Gold Report: Brien Lundin: Is Gold Holding a Wild Card?

05 Wednesday Nov 2008

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Brien Lundin: Is Gold Holding a Wild Card?
Source: The Gold Report 11/04/2008

As difficult as it may be for precious metals investors to sit on their hands, that may be the best “action” for surviving this hazardous transition from deflationary to inflationary times. In this exclusive interview with The Gold Report, Gold Newsletter Editor Brien Lundin explains why it is absolutely inevitable that inflation will trigger a rise in gold and hints that a December “surprise” could end the waiting game. While his advice is to let this round of deleveraging and deflation end before making any serious plays, he names a few bargains that stand out even in a downturn.

The Gold Report: Gold and the Dow are both going down. Shouldn’t they be decoupling and if they do, what would it take to make that happen?

Brien Lundin: There’s a fancy word out there – deleveraging – that’s being bandied about almost as much as the word depression. All the pundits and the analysts are talking about deleveraging. What that really means is that market participants are selling hand over fist because they have to. The prices we’re seeing for assets now, whether it’s stocks, commodities, or gold, do not reflect the underlying value of those assets. People are selling them simply because they have to—whether because of margin calls or redemptions from hedge funds or what have you, the assets have to be sold. That’s why anything with a bid, anything that can be sold in volume is being sold. Underlying trends have nothing to do with it.

I do think we’ll see stocks and gold decoupling. We’ll see all of these asset classes start to establish their own trends based on economic fundamentals, once some stability returns to the market. First we have to get past these great down drafts driven by the need for liquidity.

TGR: When do you see that happening?

BL: That’s a difficult call. Some predict the bailout plan will have an impact soon—over the coming few weeks. I think that enough damage has been done to last for the rest of this year. Simply having gotten through October will bring a big psychological boost. It was such a hazardous month and had earned such a well-deserved reputation for being treacherous for equity investors.

At this point, everyone who doesn’t have to sell, who isn’t on margin, or doesn’t need the liquidity, should just sit back, keep their heads low and wait until the New Year.

TGR: But when do you expect some stability?

BL: It’s hard to say how much more selling will occur. A lot of money has certainly flown out of the commodities sector and the stock market. We’ve lost $3 trillion in wealth in the stock market alone since the bailout. And yet, while there’s already been a tremendous amount of selling, there is still some money on the sidelines. It’s just impossible to predict when stable markets, much less an uptrend, will come.

TGR: What do you think of the fact that the value of the U.S. dollar has increased against most other currencies? What’s causing that given all this financial turmoil?

BL: A couple of things. First off, assets are being sold to raise dollars to meet margin calls and redemptions. Until the margin clerks and fund investors start accepting gold in payment, then we’re not going to see gold rising in such an environment.

Secondly, the dollar has been in a bit of a short squeeze. A number of European banks have had to buy dollars to fund redemptions from clients with accounts based in U.S. dollars. The pressure resulting from redemptions and withdrawals forced them to buy dollars at virtually any cost to redeem these calls. That short squeeze has elevated the relative value of the dollar over the near term. This situation won’t last. But typically, when a rebound from a short squeeze occurs, there will be a dramatic move in the opposite direction.

TGR: By dramatic, do you mean fast?

BL: A lower dollar, a weaker dollar. And yes, in fairly quick fashion.

TGR: A weaker dollar would push up the value of physical gold.

BL: Absolutely. And over the longer term, that will happen eventually. Trillions of dollars of are being created to bail out financial institutions and local economies. This will have a dramatic effect on inflation. But for now, this deleveraging process is highly deflationary. We’re getting a stronger dollar and relatively lower values for anything the dollar will buy. But ultimately, all these newly created dollars and all of this new fiat currency worldwide will result in much higher inflation.

TGR: You are predicting we are headed for an inflationary environment?

BL: Oh, absolutely. Even if the currency that has been created or promised thus far proves insufficient to engender an inflationary environment, the financial authorities will create whatever amount it takes to bring about inflation. That’s only way to stop deflation. They cannot transition gradually from a deflationary environment to one with low inflation. The pendulum will have to swing hard in the other direction.

TGR: Will the pendulum swinging bring the end of deleveraging? You said earlier that as the deleveraging process completes itself, that the asset classes will now reestablish themselves on their own merits.

BL: Yes.

TGR: Once this deleveraging ends, inflation begins?

BL: Yes, but once we pass through a difficult transition period from a deflationary environment into an inflationary one. We’re probably living through it right now. There’s no telling when the pendulum has reached bottom, and when it’s going to start swinging the other way. Every time we think we’ve hit a bottom in the stock market, we test a new one. Every time we think the last shoe has dropped, another one falls. This uncertainty and fear of what lies ahead really bothers the market.

For so long we didn’t realize that the market was barreling along with blindfolds on. Suddenly these obstacles are hitting us with great force and we don’t know what or where the next stumbling block will be. And that’s scary.

TGR: But in that uncertainty lies opportunity.

BL: Absolutely, but it takes more than insight to see opportunity. It also takes guts to act on it. We all recognize that this is opportunity, but it’s the proverbial falling knife syndrome. When do you step in? I’ve pecked away at a few irresistible bargains myself and in some cases those irresistible bargains are now trading for half of what I paid for them.

So it’s hard to find the bottom, but there is value here. I’m advising my readers not to over-extend themselves. Wait for a trend to establish itself, give up some of these early gains before you jump in wholeheartedly. With that said, it’s not a bad time to peck away at some bargains here and there.

TGR: Do you have some bargains you can share with us?

BL: Yes, I do. All are extremely undervalued and selling for small fractions of their peak prices. The key is to find companies with real assets and the financial wherewithal to survive this down market.

NovaGold Resources (NG:AMEX)(NG:TSX), at these levels, is a tremendous bargain. There’s been a lot of concern about NovaGold and what’s going to happen at Galore Creek, but I think that’s going to end up being a bigger, more profitable project than anyone is currently imagining. Inter-Citic Minerals (ICI.TO) is another great company with a tremendous gold project in China. It’s trading for around 30 cents—a fraction of what this project is worth even at today’s prices. It’s a multi-million ounce project with considerable growth potential. Keegan Resources Inc. (AMEX.KGN) is another one. I think they’ll end up with close to 3 million ounces in their West African projects. Keegan sells for 75 cents with about a $22 million market cap.

On the uranium front, I like Hathor Exploration (HAT: TSX.V). This company is one of the only bright spots in today’s junior stock market. They have a tremendous high-grade uranium discovery in the Athabasca Basin and have only explored about a third of the structure that hosts the uranium mineralization. Roughly outlined, they’ve probably got close to 40 million pounds—once that’s drilled out to a compliant resource, it’s probably worth about $300 million even in today’s market. But Hathor’s trading for well under half that value right now, and the deposit should grow much larger. So I really like Hathor as a stock that almost assuredly will trade for considerably higher prices down the road.

TGR: You follow uranium quite closely. Can you just give us an overview? What’s the outlook for uranium juniors?

BL: Uranium is a great long-term story, but when prices reached $110 to $120 a pound, it did get very much ahead of itself. Since then, we’ve come back to earth, and hard. A lot of that drop in price can be attributed to the diminishing outlook for the global economy. But a significant part of the decline has to do with the fact that hedge funds were speculating in uranium on the long side and they have obviously deleveraged. Some of them no longer exist.

The bottom line is that a lot of the uranium positions—not just the companies, but actually the metal itself—have been sold down. Uranium’s long-term story remains bullish, but it’s not going to develop as quickly as everyone had hoped during the ‘urani-mania’ a couple of years ago. We’re going to have to see China grow considerably, for example. A lot of the uranium forecasts were based on the number of nuclear reactors that China was going to build as well as the rest of the world. But it takes a long time to build a nuclear power plant, even in China. The long-term trend is up, but along the way there will be bumps and corrections like those we’re experiencing right now.

TGR: So even a recommendation like Hathor, which has been pounded down by the market in general along with the drop in the price of uranium, would take awhile to bounce up?

BL: Hathor is such an exciting, high-grade story that its prices are being driven by its exploration success, making it largely independent of the short-term uranium price. Granted, some analysts have made rough calculations of its net asset value and then, rather than assign a price target that’s a multiple of its NAV, end up with a target that’s just half of its NAV. Unfortunately, that’s a function of today’s uranium market. But Hathor will be driven by drill results over the next three to six months, while the rest of the sector will remain pretty moribund. Most uranium explorers need a price over $80, because a lot of uranium in the ground becomes economic around that level. And we’ll need sustained prices around $100 before lower-grade uranium projects become viable and lead the representative stocks to rise.

TGR: At what point will existing nuclear facilities begin to consume enough to push the price up?

BL: When uranium was trading for over $100, everyone agreed that was the time. Now that uranium is in the mid-$40s, I just don’t think that anyone can predict when we’re going to sustain those higher prices again. The decline in the broader commodities market and the corresponding strength in the dollar are having an effect here. Again, I think we need to get through this temporary deflationary phase and the stronger dollar. A weakening dollar will start to bring up commodity prices. That’s when uranium will creep back. But it could be late 2009 before we can see that happen.

TGR: Do you cover any of the rare minerals in the Gold Newsletter?

BL: Not too closely. It’s difficult for those rare mineral projects to get much attention in this market. Gold is what really drives a bullish environment for resource stocks. You really need a very broad commodity bull market before those more obscure metals and elements get noticed. One exception is Rare Element Resources Ltd. (RES:TSX.V). It’s the best of the rare earth plays, ironically, because of its gold project, Sundance, joint ventured with Newmont. Sundance will drive RES, while the rare earth component is more of a backdrop to the gold story.

TGR: Interesting. So even though there’s demand for rare earth minerals from many different areas, that won’t be enough to move Rare Element Resources forward?

BL: No, I don’t think so. I think that’s a gold story.

TGR: You have a conference coming up in New Orleans, from November 13-17. How would investors interested precious metals and/or uranium benefit from your conference?

BL: Investors will get the latest thinking from leading experts in mining and resource stocks—from some of the very people who predicted this downturn. I am referring to Rick Rule, Dave Coffin, Lawrence Roulston, Brent Cook, Greg McCoach and others, who do very well finding the bargains that will survive. Investors will also hear from some of the biggest names and the most respected experts in geopolitics and economics. We take great pride in presenting the most celebrated leaders in the world, who not only take a look at the big picture but also drill down to the details.

TGR: Steve Forbes will be there.

BL: Yes, and Fred Thompson will give us look at the geopolitical angle. Our conference takes place right after the U.S. presidential and congressional elections, and investors need to gain a clear understanding of how the elections will impact the economy, investments and tax strategy. So in addition to Thompson and Forbes, we’ll also hear from Stephen Moore, a noted economist affiliated with the Cato Institute and the Wall Street Journal. James Carville, a well known political operative, will tell us what the fallout of this election will be for the American investor.

