversify your risk and stack the odds of profiting on volatility in your favor.

Note that I don't mean that these "areas" should be 10 different stocks in the junior mining sector—that wouldn't be diversification. As I say, ideally, I'd have 10 such areas with potential for 1,000 percent gains, but it's usually impossible to find that many at once. If you can find only two or three, what do you do with the rest of your money? Well, at this point, I would put a lot of it into gold, in one form or another, while keeping your powder dry as you look for the next idea opportunity.

And ideally, I'd look at every market in every country in the world. People who look only in the United States, or only in stocks, or only in real estate—they just don't get to see enough balls to swing at.

Louis: Okay, got it. Thank you very much.

In 2009, at the time of this interview, Doug said it was not the perfect time to buy because "we're not at a market bottom." That, however, has changed dramatically. In the last two years, gold mining stocks have gotten slaughtered, and even the best companies with proven, high-grade gold deposits are now trading 50-75% below their actual value. 

The time where contrarian investors can literally make a fortune may be close: Right now, Doug and many other seasoned resource investors are seeing unmistakable signs of an imminent turnaround in the gold market. 

Find out how to play the turning tides of the precious metals market by watching "Upturn Millionaires," a free online video event hosted by Casey Research—featuring Doug Casey, Porter Stansberry, Rick Rule, John Mauldin, Frank Giustra, Ross Beaty, Louis James, and Marin Katusa.  

Click here to save your seat.


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Is this a turning point for the Junior Gold Stocks?

By Doug Hornig, Senior Editor

 

It's not exactly news that gold mining stocks have been in a slump for more than two years. Many investors who owned them have thrown in the towel by now, or are holding simply because a paper loss isn't a realized loss until you sell.


For contrarian speculators like Doug Casey and Rick Rule, though, it's the best of all scenarios. "Buy when blood is in the streets," investor Nathan Rothschild allegedly said. And buy they do, with both hands—because, they assert, there are definitive signs that things may be turning around.

So what's the deal with junior mining stocks, and who should invest in them? I'll give you several good reasons not to touch them with a 10 foot pole… and one why you maybe should.

First, you need to understand that junior gold miners are not buy-and-forget stocks. They are the most volatile securities in the world—"burning matches," as Doug calls them. To speculate in those stocks requires nerves of steel.

Let's take a look at the performance of the juniors since 2011. The ETF that tracks a basket of such stocks—Market Vectors Junior Gold Miners (GDXJ)—took a savage beating. In early April of 2011, a share would have cost you $170. Today, you can pick one up for about $36… that's a decline of nearly 80%.

There are something like 3,000 small mining companies in the world today, and the vast majority of them are worthless, sitting on a few hundred acres of moose pasture and a pipe dream.

It's a very tough business. Small-cap exploration companies (the "juniors") are working year round looking for viable deposits. The question is not just if the gold is there, but if it can be extracted economically, and the probability is low. Even the ones that manage to find the goods and build a mine aren't in the clear yet: before they can pour the first bar, there are regulatory hurdles, rising costs of labor and machinery, and often vehement opposition from natives to deal with.

As the performance of junior mining stocks is closely correlated to that of gold, when the physical metal goes into a tailspin, gold mining shares follow suit. Only they tend to drop off faster and more deeply than physical gold.

Then why invest in them at all?

Because, as Casey Chief Metals & Mining Strategist Louis James likes to say, the downside is limited—all you can lose is 100% of your investment. The upside, on the other hand, is infinite.
In the rebound periods after downturns such as the one we're in, literal fortunes can be made; gains of 400-1,000% (and sometimes more) are not a rarity. It's a speculator's dream.

When speculating in junior miners, timing is crucial. Bear runs in the gold sector can last a long time—some of them will go on until the last faint hearted investor has been flushed away and there's no one left to sell.
At that point they come roaring back. It happened in the late '70s, it happened several times in the '80s when gold itself pretty much went to sleep, and again in 2002 after a four year retreat.

The most recent rally of 2009-'10 was breathtaking: Louis' International Speculator stocks, which had gotten hammered with the rest of the market, handed subscribers average gains of 401.8%—a level of return Joe the Investor never gets to see in his lifetime.

So where are we now in the cycle?

The present downturn, as noted, kicked off in the spring of 2011, and despite several "mini rallies", the overall trend has been down. Recently, though, the natural resource experts here at Casey Research and elsewhere have seen clear signs of an imminent turnaround.

For one thing, the price of gold itself has stabilized. After hitting its peak of $1,921.50 in September of 2011, it fell back below $1,190 twice last December. Since then, it hasn't tested those lows again and is trading about 6.5% higher today.

