For those not familiar with The Lone Ranger, the story
centered on a masked man, who, with his faithful Indian companion,
Tonto, led the fight for law and order in the Old
West. When the Silver-Investor.com Web site was first established it
was indeed lonely. In fact, it took nearly six months for our first
subscriber to sign up. This indicates just how tough it is to get
any interest into a market at a bottom.
In fact, we
had what we perceived as a very important marketing piece at the
time. We were promoting a way for investors to actually purchase
silver and gold bullion below spot price. We received some very
critical e-mail messages at the time, letting us know just what kind
of scam artists we were. The important fact however was simply that
Central Fund of Canada (CEF on the Amex) was selling for a 12
percent discount at the time. Moreover, we addressed our critics
with the facts, and yet not even one sent us an apology.
Regardless, we
have been proven correct about the huge potential in the silver
market, and this month we have seen just how quickly silver can
move. As we have stated in our radio interviews and seminars, it is
much easier to call a bottom in a market than a top. We still think
that silver and gold have much farther to go, but at this point we
must pay particular attention to what the market itself is telling
us.
Again for
clarity this was in May 2006:
We sent out an
e-mail alert, stating that those who were inclined to trade a
portion of their holding might consider lightening up near the
$11.50 area; we also stated that we were usually early and silver
might go to $15.00. We sent another alert to our e-mail subscribers
and emphasized that profit taking might be considered. This would be
on a portion of your holdings perhaps twenty-five percent
Certainly
looking back it was prudent to lighten up on your positions during
the May time frame. We went on to say, “For those who are willing to
take partial profits here, we suggest you look at which companies
hold up best under the selling pressure we see ahead. These are the
companies that will snap back the fastest when this consolidation
ends. Some investors think that buying the laggards is the best way
to play “catch up,” but our experience tells a different story.”
In our May
issue we had the pleasure of interviewing Mr. James of
www.financialsense.com some of our subscribers thought his
insights on the economy, oil, and the metals were worth the price of
a year’s subscription alone. Regardless, all readers should be
tuning into the weekly metals report each week.
In our June
issue we stated the following,
“We
sent out an alert to our e-mail subscribers on the 19th
of May and gave a buy signal, not knowing if this would be a
short-term trading bounce or a more significant move to the upside.
At this time, all indications are that we had a tradeable bounce
here and we sent out another alert on May 31st stating to
either sell this short term trade or sell at least part of your
“trading” position.”
Of
course this essay mainly focuses on timing yet there is much more to
being a successful investor/trader in the resource sector. Sometimes
it pays to buy right and sit tight and we do wish to re-emphaize
that extremely important point. The “problem” is from a bigger
picture perspective is many investors are just now coming into the
market or perhaps came in at the top in May 2006 and are still
frustrated.
We
like to find what others refer to as discovery investments and in
the June issue provided information
on a company
that had just located a geophysical conductor that bears a striking
similarity to the Voisey’s Bay Nickel Deposit in Labrador. For those
that are not familiar with the Voisey Bay story “Diamond Fields” was
looking for diamonds and discovered one huge nickel discovery. The
stock started at around eighty five cents and topped our near
$300.00 AFTER splitting two for one. It doesn’t take many of these
types of speculations to make investors smile!
Additionally
in the June issue we were able to uncover a company that many of our
subscribers have pestered us about and that was “what company” was
Mr. Puplava talking about on his radio show, here I cannot take
credit one of our astute readers found the information and did an
excellent write up on this company for us here at The Morgan Report.
Moving on to
our July issue we stated,
“As the market
has been trying to find a bottom, the top-tier companies such as
Glamis Gold (GLG) and Silver Wheaton (SLW) have had very solid
performances, making gains of well over 20% off the recent low. We
wish to affirm this important fact to our readers because the safest
and, most of the time, easiest money can be made by placing funds
into these investments and speculating with the juniors only.
We do not wish
to belabor the point that the right junior can make up for lots of
mistakes, but it is the most difficult area to analyze and access
risk. The way to approach the junior sector is to place “small bets”
on companies we feature or are of your own choosing. This is money
you can afford to lose. There are several ways to obtain this “play”
money, but let me share one example.
We went on to
give and example of what could be achieved with one stock from our
Asset Allocation Model, where the right amount of trading volume and
institutional support made this a good selection as would any of the
others in this classification.
In the August
edition we wanted to affirm the bigger picture especially looking at
the institutional side and how it will influence precious metal
demand going forward.
“We thought
that the second leg up in the metals would be due to increased
participation by the retail investor, but at the same time the
institutional investment community would start to understand the
importance of having this exposure, and I made a commitment to work
more on the institutional side over the next few years.
Our initial
step into this venue was our recent trip to New York City at the
Princeton Club on July 19 and 20 for the Triple Gold Investment
Conference. The first day was devoted to silver and the second day
was devoted to gold and oil markets. Jeff Christian from CPM Group
gave an overview of the silver market very similar to what we
reported to you last month.
My
presentation focused primarily on the requirement for all investors,
especially institutions, to have exposure to physical metals with a
weighting of between 7% and 15%. The 7% exposure is a minimum for
low-risk performance. The basics are simple; precious metals are the
only assets that correlate negatively to all other investments, and
therefore a small amount (7%-15%) will protect a portfolio during
any investment environment and increase returns.
The reason it
is especially important for managed money (institutions) to have
exposure to the precious metals is because now that a validated
study is available (Ibbotson Study), these people are responsible to
take prudent action. And in the event of a large general market
breakdown, the institutions are vulnerable to possible legal action.
As the fund and money managers throughout the world know of this
report, it should generate more interest in the sector.”
More interest
has come into the sector and will continue as tension increases in
the geopolitical and financial arenas. With energy prices abating
recently investors with clear fundamental understanding of today’s
world are staying calm and holding or adding to their holdings.
