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Special Alert: Gold about to Break Out
I started writing this article yesterday at close because my intention was to get it out yesterday but that didn’t happen because a nap turned into a 10 hour sleep. At any rate… I might be going out on a limb but I do believe that both the gold and gold stocks could be on the verge of a major breakout and today POG has slammed the $1600 wall indicating it has some real momentum for a rally. Gold maybe not ready for a major breakout to $2000, but there is at least a good 6 to 8 week counter trend rally. There are several factors that lead me to believe that gold may be close to being done consolidating and have put in a bottom.
Seasonal strength – We are now entering the sweet spot for when gold is seasonally strong. Psychologically gold is cheap compared to last year and there was an absence of buying from traditional physical sources last year because of steep price increases. This year I expect that traditional physical demand for gold will pick up from last year from places like India and China.
Support at $1530 could not be broken – As much as shorters tried, there is very strong support that could not be broken. I for one would no longer be short the yellow metal as there seems to be more people willing to buy below $1570 than there are sellers. That is another bullish sign. Especially considering how well POG has been holding $1570 over the last few weeks.
Technical wedge setup - POG is going to move… one way or the other with this setup. This is a major technical setup we are approaching over the next week or so and considering the level of support at current prices, it will take a major bad news event to move gold lower. This one factor that “All Roads Lead to Monetization” even deflation certainly in my mind keeps a floor in the price of gold. That floor seems to be $1530. If POG breaks this trend to the upside… there is at least a $100 move to a stronger trendline. This trendline analysis is setting up to almost the same type of break that the American markets made in December after the selloff when they came back with a thunderous roar. Keep your eyes peeled very closely because there is a lot of cash on the sidelines waiting to pounce in this market. There are many lovers of gold that are looking for any excuse to get back into the market.
The FED is finally going to discuss the merits of a bond buying program. Hello? QE3 is finally on the table. Just rumors of the FED discussing QE3 will help re-inflate asset prices. I heard commentary that said there was nothing new to this rumor. These guys obviously didn’t read the article below because the major difference is that the FED has not discussed bond buying on a serious level since QE2. It was the bond buying that help inflate asset prices and the materials market specifically which will certainly happen again. There has also been talk which I have mentioned months ago that the most likely form will be at bonds that are linked to the US mortgage market. I am not a debt guy but it makes sense that this time relief is aimed at the American consumer. I relief in mortgage rates and stimulus in this area could help re-inflate housing prices which is the biggest hit to the American consumer. If you can get house prices to where Americans have some real equity in their homes, it will not only help consumption in the US but also potentially One thing I am surprised is that I thought the FED would be more reactionary and wait until the economy and markets were more indanger while this move seems to be more proactive if the QE3 initiative arrives in late 2012 or early 2013.
The rest of the world is ready for stimulus. China is talking stimulus. Even Europe is talking some type of stimulus although it never gets very far because no one can get along over there. Everyone realizes that if you want to deleverage without starving your citizens, you need to monetize at the same time you put in FAT CUTTING austerity measures. I have heard the words stimulus come out of Merkel’s mouth in the last 2 months… so you know she knows that they have to do it at some time. And we all know that Merkel runs the show over there.
Some Gold Companies to Discuss
For 2012 the second half we are going to wipe the slate clean and we are primarily looking at gold stocks. That is it. Of course graphite is still a great opportunity especially considering where some companies share prices have fallen to and now is the time to buy. Even if the markets do fall off a cliff this fall, I think it will only be for a very brief moment and that the markets will bottom in within the next 9 to 12 months. Bear markets do not last forever and with all the stimulus planned over the next 18 months should eventually light a fire under the materials sectors. With all the monetization about to happen… the biggest beneficiary is of course gold. Since everything is dirt cheap. You always gotta go with the best. When the cream of the crop is as cheap as it is there is no reason to seek leverage in lower tier companies. So I have listed my top five high grade gold stocks. When looking at quality I look at several factors to determine but obviously you gotta stay close to home. As Argentina has taught me this year, even perceived political risk can ruin a portfolio. So to start the second half of 2012 off here are my top 5 high grade gold stocks. Note… 4 of the 5 companies deposits are in Canada. Goldcorp’s Red Lake might not be the crowning jewel it used to be and there is plenty of near term production potential from these companies to more than replace GoldCorp’s Red Lake… and no, Rubicon is not on this list.
One other thing to discuss that I do not think I have laid out well. These five here are development plays and are suitable long term holds. When I list exploration plays. They are 100 times more speculative and you must treat them as such. They are lottery tickets and can go up as fast as they can go down, but are very good trading vehicles if you can stomach the volatility. Most of those discoveries will nto play out in the long run but can represent potential 100 fold gains if they do and you get in early.
Always approach discovery plays like CSQ-V as they are. A potential discovery.
Pretvim Resources PVG-TO $14.69 / $1.4B Market Cap
PVG continues to be the top dog of all dogs anywhere in the world. If this is not in your portfolio you are nuts. Today they intersected on of the highest grades intersections I have ever heard of…
41,582 g/t au over 0.5 meters… that is one big nugget.
I have run through the numbers on this one several times. The resource will continue to grow in leaps and bounds and this mine will replace Goldcorp’s Red Lake Mines as the top dog in Canada. Definitively.
Continental Gold Mines CNL-T $6.90 / $760M market cap
Continental Gold Mines is my only international play and it is in America friendly Columbia which has seen a rebirth in gold exploration and discovery. Continental Gold Mines is the cream of the crop that South America has to offer. I attended CNL’s presentation on Buritica at PDAC and have to tell that of the mining presentations, this one I left being the most impressed. The company has ten drills at Buritica drilling over 100,000 meters this year and have significantly expanded the deposit which stands at 630,000 ounces measured and indicated at 17.8 g/t au and 2.5M ounces inferred at 11.4 g/t au inferred. The deposit contains 11M ounces of silver and over 100M pounds of zinc. CNL has not released a PEA on the project, but I expect it to be a low cost producer.
