Tag: Jeff Clark

The Single Most Important Strategy Most Investors Ignore

By Jeff Clark, Senior Precious Metals Analyst

“If I scare you this morning, and as a result you take action, then I will have accomplished my goal.” That’s what I told the audience at the Sprott Natural Resource Symposium in Vancouver two weeks ago.

But the reality is that I didn’t need to try to scare anyone. The evidence is overwhelming and has already alarmed most investors; our greatest risk is not a bad investment but our political exposure.

And yet most of these same investors do not see any need to stash bullion outside their home countries. They view international diversification as an extreme move. Many don’t even care if capital controls are instituted.

I’m convinced that this is the most common—and important—strategic investment error made today. So let me share a few key points from my Sprott presentation and let you decide for yourself if you need to reconsider your own strategy. (Bolding for emphasis is mine.)

1: IMF Endorses Capital Controls

Bloomberg reported in December 2012 that the “IMF has endorsed the use of capital controls in certain circumstances.“

This is particularly important because the IMF, arguably an even more prominent institution since the global financial crisis started, has always had an official stance against capital controls. “In a reversal of its historic support for unrestricted flows of money across borders, the IMF said controls can be useful…”

Will individual governments jump on this bandwagon? “It will be tacitly endorsed by a lot of central banks,” says Boston University professor Kevin Gallagher. If so, it could be more than just your home government that will clamp down on storing assets elsewhere.

2: There Is Academic Support for Capital Controls

Many mainstream economists support capital controls. For example, famed Harvard Economists Carmen Reinhart and Ken Rogoff wrote the following earlier this year:

Governments should consider taking a more eclectic range of economic measures than have been the norm over the past generation or two. The policies put in place so far, such as budgetary austerity, are little match for the size of the problem, and may make things worse. Instead, governments should take stronger action, much as rich economies did in past crises.

Aside from the dangerously foolish idea that reining in excessive government spending is a bad thing, Reinhart and Rogoff are saying that even more massive government intervention should be pursued. This opens the door to all kinds of dubious actions on the part of politicians, including—to my point today—capital controls.

“Ms. Reinhart and Mr. Rogoff suggest debt write-downs and ‘financial repression’, meaning the use of a combination of moderate inflation and constraints on the flow of capital to reduce debt burdens.”

The Reinhart and Rogoff report basically signals to politicians that it’s not only acceptable but desirable to reduce their debts by restricting the flow of capital across borders. Such action would keep funds locked inside countries where said politicians can plunder them as they see fit.

3: Confiscation of Savings on the Rise

“So, what’s the big deal?” Some might think. “I live here, work here, shop here, spend here, and invest here. I don’t really need funds outside my country anyway!”

Well, it’s self-evident that putting all of one’s eggs in any single basket, no matter how safe and sound that basket may seem, is risky—extremely risky in today’s financial climate.

In addition, when it comes to capital controls, storing a little gold outside one’s home jurisdiction can help avoid one major calamity, a danger that is growing virtually everywhere in the world: the outright confiscation of people’s savings.

The IMF, in a report entitled “Taxing Times,” published in October of 2013, on page 49, states:

“The sharp deterioration of the public finances in many countries has revived interest in a capital levy—a one-off tax on private wealth—as an exceptional measure to restore debt sustainability.”

The problem is debt. And now countries with higher debt levels are seeking to justify a tax on the wealth of private citizens.

So, to skeptics regarding the value of international diversification, I would ask: Does the country you live in have a lot of debt? Is it unsustainable?

If debt levels are dangerously high, the IMF says your politicians could repay it by taking some of your wealth.

The following quote sent shivers down my spine…

The appeal is that such a task, if implemented before avoidance is possible and there is a belief that is will never be repeated, does not distort behavior, and may be seen by some as fair. The conditions for success are strong, but also need to be weighed against the risks of the alternatives, which include repudiating public debt or inflating it away.

The IMF has made it clear that invoking a levy on your assets would have to be done before you have time to make other arrangements. There will be no advance notice. It will be fast, cold, and cruel.

Notice also that one option is to simply inflate debt away. Given the amount of indebtedness in much of the world, inflation will certainly be part of the “solution,” with or without outright confiscation of your savings. (So make sure you own enough gold, and avoid government bonds like the plague.)

Further, the IMF has already studied how much the tax would have to be:

The tax rates needed to bring down public debt to pre-crisis levels are sizable: reducing debt ratios to 2007 levels would require, for a sample of 15 euro area countries, a tax rate of about 10% on households with a positive net worth.

Note that the criterion is not billionaire status, nor millionaire, nor even “comfortably well off.” The tax would apply to anyone with a positive net worth. And the 10% wealth-grab would, of course, be on top of regular income taxes, sales taxes, property taxes, etc.

4: We Like Pension Funds

Unfortunately, it’s not just savings. Carmen Reinhart (again) and M. Belén Sbrancia made the following suggestions in a 2011 paper:

Historically, periods of high indebtedness have been associated with a rising incidence of default or restructuring of public and private debts. A subtle type of debt restructuring takes the form of ‘financial repression.’ Financial repression includes directed lending to government by captive domestic audiences (such as pension funds), explicit or implicit caps on interest rates, regulation of cross-border capital movements, and (generally) a tighter connection between government and banks.

Yes, your retirement account is now a “captive domestic audience.” Are you ready to “lend” it to the government? “Directed” means “compulsory” in the above statement, and you may not have a choice if “regulation of cross-border capital movements”—capital controls—are instituted.

5: The Eurozone Sanctions Money-Grabs

Germany’s Bundesbank weighed in on this subject last January:

“Countries about to go bankrupt should draw on the private wealth of their citizens through a one-off capital levy before asking other states for help.”

The context here is that of Germans not wanting to have to pay for the mistakes of Italians, Greeks, Cypriots, or whatnot. Fair enough, but the “capital levy” prescription is still a confiscation of funds from individuals’ banks or brokerage accounts.

Here’s another statement that sent shivers down my spine:

A capital levy corresponds to the principle of national responsibility, according to which tax payers are responsible for their government’s obligations before solidarity of other states is required.

The central bank of the strongest economy in the European Union has explicitly stated that you are responsible for your country’s fiscal obligations—and would be even if you voted against them! No matter how financially reckless politicians have been, it is your duty to meet your country’s financial needs.

This view effectively nullifies all objections. It’s a clear warning.

And it’s not just the Germans. On February 12, 2014, Reuters reported on an EU commission document that states:

The savings of the European Union’s 500 million citizens could be used to fund long-term investments to boost the economy and help plug the gap left by banks since the financial crisis.

Reuters reported that the Commission plans to request a draft law, “to mobilize more personal pension savings for long-term financing.”

EU officials are explicitly telling us that the pensions and savings of its citizens are fair game to meet the union’s financial needs. If you live in Europe, the writing is on the wall.

Actually, it’s already under way… Reuters recently reported that Spain has

…introduced a blanket taxation rate of .03% on all bank account deposits, in a move aimed at… generating revenues for the country’s cash-strapped autonomous communities.

The regulation, which could bring around 400 million euros ($546 million) to the state coffers based on total deposits worth 1.4 trillion euros, had been tipped as a possible sweetener for the regions days after tough deficit limits for this year and next were set by the central government.

Some may counter that since Spain has relatively low tax rates and the bail-in rate is small, this development is no big deal. I disagree: it establishes the principle, sets the precedent, and opens the door for other countries to pursue similar policies.

6: Canada Jumps on the Confiscation Bandwagon

You may recall this text from last year’s budget in Canada:

“The Government proposes to implement a bail-in regime for systemically important banks.”

A bail-in is what they call it when a government takes depositors’ money to plug a bank’s financial holes—just as was done in Cyprus last year.

This regime will be designed to ensure that, in the unlikely event a systemically important bank depletes its capital, the bank can be recapitalized and returned to viability through the very rapid conversion of certain bank liabilities into regulatory capital.

What’s a “bank liability”? Your deposits. How quickly could they do such a thing? They just told us: fast enough that you won’t have time to react.

By the way, the Canadian bail-in was approved on a national level just one week after the final decision was made for the Cyprus bail-in.

7: FATCA

Have you considered why the Foreign Account Tax Compliance Act was passed into law? It was supposed to crack down on tax evaders and collect unpaid tax revenue. However, it’s estimated that it will only generate $8.7 billion over 10 years, which equates to 0.18% of the current budget deficit. And that’s based on rosy government projections.

FATCA was snuck into the HIRE Act of 2010, with little notice or discussion. Since the law will raise negligible revenue, I think something else must be going on here. If you ask me, it’s about control.

In my opinion, the goal of FATCA is to keep US savers trapped in US banks and in the US dollar, in case the US wants to implement a Cyprus-like bail-in. Given the debt load in the US and given statements made by government officials, this seems like a reasonable conclusion to draw.

This is why I think that the institution of capital controls is a “when” question, not an “if” one. The momentum is clearly gaining steam for some form of capital controls being instituted in the near future. If you don’t internationalize, you must accept the risk that your assets will be confiscated, taxed, regulated, and/or inflated away.

What to Expect Going Forward

• First, any announcement will probably not use the words “capital controls.” It will be couched positively, for the “greater good,” and words like “patriotic duty” will likely feature prominently in mainstream press and government press releases. If you try to transfer assets outside your country, you could be branded as a traitor or an enemy of the state, even among some in your own social circles.

• Controls will likely occur suddenly and with no warning. When did Cyprus implement their bail-in scheme? On a Friday night after banks were closed. By the way, prior to the bail-in, citizens were told the Cypriot banks had “government guarantees” and were “well-regulated.” Those assurances were nothing but a cruel joke when lightning-fast confiscation was enacted.

• Restrictions could last a long time. While many capital controls have been lifted in Cyprus, money transfers outside the country still require approval from the Central Bank—over a year after the bail-in.

• They’ll probably be retroactive. Actually, remove the word “probably.” Plenty of laws in response to prior financial crises have been enacted retroactively. Any new fiscal or monetary emergency would provide easy justification to do so again. If capital controls or savings confiscations were instituted later this year, for example, they would likely be retroactive to January 1. For those who have not yet taken action, it could already be too late.

• Social environment will be chaotic. If capital controls are instituted, it will be because we’re in some kind of economic crisis, which implies the social atmosphere will be rocky and perhaps even dangerous. We shouldn’t be surprised to see riots, as there would be great uncertainty and fear. That’s dangerous in its own right, but it’s also not the kind of environment in which to begin making arrangements.

• Ban vs. levy. Imposing capital controls is a risky move for a government to make; even the most reckless politicians understand this. That won’t stop them, but it could make them act more subtly. For instance, they might not impose actual bans on moving money across borders, but instead place a levy on doing so. Say, a 50% levy? That would “encourage” funds to remain inside a given country. Why not 100%? You could be permitted to transfer $10,000 outside the country—but if the fee for doing so is $10,000, few will do it. Such verbal games allow politicians to claim they have not enacted capital controls and yet achieve the same effect. There are plenty of historical examples of countries doing this very thing.

Keep in mind: Who will you complain to? If the government takes a portion of your assets, legally, who will you sue? You will have no recourse. And don’t expect anyone below your tax bracket to feel sorry for you.

No, once the door is closed, your wealth is trapped inside your country. It cannot move, escape, or flee. Capital controls allow politicians to do anything to your wealth they deem necessary.

Fortunately, you don’t have to be a target. Our Going Global report provides all the vital information you need to build a personal financial base outside your home country. It covers gold ownership and storage options, foreign bank accounts, currency diversification, foreign annuities, reporting requirements, and much more. It’s a complete A to Z guide on how to diversify internationally.

