The Glory Hole
In alluvial gold mining, a glory hole refers to an eroded out depression in old river beds or those formed at the base of ancient waterfalls. Gold, being 18 times heavier than water, sinks to the bottom of these depressions near bedrock. This concave geometry is known to be ideal for concentrations of gold and these types of deposits are always in strong demand.
In 1874 in northern Idaho, legend has it that an old prospector named Sam discovered a glory hole of gold buried 27 feet beneath the erosive soils of an old waterfall. He mined it for several months, gathering hundreds of nuggets. As winter approached, he camouflaged the workings intending to return the following year. Regrettably, he fell ill and was never able to return. Today, its hidden location is still there, seen by many and recognized by few.
Undervalued and Overlooked
Once again, this "on sale" gold and silver pricing window provides an opportunity for those with shovels of cash reserves and a dynamite vision. In particular, the gold, silver and stock price declines have nothing to do with their intrinsic or fundamental values. That is why we are all digging those depressions for nuggets of value.
I have no problem with the current price of bullion gold or silver or its future but there are some difficulties to finding bedrock in gold and silver stocks, whether a producer or explorer. Uncovering those values is both art and science. First, some background trends.
Strategic Gold Trends
A powerful trading strategy is driven by ideas and backed by hard data and information. Here are three recent gold trends worth noting.
Gold Producer Vaults: In December 2011, Mark Cutifani, CEO of AngloGold Ashanti said, "Major [asset management fund] buyers are finding it is hard to get physical gold. People are coming directly to us [for large gold purchases,] people who want tonnes of physical gold, people with serious financial muscle, because they are finding it is very difficult to secure the volume of gold they want. That is something we have noticed over the last 18 months, and it has been increasing in the last six months. People are finding it is hard to get physical metal." That says it all.
In my opinion, Gold/Silver bullion, producers and stocks with significant defined and growing "vaults" are important answers to this background and a total no brainer.
Acquisitions: On the subject of "vault" acquisitions, it is also quite probable that pencils are being sharpened, value calculations formulated and plans advanced by many majors and some juniors for takeovers and combinations due to the low valuations in many areas. All one needs is one headline trigger/takeover to further drive the XAU, the smaller stocks and the XAU/Gold ratio to a more bullish posture.
Gold Open Interest Trends: These continue to decline after the MF Global bankruptcy and disappearance of customer accounts. To me, it's a question of trust in the clearing mechanism. Without confidence, the Comex dies a slow death while assets are transferred, in due course, to the new Pan Asian Gold Exchange (PAGE) or other large venues.
See Trader Dan Norcini's important gold, silver and USD analysis on a longer term basis here. Additional important technical perspectives on gold/silver, S&P500 and other financial sectors can also be reviewed free here.
Strategic Math
One does not have to be an analyst or chart reader to be profitable. Here are a couple of useful ideas.
- A program of staggered budgeted purchases can be started at any time from any pivot point but preferably after several down days. It ultimately results in lower priced purchases, average costs and mathematically, it works. This includes bullion or high quality gold/silver stocks with significant defined resources or production.
- If you have stock that has achieved a 100% net gain, sell 50% for a complete return of initial risk capital and let the rest ride for free. That position should not be sold unless a substantial and material adverse change occurs or the company is bought out.
Do the math and give yourself a gift of preservation, protection and profit. These are great strategic plays.
Nuggets of Value
The risk/reward ratio in favor of gold/silver production companies and exploration juniors with significant defined resources, especially the smaller ones, is increasingly very favorable. In fact, lunch is being served on gold and silver platters at early 2009 prices.
In general, it is more important than ever to stick with gold/silver producers and juniors that have solid management, large underlying assets, significant cash, a tighter share structure and production plans that offer a proper risk/reward ratio.
We can't do your work for you but a place to start digging is right here hidden under stocks of current or potential interest or elsewhere on this page. In our opinion, there are many outstanding nuggets located here.
In Summary
With no credibility apparent in leading currencies or government statistics, accounting nonsense, negative real interest rates, global debt levels, MF Global bankruptcy, Comex issues, liquidity and debt issues, high frequency trading, etc, confidence is down and understandably so. Sentiment levels are also very low for gold, silver and the metal stocks with no evidence of conviction.
We can all moan, groan and complain about price declines or take action by buying fear with "on sale" pricing.
Make Prospector Sam proud. He knew, as you do, that gold and silver are bedrock values of our collective financial security and the mother lode is under that waterfall decline. You can almost count on the nuggets being there so stake your claim and let the digging begin!
Disclaimer: This opinion piece was created solely for informational, educational and entertainment purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Market Pendulum is not an investment advisor. Market Pendulum accepts no liability whatsoever for any actions taken as a result of reading this opinion piece or from the dissemination of any information from the website. The information contained in this opinion or on our website is obtained from sources believed to be reliable but is not guaranteed. Readers should not regard the Market Pendulum website, its opinions or its contents as a substitute for the exercise of their own judgment and due diligence.
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