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Larry Myles Reports

It is inherent in the nature of the capitalist economy that in the finall analysis, the employment of the factors of production is aimed only serving the wishes of consumers.

November, 2008
 

Compelling and Unstoppable: The Historic Secular Gold Bull Market 

Opinion: Gold is in a primary bull market. The newly energized gold bull market will be of historic proportion. I share the opinion that the trend to holding physical gold is unstoppable and that high bullion prices are here to stay. Result: From here on, gold will finally achieve the respect it deserves – and this trend will continue long after the current credit crisis ends.
 

As to giving gold its due, a quick tour of a few of the prestigious online bullion sites such as Kitco, Perth Mint and even the US Mint and you will discover notices that they have been forced to suspend orders.

Earlier this month, Perth Mint sales and marketing director Ron Currie said the unprecedented demand had forced the Mint to cease orders until January, with staff working seven days a week, 24-hour days, over three shifts to meet orders.

The World Gold Council reported that the dollar demand for gold reached a quarterly record of $US32 billion ($50.73 billion) in the third quarter. Industry insiders state that the race to secure physical gold had reached an almost fever pitch that has never been witnessed before.

This global rush to physical gold shows the trend to bullion holds more truth – more impact than the empty platitudes being delivered to us by heads of government and financial leaders.

Addressing the constant drone of negative media coverage on the levels of deep fear and despair felt by many investors – guess what? It’s over! Okay, certainly not for all investors, but as evidenced by the global stampede to acquire bullion, a growing number of investors are simply adapting a new investment strategy – accumulating physical gold (and silver).

Jeremy Charles, chairman of the London Bullion Market Association (LBMA) told delegates at this year’s annual meeting in Kyoto that “gold’s role as a safe haven asset has returned with a vengeance amid Wall Street’s woes”. What I found fascinating was his comment that participants at the meeting “were so concerned about the stability of the financial system that rather than simply investing in gold as part of their job, they were placing their own physical money into gold, taking delivery of bullion and coins and effectively placing their investments outside the financial system.”   

In other words, while many investment advisors are (rightfully) cautioning that the volatility often seen in the gold price could make investments in bullion a risky proposition – some of them are actually joining the rush to accumulate gold. Ethics aside, what this clearly indicates: An important shift in investor strategy has taken place as a result of the 2008 crisis. A gold bull market not only makes sense, but is inevitable. Weren’t these guys part of the crowd that once mocked gold as a ‘barbaric relic of the past’? Perhaps it has come full circle; those who actually believe that fiat currency reflects wealth are working out of a dated playbook. Mark my words, these snooty 'financial advisors' will come around and there will come a day when they all rush pell-mell into the physical gold and silver market. After all, they too have families they will want to protect from the coming collapse of the (failed) fiat currency experiment. It is crucial that you come to understand their mindset and attitude, even before they do. This will bring you a true understanding surrounding the importance of gold.  

An article in the Financial Times (November 20, 2008) reported that gold coin and bar sales hit a 10-year high. I would agree that the original wave of buying was fear-driven – a movement away from the dubious security of fiat currency into something more tangible. Leading the charge was Germany and Switzerland – with net bullion purchases up 533% and 500% as compared with the same period a year ago.

But as the current ‘worth’ of fiat currency figures come in – Iceland’s Krona, devalued by 80%; Mexico’s Peso, Brazil’s Real and South Korea’s Won losing a third of their value, it becomes evident that the move to bullion is a wise choice. What also becomes clear is the very way investors regard fiat money.  There appears to be a wholesale abandonment of trust.

The terms fiat currency and fiat money relate to types of currency whose usefulness results from any intrinsic value or guarantee that it can be converted to gold or another currency, but instead of holding trust in a government order (fiat) that it must be accepted as a means of payment.

Gold inspires confidence, fiat currency….not so much. Holding any country’s currency has proven to be anything but safe. As to the US dollar, it is only a matter of time.  The US government is doling out billions of dollars to just about everyone who asks for a bailout – and then plans to mail out billions to US citizens under the guise of a (second) stimulus package. Face it, even now there are far too many US dollars out there, and that amount appears to be growing by billions more every week! You have to ask yourself – how can investors retain trust when those in control of distribution are unable, or unwilling to remove their finger from the ‘print button’. How ironic that written on the back of the greenback are the words ‘In God We Trust’. Who knew way back when that prayer would become part of the economic end game? 

What the record number of buy-side bullion sales indicate to me is that we can trust gold. To simplify the picture even more – if the President of the US and his cabinet were in charge of a junior mining company and started printing millions of new shares every month while the share price continued to slide, you all know what would be looming on the horizon – a ROLLBACK!

You Can Print Shares and Money
...but you cannot print gold

What continues to confuse me are writers and pundits who dismiss out of hand the move to accumulate gold. When the price of an ounce of gold moves up they are either silent or neutral in their reporting. When the price slips even a few dollars they are all over the news and opining that those who are accumulating gold are ‘stubborn’, ‘clinging to the past’, ‘rabid gold bugs’. What is glaringly obvious to me is that these rather loquacious gents all appear to be treating the daily price fluctuations of an ounce of gold as nothing more than an overbought, cheap penny stock that should be monitored on a daily basis. And if you are talking about investing in the pennies, I would agree with that strategy.  

But when it comes to hard (physical) gold the pro-dollar writers are choosing to ignore two important facts. The first being the record setting DEMAND for hard gold. The second fact, the DECLINE in gold production. It is tough to argue that demand is not a factor with figures released this month telling us that world gold demand increased a whopping 18%.