Discover what solutions are right for you—whether you’re a big investor or small, novice or veteran, many options are available. I encourage you to pursue what steps are most appropriate for you now, before the door is closed. Learn more here…

The TRUTH about China’s Massive Gold Hoard

By Jeff Clark, Senior Precious Metals Analyst

I don’t want to say that mainstream analysts are stupid when it comes to China’s gold habits, but I did look up how to say that word in Chinese…

One report claims, for example, that gold demand in China is down because the yuan has fallen and made the metal more expensive in the country. Sounds reasonable, and it has a grain of truth to it. But as you’ll see below, it completely misses the bigger picture, because it overlooks a major development with how the country now imports precious metals.

I’ve seen so many misleading headlines over the last couple months that I thought it time to correct some of the misconceptions. I’ll let you decide if mainstream North American analysts are stupid or not.

The basis for the misunderstanding starts with the fact that the Chinese think differently about gold. They view gold in the context of its role throughout history and dismiss the Western economist who arrogantly declares it an outdated relic. They buy in preparation for a new monetary order—not as a trade they hope earns them a profit.

Combine gold’s historical role with current events, and we would all do well to view our holdings in a slightly more “Chinese” light, one that will give us a more accurate indication of whether we have enough, of what purpose it will actually serve in our portfolio, and maybe even when we should sell (or not).

The horizon is full of flashing indicators that signal the Chinese view of gold is more prudent for what lies ahead. Gold will be less about “making money” and more about preparing for a new international monetary system that will come with historic consequences to our way of life.

With that context in mind, let’s contrast some recent Western headlines with what’s really happening on the ground in China. Consider the big picture message behind these developments and see how well your portfolio is geared for a “Chinese” future…

Gold Demand in China Is Falling

This headline comes from mainstream claims that China is buying less gold this year than last. The International Business Times cites a 30% drop in demand during the “Golden Week” holiday period in May. Many articles point to lower net imports through Hong Kong in the second quarter of the year. “The buying frenzy, triggered by a price slump last April, has not been repeated this year,” reports Kitco.

However, these articles overlook the fact that the Chinese government now accepts gold imports directly into Beijing.

In other words, some of the gold that normally went through Hong Kong is instead shipped to the capital. Bypassing the normal trade routes means these shipments are essentially done in secret. This makes the Western headline misleading at best, and at worst could lead investors to make incorrect decisions about gold’s future.

China may have made this move specifically so its import figures can’t be tracked. It allows Beijing to continue accumulating physical gold without the rest of us knowing the amounts. This move doesn’t imply demand is falling—just the opposite.

And don’t forget that China is already the largest gold producer in the world. It is now reported to have the second largest in-ground gold resource in the world. China does not export gold in any meaningful amount. So even if it were true that recorded imports are falling, it would not necessarily mean that Chinese demand has fallen, nor that China has stopped accumulating gold.

China Didn’t Announce an Increase in Reserves as Expected

A number of analysts (and gold bugs) expected China to announce an update on their gold reserves in April. That’s because it’s widely believed China reports every five years, and the last report was in April 2009. This is not only inaccurate, it misses a crucial point.

First, Beijing publicly reported their gold reserve amounts in the following years:

• 500 tonnes at the end of 2001
• 600 tonnes at the end of 2002
• 1,054 tonnes in April 2009.

Prior to this, China didn’t report any change for over 20 years; it reported 395 tonnes from 1980 to 2001.

There is no five-year schedule. There is no schedule at all. They’ll report whenever they want, and—this is the crucial point—probably not until it is politically expedient to do so.

Depending on the amount, the news could be a major catalyst for the gold market. Why would the Chinese want to say anything that might drive gold prices upwards, if they are still buying?

Even with All Their Buying, China’s Gold Reserve Ratio Is Still Low

Almost every report you’ll read about gold reserves measures them in relation to their total reserves. The US, for example, has 73% of its reserves in gold, while China officially has just 1.3%. Even the World Gold Council reports it this way.

But this calculation is misleading. The US has minimal foreign currency reserves—and China has over $4 trillion. The denominators are vastly different.

A more practical measure is to compare gold reserves to GDP. This would tell us how much gold would be available to support the economy in the event of a global currency crisis, a major reason for having foreign reserves in the first place and something Chinese leaders are clearly preparing for.

The following table shows the top six holders of gold in GDP terms. (Eurozone countries are combined into one.) Notice what happens to China’s gold-to-GDP ratio when their holdings move from the last-reported 1,054-tonne figure to an estimated 4,500 tonnes (a reasonable figure based on import data).

 

At 4,500 tonnes, the ratio shows China would be on par with the top gold holders in the world. In fact, they would hold more gold than every country except the US (assuming the US and EU have all the gold they say they have). This is probably a more realistic gauge of how they determine if they’re closing in on their goals.

 

This line of thinking assumes China’s leaders have a set goal for how much gold they want to accumulate, which may or may not be the case. My estimate of 4,500 tonnes of current gold reserves might be high, but it may also be much less than whatever may ultimately satisfy China’s ambitions. Sooner or later, though, they’ll tell us what they have, but as above, that will be when it works to China’s benefit.

The Gold Price Is Weak Because Chinese GDP Growth Is Slowing

Most mainstream analysts point to the slowing pace of China’s economic growth as one big reason the gold price hasn’t broken out of its trading range. China is the world’s largest gold consumer, so on the surface this would seem to make sense. But is there a direct connection between China’s GDP and the gold price?

Over the last six years, there has been a very slight inverse correlation (-0.07) between Chinese GDP and the gold price, meaning they act differently slightly more often than they act the same. Thus, the Western belief characterized above is inaccurate. The data signal that, if China’s economy were to slow, gold demand won’t necessarily decline.

The fact is that demand is projected to grow for reasons largely unrelated to whether their GDP ticks up or down. The World Gold Council estimates that China’s middle class is expected to grow by 200 million people, to 500 million, within six years. (The entire population of the US is only 316 million.) They thus project that private sector demand for gold will increase 25% by 2017, due to rising incomes, bigger savings accounts, and continued rapid urbanization. (170 cities now have over one million inhabitants.) Throw in China’s deep-seated cultural affinity for gold and a supportive government, and the overall trend for gold demand in China is up.

The Gold Price Is Determined at the Comex, Not in China

One lament from gold bugs is that the price of gold—regardless of how much people pay for physical metal around the world—is largely a function of what happens at the Comex in New York.

One reason this is true is that the West trades in gold derivatives, while the Shanghai Gold Exchange (SGE) primarily trades in physical metal. The Comex can thus have an outsized impact on the price, compared to the amount of metal physically changing hands. Further, volume at the SGE is thin, compared to the Comex.

But a shift is underway…

In May, China approached foreign bullion banks and gold producers to participate in a global gold exchange in Shanghai, because as one analyst put it, “The world’s top producer and importer of the metal seeks greater influence over pricing.”

The invited bullion banks include HSBC, Standard Bank, Standard Chartered, Bank of Nova Scotia, and the Australia and New Zealand Banking Group (ANZ). They’ve also asked producing companies, foreign institutions, and private investors to participate.

The global trading platform was launched in the city’s “pilot free-trade zone,” which could eventually challenge the dominance of New York and London.

This is not a proposal; it is already underway.

Further, the enormous amount of bullion China continues to buy reduces trading volume in North America. The Chinese don’t sell, so that metal won’t come back into the market anytime soon, if ever. This concern has already been publicly voiced by some on Wall Street, which gives you an idea of how real this trend is.

There are other related events, but the point is that going forward, China will have increasing sway over the gold price (as will other countries: the Dubai Gold and Commodities Exchange is to begin a spot gold contract within three months).

And that’s a good thing, in our view.

Don’t Be Ridiculous; the US Dollar Isn’t Going to Collapse

In spite of all the warning signs, the US dollar is still the backbone of global trading. “It’s the go-to currency everywhere in the world,” say government economists. When a gold bug (or anyone else) claims the dollar is doomed, they laugh.

But who will get the last laugh?

You may have read about the historic energy deal recently made between Chinese President Xi Jinping and Russian President Vladimir Putin. Over the next 30 years, about $400 billion of natural gas from Siberia will be exported to China. Roughly 25% of China’s energy needs will be met by 2018 from this one deal. The construction project will be one of the largest in the world. The contract allows for further increases, and it opens Russian access to other Asian countries as well. This is big.

The twist is that transactions will not be in US dollars, but in yuan and rubles. This is a serious blow to the petrodollar.

While this is a major geopolitical shift, it is part of a larger trend already in motion:

• President Jinping proposed a brand-new security system at the recent Asian Cooperation Conference that is to include all of Asia, along with Russia and Iran, and exclude the US and EU.
• Gazprom has signed agreements with consumers to switch from dollars to euros for payments. The head of the company said that nine of ten consumers have agreed to switch to euros.
• Putin told foreign journalists at the St. Petersburg International Economic Forum that “China and Russia will consider further steps to shift to the use of national currencies in bilateral transactions.” In fact,a yuan-ruble swap facility that excludes the greenback has already been set up.
• Beijing and Moscow have created a joint ratings agency and are now “ready for transactions… in rubles and yuan,” said the Russian Finance Minister Anton Siluanov. Many Russian companies have already switched contracts to yuan, partly to escape Western sanctions.
• Beijing already has in place numerous agreements with major trading partners, such as Brazil and the Eurozone, that bypass the dollar.
• Brazil, Russia, India, China, and South Africa (the BRICS countries) announced last week that they are “seeking alternatives to the existing world order.” The five countries unveiled a $100 billion fund to fight financial crises, their version of the IMF. They will also launch a World Bank alternative, a new bank that will make loans for infrastructure projects across the developing world.

You don’t need a crystal ball to see the future for the US dollar; the trend is clearly moving against it. An increasing amount of global trade will be done in other currencies, including the yuan, which will steadily weaken the demand for dollars.

The shift will be chaotic at times. Transitions this big come with complications, and not one of them will be good for the dollar. And there will be consequences for every dollar-based investment. US-dollar holders can only hope this process will be gradual. If it happens suddenly, all US-dollar based assets will suffer catastrophic consequences. In his new book, The Death of Money, Jim Rickards says he believes this is exactly what will happen.

The clearest result for all US citizens will be high inflation, perhaps at runaway levels—and much higher gold prices.

Gold Is More Important than a Profit Statement

Only a deflationary bust could keep the gold price from going higher at some point. That is still entirely possible, yet even in that scenario, gold could “win” as most other assets crash. Otherwise, I’m convinced a mid-four-figure price of gold is in the cards.

But remember: It’s not about the price. It’s about the role gold will serve protecting wealth during a major currency upheaval that will severely impact everyone’s finances, investments, and standard of living.

Most advisors who look out to the horizon and see the same future China sees believe you should hold 20% of your investable assets in physical gold bullion. I agree. Anything less will probably not provide the kind of asset and lifestyle protection you’ll need.

In the meantime, don’t worry about the gold price. China’s got your back.

You don’t have to worry about silver, either, which we think holds even greater potential for investors. In the July issue of my newsletter, BIG GOLD, we show why we’re so bullish on gold’s little cousin.

And we provide two silver bullion discounts exclusively for subscribers, and name our top silver pick of the year.

Of course, we also have all our best buys in the gold mining sector as well.

Click here to get it all with a 90-day risk-free trial to our inexpensive BIG GOLD newsletter.

The Only PGM Stock You Should Buy

By Jeff Clark, Senior Precious Metals Analyst

It’s quite the dilemma.

One of the major reasons my colleagues and I are so bullish on platinum group metals (PGM)—palladium, in particular—is because of the intractable problems with supply. But most of the producers are backed into corners, with few options for improving their outlook. There’s simply no way for these metals to avoid a long-term production deficit due to the deep-seated problems with the companies that produce them.

