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Claude Cormier

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Hedging your bets?


By Claude Cormier            Printer Friendly Version
March 24, 2005

(excerpt from issue # 182 The Ormetal Report)

If there is something that can be said about the precious metals right now, it is that nobody can tell for sure where prices are going in the short and intermediate terms. I can read as many technicians presenting a bullish scenario as I read those supporting the bearish case and a return under US$400. On the fundamental side, I read that - "China's growth garantees higher commodity prices forever"- "Peak Oil is here and oil is going to $100" - "Inflation if not hyperinflation is a given" - "The US dollar is doomed and about to collapse again" - "Gold, commodities and resource stocks are the only game in town". But if I turn my head in the other direction, I also read that - "The Kondratief winter is upon us and prices are about to enter a prolonged period of deflation" - "Opec is about to open the gates again and flood the market with new oil" - "Oil and commodity prices have just peaked and are about to collapse" - "Interest rates in the USA can only go up" - "Recession in China and the USA will mean a global depression". In other words, there is no consensus and obviously, very few short term or intermediate term forecasts can be taken for granted. That is why I still believe that the cyclical bull is dead for the moment and that we are in a trading range with a slight downward bias. After all, the major gold indexes are still below their December 2003 highs.

This makes the life of gold stocks investors very difficult. Although we know that, in this long term secular bull market, gold will win over fiat currencies, gold stocks are extremely volatile and, unlike gold, they are rarely solid assets that you can put away blindly for the long term. This implies that the gold stock investor must constantly monitor the situation and act on a regular basis in order to optimize the value of his gold portfolio. Despite the fact that our top 10 long term favorites are up 11% since our annual review last December while the major gold indexes are up only 2%, we have quite a few in our larger selection of 46 stocks that are down significantly. In other words, the Newmont and Glamis of this world have been poor investment when compared to our favorites like Chesapeake Gold. But not all juniors have performed.

So what is the best approach in these times of uncertainty? Long time subscribers know very well what we have suggested in the past. But it is worth a repeat for the new friends who joined the board in recent months. Buy the juniors with talented management, money in the bank and promising properties. Never hesitate to take profits or cut your losses. There will allways be new opportunities. Stay informed on the news cycle that is specific to each of your juniors. Use charts to identify periods of strenght or weakness and to improve your timing. Hedge your portfolio of juniors by either selling the large caps seniors and mid-tiers and/or buying put options on the major indexes. Adopt a dynamic attitude and diversify your sources of information. These few ideas will help you stay on top of this very exciting market.

Claude Cormier
Editor, The Ormetal Report
Bruce Robbins
Consultant geologist


(Disclosure: Claude Cormier and Bruce Robbins own stocks in Chesapeake Gold)
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