New Gold—A Gift from the Gold gods

 

New Gold (NGD/NGD.TO) closed on Friday at $3 on the US market (I will be quoting the price in USD-you will have to multiply by 1.31 to equate the CDN exchange equivalent). The share price began to collapse on January 30th leaving a large gap on the chart at $3.96 (Jan 29th closing price). The even more significant flush came on January 31st, after analysts at the major brokerage houses downgraded the stock from a buy to hold, virtually across the board. That day, the price sank all the way to $2.39 intraday, just about sliced in half in 2 days! The news that caused this panic was an announcement that NGD would delay commercial production on their massive new Rainy River mine to November 2017 (this was previously scheduled to start “mid-year”).

The problem with Bay Street/Wall Street analysts is that they are, much more often than not, the sheep and not the shepherd. They are reactionary and behind the curve instead of in front of it and therein lies the opportunity here as the hatchet job on NGD was way overdone. The company also announced a $100MM funding gap due to cost overruns, which is not the end of the world. Guess what folks? New mines are very tough to build, mistakes are made, delays happen, and costs overrun. This is the mining business, not opening a new Chipotle. Obviously, some issues become perpetual and for smaller companies can be their demise. In the case of New Gold however, this is not the case. Last week on February 8th, they reduced that shortfall to $35MM as they sold a gold stream in their El Morro project for $65MM to Goldcorp, which is obviously non- dilutive.

Rainy River is NGD’s future and that future growth is not that far in the distance. I tripled my position size between $2.65-$2.85 and feel like this was a gift from the gold gods! I initiated a strong buy on NGD to all of our subscribers in the 2nd half of 2015 at just above $2 per share ($2.10 I believe was the official price USD). The share price tripled by mid-2016 and many of us wished we had bought more. Well, now is our chance as I love it again here in the high $2’s to low $3’s for primarily an investment but also for a pretty juicy trade too.

 

chart1

 

The daily chart shows two clear bullish signals via the clear gap in the chart (these tend to get “filled” much more often than not, even if just temporary) and a rising MACD, which acts like a pendulum swinging. I’ll take a step back and look at the bigger picture via the 10 year (monthly) chart below but first let’s look at the clear fundamental driver of the story….growing cash flow and earnings starting in 2018. Obviously a rising gold price is huge leverage to all of the gold producer’s earnings but we have a company specific driver in this case and it is Rainy River.

 

chart 2

 

As you can see from the above slide in NGD’s corporate presentation, RR will virtually double the cash margin/flow of the entire company, which has 4 other producing mines. Average annual production per asset as it stands now is approximately 100,000 ounces. RR is projected to quadruple the average production of the other 4 mines and produce 400,000 ounces annually, starting in full during 2018.

 

chart 3

 

You can see the huge impact RR will have on New Gold’s overall numbers above and it is significant. Do you want to invest in this company once RR is completely on track and producing 33,000 ounces per month in less than 12 months? No, you don’t. Not if you can buy it after a hiccup cheaply because Wall/Bay Street is focused on the short term and quarter to quarter realities. This is a perfect type of scenario to snatch value away from the sheep and buy into New Gold at a discount. Action and then patience will be rewarded.

None of this speaks to a rising gold price, which I expect going forward to north of $1,500 in 2018 (NGD uses $1,250 gold in their feasibility numbers/projections). However, per $100 an ounce rise in the gold price generates $300 million in value just at Rainy River. This is because $30MM in extra cash flow is generated and at 10X earnings it should reflect in $300MM in stock value added. That means when combined with the other 4 projects, just a $100 gold price increase in 2018 would add $600MM in value minimum, or 30% to the share price.

After a 5 year brutal bear cycle, most of the surviving mid-tier and blue chip gold producers are lean and mean because they had to be. The leverage going forward on rising gold prices will be significant and benefit stock prices fantastically if we see a real move in gold. NGD provides value at these prices, leverage to the gold price, as well as growth. Looking at EGO (Eldorado Gold) as a comparison, I would buy NGD every time. EGO has a $3B enterprise value versus NGD’s $2.1B yet their 2017 production profile will be very similar to NGD’s at between 365k-400k ounces. They also are not projecting anywhere near the explosion in production volumes that New Gold is after this year due to the Rainy River asset. The bottom line is that today’s problem will end up being tomorrow’s value driver and we actually don’t have to wait very long to see it.

I’ll circle back on this post in early-middle of 2018 once RR is hitting its stride and we’re seeing the same analysts that just downgraded, then upgrading, and driving the share price into the double digits again. As you can see on the monthly chart below, we are trading right on rising trend line support around $3. I ultimately expect the share price to retest the $14 area it hit in 2011 once the current gold cycle kicks into gear given some time. In the meantime, a closing of that gap could happen in as little as days or weeks. But even if it takes a year, 33% annual profits with a very low risk profile from these levels is better than a sharp stick in the eye!