So, how to invest?

Since we’re talking about profiting from a metals bull market, we could just buy bullion—and we have indeed recommended doing so to our readers. But to really maximize your leverage to the upside (and avoid more risky futures and options), a stock in a company that produces the metal is normally the way to go. Unfortunately, as above, the pickings are slim.

For us to invest in a PGM producer, the company would have to be:

• Outside of South Africa and Russia. The problems with miners in both countries are numerous and difficult.

• Making money. Many producers are not profitable at current prices because production costs are so high. And they won’t come down just because the strikes ended—they’ll go up, due to higher wages.

• Have a strong growth profile. We want a company that can capitalize on burgeoning demand, which would add further leverage to our investment.

• Have strong management (of course!). The last thing we want is a team with no experience navigating a volatile market such as this.

Does such a stock exist?

It’s a tall order, but the answer is yes. The company we recommend in this area meets all the criteria above—and is the safest speculation in this space. We consider it so safe, in fact, that we just “graduated” it from the International Speculator to BIG GOLD.

How’s This for Leverage?

This profitable mid-tier producer is perfectly positioned: it’s not so small that we’re purely speculating on some uncertain game-changing event, and yet it’s small enough to generate much larger share price gains than would be possible for one of the major mining companies. On the other hand, it’s big enough to catch the attention of mainstream investors.

Here are seven reasons why we’re excited about this company and the leverage we think we’ll get by owning shares…

#1: Large, High-Grade Assets

The company has two distinct but closely related mine sites. These alone will support the company’s growth for many years. However, only nine miles of an estimated 28 miles of known mineralization has been developed between them—essentially one-third of one giant mineralized structure. Management thinks it has an additional 102 million tonnes of undeveloped resources waiting to be dug up.

And get this: the average grade of their proven and probable reserves is 0.45 ounces per tonne, the world’s highest-grade PGM deposit. Of these, 78% is palladium, a very attractive figure since we’re even more bullish on it than platinum.

At the right metals prices, this company could double or triple production and still maintain a very long mine life.

#2: Growing Production and Low Costs

The company grew 2013 production by 10,000 ounces, but has yet to use all its milling capacity. It currently uses about 3,600 tonnes per day (tpd) of its 6,000 tpd total capacity. The company is working to increase ore production this year, which is good timing for us.

With a much cleaner balance sheet and a forecast of $800-$850 per ounce for all-in sustaining costs (AISC) in 2014, the company looks poised to make money in the current price environment—and a lot of money in the supply squeeze we anticipate.

#3: Recycling Business

In addition to mining, this company recycles depleted catalyst materials to recover palladium, platinum, and rhodium at its smelter and base metal refinery. It’s been doing this since 1997, and business is booming. Pre-tax earnings last year rose a whopping 233% over 2012. And management says it will expand this end of their business over the next few years.

#4: Strong Financial Performance

This company reported over a billion dollars of revenue last year, up nearly 30% from 2012. It finished the year with a very strong working capital position of almost a half billion dollars.

#5: Unique North American Operations

The company is one of only a few PGM producers in North America. Nearly all other PGM mines operate in South Africa (Impala, Amplats, Lonmin, etc.) or Russia (Norilsk). Therefore, this company is more stable than most that mine in other jurisdictions.

#6: Upgraded Management

A prior management team made a poor investment in Argentina a few years back, which led to major changes in the board of directors and top management last year. The new president and CEO is a 21-year industry veteran and has experience in both M&A and mine optimization. He’s already corrected past mistakes, and we’re happy with the direction he’s taken the company. The technical people on the ground seem competent and are getting admirable results.

And finally…

#7: We’ve Been There!

Our Chief Metals Investment Strategist Louis James, who conducted a due-diligence trip to the company’s operations last year, says:

I liked the story when I visited and considered it to be the company to buy in a safe mining jurisdiction. But I didn’t want to bet on the team in place at the time. Flash forward and now it’s under new management, which is very focused on cutting costs and expanding the core business. The company’s results for 2013 were quite impressive, and I expect them to get better going forward.

I’m convinced this company is uniquely positioned to benefit from potential supply shortages. Coupled with a likely rise in demand from the global auto industry in the years ahead, this stock is a very attractive play.

Here’s a picture from his visit.

Pay dirt: this is what the company’s palladium-platinum mineralization looks like before blasting. You can see the closely spaced holes that will be blasted a fraction of a second before the surrounding ones—in successive waves—so the ore is blasted inward. This high-grade resource in a safe and stable jurisdiction is the heart of our speculation.

The Only Stock to Buy, in a Market Backed into a Corner

Johnson Matthey, the world’s leading authority on PGMs, estimates the platinum market will register a deficit of at least 1.2 million ounces this year. This would be the largest shortfall since it first compiled data in 1975.

While it will take an enormous amount of time and expense to recover from the strikes in South Africa, that’s only the first layer of problems for the industry:

• According to consultancy GFMS, 300,000 ounces of platinum and 165,000 ounces of palladium could be lost after the strikes end, as it will take time and money to ramp up to full capacity—if that’s even possible since some mines have been damaged. The Implats CEO said it will take his company at least three months to return to full production, and they’ve already put the development of three new replacement shafts in the Rustenburg area on hold. Anglo American announced just last week that it plans to sell its platinum operations.

• Holdings of physically backed palladium ETFs continue to hit record highs. In less than two months, a half million ounces were added to ETFs. Fund holdings will likely continue to climb and push the palladium market further into deficit.

• The Russian government has been reportedly buying palladium from local producers, since it appears its stockpiles are near exhaustion. Exports ticked higher last month, but that was likely in anticipation of potential sanctions.

• Some recyclers announced they are holding back on sales, as they believe prices will move higher.

• Platinum demand in India is expected to grow 35% this year.

• Reports have surfaced that tout replacements to platinum and/or palladium. However, these are mostly research projects and are at least two to three years away from commercial viability (some will never make it).

• Auto sales in the US, China, and Europe, the three biggest regions by consumption, were up 12% through May over 2013.

• Existing stockpiles of these metals have dwindled. Based on prior estimates from Citigroup, only nine weeks of palladium and 22 weeks of platinum supplies remain—and half of those are in Russia. Standard Bank projects that stockpiled material from South African producers will run out in a month or less.

The key point is that platinum and palladium supply is in a structural deficit. Prices will pull back now that the strikes have ended—and that is your opportunity. The bull market in these metals is really just getting underway.

And we have the primo pick in the space. The shares of this stock would have to climb 50% just to match its 2011 highs—and that’s without the platinum/palladium supply crunch we’re speculating on.

As you’ve surmised by now, I can’t give away the name of this stock in fairness to paid subscribers. But you can get it by giving BIG GOLD a risk-free try. You’ll receive our full analysis and specific buy guidance, along with an exclusive discount on a popular gold coin in the June issue. And, if you want the absolute safest way to invest in PGMs, check out the options recommended in the May issue.

If you’re not 100% satisfied with the newsletter, simply cancel during the 3-month trial period for a full refund—no questions asked. Whatever you do, though, don’t miss out on the best stock pick in the PGM bull market. Click here to learn more about BIG GOLD or click here to go straight to the order form.

What Casey Research Staff Are Buying This Summer

By Jeff Clark, Senior Precious Metals Analyst

I ran across a business show last week that advertised that its guests would give out stock picks. That piqued my curiosity, so I watched to see what they would recommend.

For disclosure purposes, a chart was shown that listed if the speaker, his family, his fund, or his clients owned the stock. By the end of the show, I was flabbergasted—not one speaker owned any stock they recommended!

Anyone can go on television and tell investors company X is a great investment, but how much should you trust them if they don’t follow their own recommendations?

The counterargument is that the speaker could be biased if they recommend stocks they already own because then they’re just “talking their book.” True enough.

But consider a more personal situation: If you got specific investment advice from a professional you hired and found out he never bought what he told you to buy, how seriously would you take his advice?

What if a newsletter service recommended you buy gold and gold stocks, but their editors didn’t follow their own advice? And what if the market retreated and they encouraged you to average down—but they didn’t?

In the June BIG GOLD, I told subscribers to put the final touches on their precious metals portfolio over the summer, to take advantage of low prices. Do I take my own advice? What about the rest of our staff? And what about those at Casey Research who write non-gold publications?

I decided to poll our editors to see if they follow the advice in BIG GOLD and International Speculator and what they plan to buy this summer in the precious metals arena. Here’s what they told me…

Doug Casey, Chairman: Most everything is overpriced, thanks to the Fed’s unprecedented money printing. That includes stocks and property, and bonds are in a bubble. So I continue to buy the metals consistently, and do private placements in deserving companies. The metals and mining stocks are about the only value out there.

Olivier Garret, CEO: I am definitely not reducing my exposure to precious metals [PMs] and stocks. I will add to my positions in PMs at Hard Assets Alliance. Our funds, of which I am a large shareholder, continue to deploy capital in the best-of-breed resource companies.

David Galland, Managing Director: Over the last year, I have been taking full advantage of the softness in the precious metals sector by concentrating my purchases only on the best of the best precious metals stocks, deciding on a price I am thrilled to pay and then waiting for the price to come to me. I have also been very selective in participating in private placements. If a private placement doesn’t come with a very favorably priced warrant with an expiration date at least three years out, giving the company time to take its business to the next level, then I’m simply not interested. That’s the beauty of periods of consolidation—you can afford to be selective.

I also like to build large positions in companies which I know have the right stuff, including a significant and feasible project as well as the money and the management needed to get the job done. When those companies pull back—as they invariably do in markets such as these—I have no reservations about buying more. Pretium Resources falls into that category. My personal upside target is over $15, so buying at these levels is a no-brainer for me. That said, I’m not greedy, so when I get a solid double-digit return on a stock, I’m happy to take a profit.

I guess when it comes down to it, now that I live most of the year in my version of paradise—La Estancia de Cafayate—and dedicate much of every day to fully enjoying the place, I try to keep things simple. Primarily, by setting aside a couple of hours each month to review my portfolio in order to make sure I still understand why I own all the investments I own and to rebalance any positions that have grown outside of my comfort zone, or pulled back, allowing me to continue to build a position. In the case of precious metals-related investments, I am very comfortable with them totaling about 25% of my overall portfolio.

Dan Steinhart, Managing Editor, The Casey Report: I have all the physical metal I want for now, and I averaged down on a couple junior miners in the last few months. For this summer, I’m looking hard at mid- and large-tier dividend payers. I want more exposure to gold because I’m confident it’s going to the moon, but I have no idea how long it will take to get there. Collecting dividends helps offset the opportunity cost while I wait. I already own a good amount of Goldcorp, so Yamana is my next target… I’m watching its chart for signs that the price has stabilized, and once I see that, I’m ready to buy.

Marin Katusa, Chief Energy Investment Strategist: I am looking to build positions in certain stocks but don’t want to advertise which ones.

Bud Conrad, Chief Economist: Gold is my largest personal position. As I wrote in the April issue of The Casey Report, the world’s financial system is approaching an important rebalancing. New political alignments will undermine the dollar’s special privileges and in turn will elevate gold’s importance.

The petrodollar arrangement will not last forever, and cracks are beginning to form that suggest it may decline faster than most expect. Since the 1970s, Saudi Arabia and OPEC have only accepted dollars for oil. The new $400 billion agreement between Russia and China does not use dollars, and this is a major geopolitical shift that could eventually undermine the reserve status of the dollar. The price of gold could rise into the thousands of dollars very quickly if the petrodollar system fails.

In the meantime, investors should understand that current price weakness comes from short-term, big, institutional influence rather than from economic fundamentals. There are big forces that are able to move markets—interest rates, commodities, and stocks. The key movers are the central banks and their closely related big banks. Some international banks are being indicted for illegal activities in LIBOR, foreign exchange, and most recently London bullion fixings. Employees are being fired, some are leaving, and firms are closing some of their trading desks. We even have suspicions about some bankers’ deaths.

