Ivan Lo Equedia Weekly plan to purchase both large caps and small cap gold stocks, including Barrick which is mentioned in this article.

I know things have been volatile and people are running scared, but even as the market looked like it was about to collapse - it didn't.

Even as short selling bets against the Standard & Poor's 500 Index rose to a nine-month high last week, that doesn't mean we're going to see a major pullback. If we do, those will be prime opportunities to pick up more cheap stock.

That's why I have been proactive in telling readers not to listen so much to the media but rather follow the rally until a true signal tells us to stop:

"While I can't sit here and confidently predict day-to-day events given the political climate, I can't say I am surprised at what happened. For months I have been saying the markets are overvalued and that the US is in trouble - both long and short term. Does that mean the markets will continue to freefall?

The simple answer is no - the bottom for this summer drought appears to be forming." -The Dangerous Unknown -August 8, 2011

Since that time, the markets (while still volatile) have erased most of the losses over the past months and have rebounded back. If you missed that issue, I suggest you go back and read it.

While the summer markets have been shaken, a lot of profits have already been made. If you have been following the Equedia Letter and my timing on picking up cheap shares of the major producers, the volatility and the negative outlook of our markets shouldn't have phased you one bit:

Let's do a quick review:

June 12, Time to Feel the Pain:

My sentiment towards gold has not changed. When you look at the broader picture of the US and the world economies, the flight to safety and wealth preservation remains a top priority. Gold will climb higher - 'nuff said.

The biggest emphasis I want to make is the disconnect between gold and gold stocks. While gold has performed incredibly well, gold equities have underperformed. But sooner or later, as I have mentioned time and time again, it will change. When it does, we're going to see some spectacular gains in gold stocks (and other silver stocks, as well) - including the more speculative issues - as they play catch up.

The market swings in gold equities can be big, as we have already witnessed. Don't be suckered in by selling at the bottom and trying to play catch up when the market turns. I haven't sold any of my gold and silver stocks recently (the last time I sold was the week right before the correction - see Age of America Over?) because I strongly believe that the equity side of precious metals will turn and my patience will be rewarded with some phenomenal gains.

On June 26, "The Biggest Buyers of Garbage":

I believe that at current prices, mining share valuations are absurdly low and that fundamentals are bound to restore them to reality. That means that over the next 6-12 months, I expect the shares of both gold miners and strong speculative explorers to finally beat the returns of gold itself. Summer is finally here and that means hunting season is coming around the corner.

On August 14, The Big Signal:

When the indices plunged mid-week, gold hit a record high of $1800. That's hardly a surprise for me and if you have been reading the Equedia Letter for a long time, you would know this. I think gold will continue to go much higher.

But that's not what caught my attention.

When the indices plunged mid-week and gold hit a record high of $1800, guess what companies soared? That's right, all of the gold majors.

For the first time in a long time, I saw gold stocks rally with the price of gold. Every gold major surged when gold hit $1800: Barrick, Goldcorp, Kinross, Freeport McMoran, Yamana...you name it.

Just take a look at the Market Vectors Gold Miners ETF (GDX) which surged 4 out of 5 days, ending up nearly 6%. Even the Market Vectors Junior Gold Miners ETF (GDXJ) soared, ending up just over 7%.

This is a big signal - one I am shocked that media outlets and other prominent newsletter writers failed to mention. All they saw was the volatility.

The gold mania is beginning and gold stocks are going to be a lot higher soon as gold looks to crack the $2000 threshold. The gold producers climbed significantly when gold rallied to $1800 last week. Imagine what they will do when gold hits $2000. Imagine where gold will go once QE3 is announced. Imagine where gold will go once Europe spends its way out of trouble.

Once the majors get rolling, the juniors will follow as buyouts and takeover rumours begin. The majors will take advantage of beat up juniors and this will fuel speculation into that market segment. Then the triple digit returns will begin.

Take a look at what some of the majors have done since June:


Gold Major Charts as of September 2, 2011


There's no doubt in my mind, despite the early gains already made, that this upward trend of the major gold producers will continue. Aside from the many factors I have discussed in previous letters regarding gold's climb, even more reasons emerge on a daily basis as to why gold prices will continue to climb - as they have for the past 11 years.

