IntroductionOver the past several articles we’ve discussed some basic premises of investing and how to profit in a complex geopolitical environment. Learning to think for ourselves becomes an important lesson although in order to arrive at certain investment decisions we need to filter a great amount of information. We know that nothing occurs in a vacuum and most things dealing with the financial-geopolitical scene are interconnected in one way or another.
I’ve received a good deal of positive response from these articles which is gratifying. I realize a few of the articles have been a bit lengthy and will make it my New Year’s Resolution to shorten things up a bit. Wasn’t that my resolution last year? I thank all of you who wrote in and I invite you to continue to do so. I toil away in relative obscurity so your comments are most welcome.
Timing is everything and like the man said, don’t tell me what to buy—tell me when to buy it. This is the mood in the current financial environment so I’m suggesting that now is the time to buy. No caveats, no wiggle room, now is the time to purchase quality junior mining companies, such as the ones I’m bringing to your attention below. When I say now, I’m saying right now as in late January 2007—early February 2007. Now! Then, exercise patience! If we’re involved with exploration projects with on going drill programs, it is necessary to give them sufficient amounts of time to succeed. I’ve been tracking some of these exploration companies for five years and they’ve “only” appreciated 200%. Others that we’ve suggested have appreciated 200% in six months. The resource “Exploration Game” takes time, money, patience, and talent.
Can the prices go down a bit more—of course they can, but it is my opinion they will bounce back. If the prices do decline, purchase more of your favorite companies if your finances allow it. Very few people pick exact bottoms and exact tops. As a rule of thumb, consider yourself successful if you’ve entered or exited a position within 20% of the top and / or bottom. You’re doing extremely well if you can carve out a 50-60% middle ground for yourself. Remember that bulls make money (going long) bears make money (going short) and pigs, well—pigs usually wind up with nothing. I like pigs—the animals; I don’t like pigs—the abstract (concept).
Housekeeping
I realized almost immediately after posting the 2007 Gift to the Gold Community that I had neglected to give adequate focus to www.lewrockwell.com, the web site for Libertarians and others of a like mind. If you are truly a Libertarian, then you are a proponent of smaller government, real money, and true representation of the people, by the people and for the people. You like it because they discuss what the framers of our US Constitution had in mind when they put their very lives on the line in order to create it. You like gold because it is honest money. Please book mark the site and review the articles from time to time. It will give you a much better perspective regarding what America should be all about. You’ll be glad you did.
Investment Purgatory
Over the past six months or more, the air has slowly gone out of the big resource balloon in the sky although there have been many companies that have done well. Prices in some of our recommended companies have decreased on a lack of buying, not on an increase in selling. This is always the better of the two scenarios. On balance however, most of them have held their gains pretty well. I now see that balloon as increasing in size once again, i.e., inflating and moving higher. The resource sector is investment purgatory because we have so many powerful and diametrically opposing forces at work against each other. We have to pay our dues in knowledge and patience and time. Every gold bull market appears to have to jump through the same hoops and in the end; it is the final six months or the “blow off” stage where fortunes are made. It is necessary to be positioned well in advance in order to take advantage of that last six months!
However, in the final analysis, we anticipate that the truth will win out in conjunction with the primary trend.
Is this the year that we’ve all been waiting for? We shall see. I believe it is but one of the years we’ve been waiting for and more will be coming along.
I do want to make one important point. Some of the quality juniors are up into the $1.50 to $2.00 US range. This is certainly not yet in the realm of a mid-tier company which if all components of one are balanced correctly, could be in the $12 to $20 price range. Don’t be afraid to increase your bids on the quality juniors we’ve been suggesting that you review.
We are now beginning a new phase in the resource sector which I’ll simply refer to as the re-emergence phase. Resource stocks are reemerging from their six month hibernation and I believe we’ll see some real energy come into the gold and silver sector within a few weeks. There are enough graphs and charts available on the HUI and other indexes which may well confirm this and I shall leave it to your independent thinking to confirm this premise.
I have suggested to many people that there is no doubt in my mind that the power elite does not want gold or silver to “get away” from them. Why? Higher precious metals prices would indicate inflation. Government statistics “insist” there is little inflation. COLAs are Cost of Living Adjustments. When there is little or no inflation, the “COLA gauge” remains static and that in turn saves the government billions and billions of dollars in terms of paying out cost of living increases.
However, the unfortunate ones living on a fixed income are suffering the burden of these antiquated policies especially when inflation is indeed on the rise. For the sake of argument let’s consider inflation to be an expanding money supply with an end result being elevated costs for goods and services. What happens when the majority of the “boomers” hit retirement age? Will there be sufficient funds available for their social security payments? If you are thinking in the affirmative, then I have some swampland in Indonesia that I’d like to sell you—sorry, but the marshland they used to sell in Florida has all been sold or is under government control.
We’ve discussed “The Dance” or the relationship between gold, oil, and the dollar. If you are an investor in the resource sector, these are the parts of the equation you’ll want to watch closely.
Patience
Patience is one of the key attributes required by those who would invest in the junior mining sector. Please exercise patience with good companies and you will be amply rewarded. We are currently in a solid trading range in the gold sector but there is a real probability we are about to break out. “The Dance” continues on unabated and as oil climbs, and climb it will, gold will respond in kind. There will also be a strong probability the US dollar will decline against the other currencies again giving gold a reason to climb. Patience.
