Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Dow Long-term Trend Analysis - Coronavirus Triggering a Stocks Bear Market? - 27th Feb 20
Trump or Sanders? Both will pile up the Debt - 27th Feb 20
Oil Price Is Now More Volatile Than Bitcoin - 27th Feb 20
A Digital “Fedcoin” May Be Coming… And It Would Be Terrifying - 27th Feb 20
India's Nifty 50 Stocks: Does the Bad Jobs Outlook Spell Trouble for Stocks? - 27th Feb 20
How Crypto Currencies Are Helping Players Go Private - 27th Feb 20 -
Gold and Silver The Die Is Cast - 27th Feb 20
US Economy Permanently Addicted to Zero Interest Rates - 27th Feb 20
Has the Stock Market Waterfall Event Started Or A Buying Opportunity? - 27th Feb 20
Advantages of Enrolling in a Retirement Plan - 27th Feb 20 - LS
South Korea Coronavirus Outbreak Data Analysis Warning Rate of Infection is Exponential! - 26th Feb 20
Gold Price Long-term Trend Analysis Forecast 2020 - 26th Feb 20
Fake Markets Are on Collision Course with Reality - 26th Feb 20
Microsoft is Crushing the S&P 500, Secret Trait Of Stocks That Soar 1,000%+ - 26th Feb 20
Europe's Best Ski Resorts For The Ultimate Adventure - 26th Feb 20
Samsung Galaxy S20+ vs Galaxy S10+ Which One to Buy? - 26th Feb 20
Gold Is Taking on $1,700 amid Rising Coronavirus Fears - 26th Feb 20
Is This What Falling Through the Floor Looks Like in Stocks? - 26th Feb 20
Gold Minsky Moment Coming - 26th Feb 20
Why Every Student Should Study Economics - 26th Feb 20
Stock Market Correction Over? - 26th Feb 20
US Bond Market Yield Curve Patterns – What To Expect In 2020 - 25th Feb 20
Has Stock Market Waterfall Event Started Or A Buying Opportunity? - 25th Feb 20
Coronavirus IN Sheffield! Royal Hallamshire Hospital treating 2 infected Patients, UK - 25th Feb 20
Dow Short-term Trend Analysis - Coronavirus Trigger a Stocks Bear Market? - 24th Feb 20
Sustained Silver Rally Coming? - 24th Feb 20
Should Investors Worry about Repo Market and Buy Gold? - 24th Feb 20
Are FANG Technology Stocks Setting Up For A Market Crash? - 24th Feb 20
Gold Above $1,600 Amid FOMC Minutes and Coronavirus Impact - 24th Feb 20
CoronaVirus Pandemic Day 76 Trend Forecast Update - Infected 540k, Minus China 1715, Deaths 4920 - 23rd Feb 20 -
Ways to Find Startup Capital - 23rd Feb 20
Stock Market Deviation from Overall Outlook for 2020 - 22nd Feb 20
The Shanghai Composite and Coronavirus: A Revealing Perspective - 22nd Feb 20
Baltic Dry, Copper, Oil, Tech and China Continue Call for Stock Market Crash Soon - 22nd Feb 20
Gold Warning – This is Not a Buying Opportunity - 22nd Feb 20
Is The Technology Sector FANG Stocks Setting Up For A Market Crash? - 22nd Feb 20
Coronavirus China Infection Statistics Analysis, Probability Forecasts 1/2 Million Infected - 21st Feb 20
Is Crude Oil Firmly on the Upswing Now? - 20th Feb 20
What Can Stop the Stocks Bull – Or At Least, Make It Pause? - 20th Feb 20
Trump and Economic News That Drive Gold, Not Just Coronavirus - 20th Feb 20
Coronavirus COVID19 UK Infection Prevention, Boosting Immune Systems, Birmingham, Sheffield - 20th Feb 20
Silver’s Valuable Insights Into the Upcoming PMs Rally - 20th Feb 20
Coronavirus Coming Storm Act Now to Protect Yourselves and Family to Survive COVID-19 Pandemic - 19th Feb 20
Future Silver Prices Will Shock People, and They’ll Kick Themselves for Not Buying Under $20… - 19th Feb 20
What Alexis Kennedy Learned from Launching Cultist Simulator - 19th Feb 20
Stock Market Potential Short-term top - 18th Feb 20
Coronavirus Fourth Turning - No One Gets Out Of Here Alive! - 18th Feb 20
The Stocks Hit Worst From the Coronavirus - 18th Feb 20
Tips on Pest Control: How to Prevent Pests and Rodents - 18th Feb 20
Buying a Custom Built Gaming PC From Overclockers.co.uk - 1. Delivery and Unboxing - 17th Feb 20
BAIDU (BIDU) Illustrates Why You Should NOT Invest in Chinese Stocks - 17th Feb 20
Financial Markets News Report: February 17, 2020 - February 21, 2020 - 17th Feb 20
NVIDIA (NVDA) GPU King For AI Mega-trend Tech Stocks Investing 2020 - 17th Feb 20
Stock Market Bubble - No One Gets Out Of Here Alive! - 17th Feb 20
British Pound GBP Trend Forecast 2020 - 16th Feb 20
SAMSUNG AI Mega-trend Tech Stocks Investing 2020 - 16th Feb 20
Ignore the Polls, the Markets Have Already Told You Who Wins in 2020 - 16th Feb 20
UK Coronavirus COVID-19 Pandemic WARNING! Sheffield, Manchester, Birmingham Outbreaks Probable - 16th Feb 20
iShares Nasdaq Biotechnology ETF IBB AI Mega-trend Tech Stocks Investing 2020 - 15th Feb 20
Gold Stocks Still Stalled - 15th Feb 20
Is The Technology Stocks Sector Setting Up For A Crash? - 15th Feb 20
UK Calm Before Corona Virus Storm - Infections Forecast into End March 2020 - 15th Feb 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Future Inflation Fears Fuel Price of Gold Shares and Warrants

