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Dow and Gold Summer Doldrums

Commodities / Gold and Silver 2010 Aug 10, 2010 - 03:15 AM GMT

By: Richard_Mills

Commodities Central banks money printing is out of control. The constant printing of all the world’s currencies is just another way for countries to default on their debt – the repayment of a creditor occurs using a currency whose purchasing power has been reduced. Gold’s price will continue, has to continue, too rise in value against all depreciating paper currencies


For equity investors and speculators alike history shows us, time and again, the greatest leverage to gold’s rising price is owning gold exploration/development junior mining stocks. Will mainstream investors eventually catch on to the fact they need to own gold and to own gold shares?

The Dow on Gold’s terms:

  • In 2000 gold made its $260 per ounce low
  • January 2000 the Dow was 10,900
  • 10,900 / $260 per ounce = 41.9 ounces to buy the Dow
  • Today at 10,696 DJII and $1,204 gold it’s 8.8 oz to buy the Dow

This author believes that the first part – investors are catching on to the fact they need to own precious metals – is already happening and that part two, the buying of shares in companies involved in the search for and development of gold projects will not be too far behind.

Use Summer Doldrums to get Ahead of the Herd

During the summer months investment demand for junior precious metal company’s tends to be lethargic with volumes not picking up till post Labour Day - this slowdown happens most every year, it’s just traditionally a slow period of time hence the old saw “Sell in May and Go Away.” And this year has been no exception - junior precious metal shares weakened in the spring/summer. But if TSX.V volumes and precious metal equity prices follow the traditional path they will strengthen again in the fall.

And as long as gold’s secular bull remains intact – remember gold outperforms most other asset classes in both a deflationary or an inflationary environment - then precious metal stocks will have their day in the sun.

History shows, time and again, that August can provide an excellent buying opportunity for precious metal juniors, especially when, like now:

  • Gold and silver equities were already trading at a discount to metal prices
  • Summer doldrums have further weakened share prices
  • The gold/silver ratio traditionally is 15:1, today its 65:1

Conclusion

Declining confidence in government, markets and paper money is pushing gold toward a front and center mainstream media position.

"The gold story has been around for millennia, but is now attracting investment for thoroughly modern reasons. This month, we advance the thesis that none of the three major tradable currencies will regain its role as a prized store of value. Gold is moving from the shadows, where economists and politicians had consigned it, to center stage.” Don Coxe, founder Coxe Advisors

Junior gold/silver companies reporting good to great results regarding project acquisitions, sampling results, drill assays and having experienced management with tightly held, low, outstanding share counts should do well for their investors.

In my opinion now might very well be the perfect time to start accumulating select PM stocks – and this author has been a recent purchaser. At the very least junior precious metal company’s should be on every investor’s radar screen.

Are they on yours?

By Richard (Rick) Mills

www.aheadoftheherd.com

rick@aheadoftheherd.com

Copyright © 2010 Richard (Rick) Mills - All Rights Reserved

Legal Notice / Disclaimer: This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.


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