The company has hit some impressive intersections outside of the resource model 3 meters @ 162.7 g/t au and 41 g/t ag. In early June the company announced another impressive stepout hole demonstrating that huge potential for the resource model to grow to well over 10M ounces of gold with 4.5 meter intersection at 20.3 g/t au and 102 g/t ag that extended the total depth of the system to 1,300 meters, 650 meters below the deepest point of the current resource model. The hole was also a 500 meter step-out in the Yaragua system. The Buritica Project is the best that South America has to offer as far as high grade goes. Some might take CSI-T Serra Pelada. Not me. I am a CNL fan and this list only has room for one international play.
Barkerville Gold Mines BGM-V $0.82 / $88M market cap
The more I look at what happen the last month the more smell a dirty rat with what went on. Frank has been in the gold business for 20 years and is not a dumb guy despite his appearance. Either that guy is completely incompetent including the rest of the staff at BGM or they knew that the BCSC was going to make them retract. One thing that leads me to this suspicion is the fact that a ton of warrants were exercised over the last month. This smells so dirty I really don’t wanna touch because of the OBVIOUS behind the scenes shennigans for the financiers flushing paper out in the high $1.50’s.
Nevertheless, when I look at a company, I evaluate the property less management because I have seen it time again… crappy people getting lucky. It is how this resource industry works. You have the hard workers that do their DD and work everything and you have others that just want to promote a company and flush out paper and make a buck. It’s the only industry that I know where both groups can succeed. Not to say that Frank hasn’t worked his ass off to get to where he is, but seriously I don’t know anyone who is that stupid to not see what happened last month for what it is.
A bunch of bullshit in my opinion.
What made it worse is the BCSC makes them re-state but refuses to cancel the trades. So all the VSE scum gets to keep their money from washing out their warrants and the BCSC plays the role of basher and tanks the stock where the VSE scum can load up again. Beautiful.
Those harsh comments aside, I have moved Barkerville to third place on my gold development play list. The 10.6M ounce resources will get re-stated and the ounces will drop and the grade will drop. Where the grade drops to is anyone’s guess. I don’t have Barkerville’s results in a spreadsheet so I could only give you a best guess as to where the resource goes. I think it will come in around 8M ounces and a 4 g/t gold grade which will still be very good for the Cow Mountain deposit.
My brother recently moved to Wells from the island so I took the time recently to make a trip up to Barkerville to visit him and take a boo at the operations in Barkerville. One thing that I noticed from my last trip to Barkerville when I was 16 was that where there was only one placer operation, along the creek to Bowron I now counted at least (4) 5 or 6 man placer operations on the river, two of them were active while I was there. On the other creek heading east there was at least one guy I followed from Wells that had his own little one man operation in the bush. There is plenty of gold in Barkerville and it makes little sense to me why the area hasn’t generated more interest. Oh ya. Frank.
These are my top dogs. In my opinion Barkerville could be a real winner because of the market cap and the fact a 4g/t or 5g/t open pit is going to be mighty profitable vs. the other two that have higher grades but will both be underground gold mines. But if you know me... the best opporuntities are the ones where you step out on a ledge where others refuse to go.
Numbers 4 and 5
Sabina Gold and Silver Corp SBB-T $2.00 / $346M market cap
In my opinion Barkerville has the stuff to knock Sabina out of third place eventually. Sabina is much better financed but there project does not compare to Barkerville. If only you could switch management. Barkerville will also have much more favorable operating conditions than in the Nunavut where Sabina is located and Barkerville has much better exploration upside as demonstrated (but not to be relied upon) in the news release last month. I am not going to spend much more time on SBB for now , but it is on the list and is extremely over sold from 18 month highs of over $8 a share. It is a solid recognizable name and potential for takeover with its cash much more than a name like North Country Gold whose open pit at 3 Bluffs won’t grow too much more than it is. NCG is still a very good value play at the current price but did not make the top five. No.
Eagle Hill Gold Corp EAG-V $0.165 / $26M market cap
I am going to go out on a limb and say that EAG is one of the most mis-priced gold stocks on the market and should not be trading under $0.30 let alone $0.165. EAG sp never seems to gain traction but it is an exploration program that has really gained some traction in the last 18 months. They recently released a resource statement that more than doubles the global resource at Windfall Lake and the results from their drilling program continue to have success. EAG has millions in infrastructure at Windfall that would cost double its market cap to put in now and 1.36 ounces at just under 10 g/t.
Many of those ounces near surface
I am confident that Windfall Lake will be a strong open pit and underground mine for years to come and is now easily a 100,000 ounce per year production potential. Many of the recent intersections are near surface and would make a pretty lucrative pit operation with the near surface results below.
41.8m @ 4.6 g/t au
47.2m @ 11.8 g/t au
55m @ 5.7 g/t au
25m @22.85 g/t au
Stick with this one and you will eventually be rewarded. Will they get 10M ounces at Windfall Lake? I am not sure yet of that but even a 3M to 5M ounces resource will be a very attractive mine and this system is one that looks like it will go to depth. So far Windfall Lake has been demonstrated to a 770 meter depth. EAG is my one wild card pick that could eventually blow the socks off everything else if they can have 500,000 to 1M ounce starter pit.
For this last high leverage spot there were several candidates but the recent success by EAG made me take this bit of a surprise.
Other candidates for this Canadian high leverage early high grade developer pick were Maudore MAO-V, North Country NCG-V, Mega Precious Metals MGP-V.
Stick with the top 3… it’s the easiest money you ever made. The entry point for all these guys is now.