And Doug Casey, representing libertarians, will have his annual debate with a conservative and a liberal, i.e., with Thompson and Carville. That’s a real crowd pleaser with a lot of fireworks.

TGR: That’s got to be lively.

BL: People always pack the halls for that one.

TGR: Any last thoughts on where gold will be by the end of the year?

BL: I think I will beg off on that one. Frankly, I don’t want to jinx it, but I think we could see a December surprise. One of the potential wild cards is the emergence of an effort to get people take delivery on December gold and silver contracts, which may or may not end up depleting the warehouse stocks to any significant degree. Just the possibility of that happening could be enough to trigger some short-term upward movement in the gold and silver price.

Brien Lundin, with over 20 years of experience in investment analysis and publishing, serves as president of Jefferson Financial and editor of Gold Newsletter . In Gold Newsletter, he covers not only resource stocks, but also the world of investing, from small-caps of every type to macroeconomics and geopolitical issues.

My Note: This article is good enough for a repeat especially now that Barak Obama is our newly elected President. – jschulmansr

Rare Earth Metals: Not So Rare, But Still Valuable – Features and Interviews – Hard Assets Investor

04 Tuesday Nov 2008

Posted by jschulmansr in commodities, Copper, deflation, Finance, gold, inflation, Investing, investments, Latest News, Markets, mining stocks, precious metals, silver, U.S. Dollar, Uncategorized

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Rare Earth Metals: Not So Rare, But Still Valuable – Features and Interviews – Hard Assets Investor

Rare Earth Metals: Not So Rare, But Still Valuable

Written by Tom Vulcan

Tuesday, 04 November 2008 12:47

Page 1 of 4

The rare earth metals are, in fact, not that rare!

The most commonly occurring rare earth metals – cerium, lanthanum, neodymium and yttrium – are actually more common in the Earth’s crust than lead. And even silver.

While cerium, the most abundant rare earth metal, is more prevalent (60 parts per million (ppm)) than copper, even lutetium (0.5 ppm) and thulium (0.5 ppm), the least abundant, are to be found in the Earth’s crust in greater quantities than antimony, bismuth, cadmium and thallium. (The outlier is promethium, which, it appears, is not to be found in the Earth’s crust, and which is only used in compound form, of which, to date, some 30 have been prepared.)

Abundance of Elements In The Earth’s Crust

Note: Abundance (atom fraction) of the chemical elements in Earth’s upper continental crust as a function of atomic number.

Many of the elements are classified into (partially overlapping) categories: (1) rock-forming elements (major elements in green field and minor elements in light green field); (2) rare earth elements (lanthanides, La-Lu, and Y; labeled in blue); (3) major industrial metals (global production > ~3×107 kg/year; labeled in bold); (4) precious metals (italic); and (5) the nine rarest “metals” – the six platinum group elements plus Au, Re, and Te (a metalloid).

Source: USGS

So, why are they called the “rare earth” metals? Probably from the uncommon oxide-type minerals, or earths, from which they were originally extracted. The corollary to their abundance is, however, the fact that, to date, their “discovered minable concentrations are less common than for most other ores.”

What Are The Rare Earth Metals?

The rare earth metals (aka, REM, rare earth elements (REE) or, sometimes, just rare earths) are a group of 15 chemically similar elements (grouped separately in the periodic table) known as lanthanides. Commercially, the rare earth grouping usually also includes scandium and yttrium, both of which are actually elements above lanthanum in the periodic table.

In more physical terms, these metals range in color from shiny silver to iron gray. As the USGS describes them, they “are typically soft, malleable, ductile and usually reactive, especially at elevated temperatures or when finely divided.” At the lower end, cerium has a melting point of 798° C and, at the upper, lutetium has a melting point of 1,663° C.

It will come as no surprise that the unique properties (catalytic, chemical, electrical, metallurgical, nuclear, magnetic and optical) of the REM, and, in particular, both their specificity and versatility, have led to their being used for a wide variety of purposes.

From relative obscurity, they are now important economically, environmentally and technologically.

What Are They Used for?

The range of applications in which they are used is extraordinarily wide, from the everyday (automotive catalysts and petroleum cracking catalysts, flints for lighters, pigments for glass and ceramics and compounds for polishing glass) to the highly specialized (miniature nuclear batteries, lasers repeaters, superconductors and miniature magnets).

The Rare Earths And Some Of Their End Uses

*Name*	*Symbol*	*Some End Uses*
Cerium	Ce	Catalysts, Ceramics, Glasses, Misch Metal*, Phosphors and Polishing Powders
Dysprosium^‡	Dy	Ceramics, Phosphors and Nuclear Applications
Erbium^‡	Er	Ceramics, Glass Dyes, Optical Fibers, Lasers and Nuclear Applications
Europium^‡	Eu	Phosphors
Gadolinium^‡	Gd	Ceramics, Glasses, Optical and Magnetic Detection and Medical Image Visualization
Holmium^‡	Ho	Ceramics, Lasers and Nuclear Applications
Lanthanum	La	Automotive Catalysts, Ceramics, Glasses, Phosphors and Pigments
Lutetium^‡	Lu	Single Crystal Scintillators
Neodymium	Nd	Catalysts, IR Filters, Lasers, Permanent Magnets and Pigments
Praseodymium	Pr	Ceramics, Glasses and Pigments
Promethium	Pm	Phosphors and Miniature Nuclear Batteries and Measuring Devices
Samarium	Sm	Microwave Filters, Nuclear Applications and Permanent Magnets
Scandium	Sc	Aerospace, Baseball Bats, Nuclear Applications, Lighting and Semiconductors
Terbium^‡	Tb	Phosphors
Thulium^‡	Tm	Electron Beam Tubes and Medical Image Visualization
Ytterbium^‡	Yb	Chemical Industry and Metallurgy
Yttrium^‡	Y	Capacitors, Phosphors (CRT and Lamp), Radars and Superconductors

Groups: yttrium and lanthanide (Scandium falls into neither category)^‡ Heavy REM

* Misch Metal is an alloy of rare earth metals used not only for lighter flints, but also, probably more importantly, in purifying steel by removing oxygen and sulfur.

Separately, or as compounds, various rare earth metals are used also in the production of superalloys

REM are now especially important, and used extensively, in the defense industry. Some of their specific defense applications include: anti-missile defense, aircraft parts, communications systems, electronic countermeasures, jet engines, rockets, underwater mine detection, missile guidance systems and space-based satellite power.

USGS figures for 2006 indicate that the three main uses of REM in the U.S. were: automotive catalytic converters (25%), petroleum refining catalysts (22%) and metallurgical additives and alloys (20%).

Source: USGS

In many of these applications, the REM are used in the form of low-cost compounds. As oxides, they are used extensively in the ceramics and glass industries and, in addition, for various metallurgical uses. Indeed, it has been estimated that only 25% of mined REM-bearing materials are actually processed to extract individual metals.

The REM most commonly used as separated metals are: cerium, europium, gadolinium, neodymium, samarium and terbium.

Rare Earth Metals Supply

From having been a major producer (and consumer) of REM (from the Mountain Pass mine in the Mojave Desert, Calif.) until the mid-80s, the U.S. now no longer mines any REM. The world’s major producer is China (particularly from its Bayan Obo mining operation in Inner Mongolia), with considerably lesser amounts coming from Brazil, India and Russia. Since 2000, domestic REM consumption in China (which now accounts for over half of the country’s overall REM products) has exceeded that of the U.S.

Global Rare Earth Metal Oxide Production – 1950-2006 (‘000s Tonnes)

Source: Russian Journal of Non-Ferrous Metals (from USGS)

While REM deposits in China and the U.S. are primarily to be found in the mineral bastnäsite (80-90% of all raw materials produced), elsewhere – and in particular in Australia, Brazil, India, Malaysia, South Africa, Sri Lanka and Thailand – they are usually to be found in the mineral monazite. (There are also monazite resources both in China and the U.S.) Mining monazite can, however, be a little tricky, as the ore tends to contain the radioactive elements thorium (see Cobalt: More Than Just Blue) and radium.

In addition, there are also REM-containing ion-absorption ores in the south of China. Importantly, these last contain around 80% of the world’s known resources of the less-widespread heavy, yttrium group, metals.

World Mine Production (Tonnes)

*Country*	*2006*	*2007*
China	119,000	120,000
India	2,700	2,700
Brazil	730	730
Malaysia	200	200
Thailand	–	–
Australia	–	–
U.S.	–	–
Other Countries	NA	NA
*Total (rounded)*	*123,000*	*124,000*

Source: USGS

Although it mines no REM of its own, in 2007, the U.S. remained a major importer, exporter and consumer. From 2003-2006, China accounted for some 94% of its REM-related imports.

While not yet actually recommencing mining operations (for environmental, regulatory and market reasons), toward the end of 2007, Molycorp Inc. (wholly-owned by Chevron) resumed operating its rare earth separation plant at Mountain Pass. The company continues to sell bastnäsite concentrates and REM intermediaries, together with refined products, from its existing mine stocks. Permits to recommence mining are still pending.

Rare Earth Metals Demand

Domestic demand in the U.S., as well as the demand for REM globally, remained strong in 2007, and have continued so in 2008. This has been true both for mixed rare earth compounds and the metals and their alloys. According to the USGS: “The trend is for a continued increase in the use of rare earths in many applications, especially automotive catalytic converters, permanent magnets, and rechargeable batteries.”

Forecast Growth Of Rare Earth Metals Usage

*Element*	*Application*	*Consumption* *(Tonnes p.a. of REO)*		*Growth Rate* *(% p.a)*
		*2006*	*2012*
Ce, La, Nd, Pr	Battery Alloy	17,000	43,000	17
Dy, Nd, Pr, Sm, Tb	Magnets	20,500	42,000	13
Eu, Tb, Y	Phosphors	8,500	14,000	9
	Ceramics	5,500	9,000	9
	Others	8,000	13,000	8
Ce, Nd, La	Catalysts	21,500	32,000	7
Ce, La, Pr	Polishing Powder	14,000	21,000	7
Ce, Er, Gd, La, Nd, Yb	Glass Additives	13,000	14,000	1
	Total	108,000	188,000	10

REO = rare earth oxide

Source: Roskill HK Rare Earth Conference, November 2007

The prices of most REM rose in 2007, and with the exception of neodymium and praseodymium (both metal and oxides) and terbium (oxide), the prices of most REM (metals and oxides) have either remained the same, or continued to rise in 2008.

