The last time silver prices made such extraordinary gains was from 2009 to 2011 … Investors drew confidence from the “easy money” policies of asset …
We have heard it so many times: investors need to buy low and sell high. In other words, invest when there is blood in the streets.
The precious metals sector has seen blood in the last 2 years. The question is: have investors been buying into this sector?
One thing is for sure: really smart and wealthy investors, the sorts of Stan Druckenmiller, Marc Faber, George Soros, have been accumulating gold mining stocks as the sector have been going through their worse bear market ever. The returns on their investments over the course of the following years will undoubtedly be significant … because they have done exactly what have made them super rich, i.e. buying when everyone is selling.
The key question is how to choose future tenbaggers in the gold mining space?
Although gold miners carry a very high risk (both in their operations as towards shareholders), there is a way to mitigate that risk. The key success factor is to follow successful people in the mining space, people who have proven to know how to bring a project from its exploration phase to a profitable mine. That could seem simple, but it is an extremely challenging journey. Not many entrepreneurs are able to succeed in that challenge.
One of the people who has proven to be extremely successful in the gold mining area is Keith Neumeyer. He has made First Quantum Minerals and First Majestic Silver successful, and he started those companies at the depths of the previous bear market. His first two gold miners reached billion-dollar market caps.
He now is going for a third succes with First Mining Finance (FF). It’s a mineral bank for hard asset investors, where Keith and his team will accumulate high-quality resources at dirt cheap prices due to the 4-year commodity bear market.
FF plans to do joint venturing projects, spin outs, royalties, and sell some assets to majors for much higher prices.
Below is a timeline of his new company, which began trading on April 6th of this year.
April 28th, 2015
First Mining delivers a hostile takeover bid to acquire Coastal Gold Corp (COD). With Coastal Gold management rejecting FF’s offer, Keith and his team went directly to COD shareholders, and 2 weeks later, officially announced a deal to acquire the company with shareholder support.
FF was set to have their first transaction, buying Coastal Gold Corp., a $47 million market cap company prior to the bear market, for just $11 million. This was an extreme value deal. Installation costs of the power lines alone could easily be $40 million, not to mention the $1billion worth in gold resources.
July 8th, 2015
Coastal Gold transaction closes. With the addition of the Hope Brook gold project, FF adds nearly a million ounces of high-grade gold (844,000 indicated/110,000 inferred ounces) to its mineral bank strategy.
FF paid less than $9 an ounce of gold for this project.
September 1st, 2015
An event that will likely attract major fund managers and reveal just how serious Keith Neumeyer is in building his 3rd billion-dollar company. With 19 projects owned that at the heights of the market would likely have been valued at $300 million, FF with its current market cap of less than $40 million threw out a haymaker of a press release.
FF announced the acquisition of two companies: Gold Canyon Resources (GCU) and PC Gold (PKL). Once closed, the transaction will add another 6.4 million ounces of gold to their portfolio. The Springpole project currently owned by GCU already completed a Preliminary Economic Assessment study, with an estimate of producing 217,000 ounces of gold and 1.2 million ounces of silver annually. This is one of Canada’s largest gold undeveloped gold deposits! FF is paying about $8 per ounce of gold for this project!
The Pickle Crow gold project currently owned by PKL will add a million ounces of high-grade gold. FF is paying about $6 per ounce of gold for this project!
Historically, companies pay about $50 to $100 per ounce of gold in the ground when buying a deposit.
Looking at just the past 3 weeks, Keith has made 8 insider buys. Accumulating another 517,500 shares. First Mining Finance is trading for about 33 cents Canadian (CAD) today, with a CAD$33 million market cap.
Keith has openly stated that the objective for First Mining Finance is to create his 3rd billion dollar company. Which from today’s prices, would be a 2,930% return on investment, or in dollars, it’s like turning $1,000 into $30,000! These large gains take time, but if you look at the people running FF and the projects it holds, you can see that this business is really is being built just as Keith has described it would be.
Bear markets is where Keith Neumeyer thrives
Management is aggressively looking to increase the project portfolio of First Mining Finance while the bear market in resource stocks persists.
