The following essay is derived from selected newsletters starting with our May 2006 letter, which began with the following quote:
"High Ho, Silver! Away!"
~The Lone Ranger
For those not familiar with The Lone Ranger, the story centered on a masked man, who, with his faithful Indian companion, Tonto, led the fight for law and order in the Old West. When the Silver-Investor.com Web site was first established it was indeed lonely. In fact, it took nearly six months for our first subscriber to sign up. This indicates just how tough it is to get any interest into a market at a bottom.
In fact, we had what we perceived as a very important marketing piece at the time. We were promoting a way for investors to actually purchase silver and gold bullion below spot price. We received some very critical e-mail messages at the time, letting us know just what kind of scam artists we were. The important fact however was simply that Central Fund of Canada (CEF on the Amex) was selling for a 12 percent discount at the time. Moreover, we addressed our critics with the facts, and yet not even one sent us an apology.
Regardless, we have been proven correct about the huge potential in the silver market, and this month we have seen just how quickly silver can move. As we have stated in our radio interviews and seminars, it is much easier to call a bottom in a market than a top. We still think that silver and gold have much farther to go, but at this point we must pay particular attention to what the market itself is telling us.
Again for clarity this was in May 2006:
We sent out an e-mail alert, stating that those who were inclined to trade a portion of their holding might consider lightening up near the $11.50 area; we also stated that we were usually early and silver might go to $15.00. We sent another alert to our e-mail subscribers and emphasized that profit taking might be considered. This would be on a portion of your holdings perhaps twenty-five percent
Certainly looking back it was prudent to lighten up on your positions during the May time frame. We went on to say, "For those who are willing to take partial profits here, we suggest you look at which companies hold up best under the selling pressure we see ahead. These are the companies that will snap back the fastest when this consolidation ends. Some investors think that buying the laggards is the best way to play "catch up," but our experience tells a different story."
In our May issue we had the pleasure of interviewing Mr. James of www.financialsense.com some of our subscribers thought his insights on the economy, oil, and the metals were worth the price of a year's subscription alone. Regardless, all readers should be tuning into the weekly metals report each week.
In our June issue we stated the following,
"We sent out an alert to our e-mail subscribers on the 19th of May and gave a buy signal, not knowing if this would be a short-term trading bounce or a more significant move to the upside. At this time, all indications are that we had a tradeable bounce here and we sent out another alert on May 31st stating to either sell this short term trade or sell at least part of your "trading" position."
Of course this essay mainly focuses on timing yet there is much more to being a successful investor/trader in the resource sector. Sometimes it pays to buy right and sit tight and we do wish to re-emphaize that extremely important point. The "problem" is from a bigger picture perspective is many investors are just now coming into the market or perhaps came in at the top in May 2006 and are still frustrated.
We like to find what others refer to as discovery investments and in the June issue provided information on a company that had just located a geophysical conductor that bears a striking similarity to the Voisey's Bay Nickel Deposit in Labrador. For those that are not familiar with the Voisey Bay story "Diamond Fields" was looking for diamonds and discovered one huge nickel discovery. The stock started at around eighty five cents and topped our near $300.00 AFTER splitting two for one. It doesn't take many of these types of speculations to make investors smile!
Additionally in the June issue we were able to uncover a company that many of our subscribers have pestered us about and that was "what company" was Mr. Puplava talking about on his radio show, here I cannot take credit one of our astute readers found the information and did an excellent write up on this company for us here at The Morgan Report.
Moving on to our July issue we stated,
"As the market has been trying to find a bottom, the top-tier companies such as Glamis Gold (GLG) and Silver Wheaton (SLW) have had very solid performances, making gains of well over 20% off the recent low. We wish to affirm this important fact to our readers because the safest and, most of the time, easiest money can be made by placing funds into these investments and speculating with the juniors only.
We do not wish to belabor the point that the right junior can make up for lots of mistakes, but it is the most difficult area to analyze and access risk. The way to approach the junior sector is to place "small bets" on companies we feature or are of your own choosing. This is money you can afford to lose. There are several ways to obtain this "play" money, but let me share one example.
We went on to give and example of what could be achieved with one stock from our Asset Allocation Model, where the right amount of trading volume and institutional support made this a good selection as would any of the others in this classification.
In the August edition we wanted to affirm the bigger picture especially looking at the institutional side and how it will influence precious metal demand going forward.
"We thought that the second leg up in the metals would be due to increased participation by the retail investor, but at the same time the institutional investment community would start to understand the importance of having this exposure, and I made a commitment to work more on the institutional side over the next few years.