The Fed’s massive and not completely revealed actions have been used along with the truly massive derivatives and futures markets as developed and traded by the big banks to distort the traditional economic forces so that big deficits can be managed by keeping rates low. Prices can thus be managed in the short term, and the media continues to support the government’s policies. That high-frequency trading is tolerated as described in Michael Lewis’ book Flash Boys is only the tip of the iceberg of all that is going on.

In the long term, I agree with Doug Casey: we still face the greatest financial collapse ever when the current machinations hit their limits and the deception becomes widely understood.

Dennis Miller, Senior Editor, Miller’s Money Forever: I have a full allocation to precious metals, but I have a growing concern that Obamacare, by design, will ration care for seniors. Pity the poor senior that goes to Panama for treatment because he can’t get it in the US, or the wait is too long, or it’s too expensive—only to realize currency controls have been instituted and he can’t get money out of the country! As a result, I have been using some of the strategies in our Going Global 2014 report to assure that this won’t happen to me or my wife. And gold is part of that strategy.

Nick Giambruno, Senior Editor, International Man: This summer I plan to continue with steady purchases through MetalStream^® for gold bullion held in Singapore. I’m also keeping a higher-than-normal cash reserve for stink bids on juniors. I already have adequate exposure to silver and large producers.

Shannara Johnson, Chief Editor: I buy silver every week through SilverSaver, a metals accumulation program that allows you to save as little as $25 per week. When I get extra money, such as bonuses, I often use a lump sum to buy a larger amount of silver on dips. As Doug Casey says, only metal that you can hold in your hand is really yours, so whenever my SilverSaver account reaches a certain level, I have some of the bullion delivered.

The reason I’m buying silver instead of gold is that it’s more affordable, and also because of the “divisible” part of Aristotle’s criteria for money. If there ever comes a crisis so devastating that paper dollars become worthless and precious metals are used for trade and barter, I imagine that silver bullion coins will be easier to, say, buy food with than gold coins or bars.

I’m very wary of the cancer that is eating away at the heart of America—call it crony capitalism or neo-feudalism—and everything the government and Wall Street do seems to be designed to separate the little guy from his money. I believe precious metals are manipulated, the markets are manipulated, and we saw in Cyprus that nothing is sacred anymore, not even our own bank accounts. I don’t plan to sell my silver unless I have to—it’s a safety net in case things go from bad to worse.

Doug Hornig, Senior Editor: I think quality numismatic coins are the best buy right now, which I’ve focused on, because they’re down 50% or more from their highs, which is a lot more than gold itself. If collectibles rebound as they always have, I’ll do very well. But if not, I still have the value of the underlying asset, gold, which provides a powerful amount of downside protection, and that’s not to be sneezed at.

I don’t buy gold as a speculation; just as an heirloom (hopefully, provided I don’t need it myself) for my kids. So I couldn’t care less about the gyrations of the gold price. Anyone who wants to play those ups and downs is welcome to, and it could be very profitable to do it. It’s just not for me. I’m strictly buy and hold.

Ed Steer, Editor, Gold & Silver Daily: I’m full up on stocks, as I’m still “all-in,” with virtually all of them junior silver producers from BIG GOLD. Right now I’m buying silver—physical metal in hand—as it won’t be at this price forever.

Chris Wood, Senior Analyst, Casey Extraordinary Technology: I just used the bulk of the cash I had budgeted for investing this summer to buy several of the Casey Extraordinary Technology stocks we recently recommended. So I probably won’t do much in the way of precious metals investing this summer, but I definitely plan on it this fall: buying physical gold and silver bullion coins, and setting up an account with the Hard Assets Alliance.

The short-term technical picture for gold doesn’t look great, coupled with the dollar strengthening over the past month and yen declining, which is generally bearish for gold. But I honestly don’t care about that at all. The long-term fundamental picture has only improved, save for the small bit of tapering that the Fed has initiated in its bond-buying program. Central banks around the world continue to create currency units at a record pace.

And the mid-term outlook for gold looks good too. Even though the dollar has strengthened over the past few weeks, the beginning of the end of the petrodollar system (shown most recently by the China/Russia gas deal) and China’s desire to essentially create a new UN without the US and EU but with Russia and Iran, has to be bullish for gold.

Kevin Brekke, Managing Editor, World Money Analyst: The post-2008/09 financial crisis run-up in gold had everyone from die-hard gold bugs to momentum jockeys riding the price wave. It seemed the trend would never end. Then came the countervailing realities of monetary, currency, and economic interventions, deflationary forces, and—gasp!—profit taking.

The ensuing price volatility in the precious metals sector had the myopic, trade-for-today crowd scamper to the next hot trade. Yet, the consequences of misguided policies remain unknown, and the excesses that were deployed to resolve them have simply been repressed. The underlying fundamentals are unchanged, and I will not sell my gold and render myself unarmed against the eventual fallout from a delayed day of reckoning.

Louis James, Chief Metals & Mining Investment Strategist: Our household is tight on cash this summer, as we just poured much of our liquidity into buying our new home in Puerto Rico. Still, my wife and I have been going over our budget and plan to buy some stocks, maybe more bullion as well. Which ones will depend on what looks best when we pull the trigger, but adding to our position in BOZ is a high priority, and we’re thinking about SWC, too, as we’ve yet to add exposure to platinum/palladium, and our diversification into that sector in the newsletters seems to be working out even faster than expected.

If the market correction continues and we see the capitulation this summer that was close but never really fully developed last December, I will do all I can to scrounge up more cash to deploy, because I think it will be both life-changing and a once-in-a-lifetime event.

What About Me?

I have been buying tubes of silver Eagles and Maple Leafs every time silver dips to $19.50 or below. I plan to buy the discounted bullion offered in the June BIG GOLD, as well as the new Canadian Howling Wolf. I have full exposure to equities in the precious metals space—but then Louis or Marin will recommend a compelling speculation and off I go turning over couch cushions.

What I have found very rewarding is that by just sticking to a regular accumulation plan, my stash has steadily grown. Given the crises I see ahead, I want to be sure my household can withstand the fallout, which could be ugly if Doug Casey, Bud Conrad, James Rickards, and Jim Rogers are right. The financial crisis in 2008 was a wake-up call, and I realized then I probably didn’t have sufficient monetary protection. I feel differently today, thanks to my regular buying habits.

Since I’m in the public eye, I don’t keep any bullion at home—except for a dummy stash. I use several of the services recommended in our Bullion Buyers Guide, that you don’t have to be a high-net-worth investor to use.

Conclusion

What you see above started out as a survey but ended up becoming a great set of precious-metals-related investment advice. I hope you find it helpful.

If you’re interested in precious metals investments, but don’t know where to start, read our free special report, the 2014 Gold Investor’s Guide. It tells you how and when to buy gold and silver bullion… what to watch out for when investing in gold stocks… and much more. Click here to get it now.

The Birth of a New Bull Market

By Jeff Clark, Senior Precious Metals Analyst

If I asked you why you think I’m bullish on platinum and palladium, you’d probably point to the strikes in South Africa, the world’s largest producer of platinum. Or maybe the geopolitical conflicts with Russia, the largest supplier of palladium. Maybe you’d even mention that some technical analysts say the palladium price has “broken out” of its trading range.

These are all valid points—but they’re reasons why a trader might be bullish. When the strikes end, or Russia ends its aggression, or short-term price momentum eases, they’ll sell.

And that will be a mistake.

Because underneath the headlines lies an irreparable situation with the PGM (Platinum Group Metals) market, one that will last at least several years and probably more like a decade. This market is teetering on the edge of a supply crunch, one more perilous than many investors realize. As the issues outlined below play out, prices will be forced higher—which signals that we should diversify into the “other” precious metals now.

The basic problem is that platinum and palladium supply is in a structural deficit. It won’t be resolved when the strikes end or Russia simmers down. Here are six reasons why…

#1. Producers Won’t Meet the Cost of Production

The central issue of the striking workers in South Africa is wages. In spite of company executives offering to double wages over the next five years, workers remain on the picket line.

Regardless of the final pay package, wages will clearly be higher. And worker pay is one of the biggest costs of production. And the two largest South African producers (Anglo American and Impala), which supply 69% of the world’s platinum, are already operating at a loss.

Once the strike settles, costs will rise further. Throw in ongoing problems with electric power supply, high regulations, and past labor agreements, and there is virtually no chance costs will come down.

This dilemma means that platinum prices would need to move higher for production to be maintained anywhere near “normal” levels. Morgan Stanley predicts it will take at least four years for that to occur.

And if the price of the metal doesn’t rise? Companies will have no choice but to curtail production, making the supply crunch worse.

#2. Inventories Are Near the Bottom of the Barrel

One reason platinum price moves have been muted during the work stoppage is because there have been adequate stockpiles. But those are getting low.

Impala, the world’s second-largest platinum producer, said the company is now supplying customers from its inventories.

In March, Switzerland’s platinum imports from strike-hit South Africa plummeted to their lowest level in five-and-a-half years, according to the Swiss customs bureau.

Since producers can’t currently meet demand, some customers are now obtaining metal from other sources, including buying it in the open market.

As inventories decline, supply from producing companies will need to make up the shortfall—and they’ll have little ability to do that.

#3. The Strikes Will Make Recovery Difficult and Prolonged

Companies are already strategizing how to deal with the fallout from the worst work stoppage since the end of apartheid in 1994…

• Amplats said it might sell its struggling Rustenburg operations. Even if it finds a buyer, the new operator will inherit the same problems.

• Impala said that even if the strike ends soon, its operations will remain closed until at least the second half of the year.

• Some companies have announced they may shut down individual shafts. This causes a future problem because some of these mines are a couple of miles deep and would require a lot of money to bring back online—which they may balk at doing with costs already so high.

• It’s not being advertised, but a worker settlement will almost certainly result in layoffs since some form of restructuring will be required. This could trigger renewed strikes and set in motion a vicious cycle that further degrades production and makes labor issues insurmountable.

#4. Russian Palladium Is Already in a Supply Crunch

When it comes to palladium, Russia matters more than South Africa, since it provides 42% of global supply. Remember: palladium demand is expected to rise more than platinum, due to new auto emissions control regulations in Asia.

But Russia’s mines are also in trouble…

• Ore grades at Russia’s major mines, including the Norilsk mines, are reported to be in decline.

• New mines will take as long as 10 years to come online. It could take a decade for Russian production to rebound—if Russia even has the resources to do it. This stands in stark contrast to global demand for palladium, which has grown 35.8% since 2004.

• Russia’s aboveground stockpile of palladium appears to have dwindled to near extinction. The precise amount of the country’s reserves is a state secret, but analysts estimate stockpiles were 27-30 million ounces in 1990.

Take a look at reserve sales today:

Many analysts believe that since palladium reserve sales have shrunk, Russia has sold almost all its inventory. As unofficial confirmation, the government announced last week that it is now purchasing palladium from local producers. This paints a sobering picture for the world’s largest supplier of palladium—and is very bullish for the metal’s price.

#5. Demand for Auto Catalysts Cannot Be Met

The greatest use of PGMs is in auto catalysts, which help reduce pollution. Platinum has long been the primary metal used for this purpose and has no widely used substitute—except palladium.

But that market is already upside down.

Palladium is cheaper than platinum, but replacing platinum with palladium requires some retooling and, on a large scale, would worsen the supply deficit.

As for platinum (which does work better than palladium in higher-temperature diesel engines), auto parts manufacturers are expected to use more of it than is mined this year, for the third straight year.

