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Time to Buy Battered Juniors



-- Posted Wednesday, 3 August 2011 | | Disqus

Move into gold and silver was the advice James West, founder of the Midas Letter Opportunity Fund, gave Midas Letter subscribers in June. He recommended moving from the junior stock market to 100% gold, silver and precious metals funds backed by bullion. For a while it looked like a bad call. But as markets tanked, gold and silver soared, and it turned out to be a smart strategy. Now might be a good time to sell the metals and get back into the juniors, he says.

The Gold Report: James, in June you advised selling off all stocks and investing directly in precious metals. What prompted you to dump juniors and go to gold and silver?

James West: It was evident to me that the risk to equities in our space, the junior miners, was going to increase as the debt issues in Europe and the United States continued to fester. Back in June, the likelihood of the U.S. not raising the debt ceiling in time for the August 2 deadline was considered very remote. But the last minute deal was nothing more than a Band-Aid on an open artery. The partisan politicking could result in rating agencies downgrading the U.S. triple A rating with or without a default. You can hardly rate the world's largest sovereign debt load as triple A after this most recent fiasco. And when you consider that the only solution is to raise the debt limit, issue more debt, print more money and further debase the currency of the world’s largest economy—well, to me, it's just plain dangerous to be holding equities in anything under those circumstances. That environment only bodes well for gold and silver prices.

TGR: So now that there is a deal, will equities rise and gold and silver fall?

JW: Temporarily, yes. That's exactly what I think will occur. Given the gnat-like attention span of investors and the deluge of information flow we are all immersed in, it is what's happening right now that dictates market movements. With these temporary deals done, for the next few weeks, it will seem like the problems have been solved, disaster averted and the party will be back on.

TGR: So we should sell gold and silver and buy equities?

JW: You bet. Sell the precious metals at the high, buy the juniors who have been beaten up in recent months and wait for the next batch of horrible news to make precious metals turn around and head north. It's a volatile market, but junior precious metals explorers and near-term producers are finally going to get some of the attention that has been absent for the last few months.

TGR: We saw you on BNN last week in Canada, and you mentioned that you were looking at copper juniors as well. Is copper going to benefit from the same influences as gold and silver?

JW: Well, copper has been holding on close to all-time highs despite softening growth in China. That's because speculative groups, like hedge funds and ETFs, are actually buying physical copper and storing it in warehouses. So not only do we have a growing portion of diminishing global production being taken off-line and stored for investment reasons, but copper consumption for industry, while it may weaken as China growth slows up a bit, is still strong in India and Brazil as those economies continue to expand rapidly.

TGR: We hear you have also launched a fund to invest in emerging miners. What's that all about?

JW: The Midas Letter Opportunity Fund is a Luxembourg-registered Special Investment Vehicle, which is a sub-fund of the Commodity Capital AG fund. Tobias Tretter, the former top fund manager for Deutsche Bank's gold fund, and I came up with this idea to capture all of the early-stage, pre-IPO opportunities that come my way as publisher of the Midas Letter. Up until now, I just haven't had the bandwidth or the manpower to take advantage of these ideas. So we put together this fund, which is capitalized by members of the Canadian A-List of mining entrepreneurs on one hand, and the A-List of high net-worth, private family offices in Luxembourg and Switzerland, to provide a place where the two groups can access each other's value propositions. The fund does well because it's got access to pre-public deal flow, and the European investors do well because they have a window into these pre-public opportunities through the fund, where they get the chance to participate in secondary and tertiary post-IPO rounds.

For Midas Letter subscribers, it's a win as well, because now the newsletter becomes the journal of the fund's investing activity. While subscribers can't generally participate in the fund, they can participate in what the fund is buying, and hear about pre-IPO opportunities that other newsletters generally don't bother to cover because there is no way for the investing public to access these deals.

TGR: So, the Midas Letter now only covers what the fund is doing?

JW: No, no. Of course, I still have my personal investing activity that will make up a lot of the content of the newsletter, too. But most likely, my personal activity will reflect the opportunities that the fund has uncovered. This will also free us up to shoot more Midas Letter Mine Tour videos, where we visit developing projects around the world, and in a National Geographic- or Discovery Channel-level of production video, answer the questions that all investors, institutional and private, would want to know about these projects.

TGR: Now what about copper? You've recently been quoted as being quite bullish on copper.

JW: To be clear, I think copper is in a long-term bubble formation in the classic sense. The price is rising despite weakening demand fundamentals out of China, and Brazil and India are absolutely not the sustainable demand powerhouses painted by the mainstream media. When the copper bubble pops, so will ETFs based on copper, which will exacerbate the downward momentum copper will face when China pops. And increasingly, there are signs that the China bubble may be starting to deflate a little.

That all being said, the China growth machine will still gobble up a lot of copper, so for the time being, world consumption, diminishing supply and growing demand for the physical metal for investment and hoarding purposes will continue to maintain the price near or beyond all-time highs, which makes copper exploration plays are of supreme interest to us.

TGR: I understand you're in the Yukon right now. What are you doing up there?

JW: We're here to make some videos with a professional TV crew in support of our new product, Midas Letter Site Visit Reports. We are visiting exploration projects in the Yukon that will be the subject of videos seeking to answer all of the questions that determine a mining project's economic viability. We do that through interviews with technical talent on the ground, as well as interviews with regional stakeholders to make sure we are not just getting the sweetened version from the companies. Then we distribute the videos first to Midas Letter subscribers and unit-holders of the Midas Letter Opportunity Fund, and then to the general public.

Publisher of Midas Letter, James West has devoted 20 years to helping small companies in the resource sector—helping them raise money, further their projects, build their identities and get their stories in front of investors on the lookout for quality investments with excellent returns. The Midas Letter Opportunity Fund, is an institutional and high net-worth-only open-ended fund based in Luxembourg that specializes in early stage investments in Canadian-listed precious metals explorers.

Streetwise - The Gold Report is Copyright © 2011 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (i) only in whole (and always including this disclaimer), but (ii) never in part.

The Gold Report does not render general or specific investment advice and does not endorse or recommend the business, products, services or securities of any industry or company mentioned in this report.

From time to time, Streetwise Reports LLC and its  directors, officers, employees or members of their families, as well as persons interviewed for articles on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.

Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.

Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.

Participating companies provide the logos used in The Gold Report. These logos are trademarks and are the property of the individual companies.


-- Posted Wednesday, 3 August 2011 | Digg This Article | Source: GoldSeek.com

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