Gold & Silver Market Alert – Buy before the Breakout!
The bottom in gold has been seen between $905 & $930. Next we are looking for $960 then $990 then a $1,000+ breakout. However, at around $950 as we see now, the gold price still could fall to the lower $900’s area again before we see gold $1,000+ breakout. With the price continuing to push higher, it is just a matter of time in the coming months before the next major leg higher will send us to $1,200-$1,300 an ounce… and eventually a lot higher! Silver will outperform gold in this leg and could break much higher than $25 in the next year!
Gold entered the next and major leg of the long-term gold bull market after correcting down from $1,000 an ounce at the beginning of the year. Since then it has been battling in the lower $900’s, building a big base from which to move to the $1,000 and beyond in the rest of 2009.
The period of consolidation has lasted far longer than many believed [including ourselves] it would, but it has not fallen through the $900 area as others believed it would.
This Alert is to prepare you for the next upward leg of the gold market in the face of a short-term decline in the gold price. We continue to hold to our belief that the floor of $900 – $930 is now a solid base. The time to buy both gold and gold shares ‘on the dip’ is here, in the belief that these supports will not fall as they did in 2008. Holders should be able and willing to hold gold and gold shares for the next year!
We believe, too, that gold shares will benefit to a greater extent than gold itself, in the next moves up. In particular, we feel that soundly based gold “Junior” mining companies will benefit strongly (please see more on gold stocks below).
· In India, the world’s largest gold buying nation, demand has jumped at the start of their ‘gold season up to 200% in the last three weeks and should continue to rise. Buyers there have now accepted the base level of over Rs.1,400 – Rs. 1,500 and expect prices to hold or rise from here, removing the downside risk that concerns them the most.
· Western jewelry demand is about to come on stream at the start of the final quarter of 2009.
· We believe that central bank selling has exited the market until the I.M.F. starts to sell their 403 tonnes in 2010 and beyond[?].
· Eastern central bank gold buying continues at around 2-3 tonnes a week. All in all the demand / supply picture favors higher gold prices.
· The Technical picture is indecisive, overall, but encouraging short-term traders to take the price down in the next couple of weeks, will allow buyers to ‘buy the dips’. We suggest that holders do not sell but rise any falls.
· Investment demand has been sidelined at the moment but is expected to return as the gold price rises through $960.
· The shakeout of weak holders and reticent jewelers is coming to an end as they are seeing a need to come back to the international market for supplies.
· Industrial demand will rise alongside the progress of the global economic recovery, expected to pick up now and through 2010.
All of these prospects are very positive for gold.
1. 1. Senior Producers:
– Randgold Resources [GOLD]
– Goldcorp [GG]
More on these senior gold producers in the GoldForecaster.com…
2. 2. Junior and Exploration Stocks:
Gold stocks provide investors with a leveraged investment option versus the metal. Volatility has been a normal component of the gold stocks and with increasing volatility among all markets; this has only amplified the swings in the gold equities. So historically, gold shares will outperform the price on the upside and likewise on the downside.
There are many criteria a gold stock investor will look for when selecting an appropriate basket of gold companies. Those with a higher risk tolerance will look at junior and exploration gold stocks to offer extreme risk/reward investments. Yet despite the record $1,000 gold prices, junior and exploration stocks are trading at levels significantly below pre-2008 sell-off levels. This is on top of growing prospects that gold is set to move significantly higher in the coming months, years. Also of consideration, gold mining companies have yet to heavily invest into exploration and development capital needed to replenish their declining production levels and reserves so market valuations are very attractive levels!
In our GoldForecaster.com Junior and Exploration Stock Portfolio, we research hundreds of companies looking for the right story with the proper mix of criteria that will provide among the lowest risk with exposure to high rewards. From management to share structures to the project themselves, many decisions must be made to select the right junior stocks.
To illustrate one of our recent gold junior selections, please refer to the Ventana Gold chart above. An example of one our very profitable gold exploration stock selections, a significant and growing high grade gold deposit provided our newsletter subscribers the opportunity to participate in a 400%+ profit.
