I have been told the feedback from “The MoneyTalks Allstar Trading Super Summit” in Vancouver on October 24 was excellent and my presentation very popular.

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Enjoy!

STOCKS – ACTION ALERT

The market took a breather Tuesday, as Monday’s monster gains were digested on ‘Turnaround Tuesday’. For the day the Dow was up 20.03 at 10246.97, the S&P 500 was off .07 at 1093.01, and the Nasdaq Composite was off 2.98 at 2151.08. Volume came in slower than Monday and breadth was negative.

Early dollar strength weighed on pre-market futures, but once the opening bell sounded, the dollar retreated while equities strengthened. Neither traded with conviction, however, so we ended up with a lower volume consolidation day.

Semiconductors (SMH +0.83%) had another solid day, but on weaker volume. Gold miners (GDX +0.77%) also had a good day as GDX fought off early selling efforts to close near its high.

The market also sent mixed signals on risk today which is common on consolidation days. The above mentioned outperformance by semiconductors along with consumer discretionary stocks (XLY +0.35%) outperforming consumer staple stocks (XLP -0.04%) was a plus. A very weak performance by small caps (-0.94%) was a big negative.

The Russell 2000 retreated meekly from its 50 day moving average which is not good news for the bulls. That is the index to keep an eye on right now. Over the last few weeks, we have the Dow leading the way while the Nasdaq Composite is lagging, but the Russell is lagging even worse. Again, this dynamic along with tepid volume is not a recipe for sustainable gains.

The Dow Industrials continues to be the only index to post new bull market highs when it touched 10,260.80 intra-day yesterday. That’s two days of negative divergence.

I am still on my TIMER DIGEST ‘Sell’ signal from mid-October, so though I caught a portion of a 5.5% correction, I was not clever enough to flip to the long side. My intermediate work into next year is bullish, so I will be looking to get back ‘on track’ with a TIMER DIGEST ‘Buy Signal’ when I’m comfortable doing so. Indeed, despite the fireworks of the past several sessions, the market could still have created a bull trap for the short-term horizon.

Today is ‘Weird Wally Wednesday’. Weird Wally is most likely caused by the fact that most futures have “rollover” dates on the Wednesday/Thursday the week before expiration. The quarterly Weird Wallies (March, June, September, December) will see more volatility since many futures are quarterly (such as the widely traded S&P e-mini) and not monthly. Weird Wally is not really an options phenomenon, but it does affect options and options traders because many futures traders hedge with options and will close those options positions when they rollover/close their futures positions.

Marks VRTrader Silver Newletter covers Stock, TSE Stocks, Bonds, Gold, Base Metals, Uranium, Oil and the US Dollar.

More kudos – Mark Leibovit was named the #1 Intermediate Market Timer for the 10 year period ending in 2007; the #1 Intermediate Market Timer for the 3 year period ending in 2007; the #1 Intermediate Market Timer for the 8 year period ending in 2007; and the #8 Intermediate Market Timer for the 5 year period ending in 2007. NO OTHER ANALYST SURVEYED APPEARED IN ALL FOUR CATEGORIES FOR INTERMEDIATE MARKET TIMING AS PUBLISHED IN TIMER DIGEST JANUARY 28, 2008!
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The VR Gold Letter is available to Platinum subscribers for only an additional $20 per month, while for Silver subscribers the price is only an additional $70.00 per month. Prices are going up very shortl, so act now! Separately, the VR Gold Letter retails for $1500 a year! The VR Gold Letter is published WEEKLY. It is 10 to 16 pages jam-packed with commentary and charts. Please call or email us right away. Tel: 928-282-1275. Email: mark.vrtrader@gmail.com .

Gold Market Letter for November 2009

Gold Market

The financial crisis is now a year behind us and so far with very little inflation (which won’t last long) it is unusual for gold to be acting so robust. Usually when one sees a stock or a commodity going up when most of the usual reasons for its normal price behavior are absent, it signifies new, powerful and unknown force(s) have entered the marketplace.

