(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.
Editor, The Ormetal Report
(Disclosure: Claude Cormier and Bruce Robbins own stocks in Chesapeake Gold)
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