Last October, while the shock waves of the largest bankruptcy filing in U.S. history still reverberated around the world, Trader Tracks Editor Roger Wiegand shared some thoughts with The Gold Report. In what has turned out to be an eerie understatement, he told us, “The American public herd is moving beyond being just nervous. Now they are getting scared. There is real fear in the air with inflation, massive job cuts and a drumbeat of bad news.” Not quite six months later—when many of his peers say the worst is behind us after all, the Dow regained 11% in roughly three days last week—Roger is among those waiting for the other proverbial shoe(s) to drop. He expects a spring meltdown (and maybe a gold price up to $1,260) on the heels of the much-delayed Obama bounce. While he says so many factors are at play that it’s too soon to call a summer rally, the beleaguered markets will take a beating again in September. Tiptoeing and sifting through the chaos and rubble, though, he suggests that watchful, careful, savvy investors can pick profitable buys at rock-bottom prices.
[Editor’s note: To read Part 1 of this article, please click here.]
TGR: You mentioned Endeavour Silver, SanGold, Canplats and Clifton Star. Are you favoring any others?
RW: Eastmain is a new one we’ve just recommended. Eastmain has no debt, $20 million cash and 12 partnerships and joint ventures. Goldcorp (TSX: T.G, Stock Forum) owns 9% of their stock; and they’re in mining-friendly Quebec, which is expanding. I think they’ll be a good choice. In addition, Eastmain’s price has been sold-off like many others, so there’s room for a price rebound.
The only one on my list right now that has me a little worried is Hecla Mining Company (NYSE: HL, Stock Forum), but I still think it’ll come back.
TGR: What’s the problem there?
RW: They had a very expensive partnership buyout at Greens Creek in Alaska. It cost $750 million in cash and stock. They bought out Rio Tinto (NYSE: RTP, Stock Forum) on that asset. Hecla owned half for years; now they own it all. They got out of Venezuela with some pain and expenses. Their Northern Mexico project is doing exceedingly well, and they have other good things happening. The Lucky Friday silver mine in Idaho is expanding. Hecla was oversold on temporary bad news and has been hovering around $1.50 to $2 per share. We think it can rally to $5 or $6 rather quickly.
Keep in mind, the first thing that happens on a rally-rebound in gold and silver shares can be the influx of big New York money. The NYSE and large stock indexed companies usually get the first initial load of cash on a new cycle. That would include Hecla, Pan American Silver Corp. (TSX: T.PAA, Stock Forum), Silver Standard Resources Inc. (TSX: T.SSO, Stock Forum), GG, Agnico-Eagle Mines (TSX: T.AEM, Stock Forum), Yamana Gold Inc. (NYSE: AUY, Stock Forum), Kinross Gold Corporation (TSX: T.K, Stock Forum)—some of the bigger operators. So that would be the group most likely to get a first substantial investment from New York for our proposed rally.
TGR: But wouldn’t they also be the first to be hammered if the market really takes a nosedive?
RW: It can happen in one day, believe me. Things are moving more swiftly now. Money moves quickly. On those types of shares, we’ll let reality get started, make sure we see solid rally legs and then recommend more of that kind of trade. These are solid producers. We expect growth.
What happens after the end of this year will depend greatly upon how markets, investors and traders worldwide can deal with what’s coming in May and the end of September. In those two cycles, I’m expecting hard selling and lots of bad news—not only this year, but on the same dates next year, too. After that, the worst of this mess might be over, and we can settle down. The subsequent aftermath and restart can begin from much lower prices on most everything.
TGR: Including gold stocks?
RW: No. Shares will have more cyclic ups and downs. Gold the metal, I think, is just going to continue a longer-term rally. It’ll rest for sure. But, somewhere along the line, gold will have a rather heavy recovery, followed by a selling event. That’s because when things get overbought, people take profits and back down it goes. However, it seesaws and comes back maybe half of the way, and then turns around and goes right back up again in the next rally to new and higher highs. Somewhere in years ahead, a few gold stocks could find the stratosphere.
I produced some new prices on gold this morning. Until now, I haven’t offered any forecast prices higher this year than $1,260. I was on a panel with my friend David Morgan (The Morgan Report) at a recent conference in New Jersey, and they asked us to forecast gold’s high this year. David responded just before I did, and said $1,250. I was kidding him, and said, “Well, you must be reading my letter because mine’s $1,260.” Dave and I read the same work.
We all do technical analysis and the numbers point in the same direction, so that’s where we are. On cycles on the calendar, we have room between now and the spring selling for one more 46-day rally cycle, which is bottom to top to bottom again. If, in fact, we go back down to the bottom again in May, where price goes in the summer will depend upon how severe our May selling event is in all of these markets.