Over the coming weeks and months, new additions to the Gold Forecaster Model Portfolio will be made as new opportunities are researched, investigated. Below are two junior gold companies that comprise our Gold Forecaster Junior and Exploration Stock portfolio. Updates to these investments as well as our other selections are highlighted in our weekly newsletter:
Timberline Resources Corp.
35M Shares | $17M Market Cap | NYSE-AMEX: TLR
Higher grade gold production slated for second-half of 2010, 50/50 venture with SMD (Small Mines Development). Carried into production by its JV partner. Marginally profitable drilling company with a portfolio of exploration projects.
Timberline is an example of extremes rising from a sub-dollar a share to over $5 before collapsing to $0.19. The company was in the process of merging with Small Mines Development when the credit markets froze as the equity markets collapsed during the second half of 2008. During the market carnage, then the largest shareholder/fund of Timberline had a forced liquidation of roughly 3 million shares of its 6+ million share holdings, which were liquidated into a historically weak market tanking the price to literally bargain prices. Timing could not have been worse but out of the misfortune emerges a new opportunity!
Timberline and Small Mines Development (SMD) cancelled their proposed merger due to market, economic and credit conditions and restructured their relationship which included the owner of SMD – Ron Guill, a Timbelrine director, taking an equity position ($0.90/share) making him the largest shareholder with just over 5.5 million shares.
The Butte Highlands Gold project is projected to commence production in the second half of 2010. The 50/50 joint venture with SMD calls for roughly $15 million of capital investment to begin gold mining. The project’s low CAPEX will be paid for by SMD, meaning that Timberline will be carried into production. Timberline does not require financing to get Butte Highlands Gold project going which will help preserve their very attractive share structure! Timberline’s 50% CAPEX obligation will come from cash flow from future gold production.
Butte Highlands is projected to produce 80,000+ ounces of high-grade gold per year with cash costs in the $350-400 range. With $950 gold this would bring in about $20-$25M for TLR’s 50% position or $0.55-$0.75 a share with current gold prices and production estimates. Gold producers are trading on a valuation of 8-10+ times cash flow numbers. Using 8 * $0.55 a share = $4.40. That is without any value for their drilling division or their other exploration projects.
So can Timberline return to $5+ a share? If successful production is indeed realized, relative valuations would support this case… however this could be well over a year away before comerical production is achieved. At under $0.65 per share, Timberline looks to be a low-risk, high-reward investment. I suspect as we approach production over the coming year, the stock will be trading at multiples higher than current market prices.
Otis Gold Corp.
18M Shares | $7M Market Cap | TSX-V: OOO
New gold exploration company. Great share structure and risk/reward exploration. Drilling for high-grade gold targets underway at Kilgore.
Otis Gold is a new gold exploration company with a seasoned management and exploration team focused on developing acquiring, developing projects in the western USA with 2+ million ounce gold deposit potential. Their flagship project is Kilgore in Idaho with an existing historic resource of over 700,000 ounces. Kilgore has in excess of 125,000 ft of historic drilling from the likes of Echo Bay Mines, Placer Dome and Pegaus.
Earlier operators were focused on developing a bulk tonnage, open pit gold mining deposit. Under Otis Gold, the property is being developed for a possible high grade underground mining operation by defining past high-grade gold intercepts. Historic high grade holes include 90’ of 37.0 gpt, 109’ of 3.7 gpt, 90’ of 5.9 gpt, 45’ of 11.25 gpt and 25’ of 18.9 gpt!
I just returned from visiting Kilgore, where Otis is currently drilling 10,000 to 12,000’ spread amongst 15 to 20 holes. This round of drilling follows up on a successful 4 hole drill program in late 2008. The current drill program is expected to continue through December, and expectations are the first results will be out in several weeks time.
With approximately $2.0 million in the treasury, a total resource of already 1.0 million ounces of gold, and a market cap of $7 million, the stock is extremely attractive under $0.50. Attention will focus on upcoming drill results, which would likely revalue the stock price quickly with a tight float and relatively low market valuations.
