Read the new posts at InvestLetters.com

Our new website InvestLetters.com has a lot of new posts with fresh views from industry giants such as Dennis Gartman (on oil) and topics like physical storage of gold and silver.

Head on over there now and bookmark the site!

Casey Big Gold – May Edition Just Released

The May 2008 edition of Big Gold was just released and I have to say the timing is perfect for several of the topics covered.

Take a peek at what’s inside this issue and see if you don’t agree with me about it being timely:

• What’s up with Politicians? Around the globe several premier mining jurisdictions have either rumored or actually changed mining policy and tanked the stocks of all companies with any exposure to their country, province or fiefdom. {Were these guys short the stocks or what?}
• Bud Conrad and James Turk (of GoldMoney.com) take on the Dollar bulls. Any guess as to who wins?
• IMF selling gold: maybe and maybe not. Whose gold is it anyway?
• A special offer of a rare gold coin to Big Gold subscribers only.
• Have you heard about the ongoing controversy regarding the inventory of GLD and SLV? Find out in this issue.
• Is it “Sell in May and go away?” What do you want to own, when should you own it and at what price.
• The Big Gold portfolio – complete review & recommendations
• Special intelligence from the news hawk.
• And you’ll never guess what their recommending…

This is a fantastic and timely issue of a MUST HAVE newsletter for any resource investor.

You can try it out Risk Free, Click here to learn more.

Gold, What Gold? by David Galland

Gold, What Gold?

By David Galland, Casey Research

Wonder what’s happening with the gold market lately? So has David Galland, of Casey Research. (publishers of Casey’s International Speculator) Here he offers some insights into the current state of the precious metal… and the companies that mine it.

One of the most intriguing aspects of the current market is the dearth of major discoveries so far in this cycle. This despite record amounts of money spent on exploration since this bull market began in 2001.

Older and smarter minds than mine, minds resting in the cranium of Explorers’ League members, for instance, have been convinced that a number of major discoveries would be announced.

But so far, other than a small handful that appear to hold the stuff, there has only been one legitimate elephant bagged; by the team of Aurelian (T.ARU). Unfortunately, the carcass of that particular elephant rests entirely within the sketchy outlines of the nation of Ecuador where the locals are currently circling like a pack of hungry hyenas.

It has been our contention that what was needed to light the fuse on the junior exploration stocks would be, in no specific order:

• Sustained higher gold prices.
• Improving financials and free cash flow of the major producers.
• A discovery to heat the blood of the investing community.

So far, we have had (1) and we are beginning to see (2), but (3) has proved remarkably elusive.

Now, don’t misunderstand. You can have a whopper of a bull market in these stocks without the discovery – that was the case in the 1970s bull market. But a discovery that fires the imagination can jump-start things in a big way, no question about it.

Evidence of that statement is provided by the gold share bull market of the mid-1990s, the most powerful to date, which occurred against a back drop of flat to falling gold prices. In case some of the big winners from that market have slipped from your memory, they include returns such as; Cartaway, up 26,040%; Pacific Amber, up 4,376%; Arequipa, up 5,692%, and so on and so forth.

So, What’s Going On?

According to MineWeb, Peter Munk, the somewhat unpopular chairman and acting CEO of Barrick Gold, the world’s largest gold producer, stated at the company’s recent AGM that there have been “virtually no new discoveries.”

While we might disagree around the edges of that statement, Chairman Munk is technically correct in that the level of discoveries being made is a small fraction of that needed to replace the depleting reserves of the gold producers.

In short, we appear to have reached the era of Peak Gold. Whereas a major discovery used to be 10 million ounces or more, the threshold for attention-getting discoveries these days has fallen to more along the lines of 1 to 3 million ounces… and even those are hardly falling off the trees.

Viewed from the perspective of an investor in the junior resource sector, this lack of discoveries means the fuse is lit – starting with straight-up supply and demand fundamentals – for a rocket shot tomorrow. Adding boosters to the rocket, we have a commodities bull market that shows no sign of ending anytime soon and, while the U.S. dollar will periodically rebound, it is not going to somehow reinvent itself as sound money in our lifetime.

Importantly, as you can clearly read between the lines in Chairman Munk’s words, once the majors get cashed up and serious about replacing their reserves, they are going to have to look downstream to the juniors with discoveries… even if those discoveries are below the 5-million-ounce threshold they previously required to even consider taking an ore body into production.

