Why has owning gold become ever more important in today’s changing financial climate? It is a fact that there used to be other “save havens” that investors could turn to for asset and currency protection and insurance. Remember the vaunted and respected reputation that the Swiss Franc used to have as the safe place to park your money? Well, that is no longer the case as we observe below. 

“The Swiss franc has lost its status as safe-haven of choice…” Click!

And when the US dollar comes to its inevitable crash the only safe place remaining will be gold and the precious metals.

"People are sort of trying to figure out what's the safe-haven currency, but there is no consensus on this at this point," said Robert Hormats, vice Chairman of Goldman Sachs International.” “Historically, the Swiss franc was considered the currency safe haven of choice thanks to the country's low inflation, current-account surpluses and once-vast gold reserves.”

“…Jean-Pierre Roth, chairman of the governing board of the Swiss National Bank, said that the weakness of the Swissie this year was "hard to explain." Click!

Excuse me here folks. 

Is this so hard to understand as to why the Swiss currency has lost its appeal? The Swiss have been selling their gold reserves with abandon this past decade. Can these people really be so stupid to not be able to add 2 plus 2? No gold in your reserves means no consumer confidence.

Gold in the vault = consumer COnfidence

“The breakdown of the strong relationship between the Swissie and gold also contributed to the currency's recent weakness, said Schlossberg. At one time, the franc was 40% backed by gold, but the Swiss government sold the nation's hefty gold reserve in 2005…” Click!

There is a motivational conference at the BI-LO Center in downtown Greenville this week. Traffic is going crazy as those attending the show look for a good parking spot. I watched all these folks scurrying in front of me. Many of these folks are carrying pads to take notes on. Most of these folks will forget everything they hear within about a week. They will ride a psychological high for a day or so. Then a week will pass and 99.9% will go back to sitting in front of the boob tube dully listening to the financial cable shows and doing nothing but dreaming.

What does real success take? 

Daily boring habits repeated over and over with consistent discipline. Whether the goal is to make tons of money, become a doctor or even have a successful marriage the requirements for personal success are the same. A lot of work balanced with a strong degree of personal discipline applied in our lives on a day to day basis repeated over and over again. Nothing worthwhile in this world comes easy. And that’s just the way it is.

And what is going on in the real world today?

“Confidence among U.S. home builders plunged to its lowest in 15 years this month as buyers canceled orders and inventories of unsold dwellings piled up…” Click!

Yes, as we just read above we are witnessing the housing market slowly crash and picking up a little more down hill momentum every day. Where are your investments today? They better be in something that will appreciate with the coming years- like gold!

Kenneth J. Gerbino - “…are you prepared for gold going to $1,000 and then back down to $600 sometime in the future and then perhaps back up to $1,500.” “Xerox back in its heyday went from $1 to $170 and then back to $45. A decade later it was at $4,000 (split adjusted). You would have had a hard time riding it down from $170 to $45 but you would have missed the great move up if you had bailed out.” “So an investing policy and basic strategy is vital to do well in the mining sector.” Click!

I like what this fellow has to say. You ought to also as this man understands mining stocks well.

Kenneth J. Gerbino - “One also has to make sure the mining stocks owned have the minerals in the ground and have a good shot at economically recovering those minerals. The price we sometimes have to pay for these attributes, as well as above average performance, is above average volatility.” “The best companies are the ones with quality mining projects coming on stream and are well funded and have substantial investment banks behind them to fund these and future projects. The worst companies are the risky exploration stocks.” Click!

So, you are convinced you need to own gold. Should you be concerned about the volatile gold price?

Professional investors recognize volatility as an opportunity. So many readers get so concerned watching the many up and down movements of the gold price. I still say that by year end we will see a solid floor around 700 bucks an ounce. Don’t get worried watching wild price swings every day unless you are investing in futures and that is another ball of wax entirely. But if you have purchased good solid gold and silver mining stocks then hold on to your stomach and hang in there.

Are you scratching your head asking which gold and/or silver stocks to buy?

I often hear people say now is a bad time to buy anything because everything is over priced. What a load of bunk. There are always opportunities. It’s the law of nature. A lot of millionaires were created in the early 1930s by those who were perceptive enough to recognize opportunities at that time. I believe statistically there were over 10,000 millionaires created in that early decade. 

The point here I am trying to make is that there are always opportunities for those who take the time to look. So, with gold over 600 an ounce are there opportunities still out there or have you missed the boat? Of course there are opportunities. Just open your eyes.

What are the dynamics to consider when trying to pick a good mining stock?