There are four new forces that were not present in past cycles: 1&2) Central Bank and Sovereign Wealth Funds buying bullion discreetly and in an orderly fashion. With the recent Indian purchase of 200 tonnes of IMF gold this force is now out in the open. The fact this was not done covertly and undercover is very unusual. It is also very bullish, as it implies that other central banks are going to be doing the same thing. 3) Financial Institutions and money managers who have never invested in gold are buying gold as a small percent of their portfolio as pure monetary insurance. These three buying forces should be long term and steady investors. They will not be price sensitive buyers. They will look at gold for the long term in a way that quarter to quarter performance conscious money managers or traders do not. They will buy gold as insurance against the follies of governments including their own. They are also the deepest of pockets and could easily accumulate as much gold each year as is annually mined or disinvested by traders and scared retail sellers. 4) The last force is a hybrid of the old standby “gold bug” crowd and represents a new retail crowd outside of and distinct from the old line street wise buyer in India and China or hard money person. I call this force the nickel and dime force. It means that all over the world (in a hundred or more countries) small amounts of gold are being bought by people because of the unnerving events of the last 18 months. The buyers of this gold are people from the highest to lowest income tiers. Collectively they could swamp even the institutions with buying power.

The largest jewelry retail market in the world, India, has significantly reduced gold imports. Taking up the slack is investment demand that is not readily defined. Therefore this slack, in my opinion is coming from the above four areas.

U.S. Economy

Turning to the U.S. economy, it appears that things have stopped getting worse (except unemployment) and that we may have seen the bottom. It doesn’t mean boom times ahead but it could mean a stagnant/sideways economy that could last a long time or recover slowly. The 2010 Congressional elections are going to be very competitive as the country is in a huge all out liberal/conservative war. Congressmen know that middle of road voters will usually vote their pocket book and in a close election the economy becomes the supreme issue.

If the economy is bad and their district is doing badly they will do badly. Therefore there will be tremendous pressure on the Fed (from the 435 Congressmen) to stay loose for at least another 12 months. The Fed should comply, not only to bail out the many banks that are still in bad shape but because they are now under scrutiny from HR Bill 1207 which demands the Fed to be more transparent. The Bill has a lot of support from both liberals and conservatives. This means the Fed is going to be under a lot of pressure to play ball or else.

Recent economic reports could be signaling a bottoming out process and slow recovery: Manufacturing Index – although still negative has had 6 straight months of improving stats. Building permits and retail sales (still in negative territory) have at least leveled off the last 9 months. Last but not least, Gross Domestic Product, which crashed in the 3rd & 4th Qtr. of 2008 and the first Qtr. of 2009 was down only slightly in the 2nd Qtr. and up 3.5% in the 3rd Qtr. These are stats that are saying, “It’s bad, but not as bad as it was.”

In the last ten years the Consumer Price Index in the United States has increased from 166 to 224. This means that if you were a retiree and had savings in August of 1999, you have experienced a 35% reduction in purchasing power. The Fed and the established political machine in Washington (includes Republicans and Democrats) have been operating a paper money system since 1934, and this abuse of monetary policy has become increasingly worse. The recent financial turmoil that almost took down the global banking system necessitated creating more money and credit in unprecedented amounts. (The U.S. money supply is up 20% in just the last year). The next 5 years will be very inflationary here and abroad and will drive gold to new highs.

Problems That Could Arise

The three areas that could present big financial problems in the future are: 1) State governments are mostly in horrible financial shape and could require massive federal bailout funding. 2) European banks are more leveraged today than our banking system was during the crisis. This is a simple measurement of their tangible assets (real stuff) versus what they have lent out or invested. The US major banks that were in trouble were leveraged 45 times (up from 18 times in 1998). The major Euro zone banks are 55 times leveraged. 3) The commercial real estate market in the U.S. needs a recovery and quickly. If not, this huge $3.5 trillion arena could face even more severe credit conditions and bankruptcies. Interestingly, all roads lead to printing more money to bail out the country’s problems. This is bullish for gold and the mining sector.

Gold Mining Stocks

The precious metal mining sector should one day explode to the upside for the same reasons that have been staring investors in the face for a long time

Mining is one of the few industries where many of the best of breed professionals do not want to work at a major company. The industry lives and dies based on geologists and engineers. Geologists find the metals and the engineers build the mines and infrastructure. The geologists or “mine finders,” have vastly better compensation if they create their own company and do away with the layers of corporate management that must approve exploration budgets. Consequently, thousands of these risk taking professionals with seed capital from venture funds embark to find large economic deposits around the globe. Most fail. But the ones that do discover and develop quality properties reap rewards in the $10’s of millions versus an $80,000 salary working for a major mining company. Because the best and brightest are independent and flexible, approximately 85% of all new mines coming on stream are because the initial discovery was made outside of a major company.

The majors therefore can rely on this professional army of risk takers to be at the forefront of the discovery cycle. They wait and pay $100 million to billions for a proven and developed property. Our job is to find companies that have already found and proven up metal deposits that would be prime candidates for a takeover. Since the gold industry produces about 80 million ounces each year, the industry has to replenish these reserves each year with viable new deposits. This is very difficult, especially for the larger producers. Hence consolidations and takeovers are numerous and expected to grow as gold demand increases in the years to come.

Gold stock investors should be very wary of small unknown companies and exploration companies should be considered very high risk. Committing most of your gold allocated funds to quality companies in production as a core position and also having some trading positions is a good idea. It allows you the insurance of gold in the ground and also allows you to take advantage of the high volatility that is probably coming our way in the gold sector for the metal as well as the miners.

United States Politics

The U.S. political scene is more antagonistic than any time since the Civil War. The fight is held in place by two abstractions – benevolence and liberty, both high quality human concepts. Political wolves on both sides of the aisle use bad economic policies to make believe they are trying to “attain” these concepts to keep constituents happy but fail with misguided programs.  Many programs are illogical and intellectually dishonest in my opinion. Most of our government policies and 90% of U.S. spending is for welfare (benevolence) or warfare (liberty).

We are a welfare-warfare nation. In spite of this, the U.S. is the greatest nation on earth and responsible for saving mankind from tyranny the last 70 years (Nazi Germany, Imperial Japan, Soviet Communism). We also have spent more money defending Muslims (Kosovo, Kuwait) than all the Muslim countries together. Our private sector donates 2-3 times more money to natural disasters outside the U.S. than all the governments of the world combined. Private individuals are what keeps this country going. We are a great nation slowly being destroyed by tax and monetary policies that are politically motivated.

Economic mismanagement has prevailed too long and now the chickens are coming home to roost. Most advanced countries have made too many commitments bailing out the banking elites and pandering to voters who want more from their governments. The overused answer to economic problems (caused in the first place by printing money) has been…. to print more money. The future is obvious and gold is responding.

This country has problems stemming from big government which will eventually hurt many people who do not protect themselves financially. The Department of Agriculture has 86,000 employees (outside of the Forest and Parks Service); none of them grow anything. The Massachusetts Medical Society reports that 25% of all medical expenses are to avoid lawsuits, by doctors prescribing unnecessary “preventive tests” and prescriptions, wasting $200 billion per year, enough to give all the uninsured poor in the U.S. a $5,000 health insurance grant.

Our leaders are more interested in getting elected than really helping people. As long as these unworkable and wasteful government programs continue, gold and the mining stocks are going to be the best insurance and a good investment for a portion of your nest egg.

Some Lies about the Gold Market

Gold will go opposite to the stock market. Not true. During the last big move in gold 1978 – 1980 the Dow went from 810 to over 1,000 while gold went from $200 to above $800. Many times they go the same way for the same reason….mo’ money in circulation.
Adjusted for inflation gold should be above $2,000. These are numbers based on using the unreal and unsustainable highest gold price in 1980 and then adjusting it for inflation from 1980. Why not use 1978 gold or 1981 gold? Gold based on prices going back over 200 years is a better idea and therefore should be around $900 – $1100 depending on what numbers one uses. But this is only the U.S., the rest of the world is buying gold. China has increased their money supply by 29% in one year! India 15%. These people know what’s coming. Much higher inflation globally and if you add 10% compounded to $1,000 for 3 years you get $1330.
Gold should not be going up because there is little inflation. Not too bad an argument. But money supply increases today create inflation tomorrow and the gold price is discounting this future expectation. But because the entire global banking and monetary system is so suspect, over leveraged and held together by paper printed or money created out of thin air and called currency, the inflation rationale may not even count any more! How is that for outside the box thinking? What counts is the entire system is suspect! It could collapse. Gold is something that will keep its medium of exchange value if the system ever goes under (which I do not think will happen, but many people do).
The Next Few Months

My first thought is to tell you – don’t worry about it. Gold will be volatile and could as easily go to $1200 next month as $950. I suspect that $1,000 is going to be the new floor. The most important thing is the trend is going up and many years from now it should be a lot higher. Don’t lose sleep over the gold price. Also the Indian gold purchase is very significant and expect other countries to join the gold bandwagon.

For other commentaries on gold, the economy and stock market visit our website at: www.kengerbino.com

Kenneth J. Gerbino
Founder & President

A 34-year history of money management has allowed Kenneth Gerbino, our chief portfolio manager and strategist to see and experience many different economic and investment cycles. This long-term perspective has allowed valuable insights and observations to be made. Our current outlook is one of caution and we welcome you to read some of the current and past commentaries that are posted on this site on a regular basis.

My investment philosophy is very simple. You have to roll with the economic punches and be very careful of the playing field because the political-economic policies that have been in place for the last 34 years are very flawed. These trends and events have made an investment climate that deserves caution.

I have learned the hard way that being patient, not overpaying for an investment and admitting mistakes early are very good guidelines. The real work is looking for winners…. and to do so one must always stay with winning managements, winning companies, and winning industries.

We would like to provide an update on all of our stock suggestions beginning with our gold stock suggestions, then our silver stock suggestions and finally our agriculture stock suggestions.

NIA Gold Stock Suggestions:

Capital Gold Corp. (CGLD) reached a 52-week high on Monday of $0.93 up 50% since we suggested it on August 5th at $0.62. CGLD just announced on Friday that first fiscal quarter 2010 gross proceeds were up 27% over the first quarter of 2009 to $11.7 million on 11,733 ounces of gold sold. Monthly gold production is currently running at approximately 4,200 ounces and CGLD expects further increases once their additional crushing plant module and the new leach pad becomes operational by the end of this calendar year. CGLD’s proven and probable reserves recently increased to over 1.5 million gold ounces. We expect this stock to eventually move off of the OTC BB and on to a higher exchange which will allow institutions the opportunity to invest.

Entrée Gold Inc. (EGI) reached a 52-week high in early October of $3.16 up 127% since we suggested it on July 9th at $1.39. It has since then drifted back down to $2.64. EGI could underperform other gold stocks in the short-term now that the anticipated investment agreements in Mongolia have been signed. It will take years for EGI to generate revenues through either license agreements or production, but it is possible that EGI will begin generating revenues during the peak of gold mania. Therefore, there may come a time in two or three years that EGI becomes the biggest gold play in the entire market.

Ivanhoe Mines Inc. (IVN) reached a 52-week high in early October of $13.70 up 135% since we suggested it on April 15th at $5.84, and has since dipped back to $12.33. We expect IVN to follow EGI somewhat closely as IVN owns a percentage of EGI and they are joint venture partners in Mongolia. IVN is the safer play of the two but EGI has the potential for larger gains over the long-term.

DRDGOLD Ltd. (DROOY) is currently down 24% to $5.45 since we suggested it on October 18th at $7.20. We went over DROOY’s financial problems in our report and said we felt it was factored into the share price, but clearly we were early and the stock hadn’t yet reached its bottom. We believe the investment community was surprised by DROOY’s rapidly increasing electricity costs, which have gone up 32% since July. DROOY has had a perfect storm of bad news that started with seismic events damaging the high grade shaft at their Blyvoor mine, which was followed by a worker strike that lasted for four weeks. South Africa’s rapidly increasing Rand, which has gained this year by more than gold, has also hurt DROOY’s margins. DROOY has been in business for over 100 years and we believe the company will turn around. Most likely we will look back at this current time as having been an excellent buying opportunity.

Yamana Gold Inc. (AUY) is currently $12.61 up 54% since we suggested it on April 8th at $8.17. We believe AUY has established itself as the safest and most solid mid-tier gold producer with the greatest chance of becoming the next large-scale miner. AUY’s revenues in the 3Q of 2009 were up 50% over a year ago to $333.2 million and adjusted net earnings were up 180% over a year ago to $88.3 million. AUY is committed to the sustainable production of at least 1.1 million gold equivalent ounces annually and increasing from 2010 onward.

Eldorado Gold Corp. (EGO) reached a new 52-week high on Monday of $13.54 up 48% since we suggested it on April 1st at $9.14. EGO is our second favorite mid-tier gold producer. EGO isn’t growing as fast as AUY but they have the lowest production costs out of all mid-tier gold producers. In the event gold prices were to make another dip EGO won’t have any problems continuing to operate profitably.

Royal Gold Inc. (RGLD) reached a new 52-week high on Monday of $52.43 up 24% since we suggested it on March 18th at $42.21. RGLD has been generating very consistent revenue growth quarter after quarter. This company is leveraged to the upside potential of gold without the downside risks of having to pay for the production costs. We consider it to be a very safe play but most likely it won’t be able to outperform many of the mid-tier gold producers.

Newmont Mining Corp (NEM) reached a new 52-week high on Monday of $51.30 up 26% since we suggested it on February 26th at $40.68. For the past six months NEM has underperformed the price of gold and we believe it could have some catching up to do in the short-term. We expect to see NEM keep rallying to new 52-week highs.