 

chart 4

 

I’m long NGD

 

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Legal Disclaimer: I am offering ideas for your consideration and education. I am not offering financial advice. I am not a financial or investment advisor and am acting in the sole capacity of a newsletter writer. I am a fellow investor and trader sharing his thoughts for educational and informational purposes only. New Gold is a paying sponsor of our website so my viewpoint may be skewed. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided on the Website is based on careful research and sources that are believed to be accurate, Mr. Muschinski does not guarantee the accuracy or thoroughness of the data or information reported. The opinions published on the Website belong to Mr. Muschinski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Muschinski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published on the Website have been prepared for your private use and their sole purpose is to educate readers about various investments. By reading Mr. Muschinski’s essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Muschinski, Gold Investment Letter’s employees and affiliates, as well as members of their families, may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Southern Silver Site Visit and Valuation Update

On January 28th, 2017 I traveled to Durango state Mexico to tour Southern Silver’s (SSV/SSVFF) Cerro Las Minitas property (CLM). Lesley Stokes from the Northern Miner was with us and she wrote up an informative article last week.

I initially published a public report on SSV in May 2016 at 14 cents per share which you can read here.

IMG_4292
[Our editor on site at drill #92]

Interestingly, if you look at the long term 10 year chart I posted back in May, I circled two target areas at that time. The first circle was around 50 cents. The share price broke above 50 back in August last year hitting a high of 66 cents but fell back and has been consolidating below 50 cents for 5 months. Guess where we have been seeing resistance recently? 47-50 cents. What is encouraging though is that on the weekly chart below, we are seeing bullish confirmations in a very recently rising MACD (bottom right) and reverse head and shoulders pattern. Technically, it is highly likely that the next move resolves itself upwards not only besting 50 cents per share but also the previous high at 66 cents.

I want to note the second target area I circled almost 9 months ago when the share price was just 14 cents, which is at $3. It won’t go there overnight as the next major resistance area after besting last year’s high will be at $1. Once $1 is broken, $3 per share should actually happen a lot faster than it took for the price to get back to $1 from bear market lows. What could be the catalysts for such a surge besides rising silver/zinc prices? It could very well be the potential doubling of the resource this coming summer.

 

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The current resource at CLM is 36.5 million indicated silver equivalent ounces and 77.3 million inferred equivalent ounces containing primarily silver, zinc, and lead. The current in situ value of the resource exceeds $2.3 Billion and has grown several hundred million dollars due to zinc’s huge rise in 2016. The company is now in the midst of a 10,000 meter drill program with an ambitious goal to double the current resource. The $2MM program is being funded by the Electrum Group who is earning into 60% ownership at CLM and SSV will own 40% once the money has been spent (Electrum will have spent a total of $5MM at CLM by this June).

 

IMG_4192

[Core shack]

“We already have a great deposit as it is, but once we hit the Blind Shoulder zone we just started following the high-grade, and we think we can double what we have right now,” Macdonald says during the drive to the property.

The quote above is referenced from the Northern Miner article via SSV geologist Rob Macdonald. Obviously, there is no guarantee that they will double the resource but I will say that the SSV team certainly feels confident in the plan to do so. Right now at 48 cents CDN, the market cap of $40MM is valuing each silver equivalent ounce at 30 cents. I believe that is too cheap and I see many examples with silver equivalent ounces valued at $2 (Defiance Silver) or even $4 (Alexco). What is a fair value? Once SSV is in the PEA or pre-feasibility stage (we’ll see what’s next….probably a PEA but they will have to review the plan with Electrum this summer once results are known), $1.00 per equivalent ounce is very reasonable. In fact, $1 per OZ right now is reasonable.

At $1 per ounce of silver equivalent resource the stock would be trading at $1.50 right now. Wonder how they get to $3? Double the resource and walla! Keep in mind that these comps are fair with a $17-$20 an ounce silver price. $25 silver and the valuation could easily double to $2 per equivalent ounce or triple at $28-30 silver, which I believe is coming. For now, I’m only looking for $1 per silver equivalent ounce of resource on what they have today which forecasts a $1.50 share price. I’ve been saying $1-2 in 2017 so I’m very comfortable with this price target.

IMG_4207

[Cerro Las Minitas–The Hill of Many Mines]
*Note the modern highway just meters from the property

One thing that should bolster investor’s confidence is the direct involvement of Tom Kaplan’s Electrum Group. This group is the smart money, make no mistake about that. Kaplan has literally made a fortune by building up plays just like Cerro Las Minitas and they will do it again….and again…and again. In this particular case I’m betting on both the horse (CLM) and the jockey’s. Larry Page via Western Silver has been involved in some monstrous successes as well such as discovering Penasquito in Mexico though Western Silver Corp. This mine now produces almost 1 million ounces of gold annually.

I’m confident that in the next sustained move higher in precious metals, the gold/silver ratio will begin to tighten in silver’s favor. At 70 to 1, it is on the very high end historically and should make its way into the 30-40 to 1 area within 2-3 years, maybe even much sooner as silver can make up ground fast when it decides to! I don’t see Southern Silver taking CLM into production as they will be acquired well before then. This is an asset the majors will want and the company could be in play as early as this coming fall after the new resource estimates are on the table. The longer an acquirer waits, the higher price tag they will need to pay so I would rather see an offer in 2018 or once silver is $25 or higher, minimum.

More details on mineralization and the various target zones can be read in SSV’s corporate presentation and/or in the Northern Miner article. SSV remains a buy under 50-60 cents and on pull backs. It remains my top junior silver holding. SSV was a sector leader during the huge gold/silver stock rally in 2016 and I expect it to remain an out performer in the next run.

For updates on Southern Silver and unique ideas on individual mining stocks, please sign up for our free newsletter below.

