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Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Gold and Silver Stocks Opportunity in Economic Crisis

Commodities / Gold & Silver Stocks Aug 31, 2010 - 02:30 AM GMT

By: The_Gold_Report


Best Financial Markets Analysis ArticleListening to Trader Tracks Editor Roger Wiegand talk about market conditions and precious metals is like listening to your favorite uncle tell stories at Thanksgiving. The difference is that Roger's stories are a lot more likely to make you money. In this exclusive interview with The Gold Report, Roger offers up a few of his favorite gold and silver plays and some sage market advice.

The Gold Report: In a recent edition of Trader Tracks you quoted a former Nixon speechwriter who said, "Economics should never be treated as a science. Its claims are not falsifiable, which is why economists can disagree so violently among themselves. Economics is a branch of anthropology and psychology. . .a moral discipline." Do you believe that's true?

Roger Wiegand: I definitely agree with that. I think there's more psychology in economics than many people realize. You can see that with the current economic reports coming out of Washington and New York. It's obvious to intelligent people who follow these things that there's a lot of manipulation going on in economics, in the stock market and in politics. It is often effective if it's very timely. There's no question that psychology plays a major role in economics.

TGR: Further to the point, do you believe the American public is somewhat conditioned to believe that economics is a science and thus place too much faith in it?

RW: I think that could be true. I really believe that 80%–90% of the American public is regularly sold a bill of goods by the Wall Street media from New York and Washington. It just keeps coming day after day and, after awhile, it wears them out. I think the majority of Americans still believe a lot of this information. From my point of view, a good portion of it is just nonsense.

TGR: If you could speak directly to the public and tell them what you believe they should know, what would you tell them?

RW: Well, I would say that the U.S. president is not really the man in charge. The people who are in charge of world economics, world currencies, governments and corporations are a shadow political group that has a great deal of power. Presidents in the U.S. are just puppets. They're selected for their ability to do what they're told. Congress is basically just a tool for these corporations and outsiders to manipulate the rules to get what they want. I think that's obvious when you look at what's happened with all the offshoring of American jobs. The issue that's got a lot of people disturbed right now is the open border between Mexico and the United States. That exists because corporations want cheap labor. And there are obviously a lot of people involved in the Mexican drug trade. There's a sheriff in Arizona who said that even members of Congress are involved. Until the teeth are taken out of pharmaceutical economics, these things are going to continue.

Recently it's become much worse because of what's happened with the global banks and derivatives market. That's what caused the Lehman Brothers collapse and took down the global economy. To make it worse, then–Treasury Secretary Henry (Hank) Paulson basically took government taxpayer money and gave it to the banks. He conjectured that, if we didn't, the global financial system would implode. Quite frankly, I think it would've been better if we had taken our medicine and just moved on. But what's happened now is that 90% of the toxic debt in those banks remains in those banks. They've taken it off balance sheets and put it into other corporations or partnerships (i.e., offshored it). They're just holding the money given to them by the U.S. government earning bond interest. They're not making loans to improve the economy.

TGR: Do you believe U.S. economic policy will ultimately lead to the demise of the USD?

RW: It's hard to say. These things take years and they happen slowly. Our three- to five-year forecast for the U.S. dollar is 46 on the Dollar Index. One of our better analyst friends, whom you've interviewed before, pegs it at 40. We're now at 82 or 82.5. Eighty is a magnetic number so to speak for the dollar. We expect it to stay there for two or three months, and then gradually drift lower. But is the dollar going to go away? I'm not so sure. It's going to diminish in value in fits and spurts. Other currencies will replace the dollar to some extent; but, considering that the USD covers about 85% of all reserve currencies, I think it's doubtful it will go away. They may try backing it by gold, silver or other precious metals; but it would take so much in precious metals to give it even a marginal backing that it's difficult to imagine.