Some investors may shy away from PGMs because they believe demand will decline if the economy enters a recession. That could happen, but tighter emissions controls and increasing car sales in Asia could negate the effects of declining sales in weakening Western economies.

For example, China is now the world’s top auto-producing country. According to IHS Global, auto sales in China are projected to grow 5% annually over the next three years. PricewaterhouseCoopers forecasts that sales of automobiles and light trucks in China will double by 2019. That will take a lot of catalytic converters. This trend largely applies to other Asian countries as well. It’s important to think globally when considering demand.

The key, however, is that supply is likely to fall much further than demand.

#6. Investment Demand Has Erupted

Investment demand for platinum rose 9.1% last year. The increase comes largely from the new South African ETF, NewPlat. At the end of April, all platinum ETFs held nearly 89,000 ounces—a huge amount when you consider it was zero as recently as 2007.

Palladium investment fell 84% last year—but demand is up sharply year-to-date due to the launch of two South African palladium ETFs, pushing global palladium holdings to record levels. And like platinum, there was no investment demand for palladium seven years ago.

Growing investment demand adds to the deficit of these metals.

The Birth of a 10-Year Bull Market

Add it all up and the message is clear: by any reasonable measure, the supply problems for the PGM market cannot be fixed in the foreseeable future. We have a rare opportunity to invest in metals that are at the beginning of a potential 10-year bull run.

Platinum and palladium prices may drop when the strikes end, but if so, that will be a buying opportunity. This market is so tenuous, however, that an announcement of employees returning to work may be too little, too late. We thus wouldn’t wait to start building a position in PGMs.

GFMS, a reputable independent precious metals consultancy, predicts the palladium price will hit $930 by year-end and that platinum will go as high as $1,700. But that will just be the beginning; the forces outlined above could easily push prices to double over the next few years.

At that point, stranded supplies might start coming back online—but not until after major, sustained price increases make it possible.

The RIGHT Way to Invest

In my newsletter, BIG GOLD, we cover the best ways to invest in the metals themselves (funds and bullion), but for the added leverage of investing in a profitable platinum/palladium producer, I have to hand the baton over to Louis James, editor of Casey International Speculator.

You see, most PGM stocks are not worth holding, so you have to be very diligent in making the right picks. Remember, the dire problems of the PGM miners are one reason we’re so bullish on these metals. However, Louis has found one company in a very strong position to benefit from rising prices—and its assets are not located in either South Africa or Russia.

It’s the only platinum mining stock we recommend, and you can get its name, our full analysis, and our specific buy guidance with a risk-free trial subscription to Casey International Speculator today.

If you give it a try today, you’ll get three investments for the price of one: Your Casey International Speculator subscription comes with a free subscription to BIG GOLD, where you’ll find two additional ideas on how to invest in the PGMs.

If you’re not 100% satisfied with our newsletters, simply cancel during the 3-month trial period for a full refund—but whatever you do, make sure you don’t miss out on the next 10-year bull market. Click here to get started right now.

Listen, Silver: We Need to Talk

By Jeff Clark, Senior Precious Metals Analyst

I wrote to Silver last week, and she answered back. I’d like to share our correspondence with you…

Dear Silver,

Happy anniversary. It was on April 25, 2011 that you hit $49.80 per ounce in the New York spot market.

Today, three years later, you sell for around $20, nearly 60% less.

Is your bear market almost over—or are these low prices here to stay? Your price has lagged gold this year, so your normal volatility is lacking. How much longer will you be stuck?

Jeff Clark, silver investor

Here’s her polite response:

Dear Mr. Clark,

I have good news for you. While some investors have lost interest in me and my price is at 2010 levels, things will soon change.

I put together this historical chart for you, and I hope you’ll share it with your fellow silver investors. It shows every major bear market over the past four decades. The black line represents what’s taken place from April 2011 through last Friday.

Of the seven prior bear markets, four lasted longer and three were shorter. Four declined less than today; two were about the same; and only one was significantly deeper.

If I were to match the two longest bear markets, my price would stay down until this October. If it matched the other two longer bear markets, it would end this summer.

Over the past 40 years, there has been no bear market that would extend my low past this October.

Or my low may already be in.

Either way, I think it’s safe to say that I’m close to the end of my down cycle. In fact, the historical data say the opportunity to buy me at $20 or less will soon be unavailable.

Let me relay some other data to you that also signal current prices can’t last too much longer…

The US Mint (Still) Can’t Keep Up with Demand

The sharp drop in my price in 2013 unleashed a wave of pent-up demand for silver coins. Look at the response from investors.

The question this year is if those record levels could continue to be supported. The first quarter is over, so I can tell you the answer…

The US Mint sold 13,879,000 ounces of me in Q1, 2.4% less than the 14,223,000 sold in the first quarter last year. Here’s the monthly breakdown:

 

January’s 36% decline from the prior year looks big, but it’s not what you think: the Mint didn’t begin sales until the end of the second week of the month. The monthly total thus reflects only 2.5 weeks of sales.

 

And March sales were the fourth-biggest month ever. Add in April’s sales figures and the US Mint is now on pace to exceed 2013 totals.

It’s clear that your fellow investors think my price will go higher.

Silver ETFs Have Net Inflows (Again)

You might remember that silver ETFs’ holdings were largely flat last year, unlike the mass exodus seen in gold funds. The pattern is continuing this year.

Holdings in my exchange-traded products (ETPs) have risen 3.5% year to date, an additional 17.5 million ounces. In fact, the net purchases by silver ETPs have totaled $354 million YTD, the largest influx of all commodity ETPs!

Meanwhile, gold-backed ETPs have seen sales of 500,000 ounces, about a 1% drop.

Jewelers Love Low Prices

Low prices for me have led to increased silver jewelry purchases.

As just one example, the UK reports that silver jewelry sales jumped 40.4% in February, to 351,791 items.

India Just Won’t Stop Buying

India imported 5,500 tonnes of me last year, 180% more than 2012. Imports comprised 20% of all global demand.

Last month’s silver imports were 250% lower. This was mostly due to the recent increase in import duties, and the fact that six banks got permission to import gold, which would soften purchases of me. This could partly explain why my price has struggled.

But as long as politicians keep gold restrictions in place, Indians will keep buying me.

China: More Silver for Solar

Chinese imports of me rose drastically in February, up by 75% month on month and 90% year on year to 358 tonnes, the highest since March 2011. Though lower the following month, March imports were up 16% year over year.

China’s solar industry is growing explosively. In 2009, it represented about 0.2% of the global market; this year, it’s estimated to be one-third.

It’s interesting to note that my price rose in February and fell in March, which suggests that Chinese demand affects my price, too.

Supply Sources Are Concerning

So far, suppliers have managed to meet demand. However, there are dark clouds on the horizon…

• Very little excess supply is expected this year, as production is projected to remain flat, and demand for me shows no signs of letting up.

• Solar power accounted for 29% of added electricity capacity in America last year. “More solar has been installed in the US in the past 18 months than in 30 years,” says the US Solar Energy Industries Association. “Eventually solar will become so large that there will be consequences everywhere.”

• Supply from recycling will probably be weak, because it’s not cost effective to recover every tiny bit of me from cellphones or prescription eyewear or casino chips. One report says that Americans threw away 130 million cellphones last year, containing over 46 tonnes of me.

• Several major base-metals mines are expected to be depleted over the next several years. The problem is that two-thirds of me is a byproduct from base-metals operations—if their output falls, there will be less of me, as well.
• The Silver Institute says that demand for industrial products made from me continues to grow.

No Regrets

As I look at your current situation from a historical perspective, I see a lot of catalysts that will catapult my price higher in the near future. It seems rather clear that as demand continues to grow, supply tightens, and my role as money grows more substantial, I will trade at much higher levels in just a few short years.

In fact, I offered to bet my cousin gold that I will outperform him before this cycle is over. He declined to take the bet.

The clock is ticking. Don’t set yourself up for regret when my price leaves $20 in the dust.

Your friend,

Silver

P.S. Learn about the three best ways to invest in silver, where and when to buy physical silver, and how to find the best silver stocks, in the free 2014 Silver Investor’s Guide.

Inflation Is Coming, What to Do—NOW

By Jeff Clark, Senior Precious Metals Analyst

We’ve all heard of the inflationary horrors so many countries have lived through in the past. Third-world countries, developing nations, and advanced economies alike—no country in history has escaped the debilitating fallout of unrepentant currency abuse. And we expect the same fallout to impact the US, the EU, Japan, China—all of today’s countries that have turned to the printing press as a solution to their economic woes.

Now, it seems obvious to us that the way to protect one’s self against high inflation is to hold one’s wealth in gold… But did citizens in countries that have experienced high or hyperinflation turn to gold in response? Gold enthusiasts may assume so, but what does the data actually show?

Well, Casey Metals Team researcher Alena Mikhan dug up the data. Here’s a country-by-country analysis…

Brazil

Investment demand for gold grew before Brazil’s debt crisis and economic stagnation of the 1980s. However, it really took off in the late ‘80s, when already-high inflation (100-150% annually) picked up steam and hit unsustainable levels in 1989.

Source: The International Gold Trade by Tony Warwick-Ching, 1993; inflation.eu
*Measured from December to December
**Year-end rate

During this period, investment demand for bullion skyrocketed 333%, from 20 tonnes in 1976 to 86.5 tonnes in 1989.

And notice what happened to demand when inflation began to reverse. Substantial liquidations, showing demand’s direct link to inflation.

Indonesia

Indonesia was hit by a severe economic crisis in 1998. The average inflation rate spiked to 58% that year.

Sources: World Gold Council, inflation.eu

Gold demand doubled as inflation surged. It’s worth pointing out that investment demand in 1997 was already at a record high.

Also, total demand in 1999 reached 120.8 tonnes (not just demand directly attributable to investment), 18% more than in pre-crisis 1997. But overall, once inflation cooled, so again did gold demand.

India

While India has a traditional love of gold, its numbers also demonstrate a direct link between demand and rising inflation. The average inflation rate in 1998 climbed to 13%, and you can see how Indians responded with total consumer demand. (Specifically investment demand data, as distinct from broader consumer demand data, is not available for all countries.)

Sources: World Gold Council, inflation.eu
*Includes net retail investment and jewelry

Gold demand hit a record of 774.4 tonnes, 13% above the record set just a year earlier. In fairness, we’ll point out that gold consumption was also growing due to a liberalization of gold import rules at the end of 1997.

When inflation cooled, the same pattern of falling gold demand emerged.

Egypt, Vietnam, United Arab Emirates (UAE)

Here are three countries from the same time frame last decade. Like India, we included jewelry demand since that’s how many consumers in these countries buy their gold.

Sources: World Gold Council, indexmundi.com

Egypt saw inflation triple from 2006 to 2008, and you can see consumer demand for bullion grew as well. Even more impressive is what the table doesn’t show: Investment demand grew 247% in 1998 over the year before. Overall tonnage was relatively modest, though, from 0.7 to 2.5 tonnes.

Vietnam and the United Arab Emirates saw similar patterns. Gold consumption increased when inflation peaked in 2008. Again, it was investment demand that saw the biggest increases. It grew 71% in Vietnam, and 27% in the United Arab Emirates.

And when inflation subsided? You guessed it: Demand fell.

Japan

Prime Minister Shinzo Abe’s plan to kill deflation pushed Japan’s consumer price inflation index to 1.2% last year—still low, but it had been flat or falling for almost two decades, including 2012.

 

In response, demand for gold coins, bars, and jewelry jumped threefold in the Land of the Rising Sun.

 

One of the biggest investment sectors that saw increased demand, interestingly, was in pension funds.