	Price – US$/Kg
*Name*	*Oxide*		*Metal*
	End-2007	End-Oct 2008	End-2007	End-Oct 2008
Cerium	3.60	3.80	7.10	10.50
Dysprosium	94.00	118.00	125.00	153.00
Erbium	35.00	35.00	N/A	N/A
Europium	368.00	525.00	560.00	700.00
Gadolinium	N/A	N/A	25.00	28.00
Lanthanum	4.60	8.00	6.00	13.00
Lutetium	550.00	550.00	N/A	N/A
Neodymium	30.00	20.00	40.00	29.00
Praseodymium	28.00	20.00	37.00	29.00
Samarium	4.40	4.40	14.00	26.00
Terbium	633.00	621.00	750.00	793.00
Ytterbium	55.00	55.00	N/A	N/A
Yttrium	12.00	12.00	29.00	42.00
Misch Metal (48% Ce)			6.00	8.00
Misch Metal (25% La)			12.00	14.00

Source: Tianjiao International

With such strong domestic demand for REM in China, there are now controls on production and exports (tariffs and quotas). And in some places, because of environmental concerns, among other things, there are both mining restrictions and mining quotas.

According to Roskill‘s 2007 report on the economics of rare earths and yttrium, this has “brought fundamental change to the global industry, taking it from oversupply to demand shortages.”

Indeed, in its report, Roskill envisaged that, with demand growth for rare earths forecast at 8-11% per annum, and should China’s strict control persist, there will be a significant need for “new non-Chinese capacity in the next 3 to 4 years.”

2007 – Supply/Demand Forecast

Source: Roskill

Opportunities In Rare Earths

As with the minor metals, there are no exchanges on which REM are traded. Both the physical metals and their different oxides can, however, be bought from various specialist rare earth companies.

It seems reasonable to assume that there will always be demand for rare earths metals. While there are substitutes, these are usually not as effective. Since no REM are currently mined in the U.S., and Molycorp is a wholly-owned subsidiary of Chevron, no direct investment in any significant U.S. mining operations for these metals is possible. Looking overseas, there are, however, some opportunities for exposure.

India, unfortunately, is out, as all three rare earth production companies are government-owned.

A recent news snippet about the Japanese chemical group Showa Denko (Bloomberg Ticker – SHWDF:US) was of particular interest on two counts. Not only did it state that the company had set up a joint venture to extract dysprosium in Vietnam, but also that it was doing so because it wanted to secure a “stable supply” of rare earth magnetic materials as, currently, it relies on China – where, indeed, it currently has two subsidiaries (Baotou and Ganzhou).

China

If, however, the world’s largest REM producer is of interest, then, among the Chinese companies mining REM in Bayan Obo, is the quoted Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co Ltd (Baogang) (Bloomberg Ticker – 600111:CH).

Quoted companies mining REM elsewhere in China include: China Rare Earth Holdings Ltd (Bloomberg Ticker – CREQF:US), Aluminum Corporation of China (aka Chinalco) (Bloomberg Ticker – ACH:US), Neo Material Technologies (Bloomberg Ticker – NEM:CN).

Recently, however, the mines in Sichuan were shut down, and there are strict quotas in places in Fujian, Guangdong, Hunan and Jiangxi, where there has been severe environmental damage.

Australia

In Australia, there are currently a number of rare earth mining projects at various stages of development.

According to an ASX announcement at the beginning of July this year, the “Demonstration Pilot Plant” at Alkane Resources‘ (Bloomberg Ticker – ALK:AU) Dubbo Zirconia project was set to go 24/7 in late July, and it stated that “(l)aboratory scale testing for recovery of the rare earth elements is scheduled to commence in July.”

Arafura Resources (Bloomberg Ticker – AFAFF:US) expects the rare earths processing plant at its Nolans Project in the country’s Northern Territory to be in production in 2011.

Based on November 2005 figures, the company compared its Nolans resource with some others around the world.

Source: Arafura Resources Limited

At its Mount Weld project in Western Australia, Lynas Corporation (Bloomberg Ticker – LYSCF:US) completed its first mining “campaign” in May. Based on figures updated in March this year, the company believes its resources at the project now amount to some 12.24 million tonnes at 9.7% rare earth oxide, which will produce some 1,124,000 tonnes of REO.

Canada

In addition to Neo Material Technologies out of Toronto, with its operation in China, there are three other Canadian companies involved, to a greater or lesser extent, in REM in Canada itself.

Avalon Ventures Ltd (Bloomberg Ticker – AVL:CN) has its Thor Lake Project near Yellowknife in Canada’s Northwest Territories with, according to the company, “[e]xceptional enrichment in Neodymium & Heavy REE.”

VMS Ventures (Bloomberg Ticker – VMS:CN), out of Vancouver, has its Eden Lake Carbonatite Complex in Manitoba, where REM were discovered in 2003.

Great Western Minerals Group (Bloomberg Ticker – GWG:CN), out of Saskatoon in Saskatchewan, has its Hoidas Lake Rare Earth Project which, in the words of the company, “…is North America’s most advanced Rare Earth Element (REE) property in development…” and “…has the potential to supply at least 10% of North America’s consumption of REE for many years.”

Finally, Canada’s Rare Element Resources (Bloomberg Ticker – RES:CN), has not only gold on its Bear Lodge, Wyo., property, but also, in its words, “significant high-grade rare-earth elements.”

For those interested in looking “downstream,” there are a number of REM producers internationally, especially in Japan. In the U.S., however, apart from Chevron’s Molycorp, both France’s chemical company Rhodia (Bloomberg Ticker – RHA:FP), and WR Grace‘s (Bloomberg Ticker – GRA:US) Grace Davison division are actively involved in processing rare earths.

Afterwords

First, it has been estimated that current global consumption of REM now accounts for around 70-75% of their total production. This leads one to believe that considerable quantities of mined REO remain, as yet to be processed.

Second, the mineral ore resources currently mined to produce REM contain different groups of metals, not just particular, individual, metals in isolation. So, instead of some of these metals being by-products of other metals, as, say, rhenium is of moly, and moly is of copper, they are essentially “co-products” – mine for one and the others come free!

The corollary to this, however, is that the economics of mining on such a “volume” basis could lead to it just not being viable to mine such ore resources for one or two REM alone, especially if the other metals contained in the REO do not “pay their way.” In future, therefore, the composition of a mine’s REO resources – as opposed just to the volume of ore it can produce – may well become critical to that mine’s economic viability.

Third, even though rare earth metals are classified as critical minerals in the U.S. National Academies’ “criticality matrix,” the U.S. National Defense Stockpile at present contains none.

Resources

The National Academies

Roskill

Russian Journal of Non-Ferrous Metals

Tienjiao International

U.S. Geological Survey (USGS)

jschulmansr: My Note I currently have a long position in Lynas Corp.

The Gold Report- Brien Lundin: Is Gold Holding a Wild Card?

04 Tuesday Nov 2008

Posted by jschulmansr in commodities, Copper, deflation, Finance, gold, hard assets, inflation, Investing, investments, Latest News, Markets, mining stocks, precious metals, silver, Uncategorized

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The Gold Repport

Brien Lundin: Is Gold Holding a Wild Card?

Source: The Gold Report 11/04/2008

The Gold Report: Gold and the Dow are both going down. Shouldn’t they be decoupling and if they do, what would it take to make that happen?

TGR: When do you see that happening?

At this point, everyone who doesn’t have to sell, who isn’t on margin, or doesn’t need the liquidity, should just sit back, keep their heads low and wait until the New Year.

TGR: But when do you expect some stability?

TGR: What do you think of the fact that the value of the U.S. dollar has increased against most other currencies? What’s causing that given all this financial turmoil?

TGR: By dramatic, do you mean fast?

BL: A lower dollar, a weaker dollar. And yes, in fairly quick fashion.

TGR: A weaker dollar would push up the value of physical gold.

TGR: You are predicting we are headed for an inflationary environment?

BL: Yes.

TGR: Once this deleveraging ends, inflation begins?

TGR: But in that uncertainty lies opportunity.

TGR: Do you have some bargains you can share with us?

TGR: You follow uranium quite closely. Can you just give us an overview? What’s the outlook for uranium juniors?

TGR: So even a recommendation like Hathor, which has been pounded down by the market in general along with the drop in the price of uranium, would take awhile to bounce up?

TGR: At what point will existing nuclear facilities begin to consume enough to push the price up?

TGR: Do you cover any of the rare minerals in the Gold Newsletter?

TGR: Interesting. So even though there’s demand for rare earth minerals from many different areas, that won’t be enough to move Rare Element Resources forward?

BL: No, I don’t think so. I think that’s a gold story.

TGR: You have a conference coming up in New Orleans, from November 13-17. How would investors interested precious metals and/or uranium benefit from your conference?

TGR: Steve Forbes will be there.

And Doug Casey, representing libertarians, will have his annual debate with a conservative and a liberal, i.e., with Thompson and Carville. That’s a real crowd pleaser with a lot of fireworks.

TGR: That’s got to be lively.

BL: People always pack the halls for that one.

TGR: Any last thoughts on where gold will be by the end of the year?

Golden Opportunities? – Hard Assets Investor

03 Monday Nov 2008

Posted by jschulmansr in commodities, Copper, deflation, Finance, gold, hard assets, inflation, Investing, investments, Latest News, Markets, mining stocks, oil, precious metals, silver, U.S. Dollar, Uncategorized

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Golden Opportunities? – Brad’s Desktop – Hard Assets Investor

Written by Brad Zigler

Brad’s moderating a panel discussion at today’s Inside Commodities Conference. Technical problems prevented the production of this week’s market recap podcast. Following is a transcript of the audio file.

You’ll be forgiven if all the recent selling has you exhausted. Perhaps you’ll be comforted to know that the selling itself may be exhausted, at least for some commodities.Let’s not get ahead of ourselves, though. First, let’s look at last week’s key markets.

COMEX spot gold finished 2% lower at just under $717 an ounce and near the week’s lows. The deeply oversold market tipped some technical indicators toward the bullish side, but a close above $796 would still be needed to establish the presence of a short-term low. For the active December contract, add a couple of dollars to that price threshold.

The gold market’s been liquidating at an increasingly torrid pace over the past month. As the per-ounce cost of gold shed nearly $150, net long interest in COMEX futures held by hedge funds and other large speculators was pared by more than a third. That bearishness, however, shows some signs of exhaustion. Commercial net short positions have been whittled by more than 41% as hedging interest seemed to dry up like water droplets in a hot skillet in the past two reporting weeks.

The interest picture, in fact, looks a lot like August 2007, and we all know what happened to gold prices then. That said, follow-through this week will be pivotal for gold bulls.

While bullion price action was lackluster last week, gold mining stocks, tracked by the Market Vectors Gold Miners exchange-traded fund, sparkled. The stocks in the ETF’s underlying index have been battered for months, but they reversed course and rose an impressive 18% last week, forcing the bullion-to-mining stock ratio below its 20-day moving average for the first time since September. That’s another reason this week should be decisive. Are miners finally cheap enough to attract sustainable buying interest? We’ll see. And we’ll touch on this subject again a little later.

SPDR Gold Shares (GLD)/Market Vectors Gold Miners ETF (GDX) Ratio

SPDR Gold Shares (GLD)/Market Vectors Gold Miners ETF (GDX) Ratio

Another ratio that was closely watched last week was the gold/silver ratio. The white metal probed the market – the London morning fixing, that is – under the $9 level, and found reactive buying interest which pushed the white metal to taste the air briefly just above $10. In the end, though, the gold/silver ratio returned to its starting point for the week at 78-to-1. The ratio topped out at 84-to-1 in mid-October.

