Researching gold stocks takes up a big chunk of my time. So as editor of Diggers and Drillers, you might ask why I’m not attending the annual Gold Symposium in Sydney with your regular editor, Dan Denning.
The truth is I’d love to have gone. Some of the best and brightest in the gold sector are presenting. The timing of the conference is excellent as well. Gold spent most of last month out of the spotlight, finding strong buying support in the $1600s. But it has quickly bounced more than 7% in recent weeks to be closing in on $1800 again.
So why didn’t I make it to the conference?
Well, I’ve just stepped off a plane from Latin America. I’m a big believer in the value of taking the time to visit a company if I’m going to recommend it. Many Aussie juniors are now exploring overseas to get ‘fresh dirt’, as well as to seek refuge from tax-hungry redheads.
So if a stock passes all my number crunching research, and the management team is up to scratch, it’s normally time for me to get a cab to the airport.
The company I’ve just looked at in Latin America impressed me. It is just a few months from first production of around 65,000 ounces of gold a year, with 600,000 ounces of silver as well. Yet the company is still valued cheaper than most explorers. And this stock has some hot looking exploration projects lined up. I think 2012 will be its year to shine.
West Africa has been the hot destination for Aussie gold exploration for years. Many Aussie juniors have had great results over there, and the list of hopefuls gets longer all the time. The four gold explorers I tipped there over the last two years have come in with average gains of 85%. And there are more are on my radar.
The region is still full of potential. But South and Latin America is shaping up as the next ‘West Africa’. There are so many promising areas that are still wide open, and valuations are still cheap in comparison.
I’ve been tipping more gold stocks in that region recently to prepare for when the market shifts its gaze in this direction. One stock I tipped is off to the races already, sitting on 110% gains in just six months. I’m convinced this is just the start, and I reckon investors could easily double their money from here within the next six months.
Being able to speak a bit of Spanish has helped get around this part of the world. But I definitely need some more practice before my next visit to the region. I was chatting with one of the host company’s drivers, who mentioned he had a family of four. So I asked whether his children were boys or girls.
After some confusing back and forwards discussion, he bluntly told me that: ‘No, Sir. I am DEFINITELY the father of ALL the children in my family’.
Who knows what I said. But it was something of a conversation killer…
Investing in promising junior gold stocks is one way to accelerate your gains from a rising gold price. But I’m a big believer in holding physical gold as well. (I’m an even bigger believer in storing it safely too; i.e. with a bullion dealer, or in a non-bank safety deposit box.)
I’ve been getting more emails from readers who are having a tough time getting physical gold and silver. Perth Mint told clients last month that demand was:
‘… currently running at unprecedented levels and we have been inundated by high levels of web and telephone traffic from clients all around the world.”
“It’s not just them. KWN reported that:
‘ …Peter August, CEO of Australian Bullion Company, Melbourne Australia, which is one of the largest and most respected bullion dealers in the country told KWN, “We have never, ever seen these levels of demand for physical gold and silver. “‘
There is every reason for the gold price to keep rising.
The media is rightly focused on the accelerating unravelling of Europe. Every week we get a ‘big solution’. Yet each ‘solution’ is destined to fail like the others. The latest plan is a new leader for Italy, Mario Monti. But even if he could walk on water, he still has a country in a complete mess to get to grips with, as well as Europe’s biggest sovereign debt to resolve.
So what to do? Well – of course the country issued more debt last night. And the yield was a record high of 6.29%.
But don’t let the media distract you from the bigger sovereign debt story.
The US is almost back up to the new-and-improved debt ceiling. This story will be back on the radar again by Christmas. This is important to the gold price, as where the US debt level goes, gold follows.
The US is also due to have a debt-reduction debate later this month, which could be a trigger for the gold price rising ahead of reaching the debt ceiling.
For want of a better phrase, gold is a ‘no-brainer’.
But don’t forget silver. Diggers and Drillers readers will know that I’m also big on gold’s little cousin. It has been outperforming gold in recent years and I expect it will continue to do so. It has had an eventful year to say the least, with a massive rally followed by a couple of big falls. Despite the snakes ‘n ladders, it is still up 37% in 12 months.
Better still, I suspect it is just a week or two from its next rally. Crossing over its 50-day moving average has marked the start of each rally over the last few years. In the last few weeks it has been closing in this level, and just broke it yesterday before retreating.
So if we see if get comfortable above $35 in the next week or so, then I suspect we could move very quickly up from here – particularly after moving up from so far under the 50-day moving average.
Next stop would be the ‘war-zone’ of the $42–45 range. If buyers get past it this time, it’s a quick road to $50–60. And I expect silver stocks would follow…
Dr. Alex Cowie
for Markets and Money