There are reasons why senior German government officials are calling for the gold reserves of European countries such as Greece, Portugal, Spain, Italy and Ireland to be used as collateral for future loans.

There are reasons why Kazakhstan has given its central bank a 'priority right' to purchase all domestically mined gold "in full".

There are reasons why major hedge funds and central banks around the world are buying gold. Central banks internationally have been net buyers of gold since 2009, despite being net sellers for nearly two decades. (see The Next Big Boom)

There are reasons why the People's Bank of China is building their gold reserves without declaring it to the world and is encouraging their citizens to buy gold. (see Everything Has Changed)

There are reasons why Venezuelan President Hugo Chavez said that he plans to nationalize the gold sector and use the production to boost the country's international reserves and why he's ordered the repatriation of 90 percent of Venezuela's gold reserves held abroad, to be returned back to Caracas. (see The Hoarding Has Begun)

There are reasons why stock exchanges around the world are allowing gold to be used as AAA collateral. (see The First Time in History)

There are reasons why even life insurance companies are buying gold for the first time in history (see The Next Big Boom)

There are reasons why many states in the US are pushing for precious metals to be used as legal tender. (see The Greatest War in History)

There are reasons why China, amongst other countries, have created new platforms for the trading of gold. (see Before it's Too Late)

The list goes on...and on.

While the media and Ben Bernanke would have you believe that gold is not money nor should it be treated like it, the evidence says otherwise.

Just last week, Russia's central bank announced that it will offer gold-backed loans for up to 90 days at an interest rate of 7 percent, expanding its lending facilities for dealing with any future liquidity crunch in the banking system.

According to Reuters:

The gold-backed lending was approved by the board of directors at a meeting on Friday. The rate on the facility is in line with the central bank's Lombard rate on borrowing secured against high-quality bonds.
"This measure fits the central bank's policy of developing refinancing instruments within the banking system. The facility will be unlikely in strong demand, only at times of liquidity crunches," said Maxim Oreshkin, chief economist at Credit Agricole in Moscow.

Levels of rouble liquidity remain at comfortable levels for now, with the overnight interbank rate having hovered within 3-4 percent range since early 2010 compared to more than 10 percent seen during the crisis of 2008-2009.

Russia has been relentlessly unloading its US bonds. It has been buying gold at record pace. Now they're offering gold-backed loans to expand its lending facilities for dealing with any future liquidity crunch in the banking system. If there is a liquidity crunch, (which is very possible) Russia will be able to hoard even more gold as citizens and those with gold scramble to pay their bills.

Perhaps this is a secret ploy by the Russian government to discretely confiscate gold. Other central banks, stock exchanges, hedge funds, and even insurance companies are hoarding their gold and looking for ways to increase their holdings. Why aren't you?

Gold Stocks

Many of the miners are still trading at valuations that haven't been seen since the 1970's. While many of the majors are now trading at, or near, 52-week highs, the time to add or enter new positions is still ripe. That's because many of the companies have valuations far below gold's current price.

For example, Newmont Mining currently values its resources at a price of $900/oz, which means they try to determine if their projects are feasible at that price. Gold is nearly $2000 ounce. When Newmont decides to move their current resources into the feasibility stage over the coming years, their valuations of resources in the ground would become much more significant - provided gold stays at these high prices.

Another example is Eldorado Gold. Even though it is trading at 20 times next year's earnings and 15 times next year's cash flow, they're expected to double production within 4 years and is currently one of the lowest cost producers with signifcant exploration potential.

The list of big name gold producers are all high a top of my list of stocks to own - if I don't own them already. Many of them have already been mentioned in the chart above and include: Barrick, Goldcorp, Kinross, and Yamana. If you are going to speculate that gold prices are going to climb or remain at these levels, these are all great bets in my books.

The Juniors

With the low valuations given by the market to the gold juniors and mid-tier explorers, I expect to see a strong wave of takeovers, buyouts, and mergers in the coming months.

Just last week, AuRico Gold Inc. announced a $1.46-billion deal to take over Northgate Minerals Corp. Including net cash, AuRico's acquisition valued Northgate at 14.7 times earnings before interest, taxes, depreciation and amortization - that's the lowest valuation since 2004 for a North American deal worth more than $1 billion. If gold prices stay the same, or go higher as I predict, that's a pretty sweet deal for AuRico.