The best picks are those companies who already appear to have made a significant discovery and their on going drilling program appears to prove this. It’s not too good an idea to wait for the last drill hole to be drilled before you make your desicion to purchase a company’s shares. It is during the lengthy and involved speculative phase of the drilling process that decisions should be made which stock to buy. 

What does it mean when you hear the term drill indicated reserves?

“Drill - indicated reserves: The size and quality of a potential orebody as suggested by widely spaced drillholes; more work is required before reserves can be classified as probable or proven.” Click!

While most of us are not geologists and never will be we can still take the time to understand some basic principals about the mining business. The most important point to understand is that it is the drilling that determines what kind of deposit exists underground. 

How big is the deposit? Is the deposit going to be economical to mine? This is what drilling, drilling and more drilling eventually determines. 

And if you follow this market long enough you will notice how excited companies get when a drilling program comes back from the assay office with good results. A few holes do not determine what a company has, but over time as more and even more drilling is done geologists get a better idea of what they’ve got and so do professional investors.

“If a major new ore deposit is suspected by a legitimate company, there is significant incentive to get the drilling done as soon as possible so mine permitting and actual mining can begin. They will use as many drill rigs as they can get their hands on. The primary incentive is to produce gold, not sell more stock at a higher price. Legitimate operators know that real, cost effective gold production, together with ore reserves for future mining will result in satisfactory stock prices.” Click!

Let’s talk a moment about the “life cycle” of a mining and/or resource stock. There is the initial discovery. Then after lengthy ground work drilling begins. And more drilling, and drilling, and drilling. And then even more drilling. This process may seem boring and endlessly repetitive, but it is only the drilling program that tells us what is really in the ground.

No one really knows what is under ole’ mother earth and it is only the drilling process that confirms what is down there. Now pay attention because this is important. As more and more drilling confirms the nature of the deposit underground we can surmise that the odds are increasing in our favor that here lies a property with a real deposit worthy of mining and taking to the market. So, take some time and understand a little about this market and the terminology used.

I keep repeating the fact that by year end we will see 700 as the floor price for gold. 

Is anyone noticing what is happening in the mid east right now? I have also said repeatedly that the era between 1980 to 2000 was a once in a generational event that brought peace and prosperity on a scale that we will not see again in our life times. I will not go into those events again that made this time special, but I will state here that the normal violent era we lived with in the 40s, 50s, 60s, 70s has returned with a vengeance. 

There is no Ronald Reagan in this century nor is there a peace dividend such as the demise of the Soviet Union. Gold will benefit during these circumstances and for those who can see this and invest in gold related equities they will make a lot of money…a very great deal of money. And already a great deal of money in this sector has already been made by astute investors.

Have you written me yet? Let me hear from you.

CONTACT INFORMATION
David N. Vaughn
Gold Letter Inc.
Website - Subscription Info
(888) 836-7758
Email

Readers are advised that the material contained herein is solely for information purposes. The author/publisher of this letter is not a qualified financial advisor & is not acting as such in this publication. Gold Letter, Inc. is not a registered financial advisory. Subscribers should not view this publication as offering personalized legal, tax, accounting or investment related advice. All forecasts and recommendations are based on opinion. Markets change direction with consensus beliefs, which may change at any time and without notice. The author/publisher of this publication has taken every precaution to provide the most accurate information possible. The information & data were obtained from sources believed to be reliable, but because the information & data source are beyond the author’s control, no representation or guarantee is made that it is complete or accurate. The reader accepts information on the condition that errors or omissions shall not be made the basis for any claim, demand or cause for action. Past results are not necessarily indicative of future results. Any statements non-factual in nature constitute only current opinions, which are subject to change. The owner, editor, writer and publisher and their associates are not responsible for errors or omissions. The author/publisher may or may not have a position in the securities and/or options relating thereto, & may make purchases and/or sales of these securities relating thereto from time to time in the open market or otherwise. Authors of articles or special reports contained herein may have been compensated for their services in preparing such articles. Gold Letter and/or its affiliates may receive compensation & or stock options for the featured company’s right to publish & reprint & to distribute this publication. Nothing contained herein constitutes a representation by the publisher, nor a solicitation for the purchase or sale of securities & therefore information, nor opinions expressed, shall be construed as a solicitation to buy or sell any stock, futures or options contract mentioned herein. Investors are advised to obtain the advice of a qualified financial & investment advisor before entering any financial transaction.

The opinions of FSU contributors do not necessarily reflect those of Financial Sense.