Gold/Silver Ratio

Gold/Silver Ratio

Enough about yellow gold. What about black gold? What about crude oil?

Well, after starting weakly, spot crude ended the week about 6% higher. Commercial hedging interest, though, picked up, indicating growing concerns about future price weakness. At the same time, there was a substantial build in futures’ open interest to levels not seen since mid-September, signaling a respite in liquidations.

Early in the week, as crude oil prices ratcheted lower, refining margins were at the 8% level, but by week’s end, dipped back below 6%. Friday was Hallowe’en, a day that last year marked a seasonal bottom in the crack spread. A crack spread, if you’re not familiar with the term, refers to the potential profit that can be earned by selling refined products such as gasoline and heating oil after paying for crude oil feedstocks. The spread typically improves over winter. After all the tricks and treats last year, refining margins doubled to over 13% by mid-December as crude prices eased and product prices firmed. There may soon be treats for this year’s crop of spreaders. If you want to learn more about the spread and how to use it as an investment barometer, read the Hard Assets Investor article titled “Time For Crack Spreads?“.

NYMEX Spot Crude Vs. Refining Margins

NYMEX Spot Crude Vs. Refining Margins

Last week’s uptick in oil prices was accompanied by an even bigger gain in natural gas prices. Nearby Henry Hub futures rose nearly 9% for the week as the crude oil energy premium weakened to new seasonal lows – less than half its pre-Labor Day level. There’s another very reliable spread opportunity you can learn about in a Hard Assets Investor article named “Spreading Oil And Natural Gas“.

All this action took place as the dollar took a deflationary breather. At Hard Assets Investor, we’ve got a real-time gauge of monetary inflation that ticked back up to a 9% annual rate, nearly a half-percentage point higher than the previous week’s reading. It may be a little early to call for a reflation, but that’s the biggest break in the deflationary trend we’ve seen since mid-September.

U.S. Monetary Inflation Vs. Gold

U.S. Monetary Inflation Vs. Gold

By week’s end, the dollar cheapened against the euro by 2 cents, but only after reaching a new high for the year on Wednesday. Banks traded euros at an average price between $1.30 and $1.31 on Friday. Back on Independence Day – just four months ago – the euro was worth more than $1.58.

Now back to gold; something that’s constantly on the mind of Van Eck portfolio manager Joe Foster. Last week, we recapped a talk we had with him about the yellow metal’s prospects. Foster believes gold fundamentals will reassert themselves as soon as the current crisis phase runs its course. Then, he figures, the market’s love affair with the greenback will grow cold. The protracted nature of the banking and housing crisis is ultimately bullish for gold, he says, since it will prompt the Fed to maintain an easy money policy to prop up the economy. The government’s on a debt binge that’ll eventually be monetized, says Foster.

Foster’s taking a long-range view, though, by looking at the gold market as a sequence of phases: first, a crisis mode and a deflationary scare for a year or two, then, as the economy starts to recover, an inflationary period that could rival that of the 1970s.

Gold’s prospects during the crisis phase are murky. We’re clearly in new territory here. Remember, the last time we had a chance to gauge gold’s performance in a deflationary environment was during the Great Depression, and back then, the price was artificially fixed.

It’s in the inflationary phase that gold’s performance seems more predictable. Foster’s not putting a price target out, but he does feel the inflationary period will be long-lived.

As for when we move out of the deflationary scare into inflation mode, our real-time indicator can help us. According to the indicator, dollar deflation looks like it actually started in March. If Foster’s right, we could see reflation begin as soon as 2009’s second quarter.

So somewhere in here, says Foster, is a buying opportunity for gold bullion or, most especially, gold mining stocks. He’s particularly keen on well-managed producers with good cash flow such as Kinross Gold Corp. (NYSE: KGC), now about 40% below its 200-day moving average price.

The Gold Report | Lemieux: Gold’s Behavior Flies In The Face Of Every Theory

31 Friday Oct 2008

Posted by jschulmansr in commodities, Copper, deflation, diamonds, Finance, gold, hard assets, inflation, Investing, investments, Latest News, Markets, mining stocks, precious metals, silver, U.S. Dollar, Uncategorized

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Eric Lemieux: Gold’s Behavior Flies in the Face of Every Theory

Streetwise’s The Gold Report

Eric Lemieux: Gold’s Behavior Flies in the Face of Every Theory
Source: The Gold Report 10/31/2008

In an exclusive interview with The Gold Report, Eric Lemieux, metals and mining analyst with Laurentian Bank Securities, describes gold’s inexplicable descent as a violation of market fundamentals. Eventually the worsening supply deficit will energize the precious metals sector and when it does, he believes the junior explorers will be well positioned to benefit. He focuses on the emerging mineral wealth of the James Bay area of Quebec and discusses his favorite explorers.

TGR: You cover 25 to 30 mineral exploration properties, primarily in the James Bay area, owned by four exploration companies. Although there are 20 to 30 exploration and mining companies are in the area, you focus on only a few of those companies. Why the James Bay area, and why these companies: Midland Exploration Inc. (TSX.V:MD), Virginia Mines Inc. (TSX:VGQ), Eastmain Resources Inc. (TSX:ER) and Sirios Resources Inc. (SOI) (TSX.V:SOI)?

EL: Let’s start with “Why James Bay?” In the 1970s, Hydro Québec wanted to harness the rivers to build hydroelectric power stations in the James Bay area. As part of its due diligence, the company hired consultants to assess the geological potential of the area. The report came back stating that there was very little potential. This proved not to be the case, but by then the perception had already been created that the area had low mineral potential. James Bay was considered the little brother of Abitibi—the poor little brother. Then in 2004 Virginia Mines made a major discovery, the Éléonore deposit. This is a world-class, perhaps 6-million-ounce plus deposit currently being developed by Goldcorp Inc. (TSX:G) (NYSE:GG) —and it wasn’t supposed to be there.

TGR: And it’s in an area where, thanks to Hydro Québec, there’s good infrastructure.

EL: That’s right. Hydro Québec built roads and airports providing access in the James Bay area. When you consider the infrastructure, plus the discovery of the Éléonore deposit, the area becomes very interesting. In addition, the Québec government is favorable to the mining industry. Also, James Bay is located in the Cree First Nations area and, unlike the situation in other jurisdictions in Canada, there is a 40-year history of partnerships between Hydro-Québec and the Cree as well as other participants. And then, of course, there’s the question of electrical power. The hydroelectric dams and power stations are already there. Any company that requires electricity for a long period of time can negotiate with Hydro Québec, which has a reputation for providing cheap electricity for sound industrial development. When you add it all up, the area has promising mineral potential, a good social framework, existing infrastructure, and a favorable permitting environment.

TGR: There’s also access to a skilled work force because Abitibi is just south of there.

EL: Exactly. The Abitibi has a rich mining heritage. So the proximity means you have access to that work force as well as a depth of knowledge. That’s a tremendous advantage.

TGR: What do you think are the prospects for another discovery the size of the Éléonore deposit?

EL: This is an underexplored area, so I think it’s just a matter of time. It’s been four years since the discovery of the Éléonore deposit. We’re just starting to scratch the surface and there could be some surprises in the years ahead.

TGR: Does the fact that existing infrastructure makes exploration in the James Bay area less costly give mining companies operating there an edge in today’s market?

EL: I think so, depending of course on how far commodities drop. If you can find high-grade deposits in this area, all of the advantages we discussed help offset lower commodity prices. In the current financial crisis, projects that require huge capital investments will be almost impossible to finance. That’s a huge handicap compared with smaller, high-grade projects that require less capital, and have a high payback or a quick payback time. So I think projects in the James Bay area are well positioned in today’s economic climate. Equally, exploration costs are less as road and dam infrastructure provides access and adds to beneficial logistics.

TGR: That explains why you like the geography. Let’s return to the second part of the question—why just these few companies out of the 30 or so that have property in this area?

EL: Based on the criteria I use, these companies are the best. The first criterion is the quality of the management team. If you have solid management, everything else falls into place. Then I assess the quality of the projects, the geological potential, and the share price.

TGR: Given the financial turmoil, do you think the junior companies you’re focusing on can withstand this downturn?

EL: The companies I’ve selected have what I call a partnership approach. They farm out part of their property to a JV partner who finances the exploration. Midland Exploration uses this model. Of course, the financial health of the partners is also important, because if the partners are not healthy, the work will not get done. Three of my four companies have great financial health, so they’ll be able to continue through the downturn. Some of them were able to finance last spring when the market was rather favorable. For example, Eastmain Resources did a $16 million financing that puts them in a strong financial position. And Virginia’s business model has always included a very large treasury, which stands at about $45 million. Plus the company has structured its agreement with Goldcorp to include an advanced royalty on the Éléonore deposit that will start bringing in US$100,000 per month in April 2009.

TGR: Who is Midland’s JV partner?

EL: Midland has several partners. One of them is Agnico-Eagle Mines (TSX:AEM), a major Canadian gold producing company. It’s in a good financial position and has a good asset base. Another is Breakwater Resources Ltd. (TSX:BWR), which was struggling a little even before the recent financial crisis, so that’s a bit of an unknown. My understanding is that Breakwater is still living up to its commitments. Midland has more than $4 million in its treasury, so it will be able to weather the storm. Keep in mind that in addition to looking at a company’s financial strength, you also have to review its obligations. A company may have cash, but if it has entered into agreements that require it to do work and spend money, it doesn’t have the freedom to just sit on its money in a downturn. In evaluating these companies, it’s important to examine how their agreements are structured.

TGR: Is Eastmain also following the JV concept?

EL: Eastmain, which has a sizeable portfolio of properties, has a few agreements with partners, including Barrick Gold Corp. (ABX). But for the most part, Eastmain owns 100 percent of its properties, which gives it the advantage of being able to step back and preserve cash. So I think both Eastmain and Midland are in very good positions. Virginia is probably the best one as a junior mining exploration companies because it has a great financial position, has strong management and has developed the expertise required to be successful in any economic environment.

TGR: Do Virginia, Midland, Sirios and Eastmain have contiguous properties? So if one of them makes a substantial discovery, we could expect the others to follow suit?

EL: That’s only partially true. They have a few contiguous properties, but also some that are very separate. I think each one possesses a different expertise, and is focused on a different area. That said, if there were another major discovery, it would put benefit the whole area and any property there will gain some indirect value.

TGR: When do you think the market will return to a supply-and-demand dynamic and what will it take to get the prices of well-positioned juniors back up?