We also saw Cameco come out with a hostile bid for Hathor. While the Cameco-Hathor deal is not of the precious metals sector, the fact is that the majors are looking to acquire many of the battered juniors and this trend will continue.

When the share prices of the majors rise and the juniors lag behind, it gives the majors substantial pull in using their valuations to target the lower valuations of the juniors. The market knows this. You've already seen many of the majors surge since June. This surge will continue and the juniors will eventually follow as I mentioned in "The Big Signal."

September is here and the market will slowly get back to more aggressive trading as the kids go back to school and the adults get back to work. Even with the strong gains since June, gold stocks still have plenty of room to grow.

It's time to shine.

Disclosure: I own and plan to purchase both large caps and small cap gold stocks, including Barrick which is mentioned in this article. I also own long positions in gold and silver through ETF's.


Until next week,

Ivan Lo
Equedia Weekly

Ivan Lo Equedia Weekly Says...

For months, we have been waiting on Bernanke to make his speech at Jackson Hole. For months, the market has been on tilt with some of the wildest trading days we have ever seen. For months, gold has been making new highs.

For months, it has been the same old story.

There's no doubt in my mind that everywhere you turned Friday, Bernanke was the focus. So I am not going to bore you. In short, Bernanke said everything we already know in his opening paragraph:

"The financial crisis and the subsequent slow recovery have caused some to question whether the United States, notwithstanding its long-term record of vigorous economic growth, might not now be facing a prolonged period of stagnation, regardless of its public policy choices. Might not the very slow pace of economic expansion of the past few years, not only in the United States but also in a number of other advanced economies, morph into something far more long-lasting? "

His speech spoke volumes without saying anything: QE3 is needed.

In past letters, I have maintained my stance that QE3 is inevitable (see Time to Feel the Pain). In a note published earlier this week, Goldman Sachs said that $1 trillion in QE3 is an absolute minimum if the Fed wants to get GDP higher by at least 0.5%:

"Taken together, our analysis suggests that QE3 is unlikely to be a panacea for growth. Nonetheless, our estimates suggests that $1trillion of asset purchases-or an equivalent increase in the duration of the Fed's balance sheet-might increase GDP growth by up to 0.5 percentage point in the first year after any announcement of QE3."

I know QE3 will do more harm than good in the long term. I know it may not be as effective as QE1 or QE2. I know the effects of QE3 on financial conditions may be at least partially offset by the Treasury's debt management policies. But for now, both the market and overall consumer confidence, need to be addressed for the short term.

Bernanke knows it. That is why he announced that a second day has been added to the next Federal Open Market Committee meeting in September to "allow a fuller discussion" of the economy and the Fed's possible response. Something will happen on those days. But again, we just don't know what.

Over my recent letters, I talked about focusing on what we do know, rather than what we don't. So I gathered up some facts that'll give you a broader picture of what's happening in the U.S. -- word of caution, it ain't pretty:

Nearly one out of every five American men between the ages of 25 and 54 does not have a job at the moment

Approximately one million homes were repossessed by financial institutions in 2010 and a similar number of repossessions is expected in 2011.

The combination of federal government spending, state government spending and local government spending now accounts for a larger share of U.S. GDP than at any other time in our history

The supply of existing homes for sale continues to go up

The value of U.S. homes has fallen by a total of approximately 6.6 trillion dollars since the peak of the housing market

The more money you make, the less taxes you pay: General Electric, the nation's largest corporation, reported worldwide profits of $14.2 billion, and said $5.1 billion of the total came from its operations in the United States. Its American tax bill? None. In fact, G.E. claimed a tax benefit of $3.2 billion. Meanwhile, citizens are being forced to pay taxes with money they don't have.

Ten years ago, the United States was ranked number one in average wealth per adult. In 2010, the United States fell to seventh

In 2010, the United States had the worst current account balance in the world. The U.S. had a current account balance of negative 561 billion dollars for 2010 (see The Shocking Truth)

It takes the average unemployed worker about 40 weeks to find a new job.