Legal Disclaimer: I am offering ideas for your consideration and education. I am not offering financial advice. I am not a financial or investment advisor and am acting in the sole capacity of a newsletter writer. I am a fellow investor and trader sharing his thoughts for educational and informational purposes only. Southern silver is a paying sponsor of our website so my viewpoint may be skewed. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided on the Website is based on careful research and sources that are believed to be accurate, Mr. Muschinski does not guarantee the accuracy or thoroughness of the data or information reported. The opinions published on the Website belong to Mr. Muschinski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Muschinski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published on the Website have been prepared for your private use and their sole purpose is to educate readers about various investments. By reading Mr. Muschinski’s essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Muschinski, Gold Investment Letter’s employees and affiliates, as well as members of their families, may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Bravada Gold Upside Potential Remains Significant

Bravada Gold (BVA/BGAVF) was one of our best performers in 2016. The XAU index of mining stocks, despite the second half correction, closed 2016 up 74.1%. This was actually the largest percentage increase on record EVER for the XAU, which has been around since 1983. In comparison, BVA was up 500% from .04 to begin the year to a close of .235. The share price at one point in the summer soared up 1,000% to 40 cents and has now basically been cut in half during this correction. Those that outperformed mightily on the upside in the rally are susceptible to greater percentage pull backs as well.

Did we see the best of Bravada’s share price increase or is there more upside to come? I’m betting on higher prices despite being up substantially on my position, which is very significant for me as I own approximately 4% of the outstanding shares between my firm and personally. I actually am participating in the current 20 cent financing as well (more to come on that later). Bravada only has 35 million shares out so their market cap remains tiny at just $8MM CAD (.235 per share). BVA is one of my top junior gold holdings for several reasons.

First, it is a pure play on Nevada gold exploration as BVA owns 15 properties in the state with 5 being developed by partners. Several have been past producing mines including 2 of their best projects in Wind Mountain and Quito. Very large companies have been attracted to BVA prospects including Kinross, Baker Hughes, Coeur, and Newmont currently as active partners. A number of Bravada’s projects have blue sky potential including several that could become 1MM plus ounce gold resources.

Their 100% owned flagship, Wind Mountain, already has 925,000 ounces of gold in the indicated and inferred categories. This equates to Bravada’s entire market value being approximately $9 per ounce in the ground on Wind Mountain and giving ZERO value to the other 14 projects! I can slice and dice comps and analysis all day in many different ways but the clear simple fact is that the stock is TOO CHEAP. Many juniors have valuations of $20-30-40 per ounce of gold resources even after the recent 40% plus correction in the sector.

I think it is very important for investors to consider the stock now before a fresh round of drilling begins at Wind Mountain before the end of Q1 2017. Quito will see drilling and Kinross is active at Baxter, but I expect serious value generation at WM this spring. There are very precise targets in this phase of drilling that will increase the resource but even more importantly, will technically become more attractive to a new partner. We will see consistent news flow from drilling via Bravada and their partners throughout the year.

The company has a very small burn rate and has cleaned up their balance sheet in 2016. A vast majority of the $1MM current financing will be put to work in the ground, which I like to see. By mid-year/summer 2017, with improved information and results from the next drilling program at WM, we should see a $25-30 an ounce valuation on this project alone. That would put BVA in the share price range of 65-75 cents, giving zero value to the other 14 projects. Clearly Quito and Baxter themselves, which have majors in Coeur and Kinross spending millions, have meaningful value. The Baker Hughes barite mine being built will start to throw off cash to Bravada in 2017 as well.

The other 10 or so Nevada properties are at varying stages of development but half of them are good prospects and have had money spent on drilling in the past. Once gold starts really ripping, all of these projects could garner attention, leading to purchases or JV’s. If we give all 14 projects just half the value of Wind Mountain, we’re looking at a $1 plus stock price. That could happen in 2017 but we’ll need to see another strong run in gold and gold miners for it to happen. However, even in a down/sideways gold market, I think BVA penetrates the 40 cent high from 2016 this year. Going from the current 23-24 cents to $1 may seem like a lot. But keep in mind it is just over 50% of the percentage movement that the share price saw in 2016 (2016 was 500%–we would need to see about 300% from current prices to hit $1).

Juniors move baby! Big swings like this are very normal in bull markets and we know that they can be decimated in bear markets. In fact, BVA was trading at $3.20 in May of 2010 and hit a low of 2 cents in 2015. That means the stock lost more than 99% of its value in just over 5 years!! Some investors are still WAY under water at these prices, still down over 90% ($3 to 30 cents is 9/10th’s of their value!). Fortuitously, we happened to start entering the stock in the fall/winter of 2015 and took a big stake in the company for peanuts. So, it’s all in how you look at it. BVA is a very long way from testing its highs in 2010 which would need a 13 bagger from current prices to do so. However, in the gold mining sector, I believe that BVA and other solid plays like MUX and others will eventually EXCEED their 2010-2011 highs!

I’m laying this out now because it is very important that my readers get in the habit of buying positions when stocks are down. BVA is off about 45% from last summer’s highs of 40 cents but I think it is starting to turn on the weekly chart (see below) and will be back over 30 cents soon, leaving the .20’s behind for good. The only reasons that I would sell any shares is if the position size becomes way out of whack compared to my other junior holdings or if I’m exercising warrants, further increasing my holdings at cheaper prices.

chart-1

The weekly chart above is bullish and a flagging pattern for months coupled with a triangle pattern forming since November indicate a potentially explosive move soon. A breakout above 26 cents with volume will confirm a significant breakout on the weekly and the next major resistance level won’t be until 40 cents. MACD is turning up after being down for 6 months! The chart is absolutely set up for a multi week-month uptrend to begin. However, if we see the triangle broken to the downside (20 cents) with volume first, then the low end of the flagging pattern at 15-16 cents would be a feasible low point. I am guessing the break out of the triangle will be higher as usually the trend continues in the previous direction, which was higher.