EL: At the first sign of an economic downturn, investors pull their money out of the most speculative stocks. That’s why the junior explorers started to decline at the end of 2007, before the rest of the market. It’s a bit like the canary in the coal mine. The downfall started much earlier than September of this year and I think that’s unfortunate because it’s been a slow, agonizing downward process. The situation has been compounded by the fact that we’re having this huge financial economic crisis that appears to be spiraling out of control. I think we’ll eventually hit bottom, and then the markets will stabilize and start picking up again. When it does, I think the junior exploration industry will be well positioned. Why? The supply imbalance existed before the downturn and this deficit can only get worse. At some point, people will realize that we have to invest in the commodities and that will energize the industry.

TGR: It’s difficult for most of us to understand why, given the supply imbalance, commodity prices—especially gold—have declined so much recently. What’s your take on this?

EL: The decline in gold prices flies in the face of every theory. The U.S. dollar has been appreciating and the U.S. economy is going through a recession. Gold should be increasing in value in the face of all this uncertainty. To see the price of gold going down right now is almost unexplainable in my opinion. It begs the question, is this due to some type of manipulation, either directly or indirectly?

Eventually people will realize that you can’t sustain both very low commodity prices and a very high U.S. dollar because it violates certain fundamentals. Back in February 2002, an article in The Economist talked about a potential crisis resulting from businesses using financial instruments that they didn’t understand (credit risks). But everyone just turned their backs and carried on. I think it’s a matter of restoring common sense to the market. I am, in particular, in agreement with a written statement made by the general manager of the Québec Mineral Exploration Association, that says that markets must return to their original mission—to finance economic development and not speculation.

TGR: Hedge funds and money markets have had to liquidate, which is causing a lot of turmoil. Once that settles out, won’t supply and demand start to play a stronger role again?

EL: Agreed. And when that happens, I think the metals commodities industry will be in a strong position to benefit.

TGR: When do you think this might happen? Three months? Six months? A year?

EL: I estimate six months.

TGR: When we get back to supply and demand as the market drivers, and the commodities come back, what range do you think gold and copper will trade in?

EL: I think they’ll return to the levels we saw at the beginning of 2008, and I think these were fair prices. I don’t like skyrocketing prices because that’s not good for the long-term viability of the industry. I think gold was trading around $850-$920 in January. It may have touched $1,000 later in March. Good companies are able to make money when gold is in that $850 range. Copper was trading around $3.50, a price that made sense in terms of the supply and demand. These are viable long-term prices. There will be fluctuations and I wouldn’t be surprised if we see a huge spike when the markets initially rebound. But for the overall health of the industry, as long as it is a normal price, everyone comes out a winner.

TGR: To what extent do speculators play a role in these huge spikes?

EL: I think much of it is due to speculators. Having said that, I think speculators have their right to be there. I think it makes the market more fluid. Unfortunately, as we’ve seen with the financial crisis, when there’s excessive abuse, it’s unhealthy. I think we’re in the mess we’re in now because Wall Street really went to an extreme, to total deregulation.

TGR: So you think the market will regain equilibrium over time.

EL: Yes. I believe we’re experiencing the results of probable financial industry fraud. Time will tell who was responsible. I hope we will hold the perpetrators accountable. Unfortunately, I think certain elements are trying to sweep all this under the rug.

When I was young, banks were always viewed as being very conservative. They were the blue chips. Now that we’ve witnessed fraud and abuse in the banking and insurance industry, I hope people will see that banks are not necessarily the best, safest investment. And perhaps this will change their perception of a speculative market or industry, like mining, and they will be able to invest in these markets knowing that a dollar spent there will be a dollar well spent.

I hope the perception of the mineral exploration industry will change because I think there are a lot of good players and, fundamentally, people are trying to discover, develop, or produce a tangible asset. In this day and age, I think something that is tangible has its worth. Once people get to know the industry they will realize that it does have value and maybe has been undervalued for many years. At the very least, I hope that people will be more diligent in regards to what was regarded as a conservative industry (financial) and realize that the mining and mineral exploration industries have made much progress and deserve a better appreciation.

Éric Lemieux, MSc, P. Geo., is a Mining Analyst who joined Laurentian Bank Securities (“LBS”) in January 2008. Prior to joining LBS, Eric worked for nine years as a consultant responsible for applying Regulation NI 43-101- for the Autorité des marches financiers (“AMF”) as well for the New Brunswick Securities Commission. Eric had previously worked at the Montreal Exchange and prior to that had managed exploration projects for Cambior, Noranda and Soquem. Eric holds two master’s degrees, one in Mineral Economics from the Colorado School of Mines (1997) and in another in Metamorphic-Structural Geology from Laval University in Quebec City (1992). Eric hold a B. Sc. in Geology from Laval University (1989).

Safe Haven Investments: Imminent Danger and Opportunities – Seeking Alpha

29 Wednesday Oct 2008

Posted by jschulmansr in commodities, Copper, deflation, Finance, gold, hard assets, inflation, Investing, investments, Latest News, Markets, mining stocks, precious metals, silver, U.S. Dollar, Uncategorized

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Safe Haven Investments: Imminent Danger and Opportunities – Seeking Alpha

By Marc Anthony

When people see danger in the market, their natural response is to liquidate everything and move everything into cash in order to ride out the storms. The conventional wisdom is “Cash is King.” However, conventional wisdom doesn’t work anymore, as this is unconventional time. If you are fully loaded in cash or U.S. Treasury Bonds, this news, first noted by Karl Denninger, should completely shock you out of your shell:

According to an October 19 article in Investment News, $2.29 Trillion Dollars US Treasury Bonds Failed To Deliver.

Note that it is $2.29 TRILLION, with a T for Trillion! I never heard that one could short U.S. Treasury Bonds, let alone naked shorting of U.S. T-Bonds! The T-Bonds are considered some of the safest investments, with the full faith and credit of the U.S. government guaranteeing the principal, and you get an interest payment. So shorting U.S. T-Bonds is virtually guaranteed to lose money, as you will have to pay back the principal plus the interest. You do NOT short U.S. T-Bonds, let alone naked shorting, let alone as much as $2.29 Trillion.

That is UNLESS you are a really BIG player and you clearly see imminent danger of the collapse of the U.S. T-Bonds, and of the U.S. dollar, itself. I have previously written that Warren Buffet saw extreme danger in U.S. Treasury Bonds, and as a result, was completely out of the bonds and fully into the equities market. Of course, people should respect and follow this person’s wisdom. However, small potatoes like Warren Buffet could not have naked shorted $2.3 Trillion U.S. T-Bonds. Someone much bigger, and who knows this market better, did it. I will not speculate, but read Karl Benninger’s comment, in order to gain some insight into the matter.

Money created out of thin air is NOT King! The current Kings are precious metals. Never mind the fact that the dollar staged a shocking rally and precious metals plummeted. The dollar rally is nothing but a bubble, while current precious metal prices, especially platinum and palladium, is nothing but absurdity. Physical commodities MUST be priced above their production cost, or the supply will simply dry out, as no one can continue produce metals at a loss. So, if I am sitting on my precious metals, I am pretty much guaranteed that they will soon appreciate in terms of real purchasing power. On the other hand, if you are sitting on trillion of dollars of the fiat currency, and the currency falls, the only guarantee you will have is they will continue to fall further down, until eventually, they reach zero.

The general market always manages to fool most people most of time, and causes more people to lose more money in unexpected way. It only rewards the select few who have the wisdom and the determination to stick to their wisdom. The current global crisis necessarily means an astronomical amount of fortune must be totally wiped out. What could be a better, cleaner and quicker way of wiping out trillions of dollars of fortune instantly, then to first herd the sheep into holding nothing but cash, and then having the currency suddenly collapse? Of course, the U.S. dollar rallies big time if every one is herded into buying dollars. A bubble is something pumped up to a valuation much higher than where it should be.

Fiat money is completely at odds with the economy basics of supply and demand. For anything physical, equilibrium can be reached as the price impact positively on supply and negatively on demand. Higher price encourages more production while low price suppresses the supply. When the price falls below cost, supply dries up as no one can continue to produce and sell something at loss. On the demand side, the price has exactly the opposite effect. High price suppresses demand while low price encourages consumption.

Fiat money acts in exactly the opposite way. The less valuable a currency becomes, the more is being produced out of thin air. The cheaper the currency becomes, the less people desire to own and keep them, and the faster people want to get rid of them. When people want to get rid of their paper money as fast as possible, it speed up the velocity of money, and cause the value of the currency to plummet even more, forcing the government to print more money. The vicious cycle continues until the currency is totally destroyed. Throughout civilized history of mankind, every single experiment of fiat currency has failed. There are no exceptions.

In Chinese, the word CRISIS contains two characters, DANGER and OPPORTUNITY. We are in extreme danger but also with extremely good investment opportunities. The opportunities are made even better because every one runs away from them and run towards a gigantic death trap with a sign “Cash Is King.” Remember one thing; safe havens must be small, with narrow spaces that accommodate only a few refugees.

It reminds me of the Bible story of Noah’s Ark. People ridiculed Noah as he was building his ark, thought it had never rained a single drop for a year, how could the flood come? The flood did come as Noah expected. Had these people listened to Noah and seek refuge in his Ark, would it make a difference? No! The Noah’s Ark was still only big enough to contain just one pair of each kind of animals. It wouldn’t be a Noah’s Ark if it was made any bigger. Likewise, today’s financial safe haven wouldn’t be a safe haven, but a death trap if it was big enough to allow every one in!

Although we do not see a drop of rain yet, trillion dollars of wealth will soon be flushed away by the coming financial flood of hyperinflation. Have you built your Noah’s Ark yet? There is definitely NOT enough material to build a big enough Noah’s Ark to save every one.

I can’t understand it! There are tons of investment opportunities in commodities right now. You can buy a few metric tons of nickel or copper or cobalt or a number of other things. You know they are priced far below their production cost right now. Therefore, it is absolutely a guarantee they must appreciate to at least the fair price of their cost. Can you find any better investment, with such absolute certainty of making double, triple and quadruple the money in the next few months, regardless of the demand? How could people be so blind and not see the opportunities? They all rush to cash and T-Bonds waiting to be slaughtered, and they actually thought it was safe to be with the biggest group of mobs?

Nickel is now less than 1/6 its May 2007 price. Hello?

ENOUGH IS ENOUGH! When enough is enough, the eruption is fierce!

On Monday, the third largest nickel producer in Russia, Ufaleynickel, which is responsible for slightly less than 1% of global supply, announced that it was shutting down production, because the price of nickel is just too low. The company needs to see at least $26,000 per metric ton in order to break even.

Instantly nickel shot up to touch $5.00 a pound, from Friday’s $4.00. That’s a 25% rally in just one day, and probably the biggest one-day rally of any commodity in history. Removing 1% of the global supply doesn’t really change supply/demand that much. However, the price was suppressed too much so the bounce had to be fierce. Had you bought nickel at $4, you have made 25% profit in just a day. People are still rushing to buy U.S. T-Bonds to earn 3% annual interest while waiting to be slaughtered in the looming implosion of the bonds market.

