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Featured Video
Returning to Gold Standard?
There's been a lot of talks about returning to the gold standard since the Republican Party made their comments on the subject last week.
Should we go back to the Gold Standard? Watch the in-depth video to take a look at both sides of the controversial subject.
September 2, 2012
Last week, I released a report on a junior gold producer. It's up nearly 12%. Let me tell you why in a bit.
The World's Secret
We're at war. But not one that's fought with guns and missiles; one that is fought with currency.
Currency wars are fought globally in all major financial centers by bankers, traders, politicians and automated systems - and the fate of the economies and their affected citizens hang in the balance.
A "currency war" is a fight between countries to achieve a lower exchange rate for their own currency. In other words, its competitive devaluation.
In short, the cheaper your currency, the more money you attract from foreign entities; this leads to increased exports, growth, and job creation.
The dollar, the yuan, and the euro, are the three super power currencies leading the global currency war. The one on top will be the one that devalues its currency the fastest.
However, devaluation and currency wars never produce either the growth or the jobs that are promised, but they reliably produce inflation.
At the end of the day, one thing is for certain: The price of gold will rise (as it always has), to match the continual, yet competitive, nature of currency devaluation.
America's Gold Wiped Out
No one truly understands just how out of hand America's finances have become. America has, in fact, run trade deficits large enough to wipe out its gold hoard under the old rules of the game - the old rules being brought back to light given the world's current financial conundrum.
If we were to think of America's current finances under an evolved Bretton Woods system, China's redemption of US Treasury notes would be more than enough to wipe out the entire gold supply of the U.S. and more. And this is perfectly plausible if we were under the rules of Bretton Woods.
While this may seem extreme, this is exactly how most of the world monetary system worked up until 40 years ago. It's no wonder why the U.S Republican party recently called for a commission to look at the merits of a gold standard.
Sixty years ago the US had over 20,000 tons of gold. But because of consistently large trade deficits, it dropped to 9000 tons. In 21 years, US gold reserves dropped 11,000 tons of gold that mostly went to a small number of export powerhouses to make up for its trade deficits.
The Truth About Printing
Every day journalists and reporters talk about printing dollars, yet they have no clue what's really happening.
But I am going to tell it to you straight.
I've mentioned this a few years ago in my letter, "Two Birds, One Stone: The American Secret."
Prior to 2011, no one was winning the currency war. China was experiencing a surplus and the US was negative. So the U.S. did everything it could, including persuasions through the G20, to convince China to appreciate their currency to balance out the major trade deficit.
But China wouldn't allow their yuan to appreciate because it would hamper their own growth. Why would they hamper their growth for the benefit of a competing country?
As a result, the United States, empowered by its world reserve status, pulled out its secret weapon: Quantitative Easing (QE).
The United States effectively devalued its own currency by increasing its own money supply, forcing inflation onto China.
It now had an edge on this currency war.
China's Inflationary Worries
When a Chinese exporter ships goods abroad and earns dollar or euros, it must hand over those currencies to the People's Bank of China (PBOC) in exchange for yuan at a fixed rate by the bank.
When an exporter needs dollars or euros to buy foreign materials from other importers, it can get them; however, the PBOC only makes enough dollars or euros available to pay for the imports and no more. The bank keeps the rest.
This is how China is able to maintain a pegged exchange rate with the United States.
The process of absorbing all the surplus dollars entering the Chinese economy, especially after 2002, produced a number of unintended consequences .
The problem was that the PBOC did not just take the surplus dollars, but they purchased them with newly printed yuan. It meant that as the Fed printed dollars and those dollars ended up in China to purchase goods, the PBOC had to print yuan to soak up the surplus.
In effect, China had outsourced its monetary policy to the Fed. As the Fed printed more, the PBOC did too to maintain the pegged exchange rate.
The United States' plan was working.
Not What You Believe
China was a booming economy and had bounced back nicely from the 2008 crisis. The United States was a struggling economy with little chance of near-term inflationary pressures.