For those of you that are accredited investors ($200k annual income the last 2 years, $300k with your spouse, or $1MM in net worth minus your primary home), you may want to jump on the current private placement offering to take a position. The terms are one unit at 20 cents that includes a 3 year full purchase warrant at 30 cents, which is a nice sweetener on top of the healthy discount to market. This is the optimal way to take positions in juniors if you have access to the deals. Luckily, on BVA, we do. Just register your interest amount (minimum is $20K CAD or about $15k USD—100,000 units) via the Issuer Direct page here.

In summary, investors that want to own exciting gold juniors trading at historically low valuations to assets may want to consider taking a position in BVA/BGAVF. I think the stock can be bought up to 30 cents on BVA and 24 cents on BGAVF for a potential double or more in the next 12-18 months. The current private placement will be closing on or before January 13th so accredited investors that are interested should act swiftly to ensure inclusion.

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Legal Disclaimer: I am offering ideas for your consideration and education. I am not offering financial advice. I am not a financial or investment advisor and am acting in the sole capacity of a newsletter writer. I am a fellow investor and trader sharing his thoughts for educational and informational purposes only. Bravada Gold is a sponsor of the Gold Investment Letter and we are being compensated twenty five hundred dollars monthly. I am also the owner of Issuer Direct and will be receiving compensation in the form of a finder’s fee for investors referred to invest in their private placement. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided on the Website is based on careful research and sources that are believed to be accurate, Mr. Muschinski does not guarantee the accuracy or thoroughness of the data or information reported. The opinions published on the Website belong to Mr. Muschinski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Muschinski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published on the Website have been prepared for your private use and their sole purpose is to educate readers about various investments. By reading Mr. Muschinski’s essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Muschinski, Gold Investment Letter’s employees and affiliates, as well as members of their families, may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

NovaGold Resources is Cheap and Oversold

I have begun building a position in shares of NovaGold (NG/NG.TO) in the $4-5 range and believe that the price is very close to a short term bottom. At a closing price of $4.05 yesterday on NG, the stock is off over 30% in the past 7 trading days with an RSI reading of 25 (oversold). The share price was $7.25 as recent as early August so it has nearly been cut in half during this gold miner correction. Now is exactly the time that you want to be buying this stock and the downside looks limited to me.

NovaGold owns 50% each in two monstrosities called the Donlin Gold (Alaska) and Galore Creek (Canada-mainly copper but also has 8 million ounces of gold and over 100M ounces of silver) assets. Their partner at Donlin is Barrick Gold (world’s largest gold producer) and Teck Resources (Canadian mining behemoth) at Galore. Donlin is enormous with 34 million ounces of gold reserves and another 11mm ounces in the resource categories. The grade is solid at 2.2 GPT versus the global average at 1.12 GPT and the project is at the permitting stage after 16 years of development. Call it 45 million ounces, which is over $50 billion worth of gold at today’s prices, and the deposit has the potential to double in size from here.

Donlin dwarfs all other new gold deposits in North America to the tune of having more M&I gold resources than the next 4 projects combined (Livengood-Brucejack-Meliadine-Rainy River). New discovery potential abounds at Donlin and there is enormous leverage to the gold price where the NPV (net present value) at 5% increases 20 fold with just a double in the gold price to $2,500. NPV at 0% (not valid until closer to or even in production) is over $6B at today’s gold price and goes up almost 5X to $27 billion at $2,500 gold.

Galore Creek has over 9 billion pounds of copper, 8 million ounces of gold, and 136mm ounces of silver as well. 6 billion pounds of copper to be produced over 18 years and at $3 copper that will be nearly $1 billion in annual revenues with tremendous margins. NG/Teck project costs of only 80 cents per pound of copper, which is outstanding. I will let investors dig deeper on Galore and Donlin fundamentals as I most importantly want to get this piece published for early October 12th. The price is right to act now and that includes an opportunity to make 20-25% on a trade if that’s your style. But I think this stock can go to $20-$50 per share within 3-5 years based on fundamentals aligned with a gold price that retests the 2011 highs.

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This is a 10 year, monthly chart on NovaGold above. My chart line may be off by a smidgen but we should see strong support on the stock in the 4$ area. The share price hit $20 in 2007 and $17 in late 2010 and I think the $12-14 range will be retested in the next 24 months, which is a triple or better.

Below is the daily chart which shows via the top upper right circle that the price is already becoming oversold near $4. The other circle adjacent to the red line (200 day moving average) is a gap in the chart, which will likely be filled. That’s nearly a 40% return from $4.05 and it could happen within just a few weeks. A very realistic shorter term goal is a 20-25% move back near $5.

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The weekly chart below shows more signs that the lows are very near here close to $4. We see the long term uptrend line still intact with MACD at the bottom being quite stretched. MACD has been below zero for 10 straight weeks and could easily begin turning up anytime.