Do you want to make a 10-fold return in two months, and maybe two weeks? Then, buy some palladium metal – any palladium metal you can find. Once the Russian Checkmate plays out, the price of Palladium could go from $170 per ounce to $1700 per ounce in no time,

The Russian Checkmate event will be if Norilsk Nickel (NILSY.PK) shuts down production. It is the No. 1 nickel producer in Russia. The number 3 producer has already shut down production. Would No. 1 be far away? If Norilsk shuts down, and 45% of global palladium supply is gone, I can’t even start to predict where palladium price could go up to, with 45% of supply removed instantly. In 2000/2001, one false rumor from Russia was enough to send palladium up to $1100. It would be fun to watch the effect of 45% of palladium supply removed.

Of course, you can get better leveraged gain investing in the palladium stock Stillwater Mining (SWC) and North American Palladium (PAL).

Will Norilsk shut down? It is facing a severe liquidity squeeze. In first half of 2008, Norilsk group reported a profit of $2.682B, at 32% profit margin. If you look up metal prices as of Oct. 24, 2008, and re-run the numbers, the company would have to write down -$4.594B of sales revenue for the whole group, or $3.634B for the main Norilsk Mine, resulting in heavy losses. The cash drain will be nearly $2B per half year.

The Norilsk group had $4.8B cash as of end of June 2008. The main Norilsk mine probably had $4B in cash. The company spent $2B in a recent stock buyback, a senseless decision that Mr. Mikhail Prokhorov denounced as “capable of putting the company on the verge of bankruptcy.” Operation loss since June probably costs them another $1B. The company has a debt payment of $400M due in November. Does it have any cash left? Can it continue to operate the mine at heavy loss? Why would the company continue to operate with heavy losses until bankruptcy?

The bullish case for palladium cannot be disputed if you understand just how bad Norilsk Nickel‘s shape is today.

Monday’s news of Ufaleynickel shut down mentioned OM Group ( and reminded me that OMG is the best cobalt play, because it dominates the chemical sector involving cobalt. I consider cobalt as a better metal to buy than silver, with the potential of 10-fold appreciation in a short period of time. Check out news on Minor Metals. If the speculation of Katanga Mining shut down plays out, cobalt price should fly soon. You can buy cobalt from BHP Billiton (BHP)..

There are so many beaten down silver and gold mining shares now. All are very good buys: Pan American Silver Corp. (PAAS), Silver Standard Resources Inc. (SSRI), Apex Silver Mines Inc. (SIL), Hecla Mining Co. (HL), Newmont Mining Corp. (NEM), Yamana Gold Inc. (AUY), Northern Dynasty Minerals (NAK), Ivanhoe Mines (IVN), and NovaGold Resources Inc. (NG). There are so many to name. Even Southern Copper (PCU), my very first commodity play, is now back below where I first bought in late 2005. These days, anything in mining is good. I would not touch Silver Wheaton (SLW) though, because of counter party risks. Also, forget about any coal player now. I continue to call for selling James River Coal Company (JRCC), Arch Coal Inc. (ACI), Alpha Natural Resources Inc. (ANR), Peabody Energy Corp. (BTU), or CONSOL Energy Inc. (CNX), at any rally.OMG)

The U.S. coal market is a local market and is now bearish. Watch Dry Ships’ (DRYS) share movement, as it is an important indicator of the health of the global economy. I might even consider buying some DRYS stock as the valuation has become so attractive. However, I first need to get a conformation that cross-ocean shipping activity is recovering.

I will keep a portion of my portfolio in iShares Silver Trust (SLV). I will not buy gold or SPDR Gold Shares (GLD). I believe gold is adequately priced at current level. The money spent on gold is better spent on something else. Even buying a ton of nickel or copper is better than gold.

However, the best of all is still palladium, and the only two pure palladium plays, SWC and PAL. We are witnessing a singularity event unfolding in the palladium market, as Norilsk Nickel will inevitably shut down, to protect its own best interest. What is singularity? A singularity is the kind of extremes like what you get when you try to divide a number by zero!

Full Disclosures: The author is heavily invested in SWC, PAL, has considerable stake in OMG and SLV, and will continue to buy some select silver shares including SSRI, HL, PAAS and SIL. I am also looking for opportunity to buy DRYS soon.

Obama Economics: The Future of Investments & The Economy Under a President Obama

28 Tuesday Oct 2008

Posted by jschulmansr in 2008 Election, Barack Obama, commodities, Copper, deflation, Finance, gold, hard assets, inflation, Investing, investments, Joe Biden, John McCain, Latest News, Markets, mining stocks, oil, Politics, precious metals, Presidential Election, Sarah Palin, silver, Today, U.S. Dollar, Uncategorized

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Obama Economics: The Future of Investments & The Economy under a President Obama

By: Robert Nabloid of Nabloid.com

At the time of writing this, Obama has not yet been elected, but that is only because the vote has yet to take place. In just a few weeks (on Tuesday November 4, 2008), Obama will become the first half-minority man to be President of the United States of America. The US, and the World, will cheer and it will all happen under much fanfare. We all know of Obama by now. We know he makes great speeches and talks a whole lot about change. But what change does he have in mind? The problem I have noticed is that not many of his supporters seem to understand all the changes he intends to make. Obama often speaks about a world that almost sounds utopian… but how does he intend to build this utopia? How does he intend to pay for this utopia? The devil is often in the details.

The changes Obama implements will have an affect on both the economy (your jobs) and your investments (your retirement). I believe many of the changes he implements will also change American society forever (long after he is gone) by creating a society that believes it deserves a good living by default, instead of a society that works hard to earn a good living. So pay attention to Obamanomics. The most important changes Obama will implement deal with the economy; without a strong economy, Obama will not have the finances in place to afford many of his other social programs. So, I will focus this article on his economic and tax policies which will have an enormous affect on the economy and your investments, as well as the government coffers.

Before I start, remember why the USA became a free nation to begin with… due to the taxes imposed on Americans by the British Throne, which became excessive and caused a revolt. In the last century, the USA became the greatest nation on Earth. It has its share of problems, but it still became #1 on the planet! A commoner could become its wealthiest and most successful with enough hard work, determination and a little bit of luck. This ability to transcend social classes from being poor to being rich, has made America ripe with opportunities. Millions of immigrants, often highly educated and motivated, come from around the world to the USA in order to make a better life for themselves. Many come from 3rd world nations, dictatorships and socialist/communist countries, so they can live in a free market country that affords them many opportunities for a better life. This freedom is precious and critical in creating a healthy environment for economic development and prosperity.

I must ask you a few questions now: If you lived in a country where more than half of your earnings go to the government automatically or you’re jailed, would you consider yourself free? If you lived in a country where you are unable to protect yourself, are you free? If you won the lottery and you’re government automatically took MORE THAN HALF, would you consider yourself free?

Okay, so by now you’re just itching for me to get down to it. I think the American work ethic and creativity helped create one of the finest societies on the planet. I also think Obama will wage a war on the American work ethic and a war on successful people. Please read “The Audacity of Deceit: Barrack Obama’s War on American Values”. It’s funny that many parents want their kids to go to medical school or law school, to get good jobs. Why bother? Under Obama these professionals will suffer and be discouraged with tax rates above 50%! Why go through all the extra effort (and debt for schooling), only to be punished by your hard work and success with punitive taxes that leave you with less than half of what you actually earned?

Below is a great list of ten tax changes Obama wishes to implement, quoted from “The Audacity of Deceit: Barrack Obama’s War on American Values”. Below each change, I have left my comment.

1) Increase the top individual tax rate from 35 percent to 39.6 percent.

It could cost the economy billions! This still takes money out of the pockets of successful people and puts it into Obama’s hand so he can spend it, because government doesn’t spend enough money? I think people should be entitled to keep their hard earned dollars and 35% is more than enough for the government to take. Remember, that money would be spent on assets of one type or another (like investments in the economy or houses/boats/consumer goods/etc) and it DOES get circulated back into the economy in an efficient manner by consumers! This is why capitalism has worked so well! The government often waists money in poorly run social programs and money grabs for special interest groups. This will decrease efficiency in the economy and is nothing more than a government transfer of wealth. Let’s create more inefficiencies?!? C’mon… but it gets much worse.

2) Raise the capital gains tax rate from 15 percent to 28 percent.

This is an absolutely horrible idea! Capital gains taxes are incurred on investments! Many millions of Americans have a plan to retire. They have put money into investments so the investments could go up in value enough to afford the luxuries of retirement, without depending on social security. Now only 72% of your profits are actually profits. If you needed $1 million to retire, you will now need your investment returns to be even higher to afford retirement! Do we not want people to be successful and self-sufficient? This is impeding the ability of many to be self-sufficient.

Many companies may not invest in the USA as much because of the inherent capital gains. This will also hurt the stock market. We should be encouraging people to save money and invest, not discourage them! I believe a 0% tax rate on capital gains would spur a LOT of investment in the USA, and a lot of jobs!

3) Increase the stock dividends rate from 15 percent to 39.6 percent.

This is just plain dumb! Stock dividends are one of the primary ways retiree’s earn money! If a retiree was able to find investments yielding 10% per year in dividends, than the retiree would only need a portfolio of $250,000 to earn $25,000 in dividends. Of that amount the retiree would get to keep $21,250 after taxes. Under Obama, that same retiree is all of a sudden forced to take a massive pay cut and live off of $15,100! This hurts the stock market, retirees, and the economy in general. This is really stupid. We should encourage people to invest in companies, not discourage them! This is only discouraging investment in America, once again.

4) Raise the percentage of Americans who pay no federal income tax from 40 percent to 50 percent.

Why, in a time with massive deficits, should more burden be placed on fewer Americans? The social programs are not free! Someone must work for, earn, and pay for these social programs. The same low and lower-middle class families that are voting FOR these programs should bear some of costs! If they believe so highly in the programs, they should be willing to put their money where their mouth is and take it on the chin, especially if its such a good idea and helps people out!

5) Impose a 10 percent surtax on all incomes above $250,000 per year.

Surtaxes on success? My, oh my. Shit, I think we should impose a heavy surtax on anyone who earns less than $15,000… pretty quickly I bet you would see a whole lot of people earning more than $15,000 that didn’t use to… that might actually help more people than it hurts! Want an efficient economy? Placing surtax on success is stupid.

6) Raise the death tax rate to 55 percent for any income past the first $1 million exemption.

With many homes being worth over a million (at least by the time many of us die they probably will be if you think about inflation!), a 55% tax rate is almost abusive. Once again, why save money if it’s going to be heavily taxed when you die? This is one of the worst, as it will cause many successful families to move A LOT of assets OFFSHORE to avoid taxes altogether. Why invest in the USA when it looks like it’s going in the wrong direction? Before there was a little bit of stigma attached to rich people moving assets offshore to avoid taxes. Under a heavy taxes (above 50%!) it would only be smart to move all assets offshore, and there might be a stigma for those that don’t! (Why wouldn’t they, do you think they are stupid? If they want to give money to charity, I’m sure many of them worked their entire lives for that money, and would like the ability to choose (democracy!) where there money goes). I assure you, many families will move assets off shore to avoid the wacky Obama taxes altogether.