In the short-term, QE hurt China more than it did the United States.
If China maintained their peg to the dollar, it was either appreciate their currency or experience higher inflation.
From June 2010 through January 2011, the yuan had appreciated around 4% and Chinese inflation was moving at a 5% annualized rate. That means the total increase in the Chinese cost structure was a total of 9%. Projected over several years, the dollar would decline over 20 relative to the yuan in terms of export prices.
QE was working.
The United States is now beginning to win the currency war with China.
China is experiencing inflation and yuan appreciation. Headlines continue to show that China's growth is slowing and calls of a Chinese bubble are being talked about worldwide. China's manufacturing just shrank for the first time in nine months.
Still think QE didn't do anything?
The US trade deficit narrowed to $42.9bn in June, the smallest in 18 months. Exports increased 0.9 per cent to a record $185bn as US companies sold more consumer products, automotive parts, industrial supplies and capital goods abroad.
But there's a big problem.
When the US prints dollars and another country tries to peg its currency to the dollar, that country ends up printing local currency to maintain the peg, which causes inflation. That means as the Fed prints, the world as a whole experiences inflation.
Countries around the world are feeling the effects of this currency war. It's created higher food prices in Egypt and stock bubbles in Brazil.
Printing money means that U.S. debt is devalued so foreign creditors get paid back in cheaper dollars. The devaluation leads to higher unemployement in developing economies as their exports become more expensive to Americans.
While inflation isn't so bad on the home turf, developing countries experiencing even a slight rise in prices are feeling the tremors. Rising food prices for us are an inconvenience, but for those of smaller developing nations, it's a matter of life and death.
As a Canadian, I hear people everyday around me loving how strong the Canadian dollar is. But in the long term, it does more harm than good.
The competitive devaluation of the dollar has caused the Canadian trade deficit to soar; it reached $1.8 billion in June, an almost twofold increase from the level a month earlier.
As a resource-rich nation, we traditionally have had trade surpluses, meaning we sell more to the world than we buy.
But since the recession, the economy has been consistently in trade deficit conditions - as a result of the American printing press. In the last four years, Canada has only posted a significant trade surplus eight times.
Uh Oh
Bernanke just announced there is a great chance of another round of stimulus at this week's Jackson Hole Summit. The Fed has printed over $2 trillion yet unemployment remains at low levels. But China is beginning to lose ground on the currency war.
Will the next round of QE be the bullet used to cripple China? Bernanke has made it clear that stimilus is around the corner given the 'grave concerns" of unemployment.
Previous rounds of QE have already sent gold to record-breaking prices.
Imagine what it will do this time around.
The fundamentals for gold have never been better.
They're printing dollars. They're printing Euros. They're printing Yen. They're printing Sterling. And the Chinese has to print RMB to keep up.
A few weeks ago in my letter, "Your Last Chance," I said that August may be your last chance at gold stocks bargain hunting.
Take a look at this chart:
But don't worry, you haven't missed the boat; gold is about to breakthrough.
Bloomberg just reported that hedge funds "boosted bets on rising commodities to the highest in 15 months."
Investors added another $1.47 billion to commodity funds in the week ending on August 22 - the third inflow of money in the past four weeks. Of that, $1.36 billion went directly toward precious metals: gold, silver, platinum, and palladium.
Data shows that traders are the most bullish they've been since last year. If we stablize at these levels, a lot of neutral players in the gold market will become buyers.
What I am Buying
I continue to add long positions in quality gold and silver stocks.
Last week after my report, "A Cash Flow Machine," I bought shares in Timmins Gold (TSX: TMM)(NYSE MKT: MGD) and I couldn't be happier with their performance.
They're up 11.7%, while their peers are down 1.2% this week.
Take a look:
Week Ended August 31, 2012. Courtesy: RBC Capital Markets
Why the disconnect, you ask?
A simple effect of revaluation.
