Here is the latest from Chuck Cohen, a New York-based financial consultant who specializes in gold investments. At bottom is a speculative recommendation of a small but well-positioned mining company. We should note that we do not share Chuck’s bullishness on the stock market, even though we are quite bullish on physical gold and silver. Also, while Chuck believes inflation is about to explode, we see deflation ruling the economy as long as real estate remains in a possibly permanent funk. Here’s Chuck:
Despite all the dire warnings, I’m convinced the stock market will continue to advance. This has implications for gold, since, as long as shares are moving higher, I am confident that gold will move higher as well. Moreover, the incredible gold fundamentals are about to be reflected in an acceleration in price that so far has been slow, measured and frustrating. At the conclusion I have made another gold exploration recommendation: Moneta Porcupine (OTC symbol: MCUPF). This company appears well poised for the extremely bullish scenario that I foresee.
‘I’m a Contrarian’
First, I am at my technical core a contrarian. I have found that the majority of opinions in the media and in polls, especially at major market turning points, tend to be wrong; not always, but fairly consistently. That is why, when we read confident predictions of where the markets are heading, we should read them skeptically, especially when there is some kind of consensus. What we should now realize is that the stock market normally will do what we don’t anticipate it to do. Or as Richard Russell continuously warns, it will do everything it can to take your money. That is why so few really succeed at it. For instance, at the top of the manias that gripped our markets over the past ten years, how many experts warned you to get out? In fact, almost all of the so-called advisory services, economists and investor polls never saw what was coming until it was time for the post-mortem. But of course, I am certain that most of you didn’t fall into these traps.
Which brings me to the current situation. I read and receive a lot of material from bearish market writers warning that an unimaginable deflationary decline is upon us. Together they suggest the collapse will take the stock market and more pertinently, gold and the mining shares, down precipitously. But amidst some pretty elegant arguments, I think this position is missing some critical technical signs. Here are some of my reasons for believing that we might be heading up, not down. My belief is that is that it will most likely be caused by the massive infusion of worldwide bailouts, and by the recoveries of some of the world economies. I don’t know how it may eventually play out, but it appears as though we are going to have an incredible inflationary binge, especially manifested in commodities. Even given this view, I still expect eventually to see turmoil and chaos down the road. Gold is not going up to incredible heights because the world is getting better. That may seem contradictory, but then again, we are living in extraordinary times.
What the Rally Means for Gold
The Friday Syndrome. Recently, Fridays, which tends to be a contrary day, have been unusually weak. If you go back to most of the market’s tradable bottoms, you will see that they were always preceded by poor Fridays, as well as by one or two days when the Dow was down over 100 points or more, such as this past Friday. There is nothing like an ugly day or two before a weekend to scare investors and make them bearish.
Seasonality: We are now at the end of the year, when stocks have had only one major selloff (in 1973, but it didn’t really collapse until March 1974). The last two months tend to be the best time of the year to be long.
Persistent strength in commodities: Oil, Copper, zinc, aluminum, nickel and lead have all more than doubled from their lows. Sugar and cocoa have also broken out. Finally, keep your eye on lumber. On Friday, even with the market down, it moved up sharply to its highest level in several months, and with the future months up much higher than the current price. As far fetched as this may seem at this time, this might be presaging a housing recovery.
The John Paulson Barometer: This is not a classical indicator, but I’ll go along with the world’s best speculator (up 590% in 2007 and 40% last year). Paulson expects a huge commodity inflation down the pike (below) and I wouldn’t wager against him. Here’s a report on Paulson from Porter Stansberry, whose stunning prediction of the collapse of Fannie Mae and Freddie Mac was featured in Rick’s Picks well ahead of the event. “World’s richest and most successful speculator warns of great inflation,” is how Porter headlined the feature:
“At a recent breakfast, John Paulson, the most successful speculator of the last 20 years, explained exactly how the great inflation will come to pass. Says Paulson: The banks will resume regular lending – thereby releasing all of the excess money supply into the system – within six to 24 months. Two or three years after that, we will see 12% annual inflation.
“Paulson is recommending investing in gold. He’s already placed more than $4 billion of his firm’s assets in the metal. Why is Paulson building his position so early if he doesn’t expect inflation to kick in for four years? In a word: Scarcity. Paulson notes, of the $200 trillion of investable assets in the world, only $800 billion is gold. You won’t be able to get much of that $200 trillion into gold at any reasonable price. But that won’t stop people from trying.
“Here’s the part that sent a chill down my spine. At this breakfast, Paulson also gave a rare insight into what he’s doing with his personal money. Apparently, his fund offers a special option whereby you can invest using gold. According to someone at the breakfast table, you convert your cash into gold and buy into the fund using bullion. When you cash out, you are paid in gold at the value it is worth that day. Paulson is 100% invested in this style.
