On the June 5^th of this year I was asked by Daniela Cambone of Kitco News for my thoughts on the direction of Gold. In the past, I have written several articles and blogs on my opinion based on both the market and the precious metals being consumed for industrial uses.

  My reply to Daniela was:

“Gold will go to $2000 but dip to the high 1200s in the shorter term.” (Gold was in the 1300s at the time. It has since fallen to the $1170 level. I think it is going back up from these levels. -Bob) 

In the age of the Internet and readily available information, it is easy to find contradictory information. If we’re mining more silver than ever, won’t the price go down? Today, we are manufacturing more and more products from solar panels to smart phones using silver, will that drive up prices? These are just examples of the questions that come to mind.

 

Investors should take a look at their short and long term goals and decide what they think the end result will be. Let’s take a little trip down logic road: The Federal Reserve hires the very best minds. This simple statement certainly sounds true. It should make everyone smile and want to go pour a refreshing ice tea and drink it by the pool. I don’t know about you, but that’s when I start to remember something called “actual facts”.

“Wait a minute!” I’ll often declare to those silly enough to be enjoying an ice tea in my proximity. “If they’re so smart, why didn’t Greenspan see the housing bubble and deflate it gently when he had a chance?” Don’t I remember him saying something to the effect that housing was a great investment? We could go on and on about his foresight! That was so long ago, it hardly matters to most. I do remember the endless promises as to the duration of the meltdown. How long ago was that again?

It’s getting difficult to relax once you’re starting to put all the pieces together. It’s like remembering all the details of the accident you witnessed.  I have come to use my fear as a buy signal and my euphoria as a sell signal. Naturally, I don’t rely on “feelings” exclusively, but when “feelings” combine with charts and an overall due diligence that includes many industries, it certainly helps to keep track of the larger picture.

Let’s face reality. If Gold , silver or other commodities fall to far, then the miners will either have to reduce production, stop production or go out of business. I know, it’s not simply black and white. Some producers have long term contracts in place, some will get bought out and so forth. The “law of nature”, as I have experienced it, suggests that a reduced supply will eventually cause the commodity to gain value.

Did I really just refer to the  law for supply and demand?  Yes, I did. Why? I wanted to bring up another subject that I won’t dive into great depths here, is the difference between the paper and the physical market. Some companies are finding that they can’t get certain metals, such as silver, at today’s market prices. The “premium” on these metals does not discourage them since most products need very small amounts.

Here’s the catch, if you’re building, say, a smart phone. You NEED the silver and the gold to build it. You can’t accept a future contract, an option, shares of a mutual fund or an ETF to produce a phone. My point is that the numbers of “above ground” inventory does not, to me, appear to be accurate due in part to the paper market.

That leads me to say that the small cap mining companies (“Juniors”) are, in my opinion, incredibly undervalued and some are literally being given away at their current prices. They have been for some time. My advice is to pay attention to the “gifts of undervaluation.” Believe me, few investors do!

If you share my belief that eventually the physical metals (precious especially) will not only retain their value but will thrive when the overall stock market comes down, then you should be feverishly analyzing the stocks in that sector. Go to work and no excuses as there is so much research as well as fundamental and technical information readily available on the internet. And it’s free!

At times, the junior low cap stocks can be challenging due to factors as such limited liquidity (small volume offerings) and often anemic trading volume for some companies’ shares. Nonetheless, gradual accumulation, resolve and patience should be rewarded, eventually… As always, patience is a virtue, but for investing, it’s required.