Funds and institutions know Timmins Gold is significantly undervalued when compared to their peers by almost every metric.
I've done a simple back-of-the-napkin calculation based on a Cash Flow Per Share (CFPS) model and the result shows me why Timmins was up this week, while its peer group was down.
Timmins Gold is trading around a 3.7x 2013 CFPS. If it can get the Mexican peer group average of 7.95x CFPS, it means Timmins' would double in value.
Remember what I said before: if gold goes from $1600 to $2000, Timmins' (Net Present Value) NPV doubles and their profit margins increase by 50%.
Timmins' growth prospects look strong and they're on pace to decrease costs and increase production; yet, it continues to trade far below its peers.
This past week showed me the buy side money is beginning to fuel into Timmins and away from its peers.
Conclusions
I find it absurd that journalists and reporters continue to talk about gold as if it didn't mean anything. Most of them have never even bought gold, or anything associated with it.
Heck, the only stock they own is stock of their employers as part of an employee stock option plan.
Gold, along with silver, is about to breakthrough and that means quality gold and silver companies are going to see a major surge. The next surge in gold will prove to everyone that the rise in gold is real and here to stay.
Sentiment amongst dealmakers is getting a lot better and funding is back on the table.
The money will soon flow at an aggressive pace. I won't be standing on the sidelines. Markets are closed tomorrow, so be prepared for Tuesday.
Companies in this report:
Timmins Gold Corp (TSX: TMM) (NYSE MKT: TGD)
Until next week,
Ivan Lo
Equedia Weekly
Questions?
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Disclosure: I am long gold and silver through ETF's and bullion, as well as long both major and junior gold and silver companies. We're biased towards Timmins Gold Corp. because they are an advertiser, we own options, and we now own shares. You can do the math. Our reputation is built upon the companies we feature. That is why we invest in every company we feature in our Equedia Reports, including Timmins Gold Corp. We purchased shares last week, after the release of our report. We had no holdings previously. It's your money to invest and we don't share in your profits or your losses, so please take responsibility for doing your own due diligence. Remember, past performance is not indicative of future performance. Just because many of the companies in our previous Equedia Reports have done well, doesn't mean they all will. Furthermore, Timmins Gold Corp and its management have no control over our editorial content and any opinions expressed are those of our own.
Featured News:
A Cash Flow Machine: Growing Gold Production with Significant Upside - Click to Read
Gold Stocks Got You Down? This History Lesson Will Pick You Up...
By Kevin Brekke, Casey Research
If you own any, it might seem that gold stocks have been underwater for a long time, and that the bull market is over.
Yet, the chart below tells me that likely as not, those with the courage to buy when others panic will be the big winners in gold.
It shows that those who bought gold stocks in '74-'75 when everyone else was buying eventually made money.... but those who bought when others were selling in '76 went on to make a killing.
So recently, while veteran gold investors are little concerned and see the markdowns as a buying opportunity, it's raised the ire of more than a few newer investors.
The extent and duration of the selloff in gold equities has spurred much speculation about the health of the trend, summed up neatly as, "Does it mean the bull market is over?"
Hardly. And for one fundamental reason that we at Casey Research - especially Jeff Clark in BIG GOLD - have stated more than once:
The drivers for gold are far from over, which will eventually propel stock prices higher.
History shows that lagging equities during a gold bull market are par for the course.
The chart below, comparing the current gold equities downturn with the one experienced during the middle of the last great gold bull market of the '70s, shows a similarity:
click to enlarge
You can see that the latest retracement is very similar in nature, though the initial climb was smaller and the downfall shorter.
It goes without saying that...
Click Here to Continue
More Casey Research Articles
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4 Index Charts in 2 Minutes
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Want a current read on the state of the market from a technical perspective?
Watch the video as Tactical trader Kevin Cook shows you state of the market as seen through unique breadth indicators - and has one warning.