Belarus

Unlike many of the nations above, citizens from this country of the former Soviet Union do not have a deep-rooted tradition for gold. However, in 2011, the Belarusian ruble experienced a near threefold depreciation vs. the US dollar. As usual, people bought dollars and euros—but in a new trend, turned to gold as well.

We don’t have access to all the data used in the tables above, but we have firsthand information from people in the country. In the first quarter of 2011, just when it became clear inflation would be severe, gold bar sales increased five times compared to the same period a year earlier. In March alone that year, 471.5 kg of gold (15,158 ounces) were purchased by this small country, which equaled 30% of total gold sales, from just one year earlier. Silver and platinum bullion sales grew noticeably as well.

The “gold rush” didn’t live long, however, as the central bank took measures to curb demand.

Argentina

Argentina’s annual inflation rate topped 26% in March last year, which, according to Bloomberg, made residents “desperate for gold.” Specific data is hard to come by because only one bank in the country trades gold, but everything we read had the same conclusion: Argentines bought more gold last year than ever before.

At one point, one bank, Banco Ciudad, even tried to buy gold directly from mining companies because it couldn’t keep up with demand. Some analysts report that demand has continued this year but that it has shown up in gold stocks.

What to Do—NOW

History clearly shows there is a direct link between inflation and gold demand. When inflation jumps, or even when inflation expectations rise, investors turn to gold in greater numbers. And when gold demand rises, so does its price—you can guess what happens to gold stocks.

With the amount of money the developed countries continue to print, high to hyperinflation is virtually inevitable. We cannot afford to believe in free lunches.

The conclusion is inescapable: One must buy gold (and silver) now, before the masses rush in. The upcoming inflationary storm will encompass most of the globe, so the amount of demand could push prices far higher than many think—and further, make bullion scarce.

Your neighbors will soon be buying. We suggest beating them to the punch.

Remember, gold speaks every language, is highly liquid anywhere in the world, and is a proven store of wealth over thousands of years.

But what to buy? Where? How?

We can help. With a subscription to our monthly newsletter, BIG GOLD, you’ll get the Bullion Buyers Guide, which lists the most trustworthy dealers, thoroughly vetted by the Metals team, as well as the top medium- and large-cap gold and silver producers, royalty companies, and funds.

Normally I’d suggest that you try BIG GOLD risk-free for 3 months, but right now, I can offer you something even better: ALL EIGHT of Casey’s monthly newsletters for one low price, at a huge 55% discount.

It’s called the Casey OnePass and lets you profit from the huge variety of investment opportunities we here at Casey Research are seeing in our respective sectors right now—from precious metals to energy, technology, big-picture trend investing, and income investing.

Click here to find out more. But hurry—the Casey OnePass offer expires this Friday, April 4.

 

Should We Really Put Gold in an IRA?

By Hard Assets Alliance Team

Jeff Clark, Editor of BIG GOLD

“Gold is one of the dumbest things to put in your IRA,” said the slick TV commentator, with his $200 haircut, perfect white teeth, and superior attitude. “Everyone knows income-producing vehicles are best for an IRA.”

I tried to ignore the prepackaged message from someone who sounded like he hadn’t given any more thought to the topic than what he’d read somewhere. His advice was misleading and incomplete, and I wondered how many viewers might weaken their portfolios by acting on his sound bite.

On one hand, he’s right: the tax-advantaged nature of an IRA makes income-generating assets ideal, especially when you factor in compounding. Gold generates no income.

And there’s another drawback to putting gold in an IRA, one the slick TV journalist probably never even thought of: you lose confidentiality. Gold is one of the last assets in modern society that still offers this advantage—and you’d have to give it up if you stick it in an IRA.

So on a cursory level, one might nod along with the empty suit on TV and conclude that gold should be excluded from a retirement account. But these concerns are only reasons not to hold all your precious metals in an IRA, or have your retirement account be comprised entirely of gold. Indeed, the reasons to put some gold in an IRA have grown—in fact, it might be a major strategic mistake not to have a gold IRA…

A Gold IRA Is a Strategic Portfolio Move

There are solid, core reasons why every investor should have some gold in an IRA. See which of these factors apply to you…

Your IRA is one of your biggest—or only—investment accounts. If an IRA is where most of your investment funds are housed, it may be your only chance to add physical metal to your portfolio.

You want to diversify into a non-financial asset. Think about it: if your retirement account consists of just stocks and bonds, then all of your IRA investments are in paper assets. In today’s world, that’s the pinnacle of risk.

Tax-advantaged growth. As with any asset, gains can compound tax-deferred inside an IRA (or tax-free in a Roth). The additional advantage with precious metals is that you can shift the allocation and not trigger a taxable event—for example, if you wanted to lighten up on gold to buy some silver.

Retirement inflation hedge. To have no inflation hedge in a retirement portfolio seems especially shortsighted in today’s monetary environment. Remember, regardless of what the “profit” column shows on your statement each year, those gains have to be adjusted for inflation—you’re eventually going to spend some of that money, after all. A dividend mutual fund yielding 2%, for example, nets you nothing after accounting for the current rate of inflation. And the further away you are from withdrawing the funds, the longer inflation is eating away at your account value. The answer is to utilize one of the best inflation hedges known to man.

If you share our concern about the consequences of global fiscal and monetary excesses, holding some physical precious metals inside a retirement vehicle is a prudent move. The Hard Assets Alliance provides that service. As you’ll see below, the Hard Assets Alliance just opened the door to international storage for IRA holders.

But first, why should we use the Hard Assets Alliance and not one of the other programs you might see advertised? Well, for the same reason we no longer start our cars with a crankshaft…

The Horse-and-Buggy Industry of the 21st Century

The process to set up a gold IRA has traditionally been slow and cumbersome. US law requires that IRA assets be held at a trust company to ensure proper tax reporting and recordkeeping. However, most gold dealers are not trust companies. For them to offer physical gold IRAs, they must partner with a trust company that’s willing to hold physical gold.

So when a gold dealer offers to purchase gold within an IRA, the process for the investor looks like this:

• Open an account with a gold dealer

• Open a separate IRA account with a trust firm (usually done via snail mail)

• Fund your account with the trust

• Request a purchase of metals from your chosen vendor

• Wait for funds to transfer and your order to settle

This procedure takes 30-45 days—it still takes a month, even if you already have an IRA or a relationship with a dealer. Further, dealers typically charge high fees when purchasing gold for an IRA. And when you want to sell or take a distribution, get ready for more paperwork, verification checks, and shipping fees, all of which take another 2-3 weeks.

This “manual” process has led to lengthy delays, unexpected costs, and never-ending frustrations. Check out some of the common complaints IRA holders have had with this antiquated system…

• IRA transfers can take up to 30 days to execute, depending on the follow-up procedures of the custodian.

• Deposit confirmations are not always sent to the client in a timely manner and are not automated.

• Clients cannot lock in an order until the custodian verifies the cash balance with the dealer, exposing them to market risk.

• The purchasing process typically takes 8-10 business days to settle.

• Metals must be shipped to the custodian’s vaulting facility, and the IRA holder is responsible for those costs.

• Deliveries to the vaulting location may not be tracked by the custodian, nor are the deliveries compared to the order invoice for accuracy of delivery. This has been a growing concern by investors.

• Limited storage options. Most custodians only offer one or two storage locations, and most of those are in Delaware.

• The sell process is costly, cumbersome, and time consuming.

• Poor customer service is one of the biggest complaints. When the client has questions about his IRA or order, the dealer refers him back to the custodian—and the custodian refers him back to the dealer! The client is often passed around without ever getting his questions answered.

This doesn’t sound fun. Fortunately, the Hard Assets Alliance has completely changed how business is done with gold IRAs…

The New “Gold” Standard in IRAs

HAA’s program has streamlined the entire gold/IRA process and greatly reduces the time and hassle to open an account. In most cases, you can do everything online. It’s a breakthrough service, and we want to highlight it now, before the April 15 deadline, so you can still make a 2013 contribution.

The Hard Assets Alliance IRA reduces both time and hassle. The online platform lets you electronically create an IRA account and a trust account simultaneously. Entrust, a well-known custodian, provides the trust account, and it receives your application in real time. In most cases, it takes only 10-15 minutes to open a traditional or Roth IRA account; SEP and SIMPLE accounts take about one to two weeks to process, and Entrust will work with you to facilitate transfers. The process is straightforward and user-friendly.

Further, there are no additional fees to purchase or sell precious metals within a Hard Assets Alliance IRA. And like all Hard Assets Alliance products, all buying and selling can be done online.

As far as we know, this is the only fully automated online IRA trading system to offer physical precious metals.

The process is straightforward. You open an IRA account at the Hard Assets Alliance, and your application is automatically sent to Entrust. The submittal process takes about five minutes, and once approved, you can fund your account. An additional form is required for SEP and SIMPLE accounts. You can also fund your account by transferring a full or partial existing 401k into a Hard Assets Alliance IRA.

If you’re already a Hard Assets Alliance customer, you can create a separate IRA account using your existing username and password, and toggle between accounts.

The Hard Assets Alliance portal will notify you electronically once you’re approved (typically within two business days), and then you can fund your account. All funds go directly to Entrust since it’s the custodian. Upon receipt, it notifies the Hard Assets Alliance of your deposit, and your funds are available to purchase metal the next business day. It also takes care of all reporting, including tax statements.

The Hard Assets Alliance makes buying (and selling) easy; it’s all done online at your convenience, and comes with industry-low commissions since your order is bid out to a network of dealers. Further, only IRA-permissible bars and coins are displayed for purchase. The rules can get a tad complicated—that’s been another hazard: buy the wrong form of gold for a retirement vehicle, and you risk invalidating the entire IRA, triggering an unwelcome taxable event. No worries with the Hard Assets Alliance.

And Now You Can Store Your IRA Gold in Zurich

Until now, foreign gold storage for IRAs, while available for US investors, has been a tedious process, with the setup requiring a good deal of time, paperwork, and expense. However, the Hard Assets Alliance just announced that its vault in Zurich, Switzerland can be used to store Gold Eagles (only) in an IRA with the same ease and convenience of a US IRA. This gives us an international storage option for our gold—and in one of the strongest jurisdictions to boot.

This is a breakthrough offering in the industry—one you won’t find elsewhere. The minimum for this vault is $10,000 (the Hard Assets Alliance only requires $5,000 for US storage). If you don’t meet the minimum, open an account and fund it over time with a monthly direct deposit. By opening your account now, it can be ready to go when you are.

The reasons to put some gold in an IRA are mounting. And with the Hard Assets Alliance, we can avoid the VHS-tape versions of the industry and jump straight to Blu-ray. I encourage you not to put off making this strategic move for your retirement account.

What 10-Baggers (and 100-Baggers) Look Like

By Jeff Clark, Senior Precious Metals Analyst

Now that it appears clear the bottom is in for gold, it’s time to stop fretting about how low prices will drop and how long the correction will last—and start looking at how high they’ll go and when they’ll get there.

When viewing the gold market from a historical perspective, one thing that’s clear is that the junior mining stocks tend to fluctuate between extreme boom and bust cycles. As a group, they’ll double in price, then crash by 75%… then double or triple or even quadruple again, only to crash 90%. Boom, bust, repeat.

Given that we just completed a major bust cycle—and not just any bust cycle, but one of the harshest on record, according to many veteran insiders—the setup for a major rally in gold stocks is right in front of us.

This may sound sensationalistic, but based on past historical patterns and where we think gold prices are headed, the odds are high that, on average, gold producers will trade in the $200 per share range before the next cycle is over. With most of them currently trading between $20 and $40, the returns could be stupendous. And the percentage returns of the typical junior will be greater by an order of magnitude, providing life-changing gains to smart investors.