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Lastly, the company has a very impressive board of directors and institutional shareholder base. Thomas Kaplan of the Electrum Group is the Chairman and his firm owns over 26% of the company. When you add in Fidelity (8.5%), John Paulson (8%), the top 5 investors own over 50% of the stock. This is pretty unusual for a north of $1 Billion market capitalization company and speaks to the conviction of some very smart money.

I urge readers to begin acquiring shares of NovaGold for long term investment. Also, traders can begin adding as well for a potential 20-25% gain within a month or two (it could reverse within hours/days). You may want to add half immediately and keep some dry powder if the miners decide to have one more flush lower before a sustainable rally ensues. This is the exact type of gift that investors would have dreamed of just a couple of months ago when the share price was surging over $7.

I am long shares of NG

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GIL Fall 2016 Review

Gold: Its Role in the World and History

It is time to start thinking big. I am going to lay out some compelling data in an attempt to stretch your time horizon as it pertains to the enormous opportunity in front of us via a renewed bull market in gold. A small consortium of you will both get it AND be able to take action (in many cases once the bets are made—inaction) to make the big money from what is staring us in the face. I waited for the Fed before diving into this intro so as to set the tone about what is next in the very short term. That was actually my mistake and exactly what I talking about in terms of mentality (I’m guilty of this from time to time as well—this piece is an exercise for myself to do the right things) that is short term in nature.

The short term remains fuzzy as GDXJ and the sector has not retained decisively its 50 day moving average. I’m going to lay out some interesting charts, as well as data on volatility that can clearly mentally prepare you for making a lot of money in gold related bets going forward. I believe owning physical gold itself is the safest place to park money in the world, in any asset class, including fiat (paper) cash. The store of value over millennia is unquestionable. It is a proven place to park hard earned money and ensure it keeps it’s worth, versus when it’s done in cash in any paper currency. The dilution of the global central banks that print money to devalue their currencies, and stimulate “growth”, affects each and every one of us. It is subtle, which is why and how they get away with it.

I often use the example of the cost of buying a “quality” men’s suit almost one hundred years ago (let’s use 1929, which was ending the roaring 20’s) and today. How many dollars did it cost at that time to buy the nice suit? Using a general calculator and what I found online, the cost was somewhere between $29-45 for a quality suit (a decent one could be bought for $20-29). The same suit at that time could be purchase for one ounce of gold (we know the price was set in the early 1930’s at $35 an ounce). Today, the same ONE ounce of gold can buy you a high quality suit ($1,300), maintaining its purchasing power over almost a century. To the contrary, if we use $35 in USD terms for the suit, you need to cough up 37 times more dollars ($1,300 divided by $35) today. Why? Because of monetary dilution by our central bank. Back then, there was at least a link to gold in terms of how much paper currency could be printed. President Nixon clipped the last tie to gold in 1971 and the acceleration of dollar printed has been exponential to this day, eroding our dollars purchasing power considerably. What would you have had your cash exposure in between the early-id 1970’s and today…dollars or gold? The gold price has increased 37 fold against the USD, while the dollar has eroded in purchasing power to the tune of needing $8 or so 2016 dollars to $1 in 1970. Gold got ahead of itself in 1980 and it does so from time to time, just like it gets way too cheap at times. But, over long stretches (decades), it keeps its consistent value in the world.

This is walking through why gold is so important (and its cousin Silver—which has commanded monetary value at various times in history as well) because it is CASH. It is a CURRENCY and it is the BEST one available to us at this time. Gold actually is an inverse reflection of the currency you view it in. It bottomed out and actually rose aggressively in Rubles, Yen, and Brazilian Real well before we saw the rise begin in dollars this last January. Gold is a global currency and dramatically protected investors that have the bulk of their earnings wealth in the 3 currencies above over the past 3-4 years, if they put some of it into gold before their currencies wilted in value.

I wanted to simply walk through a basic thesis about the store of value and importance in gold in general in this issue. At virtually all times (except when there is a bubble….which is coming in gold and mining stocks) it is appropriate for everyone to have a percentage of precious metals in your portfolio for protection, insurance, and in certain times…growth. Now is one of those times that we can capture all 3. With the world in the state it is in, I believe investors should have a bare minimum of 10% of your investable assets in physical gold and gold related instruments. I have about 65%. And that % for me at some point in the future will decrease to 5-10% because I am NOT a gold bug, I am simply a gold BULL at this time.

I don’t believe that doom is always around the corner and that we need it to make money in gold. In fact, gold has proven that it can rise right alongside stocks, as we recently witnessed from 2002-2007. Additionally, anyone that thinks rising rates is a death knell to the gold prices is gravely mistaken. We only need to go back to the last rising rate cycle in the 1970’s to the very early 1980’s where we saw gold and rates peak together. Perhaps initially rising rates will cause a gold correction, but it is the real rates that matter most, not nominal rates. And, we will see rates/gold rising again in the future again…just wait and watch. In fact, we may have already started seeing it as of this month in September 2016, it is the case so far.

Time to Stretch Your Horizon if you want to get Rich

I want to address what I see over and over as what I feel is the biggest shortcoming of my subscribers. It is the backdrop and foundational worldview that can correct the second biggest mistake I see, which is buying and selling at the exact wrong times (sell low-buy high) based on emotion. We will negate much of that activity if you buy into what I’m about to show you. If you are bullish on gold like myself and believe that we are in a new bull cycle, you likely feel one of two ways. Either the top in 2011 was the end of a secular cycle and this is a new start or like I believe, that this is simply a continuation of the secular bull market that began in early 2001 when gold was trading less than $300 an ounce (USD).