For people buying and selling shares in our business, the biggest thing to watch for is the bond markets. That's the Achilles heel of the worldwide credit system. The stock market is big but it's peanuts compared to bonds. Bonds are 70x larger than stocks. The bond market today is in very big trouble.

TGR: Could you explain that further?

RW: At this point, Fed Chairman Bernanke can't find buyers for his bonds; so he's got to print bonds and buy them back himself. Recently, the Fed had a bond auction. It was said that 30% of the offering went to indirect buyers (meaning Bernanke bought the stuff back himself). We've seen some other auctions where they've had to buy back as much as 60%. In our view, that's the beginning of the end because the other American bond and bill buyers are backing away.

TGR: You put quite a smattering of different quotes in your newsletter and some are quite grim. You had a couple from accounts of when hyperinflation plagued Germany's Weimar Republic in the 1920s. Why do you put quotes like that into Trader Tracks?

RW: I've been accused of scaring people. But I don't really do that. I just want them to understand what kind of situation we're facing. When I speak at conferences, I explain that, while things look pretty nasty right now—and they do look comparatively grim to Germany in the early 1920s and America in the 1930s—if you look at what's available to us today in terms of trading and investing, I think we've got an opportunity that we won't see again for many, many years. I'm speaking specifically about gold and silver and shorting these major stock markets. While some of these quotes are pretty upsetting—frightening even—it's merely to get your attention so you'll get off your duff and do something. A lot of people we talk to at conferences understand and agree, but they don’t do anything. That’s not going to work anymore.

TGR: What are some of those opportunities, Roger?

RW: I've got three favorites that I trade for myself. I trade gold spreads, silver spreads and soybean spreads. Last year, on those three kinds of trades, I made 95%. They don't require a lot of time, which is good, because I'm very busy writing my letter and helping my readers. I'm one of the few newsletter writers who will answer emails from subscribers when they get into trouble on a trade or are looking for some ideas about an opportunity. Our newsletter subscription price is higher than others, but we like to think we give good value because many of our traders can make the subscription cost back on just one or two trades.

TGR: Probably upwards of 80% of the stocks you list in your newsletters are junior gold and silver plays. The majority are juniors. What makes you believe these are places that investors should put their money?

RW: Let's look at history. From 1979 to 1981, the last time we had a major gold rally to $850, silver went up to $50. If you picked 20 good juniors, probably half would fail. Another 25% would make some money. But there's probably three to five that would be tremendous homeruns, like 1,000% or 2,000%. Of course, none of us really knows when that big blowoff is coming. Also, we can't know which ones are going to be the best. I'm constantly sifting through companies, trying to take out the ones that just sit there and don't move. It may be a good company; but, if it's not going to move what good is it?

TGR: Do you have a trading philosophy?

RW: We encourage people to trade on the calendar: 'Sell in May and go away' and on the September–October selling event, which is quite common. The precious metals stocks, the juniors in particular, have been tied to the big markets. Over the past few months, we can see a separation. We can see now that the HUI, XAU and GDX are all going on their merry ways—away from the inverse trade of the dollar and from some of the big, mainstream stock indexes. We've been waiting for this. To me, it indicates that there's going to be a major divergence or breakout in gold, silver and the related stocks.

TGR: How high is that going to take gold this fall?

RW: This fall we're looking at $1,325 as a minimum goal on the December futures, which expire after Thanksgiving. We're in an uptrend at the moment, but I think you'll see a little leveling off and some light selling in August. After that, you'll see a rebound. Normally, on the calendar between the last week of August all the way to April or May, we see a big rally in gold and silver with some intermediate profit-taking corrections. The 10-year trend has been solidly up. There's no question that we're going to have a good fall season.

TGR: In the August 6th edition of Trader Tracks, your three second-tier choices among the seniors are silver companies. Silver Standard Resources Inc. (TSX:SSO; NASDAQ:SSRI), Silvercorp Metals Inc. (TSX:SVM; NYSE:SVM) and Pan American Silver Corp. (TSX:PAA; NASDAQ:PAAS). What are you seeing in silver that has you sending folks to these companies?