Commodities / Options & Warrants Jun 23, 2009 - 01:48 AM GMT

By: Lorimer_Wilson

Commodities

Best Financial Markets Analysis ArticleThe 2008 stock market meltdown brought panic and forced liquidation to all market sectors and especially junior resource shares (- 58.2% on average) and their associated warrants (-80.1%). Shares of companies that had a solid foundation for development, production and growth were unceremoniously dumped along with those more numerous juniors that had little more than hopes centered on grass roots exploration prospects. As a result of this indiscriminate selling – this throwing out the baby with the bath water – extraordinary opportunities have emerged creating once-in-a-lifetime values for discerning investors.


In spite of major rallies in the GDM, HUI, SPTGD and CDNX indices year-to-date (see below) even greater increases are required for them just to match their 2008 highs i.e. 32%, 38%, 18% and 143% respectively. In the case of commodity related stocks with warrants and their associated warrants increases of 102% and 179%, respectively, are necessary to achieve their 2008 highs. As such, given the future expectations for inflation, the price of gold and the value of the U.S. dollar as discussed in last week’s article “Why Gold Mining Stocks and Warrants are Up so Dramatically”, major increases can be expected in the next few years for all commodity related stocks and their warrants and particularly those of gold and silver miners.

        Commodity Related Stock and Warrant Performance vs. Gold and Silver

 * All calculations are based on U.S. dollar equivalents
** Week ending June 19th, 2009
***CDNX is the symbol for the S&P/TSX Venture Composite Index consisting of 558 companies of which 44% are engaged in the mining, exploration and/or development of gold and/or silver and other mineral resources and 18% in oil or natural gas pursuits.
****HUI is the symbol of the AMEX Gold BUGS (Basket of Un-hedged Gold Stocks) Index and is a modified equal dollar-weighted index of 15 gold mining companies that do not hedge their gold beyond 1.5 years.
*****GDM is the symbol for the NYSE Arca Gold Miners Index and is a modified market capitalization weighted index of 31 gold and silver mining companies.
******SPTGD is the symbol for the S&P/TSX Global Gold Index and is a modified market capitalization index of 19 precious metals mining companies.