What you’re about to see are historical returns of both producers and juniors during three separate boom cycles. These are factual returns; they are not hypothetical. And if you accept the fact that this market moves in cycles, you know it’s about to happen again.

Gold had a spectacular climb in 1979-1980, and gold stocks in general gave a staggering performance at that time—many of them becoming 10-baggers (1,000% gains and more). While this is a well-known fact, few researchers have bothered to identify exact returns from specific companies during this era.

Digging up hard data from before the mid-1980s, especially for the junior explorers, is difficult because the information wasn’t computerized at the time. So I sent my nephew Grant to the library to view the Wall Street Journal on microfiche. We also include information we’ve had from Scott Hunter of Haywood Securities; Larry Page, then-president of the Manex Resource Group; and the dusty archives at the Northern Miner.

Note: This means our tables, while accurate, are not at all comprehensive.

Let’s get started…

The Quintessential Bull Market: 1979-1980

The granddaddy of gold bull cycles occurred during the 1970s, culminating in an unabashed mania in 1979 and 1980. Gold peaked at $850 an ounce on January 21, 1980, a rise of 276% from the beginning of 1979. (Yes, the price of gold on the last trading day of 1978 was a mere $226 an ounce.)

Here’s a sampling of gold producer stock prices from this era. What you’ll notice in addition to the amazing returns is that gold stocks didn’t peak until nine months after gold did.

 

Today, GDX is selling for $26.05 (as of February 26, 2014); if it mimicked the average 289.5% return, the price would reach $101.46.

 

Keep in mind, though, that our data measures the exact top of each company’s price. Most investors, of course, don’t sell at the very peak. If we were to able to grab, say, 80% of the climb, that’s still a return of 231.6%.

Here’s a sampling of how some successful junior gold stocks performed in the same period, along with the month each of them peaked.

 

If you had bought a reasonably diversified portfolio of top-performing gold juniors prior to 1979, your initial investment could have grown 23 times in just two years. If you had managed to grab 80% of that move, your gains would still have been over 1,850%.

 

This means a junior priced at $0.50 today that captured the average gain from this boom would sell for $12 at the top, or $9.75 at 80%. If you own ten juniors, imagine just one of them matching Copper Lake’s better than 100-bagger performance.

Here’s what returns of this magnitude could mean to you. Let’s say your portfolio includes $10,000 in gold juniors that yield spectacular gains such as the above. If the next boom cycle matches the 1979-1980 pattern, your portfolio could be worth $241,370 at its peak… or about $195,000 if you exit at 80% of the top prices.

Note that this does require that you sell to realize your profits. If you don’t take the money and run at some point, you may end up with little more than tears to fill an empty beer mug. In the subsequent bust cycle, many junior gold stocks, including some in the above list, dried up and blew away. Investors who held on to the bitter end not only saw all their gains evaporate, but lost their entire investments.

You have to play the cycle.

Returns from that era have been written about before, so I can hear some investors saying, “Yeah, but that only happened once.”

Au contraire. Read on…

The Hemlo Rally of 1981-1983

Many investors don’t know that there have been several bull cycles in gold and gold stocks since the 1979-1980 period.

Ironically, gold was flat during the two years of the Hemlo rally. But something else ignited a bull market. Discovery. Here’s how it happened…

Back in the day, most exploration was done by teams from the major producers. But because of lagging gold prices and the resulting need to cut overhead, they began to slash their exploration budgets, unleashing a swarm of experienced geologists armed with the knowledge of high-potential mineral targets they’d explored while working for the majors. Many formed their own companies and went after these targets.

This led to a series of spectacular discoveries, the first of which occurred in mid-1982, when Golden Sceptre and Goliath Gold discovered the Golden Giant deposit in the Hemlo area of eastern Canada. Gold prices rallied that summer, setting off a mini bull market that lasted until the following May. The public got involved, and as you can see, the results were impressive for such a short period of time.

 

Gold producers, on average, returned over 70% on investors’ money during this period. While these aren’t the same spectacular gains from just a few years earlier, keep in mind they occurred over only about 12 months’ time. This would be akin to a $20 gold stock soaring to $34.50 by this time next year, just because it’s located in a significant discovery area.

 

Once again, it was the juniors that brought the dazzling returns.

 

The average return for these junior gold stocks that had a direct interest in the Hemlo area exceeded a whopping 4,000%.

 

This is especially impressive when you realize that it occurred without the gold stock industry as a whole participating. This tells us that a big discovery can lead to enormous gains, even if the industry as a whole is flat.

In other words, we have historical precedence that humongous returns are possible without a mania, by owning stocks with direct exposure to a discovery area. There are numerous examples of this in the past ten years, as any longtime reader of the International Speculator can attest.

By May 1983, roughly a year after it started, gold prices started back down again, spelling the end of that cycle—another reminder that one must sell to realize a profit.

The Roaring ’90s

By the time the ’90s rolled around, many junior exploration companies had acquired the “intellectual capital” they needed from the majors. Another series of gold discoveries in the mid-1990s set off one of the most stunning bull markets in the current generation.

Companies with big discoveries included Diamet, Diamond Fields, and Arequipa. This was also the time of the famous Bre-X scandal, a company that appeared to have made a stupendous discovery, but that was later found to have been “salting” its drill data (cheating).

By the summer of ’96, these discoveries had sparked another bull cycle, and companies with little more than a few drill holes were selling for $20 a share.

The table below, which includes some of the better-known names of the day, is worth the proverbial thousand words. The average producer more than tripled investors’ money during this period. Once again, these gains occurred in a relatively short period of time, in this case inside of two years.

 

Here’s how some of the juniors performed. And if you’re the kind of investor with the courage to buy low and the discipline to sell during a frenzy, it can be worth a million dollars. Hold on to your hat.

 

 

Many analysts refer to the 1970s bull market as the granddaddy of them all—and to a certain extent it was—but you’ll notice that the average return of these stocks during the late ’90s bull exceeds what the juniors did in the 1979-1980 boom.

 

This is akin to that $0.50 junior stock today reaching $19.86… or $16, if you snag 80% of the move. A $10,000 portfolio with similar returns would grow to over $397,000 (or over $319,000 on 80%).

Gold Stocks and Depression

Those of you in the deflation camp may dismiss all this because you’re convinced the Great Deflation is ahead. Fair enough. But you’d be wrong to assume gold stocks can’t do well in that environment.

Take a look at the returns of the two largest producers in the US and Canada, respectively, during the Great Depression of the 1930s, a period that saw significant price deflation.

 

During a period of soup lines, crashing stock markets, and a fixed gold price, large gold producers handed investors five and six times their money in four years. If deflation “wins,” we still think gold equity investors can, too.

 

How to Capitalize on This Cycle

History shows that precious metals stocks move in cycles. We’ve now completed a major bust cycle and, we believe, are on the cusp of a tremendous boom. The only way to make the kind of money outlined above is to buy before the boom is in full swing. That’s now. For most readers, this is literally a once-in-a-lifetime opportunity.

As you can see above, there can be great variation among the returns of the companies. That’s why, even if you believe we’re destined for an “all-boats-rise” scenario, you still want to own the better companies.

My colleague Louis James, Casey’s chief metals and mining investment strategist, has identified the nine junior mining stocks that are most likely to become 10-baggers this year in their special report, the 10-Bagger List for 2014. Read more here.

International Buying & Your Shot at 1,000% Gains

By Jeff Clark, Senior Precious Metals Analyst

As a gold investor in North America, it sometimes feels like I’m living in some far-off land where everyone believes in fairy tales and unicorns.

Most people around me don’t seem to see anything wrong with the Fed creating $65 billion a month out of thin air—hey, it’s not $85 billion anymore, what a relief! It’s business as usual for the US government to spend billions more than it takes in, and a public debt hovering at $17.2 trillion—up from $7 trillion just 10 years ago—seems no more alarming than a rainbow.

No surprise then that these people don’t feel any need to own assets that might help them in times of crisis. Hard assets like… gold.

I’m reminded of a visit I made to China several years ago. One night, I awoke in the middle of the night—something was crawling under the bed sheet. I shot up like a cannonball, trampolined out of bed, and hit the light switch. I searched and searched for whatever bug had made its way under the sheet, but never did find the little vermin. Still, I was so creeped out, I spent the rest of the night on the couch.

I told the staff the next morning what happened—and they did nothing. They just stared at me. They spoke English, so it wasn’t that they didn’t understand me. It was just that none of them seemed to think it was a big deal. One of them even chuckled. They obviously didn’t appreciate the potential health hazard and had no sense of customer service. I left bemused, wondering how people could accept bedbugs as normal—or even if they did, how they could not care about a customer’s experience. It was like being on another planet.

I have some of those same feelings when I think about mainstream investors today. How can they not appreciate the potential financial hazard inherent in something as obviously dangerous as today’s unprecedented levels of money printing? How can they not care that they have nothing solid, like gold, at the core of their investment portfolios? It’s like these people think they live on Planet Sesame Street.

Most people seem to really believe that today’s heavy-handed government interventions are not only the right course of action, but will have no negative fallout. Massive currency dilution, unstoppable tides of rising debt, and never-ending fiscal imbalances are hardly a way to cure decades of money mismanagement, and certainly aren’t consequence-free. How is it that this is not obvious to all?

I honestly don’t know. Perhaps people are aware at some level, but the truth is just too awful to face, and so people don’t.

Very few of my friends and neighbors own any gold. Rarely am I asked about it anymore, even by those who know what I do for a living. The doctor I saw last month gave me the distinct impression I could be doing better things with my money. Most of the mainstream media ignore gold, while many of the big banks loudly proclaim their latest short position as if they had some sort of divine insight.

I’m starting to feel like the proverbial lone voice in the woods…

But We’re Not Alone!

As deluded as most Americans seem to be, that is definitely not the case for everyone in the world—the Japanese, for example, are much more prudent and levelheaded.

I wonder if my fellow citizens would feel differently if they lived in any of these countries where people have witnessed economic insanity firsthand, and are acting accordingly:

Japan was a net importer of gold in December, the first time in almost four years. Net purchases totaled 1,885 kilograms (60,604 ounces). It was only the tenth time Japan was a net monthly buyer since the end of 2005. There are reports that Japan’s pension funds, which hold the world’s second-largest pool of retirement assets, are buying gold.

Dubai gold jewelers just reported the strongest gold sales in seven years. Pure Gold Jewelers, one of the largest dealers in the country, reported a 25% increase in gold jewelry sales during the Dubai Shopping Festival this year.

The state of Gujarat in India reported that silver bullion imports hit a five-year record from April 2013 to January 2014. Imports were more than 450% higher than the same period a year ago. The Indian government has since hiked the import duty on silver to 15%, the same rate as gold, and official imports in January subsequently fell. Smugglers will surely add silver to all those secret luggage compartments they’ve been using for gold.

Australia’s Perth Mint said gold sales jumped 41% and silver 33% in 2013. In January, gold demand was up 10% and silver 8%.

Mexico’s pension funds are now investing in gold after strict investment regulations were recently lifted. The World Gold Council says it spoke to 10 of the country’s most influential pension fund managers (with over $160 billion in assets) and was told that they began investing in gold and commodities in 2013.

Central banks were once again big buyers last year. Of those that have reported so far…

• Turkey purchased 150.4 tonnes (4.83 million ounces)
• Vietnam 110 tonnes (3.53 million ounces)
• Russia 57.3 tonnes (1.84 million ounces)
• Kazakhstan 24.16 tonnes (776,762 ounces)
• Azerbaijan 16.02 tonnes (515,054 ounces)
• Sri Lanka 6.51 tonnes (209,301 ounces)
• Nepal 6.22 tonnes (199,977 ounces)
• Ukraine 6.22 tonnes (199,977 ounces)
• Indonesia 4.04 tonnes (129,889 ounces)
• Venezuela 1.87 tonnes (60,121 ounces)

And of Course, There’s China…

Last year’s record import number is impressive enough, but it’s the pace that’s mind-blowing. 1,139 tonnes is…

• More than 2011 and 2012 imports combined.