A Risk and an Opportunity

Of course, lowering the threshold on deposit size will require trade-offs. For example, in order to be considered for an acquisition, a smaller deposit will almost certainly have to be near surface and open-pittable. It will also have to be near good infrastructure, and located in a jurisdiction with good laws and reasonable taxation. There is, in this situation, an opportunity and a risk.

Starting with the latter, if your portfolio now includes companies going after deposits in the one- to five-million-ounce range, you need to make sure they are not in a remote location, or will require going underground or building a mill to process sulfides. (Under 1 million ounces? Fuggedaboudit!)

As for the opportunity, while the odds and the amount of exploration spending still favor that we’ll see the discovery of at least one and maybe two monster deposits in this cycle (there are a couple of companies advancing projects with that potential), and early shareholders will make fortunes as a result, there has rarely been a better time to invest in junior exploration companies with modestly sized projects in good locations. That said, you should still be focusing only on projects with at least 2 million ounces, or the strong potential of same.

In other words, take the opportunity in these down markets to focus on getting positioned ahead of the majors… that’s where the big money will be made as things gather steam again going forward.

David Galland is managing director of Casey Research, publishers of the International Speculator, now in its 28^th year. The current edition includes “Courting the Majors,” a feature on what attributes the major mining companies are looking for in a junior explorer. All new subscribers are invited to give the International Speculator a three-month trial with an unquestioning 100% money-back guarantee. Learn more and sign up now to receive the current edition.

Will Gold go up or will Oil come down?

There is no end to the speculation of where oil prices and gold prices will go in the near term. Even Dennis Gartman, gold bear, of the Gartman Letter is saying that gold is under priced with regard to oil. Yet some may not see that as a reason for gold to go up. Others are saying that the fundamentals of oil simply do not support prices this high.

So must oil drop? It’s back in record territory this morning; although only in nominal terms. Inflation adjusted, oil’s high is more like $240 per barrel.

Will gold go up? Just as everyone seemed convinced that gold was poised to take out its 200 day moving average and possible go as low as $780, gold has spiked nicely and sits at just under $900 as I write this.

There is always the possibility that both go up, just gold more than oil.

Don’t bet your SUV that we’ll see cheap oil again in our lifetime.

Maybe April’s correction shook you up, maybe shook you out, maybe scared you away.

The ones who make fortunes are the ones who buy when it makes them sick to do so.

Need help deciding what to buy, when to buy and when to sell? Everyone does.

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Dennis Gartman Says Gold Is Still Heading Down

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I’m not sure that Dennis Gartman deserves status as Gold Guru, but a lot of people sure want to know what he has to say on the subject. Maybe that comes from charging an astronomical amount for your wisdom via newsletter.

Anyway, Dennis asks what will happen to gold “when crude oil does eventually top out and head lower?” And answers the question by saying, “The trend for gold remains down.”

Question, Dennis: “When is crude going to top out and head lower, and from what price will it start that downward trend?” You see, that price for crude could be MUCH higher, I don’t know, and neither does Mr. Gartman.

I do know of one good call Dennis made on gold a few years back, and it happened to be a sell. (Self fulfilling since everyone seems to follow him?) But I’m told of many bad calls too.

Dennis Gartman is followed by some big boy traders. If you aren’t one of them, you may want to be cautious. You can’t do what they do. For some of the rest of us, do you want to buy gold today under $900 and risk seeing it trade (briefly, if at all, in my opionion) as low as $780? Or would you rather buy gold this December and pay $1200 per ounce, still waiting for that cheaper price to buy at.

As for gold stocks, the good news has been rolling in all week, just as I predicted on Monday.

If you want to follow trends, instead of daily fluctuations, Subscribe to the Trend Letter.

The Battle for $900 Gold

The Battle for $900 Gold
by David Galland

Casey Research- International Speculator

The current “battle” in the gold market is around the $900 level, a fairly steep retrenchment from the recent highs of $1,011.

Some investors, their hopes dashed that $1,000 would be quickly and decisively overrun, are seeing disaster in this correction and dropping their gold as they run for cover.

So… do we at Casey Research think we’re now seeing a reversal in gold’s fortunes?

In a word, no.

I’m not going to go into meticulous detail here, because that sort of coverage is found in our Casey Research paid publications. But I do want to share some thoughts with you that may be of some use… if for nothing more than playing them back to me in sarcastic emails several months down the road if we’re proven wrong.

A few key things to ponder as the battle for $900 gold rages…

1. The current correction is not yet exceptional: Since the current bull market began in earnest in 2001, there have been 9 corrections in excess of 8%.