Today, one out of every four American children is on food stamps: It is being projected that approximately 50 percent of all U.S. children will be on food stamps at some point in their lives before they reach the age of 18

To date, American household wealth has lost $7.7 trillion since the recession: U.S. household wealth fell by about $16.4 trillion of net worth from its peak in spring 2007, about six months before the start of the recession, to when things hit bottom in the first quarter of 2009, according to figures from the Federal Reserve.

While a rebound in the stock market, an improved savings rate and consumer steps to reduce debt resulted in net worth gains since 2009, only a little more than half of that lost wealth - $8.7 trillion -- is back on household balance sheets.

That leaves American household wealth $7.7 trillion less than it was before the recession.

Those are just some of the little details that the US is afraid to tell you. But there's more. There's always more...

America Up for Sale

Pieces of America are literally being auctioned off just to help state and local governments minimize their debt problems.

Earlier last month, a bill that will allow the state government of Ohio to proceed with plans to lease the Ohio Turnpike to investors was approved.

Highways have also been auctioned off (most of the time to foreign investors): A toll highway in Indiana (sold to a Spanish and Australian joint venture), the Chicago skyway, and stretches of highway in Florida, Virginia and Texas.

In Chicago, it's the sale of parking meters to the sovereign wealth fund of Abu Dhabi. Parking meters in Nashville, Pittsburgh, Los Angeles, and other cities are also being sold.

In Wisconsin it's public health and food programs. In California it's libraries, water treatment plants, schools, toll roads, airports, and power plants. It's Amtrak.

Oh, and guess what?

It's the bankers that caused our financial mess in the first place that are selling these pieces of assets from taxpayers, to private investors.

In Goldman Sach's 2010 SEC filing, Goldman says it will be involved with "ownership and operation of public services, such as airports, toll roads and shipping ports, as well as power generation facilities, physical commodities and other commodities infrastructure components, both within and outside the United States."

I am not done.

America Selling Out

All this talk about infrastructure and job creation by the government is just that...talk.

Much of U.S' infrastructure is not even built in the country anymore.

For example, a 2,050ft-long bridge spanning the San Francisco bay is actually being built in China by the China State Construction Engineering Group and is being shipped over to the U.S. piece by piece.

According to an article in the Telegraph:

According to Engineering News Record, five of the world's top 10 contractors, in terms of revenue, are now Chinese, with likes of China State Construction Engineering Group (CSCEC) overtaking established American giants like Bechtel.

CSCEC has already built seven schools in the US, apartment blocks in Washington DC and New York and is in the middle of building a 4,000-room casino in Atlantic City. In New York, it has won contracts to renovate the subway system, build a new metro platform near Yankee stadium, and refurbish the Alexander Hamilton Bridge over the Harlem river.

Massive corporations that are either fully or partially owned by the Chinese government are deeply integrating themselves into the U.S. economy.

So what happened to infrastructure as part of Obama's promise of new job creation? I'll let you figure that one out for yourself.

While the long term outlook for the US doesn't look pretty, it doesn't mean everything is going to collapse right now. The fact is, the US is still the world power - even with the economic turmoil brewing. Let's not forget that all of these negative statements are a reflection of what the US once was.

If you think the US is no longer a player, you'd be nuts. Even without growth, the US is still number one. While this may not last, there is still a window of opportunity for profits in the US markets. So buck up and stop worrying because the time for worry will come later.

Summer is almost over, which means play time is over. The markets will be back in full swing over the next few weeks and I have a strong feeling that we're going to see a rally soon enough.

Enjoy the last days of sun because its back to work and back to aggressively making money. The time period to do so will be short lived, so be ready to make moves.

Feel free to spread the word. Information is knowledge and knowledge should never be restricted.


Source

Gold Bugs Getting Swatted?

Where are you on this scale ?

What Goes [Straight] Up...

Thursday August 25, 2011 09:02 AM

The biggest decline in gold since 1980 (and not many readers may personally recall that fateful year) unfolded in recent hours and the rout extended into the morning hours on Thursday as the yellow metal fell yet another nearly $50 to touch the $1,702 mark overseas. On Wednesday, spot gold fell by another $77.90 per ounce to finish the stormy day at $1,751.30 the ounce. Silver lost $2.11 to end at $39.69. Spot gold dealings opened with pared losses in New York this morning as some of the selling let up momentarily.