They are literally buying while there is blood in the streets and this elite group of resource investors is using FF as their attack vehicle.
In just 6 months, First Mining has become one of the fastest growing gold-developing companies in the world, with its core projects in the safe mining jurisdictions of Canada, the U.S., and Mexico.
In the mid-‘90s and in the early 2000s, investors with Keith were in the same boat. They owned shares of First Quantum Minerals and First Majestic Silver, with market caps of less than $30 million, only to be rewarded with gains of 10-20-30 times their investment.
There is no gold rush in Illinois. The important question is, “Why Not?”
- “Illinois is in serious financial trouble.”
- “Illinois has no current budget.”
- “The reality is Illinois is flat-out broke.”
The State Comptroller estimates that the backlog of unpaid bills will exceed $10 Billion by December. Worse, “In January , Illinois’ total cumulative liability was $159 Billion.”
“Pay-Later Budgeting” has not worked. “… the state of Illinois has run deficits in every fiscal year since 2001.” The state borrowed, sold assets, underfunded retirement plans, borrowed even more money to fund retirement plans and yet pretended all was well.
Borrowing today increases the strain on future budgets and reduces available funds for future pensions, salaries, benefits, general expenses, and payoffs. Eventually the “piper will be paid.”
Mish has more to say but the message is clear.
- Illinois is in deep trouble and getting worse each year.
- Politicians are not addressing structural issues.
- The current and unfunded liabilities are far too large to be paid.
- Retiree pensions and benefits will eventually be reduced.
- Taxes are already high and increasing taxes will not solve their problems.
It is worth noting that the members of the Illinois legislature increased their wages in the midst of this management disaster, and are paid, even without passing a budget.
Back to the important question: Where is the gold rush? Retirees, future retirees and current state workers should realize that they will inevitably lose benefits and jobs while their taxes and expenses increase. Gold, not the legislature nor the politicians, will protect their purchasing power.
But strangely, there seems to be no gold rush in Illinois for protection against their legislature, pension underfunding and loss of purchasing power.
MORE PARALLELS BETWEEN ILLINOIS AND SOVEREIGN GOVERNMENTS:
There are similarities between the state of Illinois (and others) and the US government, Greece, Spain, Italy, the EU, the UK and Japan.
- Massive government deficits every year. Check!
- Unpayable unfunded liabilities that will damage or destroy the currency, the economy, taxpayers, and the middle class. Check!
- Politicians unwilling to address structural problems. Check!
- Extend and pretend – let the next governor, mayor, president, or prime minister address the consequences of current inaction. Check!
- Retirees will be disappointed when promised benefits are either reduced or paid in a currency with such devalued purchasing power that the retirees feel robbed. Check!
- Wealth was transferred from the middle class and the state to the political and financial elite. Check!
- It will not end well. Check!
Where is the gold rush? Apparently the only rush to buy gold in any large quantity exists in Russia, China, and India, but not Illinois, the UK or the US. That will change as the consequences of bad policies are realized.
Illinois (like many other states) is facing an ugly financial future. Illinois can’t “print” money to pay their bills so eventually horrible adjustments will be made. Sovereign nations such as the US, Japan, and the UK can “print” their currencies until others refuse to accept payment in those currencies. This delays, but does not eliminate, the inevitable consequences and implosion.
- A state salary or pension in Illinois (and many other states and countries) may be at risk. An alternate plan is needed.
- Politicians will “extend and pretend” instead of addressing structural problems, so those problems will become worse.
- Unpayable liabilities will not be paid.
- Consequences will be ugly and may arrive soon. Be prepared!
- Buy gold (and silver) to protect your purchasing power.
Charles Hugh Smith: “Here’s Why the Status Quo is Doomed”
Gary Christenson | The Deviant Investor
Simple version: Gold is good. Sovereign debt is bad.