Our initial step into this venue was our recent trip to New York City at the Princeton Club on July 19 and 20 for the Triple Gold Investment Conference. The first day was devoted to silver and the second day was devoted to gold and oil markets. Jeff Christian from CPM Group gave an overview of the silver market very similar to what we reported to you last month.
My presentation focused primarily on the requirement for all investors, especially institutions, to have exposure to physical metals with a weighting of between 7% and 15%. The 7% exposure is a minimum for low-risk performance. The basics are simple; precious metals are the only assets that correlate negatively to all other investments, and therefore a small amount (7%-15%) will protect a portfolio during any investment environment and increase returns.
The reason it is especially important for managed money (institutions) to have exposure to the precious metals is because now that a validated study is available (Ibbotson Study), these people are responsible to take prudent action. And in the event of a large general market breakdown, the institutions are vulnerable to possible legal action. As the fund and money managers throughout the world know of this report, it should generate more interest in the sector."
More interest has come into the sector and will continue as tension increases in the geopolitical and financial arenas. With energy prices abating recently investors with clear fundamental understanding of today's world are staying calm and holding or adding to their holdings.
In the September issue we wrote,
"Although your editor does a great deal of technical work, we focus more on the fundamentals. But we need to step back, focus on the big picture, and get clarity. If you look at a chart of Newmont Mining, from the bottom in October 2000 near $17 per share, and connect all the bottoms, a very clear picture emerges. Newmont could get as low as $40 per share and still be in the major bull market. In fact, with Newmont's current price near the $52 level, the stock is really in the middle of its current range forecast.
Many major analysts are looking for Newmont to trade near the $71 level next year and we agree. The question of course is how it will get to that level."
It wasn't much longer and we issued a BUY ALERT to our subscribers on October 5, 2006.
October 5, 2006
As stated in the October report our analysis predicted that gold might touch the $550 area, which is roughly the 300 day moving average. During yesterday's trading gold traded very close to this level. Furthermore, in a recent issue we made the case that Newmont Mining could hit the $40.00 area and still remain in a major up trend.
Looking at the above chart we see that the past few trading sessions Newmont fell rapidly on heavy volume. Much of the volume is short covering and should be supportive of the price. Annotating this chart caught me a bit off guard because the major up trend line did not intersect the $40.00 price exactly. I had done this exercise previously (chart work) using another charting service we have and the major up trend did intersect the $40.00 area precisely.
I want to point this out for a couple of reasons, first technical analysis is only a tool and it can vary depending upon how the data is manipulated and how the chart itself is structured. Specifically, what is the rise over run (remember your graphing work from junior high)? The above chart is a semi-log scale so the grid is compressed in the vertical axis. Secondly, we use technical analysis basically to confirm our work on a fundamental level and by employing both as objectively as humanly possible bring our readers the ability to anticipate this very volatile market.
We are definitely in a range where aggressive buying should take place, but please do not be in too big a hurry. Only looking backward will we know if this is the best buying opportunity we have had in quite some time. We are still a bit wary of the overall market and how much pressure may still be available to make the precious metals look like poor performers through the United States elections coming this November. As much as we all like to buy at exact bottoms, it is actually safer to buy once a bottom is confirmed and pay up to enjoy this level of comfort. Because we stated we would become more aggressive during Phase 2 of this major bull market we are sounding the buy alert now! BUT -- taking your time over the next few months is still the best strategy in our view.
Silver has remained stronger that gold, which is hard to believe, based upon the pounding the metal has taken recently. The reason this statement is correct is that the gold/silver ratio has remained around the 53 area. If gold were holding up better than silver the ratio would spread and we might expect to see a 60 to 1 ratio for example. In fact we do not rule this possibility out entirely and if it were to occur our thinking would be it is the final piece of the puzzle to give us every confidence that the worst is over and we should be fully invested.
Analyzing silver has always been more difficult than gold in my view and with the new S-1 filing from Barclay's to increase the number of shares in the I-shares Silver Trust this might have the effect of putting a floor near the $11.00 level for silver.
Summary: This is a BUY ALERT
We want to see our readers move into this sector but with some caution. The top tier stocks have not really signaled that the short covering, which has begun, is completed. Secondly, the political pressure to keep the entire "commodity sector" cool through at least the election period still exists. Very conservative investors may simply observe the market from here and only add to positions once the market has confirmed a bottom.
What are we saying now? Have we confirmed a bottom? We explore this issue and many more in the November edition of The Morgan Report.
For those that would like to follow are work closely we suggest the following actions.
- Bookmark our weekly metals report with Jim Puplava
- Bookmark Kereport.com with Al Korelin and Paul Warren they frequently interview companies and writers in the natural resource sector
- Bookmark our new radio show on Kitco Silver
- Sign up for our free email service we send out any radio interviews or special events to this list so they have the opportunity to listen or participate.