During the three worst pullbacks, gold fell 15.98%, 18.27%, and 27.7%, respectively. And the average of those corrections is 13.6%, so the latest, which touched 18% at its worst, is only marginally worse than average.

Put another way, for the current pullback to match the sharpest correction to date, a drop of 27.7%, gold would have to fall to about $730. Could it happen, again? Sure, why not?

And if it does, rest assured that, just as they did when gold moved down by that percentage in May of 2006 – falling from $725 to $567 – analysts will line up to say that the back of the gold bull has been broken. But if you had listened to the naysayers back then and bailed out at the bottom of that correction, you would have missed a rebound of close to 100%.

I mention this to stress that the fits and starts we are currently experiencing are nothing unusual. Quite the opposite, they’re the norm for any sustained bull market. In the 1970s’ sustained gold bull market, a similar pattern occurred.

The bottom line is that if you are going to invest in the resource sector, you need to take a long view. And, I would stress once again, you have to be invested with money that you can afford to lose a substantial portion of and not be overly concerned. Otherwise you’ll invariably become shell shocked during periods of volatility and be prone to breaking ranks and selling at the worst possible time.

2. The big gold companies are delivering: One of the largest mining companies in the world, Newmont Mining, just released its first-quarter 2008 financials, the first of the big gold producers to do so.

As we have been forecasting, they had record sales of $1.94 billion, realized a record price of $933 per ounce sold, and saw their cash operating margin soar by 119% from the same period last year. Further, net income was up 444% from Q1 last year. And the company’s cash operating margin rose to a record $537 million in Q108 over the prior record $419 million earned in the previous quarter.

Over the next couple of weeks, we’ll see a string of similar results from the other major producers, offering a stark contrast to the billions upon billions in losses being suffered by the banks, investment houses, housing industry, airlines, etc.

So, what happened to Newmont’s shares on releasing its financials? They fell, albeit modestly, victim to this week’s softening gold price and a dumb remark by the minister of mines of Ghana – where Newmont has significant projects – about the need for mining reform in that country. More on that latter topic momentarily.

The key point is that the increase in the profitability of the gold miners, a prerequisite for the entire gold share complex to get moving, is now materializing.

3. Oil is stubbornly holding on over $100 and food prices are on the rise everywhere. This is simply the most visible evidence of the inflation now gripping the world.

We’ve said for years that there is a very tight correlation between rising oil prices and rising gold prices. While oil prices may moderate at some point – because, again, no market goes straight up or down – the trend is clearly for sustained high prices. This is additional support for gold in our view.

So… given gold’s correction, you might go right ahead and sell your gold. I’m hanging on to mine. And if I’m hanging on to my gold, I’m hanging on to my gold stocks, because that’s where the real juice will be.

When I look at the alternatives and the amount of risk I have to take to get even a 10% return right now, I am comfortable biding my time, continuing to buy gold and gold share bargains with the expectation that the 100%, 200%, 500% gains down the road will catch me up in a hurry.

Good investing,

David Galland

David Galland is the Managing Director of Casey Research, publishers of the Daily Resource PLUS, a free e-letter offering a concise recap of the 24 hour action in gold, silver, energy, base metals, currencies and more… as well as Doug Casey’s monthly International Speculator advisory, presenting comprehensive, unbiased research on undervalued gold and other resource stocks.

A three-month 100% money-back trial is available that allows you to view all current recommendations and decide for yourself whether the International Speculator is right for you. Learn more.

Dennis Gartman Expects Central Bank Selling To Hold Price Down

Dennis Gartman, everyone’s favorite gold analyst, said yesterday (even before the carnage) that he expects the gold price not to recover much any time soon due to what he expects will be central bank selling. He thinks the banks will sell the allotted gold under the Washington Agreement and that will keep a lid on gold prices.

He could be right. And we all know how central banks have a habit of selling at the proper time, right? Gordon Brown didn’t seem to mind that he cost the British citizenry billions by his inopportune selling of some years ago when the gold price was a fraction of what it is today.

From what we have seen in the last decade, any time a central bank offered gold for sale it was wise to get in line to buy it. Maybe it’s supposed to be a form of government hand out?

Unfortunately, if history repeats itself, Dennis Gartman won’t be bullish on gold until its “showing strength” which may not be until it blasts past the old high. I rather be an owner at $850 and watch it tap $780 than to be an owner at $950 or $1025.

You can many times make a fortune buying when there is blood in the streets. There is blood now. But be careful what you buy.

