American? Better look at this...The recent decisive move in gold, silver, and the mining stocks has reignited the PM bull markets after more than a year of consolidation. I've spent some time refreshing on the monetary fundamentals and reading the best analysts, while reflecting on the big picture issues that are easy to overlook in the excitement. Here's an angle not everyone is following. The chart below is the six month candlestick for Goldcorp on the TSE, overlaid with a line chart for Goldcorp's performance on the NYSE. I chose Goldcorp for my comparison for two reasons: First, obviously, because it's listed on both Toronto and NY, and second, because it trades as a proxy for the gold price, but with a higher beta. Despite the fact that Goldcorp is a highly-regarded gold producer with one of the lowest cost per oz. in the business (well below $180/oz) it's pricey and volatile. The acquisition of Glamis Gold required massive share dilution and the market hasn't quite digested that event. The resultant high beta makes it ideal for my purposes. Normally, the charts of dual-listed stocks are essentially congruent over the long term, particularly with liquid, high-volume traders. But our chart shows a disconnect. Beginning in early April, the GG chart begins to diverge and rise above G.TO. By the time we reach the present, the divergence has spread to a full 10 percentage points. What does this mean? Is Goldcorp more popular in the U.S. than Canada? Is it a better idea to buy your stocks on the NYSE when you can? Well, no. Goldcorp is extremely sensitive to the price of gold, and the chart is equally sensitive to the USD/CAD FX cross. What we are seeing here is the effect of the USD's swan dive against the loonie since this spring.
In just 4 months, excessive credit expansion has cost the USD 10% against the CAD. In other words, in nominal dollars Goldcorp's resource has been revalued 10% higher in four months. Better be realistic about it: the loonie is going to increasingly strengthen vs. the USD for the foreseeable future. Countries that have big trade deficits (that would be the U.S.) are going to see their currencies slide against countries with positive balances of payments (think Canada, Australia). U.S. investors would be well advised to hedge against this ongoing debacle by transferring wealth to a stronger currency. If you have an international account, you can go on the FX, sell dollars and buy loonies and just hold them in your account. But a better and more leveraged play is to buy Canadian resource companies. I know this great little company that has huge holdings in Mexico and three JV's with some major players....
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