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Fumbling for a bottomBob Moriarty December is often the peak for gold shares following a rally lasting from September after a long boring summer of declining values. For 2011, it’s been a long boring year with gold shares in a constant decline. Silver peaked in April with a classical top that fooled all of the silver “Gurus” watching the world through manipulation colored glasses. Gold peaked in September just before John Paulson got a margin call. His sale of gold whacked the price by $105 in a day and all the gurus could do was bray at the moon. “It’s a conspiracy.” Actually it wasn’t a conspiracy at all; it was merely John Paulson and a margin call. Most investors, indeed most “Gurus,” get it wrong constantly but the successful ones realize their readers will forgive any error, no matter how massive, as long as the investor’s fantasies are reinforced. We don’t reinforce fantasies here at 321gold; there are dozens of sites that will tell you what you want to hear. We tell you what you need to know. I have been consistent in what I’ve said since I called the top in silver to the day in April. Cash, cold hard cash has been the safest investment for the last eight months. All things change and we are about to enter a great period for mining shares. The “Occupy” peaceful protests continue with half of the commentators not having a clue as if they ever do. And the police continue to increase the level of gratuitous violence. One day soon they will pull a “Kent State Massacre” and send an agent provocateur into a crowd to fire a weapon so the police can start murdering innocent protestors. Things are going to get a whole lot worse before they get any better. The Euro may well blow sky high in the next week with an important meeting set for the 9th of December. With any luck someone will do the math and realize that it’s mathematically impossible for the Nanny State to actually deliver all the promises they have made. Israel continues with their plan to dominate the entire Middle East from the Nile to the Euphrates as set out in the “Clean Break from the Peace Process” written in 1996 by the biggest bunch of nutcases to ever control the government of the United States. These dual national traitors to the United States have done far more damage financially and to the reputation of this country than any enemy power in American history. Their next goal is to ferment a nuclear World War over fictional Iranian weapons that 16 US government agencies have all agreed don’t exist. Former General Wesley Clark commented on what he was told just days after 911. The upcoming wars against Syria and Iran were planned many years ago. Once more Israel will drag the United States into an incredibly stupid war on behalf of the Zionists and we will lose. There is an excellent chance it will destroy both Israel and the US. Both Russia and China have made it clear that they would look with great disfavor upon any attack on either Syria or Iran. While the US continues to lob hypersonic weapons at Iran’s peaceful nuclear program, readers should be aware that it would take but a single EMP weapon over any one of 15 major US cities to create total out of control chaos in 72 hours across the entire US. If I’m smart enough to figure it out, don’t you think the Russians and Chinese could? The US has a just in time food chain. Any disruption or scare could cause a run on food stores in a day. With all the bad news on the plate, it might seem incredible that someone would actually predict a bottom for metals shares. How can shares go up in such gloom? Actually the answer is pretty simple. Shares don’t move based on fundamental analysis or technical analysis. Lots of people use them but how many people do you know who are rich from using a ruler? Markets are moved by psychology and little more. Elliott Wave is accurate. In hindsight. But even the believers in Elliott Wave can’t agree on the count. In May of 2001, three months before we began 321gold, I wrote an article predicting a bottom for gold and silver. While gold hit its absolute low in August of 1999 and silver in December of 2001, calling a bottom in the late spring of 2001 was about as close to pinpoint as you can get. And as lonely, there were few saying gold and silver was cheap and destined to go far higher. I just came back from a gold show in San Francisco last weekend. I’d guess there were 150 or so mining companies there. Most of them I have never heard of before. Lots of companies weren’t there. But what was really noteworthy was the lack of public participation. I wandered by to see a few people speak in the speaking hall. There couldn’t have been 40-50 people there listening and I’d bet a bunch of them were from the industry, not the public. We have $1700 gold and $32 silver and the public doesn’t care. It was worse than in the spring of 2001. The very best chart for measuring psychology would be a chart of the XAU over Gold. Until August of 2008 you could with great accuracy predict both tops and bottoms. When gold dropped to $700 and silver dropped to $9 in October of 2008, the chart of the XAU over gold registered the lowest readings in history. Investors simply didn’t want shares. The gold and silver shares continued at low levels into early December of 2008 even while gold and silver started back up. To give you an idea of how irrational some investments got, in October of 2008 platinum sold some $50 cheaper than gold for a short period just as the XAU over Gold showed the lowest readings in history. Today while we have $1750 gold and $33 silver, platinum is a record $200 cheaper than gold and the XAU over Gold chart shows the lowest readings since late 2008. I think the metals shares have bottomed and even if gold and silver went down, the shares should go up once the silly season of tax loss selling is over. (Click on image to enlarge)