Quotes indicated bullion on the bid-side at $1,727.00 the ounce but the market was far from exhibiting signs that the anxiety that has developed since Tuesday has even remotely dissipated. The $1,650 to $1,680 area still presents itself as a target for the bears to try to test but some corrective bounce at this juncture would be as unsurprising as the fact that Apple will continue to exist even after the untimely departure of it cherished CEO.

Silver was off by 31 cents at the opening bell and it was quoted at $39.38 the ounce. The $36.96 level is still apparently the one to breach for the white metal to possibly commence an even more substantial decline than what has been experienced this week. Silver had “refused” to join gold’s rally up until almost the very last minute, and then, it too, attracted a sizeable crowd of latecomers who saw another chance for $50 (or more) to be achieved.

Platinum and palladium both opened unchanged (at $1,799 and at $745) this morning and the recent selling damage ($60 in platinum yesterday but only $13 in palladium) was less severe in this complex, albeit platinum is now trading some $100 under the recent peak it achieved. Palladium still appears as the most ‘stable’ one in this stable; its losses (and by some opinions) its potential downside risk are both on the small side.

Japanese investors meanwhile have been stepping up their purchases of physical but mostly ETF-based platinum since the noble metal has come to near-parity with the yellow one. Investment in platinum by Japanese buyers has doubled since July. Meanwhile, the same Japanese investor has been a consistent seller of gold into market strength in recent months (and even years)…

Spokesmen from Mitsubishi UFJ Trust noted that “While platinum prices are prone to downside risks as they are tied to industrial demand, the metal is more precious in nature than gold and its value is more stable. The fact our ETFs are growing may indicate more Japanese investors are shifting away from physical investment in precious metals." Reuters reports that the spread on the Tokyo Commodity Exchange (TOCOM) between gold and platinum, which is usually priced higher than gold (historically, an average of $200), narrowed this month and fell into negative territory for one day in early August.
While $215 of a cave-in in the yellow is surely quite painful to the multitudes seen still piling into bullion holdings in the initial hours of this trading week, the 12%+ correction is not yet eliciting any bullish towels being thrown into the market’s dirty laundry hamper. To the contrary, various forms of reality denial have been on display, complete with increasing decibel levels as to why gold must and will attain not just mid-four-digit, but also five-figure values…later. Not everyone agrees with that take, however, hefty recent gains notwithstanding.

Well, at least to time of day or a particular year were given as bait. To be fair, there were those who looked at this event and waxed somewhat ‘nostalgic’ as in: Dennis Gartman, for one. Dennis noted that “we exited one third of our gold position yesterday, and in retrospect we should have exited 150 percent of our long position. The biggest news of all, in our opinion, was that the capitalization of the” gold fund had surpassed the equity ETF.”

Wells Fargo deputy chief investment officer Erik Davidson kindly reminded shocked gold market spectators that “The motions that you are seeing are now indications of a market pop.” More importantly, he also advised that “people should keep in mind that a reserve currency does not fluctuate as much as gold.” There was a lot of contending lately that gold was acting as a reserve currency and that it was poised to unseat the [insert your least favorite currency here].

See if you can identify where on this scale (below) that puts things at the present time…and where sentiment stood three days ago, aside from the mere fact that the gold market Daily Sentiment Index touched 98% on Monday (and the last two remaining bears were euthanized that night).

Overconfidence levels were also damaged as the CME hiked its gold futures trading margins by 27% (the second such adjustment in one month) on the heels of the SGE having done so in China. Adding to the anxiety-denial combination were conflicting expectations as to what the Fed’s Jackson Hole retreat might yield. Many –too many- are still expecting a full-bore “give” by the US central bank.QE-call-it-whatever-you-will-point-0 is being demanded by those whose party glass is near empty and they cannot leave the rave that has been oh-so-good to them for several years now.

