FYI for anyone interested:

COMMENTS ON THE

CAPITAL MARKETS

TODAY WE TAKE A STAND AND WE

TURN BULLISH OF GOLD: Our long

standing readers known that we use the term

WATERSHED with a great deal of reluctance. It is our

term for a great shift in sentiment on our part, and great

shifts in sentiment by definition should happen only very,

very rarely. In our case, we believe that to be true and

our history has shown that when we’ve turned we’ve

turned properly. History has also shown what we’ve not

shown the courage of our own conviction long enough to

profit as handsomely as we should have, although our

readers have many times shown greater ability to take

these shifts in sentiment in hand, have refused to be

tossed about by day-to-day gyrations, and have reaped

enormous profits as we got tossed about by modestly

changing economic winds..

We are this morning denoting a WATERSHED shift in

sentiment away from a bearish stance on gold to a bullish

one instead, for we although we’ve been bullish of gold in

Yen terms over the course of the past year or so (and

that has actually served us reasonably well given the long

term trend of gold in terms of the Japanese Yen, but

clearly not because gold has risen but because the Yen

has weakened… and we are likely to see a good deal

more of the latter and perhaps now a bit of the former

too) we have erred in the past many months toward

things bearish of gold. We’ve raised the ire and the anger

of the Gold Bugs in the process, but we are joining their

case once again as the level of antipathy toward gold has

reached what seems to us to be almost unprecedented

levels. The level of bearishness toward gold has become

so egregious that on Friday having chosen to cover a

recent trade wherein we were long of stocks and crude

oil, and short of gold and having made the comment on

television early Friday morning that we were shifting our

position with gold down $10/ounce mid-morning we heard

one or two commentators refer to our decision to cover

as ill-advised and plainly wrong. We heard nothing but

gold bearish commentary in the various media; we

listened to nothing other than projections of lower… and

materially lower… prices that were to be on the horizon.

The airwaves were majestically bearish; we are turning

bullish as a result.

We are going to make this a double shift in sentiment

here also… a leap of faith perhaps of dangerous

proportions… in that we are going to be bullish of gold in

terms of shares, not of bullion. For the past several years

we have relentlessly said, missing not an opportunity

here or in presentations, speeches and television

appearances to make the case that it was preposterous,

silly and just-plain-wrong to be bullish of gold shares

when, if one wanted to effect a bullish outlook on gold,

one could best do so via the futures (especially with

interest rates at record lows, making the contango that

one would have to pay to own deferred futures historically

low… even perhaps negligibly so). We vilified any

investment in gold mining shares (save for purchases of

the largest miners and funds, including, but not limited to

Barrick, Goldcorp, Newmont, ASA Ltd. and a very few

other large companies, eschewing anything that might be

even mildly speculative in nature) and made mention only

marginally of the gold ETF, GLD. Henceforth we are

going to focus our attention upon the above mentioned

mining companies (although to continue to be “friends”

with the SEC, we shall only very rarely mention their

names again for we are precluded from commenting

upon individual equities and shall refrain from doing so as

much as is reasonably and wisely possible) and upon

GDX, the Market Vectors gold miners ETF. GDX is

comprised primarily of Goldcorp (13.3% of the fund);

Barrick (10.7%); Newmont (9.9%); Randgold (4.8%);

Yamana Gold (4.8%); Silver Wheaton (4.8%); and

Agnico-Eagle (4.6). These seven miners are 53% of the

funds portfolio, with the remaining 47% comprised of

smaller and very probably more leveraged miners.

GDX has massively under-performed gold in the past

nearly two years, and is now back to the same price that

existed when spot gold was trading nearer to $1000/oz.,

or if one wants to look at it another way, GDX has fallen

nearly 62% in price from its high in the autumn of ’11

while spot gold has fallen “only” 27%. The process of

mining companies taking write-downs on their ill-times

expansions in the course of the past several years has

begun, with Newcrest Mining in Australia beginning the

process last week when it wrote down a stunning $5.5

billion (A$6.0 billion). More shall follow for if we’ve

learned anything in the business of gold mining it is that

the miners are the most lemming-like of companies,

waiting for a leader to make a move but then following in

like-fashion hard upon. Now that Newcrest has lost its

write-down virginity, others shall follow swiftly behind…

rest very assured of that. As these write-downs happen,

look for something amazing to take place: the share

prices of the companies in question will hold steady

rather than faltering, and in the days, weeks and months

ahead, there shall come a time when a gold miner will

announce a material write-down and their shares will

open materially higher! Such is the nature of the

investment beast.

Finally, we have been bullish of gold in Yen terms and we

are not changing our view even slightly. Indeed, we are

more bullish now of gold/Yen than we were previously, so

when we buy gold, almost certainly we shall do so in Yen

terms, for the Bank of Japan has been, is and shall in the

next several years be far more accommodative than shall

the Fed be. Erring in favour owning gold in Yen terms has

served us far better than being long of gold in US dollar

terms, and in the months ahead owning gold shares in

Yen terms shall do the same. We’ll be buying GDX and

we’ll be selling Yen against it in equal dollar sums most of

the time, and we expect to be served well in both

instances. ‘nuff said; ‘tis time to get to work.