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Friday, February 5, 2016

While Stocks and Commodities Deflate, Why Is Gold Up 10%?

I've been following markets for 35 years. The first equity I ever owned was called Eastern Airlines. I have not owned an airline stock since then.

As I write today, the entire market is down. Oil has moved a little higher today (.13%) and gold after opening ten bucks lower this morning- is now in the green- albeit barely. (.40)

Gold, after trading down and closing an old gap around 1040 in January, has rallied to 1157. The HUI or mining index, after essentially having been driven into the ground, has rebounded 40%. That is where the smart money is flowing and it's just starting.

So while the markets deflate, including copper and silver to some extent, gold and gold miners are finding new life. The 64,000 dollar question is "why now?"

Markets, completely overpriced and inflated by 3 trillion dollars in QE and 7 years of zero interest rates, must come down. The dollar has been coming down which has helped gold considerably. There is simply no demand for anything right now despite the fact that everyone in America apparently has a minimum wage job.  I think the perfect storm for higher gold is here.

Exiting a 5 year bear market where prices were driven inexplicably lower for years by dumping thousands of future contracts at oddball times, gold is catching a serious bid in 2016.

I think the single greatest thing- other than debasing all of the world's currencies- is the current talk of negative interest rates. Negative interest rates- a term never heard in my lifetime- is being bandied about and actually implemented in other countries. Can you imagine a situation where your money is so worthless with regard to fractional lending requirements that the bank actually charges you interest to store your money? It's not far fetched. It's happening now.

So if you have any sort of excess wealth and you are desperately trying to save it from a falling market, confiscatory governments and banks, what's left?

Gold. And I prefer gold over silver, platinum, and palladium because gold is where the demand is. Central banks secretly horde it, The Chinese and Indians love it and right now with energy prices hovering at 10 year lows- gold miners will be extracting gold with improving margins.

I think negative interest rates are the latest trick in a banking world that never seems to exhaust all of it's tricks. I believe that gold will be a huge beneficiary of this latest charade. People will buy gold to simply preserve the inflated wealth they have garnered until they can re-deploy it. It is that re-deployment period that has me interested. I simply can't foresee it right now.

In my 35 years of trading and investing, I've never seen markets so completely detached from normal supply and demand relative to an alleged 4.9% employment rate. In the past, that type of employment rate would have created huge demand and inflation as more dollars chased fewer goods. Instead we have oil and commodities at decade lows.

I'm going to give you the names of 5 junior gold miners which I am accumulating. I believe the bottom is in. I will list these miners in order of my preference for them. These are junior miners which may or may not be takeover candidates. Please do your own due diligence.

Tahoe (TAHO) is a low cost producing miner paying 3% in dividends. They also have options.

Pretium (PVG) might be the biggest gold find in the world right now. Production is slated for 2017. I also think that they are a serious takeout candidate by a gold major.

Gold Resource Corp (GORO) They mine primarily in Mexico and they had a slightly bad (-.01) quarter. I think they were negatively impacted by silver prices.

Eldorado Gold (EGO) is a producing miner which has been acting very strong.

Klondex Mines (KLDX) is a new addition. The are reporting excellent gold intercepts and ounces per ton. They trade at an 11 PE with a good balance sheet. They are trading around 2.25.