The world has added approximately $60 Trillion in debt since 2007, much of it sovereign debt created from deficit spending on social programs, wars, and much more. In that time the world has mined perhaps 30,000 tons of gold, or about 950 million ounces, worth at September 2015 prices a little more than a $Trillion. It is easy to create debt – central banks “print” currencies by BORROWING those currencies into existence. Debt increases, currency in circulation increases, and until it crashes, life is good for the financial and political elite. But debt increasing 60 times more rapidly than gold indicates that debt is growing too rapidly and due for a reset.
It is a tangled web of debt, counter-party risk, obligations, and unintended consequences. From an interview with David Stockman:
Stockman goes on to paint a grim picture and says, “What happens when the financial breakdown comes is there is a great margin call. Everybody says ‘I want my money back and I’ll take your collateral if I don’t get it back. If I do take your collateral, I will sell it for whatever price I can get and cut my losses.’ So, this is truly a house of cards. The whole pyramid of debt and what we call hypothecation and rehypothecation of financial assets, that is the real bubble. That’s what people don’t focus on enough. Sure, you can think of stocks that are a bubble, like Tesla and its current price of around $250, or the biotech index which is trading at hundreds of times earnings is crazy. What’s really crazy is all of this debt that has been created has been turned into collateral and borrowed against at a very high rate. The whole thing is very unstable and tottering as we speak.. . . Much of this collateralized credit that has been created is a confidence game. It is a daisy chain, and when the confidence breaks and they start to unwind the chain, the amount of debt outstanding will shrink. That will create tremendous broken furniture in the financial system.”
How do you protect yourself? Stockman says, “The place to go in my view is cash. Stay short and liquid because we are going into deflationary collapse. We are going into a great reset in the financial markets where inflated asset values are going to be marked down tremendously, bond prices and stock prices. As a result of, that there will be great opportunity after the dislocation runs its course to buy things much cheaper than they are priced today.”
Stockman thinks the whole system unwinds sometime before the 2016 Presidential race is finished. (emphasis mine)
Critical Points Regarding Debt
- Margin calls come when markets crash, like now.
- Then we discover who has been “swimming naked” as Warren Buffet says.
- The daisy chain of hypothecated and rehypothecated dodgy assets backing massive loans breaks. Counter-party risk can overwhelm the financial system.
- The towering edifice of debt is unstable and survives primarily due to confidence, until confidence crashes as it did seven years ago.
- A collapse in confidence occurs along with a collapse in prices for bonds and stocks. Given that $Trillions in bonds have been inflated to the point of negative and near zero yields, there is downside room for a substantial correction in the 35 year bond bull market.
- When companies float 100 year bonds the bond bubble is nearing its inevitable and ugly end.
- Stocks in the US have corrected or crashed approximately every seven years. The S&P 500 Index hit an all-time high in May of 2015, seven years since its last major high prior to a crash. There is considerable downside ahead, perhaps even if the FED cranks up QE4 and QE5 to levitate the stock market.
- Question: If the Fed is the “buyer of last resort” who does the Fed sell to? The problem with the uncharted monetary territory that the Fed has led the world into is that unpleasant and unintended consequences lie ahead.
From Adrian Ash (Bullion Vault):
“But if the Fed is scared, investors and savers should be doubly so. Central bankers have led us deep into a forest where money does grow on trees, but not [economic] growth or stability, and now they can’t find the way out.”
“When night falls, there’s a very clear risk of panic as investors realize that central bankers, like the markets, are lost in the dark.”
Critical Points Regarding Gold
- No counter-party risk. There is no daisy chain of hypothecated assets for real physical gold. If you own paper gold, think again about counter-party risk. If you think you own gold but your friendly neighborhood banker has sold, loaned, or leased your gold multiple times, there will be a problem when you wish to withdraw that gold from the labyrinth of that bank. Worse, the banker may have stolen that gold and left an IOU gold in the vault. Of course, some people trust their bankers and are not concerned … fines, indictments, and prosecutions notwithstanding.
- Fort Knox contained 147 million ounces of gold as of the last count … many decades ago. Since the last audit was performed 60 some years ago, there is risk that the Fort Knox Bullion Depository is actually the Fort Knox Delusion. Apparently “trust but verify” is no longer viable, so act accordingly. Confidence in the global monetary system will be shaken if the real contents of Fort Knox are confirmed and are not as claimed, so don’t expect an actual audit to occur.