Quality over Quantity
The first gold cycle several years back could be about quantity because with gold at $350 to $450 it was a “no brainer”. Even then however, we had been through a 20 year plus bear market. It took some courage to step up to the plate and buy. Now we have to be more circumspect. Personally, I would rather buy 1000 shares of an excellent company such as Oromin than 10,000 shares of a company with many shares outstanding and little else! We still have an opportunity to position ourselves in excellent companies that are selling for less that $5.00 US.
That might not sound like a big deal right now, but let’s talk in a year from now when gold is at $800 US and silver is at $20 US. We can buy a thousand shares of a quality company right now for $1500 US. In a year that same thousand shares could be $4500 US. Yes, it could also be at $1000 and we can never lose sight of that fact; but I will take quality over quantity any day of the week.
The problem is always going to be about risk versus reward. But the problems are also going to be more and more about the state of the US economy, the state of the US dollar, and “The Dance”—the interrelationship between oil, the dollar, and gold. It is my personal opinion that silver is going to be the very big story for 2007 and we shall need to keep that in mind.
We’ve spoken at length about all of these topics over the past several articles if not the past several years. I’d like us to have a very firm grip on the financial and geopolitical fundamentals which will allow us to make some calculated risks with a small portion of our investment capital that could return big dividends.
Here are some companies I personally like for 2007
My “top ten list” would include:
First Five
Oromin Explorations (OLEPF-OTC) (Canada-OLE)
Buffalo Gold (BYBUF-OTC) (Canada: BUF.U)
Journey Resources (JNY-Canada)
Madison Minerals (MMRSF) (Canada: MMR)
Geocom Resources (GOCM-OTC)
Second Five
Gold Resource Corporation (GORO-OTC)
Alma Resources (ALV-Canada)
Timberline Resources (TBLC-OTC)
Golden Phoenix (GPXM-OTC) and Win Eldridge (WEX- Canada)
Norsemont Mining (NOM)
Third Five
Nevada Pacific Gold (NPG-Canada)
Mountain Lake Resources (MOA-Canada)
Canarc (CRCUF-OTC)
Bullion River Resources (BLRV- OTC)
Scorpio Mining (SMP-Canada)
….and finally
Samex (SMXMF-OTC)
Tanzanian Royalty Corporation (TRE-Canada)
Midway Resources (MDW-Canada)
I am going to propose these companies for your review and it is my opinion that all are worthy of your consideration. Personally, I favor the top ten but I also believe in David Hottman from Nevada Pacific. I believe he will land his collective shareholders on their feet.
I am hoping to begin a monthly review of all the top ten companies along with comments on additional companies. Also, watch Peter’s column titled “Featured Stock News” on www.goldseek.com for late breaking updates.
During the next run up in gold, which may already have begun, it is my personal opinion that the companies in the first two sections have a very real possibility of doubling in price or coming close to it. However, if we have a substantial stock market correction, there will be repercussions.
I am going to discuss these companies in detail in the next article beginning with Oromin Explorations—and yes there was a very good reason why I posted OLE as my number one pick. If you read their most recent press release, I believe you’ll understand the reason why. Buffalo Gold and Journey Resources were also chosen for their slots for particular reasons and at these price levels, Madison Minerals is especially attractive to me. Finally, Geocom’s South Chile “Recon” Project with Kinross is about as exciting as they come. Additionally, Geocom’s JV Partner, Latin American Minerals has begun a program on La Carolina in Argentina which already is proving up excellent results.
Incidentally Peter has just completed and posted an article on Gold Resource Corporation (GORO) that you won’t want to miss.
Since this piece was written on Monday, January 22, 2007, gold took a bit of a jump on Tuesday the 23, 2006. With the State of the Union to be presented in the US tonight, it will be interesting to see how our Working Group on Financial Markets (PPT) will handle this increase over the next several days. Normally, they’ve had the ability to knock the market back down. How will it evolve this time around? We’ll cover this process in the next piece due out in just a few days.
But in the interim, please take the time to continue on with your own due diligence and we’ll soon discuss these excellent companies.
A final word…
Three very big stories over the next several years are going to be Water, Uranium and Global Warming. Uranium has been going almost parabolic over the last several years while Global Warming is going to be affecting our very existence within 25 years. Water and the lack of it is already affecting our daily lives. If we don’t begin to address the issue immediately, I’m afraid our grandchildren are going to be facing problems beyond our imagination. The weather conditions that everyone seems to be talking about this year would appear to be a direct result of Global warming. Global Warming affects everything from Ocean Currents to the Jet Stream.
Did you ever think of what kind of Country we might have had today if Al Gore had been elected President instead of George W. Bush? How would he have handled “9-11”? What would have happened if Al Gore, who is up for an Academy Award for his Film The Inconvenient Truth, would have followed his “gut” back when? Six years ago he was well aware of the issue.
Global warming is currently impacting the animals and the plants on the earth. The innocent animals of this planet are going to be facing extinction on an ever escalating scale. They already are and the problem is only going to worsen. Some things are as important as money and perhaps saving the planet and its inhabitants just might be one of them.
Until next time,
D. Stewart Armstrong
Posted by D.Stewart Armstrong in Articles