Many other nations will now try and lure these wealthy families to come to (and invest in) their nations. If America doesn’t appreciate the middle class, middle-upper class, and upper class, I assure you, another nation will!

7) Raise the minimum wage from $6.55 to $9.50.

Inflation anyone? The cost of everything will rise to pay for this increase. It’s almost a zero sum game for the minimum wage earners and it can only hurt the rest of society with inflation. We don’t need this because American workers aren’t competitive enough on the world stage as it is. LOL, So let’s raise the minimum wage even more, so we can’t compete on ANYTHING. Hopefully all businesses and capital (money) will move elsewhere.

8 ) Raise social security payments by 4 percent for individuals, businesses, or anyone who makes $250,000 per year.

Why even comment on this? More social security? If people don’t earn it, they shouldn’t get it. I agree with having social security for those tough times when people lose jobs/get sick, etc. But should we allocate even more money to social security? We should want social security to help put food on the table, but not give each person a life so comfortable they don’t attempt to go out and get a job if they are able to do so! It should be an uncomfortable time when a person is not productive, and the discomfort should be great enough that the person strives to do all he/she can do to become productive to society once again!

9) Increase the top tax rate from 37.9 percent to 54.9 percent for self-employed taxpayers (who already pay ordinary income taxes as well as self-employment taxes).

Why be self-employed or go out and create a business? There’s just no point to risking your money to start a business. Not only are you hit with massive taxes on earnings, but if you do happen to create a business and eventually decide to sell, the capital gains taxes take a large chunk of the value of the business you created. It’s a massive disincentive to create businesses based in the USA. Now how are American businesses supposed to effectively compete with foreign competitors (with wage slaves) when much of the profit is sucked away to government coffers instead of re-invested into the business? Businesses normally either re-invest the profits into the business or give the dividends to shareholders, but with less actual profits… less spending on new technologies, expansion, job creation, etc.

10) Increase the tax rate on Sub-chapter S corporations (small businesses) by up to 15.3 percent (from a top rate of 35 percent to 50.3 percent).

Another tax rate above 50%. Instantly, almost overnight, many corporations will have to reduce any expansion plans they did have, as much of the profit they were going to re-invest is now in the government coffers instead of the corporations bank accounts. All this WHILE there is a credit crunch? C’mon, I thought Obama would want MORE jobs, not less. Why should companies even put a head office in the USA anymore? It doesn’t make sense anymore with disincentives like this.

How can the USA consider itself a free country when it has lost so many of its constitutional rights? Now the right for a person to work hard and enjoy the fruits of his/her labour may disappear under heavy taxes. When more than 50% of your hard earned dollars go to the government, it is NOT a free country! I contend that in a free nation, a government does not take MORE THAN HALF of your earned dollars.

I thought this was interesting: Even Russia is doing a better job at some things than the US. If I didn’t tell you what country it is that is doing the below tax rates, you would never guess:

The tax system in Russia underwent a comprehensive reform in the year 2001. This reform is designed, in principle, to ease the tax burden on individuals and companies and to simplify the classes of payments for national insurance.

Russia has a uniform rate of tax on the income of individuals. As of 2008 tax in Russia is payable at the rate of 13% for an individual on most income. (non-residents 30%). Russian residents pay 9% on dividend income. (Deduction at source). Non-residents pay 15% on dividend income.

Exemptions are granted to certain income earners.

The standard rate of Russia corporate tax in 2008 is 24%.

http://www.worldwide-tax.com/russia/russia_tax.asp

If American’s don’t appreciate their successful citizens and the government’s real role in society, there will be consequences. The government has made most of the major problems, including the legislation that ultimately created the housing bubble. Governments can seldom manage their own finances, and yet they want to take MORE of your money out of your hands and “efficiently” transfer the wealth around? It doesn’t work that way, especially when they plan on transferring wealth from productive peoples to unproductive ones… that in and of itself creates inefficiencies.

Here’s what I think will happen. Obama will introduce all his new taxes during a recession. He will make things worse, but will get no blame for it, as most people will blame the previous government for the entire recession. Businesses will get hurt by higher minimum wages (and HIGH inflation!!) which make them even less competitive with other nations around the world, further increasing the need for outsourcing. The businesses that do manage to remain profitable will get slammed by higher taxes, which means less profit to re-invest in the business, the economy, and the owners pockets (shareholder’s often include pension funds, and individual investors retirement accounts!). A lot of baby boomer’s that wanted to retire will no longer be able to do so, due to higher taxes on their investments, income and combined with lower stock prices thanks to both the tax policies and the recession.

Obama will then go on to introduce many of his social programs that will create an entire generation of Americans who expect the government to take care of them. So as government is bringing in less money due to a recession and stupid tax policies, it will begin to spend more. The dollar will suffer. National debt will continue to sky rocket into the stratosphere. America will be less competitive.

Meanwhile, the rest of the world will be split. Some nations will follow the lead of the Americans and create very socialist societies, while the other nations that see the errors, will capitalize (pun intended) on America’s mistakes and try and lure the capital, head offices, and assets of American families and corporations. If America doesn’t want the corporations and wealthy families, another nation will. All this will occur, because as many people forget, government did not make the USA powerful and successful, it merely laid the foundation for the PEOPLE to make it successful. Other nations can lay that same foundation and corporations and people will move!

I love America, but I hate the road its going down and can no longer invest my money in America until this socialist agenda is stopped. That’s right. I will NO LONGER invest in America as long as things are headed down such a bumpy road. I hope to one day be able to begin investing in America again, but that won’t happen until America goes back to the constitution and realizes what governments role should be.

Take the Obama Test and see if you agree or disagree with Obama’s policies. He does great speeches on change, and change can be good (or bad)… but change has to be defined!! Right now most American’s badly want change, but I fear they will vote for a change they do not fully understand. At least take a look at the specific changes he will implement before voting, then make an informed decision about whether he is going to implement the changes you want or not. Oh, what’s the use… we already know he won the second he showed his face, regardless of his policies. At least this article might show some of the consequences to his economic policies. Obama is a socialist, bad for business, investments and the middle class.

Don’t Be Fooled – Inflation is Coming – Seeking Alpha

28 Tuesday Oct 2008

Posted by jschulmansr in Copper, deflation, Finance, gold, hard assets, inflation, Investing, investments, Latest News, Markets, mining stocks, precious metals, silver, U.S. Dollar, Uncategorized

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Don’t Be Fooled – Inflation is Coming – Seeking Alpha

By: Robert Nabloid of Nabloid.Com

Many people are using this latest weakness in the price of various resources (gold, silver, oil, and other commodities) to claim that the commodity boom is over. They’re wrong. Resource prices have been declining for a variety of reasons, but all of them appear to be temporary. These same people then point to the recent strength in the USD. I contend that the strength is temporary. How often in history does an economy that’s going into recession, with a policy of lowering interest rates, undergo massive increases in the value of its underlying currency? Only time will tell, but I’m willing to bet my money that this isn’t the last of the commodity boom. I’ll put my money where my mouth is and continue to buy undervalued resource companies at extremely attractive levels as I’m expecting inflation in the long-term. Short-term I do see strength in the USD, but not because it’s fundamentally strong. I could never see any long-term strength in any fiat currency due to inflation.

In regards to recent USD strength (and gold weakness), we’ve been witnessing the de-leveraging and unwinding of many hedge funds. Many of these hedge funds were invested in anything but the USD, and as such, when they are required to sell their assets, they are repatriating them into USD’s to give money back to investors and pay off debt. This buying of USD’s in mass is creating extreme strength when the dollar should be showing signs of weakness.

There also seems to be something fishy going on with the gold price on the Comex. Is it manipulation? Yes! On paper you can buy gold in abundance and relatively cheaply. In real life it is actually hard to find a gold/silver dealer that will sell you gold or silver for anywhere near the Comex spot price. The Fed doesn’t want gold to be too strong or they run the risk of losing people’s trust in the fiat currency, and trust is the only way a currency works. So could governments be manipulating the paper prices of gold? Of course, but we all know it isn’t the price or value of gold going up, but the debasement of fiat currencies, that they are attempting to mask by putting a lid on gold.

One of the primary reasons oil is headed lower right now seems to be driven by fear of a deep recession. This fear has merit. An economy financed completely on debt is not a stable or sustainable one. As U.S. consumers are finding out, you must actually pay back debts by cutting discretionary spending, and if you’ve gone too far, declare bankruptcy. With consumers tightening their purse strings, a recession was bound to happen. Now consumers aren’t all rushing to buy half million dollar homes at the same time and the economy is beginning to feel it. Even with a recession, oil is still being used at an alarming rate and drilling is actually down quite a bit! This might catch up with the oil price increasing during a recession! A large number of additional vehicles are being added to the world’s roads each year. Yes, the days of oil energy reliance are limited, but for now it’s still an essential resource.

Regardless of what you believe in politics, I don’t think any independent economist actually believes dramatically raising taxes on corporations will help the recession or the standard of living for those down the line. It probably won’t help the USD either. But for a variety of reasons, tax rates on corporations will undergo extreme changes upwards in the coming years. Combine that with the dramatic rise in minimum wages, and inflation is bound to happen even at a time when the economy may not be running on all cylinders. Outsourcing may continue to make the situation worse. These factors may only further impair the value of the USD.

The government shows no signs of cutting back on spending anytime soon. Massive deficits are forecast for years and years to come, with no signs of slowing or stopping! This is dangerous. An individual, corporation and country can only handle so much debt. If the country does intend to ever pay back these insanely high and still growing debts, there is only one way out; it’s called inflation. Inflation in the future will cause all of these debts to be much easier to pay down, but inflation doesn’t come without a price to the Middle Class.

There isn’t just fear of a recession, but also of deflation, which is affecting the price of commodities. The Fed has said they will do everything they can to avoid deflation, and they will, but at the cost of causing inflation. Flooding the system with capital will cause inflation, eventually.

Regardless of what people think, BRIC countries will slow down and they will feel the recession, but even with BRIC countries slowing, there are millions of additional people being added to the world economy and these people will increase the demand on the world’s resources. This will occur at the same time that fiat currencies are pumping money into the system. The result is an increase in a seemingly infinite resource (the ability to print unlimited amounts of money) to buy things that are finite (like resources).

Traditionally, when the resource sector booms, capital is supposed to flow into the system and many new mines are built. The supply eventually catches up with the demand and the prices fall back and level out. That isn’t happening this time. Resource prices have slipped before many mines were constructed, and now with the big credit crunch, many mines are being put on hold and many exploration companies are cutting back on drilling. This deficit of new mines and resource supplies will be felt, eventually. I’m preparing for a deep recession (not depression) and EXTREME inflation. Inflation will be a bigger issue than the recession. Inflation may well be the big story for the next century. There’s going to be a lot of people running around with an abundance of fake dollars (fiat currency) trying to buy up finite resources

Share the Wealth / Wealth Redistibution – A New Definition!

