Weekend Edition
The Best of The S&A Digest
February 14, 2009
 Gold is getting popular. Every day, another bank, investment advisor, or hedge-fund manager speaks out in support of the precious metal. We still advocate constantly adding to your physical gold holdings as a form of savings. But with all the fanfare, I would expect gold to draw back on its way "to the moon."
This week, the Financial Times and Bloomberg published stories on gold. The FT points out that the U.S. mint sold 92,000 ounces of the popular "American Eagle" coin last month – nearly four times what it sold a year ago. Other countries' mints are also reporting strong sales.
"Large purchases of coins are perhaps the ultimate sign of safe-haven gold buying," said John Reade, a precious-metals strategist at UBS. Bullion holdings at gold-backed ETFs are also at a record high. Bankers say the move is being driven by the "very rich," who are hoarding the metal in vaults.
Bloomberg says gold speculators are betting on $1,000 an ounce gold by April. Open interest in options that allow the owner to buy gold for $1,000 by April increased 24% this year to 9,934 contracts, up from 8,005 at the beginning of the year.
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Physical gold sales are strong, but not small-cap Canadian mining stocks. They're up since November, but many are still wallowing at dirt-cheap prices.
I've found three of them for the next issue of Extreme Value. In each case, you're mostly getting cash and securities for your money with a cheap option on a diverse array of natural-resource exploration properties and holdings in gold and silver bullion. If gold is so popular... why are these stocks so cheap?
From a reader: Everyone is touting gold. It's been said before when everyone likes something it's time to get out. Does that apply this time?
While I'm not hearing about gold from the usual mom-and-pop sources that often signal a top, lots of newsletter writers (including me) are writing about it, and that's never a good sign.
My guess is we're early on the inflation call. A huge spike in inflation is inevitable, though not necessarily imminent. The Fed's money machine has a huge hole to fill. It'll take longer than anyone expects for the hole to fill up enough to start overflowing. But that's purely a guess, and I've found some dirt-cheap, safe little mining stocks, which I believe will go up anywhere from two- to tenfold in the next few years.
From a reader: I have seen so many different claims as to what the gold/silver ratio should be that I do not know what to believe. I would appreciate a Stansberry ruling because I feel I could trust it.
It's tough to peg an exact number on the gold/silver ratio, but it has historically been around 16. Now the ratio is around 70. So for that number to normalize, either gold needs to fall or silver needs rise... a lot.
With all of the bullish hype surrounding gold, my money is on the latter. With gold sitting at $1,000 an ounce, silver would have to hit $62 an ounce for the ratio to revert to 16... That's a nearly 400% gain from today's prices. The only problem is it could take awhile for silver to start its huge rally. And your money is sitting idle.
Leave it to our expert trader Jeff Clark to solve that problem. He found a way to own silver and get paid huge dividends. He calls it turning "your precious metals into ATMs."
His Advanced Income subscribers can review the February 2009 issue for more information.
Regards,
S&A Research
Porter Stansberry writes and edits the daily S&A Digest, which comes free with a subscription to one of our premium products. |
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S&P 500 |
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|
| XL Capital |
XL |
+62.92% |
| Fifth Third |
FITB |
+42.86% |
| Regions Financial |
RF |
+42.80% |
Countries |
|
|
| Russia |
TRF |
+6.10% |
| Chile |
CH |
+3.64% |
| South Africa |
EZA |
+3.11% |
Sectors |
|
|
| Gold Mining |
GDX |
+5.13% |
| Gambling |
BJK |
+3.44% |
| Basic Materials |
IYM |
+1.40% |
Commodities |
|
|
| Silver |
-
|
+5.96% |
| Lean Hogs |
-
|
+4.12% |
| Gold |
-
|
+3.82% |
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S&P 500 |
|
|
| Principal Financial Group |
PFG |
-25.63% |
| Apartment Investment |
AIV |
-25.29% |
| Developers Diversified |
DDR |
-20.90% |
Countries |
|
|
| Turkey |
TKF |
-5.15% |
| South Korea |
EWY |
-4.45% |
| Japan |
EWJ |
-4.40% |
Sectors |
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| Homebuilding |
ITB |
-5.24% |
| Utilities |
XLU |
-3.91% |
| Defense |
PPA |
-2.58% |
Commodities |
|
|
| Crude Oil |
-
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-17.46% |
| Nickel |
-
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-10.34% |
| Cotton |
-
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-9.41% |
Source: Bloomberg and Yahoo, 1/5–2/12.
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