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> Target Date Bond ETFs Explained
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Featured Income Investing Video Blog::
Morningstar: What's the Most Efficient Withdrawal Strategy? - Click to Watch
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With our new Embed feature enabled, you can now upload and embed any object or video into your blog post. Many of our users are already embedding videos from Fox, Youtube, and CNBC and sharing them with our users.
Embedding is simple. Just copy and paste the embed codes from another website ino the main blog section of your post (not the exceprt).
Where do you find these embed codes?
Embed codes for videos are usually right beside a video.
Here is an example of where the code is on Youtube, highlighted in yellow:
So share what you find with everyone! To learn more, feel free to email or call us at 1-888-EQUEDIA
Featured Video Blog::
Wall Street Journal: Stock Tips From Obama and Romney - Click to Watch
Equedia Tips - The Markets Tab
Using the search function at the top right corner of the website, search for any company. Let's use Research in Motion as an example. Once you reach their profile page, click on the MARKETS TAB. You should now see 12 seperate tabs underneath their logo. Try clicking on them and you will find in-depth information such as:
Detailed Quotes - Depth/Level II - Options - Java Charts - News - Profile - Financials - Insiders trades - Filings - Analyst Consensus - Earnings - Historical Data (Highs/Lows, Volumes, Closing/Opening Prices)
Additional Features (you may not know)
Equedia has many features (you may have overlooked) that will help you manage your investment life and ensure a more enjoyable and useful experience.
Here are just a few of them:
Calendar subscriptions: Keep track of your business events, subscribe to other events, and have access to your online calendar from anywhere in the world. In the near future, we will be working with public companies to add their events to the calendar so that shareholders will never miss an important event again. So call your companies and get them to participate!
Tagging companies to videos and images: Did you know that all of your videos and images can be tagged to public companies? Do you have a video about Google? How about a blog with an image? How about just a blog? Tag it to Google in your blog post, so that anyone searching for Google's quotes and finances can find your coverage!
Buy, Sell, and Hold Ratings: Once you log in, you can submit your buy, sell and hold ratings on the ratings tab so that other shareholders can see what YOU think. You may also access your associates' ratings and see what they think of the shares you hold.
Blog feed subscriptions: Once you add someone as an associate, you will have access to all of their blog posts through your blog feeds. Simply go to your "blog feeds" tab once you log in!
Search function: By far one of the most overlooked but important functions on Equedia. Using the top right hand corner search function, you can find and add any corporations, media users, or investors to your network.
Markets Tab: Under any corporate profile, you will find this tab. Under this tab, you can find the company's news, level 2 depth (delayed), options, charts, profile, financials, insider trades, filings, analyst overviews, earnings, and historical data (these may not be available for all companies)
There are many more useful features on Equedia.com but we think its better if you experience them for yourself. The more associates you have, the more useful Equedia will become for you. So use the new "invite my contacts" function and get started!
Forward-Looking Statements
Except for the statements of historical fact, the information contained herein is of a forward-looking nature. Such forward-looking information involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievement of the Company to be materially different from any future results, performance or achievements expressed or implied by statements containing forward-looking information.
Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that statements containing forward looking information will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on statements containing forward looking information. Readers should review the risk factors set out in the Company's prospectus and the documents incorporated by reference.
Cautionary Note to U.S. Investors Concerning Estimates of Inferred Resources
This presentation uses the term "Inferred Resources". U.S. investors are advised that while this term is recognized and required by Canadian regulations, the Securities and Exchange Commission does not recognize it. "Inferred Resources" have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Resource will ever be upgraded to a higher category. Under Canadian rules, estimates of "Inferred Resources" may not form the basis of feasibility or other economic studies. U.S. investors are also cautioned not to assume that all or any part of an "Inferred Mineral Resource" exists, or is economically or legally mineable.
In This Issue
A Cash Flow Machine: Growing Gold Production with Significant Upside
Gold Stocks Got You Down? This History Lesson Will Pick You Up
Balmoral Discovers Three More Broad Areas of Gold Mineralization
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