- Physical gold securely stored outside the banking system has none of the above mentioned problems. The same is true for silver.
I repeat: Gold is Good. Sovereign Debt is Bad.
Gary Christenson | The Deviant Investor
David Morgan: The retail silver market is very tight and getting tighter. …. What do attendees need to understand about investing in silver in 2015?
Gold prices retreated on Monday after a strong rebound last week after the US Federal Reserve announced that it will not be raising interest rates.
In what has become the most highly anticipated meeting of the Federal Open Market Committee (FOMC), the Fed announced that it was going to maintain its current policies, and left the policy rate at 0.125%. Yet, the accompanying statement and the economic projections came in more dovish than expected. The Fed showed concerns over the negative impacts of the recent global financial market volatility, as well as rapid slowdown in China and other emerging markets, on growth and inflation outlook.
In her press conference, Fed Chairwoman Janet Yellen made it clear that the U.S labour market is close to full employment, and that she’s reasonably confident that the inflation rate will drift back up to around 2% eventually.
While gold prices were given a boost on Thursday and Friday, after the Fed announced that it will not be raising interest rates, the U.S dollar tumbled but later staged a strong recovery towards the weekly close. However the greenback still closed the week as the second weakest major currency, after Euro. The dollar index dipped to as low as 94.06 last week but recovered to close at 94.86.
Seven years ago on September 15, 2008, the US government’s total debt was $9.6 trillion. Today it’s over $18 trillion… and once they raise the debt ceiling (which is inevitable) the debt will rise overnight to over $19 trillion– twice as much in seven years.
In 2008 the entirety of the Fed’s balance sheet was just $924 billion. And the total of its reserves and capital amounted to $40 billion, roughly 4.3% of its total assets.
Today the Fed’s balance sheet has exploded to $4.5 trillion, nearly five times as large. Yet its total capital has collapsed to just 1.3% of total assets. And, its assets are things like US government bonds.
Over the last several years the Fed has essentially printed trillions of dollars and which it has used to buy US government bonds. This has all been done at almost zero interest rates. Currently the Fed is holding some $4.5 trillion worth of existing bonds, most of which they purchased when interest rates were basically zero.
So what happens if the Fed raises rates? The market value of their entire bond portfolio will fall.
And given the razor-thin capital the Fed has in reserve, they can only afford a tiny 1.3% loss on their bond portfolio before they too become insolvent.
Meanwhile, with inflation near zero, the yen plunging, the economy contracting and debt rising as the population ages, Japan’s debt crisis is deteriorating quickly.
According to the International Monetary Fund, public debt will increase to about 247% of gross domestic product next year.
Recently S&P cut Japan’s credit rating, announcing that Japanese debt is now rated lower than that of China and South Korea, two of its major trading partners. Japan’s bonds are barely worth the paper they’re written on.
A new development in the gold market has been India’s attempt to sell gold-backed bonds and allowing banks to tap idle jewellery and bars held by households and temples to cut reliance on imports.
Prime Minister Narendra Modi’s cabinet approved the gold monetization plan and sale of sovereign bonds by the Reserve Bank of India.
An estimated 20,000 metric tons or more of bullion — more than double holdings in the U.S. — is stashed in India’s homes and temples, according to the government. Modi is looking for a long-term solution to curb gold imports after the current-account deficit widened to a record in 2013 and the rupee slumped to an all-time low.
The monetization plan will allow Indians to deposit their jewellery or bars with banks and earn interest, while the banks will be free to sell the gold to jewellers, thereby boosting supply. The deposits can be for a period of one year to 15 years with the interest on short-term commitments to be decided by the banks and those on long-term deposits by the government in consultation with the central bank.
The plan may fail to draw people in large numbers because of Indians’ inherent love for holding physical gold and low interest rates likely to be offered by the banks. Inadequate banking facilities in rural India, which makes up for 60 percent of physical gold demand, may also scupper the plan, according to the All India Gems & Jewellery Trade Federation.