I can’t imagine traders will have a lot of money available to buy gold this summer. We expect them to be loaded-up with gold. But, we’re looking for a nice rally during the next 46 days. That can take gold to $965 to $985 and then to $1,040-near the old high. If we break that, we see $1,260. That, I wasn’t expecting until December. There’s an outside chance we can see $1,250 or $1,260 in April.
TGR: And after it hits that level?
RW: Just on the basis of some preliminary work I’ve done, for April 2010 I’m forecasting a gold price of $1,375 to $1,468. Those are new numbers for me. I’ve not put them in writing nor said it before. As I recall, Jim Sinclair (MineSet) had something similar around $1,400 as well. This gives me great comfort because he’s been one of the best ever in gold trading.
TGR: Is that higher than you’ve had the gold price before?
RW: Yes, $1,260 was my highest forecast up to this point with one exception. In 2004 or, 2005, just for an exercise, I worked for a week and a half to figure how high gold could go on pure techncials; being conservative and fairly modest. I think $2,960 was my price and six months later, Richard Russell (Dow Theory Letters) said the Dow and gold will cross at $3,000. I found that interesting. When offering prices, please be aware of inflation adjustments.
But $1,468 is as high as I’m going to go on gold for this time, and I think we’ll achieve that. How soon we get there is difficult to predict, but it’s going to be sooner rather than later.
TGR: What’s your feeling about silver prices?
RW: Silver was oversold in its relationship to gold during the last quarter of 2008. It went to a $21.50 high and fell back to $8 plus change. Meanwhile gold was up much higher and didn’t fall nearly as far. During the last couple of months, silver has been playing catch-up in a faster rally buying mode than gold. It rose to the $13 to $14 range. There’s price congestion at $16 and $17 and there’s an obvious hard resistance at $21.50, where it was before.
We had recommended silver spreads in our letter for March 2009 last year, way before the September 2009 event and, obviously, they expired worthless. Had we achieved a price anywhere near those spreads, it would have been a much more successful year for us. But by using strong risk control and spreads, we’ve been able to retain capital, hang-on and move to the next market cycle without personal 2008 losses.
For 2009, we must first achieve $21.50 and then see what happens. I don’t expect we can make $21.50 this spring. However, you could see $16 or $17. I’m looking for silver at $21.50 and perhaps something higher in the last quarter of 2009. Presuming we have no more Lehman events, silver might touch $25 to a potential $30 for a 2009 high.
TGR: Can we make $30?
RW: A lot of people say we can. I’m not sure. But if we can’t make $30, we can get to $25 or $26. There’s a lot of price congestion around that price, as well. With all the coin demand from retail people, I project silver has a stronger market underpinning. Even when silver was $10, people were willing to pay $20 for coins. That’s pretty extreme in my view, but for now price has consolidated and is doing a bit better. And yes, there’s silver available; but yes, they’re also having problems keeping up with demand. Delivery has been restricted by the ability of the mints (Canadian and American Mints) to manufacture coins and keep up with amazing sales. Their production limitations were market-demand short but are improving.
TGR: Have you seen the premiums come down at all in the coins?
RW: Yes, but it’s so scattered I can’t give you quotes. Some are more available than others. Bars are easier to buy, because for the most part, folks would rather have coins than bars. There are more problems in buying and selling bars—assay, insurance, delivery, storage. It’s simply easier to trade coins. Personally, I have silver coins; but in the next rally go-round, in the next year or so, I would like to buy gold coins. Then, of course, you can use Kitco, Goldmoney.com, the Central Banks and CEF in Canada. The Perth Mint has availability. You can trade GLD and SLV, but I would not be a long-term ETF holder. Trade them, but be very wary.
TGR: Why is that?
RW: I think if we get into a nasty situation regarding delivery and some other problems, you could be out in the wind on ETF delivery. You are holding paper with a claim. I wouldn’t do it.
TGR: So what do you suggest for investors?
RW: Small traders should start with a good coin program buying steadily from a reputable dealer. By small accounts, I mean somewhere between a few thousand dollars up to maybe $100,000 or $150,000. These traders should have maybe 10% in coins. For larger account sizes, you can only hold so many coins in personal possession. Then we recommend buying bullion in depository storage.
Here’s another thought, too. I’ve asked the investment advisors at GG if it is possible for an American to buy the shares directly from their company in Toronto and hold them in escrow. This would accomplish two or three things if, in fact, you could do it. As an American, you would own one of the premier gold companies, which is probably going to be in position for the long pull to make a lot of money. Your money is out of the U.S. It’s not in a New York brokerage, it’s not in your personal possession; it’s in Canada. There’s been talk, of course, of gold confiscation. I don’t know where that’s going to go. I can’t really say one way or the other. But if, in fact, you’re holding GG shares in Toronto, I would think you’re pretty safe. That’s something with a lot of merit in this environment. People wonder how they can have some resources that are unattachable, shall we say, in the United States. Buying directly in Canada might provide the answer. There may be rules that prohibit that, but we’ll find out.