This why it is going to be necessary, I believe, to stretch out our timeline when viewing this asset class and the performance to come. Gold went up 12 straight years! From 2000 to 2012, gold rose year on year every time. That is a VERY strong bull market and perhaps unprecedented (I have not found another asset class up 12 years running without a break). Now, a 3 year breather after 12 years higher does not seem like such a big deal, does it? In fact, I would say it is rather healthy if this is indeed a massive secular bull market that will end up lasting 20-30 years in time (very likely and possible). If one of your stocks went up 12 days straight, then digested gains by pulling back fairly hard for 3 days, would you call 911? No. This action in gold/silver is normal and they are inherently very volatile markets!

You must understand and accept this fact or you will either lose money, make very little on small trades, or miss the biggest opportunity in my lifetime entirely. When gold mining stocks pull back 20-30% over the last couple of months, after tripling to going up 6/7X since January, I marvel at emails I get asking about the condition of certain companies due to the retracement. Hello?! What do you expect? That prices will go straight to the moon with no shakeouts, consolidations, or pull backs? If gold is destined to go to, say $2,500 an ounce, you better get your head screwed on straight if you want to reap the 10-20-50-even 100 baggers that I plan on having in this newsletter. We earn those investment gains by sitting though periods like this, which is actually quite minor so far in terms of time or severity (there will be much worse before the top). If you can’t handle this little pull back in your portfolio, you may want to reconsider playing in this sand box at all.

Drawdowns Are Necessary

In Charles Billelo’s from Pension Partners recent report “Big Winners and Big Drawdowns” we see the facts behind some of the largest wealth creating stocks over the past 40 years. Below are some excerpts to consider and in each case below there were some very scary and even crushing drawdowns in these stalwarts.

Apple, Amazon, Microsoft and Alphabet…

  • All among the largest and most revered companies in the world.
  • All have returned unfathomable amounts to their shareholders.
  • All have experienced periods of tremendous adversity with large drawdowns.

When thinking about big winners in the stock market, adversity and large drawdowns probably aren’t the first words that come to mind. We tend to put the final outcome (big long-term gains) on a pedestal and ignore the grit and moxie required to achieve that outcome.

But moxie is the key to long-term investing success, for there is no such thing as a big long-term winner without enduring a big drawdown along the way…

Apple has gained 25,217% since its IPO in 1980, an annualized return of 17%.

Incredible gains, but these are just numbers, masking the immense pain one would have endured over time. Apple investors from the IPO would experience two separate 82% drawdowns, one from 1991 to 1997 and another from 2000 to 2003.

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Amazon has gained 38,882% from its IPO in 1997, an annualized return of over 36%. To put that in perspective, a $100,000 investment in 1997 would be worth just under $39 million today.

Breathtaking gains, but they were not realized without significant adversity. In December 1999, the initial $100,000 investment would have grown to $5.4 million. By September 2001, less than 2 years later, this $5.4 million would shrink down to $304,000, a 94% drawdown. It took over 8 years, until October 2009, for Amazon to finally recover from this drawdown to move to new highs.

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Bill Gates is the richest man in the world, having amassed his $80 billion fortune as the founder of Microsoft. Microsoft has returned 25% a year over the past 30 years, a remarkable feat.

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The path to riches in Microsoft looks deceptively easy on the surface. The calendar year returns from its IPO in 1986 through 1999 were incredibly high and consistent, masking significant underlying volatility. In 1987 Microsoft advanced 123% but would suffer more than 50% decline in October during the stock market crash. It would not recoup those losses for two years, until October 1989. Its largest drawdown in history occurred over a 10 year period, a 70% decline from 1999 through 2009.

It should be clear from these four examples that large drawdowns are an inevitable part of achieving high returns. If you haven’t yet experienced such a gut-wrenching decline, then you probably haven’t owned something that has appreciated 10x, 20x or more. Or you simply haven’t been investing for that long.
I know what you’re thinking. There has to be a better way. You want that big juicy return but without the big drawdown. Yes indeed, as does everyone else.
The problem, of course, is in trying to hedge or time your exposure to big winners, you will likely miss out on a substantial portion of the gains. Or your emotions will cause you to sell at precisely the worst time (after a large drawdown). Your volatility and drawdown profile may be lower, but that tradeoff will come at a price. As I wrote earlier this year (see “The Hedge Fund Myth”) the price for hedge fund investors seeking lower volatility/drawdown in equities has not been a small one, with the HFRX Equity Hedge Index (an investable index of Long/Short equity funds) posting a negative return since 2005 while the S&P 500 has more than doubled.

Many investors in these funds were seeking the Holy Grail, a high return (often 15-20% in their “mandates”) with little risk (no large drawdowns). They expected their managers to pick the Apples and Amazons of the investment world without incurring the inherent volatility that comes along with it. As we know, that is a complete and utter fantasy.

All big winners have big drawdowns. Accepting this fact can go a long way toward controlling your emotions during periods of adversity and becoming a better investor.