This months issue of the International Speculator was just released yesterday. Try their risk free trial subscription today and you’ll have immediate access to the “Judgement Day” company recommendations.

Centerra Gold Earnings Rise – Another One..

Centerra Gold is the latest gold producer to report significantly higher earnings due to realization of a higher gold price than the year ago period.

This of course is to be expected and we were told to expect this from our friends at Casey Research.

The market, of course, continues to ignore this and sell into oblivion all resource stocks. Instead, investors are opting for financial shares in the desperate but flawed hoped that the worst is over. With the manipulators driving the gold price down near the 200 day moving average, it may be time to look at some of the best buys in the International Speculator and Big Gold.

Gold Shares Poised to Double?

Gold Shares: Different This Time?

By David Galland
Managing Director
Casey Research
BIG GOLD

Doug Casey, my partner and Casey Research chairman, describes his secret to making life-changing investment returns – and hanging on to them — as “Being bold when everyone else is timid, and timid when everyone else is bold.”

But putting a pleasant-sounding utterance into practice is far different than just parroting it.

Especially if you have taken an interest in gold shares over the last year or so.

That’s because gold’s bull market has taken it from $691 a year ago to $918 where it trades today. That’s an increase of 33%. Yet the AMEX Gold Bugs Index has lagged and is up only 26% over the same period. (Lagged is, of course, a relative term, because the S&P 500 is down 7% over that same period.)

However, people don’t invest in gold stocks to keep up with gold… but to outpace the metal on the upside.

Case in point, before the gold bull market cooled off for a brief period in 2006, gold bullion went from its 1999 low of $252 to its 2006 peak of $725, a 187% gain. But the AMEX Gold Bugs Index went up by an even more impressive 519% over the period.

So, what’s going on in today’s market? Are gold stocks going to continue underperforming? Or is this a time to be bold and position yourself now, in anticipation of a rebound?

Is It Different This Time?

The most dangerous phrase in the investor lexicon is “This time, it’s different.” Invariably, that phrase is used to explain why an investment is going to continue in a certain mode even though history screams that just the opposite should be true.

We heard this in spades during the dot.com boom. Back then, companies with no profits and a business plan that would embarrass a high school student were valued in the hundreds of millions of dollars. “These paper tigers have to crash and burn,” said the few. “No,“ said the many, “this time it’s different because…”

The real estate bubble was no different. “But house prices have doubled and doubled again. That means you should be selling, not buying houses on the speculation that they will double yet again,” said the few. “No,” said the masses, adding, “this time it’s different because…”.

In the context of gold shares, in order for things to be different this time, the gold shares would simply flop around at current levels until the gold bull market ends. After which they would sink back to pre-bull market levels.

Could it happen? Sure. But in order for it to be different this time, the following would have to hold true.

1) Gold producers would have to realize no significant gain in profitability. That, even though the price of their primary commodity has risen strongly.

A quick check shows that, for the fourth quarter of 2007 — the last quarter for which results are available — many of the gold producers rang in record results, including Goldcorp (NYSE: GG), whose year-over-year profits almost quadrupled, and Kinross (NYSE: KGC), whose profits increased 322%. And that is just a sampling.

(As an important aside, all the big gold producers will be releasing their first-quarter financials within the next couple of weeks. Because gold reliably traded more than $100 per ounce higher over that period, compared to the fourth quarter of 2007, we expect to see another round of record-breaking financial results.)

2) One of the fundamental tenets of investing has to be chucked out of the window. That tenet is that investors gravitate to sectors where profits are on the rise. And gravitate more strongly to sectors where profit increases are strongest. With the record-breaking improvements in the gold producers’ financials of late, we can expect to see investors beginning to pile in. Especially considering that most other major sectors — financials, banking, housing, transportation, etc. – are all experiencing record losses. Indeed, if investors steer clear of the profit-making gold producers, that will be almost unprecedented.

3) In a period of rising inflation, investors would have to ignore gold stocks as being a likely beneficiary. During the last major inflationary period in the U.S., 1962 to 1982, gold shares rose, on average, 1,503%. Are we in a major inflation at this point? A quick glance at any news screen or a trip to your local store will confirm that we are. Is gold no longer an inflation hedge? Again, for it to cease playing that role would be a brand-new script.

4) Gold stocks would also have to fail to trade in concert with rising oil prices. As you can see in the snapshot chart here, historically, there is a very high correlation between gold and oil.

