Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
FED Balance Sheet Current State - 5th Mar 21
The Global Vaccine Race Against Time and Variants - 5th Mar 21
US Treasury Yields Rally May Trigger A Crazy Ivan Event (Again) In Stock Market - 5th Mar 21
After Gold’s Slide, What Happens to Miners? - 5th Mar 21
Racism Pandemic Why UK Black and Asians NOT Getting Vaccinated - NHS Covid-19 BAME - 5th Mar 21
Get Ready for Inflation Mega-trend to Surge 2021 - 4th Mar 21
Stocks, Gold – Rebound or Dead Cat Bounce? - 4th Mar 21
The Top Technologies That Are Transforming the Casino Industry - 4th Mar 21
How to Get RICH Crypto Mining Bitcoin, Ethereum With NiceHash - 4th Mar 21
Coronavirus Pandemic Vaccines Indicator Current State - 3rd Mar 21
AI Tech Stocks Investing 2021 Buy Ratings, Levels and Valuations Explained - 3rd Mar 21
Stock Market Bull Trend in Jeopardy - 3rd Mar 21
New Global Reserve Currency? - 3rd Mar 21
Gold To Monetary Base Ratio Says No Hyperinflation - 3rd Mar 21
US Fed Grilled about Its Unsound Currency, Digital Currency Schemes - 3rd Mar 21
The Case Against Inflation - 3rd Mar 21
How to Start Crypto Mining Bitcoins, Ethereum with Your Desktop PC, Laptop with NiceHash - 3rd Mar 21
AI Tech Stocks Investing Portfolio Buying Levels and Valuations 2021 Explained - 2nd Mar 21
There’s A “Chip” Shortage: And TSMC Holds All The Cards - 2nd Mar 21
Why now might be a good time to buy gold and gold juniors - 2nd Mar 21
Silver Is Close To Something Big - 2nd Mar 21
Bitcoin: Let's Put 2 Heart-Pounding Price Drops into Perspective - 2nd Mar 21
Gold Stocks Spring Rally 2021 - 2nd Mar 21
US Housing Market Trend Forecast 2021 - 2nd Mar 21
Covid-19 Vaccinations US House Prices Trend Indicator 2021 - 2nd Mar 21
How blockchain technology will change the online casino - 2nd Mar 21
How Much PC RAM Memory is Good in 2021, 16gb, 32gb or 64gb? - 2nd Mar 21
US Housing Market House Prices Momentum Analysis - 26th Feb 21
FOMC Minutes Disappoint Gold Bulls - 26th Feb 21
Kiss of Life for Gold - 26th Feb 21
Congress May Increase The Moral Hazard Building In The Stock Market - 26th Feb 21
The “Oil Of The Future” Is Set To Soar In 2021 - 26th Feb 21
The Everything Stock Market Rally Continues - 25th Feb 21
Vaccine inequality: A new beginning or another missed opportunity? - 25th Feb 21
What's Next Move For Silver, Gold? Follow US Treasuries and Commodities To Find Out - 25th Feb 21
Warren Buffett Buys a Copper Stock! - 25th Feb 21
Work From Home Inflationary US House Prices BOOM! - 25th Feb 21
Man Takes First Steps Towards Colonising Mars - Nasa Perseverance Rover in Jezero Crater - 25th Feb 21
Musk, Bezos And Cook Are Rushing To Lock In New Lithium Supply - 25th Feb 21
US Debt and Yield Curve (Spread between 2 year and 10 year US bonds) - 24th Feb 21
Should You Buy a Landrover Discovery Sport in 2021? - 24th Feb 21
US Housing Market 2021 and the Inflation Mega-trend - QE4EVER! - 24th Feb 21
M&A Most Commonly Used Software - 24th Feb 21
Is More Stock Market Correction Needed? - 24th Feb 21
VUZE XR Camera 180 3D VR Example Footage Video Image quality - 24th Feb 21
How to Protect Your Positions From A Stock Market Sell-Off Using Options - 24th Feb 21
Why Isn’t Retail Demand for Silver Pushing Up Prices? - 24th Feb 21
2 Stocks That Could Win Big In The Trillion Dollar Battery War - 24th Feb 21
US Economic Trends - GDP, Inflation and Unemployment Impact on House Prices 2021 - 23rd Feb 21
Why the Sky Is Not Falling in Precious Metals - 23rd Feb 21
7 Things Every Businessman Should Know - 23rd Feb 21
For Stocks, has the “Rational Bubble” Popped? - 23rd Feb 21
Will Biden Overheat the Economy and Gold? - 23rd Feb 21
Precious Metals Under Seige? - 23rd Feb 21
US House Prices Trend Forecast Review - 23rd Feb 21
Lithium Prices Soar As Tesla, Apple And Google Fight For Supply - 23rd Feb 21
Stock Markets Discounting Post Covid Economic Boom - 22nd Feb 21
Economics Is Why Vaccination Is So Hard - 22nd Feb 21
Pivotal Session In Stocks Bull Bear Battle - 22nd Feb 21
Gold’s Downtrend: Is This Just the Beginning? - 22nd Feb 21
The Most Exciting Commodities Play Of 2021? - 22nd Feb 21
How to Test NEW and Used GPU, and Benchmark to Make sure it is Working Properly - 22nd Feb 21
US House Prices Vaccinations Indicator - 21st Feb 21
S&P 500 Correction – No Need to Hold Onto Your Hat - 21st Feb 21
Gold Setting Up Major Bottom So Could We See A Breakout Rally Begin Soon? - 21st Feb 21
Owning Real Assets Amid Surreal Financial Markets - 21st Feb 21
Great Investment Ideas For 2021 - 21st Feb 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Does Aden Gold $5,000 Forecast Suggest 5,000% Gains for Junior Miners?

