ZOOM ZOOM ZOOM – GOLD AND SILVER

Gold is now at $695 and a few dollars away from approaching $700. Silver is at $12.40 and inching closer to breaking $13. The USD Index is under $80.40. Gold futures just broke $700. Combine all this with a Fed interest rate cut as I mentioned below and you have the formula for an explosion in precious metals prices. I wrote the article below more than 24 hours ago and set it to post early this morning. Let’s hope gold and silver can maintain and break these levels without seeing another false breakout. The strength in physical prices has slowly seen upticks in the last few sessions, it looks amazing and is undoubtedly supported by institutional investors betting on the next leg of the bull run.

8 Working Days Left, Be a Part of the RUSH

Be a part of the rush, the next precious metals rush that is. I am guessing that we are 8 working days away from the beginning of a major rally for precious metals stocks. This rally, as I have written in the past, will be driven by a possible cut in interest rates by the Fed. I am looking for a 0.25% to 0.5% cut on September 18th.

I urge readers to pay special attention to the three charts at the top of the Raw Greed blog. What we see is that gold and silver are making major moves up and the USD index is falling closer to breaking under $80. If we can maintain levels above $680 for gold and $12 for silver, it should be a cinch for gold to break $700 and silver to break $13 using an interest rate cut as the fuel.

Commercial shorts, as evidenced by the most recent COT report, seem to share the perception that an interest rate cut is highly likely.

The official COT summary of options and futures for gold, silver and copper can be found here:http://www.cftc.gov/dea/options/deacmxsof.htm

Prices of many gold and silver mining stocks are far more depressed than the actual price of the metals. Plenty of gold mining stocks are trading as if gold were closer to $600 instead of $700. Silver mining stocks are trading as if silver were closer to $10 instead of $13. There is a lot of catching up to do to for prices of precious metals equities to match physical prices. I suspect that we may shatter all records on the heels of the Fed.

Here are a few precious metal mining stocks to consider that are on my watchlist, in no particular order:

Barrick Gold Corporation [[ABX]]
Newmont Mining Corporation [[NEM]]
Silver Wheaton Corporation [[SLW]]
Gold Fields Incorporated [[GFI]]
Coeur d’Alene Mines Corporation [[CDE]]
Tanzanian Royalty Exploration Corporation [[TRE]]
Northgate Minerals Corporation [[NXG]]
IAMGOLD Corporation [[IAG]]
Hecla Mining Company [[HL]]
Pan American Silver Corporation [[PAAS]]

*Disclaimer: The author is currently holds positions in Coeur d’Alene Mines Corporation, Tanzanian Royalty Exploration Corporation and Northgate Minerals Corporation.

Yahoo! Finance Changes Stock Data Download URL

Some readers may notice some strange things going on when they view their favorite stock blogs. My own blog, Raw Greed, and a number of other blogs use plugins that are powered by Yahoo! Finance. Yahoo! decided to change the stock data download url leaving many blogs with the message “the document has moved” when trying to view stock quotes or stock charts generated by plugins. Graciously some developers like Andrew Hill, that created the plugin that powers my portfolio picks in the sidebar have updated their plugins very quickly.

I’m sure some other publishers that use Yahoo! Finance powered plugins are having some difficulties unless their plugins were updated to reflect the address change. I just wish Yahoo! would keep track of services that use the stock data download url and inform developers with a prominent notice on the Yahoo! Finance page that they are making technical changes. A notice after hours would have been very practical and saved some publishers like me a tiny bit of angst.

Book Review: The Little Book of Common Sense Investing

I picked up this book a while ago and have been meaning to give it a quick mention on Raw Greed.


Purchase a copy from Amazon and remember to “add to cart” before navigating away.

What if I told you there was an investment that could return over 10% annually, almost double current CD rates, with minimal long-term downside risk? The Little Book of Common Sense Investing presents this possibility by investing in corporate growth through Index Funds. The author John C. Bogle is the founder of the Vanguard Group and makes the argument that passive investing has a far better chance of delivering consistent gains than actively managed funds or individual stock picking.

John’s arguments are compelling and he offers several examples of how actively manged funds failed to deliver consistent long-term gains. Index Funds hold a basket of stocks designed to mimic the overall performance of the financial market or a particular sector. I won’t give away too many details since The Little Book of Common Sense Investing is small and can be finished in a few hours.