The demand for physical gold, especially from China, has been insatiable. The Austrian mint had to hire more employees and add a third eight-hour shift to the day in an attempt to keep up in its production of Philharmonic coins. "The market is very busy," a mint spokesperson said. "We can't meet the demand, even if we work overtime." Sales jumped 36% in 2013, compared to the year before.

Finally, the junior mining stocks have perked up again. In fact, for the first month of 2014, they turned in the best performance of any asset, as you can see here:

(Source: Zero Hedge)

The writing's on the wall, say the pros, that the downturn won't last much longer—and when the junior miners start taking off again, there's no telling how high they could go.

To present the evidence and to discuss how to play the turning tides in the precious metals market, Casey Research is hosting a timely online video event titled Upturn Millionaires next Wednesday, February 5, at 2:00 p.m. Eastern.



Register here for FREE

Gold Stocks Are About to Create a Whole New Class of Millionaires

By Jeff Clark, Senior Precious Metals Analyst

Bear markets always end. Has this one?


Evidence is mounting that the bottom for gold may be in. While there's still risk, there's a new air of bullishness in the industry, something we haven't seen in over two years.

An ever growing number of industry insiders and investment analysts believe the downturn has come to a close. If that's true, it has immediate and critical implications for investors.

Doug Casey told me last week: "In my lifetime, the best time to have bought gold was 1971, at $35; it ran to over $800 by 1980. In 2001, gold was $250: in real terms even cheaper than in 1971. It ran to over $1,900 in 2011.

"It's now at $1,250. Not as cheap, in real terms, as in 1971 or 2001, but the world's financial and economic state is far more shaky.

"Gold is, once again, not just a prudent holding, but an excellent, high-potential, low-risk speculation. And gold stocks are about to create a whole new class of millionaires."

Just a couple of months ago, you would have had a hard time finding even one analyst saying something positive about gold and gold stocks—even some of the most bullish investment pros had gone silent.

But that's changing. Case in point: When Chief Metals & Mining Strategist Louis James and I attended last week's Resource Investment Conference in Vancouver, we witnessed quite a few very optimistic speakers.

Take Frank Giustra, for example, a self-made billionaire and philanthropist who made his fortune both in the mining sector and the entertainment industry. He's the founder of Lionsgate Entertainment, which is responsible for blockbuster movies like The Hunger Games, but he was just as heavily involved with mining blockbusters such as Iamgold, Wheaton River Minerals, Silver Wheaton, and others.

More Upturn Advocates Here's a quick scan of the growing number of voices that think the decline is over, some of which are outright bullish: "The worst is over with gold. It's time to call your broker." —Frank Holmes, US Global Investors "Sentiment is as black as night on gold, so I’m actually long on some gold miners." —Jeffrey Gundlach, bond guru and DoubleLine Capital founder "We'll see a gradual recovering throughout the year, because all the negative factors are already in the price." —Eugen Weinberg, head of commodities research at Commerzbank "Looking ahead, the downside risks seem to be diminishing, and overall we feel that the big shocks we've seen over the last two or three years are done..." —Marc Elliott, Investec "The mainstream narrative on gold is changing, indicating a possible bottom." —Bron Suchecki, Perth Mint "Orthodox investments are working on a cyclical peak, as precious metals are working on a cyclical bottom. The big pattern could be fully reversed by February-March, with gold becoming one of the best-performing sectors through the rest of 2014. The advice is to seriously reduce exposure in stocks and bonds and get fully invested in the precious metals sector. This should be completed in the first quarter." —Bob Hoye, Institutional Advisors

"I'm telling you, you've seen the bottom of the gold market," he told the rapt audience at the conference, offering a bet to the Goldman Sachs analyst who claimed gold is going to $1,000.

The stakes: Whoever loses has to stand on a popular street in downtown Vancouver dressed in women's underwear.

Tom McClellan, editor of the McClellan Market Report, stated in a recent interview on CNBC: "The commercial traders are at their most bullish stance since the 2001 low, and they usually get proven right. It's a hugely bullish condition for gold, and I'm expecting a really large rebound.

"The moment we see a major gold producer announce that it's curtailing production or it's going out of business," McClellan continued, "that'll be the moment we mark the low in gold. I expect to have one of those announcements any minute. We're getting down to the production price of gold right now, and they won't continue producing gold at that level for very long."

Are they just guessing? To answer that, first consider the historical context of this bear market—it's getting very long in the tooth:

• The current correction in gold stocks is the fourth longest since 1879. The decline of 66% ranks in the top 10 of recorded history.

• In silver, only two corrections have lasted longer—the ones that ended in 1936 and 1983.

Some technical analysts have pointed to positive chart formations, most notably the powerful "double bottom" that can portend a strong upward move. Based on intraday prices…

• Gold formed a double bottom last year, hitting $1,180.64 on June 28 and $1,182.60 on December 31, a convincing six-month span.