Future Inflation is Assured

Until this past October the growth in the supply of the monetary base (i.e. M0) in the U.S. over the previous 48 years had averaged 6% year-over-year (YoY) and had seldom exceeded 10% although it did grow to 15.8% YoY during the pre-Y2K period. Indeed, during the first half of 2008 it was actually trending lower averaging 1.2% growth before all hell broke loose.

In October, however, as a result of a number of major fiscal developments, the Fed took it upon itself to solve the major problems with the economy by expanding the M0. To say they didn’t act in half measure is putting it mildly – very mildly!  

As Adam Hamilton reports in a recent article, and his chart below depicts, the Fed increased the M0 by 25% (36.7% YoY) in October to more than twice the level seen in the previous five decades; by a further 27% in November (73% YoY) and another 15% in December to 98.9% thereby doubling the U.S. monetary base in just 4 months. Such action was unprecedented and put the country into unchartered inflation territory. But it didn’t stop there. In January the Fed increased the YoY monetary base to 106%, increased in yet again in February, and again in March, and again in April (the May numbers are not yet available) to an unbelievable YoY of 111.0%. That’s right. 111% when the norm over the previous 48 years had been just 6%!  Surely this monumental increase in America’s M0 will have a major affect on real prices.


The monetary base numbers are shown in red above and their YoY growth rates in blue.

As consumer spending recovers and bids on now-depleted inventories rebound prices will also rise for pure supply and demand reasons says Hamilton maintaining that “we’re probably facing a perfect storm of inflation.” I couldn’t agree more! As inflation becomes more obvious to the masses inflationary expectations will soar and investors will seek assets that thrive in inflationary times i.e. commodities in general and gold and silver in particular and their stocks and associated warrants.

Every Cloud has a Silver Lining

When the realization that inflation is upon us and the purchasing power of all the cash that is sitting on the sidelines is at major risk of being rapidly eroded “the flood into commodities and their producers’ stocks will be breathtaking” says Hamilton. I can hardly wait! This is where the silver lining comes into play. By ‘silver lining’ I mean that the rewards of investing now in the right stocks and/or warrants of specific gold and silver mining companies are going to be truly grand.

Warrants as well as stocks? Yes, most definitely, because warrants are the greatest benefactors of inflation, the higher the better. Warrants, as you probably know, give the holder the right, but not the obligation, to purchase the common shares of the company at a specific price within a specific time period after which, if not exercised, they expire worthless. As such, were stocks with warrants to escalate dramatically in price, as is expected, then the resultant leverage that many of their associated warrants should provide will be absolutely awesome. If one’s investment is in the carefully chosen warrant of the right company then returns (i.e. the leverage they create) could well turn out to be 2 to 3 times (and in rare cases as much as 5 times ) greater than investing in the company’s stock.  Leverage is what warrant investing is all about.

If one believes in the long term prospects of a company with warrants and, as such, its anticipated future stock price, if the warrant has a duration of at least 24 months (preferably 36 months or more), if the stated price (i.e. the strike or exercise price) and terms at which the warrant can be redeemed for the actual stock are favourable and if the trading volume and frequency makes the warrant sufficiently liquid, then owning such a warrant may well be the best way to maximize one’s returns on the dollars invested and particularly in an inflationary environment such as we expect in the next few years. With 50 of the 115 warrants associated with natural resource companies having duration periods of 24 months or more there are a large number of companies to choose from and, as such, ample time for many warrants to work their magic.

To better understand which warrants are best positioned to realize over-and-above (i.e. leveraged) gains vis-à-vis their associated stock a twenty dollar investment in the extensive database details and leverage calculations offered by preciousmetalswarrants.com should be seriously considered.

Lorimer Wilson (lorimer.wilson@live.com) is Director of Marketing and Contributing Editor of:

  • www.PreciousMetalsWarrants.com which provides an online subscription database for all warrants trading on mining and other natural resource companies in the United States and Canada and offers a free weekly email and
  •   www.InsidersInsights.com which alerts subscribers when corporate insiders of a limited number of junior mining and natural resource companies are buying and selling.

© 2009 Copyright Lorimer Wilson- All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Lorimer Wilson Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules