1. THE YUAN

We awake this morning to a new world.  The Yuan has gone bid.  Last week, in fact over the weekend, the Chinese quietly informed the U.S. and then the world that they would decouple the Yuan from its long-held US dollar moorings and allow it to trade within a “band.”  As I write the Yuan has appreciated .4%.  This may of course be a one–off. China has been under pressure from the U.S. Congress and the Europeans to meet an end of June deadline to decouple the Yuan…..

2. GOLD OR SILVER

At this point gold has simply run away from silver.  The gold to silver ratio is almost completely out of whack at 65.4 times.  This is a sign that gold is now viewed as safe-store asset. In Greece gold is trading at U.S. $1700.  We keep thinking that gold needs a correction.  The following chart really doesn’t look much like a parabolic move in gold, does it?  Gold will correct at some point because no “tree grows to the sky.”…..

….read “We awake this morning to a new world” + Gold vs Silver HERE

Market Buzz – Markets Range-Bound in Minimal Growth Environment – Seek Stable Growth

On Friday for first time in more than a month, Toronto’s main index saw action above the 12,000, peaking at 12,017.92 late in the morning. Late in the session and on the heels of six-straight days of gains, the TSX turned mildly negative and closed down 18.38 points, or 0.15 per cent, to 11,927.59. A positive Friday session would have made it the second-longest run of the year.

Gold was the story of the week, as the little yellow metal hit a new record on Friday as investors sought a safe haven outside of heavily indebted governments. Spot gold hit a high of $1,260.20 an ounce U.S. compared with $1,243.40 U.S. late on Thursday. The rise in the gold price helped buoy gold mining stocks on the Toronto Stock Exchange.

In the U.S., the Dow Jones industrial average ended the day slightly up, but posted its best two weeks since November.

The Dow’s modest Friday gains capped a surge of 5.2 per cent over the past two weeks, putting the average nearly halfway back to the high for the year that it reached on April 26.

U.S. equities had a longer winning streak earlier this year, an eight-week stretch that ended in late April, but those gains were more gradual. A sharp drop in May and early June brought the Dow down as much as 12.4 per cent below its 2010 high, a decline that most analysts call a “correction” (market decline of between 10-20 per cent).

The debate becomes whether that correction phase is over. The Dow has gained back 6.5 per cent from its lowest close of the year on June 7, but it’s still down 6.7 per cent from its 2010 high.

From our perspective, the gains (and declines) we have seen of late are typically of the type of uncertain and highly jittery market conditions we find ourselves in at present and is the type of action that will not likely abate in the near term. Both the bulls and bears have decent arguments for the markets next move, but until one out muscles the other, we will continue with a rather directionless market. In the end, valuations may just be fair on a broad basis at present and the current consolidation is a product of that conclusion. This type of consolidation, in a minimal growth environment, is something we have foreseen seen this past fall.

In times of uncertainty, it is great to get paid while you wait. Along those lines, this past week, one of our long-term favourites for stable growth in our Small-Cap Coverage Universe (www.keystocks.com), K-Bro Linen Income Fund (KBL.UN:TSX) declared its regular monthly cash distribution of 9.167 cents per unit for the period from June 1, 2010, to June 30, 2010, to be paid on July 15, 2010, to holders of record of units on June 30, 2010.

K-Bro Linen also recently announced that the fund’s operating subsidiary has signed 10-year contracts with Vancouver Coastal Health Authority, Fraser Health Authority, Provincial Health Services Authority, and Providence Health Care Society as a result of K-Bro being a successful proponent under a competitive request for proposal processes that begun last December. Service for the majority of the new volume is expected to commence in November 2010. The contracts are renewable for a further five years at the customer’s option. Certain existing contracts with VCH and FH were extended to November 2015, as part of this process.

Looniversity –  Understand Your Tolerance for Risk

In the wonderful world of investing, there is a direct relationship between expected returns and risk – the higher the expected payback from your investment, the higher the risk. Before you can decide on a personal investment strategy, you must consider how much or how little risk you are prepared to take with your hard earned dollars.

Your risk tolerance can be affected by:

Time horizons
The amount of time you have to meet your financial goals and to make up for any losses you might experience. People with long-term horizons may be more willing to endure periodic fluctuations in the value of their investments.

Cash requirements
The extent you depend on your investments to meet daily expenses. Investors who rely on their investments to meet daily living expenses will be much less comfortable with the risk of losses.

Emotional factors
Your emotional response to risk and to changes in the value of your investments. Some people are quite comfortable with the ups and downs of the market, while others find it difficult to sleep at night when their investments fluctuate in value.

There is no ‘right’ answer to the question “How much risk should I take?” Risk tolerance is a personal issue. You should never feel obliged or pressured to take more investment risk than you are comfortable with. Remember, though, that there is no such thing as a high-return, risk-free investment. You cannot expect to be rewarded with high returns on your investments if you are not prepared to accept the risks that go with them.

Put it to Us?

Q. What is a company’s “current ratio”?

– Harry Miller, Toronto, Ontario

A. The current ratio compares all of a company’s current assets to its current liabilities. In the financial world, the term “current” means less than one year. So, current assets include cash, accounts receivable, inventory, prepaid expenses, and other assets that can be converted to cash within one year. Current liabilities include short-term debt, interest, accounts payable, and any other outstanding liabilities that are due within a year’s time.

When calculating this ratio, you are essentially trying to determine whether a company can meet its short-term obligations. It will likely be able to do so if the ratio is above 1; if the ratio is less than 1, the company may fall short, so some alarm bells are raised. For industries that generally have a large portion of current assets tied up in inventory, a ratio of 1.5 (or even 2) might be a better standard. When analyzing the current ratio, as when looking at any ratio, an investor should make comparisons between companies that operate in the same industry. Different industries have different dynamics and cross comparisons can be somewhat meaningless.

KeyStone’s Latest Reports Section

• • Under Appreciated Cash Rich Gold Producer Transitions from a Single to Multi-Mine Producer of Gold & Copper – Continue Buy Rating (Flash Update)
  • IP Company’s Q4 EPS Exceed Expectations, Solid Fundamentals, Strong Cash Position & Yields 4.6% – Near-term Rating Upgrade (Flash Update)
  • Western Based Financial Service Provider Posts Solid Start to 2010 – Near Term HOLD (Flash Update)
  • Pure Play Chinese Construction Company Reports Strong Q3 2010, Solid Backlog, PE of under 6, Yet Shares Drop? – Update Rating (Flash Update)
  • Canadian Rare Earth & Magnetic Powder Processor Posts Strong Q1 from Pent-up Demand, Cash Rich ($0.55 per share), Strong EPS Growth Long term (New Buy Report)

Summer is here. The markets are still undecided on whether to climb

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, fall, or sit still. So while the market takes its vacation, both gold and silver haven’t taken a break. Gold is now on a nine-week win streak and silver is up over $19.

If prices continue to hold at these levels for another year, many of us who are invested in precious metals miners and explorers may finally reap the rewards we were looking for.

The prices of gold and silver have yet to translate into a fair share price increase for many of the precious metals juniors – including our recent investments into Minco Silver (TSX: MSV) and United Mining Group (CNSX: UMG).

Neither Minco Silver or United Mining Group are producing – but both are very close.

Minco Silver has delineated over 158 Moz of silver, which at today’s prices are worth over $3 billion. Their 2009 feasibility show reserves of 55 Moz, using only $13.57/oz silver – add another $5 to that number and those reserves alone are worth another $275M in revenue. The Company currently has a market cap of $130M – but it was just $110M when our Special Edition Report on Minco was released last week (see The Brink of Milestone) and shares prices of Minco Silver shares were trading at $2.56 (June 11, 2010). Minco Silver is currently trading at $3.05, nearing Raymond James’ target price of $3.35. (see The Brink of Milestone)

United Mining Group currently has a market cap of under $31 million, but had revenues nearing $16 million last year, and a 10Moz silver resource scheduled to go into production within a year. Not only that, their Crescent Mine project sits between two of the world’s largest-ever silver mines and is a potential takeover target given its untapped resource and location. They also have over $6 million in the bank and is fully permitted and financed to go into production. The math is pretty simple – they are extremely undervalued when stacked against comparable companies. (see The Secret Battle)

The biggest difference in valuating juniors is how close they are to actually producing. Having ounces in the ground is one thing, but to actually get it out is a different story. Minco Silver is as close as ever to becoming the largest pure silver play in China. United Mining Group is fully permitted and financed to go into production in less than a year, in one of the largest silver districts in the world.

We’re sure many of you who have invested in precious metals juniors may be scratching your head at the current valuation of your investments based on resource in the ground. The average consensus by institutions is around $80-90 of market valuation for every ounce a gold company has in the ground, but we have seen companies with over 3Moz of gold valued at less than $20 million.

Look at United Mining Group – its trading with the same market cap as its own 2011 projected revenues.

Mining Takes Time – But It’s Worth Every Penny

We have to remember that mining is a time intensive process and look at share prices the same way. The juniors are lagging the rise in precious metals for one major reason: fear.

When the market crashed, many junior explorers were forced to raise money at significantly discounted prices. They issued millions of shares and warrants far below market value and we’re still seeing some of that overhang in the markets.

The economic problems that are driving gold and silver prices will affect the junior markets. The problem lies in the fact that investors fearful of the market implications of a Euro collapse due to Greece will retreat to areas of safety such as gold and the U.S. dollar, leaving the market for capital bone-dry.

There is a very real possibility that risk aversion will outweigh any positive sentiments from a rise in gold prices, putting junior companies with exposure to precious metals under significant downside pressure.

Strike While the Irons Hot

Right now, retail traders have an advantage: risk.

Institutions are still weary of the markets and there hasn’t been a propensity by the larger institutional funds to buy into the resource sector yet. Institutions have a lot less room for errors and thus, have to mitigate their risks. This gives retail investors the advantage to enter into the resource markets before the institutions.

When things settle down and precious metals stay above current prices, perhaps a year from now, these institutional investors will return to the Venture Exchange. When they do, look out. All of that patience could be rewarded and we could see the Venture exchange above 4000.

Right now, the summer has arrived early for traders and we`re starting to see thinner trades and lighter volumes – including that of gold, which is rising despite very low average volumes. If you can stomach investing during the summer, it can be a great time to pick up some cheap shares of juniors.

For now, we continue to look toward companies such as  Minco Silver and United Mining Group. They both have lots of cash in the bank to survive a downturn in the markets, and both are near term producers.

Keep your eyes on the juniors during the summer – there will always be garage sales with bargain prices on a nice sunny day.