But maybe higher oil prices are temporary, and oil will fall to meet gold, versus gold rising to meet oil? No one can say for sure, but in light of the available evidence, the safe bet would seem to be sustained higher prices.

In just the last few weeks, we have heard from the Saudis that they won’t be increasing oil production from current levels (according to many credible analysts, it is because they cannot)… and from the Russians that they may have hit peak oil production… and that Mexico, the third largest oil exporter to the U.S., will export its last barrel to the U.S. in just 6 years.

In short, for the coiled spring under gold stocks to fail to be triggered, things would indeed have to be very, very different this time around.

Raising One Final Question…

But what if the gold bull market is already over? After all, after touching an all-time high (in non-inflation-adjusted dollars) of $1,011 on March 17th, gold fell back as low as $887.75, a drop of 13.91%.

Other than scaring some investors away from gold, is that correction significant? The answer, again based on the historical record, is no. Since the gold bull market began in 2001, there have been 9 significant corrections (defined as a retraction of more than 8%). The worst of those corrections have seen gold fall 15.98%, 18.27%, and 27.7%. The average retraction of all of those corrections is 13.6%, so the latest is, at worse, fractionally worse than average. It is worth noting that we saw a very similar pattern back in the 1970s with gold stutter-stepping higher and higher.

So the latest correction, in and of itself, is truly inconsequential.

Leaving us to look elsewhere in order to answer the question of whether the gold bull market is over.

We think the answer is obvious and requires only a casual glance at the facts on the ground. We now have globally raging inflation, a financial crisis the likes of which hasn’t been seen in generations, a massive unleashing of cheap money by the Fed, a $3 trillion war and governments trapped into spending without restraint. On that last front, in addition to the almost mind-numbing financial obligations to the 78 million baby boomers now retiring, we now have a cacophony of calls for universal health care in the U.S., and the near-certainty of a new Democratic president coming into power with the mandate to deliver just that.

All of which is to say, monetary inflation is the rule of the day.

Opportunity Knocks

Per above, within the next couple weeks the big gold-producing companies are going to release their latest financials — and they are going to impress, you can be sure of that. When people compare those results against the train wrecks occurring in almost all the other investment sectors, the gold stocks story is going to shine particularly bright. And, unless this time things really are different, a bet we wouldn’t take, these eye-opening profits should soon begin to translate into investor interest that unleashes the gold stocks.

Before signing off, I’ll share a final chart, this one from a presentation James Turk (www.goldmoney.com) recently gave at one of our Casey Research Summits. It shows the historical trading range between gold bullion and gold stocks, with the measure of value being gold bullion (versus the U.S. dollar). As you can see, the XAU index of gold stocks is now right at the bottom of its trading range… and that the top of the range is about twice as high from here.

Could the gold stocks double from here?

In our view, that is the by far most likely scenario. And a scenario that we think the historical record supports. This opportunity won’t last overly long because sooner rather than later (and maybe as soon as the next wave of financials are released), the investment masses, led by the deep-pocketed institutions, are going to come to the conclusion that in this era of crisis and inflation, the single best place for their money is in gold producers. Get there first, and you’ll profit most.

David Galland is the managing director of Casey Research, LLC, publishers of BIG GOLD, a unique publication dedicated to providing actionable research on producing and near-production gold and silver companies. To learn more about our 3-month, risk-free trial offer with 100% money-back guarantee, click here.

Does Dennis Gartman Want Government Intervention?

In my post the other day I mentioned Dennis Gartman, editor of the Gartman Letter ($500/month), was abandoning ship on gold and exiting gold entirely. What I either missed or forgot to write about was his statement on rising grain prices.

Bloomberg quoted Gartman as saying

“Governments have to get together and stop the rise in grain prices, they will do something. What if they come in and say you can’t expand your positions anymore?”

What bothers me is the “have to get together” part. Who has done a study of what happens when governments get together, and how many times did it end in something good happening? The U.N. for instance has about a perfect record of screwing up everything they touch; and in the case of Darfur, just can’t seem to get in there and touch it at all.

Is Dennis in favor of government intervention? Perhaps he has missed the point that much of this food price increase is due to the U.S. Government meddling in ethanol and telling the free market to use food to make high priced, subsidized gasoline? The ethanol debacle has not done much good for the United States’ standing in the rest of the world either, I might add.

Gartman admits in the Bloomberg interview that many of the funds who pay for his advice may not take it. They aren’t quite so willing to give up on gold; not yet, anyway.

For me, I’m going to continue to follow the advice of Casey Research. I’m not giving up on gold yet either.