On the supply side, the figures do not lie: world gold production expected to hit an 11 year low. The latter statement is not really a big surprise as world gold production peaked way back in 2001 at around 80 million ounces, but since then has decreased steadily. And, as the demand for gold is not only increasing – but accelerating, so has the decline in production accelerated. It is time to face the facts, people want hard gold and silver and short of government intervention, nothing is going to stop them from acquiring bullion. As to the price of gold, it is not rocket science – diminishing production, increased demand? You figure it out.

So as stated, short of panic in government resulting in the outlawing the sale of bullion, the evidence speaks for itself.  We are in a gold bull market!  

The one question I’m asked more than any other – when will the penny gold market turn around? I am not going to be vague and parrot what I hear from other letter writers – “no one really knows when the market will recover, nor can anyone guarantee that further price erosion will not take place”. Instead, I am going to answer that question….the market is turning as we speak. Evidence: The rush to bullion was the first and obvious signal that many fearless investors were already on the move – purchasing and taking possession of physical gold. 

There is a strategy in place that I appreciate. It is a simple and sound plan to evolve out of survival mode into prosperity. With their gold and silver safely tucked away, the sharp investor has turned to bargain hunting the juniors. And if you have the moxie, right here and right now is where you shake off that fear and move off the sidelines and get yourself back in the game. By doing so, you will be moving toward prosperity by becoming participant in the business of gold. With all the money printing going on and with history firmly on my side, the odds are there for fiat currencies around the world to collapse. Long before this happens, expect to see the price of an ounce of gold move up the charts. $1000 gold is a given, $1200 gold will become an accepted level and (imo) before the price of gold goes parabolic, it would not surprise me to see an ounce of gold hit $1500 an ounce by Easter, 2011. So being in gold bullion is important; but owning the right gold juniors is all part of being participant in the entire business of gold.

There are some incredible buys out there just waiting to be discovered, or in some cases – rediscovered. I am talking about junior gold and silver companies that are unrealistically undervalued – money in the bank, product in the ground that is economical to produce, and strong management. All you need to do is stop dithering, find the courage to act and be able to recognize solid value when it is right in front of you.

It is probably prudent to mention that early stage exploration companies that are cashed strapped are as good as dead in the water – survival may not be an option. Companies that are short on cash but have early positive drill results may not fare much better. Their only hope may be merging with another company as the ability to raise money for pure exploration isn’t going to be easy – and for now, such companies do not qualify as ‘bargains’. 

I am currently looking at a few select companies that fit the bill. I will get into greater detail next month, but here are a handful of companies worth investigation: 

A prime example is Atac Resources Ltd. (TSX.V: ATC). Atac has money in the bank, an absolutely stellar management team and has a gold property in Canada’s Yukon. On November 5, 2008 the company announced drill results: 46.43 meters of 2.92 grams of gold per ton.

Further to the release: "The results from the Rau gold property demonstrate that we are exploring a very large and complex system of mineralization. Atac has progressed quickly from a three-hole program on a soil geochemical anomaly to a major gold discovery," says Graham Downs, chief executive officer of Atac Resources.

Did I mention that Atac is trading at 7 cents – in my opinion, a bargain.  

Another example of a focused and well funded junior company working through the market negativity is Bravo Venture Group (TSX.V: BVG). Bravo’s NI 43-101 reports an inferred resource of 900,000 oz/gold on their 100% owned Homestake Ridge project in British Columbia. The company has just released a pair of spectacular news releases:

2008-11-12
Bravo Venture drills 62.3 meters of 6.1 grams of gold per ton at Homestake.

2008-11-25
Bravo Venture drills 9.4 meters of 24.9 grams of gold per ton and 1,042 grams of silver per ton at Homestake.

Bravo is trading at around 39 cents – and with what they already have in the ground, probably one of the more undervalued companies on the board.

At the time of this writing it appears that BVG has already been discovered by the smart penny gold investor, whereas ATC remains out of the spotlight.

You need  not waste time attempting to discover any wayward signs or tokens; I am in no way involved with any of the mentioned companies and will not receive any compensation for my report. 

My goal here is to simply offer an alert to what I consider prime investment opportunities. Both Atac and Bravo are energized companies that have kept their wits about them, concentrated at the task at hand while keeping a strict eye on their bank accounts.  

Also worth your due diligence efforts: La Mancha Resources (LMA), Moto Goldmines (MGL), Nova Gold (NG), Azteca Gold (AZG) and Central Sun Mining (CSM). The current share price of these companies are unrealistic to say the least, and in my opinion do not reflect their true value.  Nova Gold at sixty cents a share is downright silly and should be considered a no-brainer.

Larry Myles
604-408-7600
1-877-405-7600

 

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Larry Myles is neither a geologist nor a financial analyst. I do not purport to offer personal investment advice nor recommendations. While all statements of fact are derived from reliable sources, an d are believed to be accurate, I make no warrant that they are so. You must do your own research and check statements of fact for yourself. My opinions are precisely that, my opinions. I do not accept any responsibility for any gains or losses you may experience resulting from actions taken based on my opinions. If not otherwise qualified, you should consult with your own personal financial advisor before engaging in any investment activities. Larry Myles Reports does not provide individual investment advice, act as an investment advisor, or individually advocate the purchase or sale of any security or investment. Larry Myles may actively trade in the investments discussed in this publication. Larry Myles may have a substantial position in the securities recommended and may increase or decrease such positions without notice. I do not know your personal financial circumstances. I am not your personal financial advisor. You must do your own due diligence. By entering this web site, or reading LMR reports, you acknowledge and accept the foregoing.