• Silver formed a higher low: $18.20 on June 28 vs. $18.72 on December 31, a bullish development.

• Gold stocks (XAU) formed a slightly lower low: $82.29 on June 26 vs. $79.73 December 19, 2103, a difference of 3.2%. However, as our friend Dominick Graziano, who successfully helped us earn doubles on three GLD puts last year, recently pointed out…

• The TSX Venture Index, where most junior mining stocks trade, has stayed above its June low. In fact, it recently soared above both the 50 day and 40 week moving averages for the first time since 2011.

Meanwhile, Goldcorp (GG) sent a huge bullish signal to the market earlier this month. It decided to pounce on the opportunities available right now, launching a takeover bid of Osisko Mining for $2.6 billion. The company wouldn't be buying now if it thought gold was headed to $1,000.

As Dennis Gartman, editor and publisher of The Gartman Letter, says, "It's time to be quietly bullish."

The smart money, like resource billionaire Rick Rule, is not just quietly bullish, though—they are actively buying top-quality junior mining stocks at bargain-basement prices to make a killing when prices rise.
To make sure that you can invest right alongside them, we decided to host a sequel to our 2013 Downturn Millionaires event, titled Upturn Millionaires—How to Play the Turning Tides in the Precious Metals Market.

Back then, we made a strong case for this once-in-a-generation opportunity—but it was still undetermined when the bottom would be in. It looks like that time is now very near, and we believe it's time to act.

On Wednesday, February 5, at 2 p.m. EST, resource legends Frank Giustra, Doug Casey, Rick Rule, and Ross Beaty, investment gurus John Mauldin and Porter Stansberry, and Casey Research resource experts Louis James and Marin Katusa will present the evidence and discuss the possibilities for life changing gains for investors with the cash and courage to grab this bull by the horns.

How do we know the absolute bottom is in? I'll answer that with a quote from a recent Mineweb interview with mining giant Rob McEwen, former chairman and CEO of Goldcorp:

"I'd say we're either at or extremely close to the bottom, and as an investor I'm not prepared to wait to see if the bottom's there because it's very hard to pick it. Because … if you're not taking advantage of it right now, you're going to miss a big part of the move. And when you look at the distance these stocks have to travel to get to their old highs, there's some wonderful numbers in terms of performance that I think we're going to see."

Granted, these voices are still in the minority—but that's what makes this opportunity wonderfully contrarian.

After all, once "Buy gold stocks" is investor consensus, we'll be approaching the time to sell.
Our Upturn Millionaires experts believe that our patience is about to be rewarded. And when that happens, gold stocks will be easy doubles—and the best juniors potential ten baggers.

Don't miss the free Upturn Millionaires video event—register here to save your seat. 

Even if you don't have time to watch the premiere, register anyway to receive a video recording of the event.)

Elliott Wave Forecast: Bull Market Nearing Interim Peak on SP500

Back on September 12th with the SP 500 at 1689 we forecasted a run in the SP 500 to 1829, a very specific number. We use Elliott Wave Theory and Analysis in part to come up with projected pivots for the SP 500 and this was our projection.

Elliott Wave Analysis is based largely on Human Behavioral patterns that repeat over and over again throughout time. It’s really crowd behavior or herd mentality as applied to the broader stock markets. This can also apply to individual stocks, precious metals and more. At the end of the day, an individual stock is worth what investors believe it is worth, and it won’t necessarily reflect what a private valuation may accord it.

With that in mind, the stock market as a basket of 500 stocks can pretty easily be patterned out and then we can apply our Elliott Wave Theory to that pattern and predict outcomes. Back in mid-September, we believed we were in a 3rd wave up of the bull market as part of what we call Primary wave 3. The primary waves are 1-5 and Primary 3 is usually the most bullish of the 5 primary waves with 2 and 4 being corrective. Well, within Primary wave 3 you have 5 major waves… and we projected that Major wave 3 would be running to about 1829.

This projection was based on the 1267 pivot for Major wave 2 of Primary Wave Pattern 3 which was a corrective wave. We then simply applied a Fibonacci ratio to the Major wave 1 and assumed that Major wave 3 would be 161% of Major 1. That brings us to about 1822-1829… and here we are a few months later heading into Thanksgiving with the SP 500 hitting 1807 and getting close to our projection.

What will happen afterwards should be a Major wave 4 correction. We expect this to be about 130 points on the shallow side of corrections, and as much as 212 points.

So the Bull Market is not over, but Major Wave Pattern 3 of Primary 3 is coming to an end as we are in a seasonally strong period for the market. We would not be shocked to see a strong January 2014 correction in the markets as part of Major wave 4.

Here is our September 14th elliott wave forecast chart we sent to our subscribers and you can see we continue now along the same path.....Read "Elliott Wave Forecast: Bull Market Nearing Interim Peak on SP500"


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