I’ve listed a number of shares that for one reason or another have been beaten down. I think that they will be among the first to recover. Simba Gold (SGD-V) has about $.10 a share in cash and is selling for less than cash. They have a non-43-101 historic resource of about 400,000 ounces of gold and will be conducting more drilling shortly. I’ve been to the deposit, it has an oxide gold near surface and open pit potential. Gold shares sold for less than cash in 2001 and 2008 at the very bottom and many of those shares were up by hundreds of percent a few months later. Comstock Mining (LODE-OTCBB) is well cashed up with about $20 million on hand, just released an updated 43-101 showing 2.39 million ounces of gold and 20 million ounces of silver in resources. With 1/10th of an ounce of gold and almost an ounce of silver per share, this is one of the cheapest near term production stories around. Comstock controls most of the ground around the historic Virginia City area south of Carson City in Nevada. They expect limited test production in December of 2011 and full-scale production in the spring of 2012. I visited Premium Exploration (PEM-V) about 18 months ago. The company controls a 30 km shear zone in Northern Idaho. The entire valley has been placer mined over a hundred years ago. Driving down the highway tells you just how much gold has been taken out and just how much remains. Premium is an exploration company. That is both its strength and its weakness. They have an oxide deposit they call the Friday zone containing a 43-101 resource of 1.22 million ounces of gold in the indicated and inferred category. It could easily be mined using heavy equipment and gravity separation equipment. But Premium is an exploration company. They want to explore the 30 km shear zone before selling out to a major. The area can be considered Target Rich they have so many high potential targets. But exploration takes a lot of money. They need to be raising money for next year’s season and are caught on the horns of a dilemma. They can raise the $7.5 million now but it would cause a lot of dilution to existing shareholders. I’d rather see them monetize the Friday deposit by entering into some sort of production deal with a junior that wants to get into production and do the smallest raise possible. I think that once the tax loss season selling is complete, Premium will be among the leaders going higher. With 1.2 million ounces out and a $24 million market cap, investors are buying highly mineable gold for $20 an ounce. That’s nuts. Haiti has an interesting gold/copper junior prospecting there. I have yet to get down to see it but I’ve been in the DR on the same trend. There is a lot of gold and copper there. The company is called Majescor (MJX-V) that now controls a major gold/copper project first drilled in 2003 with some spectacular results. One hole showed an incredible 77 g/t Au over 10 meters. The company just released interesting numbers from an XRF machine used on the first drill hole showing .565% copper over 255 meters and .566% copper over 371 meters in the 2nd hole. The gold numbers will have to wait for the actual assay results. The XRF is a hand held machine that can give an instant readout of the percentage of an element contained in a sample. It is the future. Eleven pounds of copper makes for an interesting start to the drilling. There is a good chance there will be gold as well but those numbers will be released in a couple of weeks. In any normal market such numbers would double the shares. In this market, the price dropped. That’s nuts. The company has a market cap of about $14 million. Historic drilling results show a potential for a few hundred million tons of 1% copper. Drill results to date are spectacular. Look for higher prices in the new year. In short, we are at or near a bottom in terms of investor psychology. Investors are more fearful of buying shares than they were in 2001 with $252 gold or 2008 with $700 gold. Extremes in emotion tend to mark extremes in prices. These are hardly all the good deals out there. This is just a few that I happen to be aware of. Any interested investor willing to do just a little work can find dozens more companies that have been beaten up just as much. We are biased because these are advertisers but the reason I know what they have is that I have studied them. I don’t have time to know the other 2000 juniors as well. Investors are advised that as always you are responsible for your own due diligence. Simba Gold Corp Comstock Mining Premium Exploration Majescor Resources ### Dec 3, 2011 |