Barrick Gold Corporation (ABX) reached a new 52-week high on Monday of $43.50 up 39% since we suggested it on February 26th at $31.34. ABX reported a $5.4 billion loss last quarter after a $5.7 billion charge to remove its gold hedging program. This will allow ABX to profit on the full upside potential of gold.

NIA Silver Stock Suggestions:

Silver Wheaton Corp (SLW) reached a new 52-week high today of $14.97 up 122% since we suggested it on February 26th at $6.74. SLW just reported 3Q attributable production of 4.3 million silver equivalent ounces at a total cash cost of $3.97 per silver ounce, representing an increase of 59% over the comparable period in 2008. SLW’s net earnings for the quarter were $33.6 million up 66% over a year ago. SLW recently entered into an agreement with ABX to acquire 25% of the life of mine silver production from its Pascua-Lama project, as well as 100% of the silver production from its Lagunas Norte, Pierina and Veladero mines until the end of 2013. SLW expects to finish 2009 with production of 17 million silver equivalent ounces and grow production to 40 million silver equivalent ounces by 2013. We believe SLW is the safest silver play.

Endeavour Silver Corp (EXK) reached a new 52-week high on Monday of $3.42 up 106% since we suggested it on June 17th at $1.66. EXK just announced that their silver equivalent production rose 14% to 878,143 oz in the 3Q of 2009 over a year ago with cash costs down 46% to $5.20 per ounce. EXK expects the 4Q to be another record quarter for growing production, rising cash-flows and falling cash costs now that the bulk of their 2009 capital programs are complete or nearing completion. EXK is our favorite small-cap silver producer.

Hecla Mining Co (HL) reached a new 52-week high on Monday of $5.67 up 130% since we suggested it on June 17th at $2.47. HL just reported net income applicable to common shareholders of $22.5 million on revenue of $95.2 million in the 3Q of 2009, compared with a loss of $7.2 million on revenue of $68.5 million for the corresponding quarter in 2008. HL’s third quarter silver production was 2.7 million ounces at a cash cost of $0.85 per ounce of silver produced after by-product credits. For the first nine months of 2009, HL produced 8.6 million ounces of silver at a cash cost of $3.00 per ounce of silver produced after by-product credits. HL increased their cash position last quarter from $27 million to $85 million. HL is now the largest silver producer in the U.S.

First Majestic Silver Corp (FR-T) reached a new 52-week high on Monday of $3.65 up 34% since we suggested it on June 2nd at $2.72. FR-T produced 1,089,481 silver equivalent ounces in the 3Q of 2009 up 30% over a year ago. FR-T will begin generating revenues from their new 3500 tpd plant in the 4Q.

NIA Agriculture Stock Suggestions:

Potash Corp. of Saskatchewan, Inc. (POT) is currently $99.61 up 33% since we suggested it on March 4th at $74.63. POT is the largest fertilizer company in the world and a great way to diversify into agriculture. POT’s 3Q net earnings fell by 79% over a year ago to $248.8 million reflecting the continuing caution among fertilizer buyers around the world, which has negatively affected sales volumes and prices for nutrients. We believe the fundamentals for POT’s products are improving underneath the surface and their business will see another boom in the years ahead.

Zhongpin Inc (HOGS) reached a new 52-week high last month of $16.79 up 45% since we suggested it on April 1st at $9.16, but has since then dipped back down to its current price of $12.80. HOGS’s 3Q revenues increased 26.7% to $194.9 million from $153.8 million in the third quarter 2008 and net income increased 30.7% to $13.2 million from $10.1 million in the third quarter 2008. However, HOGS reduced guidance for the year 2009 to account for stable but not increasing pork prices. We believe HOGS offers a great way to diversify into China and the company is positioned to grow for decades to come.

AgFeed Industries (FEED) is currently $4.23 down 8% since we suggested it on November 3rd at $4.60. FEED announced today that revenues for the 3Q were down 9% from the prior year to $45.12 million and net income was down 65% from the prior year to $2.9 million. FEED’s balance sheet strengthened from a year ago with their cash position up 135% to $36.5 million and their shareholder equity up 32% to $142.8 million. FEED is currently positioning themselves for the long-term agriculture boom we expect to take place for decades to come in China.

A co-founder of NIA has purchased 7,400 shares of DROOY at an average price of $6.76, 16,500 shares of EGI at an average price of $2.50, 5,950 shares of EXK at an average price of $3.05, 2,700 shares of IVN at an average price of $12.64 and 2,300 shares of AUY at an average price of $12.07, and can sell shares in any of these companies at any time.

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