While reading The Little Book of Common Sense Investing, I couldn’t help thinking that John presents a great place to park your cash during periods of economic distress and crises. There are moments when investors are waiting on the sidelines to see if a market plunge persists. The most recent .com crash provides a great example. As an investor, I had no idea when a broad market recovery would take place.

If I parked my money in an Index Fund I would have minimized my risk to individual stock picking while participating in the first leg of a major rally. Once a recovery was fully underway I could have moved my money out of an Index Fund and back into individual stock picking. This seems quite basic in retrospect, but like many others at the time I simply stayed in cash.

My summary is that The Little Book of Common Sense Investing provides valuable and practical advice on Index Fund investing. I recommend picking up a copy today.

Early September Raw Greed Traffic Statistics

It’s encouraging to know that Raw Greed traffic statistics have shot up in early September.

Here are two statistics that I track:

FeedBurner feeds are up 57%.
FeedBurner: 222 feeds as of September 5th, 2007
FeedBurner: 141 feeds as of August 31st, 2007

Alexa ranking is up 11%.
Alexa Rank 2,503,698 as of September 5th, 2007
Alexa Rank: 2,801,748 as of August 31st, 2007

Thanks to my readers for helping Raw Greed grow.

The Statistics to Watch for Precious Metals

Just a little over a year ago precious metals investors had their attention turned to terrorism, natural disasters and possible global epidemics as the major driver of growth in prices. A year later all the attention in PM’s is turned toward monetary policy, the subprime mortgage crises and a larger looming credit crunch.

At the moment gold and silver investors have their attention focused a number of financial statistics that may elicit the next leg of the bull run. Here is what I am watching and my end of the year price targets for each:

Gold’s current price: $ 673.20
Raw Greed’s target year end price: $700+
Silver’s current price: $12.02
Raw Greed’s target year end price: $13+
USD Index current price: $80.81
Raw Greed’s target year end price: Under $80
USD current interest rate: 5.25%
Raw Greed’s target year end rate: 4.75%
Amount of current gold hedging in oz.: 31.2 Million oz.
Raw Greed’s target year end amount: Under 28 Million oz.
COT (Commitments of Traders) total gold short positions: 385,717
Raw Greed’s target year end figure: Under 325,000
COT (Commitments of Traders) total silver short positions: 121,824
Raw Greed’s target year end figure: Under 105,000

A note about COT option and future positions taken from this article:

The raw data analyzed below was obtained from the CFTC’s famous Commitments of Traders reports that it publishes weekly. These CoTs are data-rich and offer all kinds of valuable information on long and short positions that traders are taking in commodities futures. Charted over time, the CoT numbers help illuminate long-term futures trading trends that can affect commodities prices.

The official COT summary of options and futures for gold, silver and copper can be found here: http://www.cftc.gov/dea/options/deacmxsof.htm

In the short-term I’m watching the Fed’s action for an interest rate drop on September 18th. This should be enough to cause the USD Index to fall under $80 by the end of the year. Some authors are writing that a drop in interest rates will drop the attractiveness of the USD as an investment tool, others are writing that dollars returning home is a good thing and will boost the domestic economy causing the dollars value to rise. For an example of the confusion, many financial authors wrote that the unwinding of the yen carry trade would weaken the Yen, but as the Yen has returned to Japan the currency has risen. If the USD returns home, will it cause the USD to rise? This is of particular importance to gold investors since a generally accepted rule is that gold trades against the dollar.

If my price targets are met, I fully expect to see shares of silver and gold miners rebound by the end of 2007 even if the overall stock market continues to gyrate. Shares of junior miners have been hit particularly hard in the past month and continue to offer the greatest upside potential of all the PM’s stocks.

A few stocks that I expect to see tremendous upside from are:

Gold Fields Incorporated [[GFI]]
Coeur d’Alene Mines Corporation [[CDE]]
Tanzanian Royalty Exploration Corporation [[TRE]]
Northgate Minerals Corporation [[NXG]]
IAMGOLD Corporation [[IAG]]
Hecla Mining Company [[HL]]
Pan American Silver Corporation [[PAAS]]

*Disclaimer: The author is currently holds positions in Coeur d’Alene Mines Corporation, Tanzanian Royalty Exploration Corporation and Northgate Minerals Corporation.