Others see Mr. Bernanke as taking a wait-and-see attitude as he is cognizant of the heat coming from politicians as well as some of his own FOMC team members as regards the efficacy of more easing/bond/buying/etc. and the inflation risks they all carry. Expectations and speculative posturing surrounding the Wyoming Fed camping trip have become an annual ritual by now, but this time the emotions run higher than ever perhaps. In a nutshell, says Jim Paulsen of Wells Capital Management, “We have created a very bad precedent. The financial markets whine and policy officials jump. The Fed has become the Pavlov’s dog of the stock market, and this is a horrible precedent for policy makers.”

Some observers believe that Mr. Bernanke may take Mr. Paulsen’s criticism to heart and simply let markets (pick one) down for a change tomorrow when he fails to offer a concrete stimulus offering but only pledges to do so when/if it becomes necessary (pretty much the same language as the one used when the 2013 ‘extension’ of low rates was recently mentioned by the Fed but was grossly misinterpreted by certain markets).

There are some valid reasons for Mr. Bernanke to abstain from unconditionally pleasing certain market players with a further helping of asset purchases. For starters, the specter of deflation has shrunk to less scary proportions while inflation (ex energy and food) is now running but two-tenths of a percent under the Fed’s target of 2%.

Hold on tight; there is only one day left to wait for the “Wyoming Words.”

Jon Nadler
Senior Metals Analyst – Kitco Metals

Markets wait on Carney as rout continues

The Chase by Marty Cej:

Asian stocks tumbled, European equities are sliding and U.S. index futures are pointing to declines at the open of North American trading. Judging from the number of photographs of floor traders pinching the bridges of their noses on front pages and news websites, it could be another rough ride for equity investors.

Not so much for bond markets and gold investors, though. Government bond yields in Canada and the U.S. were driven to record lows yesterday and remain close to those levels while gold has pushed to new records. With no U.S. data out this morning to confirm or undermine economic worries, investors will be hard pressed to come up with an easy excuse to buy or sell.

It will be a different story in Canada, however, as Finance Minister Jim Flaherty and Bank of Canada Governor Mark Carney testify before a parliamentary committee on the impact the European debt crisis and U.S. slowdown will have on the Canadian economy and financial markets. We'll take Minister Flaherty's testimony live beginning at 9 am Eastern. Carney sits down at 10 am. TD Bank Chief Economist Craig Alexander will follow the testimony for us in studio.

Economists and traders expect the Canadian fiscal- and monetary policy decision makers to insist that the Canadian economy and Canuck companies will remain resilient in the event of a more severe economic downturn.

Inflation is not a major concern, as evidenced by this morning's Canadian CPI data; corporate balance sheets are strong and many commodity prices are at or near record highs. They can expect Flaherty to tout the "soundness" of the Canadian banks and scold the profligate ways of other nations. Governor Carney will assure the committee that the central bank has all the tools necessary to help stimulate the economy in the event of a severe downturn and the Bank of Canada is one of the few members of the Group of Seven that is able to cut rates if needs be. But is there a need?

The markets should brace for any change in the fiscal projections by the government or cuts to economic growth assumptions.

Canadian tech stocks could garner a lot of attention this morning. Research In Motion continues to be the subject of intense takeover speculation in the wake of Google's $12.5-billion takeover of Motorola Mobility and the successful multi-billion-dollar auction of Nortel's patents. Bloomberg reports this morning that analysts at Morgan Keegan estimate that RIM may now be worth $25 billion thanks to the value of its patents.

Sure, that's a far cry from the $83 billion that RIM was valued at during its peak, but it's a nice premium on the $13.5 billion market cap the company now sports. Analyst Peter Misek at Jefferies raised the stock to "hold" from "underperform."

Open Text will also be in focus after HP said it would buy Autonomy of the UK for $11 billion. Analysts at National Bank say Open Text could be the next target in the industry and IBM the most likely buyer. National Bank also says a bidding war between SAP and Oracle is not out of the question.

Banks will be a key sector for us to follow today and in the coming weeks. How "sound" are Canadian banks relative to the rest of the world? How do they measure up in terms of Tier 1 capital, for example, or tangible common equity? It is not enough for us to refer back to a report written months ago. Times have changed and so have the banks.

Gold has soared to another record high. The commodity, the companies, the ETFs… buy, sell, hold? They are all angles.

Oil is slumping. Same deal as gold, only different.