Commodities / Gold & Silver 2009 Oct 19, 2009 - 12:59 AM GMT

By: Lorimer_Wilson

Commodities

Best Financial Markets Analysis ArticleThe only bull market we can compare the current eight year rise in the price of gold to is the ten year rise in the 1970s. The Aden sisters, Mary Anne and Pamela, have extrapolated the future price of gold using the same growth rate as in the ‘70s and applied it to the current bull market and reported their findings in their latest Aden Forecast. They determined that if one were to compare the bull market’s second rise from 1976 to 1980 to the current bull market we could see gold eventually reach $4,100 during the next run-up. They further reported that if one were to take the entire bull market gain in the 1970s at 2,300% and extrapolate it to today’s situation then $5,800 would be the equivalent upside target.


The Adens concluded that “with today’s bull market being far more global in scope compared to the 1970s, we could eventually see these much higher gold price targets realized. This is especially so factoring in that gold’s peak in 1980 at $850 is the equivalent of about $2,400 in current dollars. Gold has not even approached that level yet and the situation is far more serious now than it was then.”

And silver? “Silver is more volatile than gold. It fell more than gold last year, and it has risen more than gold this year (See table below: silver +55% vs. gold +19% YTD). This makes sense because silver is both a precious and a base metal. To foresee silver’s potential compared to gold, look to copper as a guide. Copper is a good barometer because it rises during times of global economic growth. That is, when you see both gold and copper rising together (See table below: gold +19%; copper + 95% YTD), then silver will most likely be stronger than gold… If global growth remains on a positive track, we will continue to see silver outperform gold.” And such is holding true today.

I mentioned in my previous article “Can Gold and Silver Equities Expect +5,000% Returns Again?” that gold and silver stocks realized absolutely amazing gains in the 1970s with several increasing in excess of 50,000% - yes, 50,000%! - as gold skyrocketed in price from $35 to $850 per ounce. And that was gold stocks not the warrants of gold mining/royalty companies that perform dramatically better than their associated stocks (more on the secret of leverage later in the article). So what can we expect in the price of gold and silver equities should we indeed see $4,100, let alone, $5,800 gold prices in the near future?

