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
From Recession to an Ever-Deeper One - 19th Oct 20
Wales Closes Border With England, Stranded Motorists on Severn Bridge? Covid-19 Police Road Blocks - 19th Oct 20
Commodity Bull Market Cycle Starts with Euro and Dollar Trend Changes - 19th Oct 20
Stock Market Melt-Up Triggered a Short Squeeze In The NASDAQ and a Utilities Breakout - 19th Oct 20
Silver is Like Gold on Steroids - 19th Oct 20
Countdown to Election Mediocrity: Why Gold and Silver Can Protect Your Wealth - 19th Oct 20
“Hypergrowth” Is Spilling Into the Stock Market Like Never Before - 19th Oct 20
Is Oculus Quest 2 Good Upgrade for Samsung Gear VR Users? - 19th Oct 20
Low US Dollar Risky for Gold - 17th Oct 20
US 2020 Election: Are American's ready for Trump 2nd Term Twilight Zone Presidency? - 17th Oct 20
Custom Ryzen 5950x, 5900x, 5800x , RTX 3080, 3070 64gb DDR4 Gaming PC System Build Specs - 17th Oct 20
Gold Jumps above $1,900 Again - 16th Oct 20
US Economic Recovery Is in Need of Some Rescue - 16th Oct 20
Why You Should Focus on Growth Stocks Today - 16th Oct 20
Why Now is BEST Time to Upgrade Your PC System for Years - Ryzen 5000 CPUs, Nvidia RTX 3000 GPU's - 16th Oct 20
Beware of Trump’s October (November?) Election Surprise - 15th Oct 20
Stock Market SPY Retesting Critical Resistance From Fibonacci Price Amplitude Arc - 15th Oct 20
Fed Chairman Begs Congress to Stimulate Beleaguered US Economy - 15th Oct 20
Is Gold Market Going Back Into the 1970s? - 15th Oct 20
Things you Should know before Trade Cryptos - 15th Oct 20
Gold and Silver Price Ready For Another Rally Attempt - 14th Oct 20
Do Low Interest Rates Mean Higher Stocks? Not so Fast… - 14th Oct 20
US Debt Is Going Up but Leaving GDP Behind - 14th Oct 20
Dell S3220DGF 31.5 Inch VA Gaming Monitor Amazon Prime Day Bargain Price! But WIll it Get Delivered? - 14th Oct 20
Karcher K7 Pressure Washer Amazon Prime Day Bargain 51% Discount! - 14th Oct 20
Top Strategies Day Traders Adopt - 14th Oct 20
AMD is KILLING Intel as Ryzen Zen 3 Takes Gaming Crown, AMD Set to Achieve CPU Market Dominance - 13th Oct 20
Amazon Prime Day Real or Fake Sales to Get Rid of Dead Stock? - 13th Oct 20
Stock Market Short-term Top Expected - 13th Oct 20
Fun Stuff to Do with a Budgie or Parakeet, a Child's Best Pet Bird Friend - 13th Oct 20
Who Will Win the Race to Open a Casino in Japan? - 13th Oct 20
Fear Grips Stock Market Short-Sellers -- What to Make of It - 12th Oct 20
For Some Remote Workers, It Pays to Stay Home… If Home Stays Local - 12th Oct 20
A Big Move In Silver: Watch The Currency Markets - 12th Oct 20
Precious Metals and Commodities Comprehensive - 11th Oct 20
The Election Does Not Matter, Stick With Stock Winners Like Clean Energy - 11th Oct 20
Gold Stocks Are Cheap, But Not for Long - 11th Oct 20
Gold Miners Ready to Fall Further - 10th Oct 29
What Happens When the Stumble-Through Economy Stalls - 10th Oct 29
This Is What The Stock Market Is Saying About Trump’s Re-Election - 10th Oct 29
Here Is Everything You Must Know About Insolvency - 10th Oct 29
Sheffield Coronavirus Warning - UK Heading for Higher Covid-19 Infections than April Peak! - 10th Oct 29
Q2 Was Disastrous. But What’s Next for the US Economy – and Gold? - 9th Oct 20
Q4 Market Forecast: How to Invest in a World Awash in Debt - 9th Oct 20
A complete paradigm shift will make gold the generational trade - 9th Oct 20
Why You Should Look for Stocks Climbing Out of a “Big Base” - 9th Oct 20
UK Coronavirus Pandemic Wave 2 - Daily Covid-19 Positive Test Cases Forecast - 9th Oct 20
Ryzen ZEN 3: The Final Nail in Intel's Coffin! Cinebench Scores 5300x, 5600x, 5800x, 5900x 5950x - 9th Oct 20
How Soon Will We See Stock Market SPX 4000? - 8th Oct 20
Stock Market Spy ETF Testing March Price Peak – What Do the Charts Say? - 8th Oct 20
5 Consequences of US Debt at $50 Trillion - 8th Oct 20
Long Term Cycles Suggest Stock Price Reversion Pending & Gold Price About To Explode High - 8th Oct 20
AMD Zen 3 Ryzen 5000 Launch - Performance, Prices Skews, Cinebench r20 Scores, 5800x, 5900x, 5950x - 8th Oct 20
Gold vs. Silver – Absolutely No Comparison - 8th Oct 20
Gold: Why You Should Be Wary of the "Consensus" - 8th Oct 20
UK Covid-19 Hospital Admissions and Deaths Since Testing Positive in 28 days Analysis - 7th Oct 20
Amazon Prime Day 2020 Sales Top Tips of How To Get Big Savings! - 7th Oct 20
Want To Win Big In Forex Trading? Leverage Is Your Friend - 7th Oct 20
Why I am Voting for Donald J. Hitler - 6th Oct 20
Markets Chop & Grind: Gold, Stocks & Commodities - 6th Oct 20
Silver Price Great Buy Spot Ahead of Second Big Upleg - 6th Oct 20
Forget RTX 3080 Get Zen 3 Ryzen 5900x / 5950x - GPU vs CPU - PC Bottlenecking - 6th Oct 20
How to Get Budgies / Parakeets to Eat Vegetables for the First Time - 6th Oct 20
How to Pick a Reputable Double Glazing Window Company - 6th Oct 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Out of Whack Silver/Gold Ratio Suggests Strong Bull Move

