The Bottom Is in for Gold and Silver Prices
Source: Julian Phillips & Peter Spina, for Gold/Silver Forecaster (3/2/10)
The fall in the gold price from $1,215 has been dollar-rally driven. With the eurozone wallowing in debt on its south side the relationship with the dollar and gold has broken down.
On the 22nd December 2009 we sent you the following Alert: "With $1,215 showing a short-term top for gold and the subsequent drop to $1,094 so far, as gold tracks the , we see that gold shares as well as the gold price may well jerk down further, to, at worst, $970, but hopefully not below $1,000. Silver will follow the same pattern. This should provide great buying opportunities for Subscribers!"
Now we alert you to the expected bottom at around $1,080 to $1,150. However, as we are right at this bottom now, we believe that we are very close to the time you should buy, if it is not NOW!
The fall in the gold price from $1,215 has been dollar-rally driven. With the eurozone wallowing in debt on its south side the relationship with the dollar and gold has broken down. Long-term large investors are sitting on the sidelines clearly waiting for the right entry point. This body of large institutional buyers is now found in Europe as well as the East. U.S. based gold Exchange Traded Funds should follow once the rise in the gold price has started, not before.
The dollar rally is really the weakening falling faster than a weakening U.S. dollar not justified on fundamentals, which point to a steady, slow decay of the dollar over the next years. The disasters facing Greece, then Spain and others is producing its own credit crunch effect and leveraged gold investors globally are reducing their positions now. We expect heavy short-covering on the next gold price rise too.
We are now seeing the opportunity re-enter the market at close to the bottom. We emphasize that the upward trend has not changed and now we have been given a short-term signal that a rise is about to begin. We want to stress that subscribers use this mainly as an entry point.
This Alert is to put you on your toes ready for the next upward leg of the gold market as the gold price is about to turn.
Holders should be able and willing to hold gold and gold shares for the next year plus, thereafter, as gold turns and makes new highs.
We feel that soundly based gold junior mining companies will benefit strongly on the rise (please see more on gold stocks below).
Large investors are more concerned at buying large tonnages of gold, rather than prices, so will assist in making markets look volatile and falling, or too high for buyers and so favor sellers.
They aim to foster market conditions that will make sellers sell. Now they are poised and ready with cash.
Medium-Sized: Randgold Resources (GOLD); Goldcorp (GG)
Junior and Exploration Stocks
Gold stocks provide investors with a leveraged investment option versus the metal. Volatility has been a normal component of the gold stocks and with increasing volatility among all markets; this has only amplified the swings in the gold equities. So historically, gold shares will outperform the price on the upside and likewise on the downside.
There are many criteria a gold stock investor will look for when selecting an appropriate basket of gold companies. Those with a higher risk tolerance will look at junior and exploration gold stocks to offer extreme risk/reward investments. Yet despite the record $1,000 gold prices, junior and exploration stocks are trading at levels significantly below pre-2008 sell-off levels. This is on top of growing prospects that gold is set to move significantly higher in the coming months, years. Also of consideration, gold mining companies have yet to heavily invest into exploration and development capital needed to replenish their declining production levels and reserves so market valuations are very attractive levels!
In our GoldForecaster.com Junior and Exploration Stock Portfolio, we research hundreds of companies looking for the right story with the proper mix of criteria that will provide among the lowest risk with exposure to high rewards. From management to share structures to the project themselves, many decisions must be made to select the right junior stocks.
Over the coming weeks and months, new additions to the portfolio will be made as new opportunities are researched, investigated. Below are two junior gold companies that comprise our Gold Forecaster Junior and Exploration Stock portfolio. Updates to these investments, as well as our other selections are highlighted in our weekly newsletter:
Gold Resource Corp.
Low-cost gold producer, Mexico
Under 50M Shares, No Debt and Production commencing
Gold Resource Corp. is just starting up initial production in Southern Mexico. This very high-grade gold, silver and base metal project which is slated to produce 70,000 ounces of gold the first year of production with an estimated cash cost of just $100/ounce! With $950 gold, that should translate into around $60 million or over $1/share in free cash flow. The company intends to pay 1/3 of its cash flow out in a form of a dividend.
Production ramps up to 110,000 gold equivalent ounces in year 2 and 177,000 in year three with production costs dropping to zero with high grading base metals offsetting costs and with the recent move higher in their respective prices, there could be a possible negative production cost. The project size continues to grow, an aggressive exploration is program (second dri! ll rig just arrived on project) in the near future to define and expand this very exciting, prospective epiterhmal deposit.
Timberline Resources Corp.
41M Shares | $40M Market Cap
Higher-grade gold production slated for second-half of 2010, 50/50 venture with SMD (Small Mines Development). Carried into production. Marginally profitable drilling company and exploration projects.
Timberline is an example of extremes rising from a sub-dollar a share to over $5 before collapsing to $0.19. The company was in the process of merging with Small Mines Development when the credit markets froze, markets collapsed during the second half of 2008. During the market carnage, then the largest shareholder/fund of Timberline had a forced liquidation of roughly 3 million of its holdings, which were liquidated into a historically weak market tanking the price to literally bargain prices. Timing could not have been worse but out of the misfortune emerges a new opportunity!
Timberline and Small Mines Development (SMD) cancelled their proposed merger due to market, economic and credit conditions and restructured their relationship which included the owner of SMD Ron Guill, a Timbelrine director, taking an equity position ($0.90/share) making! him the largest shareholder with just over 5.5 million shares.
Butte Highlands Gold project is projected to commence production in about 1 year. The 50/50 joint venture with SMD calls for the roughly $15 million of capital investment to start gold mining, a very low CAPEX project which will be paid fully by SMD meaning Timberline does not require to finance to get into production! Timberlines 50% CAPEX obligation will come from cash flow from future gold production.
Butte Highlands is projected to produce 70,000 or more ounces of high-grade gold per year with cash costs in the $350–$400 range. With $1,000 gold this would bring in about $20–$25M for TLRs 50% position or $0.40–$0.50 a share with current gold prices and production estimates. Gold prdoucers are trading on a valuation of 8-10+ times cash flow numbers. Using 8 * $0.55 a share = $4.40. That is without any value for their drilling division or their other exploration projects.
So can Timberline return to $5+ a share? If successful production is indeed realized, relative valuations would support this but this could be well over a year away before successful comerical production is achieved. At around $1 a share, Timberline is a low risk, higher reward investment. I suspect as we approach production, the stock should be trading multiples higher than current prices.
Please refer to our latest issues for our choice of gold shares too.
As you know, we at the Gold & Silver Forecaster are dedicated to following these developments so that Investors can maximize their understanding and profits from the gold and silver [and platinum] markets. As a result we expect to see the gold market shine far brighter than we have seen to date.
If you have followed this newsletter and find our work to be valuable, we recommend that you forward this alert to your friends plus colleagues and encourage them to subscribe. Weekly issues will allow them to see which shares we believe will benefit investors the most and to keep your fingers on the pulse of the gold price. Our coverage of the global economy is focused on the factors driving the gold price including oil, the dollar, and other relevant markets. We keep you updated and ahead!
We will always keep the global perspective with the focus on gold, making our letter must-have reading in these markets.
Julian Phillips & Peter Spina, for the Gold & Silver Forecaster
Subscribe at: www.goldforecaster.com and www.silverforecaster.com