Dear member,
The TSX Venture is in a transition phase. It will likely never be the same as it was in the first decade of this century. Many of us witnessed the madness of investors throwing money at companies with a nice land package, a pending LOI or a few good drill holes. Now, reality has set in; nobody cares about long-shots and grass roots plays with minimal cash in their treasury. That is the answer desperate, under-qualified and unproven CEOs have been given by institutions and investors as their treasuries diminish and their respective companies fade away. It is a harsh reality, but it is a great thing for investors because the flip side to the evaporation of equity on the TSX Venture are the remaining warriors who are trading at historically low levels.
A company is not considered a warrior just because it still trades. It is considered a warrior because of its ability to remain strong despite the tough market environment of 2012. Companies in a favorable position today, perhaps not in share price, but in cash on hand and advancing assets, in this market, have proven they are fighters, extremely savvy and have an asset which still generates significant capital interest. These companies have strong connections due to significant past successes and know how to protect and grow their company in the harshest of economic environments.
The bottom line is that this prolonged multi-year slump in the juniors, although tough on many portfolios, has forcibly thinned the herd.? It has done investors of today a favor by eliminating the weak companies and dramatically reducing the value of even the best positioned companies. To be clear, eliminated does not necessarily mean bankrupt or gone. A company with less than $250,000 in the treasury, no asset or a weak under-explored or under-developed asset, accompanied by obviously weak management, might as well not exist. There are hundreds of companies that are simply not a viable investment - not even from a speculation or a gambling perspective. They're just dead in the water.
Kaiser Research Online reported on December 2, 2012 that there were 632 mining focused companies on the TSX or TSX Venture with less than $200,000 working capital. Accounting and exchange fees, never mind office rent, can run more than $100,000 annually. Even without paying salaries, one can see how 500 companies could be extinct in short-order. So make sure the companies you are conducting due-diligence on have, at the very least, plenty of cash in their treasuries.
Golden Opportunities
When gold begins to break out, as all charts and fundamental facts suggest it will, investment sentiment toward gold juniors, mid majors and producers will turn positive (in fact, it is already happening behind closed doors). Global investors will once again be searching for exposure to politically safe gold mining investments and this time (unlike 2009-2011), there will be far fewer companies to choose from.
Canadian and Australian gold companies will top the list for gold hungry investors from around the world. These two countries are both backed by commodity based currencies and have relatively low debt in comparison to the major western nations. Canada and Australia have also been exceptionally stable from a political standpoint and that encourages massive investment from abroad.
China, the largest gold producer in the world, consumes and stores every ounce it produces. The United States has been known to confiscate gold in times of severe economic uncertainty. With gun sales shooting through the stratosphere and that debt ceiling about to go through $20 trillion in the year(s) ahead, we'd caution putting blind faith in assets lying within US borders.
South Africa and South America are wrought with corruption and resource nationalism threatens to unravel and destroy many top prospects at any moment. This is why, despite the lashing both domestic and global investors have experienced on the TSX and TSX Venture, they will be forced to come back.
Missed the Boat
If a company failed to find or advance a viable mining asset in late 2009, 2010 or even early 2011, when capital was flowing and money was easy to come by, they missed the boat. Those unfortunate companies were lacking in some form of expertise and it will be a long time before easy money flows into the market for grass roots exploration.
So when gold does break out to new highs, there will be more money chasing fewer gold companies. The true thinning of the herd began in the middle of 2012 and will likely continue for another 6 to 9 months.
Why Gold and Why Now?
For the last half decade our team has outlined countless reasons why one should have exposure to gold. At this moment, on January 6th 2013, there is no greater reason to be supportive of gold investment than for the fact that central banks have to increase their reserves to a higher weighting in the precious metal. Central banks have bought record amounts of gold in each of the past two calendar years. Our team believes 2013 will be no different and have the facts to back it up.
The Western world holds all the cards when it comes to reserves backed by gold. The United States is now the most indebted nation the world has ever seen, but, nevertheless, it holds 77% of its national foreign exchange reserves in gold. The US has 8,133.5 tons of gold, while Germany has 3,395.5 tons and China, at last reporting, has only 1,054.1 tons.
Even with small foreign exchange reserves, the US remains by far the world's largest holder of gold reserves. The US doesn't hold yen, the yuan or euros, because as the world reserve currency, it never needed to - it holds gold.
China has only 1.8% of its foreign reserves in gold. It has by far the largest account surplus in foreign reserves ($3.2 trillion), but it is denominated primarily in USD and yen.
Bernanke is going to print more than $1 trillion in 2013 alone. Do you think the Chinese are getting nervous? Do you think it might be time for them to increase the pace of their gold purchases? Beijing has repeatedly stated that it "must add to gold reserves to promote yuan globalization".
For years China has been attempting to diversify its dollars into hard assets and to this day, consumes all the gold it produces. However, it will have to increase its gold buying immensely if it wants the yuan to be taken seriously on a global scale.
Foreign exchange reserves include foreign currency deposits, bonds, gold or other SDRs (special drawing rights) held by central banks and monetary authorities. They are important indicators of a country's ability to repay foreign debt, used to determine the strength of a currency and to determine credit ratings of nations.