Well, the stock of the 22 companies (5 large-cap; 3 mid-cap; 2 small-cap and 12 micro/nano-cap) in our proprietary Gold/Silver Companies with Warrants Index (GCWI) have appreciated by 215% from their 52-week lows in 2008. In addition, the 24+ month duration warrants of those 22 companies (26 in total) in our Precious Metals Warrants Index (PMWI) have already gone up 445%. That is correct: 445%. During the same period gold has gone up 49% from its low of $705. Talk about leverage. That represents a 4.4 times greater increase for such stocks and 9.1 greater increase for their associated warrants. Very impressive!

As the table below shows, the average large cap gold and/or silver mining/royalty company, as represented by the HUI, is up 2.5 times that of gold bullion YTD while the micro/nano cap companies, as represented by the CDNX, are up 5 times that of gold bullion YTD. Carrying that comparison one step further, those gold and silver companies with warrants (GCWI) are up almost 4 times that of gold bullion YTD and their associated warrants (PMWI) up by almost 6 times that of gold bullion YTD. Therein lies the advantage of investing in the shares and/or warrants of gold and silver mining/royalty companies rather than in the bullion itself.


 (3)HUI is the symbol of the AMEX Gold BUGS Index consisting of a Basket of Unhedged Gold Stocks. It is a modified equal dollar-weighted index of 15 large/mid cap gold mining companies that do not hedge their gold beyond 1.5 years.
(4)GDM is the symbol for the NYSE Arca Gold Miners Index. It is a modified market capitalization weighted index of 31 large/mid/small cap gold and silver mining companies.
(5)CDNX is the symbol for the S&P/TSX Venture Composite Index. It consists of 558 micro and nano cap 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.
(6)CCWI represents the Commodity Companies with Warrants Index. It is an equal dollar-weighted index consisting of 36 commodity-related companies with warrants of at least 24 months duration outstanding trading on the Canadian and U.S. stock exchanges.
(7)CWI represents the Commodity Warrants Index. It is an equal dollar- weighted index consisting of 47 warrants of at least 24 months duration associated with the 36 companies in the CCWI.
(8)GCWI represents the Gold/Silver Companies with Warrants Index. It is an equal dollar-weighted index comprised of the 22 gold and silver mining and royalty companies with warrants in the CCWI.
(9)PMWI represents the Precious Metals Warrants Index. It is an equal dollar-weighted index comprised of the 26 gold and silver warrants, of at least a 24 months duration, found in the CWI.

Sources: preciousmetalswarrants.com (warrant and stocks-with-warrants data), oanda.com (exchange rates) and stockcharts.com (index and commodity prices).

The Advantage of Owning Precious Metals Mining/Royalty Stocks instead of the Bullion Itself: Leverage
If gold, for example, were to escalate considerably in price (i.e. to $2,000, $3,000, or even more) in the next few years it would have a significantly positive impact on the profitability of the companies who mine it and the royalty companies that buy it from marginal producers. For example, with gold priced at $1,000/oz., and the cost of production at perhaps $600/oz. the gross profit margin of gold mining companies would be 40.0%. If 2 years from now, however, gold were to increase to $2,000 and the cost of production were to increase by only 20% to $720/oz. then the mining companies’ gross profit margins would have gone up from $400/oz. to $1280/oz. or 220%!

That’s called leverage and historically, in a rising market, the ratio for gold and silver mining/royalty shares vs. physical gold ranges from about 2.5:1 for large-cap gold and silver mining/royalty companies on average to as much as 5:1 for smaller cap gold and silver mining/royalty companies, on average, (currently up 4.4:1 from its 52-week low) and even 10:1 in exceptional circumstances for certain truly outstanding performers. All the more reason to do your due diligence to find and invest in those gold and silver mining and/or royalty companies with the right mix of capable management, strong financing, major resources and geographically and politically well-located properties to reap the major benefits a surge in the future price of gold and silver will present.