TGR: You’re suggesting buying shares directly from Goldcorp?
RW: Yes. Most people don’t know it’s possible. If you want to buy GE stock from GE without a broker, you can do it. The domestic versus foreign share buying has yet to be addressed.
TGR: To summarize, you’re suggesting investors should own gold shares and you see a rally ending somewhere between mid-April and the end of May. What will signal the music has stopped, telling us to run for a chair or get out the door?
RW: You have got to be very careful. On any news out of Washington, you trade the opposite. A lot of traders say that when Tim Geithner starts making a speech, they hit the sell button. The point is that we can forecast selling time within a few days. Most importantly, I would rather be premature on an exit than too late. I can evaluate the technicals using several indicators. There are important interrelationships between different markets, not only domestic but also foreign. I am very fortunate I’m able to see several institutional reports most people never do. One of the best traders in the United States—in fact, she won the trading championship the last four years in a row—is Louise Yamada. Louise said that this Dow is going to 4,000. She won’t put timeframes on it, but she is correct almost all the time. Bob McHugh is extremely correct with his technicals. I read his daily reports and we exchange newsletters.
TGR: He’s a newsletter writer?
RW: Yes, and he’s a gentleman; just a fine person and he has a fantastic technical letter. Some people prefer a straight recommendation: “Buy this, sell this, put a stop here” and that’s as far as they want to go with it. But if you’re into charts and numbers, subscribe to Bob’s letter. It’s 50 pages and like a continuous price chart that just keeps going and going. He covers the U.S. and Australia and more. We very much appreciate what Bob does because his numbers are accurate and technical. I am a technical analyst and rely on seven other pros to back-check my work. Bob McHugh is one of my seven selected.
TGR: What do you foresee after the spring meltdown?
RW: I expect it shall be quite tricky to find new entry dates. June, July and August are usually not good times to trade. But, anything can happen. If things get crazy enough in May and June, there may be unusual trading opportunities in July and August. I don’t know. Normally there are not and it’s not a good time of year to be fiddling around. Usually the best cycle time is from September until April. That’s it pretty much right on through.
So May is a sell; the June, July and August period is choppy flat; and in September, you’re getting ready to go. Normally traders get serious and back to work after Labor Day. Last fall, because of unpleasant credit things, that cycle was delayed, too. When Lehman hit, everything went down the drain. Do not be afraid to be in the markets. Just understand your risk, and plan your trades very carefully.
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LINKS: For additional comments on Endeavour Silver Corp. (TSX: T.EDR), Eastmain Resources Inc. (TSX: T.ER), San Gold Corporation (TSX: V.SGR), Clifton Star Resources Inc. (TSX: V.CFO), Canplats Resources Corp. (TSX: V.CPQ), Goldcorp (TSX: T.G) (NYSE: GG), Hecla Mining Company (NYSE: HL), Rio Tinto (NYSE: RTP), Pan American Silver Corp. (TSX: T.PAA) , Silver Standard Resources Inc. (TSX: T.SSO) , Agnico-Eagle Mines (TSX: T.AEM), Yamana Gold Inc. (NYSE: AUY), and Kinross Gold Corporation (TSX: T.K) from newsletter writers, money managers, and analysts, click on the respective links or visit The Gold Report.
Using the nom de plume “Traderrog,” Roger Wiegand produces the popular Trader Tracks e newsletter, providing investors with short-term buy-and-sell recommendations and insights into the political and economic factors that drive markets. An insatiable reader, he digests a variety of domestic and international publications, with the economic, political, monetary and market news and commentary woven into his opinions and analyses. For more than 17 years, Roger has devoted intensive research time to the precious metals, currency, energy and financial markets. But his varied background—which includes graphics, writing, editing, sales, marketing, commercial printing, consulting and real estate development (from sand and gravel mines to landfills to residential/commercial projects)…and trading—also shapes the view he shares. In addition to Trader Tracks, Roger also pounds out a weekly “Rog’s Corner-After The Bell “column for Jay Taylor’s Gold, Energy & Tech Stocks newsletter. For other essays, visit websites such as Kitco.com and, of course, The Gold Letter. Roger is a frequent speaker at The Cambridge House Resource Conferences. Visit Roger and Jay’s website at webeatthestreet.com. Tel: 718-457-1426 Claudio Bassi, Manager cbassi@miningstocks.com
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