In the
September issue we wrote,
“Although your
editor does a great deal of technical work, we focus more on the
fundamentals. But we need to step back, focus on the big picture,
and get clarity. If you look at a chart of Newmont Mining, from the
bottom in October 2000 near $17 per share, and connect all the
bottoms, a very clear picture emerges. Newmont could get as low as
$40 per share and still be in the major bull market. In fact, with
Newmont’s current price near the $52 level, the stock is really in
the middle of its current range forecast.
Many major
analysts are looking for Newmont to trade near the $71 level next
year and we agree. The question of course is how it will get to that
level.”
It wasn’t much
longer and we issued a BUY ALERT to our subscribers on October 5,
2006.
BUY ALERT
October 5, 2006
As stated in
the October report our analysis predicted that gold might touch the
$550 area, which is roughly the 300 day moving average. During
yesterday’s trading gold traded very close to this level.
Furthermore, in a recent issue we made the case that Newmont Mining
could hit the $40.00 area and still remain in a major up trend.
Looking at the
above chart we see that the past few trading sessions Newmont fell
rapidly on heavy volume. Much of the volume is short covering and
should be supportive of the price. Annotating this chart caught me a
bit off guard because the major up trend line did not intersect the
$40.00 price exactly. I had done this exercise previously (chart
work) using another charting service we have and the major up trend
did intersect the $40.00 area precisely.
I want to
point this out for a couple of reasons, first technical analysis is
only a tool and it can vary depending upon how the data is
manipulated and how the chart itself is structured. Specifically,
what is the rise over run (remember your graphing work from junior
high)? The above chart is a semi-log scale so the grid is compressed
in the vertical axis. Secondly, we use technical analysis basically
to confirm our work on a fundamental level and by employing both as
objectively as humanly possible bring our readers the ability to
anticipate this very volatile market.
We are
definitely in a range where aggressive buying should take place, but
please do not be in too big a hurry. Only looking
backward will we know if this is the best buying opportunity we have
had in quite some time. We are still a bit wary of the overall
market and how much pressure may still be available to make the
precious metals look like poor performers through the United States
elections coming this November. As much as we all like to buy at
exact bottoms, it is actually safer to buy once a bottom is
confirmed and pay up to enjoy this level of comfort. Because we
stated we would become more aggressive during Phase 2 of this major
bull market we are sounding the buy alert now! BUT—taking your time
over the next few months is still the best strategy in our view.
Silver has
remained stronger that gold, which is hard to believe, based upon
the pounding the metal has taken recently. The reason this statement
is correct is that the gold/silver ratio has remained around the 53
area. If gold were holding up better than silver the ratio would
spread and we might expect to see a 60 to 1 ratio for example. In
fact we do not rule this possibility out entirely and if it were to
occur our thinking would be it is the final piece of the puzzle to
give us every confidence that the worst is over and we should be
fully invested.
Analyzing
silver has always been more difficult than gold in my view and with
the new S-1 filing from Barclay’s to increase the number of shares
in the I-shares Silver Trust this might have the effect of putting a
floor near the $11.00 level for silver.
Summary: This
is a BUY ALERT
We want to see
our readers move into this sector but with some caution. The top
tier stocks have not really signaled that the short covering, which
has begun, is completed. Secondly, the political pressure to keep
the entire “commodity sector” cool through at least the election
period still exists. Very conservative investors may simply observe
the market from here and only add to positions once the market has
confirmed a bottom.
What are we
saying now? Have we confirmed a bottom? We explore this issue and
many more in the November edition of The Morgan Report.
For those that
would like to follow are work closely we suggest the following
actions.
-
Bookmark
our
weekly metals report with Jim Puplava
-
Bookmark
Kereport.com with Al Korelin and Paul Warren they frequently
interview companies and writers in the natural resource sector
-
Bookmark
our
new radio show on Kitco Silver
-
Sign up
for our
free email service we send out any radio interviews or
special events to this list so they have the opportunity to
listen or participate.
-
Bookmark
FNMM.com, which provides a Free, Market Perspective on
politics, the economy and gives a great deal of information on
natural resources.
November 3,
2006
David Morgan
David Morgan
Mr. Morgan has been published in Barron's, The Wall Street Journal, Futures Magazine, The Herald Tribune, Gold Newsletter, Resource Consultants and countless other publications.
He hosts "The Morgan Report" weekly radio metals wrap-up for the Financial Sense News hour see (www.financialsense.com)
His speaking engagements have taken him all over the world and starting in 2006 he has focused on fund managers and institutions and less on the retail sector. His consultant work involves both private investors and institutions. The subtitle for the www.silver-investor.com website is for the serious precious metals investor and this summarizes the fact that almost every "junior" miner selected has eventually moved from the over the counter market to at least an AMEX listing. His private online newsletter starts at $59.99 U.S.
Information contained herein has been obtained from sources believed to be reliable, but there is no guarantee as to completeness or accuracy. Because individual investment objectives vary, this Summary should not be construed as advice to meet the particular needs of the reader. Any opinions expressed herein are statements of our judgment as of this date and are subject to change without notice. Any action taken as a result of reading this independent market research is solely the responsibility of the reader. Stone Investment Group is not and does not profess to be a professional investment advisor, and strongly encourages all readers to consult with their own personal financial advisors, attorneys, and accountants before making any investment decision. Stone Investment Group and/or independent consultants or members of their families may have a position in the securities mentioned. Investing and speculation are inherently risky and should not be taken without professional advice. By your act of reading this independent market research letter, you fully and explicitly agree that Stone Investment Group will not be held liable or responsible for any decisions you make regarding any information discussed herein.
Email this Article to a Friend 
Printer Friendly Version