Commodities / Gold & Silver 2009 May 01, 2009 - 05:49 PM GMT

By: The_Gold_Report


Best Financial Markets Analysis ArticleThe silver/gold ratio is "out of whack," says Mike Niehuser, founder of Beacon Rock Research, LLC, who finds silver "particularly interesting" right now. In this exclusive interview with The Gold Report, Mike weighs the historical seasonality of gold and silver against the forces at work in today's market and explains why we could see a significant run up in metals by fall.

The Gold Report: Mike, what is your feeling about gold and silver prices both in the near and longer term?

Mike Niehuser: Well, gold seasonally runs up late summer to early spring, then up slightly or flat late spring to summer due to seasonal holiday buying for jewelry in Asia. Gold is now about $900 and silver $13 per ounce; both gold and silver are correlated and remain good hedges against inflation.

There are ample concerns of hyperinflation and since the news is out, I am a bit surprised that gold and silver prices appear within bounds of prior years' seasonal price appreciation. Part of this may have to do with the idea that monetary policy takes about 12 to 36 months to influence the economy. As the price of gold today reflects the market's future expectations, it makes one wonder whether more money is truly being poured into the system or we're seeing a reshuffling of spending in the U.S. from the states back up to the federal government.

In addition, you can look up Irving Fisher's “Money Equation” on Wikipedia: MV = PQ. "M", the supply of money, times "V", or velocity, equals "P", the price of money or inflation, times "Q", economic output. So, even if the money supply is increased, without velocity (say bank lending), you are not likely to see increases in inflation or output of goods and services. This is really where I think we are today.

