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Thursday, May 21, 2009

Gold Miners

In reflecting on this blog, I realized that I talk quite a lot on current plays, but not on my primary play for the next 2-4 years.
I mention it time and time again, buy resource stocks, but I prefer Gold Miners, often linking to previous articles such as these (click).

What I haven't done is clearly articulate how committed I am to these gold miners, and the ROI I expect.

The gold miners from my initial recommendation price have a potential of 1,000%, some small ones maybe 10,000% return in the next few years. Yes, you read that right. How can I have such crazy thoughts?

The world is printing money, basically "photocopying" currency. They really aren't photocopying, there is a complex debt system keeping tabs on all the new money. But in the end this "resource" is being increased substantially world wide, in an effort to counter the massive DECREASE in credit. Credit in it's own way is another form of creating currency. This is especially true of the most common banking system, the fractional reserve banking system.

There are several things that will make resources in general explode. One, the "Ratio" of currency per unit of natural resource will go up, due to all the new cash. After all, cash is being created out of thin air, at an arbitrary human rate. Where natural resources have constraints on production.
Another is when the world gets out of this financial funk, there is 1.3 BILLION people in China, over 1 BILLION in India, and only 300 million on the USA. The USA has historically consumed significantly more of the world resources per citizen. Click for Oil. India loves gold.

This piggish ratio cannot last, now that China, India, Brazil, and lesser degree Russia (BRIC) have woken up. So how can the USA use less of the worlds resources, while other countries start consuming more as a %? Will the USA just decide to go on a resource diet to allow other countries to take a greater share of resources?

Hardly. The USA is not a good sharing nation when it comes to consumption. Therefore, there is one way this will occur, cost of resources. If the cost of resources RELATIVE to a USA citizen goes up, the US buys less resources, leaving more resources for other nations. Further, even if the USA tries to keep up consumption rates it has enjoyed, BRIC will bid up resource costs.

Why I like gold/silver/precious metals over other resources is a bonus value it has. The above two reasons articulate two primary reasons form a general standpoint why I like natural resources. Why specific precious metals has to do with one thing: Panic.

The world is in flux, and I believe what we are witnessing is the world killing off it's love affair with the US dollar, and moving to a new currency and new economic leader. The new currency is unknown still, China may be it. China has some severe problems, specifically the world being able to trust a communist nation with the worlds wealth. China I believe will be the new economic leader, driving the world economy as WE service their 1.3 billion people. I'm talking decades folks, not next week.

Aside from the currency standard changing, we also have potential for panic of world financial doom that sets people into a frantic migration to something that they can trust to store wealth. For most of human history precious metals such as gold has been looked at as "absolute" transportable wealth. (Land is absolute wealth, but not transportable, and land is taxed, gold isn't until sold)

Looking at my previous article on resources, I made a case on how resources are still cheap historically. Each day that passes resources are becoming more expensive. See Forbes article.

So, without further chatter, here are the gold miners, from their recommendation purchase date(s) to current valuations. I still hold these and plan to hold them all until gold hits 2000 to 4000 an ounce, or if/when gold prices go parabolic as it did in 1980, or as oil did in summer of 2008. At that time, I would like to sell gold and buy land or another resource.


ALL of these stock plays assume you are LONG the stock. Click on stock symbol for link of recommendation.














































Stock 10/22/08 5/20/09 Percent Gain
GDX 19.50 40.47 107.5%
NAK 2.00 7.7 285%
Stock 10/27/08 5/20/09 Percent Gain
AAUK 9.13 12.47 36.6%
ABX 18.14 36.22 99.7%
AUY 3.74 10.00 167.4%
FCX

23.75 10.00 110%
GG 15.06 36.73 144%
GSS 0.73 2.02 176.7%
HMY 6.16 10.76 74.7%
IAG 2.47 10.16 311.3%
NEM 21.54 45.55 111.5%
PAAS 9.6 20.99 118.6%
RGLD 23.15 42.77 84.8%
Stock 12/16/08 5/20/09 Percent Gain
FNARX 19.16 23.43 22.3%
IVN 2.43 5.83 139.9%
NXG 0.93 1.97 111.8%


I HIGHLY recommend spending the money and paying for Gary's "Smart Money Tracker" blog for true insight and expertise on precious metal miners and other resources. Don't listen to me about how great gold miners are as an investment, listen to Gary. After all opinion you pay for is worth than my free one.

Also as always, I can't take the credit for most of these stock picks, John Chinnock is the true brains of this blogs operation.

NOTE: I have since dropped AAUK, mainly since I didn't want to be tied to a company with ties to England, since the pound probably will fall worse than the US dollar. Any future follow ups, I will keep AAUK on, but I am not an owner of the stock, nor do I recommend it.

Also FNARX I have no love for, it happens to be a natural resource ETF offered by Fidelity Investments, my broker. I bought it as a low risk diversification. Notice Low risk equals low returns.

2 comments:

  1. Sorry to disagree with your pitch here but Gary´s advise on gold and other issues is more off than on .

    regards
    EKK

    ReplyDelete
  2. Gary in short term: sketchy
    Gary on longterm, I think dead on.

    And his record, at this point with GDX being 42, is 100% right. :) Lets see if GDX hits 27 if Gary was able to change direction at the right times.

    ReplyDelete