The Added Advantage of Owning the Right Warrants of the Right Precious Metals Mining/Royalty Companies: Leverage-on-Leverage
For those who buy the right long-term warrants associated with the right gold and silver mining and/or royalty companies at today’s still undervalued prices, your eventual returns would likely be 1.5 to 3 times greater (currently 1.5:1 YTD for the Precious Metals Warrants Index – PMWI - vs. the Gold/Silver Companies with Warrants Index – GCWI) on average than had you invested in their associated stocks. For companies whose warrant prices go through the roof with extraordinary gains, in and of themselves, or from extremely depressed values, as experienced in 2008, that ratio could represent a ratio as high as 10 times greater than having invested in the metal itself (currently up 9.1:1 from its 52-week low).

Such over-and-above gains are referred to as leverage-on-leverage or doubling-up on the leverage factor. The catch is, however, that you have to know whether or not the warrant associated with the stock you are interested in buying is the right warrant i.e. has a leverage/time value sufficiently high enough to justify its purchase given the anticipated appreciation in the price of the associated stock. For those who don’t have a clue what a warrant is, which companies have them, which have the best values and exactly how to go about buying them check out the Precious Metals Warrants site hyper-linked below.

Conclusion
If gold were, in fact, to increase from its current $1050 or so to $5,800 that would represent an increase of 452%. The current leverage exhibited by the component stocks of the HUI is 2.5:1 vis-à-vis gold. Were that leverage applied to future gold and silver mining/royalty company equity prices it would extrapolate into an average price increase of 1130% for such large-cap stocks.

Applying the current YTD performance of the GCWI, which is out-performing gold bullion by a 3.9:1 margin, one could anticipate an average increase of 1,760% (452x3.9) in the average stock price of gold and silver mining/royalty companies with warrants. The component warrants in the PMWI have out-performed the price of gold by a margin of 5.9 to 1 YTD which would suggest that the average warrant could expect to increase by approximately 2,668% (452x5.9) were gold to escalate to $5800! And that is on average. Indeed, if the trend to date from their 52-week lows were to continue the projected 452% increase in gold would extrapolate into a 1989% (452x4.4) increase in the price of the average precious metals mining/royalty stock and an amazing 4,113% (452x9.1) in the price of the average warrant!

Certain junior mining/royalty companies will hit the mother-lode and experience dramatically greater increases in their stock prices than the average and the leverage-on-leverage benefit of warrants should cause some of the right warrants of the right mining/royalty companies to experience 5,000% or more. So “Does the Adens’ $5,800 Gold Projection Suggests +5,000% Gains in Junior Equities?” In some cases it appears so!

To my readers: Contact me at Lorimer@preciousmetalswarrants.com with questions and comments. I promise a reply. Don’t be shy - drop me a line or two. Guest Contributors are welcome – just send me a draft of your proposed article for consideration. That’s how I got started. It is a very enjoyable and stimulating activity. I will be speaking at the World MoneyShow in Toronto in October. If you attend please introduce yourself.

We have two web sites that we believe will help you make money in these very volatile times.

www.PreciousMetalsWarrants.com provides a  free one-of-a-kind database (updated weekly) on all commodity-related warrants trading on exchanges in the United States and Canada and offers a subscription service ($19.95 or $49.95) which ranks all warrants according to their own current unique leverage/time values based on four projected stock price appreciation levels.

  • You can also sign up for a free weekly email highlighting events in the marketplace and in the wonderful world of warrants in particular. 
  • www.InsidersInsights.com alerts subscribers ($24.95) as to when corporate insiders of a limited number of junior mining and natural resource companies are buying and selling.

  • Thanks for the read. – Lorimer.

    © 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