The new administration wants to push for greater control via stimulus, and bankers, whose number-one concern is to protect their careers and not take risks, are not lending. After everyone takes the summer off, lenders may start lending in the fall, increasing velocity. With the addition of seasonal buying of precious metals, we could see metals up significantly in the fall.

Another thing to consider with silver is that silver is a byproduct of base metal mining. With reduced base metal production, the supply of silver is reduced. Also, historically, the silver/gold ratio is currently out of whack, so silver is particularly interesting right now.

TGR: What is your investment thesis for gold and silver equities?

MN: A couple years ago I only focused on big deposits with development potential. My thesis was that major operators needed large deposits to fill their production pipelines, and they were unable to focus on exploration and early development. This created potential upside in junior companies with large deposits.

The two I am most familiar with are NovaGold Resources Inc. (TSX:NG) (NYSE.A:NG) and Seabridge Gold Inc. (TSX:SEA) (NYSE.A:SA). NovaGold is in a 50-50 partnership with Barrick at Donlin Creek, and just produced a feasibility study with reserves of 29.3 million ounces of gold. NovaGold also has a 50-50 interest with Teck Cominco Ltd. (TSX:TCK.A) (TSX:TCK.B) (NYSE:TCK) in the Galore Creek Copper Gold project. I don’t think either of these assets is reflected in the stock price.

Seabridge is also increasing its Mitchell deposit near Barrick Gold Corporation’s (NYSE:ABX) Eskay Creek. Mitchell is big and is getting bigger, still open at depth and along strike. What's interesting to me is it steps out within the pit, encountering mineralization that may convert waste to ore, which improves economics. It also possibly connects with their adjacent Sulphurets deposit, further improving economics.

Seabridge is scheduled to produce an updated economic study and produce drill results. We also expect to hear more from NovaGold on Galore Creek and Rock Creek in 2009. Both companies now have good cash positions, which should take them through 2010. And with their large deposits, they remain leveraged to gold prices on a per-ounce basis.

TGR: How did your 2008 portfolio perform?

MN: Not so good in 2008, which is no surprise. I was expecting some flight to quality, so I focused on companies making the jump from construction to production. While this was a tough year for explorers, developers and producers, any news—bad or good—in general seemed to take stock prices lower.

It was amazing to watch the courage of management teams that worked for years and succeeded in achieving goals, yet were punished for the slightest slippage in production targets.

TGR: Can you give some specific examples?

MN: Well, Minefinders Corporation (NYSE.A:MFN) (MFL.TO) is a good example. They never got the credit for development and are now ramping production at their Dolores project in Chihuahua, Mexico. This is a good example of what I like—good management, low cost production, great underground high-grade potential, open pit expansion to the south, and a large mineralized target parallel to the pit. Most important, they broke even on an operating basis months ago and are not hedged. Minefinders is still cheap.

Another good example is Coeur d'Alene Mines Corp. (NYSE:CDE) (TSX: CDM). They took the prior owner's big pit idea at Palmarejo, Mexico, reduced the open pit and went directly underground to higher grades. This allowed for more effective blending of ore and stockpiling. They also have a dual processing of ore to increase recoveries and should be hooking up to the grid to get the benefits from low diesel prices or hydropower in Mexico.

Coeur, with Palmarejo and with production from their San Bartoleme project in Bolivia, should have a strong finish to 2009.

Investors should also take a look at Apollo Gold Corporation’s (TSX:APG) Black Fox high-grade gold project near Timmins, Ontario. This company shares many of the same characteristics of Minefinders and Coeur. This project should start processing ore in the next month and see a pop in the stock price. Like Dolores and Palmarejo, there is open pit with high-grade underground potential. We see significant opportunity to increase the resource size at Black Fox through underground drilling of the inferred resource or going deeper. Several mines in the Timmins area go down over a thousand meters and Black Fox has good potential to do the same.

In addition to production, Apollo should be producing drill results on its nearby Grey Fox target, as well as their Huizopa project in Mexico, between Minefinders and Alamos.

TGR: Mike, you mentioned that your track record in 2008 wasn't so great. How's 2009 looking so far?