Gold Resource Corp.
Near-Term Low Cost Gold Producer ($0-$100), Mexico | OTC: GORO
Under 50M Shares, No Debt, Production pending mill construction completion (estimate: 0 – 2 months)
Gold Resource Corp. is within several weeks from completing its mill (update: Final open pit mining permit was just issued!), preparing it for initial production in Southern Mexico. This very high-grade gold, silver and base metal project which is slated to produce 70,000 ounces of gold the first year of production with an estimated cash cost of just $100/ounce! With $950 gold, that should translate into around $60 million – or over $1/share – in free cash flow. The company intends to pay 1/3 of its cash flow to shareholders in a form of a dividend.
Production ramps up to 110,000 gold equivalent (precious metal) ounces in year 2 and 177,000 in year three with production costs dropping to zero – with high grading base metals offsetting costs and with the recent move higher in their respective prices, there could be a possible negative (gold/silver) production cost. The project size continues to grow,an aggressive exploration program ($4 million budget) in the near future to define and expand this very exciting, prospective epithermal deposit.
Should the company meet its production objectives (177,000 gold equivalent – precious metal – ounces in years 3-5, $950 gold, $0 cash cast, 50 million shares outstanding, targeting a 10+ year mine life), then Gold Resource Corp. could produce a positive cash flow of around $3/share. The market is currently providing valuations of 8-10+ times gold production cash flow. This valuation projection would give GORO a $24 – $30 or higher share price. (Based on year one assumptions yields around $10 per share using this valuation model).
Please refer to our latest issues for our choice of gold shares too.
As you know, we at the Gold & Silver Forecaster are dedicated to following these developments so that Investors can maximize their understanding and profits from the gold and silver [and platinum] markets. As a result we expect to see the gold market shine far brighter than we have seen to date.
If you have followed this newsletter and find our work to be valuable, we recommend that you forward this alert to your friends plus colleagues and encourage them to subscribe. Weekly issues will allow them to see which shares we believe will benefit investors the most and to keep your fingers ‘on the pulse’ of the gold price. Our coverage of the global economy is focused on the factors driving the gold price including oil, the $, and other relevant markets. We keep you updated and ahead!
We will always keep the global perspective with the focus on gold, making our letter “must-have” reading in these markets.
Julian Phillips & Peter Spina, for the Gold & Silver Forecaster
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In Global Watch – The Gold Forecaster, we present the global picture as it relates to gold and while synthesising these factors to forecast the gold price.
The price of gold is an amalgam of diverse and changing influences. From different world urrencies to jewellery, from investors to speculators, from the U.S. to India, from Australia to Canada, from South Africa to Asia, the gold price is of interest to all. It cannot be seen in isolation as a metal, but must be understood as a Global Thermometer measuring monetary, political, and economic stability.
These factors do not merely add up to the price but interact -in sometimes irregular ways- to produce the gold price. For example, rising prices often lead consequently to rising demand, as the appetite for the metal grows. Its price may rise in one currency and simultaneously fall in another. The price of gold reacts sensitively to the overall level of global stability.
It is our task in this letter to track these different features, giving you both the Technical Analysis and the Fundamental features impacting the gold price each week. It is our goal to help you to understand and profit from this market, wherever you are on this globe. We welcome any input or observations you may have, which contribute to the enhancement of this service.
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This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Gold Forecaster – Global Watch / Julian D. W. Phillips / Peter Spina, have based this document on information obtained from sources it believes to be reliable but which it has not independently verified; Gold Forecaster – Global Watch / Julian D. W. Phillips / Peter Spina make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Gold Forecaster – Global Watch / Julian D. W. Phillips / Peter Spina only and are subject to change without notice. Gold Forecaster – Global Watch / Julian D. W. Phillips / Peter Spina assume no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, we assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information, provided within this Report.
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— Posted Friday, 28 August 2009