“When the world’s most successful speculator would rather be invested in his own fund via bullion instead of dollars… you gotta wonder why you’re still carrying greenbacks in your wallet.”
Too Cautious for a Top
Investor polls: Finally, let’s look at the most recent poll results taken this week and notice how bearish or cautious the participants are. The Hulbert sentiment survey this past week showed that after a 2,000 point rally, the market advisors were only recommending a 19.4% exposure, a remarkably cautious figure and not at all indicative of a major top. The Street poll: 35% bulls vs. 50% bears; AAII poll: 34% bulls vs. 42% bears. Same story at Bloomberg, which paints a gloomy picture of investors.
Do these polls appear to reflect an confidence that you normally find at a major top? I don’t see it. What makes this caution so noteworthy is that the market has rallied almost 50%, is off just 4% from the highs including the 250 point drop on Friday, and yet investors seemed to be worried. Contrarily, that is not what one would expect at the beginning of a major collapse.
How Stocks Connect to Gold
Because of the connection that gold has persistently held to the stock market, these dire prophesies have extended to gold and gold stocks. As though we gold bugs didn’t have enough trouble, considered pariahs in the mainstream world, we have to worry about another cruel meltdown!? But what if the immediate doom callers are not right, and a commodity rush is at hand?
Gold’s technicals: Isn’t it amazing how even though gold finally has risen through the $1000 level after a year-and-a-half of consolidation and after three failures to hold the $1000 level, many are still skeptical and the holders are still panicking? Recently, shares of one of the better mining companies, Agnico-Eagle, dropped over 10 percent on record volume following a poor earnings report. Also, HUI’s relative-strength index has spiked down to a very oversold condition. Gold stocks large and small on many days were down across the board. This is highly unusual and indicative of a very nervous and oversold gold share market.
The Gold:Silver ratio: Last week, the gold:silver ratio shot up from about 58:1 to 64:1. If we are in a massive commodity move here, as I have come to believe, this ratio should decline sharply before a top is in. In an inflationary environment silver outperforms gold but underperforms when there is a drain of liquidity. Therefore, I see this latest jump as very bullish. I wouldn’t be surprised to see the ratio go under 50:1 before danger time arrives. And here is an excellent article on the strange physical gold situation. If correct as I suspect, there is an immense naked short position in the metal.
Gold eventually will go parabolic: This mathematical curve is still the most significant technical consideration for gold simply because all major cycles sooner or later conclude in a spectacularly insane mania that draws in even the most hardened skeptics.
A Stock to Consider: Moneta Porcupine
A new recommendation: Moneta Porcupine (MPUCF). A caveat to buyers: Please put a reasonable limit if you are going to buy. I noticed that a couple of the recommendations had large gaps up which inevitably get filled after a couple of days. Here are some bullish facts about Moneta (Note: I hold a position in the stock):
- in an absolutely prime location; controls about 10% of Destor structure and splays from Timmins to Quebec border, a stretch which has produced 72M/oz to date
- has gold in the ground: the Golden Highway Project, with 10 distinct zones over a 12km strike, has 2 zones with a 1.15M/oz defined resource (all categories) valued at $17/oz versus regional valuations on corporate acquisition as much as 10 times higher
- has 6 very prospective and largely under-explored projects (most are 100% owned) along the Destor structure with considerable geological relevance and strategic value
- has completed a financing in August 2009 and is now hiring key technical team members to activate exploration; initial 10,000m drill program in progress to evaluate several newly defined targets
- will imminently engage a top-tier independent consulting firm to upgrade NI 43-101 resource estimates and to re-evaluate all other known zones
- is in a region seeing an upsurge in corporate activity with Lake Shore, and two new entrants to the Timmins camp: San Gold and Osisko, all building up regional positions
- is under-marketed and the ënewí Moneta management team is not well known (i.e. no significant institutional ownership)
- Warren Bates, PGeo. of the immensely successful Pelangio Exploration, has recently joined the Moneta Board; other key Board additions to follow
- has a valuable database of well over 500 drill holes (with digital data) and over 150km of historical drill core at its wholly-owned Timmins field office and coreshack
- has historically built up property positions via joint ventures primarily with majors but current CEO is NOW undertaking sole risk exploration and development
- has a healthy Treasury position which means company does not need to issue cheap stock
- management have significant ownership of company with market float believed to be below 30M shares
- all properties have good access to infrastructure: all sites have ready access to roads, electricity and existing mills
Readers who would like a free copy of Chuck’s six-part series on gold should contact him at [email protected]. He is also available for consulting at reasonable rates.
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