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-- Posted Tuesday, 17 February 2009 | | Source: GoldSeek.com
By James West
Ever seen what happens to a piece of meet thrown into a tank full of vicious piranhas? The water is whipped into a froth and within seconds the meatless bone sinks to the bottom. There’s virtually nothing left. The same thing is about to happen in the gold bullion market. After some apparent weakness in Asian markets, gold powered higher yesterday as news of the Japanese economic rout sent global markets into freefall. The only thing that stopped it from happening in the Unites States was the mixed blessing of a holiday keeping markets closed. I say mixed, because a second day of selling overseas means the American market will have two days of pent up selling pressure to be unleashed as the market opens this morning. The news keeps getting worse out of global G7 economies, and that has investors flocking to gold in recognition of its safe haven role. ETF’s are the biggest consumers of physical gold right now, and last week global ETF’s took down the equivalent of 5% of the annual world gold production in just one week. SPDR Gold Trust GLD.PGLD.A, popularly known as GLD, said the gold bullion it owned rose by more than 100 tonnes to 970.57 tonnes as of Thursday, which marked the biggest weekly gain in the history of the gold-backed exchange-traded fund. One does want to bear in mind that all ETF’s are not created equally. There are very few, in fact, that hold there full portfolio worth completely in physical bullion. It is incumbent upon the investor to read carefully the information provided by ETF vendors. While there has yet to be an instance of ETF-related fraud (that I’m aware of), ETF’s are nonetheless a paper representation of the physical bullion, and therefore presents the opportunity for subterfuge. This is the phase of the secular gold bull that silences all gold critics, and puts smiles on the faces of gold bugs that is so wide their heads threaten to fall in half! This is also the phase where the herd mentality starts to get folks looking around for the nearest bandwagon to jump on. Most of the bandwagons have rattled off into the sunset, though, so there will be a lot of head scratching as the left behind try to figure out how to get in the game. Investors need to beware though. As gold demand increases, so will volatility as the sheer number of investors means profit-taking is likely to cause same-day leaps and drops by as much as $100 per ounce. That’s because there are a lot of investors who will be taking profit off the table as the price ratchets higher, and the see-saw effect threatens tender hearts with life-threatening cardiac sincerity. If you’re late to the game, the trick might be to a look a little further down the road than where the vultures are already fighting over the last few American Eagles or Krugerrands to what will inevitably be the next meal for the hungry mob – mining companies. In particular, mining companies that boast near-to-production Canadian National Instrument 43-101 compliant resources. There are more than a few of them out there. With the intense interest that will follow a gold price spike, these companies will be able to raise a lot of capital at premium levels, and that will speed up the timeline to production in a lot of cases. Other companies are not going to themselves go into production, and instead are developing huge deposits for joint venture or outright sale to major and mid-tier mining companies. Important here is the existence of agreements with aboriginal groups (if applicable) and stable democratic jurisdictions. Projects in Canada, the United States, Australia, and Mexico rank highest, with those in Peru, Chile, Colombia and Argentina, followed by African nations. Highest risk are those with socialist governments or military regimes, such as Ecuador, Venezuela, Russia, Mongolia. Information is the key to successfully investing in the juniors, and keeping abreast of developments on a day-by-day basis is the secret to not losing your shirt. Investing in juniors is risky, but in the current environment, investing in blue chip stocks, treasuries, mutual funds and financials is far riskier. James West MidasLetter.com
-- Posted Tuesday, 17 February 2009 | Digg This Article | Source: GoldSeek.com
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