RW: First of all, we think they're all high-quality companies. Next, silver is more volatile than gold because it's a smaller market. However, I think silver is really coming into its own. We've been hanging around $18 on the futures silver price. We have touched as high as $21.50. Today, the September futures are $19.11. They're off a bit but we think, before this fall is over, we could go to $20 (resistance). There's harder resistance at $21.50. Once we breakthrough $21.50–$22, I think you'll see a big push to $25, $26 and then $30. The question remains: Can we see $25–$26 this fall? I'm not sure, but there's an excellent chance. Can we see $25–$26 by April 2011? I think we could. With silver moving quickly, these silver companies will move right along with it.

TGR: But those are majors. You may see an increase; but, on a percentage basis, it's going to be smaller. A smaller silver producer that's on your list is First Majestic Silver Corp. (TSX:FR; OTCQX:FRMSF). Tell us about that one.

RW: First Majestic is kind of like a senior/junior. The stock price in Canadian dollars was $4.81 yesterday, and has been steadily increasing. The bottom was $1 right after the Lehman event in 2008. The trading channel is also steadily up. We see a bullish cup and handle on the chart. We also see an inverted head and shoulders, which is bullish. Lately there's been a falloff in volume, but that's typical this time of year. If silver goes to that top I mentioned, we see some prices on First Majestic going to probably $4.95, $5.52, $6.00, $6.47. They're making a lot of money. They've got three silver mines.

TGR: Are there prospects for growth at the three existing operations?

RW: I think there are because they're increasing production. They're putting out more ounces. Their total silver production in the second quarter of 2009 went up 86%. They milled 404,000 tons, which was a 20% increase over a previous quarter. It's a new record based on tonnage from all three mines. They have good management and the property is in a location we like. We're very fussy about geographic locations. Many fellow analysts would select mines and mining companies in some areas that, quite frankly, would frighten me.

TGR: What jurisdictions do you prefer?

RW: The three or four spots we like are Northern Mexico, Northeastern Nevada, Canada and Alaska. In Canada, we like Québec, in particular—it's probably the best place of all. And Alaska has more than enough good companies, both seniors and juniors, to work on.

TGR: Another company in Northern Mexico, and your newsletter, is Timmins Gold Corp. (TSX.V:TMM).

RW: Timmins is a great company. I've had probably three or four visits with Timmins management. CEO Bruce Bragagnolo was a Canadian Securities Commission mining lawyer for 20 years. He knows the mining business inside and out, takes things very carefully and thinks things through. Benefiting from the work he did before he got control of this mine, Bruce saw all the mistakes many of the miners made simply because he worked for them as an attorney. That experience is extremely valuable. They've got great production. They've got super financing. They had a big pop in their stock recently because their first quarter production showed about 11,000 ounces of gold. That is one of our best choices. We like Timmins very much.

TGR: Do you have a price target on Timmins?

RW: I can't remember off the top of my head, but it just had a breakout based on the first 11 Koz. of gold production. They've got top-drawer managers and geologists and a steady plan to remain there and expand into more mines. I think you'll see a double on that stock easily, perhaps even something higher than that. It's a very high-quality operation.

TGR: A couple of other companies in Trader Tracks are Exeter Resource Corp. (NYSE.A:XRA; TSX:XRC; Fkft:EXB) and Extorre Gold Mines Ltd. (TSX:XG; Fkft:E1R; OTC:EXGMF), which were once the same company. You recommend them both.

RW: Well, first of all Exeter was the mother company. They split off Extorre because it made a lot of sense as far as management and things to do for the stock and stockholders. It's proven to be a good thing. We know the managers; I've had visits and meals with them and asked their top guy, Yale Simpson, about capital. He said: "We never have problems with capital because we only work on the best projects we can find." That's true.