The World Gold Council has recently reported that the United States, Germany, Italy and France hold more than 70 percent of their reserves in gold. China sits atop emerging market economies with a mere 1.8% of their reserves in gold. For China to bring its reserves to 50% it would have to dump almost $1.3 trillion dollars of fiat currencies (USD and Yen primarily) and buy thousands of tonnes of gold. If this was done quickly it would crash the bond market and for obvious reasons will not occur overnight; however, the trend is in motion as central banks have bought record amounts of gold in each of the past 2 years.
Brazil comes in second among emerging markets at a pathetic 0.8% of foreign reserves held in gold. It doubled its gold ownership in just two months, October and November of 2012.
Emerging market countries do not own enough gold. They currently have their currencies backed by other fiat currencies which are being printed and dispersed like confetti throughout the world as the global money supply explodes. Many of these emerging market fiat currencies are backed solely by US Dollars. These central banks are tired of being held hostage by the US government and policies they have no control over.
China has to buy gold and tons of it. For China to reduce the economic impact of the USD, it needs to increase its gold reserves account. If it ever wants to establish the yuan as a respected global currency, it will need a lot of gold. We are repeating ourselves, but for good reason. We believe this is happening.
Chairman of the London Bullion Market Association and Global Head of Precious Metals Trading, David Gornall, recently stated at the association's annual conference in Hong Kong that, "When comparing China to the U.S., it would seem that in China, gold asset allocation can only go in one direction. The country has only 2 percent of its reserves in the form of gold compared with the U.S. at 75 percent."
Actions Speak Louder than Words
Record gold buying by emerging markets is just getting started. It will pick up steam as countries rush to protect their respective currencies against Bernanke and the US government, who are exporting inflation through the monetization of US debt. Remember that many emerging market currencies are backed by the USD; so when the USD money supply expands, theirs must too or they risk currency appreciation that would price their products out of the global market.
The gold ownership of other emerging countries, which account for more and more of global GDP, is negligible, but increasing. For decades, countries have bought US dollars, the world's only reserve currency; however, with Bernanke on a mission to spark the economy at all costs and increased inflation knocking on the door, central banks cannot afford to stand by the side, hoping and praying the US will do them any favors.
Perhaps this is why the Federal Reserve is expected to buy upwards of 90% of all new US debt issued in 2013.
The old buyers of US debt are not coming to the table anymore. It quickly becomes easy to understand why central banks are tripping over each other to accumulate as much gold as possible without spiking the price and giving way to a full on stampede. Gold is the only non-manipulated currency and will be the final equalizer when runaway inflation or failed monetary policies finally force governments to act responsibly. Countries that hold gold and have a higher percentage of their currency backed by gold will be in far more advantageous bargaining positions; hence the record accumulation.
The currency wars wreaking havoc across the world are only going to intensify. When central banks expand their money supply, by definition, it creates inflation.
* Jim Rickards Update on the Global Currency War
When the system begins to breakdown and becomes unfeasible, it won't be how much debt a country has, but how much of its debt is backed by gold that matters. Gold will be re-priced to reflect the ballooned money supply. When this eventually happens, those holding gold and gold equities will be rewarded. Eventually, we believe gold will replace, at least for a short period, our current fiat system which is backed by nothing but a government which only exists to sustain itself.
Peter Schiff explains his stance on gold in his most recent appearance on CNBC. He titled the video:? 'The Dollar is Not King of Anything: Except Maybe Depreciation'
A Catalyst for Gold
In August 2011, the raising of the US debt ceiling pushed gold to an all-time high above $1900 an ounce. The next debt ceiling deadline has been pushed aside for a few months, but the US government cannot run from its trillion dollar deficits for long. When the debt ceiling is raised again, and we are certain it will be, likely in early March, we expect gold to breakout just as it did in 2011. This will have a positive psychological impact on many resource investors along with adding many thousands of new investors to the growing believers in gold.
In respect to our little world, consisting of the TSX and TSX Venture, we could hardly be in a better position. It might not seem that way as it has undoubtedly been a rough 18 months for many, but when you stand back and look at the global landscape of potential investment regions, Canada and Australia clearly stand at the top when it comes to gold.
The cost to produce an ounce of gold has risen substantially, but as the gold price stabilizes and continues to trend higher, majors will begin to experience increased margins. This, combined with depleting resources, will re-ignite M&A activity.
This is an exciting time to be investing in the gold arena because you can demand the absolute best and get it at a historically cheap price.
* High grade gold deposits will continue to outshine lower grade deposits.
Our team has found a company with arguably the best new gold discovery in its vast mineral rich region. This discovery has returned some exceptional results to date (which we will explain in our report next weekend) and thanks to the junior market downturn over the last 18 months, it's trading near its 52 week low. The company has a strong treasury balance (multi-million dollars recently raised) and best of all, its president previously ran a company which was bought out, in a lucrative deal, by one of the biggest gold companies in the world. For that reason alone, it's no surprise this company has been able to raise capital and aggressively advance its flagship project.
The best management teams are cashed up and ready to rock. They are not fearful nor hiding in their offices hoping for a miracle. They are well financed, prepared and ready to execute in order to capitalize on gold's continued rise amidst the greatest monetization of debt in the history of civilization.? Our special report will be released to you once it is completed next weekend.
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All the best with your investments,
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PINNACLEDIGEST.COM
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Source: http://www.pinnacledigest.com/articles/vol-296-why-invest-gold-stocks-2013
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