• Over 42% of global mine production last year.

• Roughly twice as much as the amount GLD sold in all of 2013.

Meanwhile, Back in the Good Ol’ US of A…

Gold coin demand for 2013 jumped 24%. Some headlines have pointed out that January 2014 gold and silver coin sales were down compared to a year ago—but January 2013 was the all-time record for single-month sales. Further, Eagle and Buffalo gold coin sales were more than double December’s sales, and were the highest since last April. Silver coin sales in January were almost four times more than in December.

There, now I feel better.

Even if you sometimes feel like a lone wolf investing in this market, understand that worldwide demand for gold and silver bullion continues unabated. If you live in the US, realize that people in many other countries are seeing more positive headlines about gold, have more friends who own gold, and heck, could even walk into a bank to buy gold.

I don’t think the people in these other countries are stupid. Whatever consequences result from the historic levels of currency dilution across the globe, they seem as sure as I do that they’ll be good for gold.

What should you buy? I first recommend buying gold and silver bullion to establish a financial safety net. And then, to maximize gains on the more speculative end of your portfolio, you should look at Louis James’ just-released “10-bagger List for 2014” in the February issue of International Speculator. A 10-Bagger is a stock with the potential to gain 1,000% or more—that’s not a typo, we really did make 10 times our money on junior gold stocks the last time the sector rebounded, and Louis thinks that’s about to happen again.

For example, one of those prospective 10-Baggers is a junior with a multimillion-ounce gold project that’s run by one of our Explorers League honorees. This company is on the verge of securing the funds needed to build its exceptionally high-margin gold mine, but it’s on sale. Speaking of the potential, Louis said: “If the company delivers, it’d be easy to see these 40-cent shares trading for $4” by 2015.

Investing in these stocks—and there are nine of them on Louis’ list—could quite literally make you a fortune, but the opportunity to get in on the ground floor is fading fast. Click here to learn more about Louis’ 10-Bagger List for 2014—or watch the recording of our just-aired one-hour video event “Upturn Millionaires” to learn why the time to act is now.

Doug Casey: “Gold Stocks Are About to Create a Whole New Class of Millionaires”

By Jeff Clark, Senior Precious Metals Analyst

Bear markets always end. Has this one?

Evidence is mounting that the bottom for gold may be in. While there’s still risk, there’s a new air of bullishness in the industry, something we haven’t seen in over two years.

An ever-growing number of industry insiders and investment analysts believe the downturn has come to a close. If that’s true, it has immediate and critical implications for investors.

Doug Casey told me last week: “In my lifetime, the best time to have bought gold was 1971, at $35; it ran to over $800 by 1980. In 2001, gold was $250: in real terms even cheaper than in 1971. It ran to over $1,900 in 2011.

“It’s now at $1,250. Not as cheap, in real terms, as in 1971 or 2001, but the world’s financial and economic state is far more shaky.

“Gold is, once again, not just a prudent holding, but an excellent, high-potential, low-risk speculation. And gold stocks are about to create a whole new class of millionaires.”

Just a couple of months ago, you would have had a hard time finding even one analyst saying something positive about gold and gold stocks—even some of the most bullish investment pros had gone silent.

But that’s changing. Case in point: When Chief Metals & Mining Strategist Louis James and I attended last week’s Resource Investment Conference in Vancouver, we witnessed quite a few very optimistic speakers.

Take Frank Giustra, for example, a self-made billionaire and philanthropist who made his fortune both in the mining sector and the entertainment industry. He’s the founder of Lionsgate Entertainment, which is responsible for blockbuster movies like The Hunger Games, but he was just as heavily involved with mining blockbusters such as Iamgold, Wheaton River Minerals, Silver Wheaton, and others.

More Upturn Advocates Here’s a quick scan of the growing number of voices that think the decline is over, some of which are outright bullish: “The worst is over with gold. It’s time to call your broker.” —Frank Holmes, US Global Investors “Sentiment is as black as night on gold, so I’m actually long on some gold miners.” —Jeffrey Gundlach, bond guru and DoubleLine Capital founder “We’ll see a gradual recovering throughout the year, because all the negative factors are already in the price.” —Eugen Weinberg, head of commodities research at Commerzbank “Looking ahead, the downside risks seem to be diminishing, and overall we feel that the big shocks we’ve seen over the last two or three years are done…” —Marc Elliott, Investec “The mainstream narrative on gold is changing, indicating a possible bottom.” —Bron Suchecki, Perth Mint “Orthodox investments are working on a cyclical peak, as precious metals are working on a cyclical bottom. The big pattern could be fully reversed by February-March, with gold becoming one of the best-performing sectors through the rest of 2014. The advice is to seriously reduce exposure in stocks and bonds and get fully invested in the precious metals sector. This should be completed in the first quarter.” —Bob Hoye, Institutional Advisors

“I’m telling you, you’ve seen the bottom of the gold market,” he told the rapt audience at the conference, offering a bet to the Goldman Sachs analyst who claimed gold is going to $1,000.

The stakes: Whoever loses has to stand on a popular street in downtown Vancouver dressed in women’s underwear.

Tom McClellan, editor of the McClellan Market Report, stated in a recent interview on CNBC: “The commercial traders are at their most bullish stance since the 2001 low, and they usually get proven right. It’s a hugely bullish condition for gold, and I’m expecting a really large rebound.

“The moment we see a major gold producer announce that it’s curtailing production or it’s going out of business,” McClellan continued, “that’ll be the moment we mark the low in gold. I expect to have one of those announcements any minute. We’re getting down to the production price of gold right now, and they won’t continue producing gold at that level for very long.”

Are they just guessing? To answer that, first consider the historical context of this bear market—it’s getting very long in the tooth:

• The current correction in gold stocks is the fourth longest since 1879. The decline of 66% ranks in the top 10 of recorded history.

• In silver, only two corrections have lasted longer—the ones that ended in 1936 and 1983.

Some technical analysts have pointed to positive chart formations, most notably the powerful “double bottom” that can portend a strong upward move. Based on intraday prices…

• Gold formed a double bottom last year, hitting $1,180.64 on June 28 and $1,182.60 on December 31, a convincing six-month span.

• Silver formed a higher low: $18.20 on June 28 vs. $18.72 on December 31, a bullish development.

• Gold stocks (XAU) formed a slightly lower low: $82.29 on June 26 vs. $79.73 December 19, 2103, a difference of 3.2%. However, as our friend Dominick Graziano, who successfully helped us earn doubles on three GLD puts last year, recently pointed out…

• The TSX Venture Index, where most junior mining stocks trade, has stayed above its June low. In fact, it recently soared above both the 50-day and 40-week moving averages for the first time since 2011.

Meanwhile, Goldcorp (GG) sent a huge bullish signal to the market earlier this month. It decided to pounce on the opportunities available right now, launching a takeover bid of Osisko Mining for $2.6 billion. The company wouldn’t be buying now if it thought gold was headed to $1,000.

As Dennis Gartman, editor and publisher of The Gartman Letter, says, “It’s time to be quietly bullish.”

The smart money, like resource billionaire Rick Rule, is not just quietly bullish, though—they are actively buying top-quality junior mining stocks at bargain-basement prices to make a killing when prices rise.

To make sure that you can invest right alongside them, we decided to host a sequel to our 2013 Downturn Millionaires event, titled Upturn Millionaires—How to Play the Turning Tides in the Precious Metals Market.

Back then, we made a strong case for this once-in-a-generation opportunity—but it was still undetermined when the bottom would be in. It looks like that time is now very near, and we believe it’s time to act.

On Wednesday, February 5, at 2 p.m. EST, resource legends Frank Giustra, Doug Casey, Rick Rule, and Ross Beaty, investment gurus John Mauldin and Porter Stansberry, and Casey Research resource experts Louis James and Marin Katusa will present the evidence and discuss the possibilities for life-changing gains for investors with the cash and courage to grab this bull by the horns.

How do we know the absolute bottom is in? I’ll answer that with a quote from a recent Mineweb interview with mining giant Rob McEwen, former chairman and CEO of Goldcorp:

“I’d say we’re either at or extremely close to the bottom, and as an investor I’m not prepared to wait to see if the bottom’s there because it’s very hard to pick it. Because … if you’re not taking advantage of it right now, you’re going to miss a big part of the move. And when you look at the distance these stocks have to travel to get to their old highs, there’s some wonderful numbers in terms of performance that I think we’re going to see.”

Granted, these voices are still in the minority—but that’s what makes this opportunity wonderfully contrarian. After all, once “Buy gold stocks” is investor consensus, we’ll be approaching the time to sell.

Our Upturn Millionaires experts believe that our patience is about to be rewarded. And when that happens, gold stocks will be easy doubles—and the best juniors potential ten-baggers.

Don’t miss the free Upturn Millionaires video event—register here to save your seat. (Even if you don’t have time to watch the premiere, register anyway to receive a video recording of the event.)

Contrarians’ Wildest Dream Coming True

By Jeff Clark, Senior Precious Metals Analyst

As most readers know, Doug Casey’s most notable characteristic as an investor is his highly successful contrarian nature. It’s how he bagged some of his biggest wins—not just doubles and triples, but 10- and 20-fold returns.

There’s only one way to realize these kinds of gains: You must buy when the asset is out of favor. Buying an investment that has already run up is at best chasing momentum and at worst a portfolio wrecker.

So, what’s the greatest contrarian investment today? Consider this pictorial data…

At the end of 2013, the sector with the highest level of pessimism, as measured by SentimenTrader, was the gold industry. It actually registered “zero” in mid-December.

Meanwhile, price-to-earnings ratios of the 15 largest gold producers are at their lowest level in 14 years, and less than half what they were when the bull market got under way in 2001.

The ratio of gold to the S&P 500 Index is currently at 0.66, its lowest level since the market meltdown of 2008.

The next chart, from our friend Frank Holmes at US Global Investors, measures gold’s 60-day percent change in standard deviation terms. It shows the metal’s actual gain or loss in relation to its average price change—and it’s never been this low.

Another chart from US Global Investors demonstrates that last year’s decline in the Philadelphia Gold and Silver Index (XAU) was the greatest on record, and further, that consecutive annual declines are rare. The XAU is one of the two most-watched gold stock indices in the world, and in 30 years it’s never had a losing streak of more than three years.

Also, JPMorgan noted last week that speculative positions in gold (defined as net longs minus shorts) dropped to record lows at the end of 2013.

(Source: Zero Hedge)

Finally, the XAU/gold ratio is at its lowest point in history, and the HUI/gold ratio—the other major gold stock index—shows that gold stocks are now cheaper than they’ve been since the beginning of this secular bull cycle in 2001.

Of course, just because something is cheap today doesn’t mean it will soar tomorrow. But given gold’s historical role as money, butted up against monetary recklessness today, the outcome seems all but certain.

As Casey Editor Kevin Brekke recently put it: “We are in this sector because of our belief that monetary and fiscal excesses have consequences. The only variable is the timing. We may not know where we’re going in the short term, but the long term is inevitable.”

And right now, some of the most successful resource speculators and investment pros are seeing the early hallmarks of a turnaround in the gold sector—which makes this the best time to invest in the yellow metal as well as top-quality, undervalued gold mining stocks.

New to the gold market? Don’t despair: the FREE 2014 Gold Investor’s Guide, a Casey Research special report, gives you all the basics on precious metals investing. Click here to get it now.