Possible Investments in IAG and HL

I believe the significant expectation of a rate cute by the Fed will prop up shares of PM mining companies. I may look to do a few quick short-term trades on IAMGOLD Corporation, [[IAG]] and Hecla Mining Company, [[HL]]. My updated target buy prices are under $6.50 for IAG and under $7 for HL.

My most recent purchase of IAG was in mid-May, 2007 for 3000 shares at an average purchase price of $7.05. I sold my shares in IAG in early June at $7.51. My profit over the roughly three week period was $1360 or 6.5%, nothing to write home about. I’ve never held a position in HL.

I’ve written about IAG and HL in the past. Readers can use the search function to retrieve previous analysis on IAG and HL.

The Fed’s Possible Monetary Policy Direction

The news propelling the market forward has been centered on Fed Chairman Ben Bernanke’s stance on being prepared to do what is needed, as this article is appropriately titled, to contain the subprime mortgage crisis from spilling over into the real economy.

I’m surprised by the aggressiveness of Bernanke’s remarks in his speech yesterday. In the speech, Bernanke commented [The Fed]…”will act as needed to limit the adverse effects on the broader economy that may arise from the disruptions in financial markets”.

Many investors are interpreting the comments as a direction for monetary policy changes. A growing majority of investors are now expecting an interest rate cut by September 18th of at least 0.25%. An interest rate cut should reduce the appeal of the USD as a currency investment. Short-term an interest rate rate cut should boost investor confidence causing the stock markets to rise. I believe the creation of liquidity by pumping USD’s into the economy and lowering rates is only prolonging the larger problem of the US economy being hinged on borrowing.

Jim Sinclair, a well respected investment analyst and president of Tanzanian Royalty Exploration Corporation [[TRE]] describes the situation succinctly on his website http://www.jsmineset.com.

I believe this article, The Hidden Reality, best describes the current situation.

Taken from the article:

People do not have a clue what is really happening. All the talk everywhere, even by well placed people without a bone to grind politically and economically, keep calling this a failure in sub prime loans. This is presented as if securitized bonds (with the assumption that the collateral for the bonds were mortgages themselves) has lost all its value. This is not the case. What is worthless is a the mix of credit and default derivatives that make up the vast majority of many instruments held by financial and commercial paper dealing entities, both private and public.

Even if you forget that the economic figures recently released are whoppers and take them at face value as commentators are, you still have to ask why the equities market fails to do better. The answer is simple. Rallies in the equities are presently being supplied by those that understand the grave nature of the present problem.

This is why the attitude of the Fed is not commensurate with the gravity of the global problem being caused by the meltdown in credit and default derivatives.

If it was simple mortgages it isn’t apparent because as bad as the mortgage market is they have not all failed simultaneously as if all sub prime mortgage holders have been foreclosed on at once. That alone should give you a hint that the problem is not the advertised, but much larger.

The Fed altering their banking regulations has to give you a hint that the problem is not the advertised problem, but much larger.

The financial difficulty going global has to give you a hint that the problem is not the advertised problem, but much larger.

When you see bank after bank needing liquidity in substantial amounts, this has to give you a hint that the problem is not the advertised problem, but much larger.

The hope for every central bank is that the real problem can be kept from public view. The truth is the public, even professionals in Wall Street, have no clue what the problem is. They know it has something to do with derivatives, but none realize it is a more than $20 trillion dollar mountain of unfunded, unregulated paper that has just been discovered to not have a market and therefore any real value.

Also taken from Jim’s website:

The problem with the rescue for both the Fed and White House action is:

1. The problem is three times the size of the entire US debt. It is OTC default and credit derivatives.
2. The problem is global, requiring a concerted and huge liquidity injection NOW.
3. The housing problem is pervasive and will continue.

If there is a result it will be temporary.

I expect to see a large pop in financial and precious metal stocks that have taken a beating. I will cover my current favored gold stocks in a later article. I am watching to see if major commercial banks Citigroup Incorporated. [[C]], JPMorgan Chase & Company [[JPM]], Bank of America Corporation [[BAC]] and Deutsche Bank AG [[DB]] trade closer to their 52-week highs to see if a broader medium-term rally is shapeable.

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