“The schemes will succeed only if the banks offer interest rates of about 2.5 percent and do not require customers to declare source of deposited gold below a certain limit,”Bachhraj Bamalwa, director of the federation, said by phone from Kolkata. “At the end of the day, Indians’ love for physical gold and investment sentiment in the rural areas, which do not believe in such investment products, will determine the success of the plans.”
It appears that South Africa’s gold mines, the deepest and among the oldest in the world, are in big trouble.
In an article published by Bloomberg, the four largest producers in the country are losing money on about 35 percent of production at current prices. At the same time, higher costs are cutting into profits as electricity bills climb to a record. Workers are also pushing for wage increases, with some threatening to strike if salaries aren’t doubled.
South African output slid at the fastest pace among the 10 biggest-producing countries in the past decade. Mine supply halved in the period to about 145 metric tons last year, according to the World Bureau of Metal Statistics.
The metal has slumped 40 percent from its 2011 record to about $1,122 an ounce. At that price, half of mines owned by the nation’s top producers are losing money, data compiled from second-quarter financial reports show.
Meanwhile on September 11, Reuters reported that gold coin sales in the United States and Europe have surged in the third quarter, with sales from the U.S. Mint reaching levels not seen since the price crash of 2013, as low prices and a series of market shocks fuel retail buying.
Sales of gold American Eagles have nearly trebled year on year in the third quarter with most of September still to go, reaching 322,000 ounces. That’s the highest of any quarter since the gold crash of 2013.
The surge in retail buying in 2013 came on the back of a dramatic reversal in a decade-long rally in gold prices, with buyers scrambling for bargains after a $200 plunge in gold prices in just three days.
The 6 percent drop in prices this year has been less dramatic, but has been accompanied by a highly turbulent period in stock markets, and fears over the stability of the euro zone.
Concerns over slowing Chinese growth flared after the central bank devalued the yuan, knocking Chinese stocks and helping put world shares on track for their biggest quarterly drop in four years. European assets also came under pressure in July from fears that Greece was set to crash out of the euro.
The Austrian Mint, which produces gold and silver Philharmonic coins, said sales of its gold coins more than trebled year on year in July and August to 321,500 ounces, citing lower prices, ultra-low interest rates, stock market volatility and fears of a ‘Grexit’.
The UK’s Royal Mint said it has seen significant increases in Sovereign and Britannia coin sales throughout the past three months, particularly in July. Sales are more than 50 percent higher than during the second quarter, it said.
Degussa, a leading German coin and bar dealer with sales of 700 million euros in the first half of 2015, said its gold sales this quarter have been 30 percent higher year on year.
“We had a fantastic month in July with large coin and bar sales,” Chief Executive Wolfgang Wrzesnioch-Rossbach said. “August was quieter, but still saw 20-30 percent higher demand compared to last year.”
Gold moving through the Exchange this August has totalled a phenomenal 301.96 tons bringing the year to date total to 1,718.2 tons, some 219 tons more at the same time of year than in 2013 when China consumed a record amount of gold.
If SGE withdrawals continue at the average rate recorded so far this year, full year deliveries though the Exchange could reach around 2,580 tons – and this is certainly not an impossibility given that demand during the final quarter of the year usually runs strong. This figure is equivalent on its own to around 80% of global annual new mined supply at present.
While Demand for physical gold and silver in August and September has been exceptionally strong as investors seek a safe-haven from market turmoil, the traditional months of strong demand from Asia are now ahead of us which will add even greater demand for gold in the coming weeks. In India, gold demand will reach its peak later than usual this year as Diwali falls in the second week of November.
However, this robust demand for physical gold has been obscured by the ongoing shenanigans of the bullion banks and their persistent selling of futures contracts on the Comex. For now, the paper or electronic market continues to set the price of the yellow metal creating a distorted perspective of the real situation. But rising premiums and delays for popular bullion products suggests that this continual price suppression will soon give way to a more realistic price discovery reflecting real world supply and demand.
Now, is the time to consider an allocation in physical gold and silver. These precious metals have been considered a reliable store of wealth and value for thousands of years.
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