27 Monday Oct 2008

Posted by jschulmansr in 2008 Election, Barack Obama, commodities, deflation, Finance, gold, hard assets, inflation, Investing, investments, Joe Biden, John McCain, Jschulmansr, Markets, mining stocks, oil, Politics, precious metals, Presidential Election, psychology, Sarah Palin, silver, U.S. Dollar, Uncategorized

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Subject: Redistribution of Wealth

Today on my way to lunch I passed a homeless guy with a sign that read

“Vote Obama, I need the money.”… I laughed.

Once in the restaurant my server had on a “Obama 08” tie, again I laughed

as he had given away his political preference… just imagine the coincidence.

When the bill came I paid cash but decided not to tip the server and explained

to him that I was exploring the Obama redistribution of wealth concept. He stood

there in disbelief while I told him that I was going to redistribute his tip to someone

who I deemed more in need (the homeless guy outside).

The server angrily stormed from my sight.

I went outside, gave the homeless guy $10 and told him to thank the server inside

as I decided you could use the money more than him. The homeless guy was happy…

and I felt like a successful politician.

At the end of my rather unscientific redistribution experiment I realized

the homeless guy was grateful for the money he did not earn,

but the waiter was pretty angry that I gave away the money he did earn

even though the recipient clearly needed money more than him.

I guess redistribution of wealth is easier to swallow in concept than in

practical application!

LOL TOO FUNNY! – jschulmansr

Ten Reasons Why Gold Isn’t Above $1,000 – Seeking Alpha

27 Monday Oct 2008

Posted by jschulmansr in commodities, Copper, deflation, Finance, gold, hard assets, inflation, Investing, investments, Latest News, Markets, mining stocks, oil, precious metals, silver, U.S. Dollar

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Ten Reasons Why Gold Isn’t Above $1,000 – Seeking Alpha

By Michael Zielinski, 8 Stock Portfolio

Gold reached its all time high price above $1,000 per ounce a few days after the shocking Bear Stearns bailout. In the following months, gold often experienced sharp declines and has stubbornly refused to reattain the key $1,000 level despite more shocking bailouts, bank failures, and bankruptcies.

Reporters, analysts, and bloggers have cited a variety of reasons why gold has not exploded higher amidst the ongoing turmoil. Some of the reasons are more valid than others, but all are worth examining. Without further ado, the Gold and Silver Blog brings you the Top Ten Reasons Gold Is Not Above $1,000:

1) Dollar Strength

Against nearly every world currency, the US dollar has been strengthening. The dollar’s path higher has accelerated in recent weeks. Gold is thought of as a weak dollar play. With the dollar strengthening, selling gold is simply the other side of the trade.

2) Commodity Collapse

Since the summer months, commodities have been on the rapid decline. Oil has fallen by more than half from its peak price of $147. Base metals and precious metals have experienced similar if not more drastic declines. While gold has been holding up well on a relative basis, the weakness in commodities may be keeping any price appreciation at bay.

3) Deleveraging

After years of using excessive leverage in an attempt to maximize returns, firms are rediscovering the notion of risk. Massive deleveraging is taking place as firms sell any asset available to pay down debt. As an asset class, gold is not immune to such sales.

4) Speculative Selling

With the dollar rallying and gold breaching key technical levels, traders may be taking speculative short positions in gold, anticipating that prices will continue to move lower. This speculative selling compounds the impact of selling taking place for other reasons.

5) Recession

Fears of a worldwide economic slowdown and deep domestic recession will have a big impact on consumer discretionary purchases. This would likely hold especially true for luxury items such as jewelry. Since jewelry production is the largest non-investment use for gold, any slowdown would put a drag on demand.

6) Deflation

While some fear inflation, others fear deflation. If prices decline across the board, some believe that all asset classes will be dragged down, including gold. Notably some people take the exact opposite position about gold and deflation.

7) Hedge Funds and Mutual Funds

Some people feel that hedge funds had a hand in driving the price of gold from below $300 to above $1,000. Now that fortunes have turned for their other investments, hedge funds are being forced to unmercifully liquidate large positions in gold. Mutual funds are also being forced to liquidate positions in gold to meet redemptions.

8) “George Costanza Trade”

On Seinfeld, George Costanza realized that every decision he ever made has been wrong. He discovered if he did the exact opposite of what his instincts told him to do, he would be successful. In relation to investing, when everyone believes that a certain trade or investment philosophy is certain to work, oftentimes with uncanny precision the exact opposite happens. This year, a growing number of people began to believe with absolute certainty that gold would move higher. While the opinion was far from universal, was the opinion widespread enough to invoke George Costanza?

9) Government Manipulation

There is a growing camp which believes that the primary reason that gold has not moved higher in a big way is due to government manipulation. If gold prices skyrocketed, the public at large would lose faith in fiat currencies and start to panic. It would be in the government’s best interests if this did not happen.

10) These Things Take Time

Some of the forces mentioned above are going head to head with the economic realities that should be driving the price of gold higher. Eventually we will reach a tipping point when demand for physical gold is enough to overwhelm all other factors. Once we reach that point, the price of gold will rise in leaps and bounds.

Goldcorp: Implosion Offers Shiny Opportunity – Seeking Alpha

27 Monday Oct 2008

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Goldcorp: Implosion Offers Shiny Opportunity – Seeking Alpha

By: Mark Krieger

Goldcorp (GG) has been heading one way lately: down.

Since its August high of $52, the shares have lost more than 70% of their value. Gold’s early Friday drop below $700 prompted a potential GG capitulation, as the shares fell below $14, only to put on an impressive intraday reversal that not only erased the day’s losses, but tacked on a 10% gain, closing at $17. The stock recorded a $3 positive swing as gold rallied 8% off its lows to close near the $734 mark.

Disconnect between gold and GG: The last time the shares were this low, nearly five years ago, gold was trading at about $400 ounce. Even though gold is 30% off its highs, it is still 75% higher than 2004 levels. It is perplexing why GG’s shares are now priced at the very same levels, as they were when gold was trading at $400. The stock is extremely oversold and has dropped too much in too short of a time. This is a classic case of the, “baby being thrown out with the bath water”.

Panic selling is the culprit: This stock has been crushed by a “sell first and ask questions later” mentality, but it’s not alone, as the entire mining sector has also been decimated. It is obvious that selling pressure has intensified as hedge and mutual funds are forced to liquidate their holdings to satisfy redemption requests. Their relentless selling along with excessive short selling, margin calls and overall economic paranoia have created a recipe of disaster for the share price. Most investors are looking to buy wholesale and sell retail, but this massive overreaction offers investors the opportunity to acquire shares actually below cost.

All is not lost: The sudden collapse in the stock price creates an attractive buying opportunity for bargain hunters. The stock is dirt cheap at only 17 times 2009 earnings estimates of $1.00, and the balance sheet is squeaky clean, featuring a $1.2 billion stockpile of cash and no debt. The shares are trading 10% below the company’s book value of $18.50. The company pays an annual 18 cent cash dividend, yielding a nonimpressive 1.2%, but it’s certainly better than nothing. GG’s short position of 10 million shares is relatively small in comparison with its 700 million shares outstanding, however it could potentially be beneficial, as a short covering squeeze might come into play at the development of any favorable news.

Analyst take: The last three analyst actions all have been positive as HSBC Securities, RBC Capital Markets and Davenport have all upgraded their opinions and still maintain a average $40 one year price target.

Bottom line: This stock could run back up just as fast as it fell, but logic would dictate not opening a position until the shares show signs of stabilization. They say to buy when there is “blood in the streets”, and no doubt we have seen plenty of carnage, but picking a bottom is difficult. It would be more advantageous, before buying, to wait for validation of a positive trend in the share price, such as the stock closing above $20 for five consecutive sessions. You certainly don’t want to fall into the trap of “throwing good money after bad”.

Disclosure: Author holds a long position in GG

Gold Miners: Amazingly Cheap – Seeking Alpha

27 Monday Oct 2008

Posted by jschulmansr in commodities, Copper, deflation, Finance, gold, inflation, Investing, investments, Latest News, Markets, mining stocks, precious metals, security, silver, U.S. Dollar

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Gold Miners: Amazingly Cheap – Seeking Alpha

By: Graham Summers, GPS CAPITAL RESEARCH

Do you own bullion yet?

During the last market rout, the price of gold plunged from $900 an ounce to $690 an ounce. The talking heads, seeing this, announced that gold is no longer a safe haven or a storehouse of value.

They’re wrong.

The idea that gold has somehow lost its safe haven qualities due to a temporary drop in price is beyond idiotic. To claim this is to ignore the role gold has played for well over five millennia. What are the odds that this has suddenly changed?

No, this recent drop in gold has come almost entirely from downward pressure in the “paper” gold markets — the COMEX and Gold ETF (GLD). And this downward pressure has come from two trends:

Institutional liquidations
The dollar’s rally

Hedge funds, pension funds, and even mutual funds have been slammed with redemptions in the last year — mutual funds alone have experienced $967 billion in redemptions since the beginning of 2008.

In order to meet these redemptions, funds have resorted to liquidating portions of their portfolios. Gold — which the stock-centric crowd never really believed in anyway — was one of the first items to go. And since the “paper” gold market is relatively small — the total value of gold on the Commodity Exchange in New York (COMEX) is roughly $5 billion — it doesn’t take much capital to crush gold in the “paper” markets.

As for the dollar’s rally, the Feds’ interventions and hyperinflationary money printing will put an end to this sometime in the not so distant future. You can’t add $6 odd trillion in liabilities to the US balance sheet, start trading in unsecured commercial paper markets — as the Fed did with its TARP facility — and increase the monetary supply at an annualized rate of more than 300% — the pace of money printing maintained by the Feds during the last month — and NOT kick the dollar in the face.

No, the dollar rally will end sooner rather than later. When it does, the last obstacle standing between a raging Bull market in gold and gold mining shares will have been removed.

Speaking of miners…

While gold has been hammered, gold mining stocks, particularly juniors, have been truly creamed. The explanation here is much the same as for gold: liquidations. However, while the gold paper market may be roughly $5 billion, gold juniors as individual plays are even smaller. So it takes even less money to beat these stocks down.

Because of this, today, gold mining stocks are currently trading at levels you only see at the end of BEAR markets. Taken as a whole, the sector is at its second cheapest level relative to the price of gold since 1984.

It’s an absurd situation. Gold is undergoing a correction during a bull market… while gold miners — basically real estate companies sitting atop gold — are trading as if they just ended a bear market in gold. This won’t last forever. At some point both the institutional liquidations and the dollar’s rally will end. When they do, gold miners will explode upwards.

Dare Something Worthy Today Too!

Category Archives: mining stocks

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