The last 18 months have been gut-wrenching for mining equity investors.
As the above chart demonstrates, the TSX Venture Composite Index, a fair representation of the junior mining sector, has come back down to levels seen in 2002, when gold first broke out of $300/oz.
While the TSX Venture Composite Index is still well above its 2008 low, the pain is just as pronounced now as it was then, as the TSX Composite Index, relative to the Dow, is now trading below 2009 levels. The following chart indicates a flight out of Canadian markets into the U.S. markets.
With emerging markets, such as China, struggling and the Eurozone in outright crisis mode, global investors not only have been pouring money into U.S. stocks but have also driven U.S. bonds into an all-time high, ignoring the fact that the bonds are sporting negative real interest.
While this represents an extreme flight to perceived “safety”, the U.S. dollar index has failed to break out of its 2009 high, indicating the fundamental weakness of the U.S. dollar.
Focusing back on the gold sector, the severe correction is not just felt by the juniors, but senior producers as well. Kinross, for example, is now back to its 2008 low, when gold was below $1,000/oz.
Overall, gold producers, relative to the price of gold have indeed reverted back to the 2009 level as the following chart indicates.
Despite the financial crisis worldwide, gold has held up very well in the last 23 months, currently ($1,600/oz) trading comfortably above the 2008 crisis level ($900). This clearly shows that gold is gaining momentum as the safe haven and reserve currency in the time of crisis.
Also notice, post 2008 crisis, gold doubled from $800/oz level to peak at more than $1,900/oz in less than 3 years. In 2008, the U.S. Federal Reserve embarked on unprecedented quantitative easing, creating trillions of dollars to revive the banks, and the equity and housing markets. Such inflationary measures had a direct positive impact on gold.
As we seemingly come out of the Euro crisis and with world governments eager to again embark on unlimited monetary easing, there are reasons to be again bullish on gold as it completes the current 18 months consolidation.
My conclusion is that the degree of flight to safety today and risk aversion is no less than the case in 2008. The dollar and U.S. bonds were the main beneficiary during the 2008 crisis and as they are in the current crisis.
Post 2008 crisis, gold and gold equities were the big winner, registering triple digit gains. There are preliminary signs of gold and gold equity market bottoms if one considers the bottoming ratios of TSX to Dow and gold equity to gold, and the blow off of U.S. bonds.
I am reminded of two old famous adages: never catch the falling knife, and a market bottom is only known in hindsight. For me, successful investing means buying 20% from the bottom and selling 20% from the top. If we are not currently 20% from the bottom, I’d say we are darn near.
Chairman and Interim CEO of Prophecy Platinum
Disclaimer: The views expressed herein are those of the author and may not reflect those of Prophecy Platinum Corp. or Prophecy Coal Corp. The information herein is provided for information purposes only, and is in no way to be construed as advice or solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. No warranty expressed or implied exists between the author of this article and the reader as to the accuracy of the information herein provided. The information contained herein is based on sources, which the author believes to be reliable, but is not guaranteed to be accurate, and does not purport to be a complete statement or summary of the available information. Readers are encouraged to conduct their own research and due diligence, and/or obtain professional advice. Any opinions expressed are subject to change without notice. Prophecy Platinum Corp., Prophecy Coal Corp. and the author of this article do not accept culpability for losses and/or damages arising from the use of this article.
by Leslie Michael
One of my favorite economists in the world is silver investing guru David Morgan. Some of David’s work is featured in Money Uncensored. I had the opportunity to ask him some unusual questions.
At the Cambridge Conference in Vancouver, David Morgan did what he does best. He shared his views and research on the silver market and the financial markets. Yet, rarely does one get the opportunity to ask David intimate questions about life and morality.
David’s research and intuition leads him to believe that the worst is yet to come in the financial markets and the silver run is far from over. Although he shared his feelings to a captivated audience that things are probably going to get worse during the end of 2012 and the beginning of 2013, it was his after-meeting that was the real story.
I asked David some point blank questions and he challenged me by asking some direct questions back to me in front of a captivated crowd.
The first question I asked was…
“I’ve been a follower of your work for years but the one thing you have not convinced me of yet is why I should subscribe to the Morgan Report. So why should I? Here’s your chance to get me.”
David smiled. I can’t recall word for word everything he said but it sort of went like this.
“I was there for the last silver and gold run in 1979-1980. It’s taken me a long time to humble myself and realize that the market is smarter than anyone. Just like last time, there are going to be a large group of people who didn’t want to buy silver at $5. And when the price goes to $50 and $60 they won’t buy the physical metal. But what they will do is buy the mining stocks. and when that happens any mining stock will seem like it’s going up. We don’t always get it right, but the stocks that we pick and research are the ones that are likely going to the highest performing when the silver run takes off.”
The second question I asked was…
“I’ve watched you now for years and there are times when you say protecting our freedoms is more important than just protecting and growing our wealth. Sometimes you show clips of the movie Braveheart to illustrate the point. What do you want from us? What would you want us to do if we could?”
David looked at me and fired a a question back. “What would you get people to do if you could change the world?”
I replied back “I would suggest people #1. Convert their mortgages over to a simple interest loan/net out accounting banking system #2 Get mutual whole life dividend paying insurance policies and use that as their bank accounts instead and #3 Invest the rest of their money in silver and gold. This would help get rid of the international bankers’ monopoly.”
David smiled again and said “That’s a pretty good answer. Here’s what I would do. I would wave my magic wand and for one day I would get everybody to tell the truth for just one day.”
It was my turn to smile and say “I like you answer better than mine”
The third question was
“How do your daughters feel about everything that is going on in the world and what you do?”
David replied “My daughters have heard me talk about sound money and the changing world since they were both very little. They know what is going on. They live their own lives of course and pay attention to what is going on. One of my daughter’s favorite movies is the Matrix.”
It is written all over David’s face that he really loves his family
“What are your favorite movies?”
David answered “I like The Matrix for sure. But I like underdog movies like the Longest Yard and Remember the Titans”
The lasting impression I was left with talking to David is that he has passion. David says it took a long time for him to speak from his heart and not just from his head.
I understand that feeling too.
When you meet someone you admire, like I did recently, many time they don’t meet your expectations. That is not the case with David Morgan.
He’s just a man but he has my respect.
To know more about David Morgan and his research and services go to www.silver-investor.com
David still thinks we are going to see $40 silver this year and believes the mining stocks may have bottomed.