**Back to Eric

Do you know who always thinks short term? Poor people. Because they usually eat hand to mouth so it is very difficult to plan long term. I’ve been there but I also have worked hard mentally to stretch my horizon and think like a rich person with plenty of resources. I remember when I was a rookie stockbroker in 1995/1996 and I put a pitch together to open new accounts with Apple (AAPL).

This was right before they brought Steve Jobs back in 1997 to run the company after he was ousted by the board for a period of time. I liked the brand and felt like it was a classic turnaround story with plenty of potential in a growing computerized world. I had barely any clients back then but I pitched it for a solid couple/few months in the low teens per share. I opened a handful of new accounts and got each of my clients involved. The share price vacillated over the next 6-12 months not doing much. I got impatient and sold out for a “hot play” that came up.

Now, at that time, it was impossible to see the future of Ipods, Ipads, Iphones, and Itunes. But, what if I would have just kept my head down getting clients to invest in this company over years, buying more during big market or company specific corrections. In 15 years, I would probably have dozens if not hundreds of centi-millionaires ($100MM) and have huge wealth myself without all of the stresses of chasing returns. I’m not saying never trade. I still to this day enjoy trading/speculating.

However, with core investment positions, it is best to plan on not touching them for a long time. Wealth gets created by investing early in a bull cycle and sitting until it matures, which simply takes time. The only strategy in this regard I do recommend considering is to take your principal risk out of the investments by selling half at a double or 1/3 at a triple (more appropriate in this gold bull). If you can have the discipline to then buy more in your positions during extreme drawdowns, a fortune can be amassed. But I have news for you, “scalping” a penny stock for a 20-50% gain here or there will not get you anywhere. Investors dramatically tend to hold their losers too long and sell winners too early. In fact, averaging up is for pros, down for amateurs, is a saying on Wall Street.

The fact is that we have no idea just how high some of these gold stocks can go. You may even want to consider carving out a percentage of your holdings to only sell in terms of time not price. We may think MUX can go to $10 or $20 per share and even have one of those prices as a goal to sell some. But what if it ends up going to $100-$200 per share? I’m telling you…it can and might happen. But the key there will be time. It’s not going to $100 in a year or two but in 4-7 years? Maybe so. Think of Apple and the examples above….who knew in 1995??

Why is it Up/Down?

I will be walking through individual company updates shortly but I think this stuff is important. One of my pet peeves in investing and capital markets is that people are always obsessed with finding a reason behind a movement in a particular market/stock. For example, if you held MUX from my report in May 2015 buying in around a buck. It hits $5 a year later then falls back to $3.50 and you email me “what is going on with MUX? It keeps going down”. I feel like slapping people for these questions sometimes I’m sorry! Obviously, if a stock breaks off from the sector and plummets on news, there is a reason for it.

But in the case above and what is the case 90% of the time, is that stocks go up and down! That’s what they do. Literally, 90% of the cause in any stocks movement/direction is due to the state of the overall market and in particular the sector it trades in. That last 10, maybe 15%, is company specific and that’s where we create an edge in performance by isolating that portion. Individual company news can clearly determine short term movement, but over time sectors move in unison.

A classic investing book that I highly recommend is Reminiscences of a Stock Operator (link here) about the greatest trader of the first half of the 20th century, Jesse Livermore.

Livermore got the nickname “boy plunger” because he would read ticker tapes in brokerage houses and “plunge” into trades with serious conviction, usually making money. His story is fascinating and one of huge highs/lows but some of the lessons have endured the test of time. One of my favorites, and one that guides my outlook considerably to this day, is an example he mentioned at several stages, as to drive home the point. I believe it may be the single most valuable thing that I have ever learned in my professional investing career.

Jesse told of various times that he would go into the office of an old codger, a wily veteran of the stock market, and ask “why” a particular stock was going up or down. Each time, the wise man would say “well, it IS a bull market you know. Or, well it IS a bear market”. This can be clearly understood if we just look at the mining stocks and gold’s performance from 2010-present. In 2010 well into 2011, gold was absolutely still in a screaming bull market. But once the bear stepped in during the fall of 2011 (the same time I launched this newsletter!), every single stock in the sector started to roll over, and hit lower lows over the ensuing 4 years.

I would receive emails about companies like Timberline Resources or Patriot Gold etc where the investor would lambast management for the declines. Or ask what is going on at these companies because the stock keeps going lower. In the back of my head or in my direct answer…..well it IS a bear market! What is so important as I type tonight, is to send the message to you all that we are in a new bull market in gold, silver, and mining stocks and it will not stop for years. Abrupt and sometimes violent pull backs will be followed by fresh runs to new highs, continually frustrating those that got shaken out at exactly the wrong time.

I have a crystal ball. It’s a little hazy in the sense that I can’t see how the zigs/zags will go exactly, but I am VERY confident that gold will hit new all time highs before this is said and done. Minimally, you can make bets based on a retest of the 2011 highs around $1,900 an ounce. I showed back in March, which I was waiting for, how the sector busted up through its long term weekly trend line, proclaiming a new cyclical bull cycle. But, I will point out now that we have one last hurdle to overcome before the gold bull market begins to roar like nothing you have ever heard before. It is the 10 year, monthly trend line. Do you want to “see” why gold is having a tough time right now at these levels?

The chart below goes back ten years. This is actually an enormous tsunami of a flagging pattern that has been building energy for 5 years. Once it bursts, I believe we could start seeing the precious metals begin blowing people away with further strength. The mining stocks have been on an absolute tear this year, but gold hasn’t really shown any chutzpah. But it will baby…oh it will! And we better be positioned ahead of it beforehand, or have to chase prices like the rest of those catching on because of the headlines.