MN: I like to say I am still learning and, like the professor said, 'if you are not confused, you are not informed.' I picked six developers at the end of 2008 that were up 53% at the end of the quarter. It's interesting that gold and silver were up only 4.2% and 14.2%, respectively, in the same period. This reconfirmed to me that fundamentals still mattered. Many of these stocks were beat up due to liquidity concerns and tax-loss selling.

While this included NovaGold and Seabridge, it included two other great companies, Exeter Resource Corp. (TSX.V:XRC) (NYSE.A:XRA) and South American Silver Corp. (TSX:SAC). Both had ample cash or were selling at near cash. Exeter has about $38 million in cash, and two great projects in Chile and Argentina. They are scheduled to produce additional drill results and metallurgical and economic studies in the near term.

I also just got back from South American Silver’s Malku Khota project in Bolivia. South American had the greatest appreciation of my top picks. Malku Khota has over 144 million indicated ounces of silver and may be the largest low-cost leachable silver sulfide deposit in the world. Geologically, Bolivia may be the Nevada of South America. Though political concerns may be important, many companies have successfully built mines in Bolivia, including Apex Silver Mines Ltd., Coeur d’Alene and Pan American Silver Corp. (TSX:PAA) (Nasdaq:PAAS).

TGR: You mentioned six picks, but have only talked about four. What about the other two?

MN: That would be Etruscan Resources Inc. (TSX:EET) and Alexco Resource Corp. (TSX:AXR) (NYSE.A:AXU). Etruscan has one of the largest land positions in West Africa and is ramping up production at its Youga Gold Project in Burkina Faso.

Etruscan has a new strategic partner, Maxim Finskiy. Finskiy is the owner of a gold mining business in Eastern Siberia Russia. He is also a partner and the Chief Executive Officer in LLC MC Intergeo, the mining and exploration arm of the private Russian investment fund Onexim Group.

I suspect that what Electrum investment did for NovaGold, Maxim Finskiy may do for Etruscan. Good companies with strong financial backers are potentially future mid-tier or majors in the making. These investors don’t put money in unless they expect to get a return.

Also, Alexco is developing the Keno Hill silver district in the Yukon. Keno Hill could have some of the highest silver grades in the world. Silver Wheaton has purchased a silver stream from Alexco even before they have made a construction decision. This demonstrates the potential of Keno Hill. Alexco also has a legacy environmental business with very interesting world or industry-changing patents. Both of these are good investment ideas, as well.

TGR: How are you expecting your picks to perform as we move farther into 2009?

MN: I was surprised that the picks did so well in the first quarter. I think the companies that did well in the first quarter had unnecessary pressure because the market was not sure whether the companies were viable. And as good companies attracted capital, this has not proven to be the case, so they had exceptional returns in the first quarter.

I expect all these companies to have good news flow through the end of the year, and should have greater visibility. And if my thesis is correct about gold and silver prices moving up in the fall, these companies should be attractive for acquisition during the summer months, where potentially flat gold and silver prices are creating opportunities for buying good quality companies with exceptional performance potential.

TGR: Mike, thanks so much for your time.

Mike Niehuser is the founder of Beacon Rock Research, LLC , which produces research for an institutional audience and focuses on precious, base and industrial metals, and substitutes, oil and gas, alternative energy, as well as communications and human resources. Mike is also on the faculty of the Pacific Coast Banking School and was nominated to BrainstormNW magazine's list of the region's top financial professionals in 2007.

Want to read more exclusive Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Expert Insights page.

The GOLD Report is Copyright © 2009 by Streetwise Inc. All rights are reserved. Streetwise Inc. hereby grants an unrestricted license to use or disseminate this copyrighted material only in whole (and always including this disclaimer), but never in part. The GOLD Report does not render investment advice and does not endorse or recommend the business, products, services or securities of any company mentioned in this report. From time to time, Streetwise Inc. directors, officers, employees or members of their families, as well as persons interviewed for articles on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open mar ket or otherwise.

The Gold Report Archive

© 2005-2019 - 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