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We need to see the price of gold close on a monthly basis at least once between $1,375-$1,400 (ideally $1,400). This is the last step to unequivocally know that the multi year uptrend has begun in earnest. Until then, there is still a slight chance the price rolls over in the channel again, bottoming around $1,000 an ounce. However, I believe that chance is very slim at this point, somewhere in the 10-15% possibility range.

Is it Too Late to Get In?

If for some reason you do not own any or much in terms of precious metals or mining stocks, it is absolutely not too late to do so. The risk will remain being OUT of this sector versus IN it. I really liked Thomas Kaplan’s reply at the Precious Metals Summit about 10 days ago when asked what he would do if looking at the sector fresh and if it was too late after the recent surge in mining stock prices. “Keep buying” he said without hesitation. Obviously, we need to be wise with entry points and accumulate on pull backs (like now) but we are NOWHERE near the ultimate highs we will see in this space.

Nobody owns this sector on Wall Street or Main Street! Most investors either hate it, don’t understand it, or don’t care about it. The strong stock market has actually been nice cover for the stealth surge we’ve seen in gold this year. As far as the current correction in the miners it’s not clear what is next. After a historic run up that we saw in the first 7 months of the year, a rule of thumb would be to reasonably expect a corrective phase lasting 40% of the time of the rally. That would take it into early November to resume the uptrend. It’s less than 6 weeks away now so I’m not all that concerned either way. But if you are truly on board with the view that gold is going a lot higher in the coming years, you should welcome these corrections to buy more miners. This is especially true if you aren’t even positioned meaningfully! Where is your head at right now? Are you skittish? Reading this review is a chance to rethink your goals and beliefs as it pertains to gold and what you want to do.

The daily chart on GDXJ (Junior Miners ETF) below is mixed. It did bust above the triangle pattern and closed above it for two sessions (I like to see 3 for confirmation) but then dropped back into the walls on Friday. A concern is that we are trading below the 50 day moving average. I would not be surprised to see this break either up or down this week. But, we should have some clarity soon.

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For perspective sake, let’s look at the ten year chart on the gold miners below. As you can see, we are a FAR way away from 2011 highs. The sector almost tripled since January lows but needs to more than triple to get back to the highs. I firmly believe that in this cycle, the gold miners will break out into new highs, alongside the price of gold. There are less companies for money to flow into and there is less gold coming out of the ground due to the ravaging of the past 5 year downturn. The global monetary state of affairs is a powder keg of drivers to want to own gold and we will see $100 an ounce daily gains in the price within 3-5 years I believe.

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In summary …

  • Stretch your time horizon to allow for massive long term gains versus short term piker profits.
  • Expect big drawdowns in the future on the road to those gains.
  • Lock in principal risk when a stock doubles or triples so you have no monetary or emotional ties during a big correction.
  • Make sure that you have at least 10% of your assets in gold related investments.
  • Get in the habit of buying low and selling high—don’t wait to chase with crowds.
  • Be patient. Give at least part of your holdings 5 years to see what happens in time.

 

New Ideas

Folks, if you want to full spectrum of action, you should be a premium member. Actions taken now will determine how fruitful the future higher prices in gold will be for you. We have lots of ideas that don’t make it to free members including several we’ve sold completely for huge profits. Others, in the silver arena, won’t be shared in our free newsletter. You can sign up via the subscribe page if interested.

I’ll also be publishing very soon my new top 5 juniors to buy now. This will be a spin-off of our top ten report from late last year which has killed it. Some of those ideas have been removed and new plays have stormed to the forefront. You’ll want to get these ideas early and you can at least get a few of them via being a premium member. A couple may be reserved for whomever wants to buy the report first, so they can have a chance to add a couple of new positions before anyone else. Those will probably be released in chunks of 10 people at a time every few days so as to not disturb market pricing very much.

That’s it for our Fall Review! I hope you enjoyed it and I’m excited to see what gold and the miners decide to do next!

Obviously, I am long in virtually every stock/company mentioned in this report and may buy or sell at any time and without notice to subscribers.

For unique ideas on individual mining stocks, please sign up for our free newsletter below.

 

Legal Disclaimer: I am offering ideas for your consideration and education. I am not offering financial advice. I am not a financial or investment advisor and am acting in the sole capacity of a newsletter writer. I am a fellow investor and trader sharing his thoughts for educational and informational purposes only. Southern Silver and Bravada Gold are sponsors of the Gold Investment Letter and we are being compensated $2,500 monthly. I am also the owner of Issuer Direct and will be receiving compensation in the form of a finder’s fee for investors referred to invest in their private placement.his publication is a 100% subscriber supported. No compensation is received by the author from any of the companies mentioned for the recommendation of a stock in this service (if this changes or there is exception-it will be clearly disclosed to our readers). Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided on the Website is based on careful research and sources that are believed to be accurate, Mr. Muschinski does not guarantee the accuracy or thoroughness of the data or information reported. The opinions published on the Website belong to Mr. Muschinski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Muschinski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published on the Website have been prepared for your private use and their sole purpose is to educate readers about various investments. By reading Mr. Muschinski’s essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Muschinski, Gold Investment Letter’s employees and affiliates, as well as members of their families, may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

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