We like Extorre over Exeter simply because of the quality of the property and what they're finding. They're so excited about what they found that they're adding more drills; and this month, they're moving equipment and assay-lab people onsite for core evaluation because they've had some magnificent findings and they're continuing to focus on those. That's a great goal. Are they going to make a mine? Sure they will; but I think it will be sold to others who are going to take it over and run with it. That's a fantastic opportunity—one of our best picks, in my opinion.

TGR: Do you have a target price on Extorre?

RW: Extorre could easily double from where they are today. I don't want to say anything further.

TGR: What about Exeter?

RW: I can't tell you as much about Exeter because I haven't followed it since the companies divided. I focus more on Extorre, but we do still have that one in our newsletter. Where does the stock behavior go from this point? I think it's going to go up. We'll have to see what develops and how it goes. I might mention, at this point, that I'm a technical analyst. I'm self-taught. A year and a half ago when we were trading futures strictly on tech analysis, I had 18 wins in a row. I asked my broker how I was doing. He said: "You're walking on water." We had our comeuppance when the Lehman event arrived, but we traded our way out of it.

TGR: There were lots of good buys at that point, if you had cash. I think Hecla Mining Co. (NYSE:HL) went under $2.

RW: They did. I was appalled when I saw that because they're one of my favorite big companies. In 2006, we were suggesting and recommending stock call options on Hecla, Newmont Mining Corp. (NYSE:NEM), Goldcorp Inc. (NYSE:GG; TSX:G), Coeur d'Alene Mines Corp. (NYSE:CDE; TSX:CDM) and maybe a couple of other big ones. We had a good run. We were buying them and making anywhere between 100% and 300%, usually in 90–180 days. I was a happy camper. I thought, "This is easy!" But the minute you think that, you're going to get smacked. Of course, the Lehman thing came and, when they crunched the gold market, it was the end of that opportunity for a while.

I believe you're going to see this again. We're starting to trend that way. It's going to be easier, I think, to trade options in some of these senior companies because they have a lot of cash. We see them making a lot more money with rising metal prices this year and next. Hecla had a couple of problems that they resolved. When those problems surfaced, their stock went under $2. Considering what we knew about the company at the time, we told everybody to buy it. I had one of my top traders put his mother into it. She made $100,000 in two months. It's a good stock. They've got the cash and the experience. Their Lucky Friday Silver Mine in Idaho is being expanded and they're buying more property around the mine. They were getting down to 5,000 or 6,000 feet, which gets expensive. I think they're back mostly at the 3,000-ft. level. They also bought the other half of the Greens Bay Mine from Rio Tinto Ltd. (LSE:RIO; NYSE:TP; ASX:RIO) in Alaska for $750 million. Now, Hecla owns it all.

TGR: What are some other companies that you're following?

RW: We've got some smaller silver companies like Endeavour Silver Corp. (NYSE:EXK; DBF:EJD; TSX:EDR). I've spoken at one of their luncheons and have followed them closely because I believe in the stock. They're in Northern Mexico. It seems that, in Mexico on the east side of the mountains away from the Pacific Ocean, there's a long seam of property where silver and some of the other metals are prevalent. Juniors find a property in that area where there's already been a lot of gold and silver removed. They buy that property, and then buy more next door. They do more exploration work and, more often than not, they're successful. Endeavour and some of the other companies in that area are going to be great.

TGR: Do you have a target on Endeavour?

RW: The Endeavour stock has been lingering, I think, at about $3.50–$4.00. We expect it will probably be around $6 or $7 by spring next year, if not sooner.

TGR: Do you have some parting thoughts Roger?

RW: I don't mean to terrify people with some of the things in my letter, but I'm a realist. I get so angry because of all the nonsense we see in the news and media. You have to be an original thinker. Most often when a bank, the media—or, particularly, governments—say something, just the opposite is true. What you do is focus on things that are proven moneymakers. Go there and control your risk. Like I said earlier, there is a chance that you're not going to see this opportunity again for many years. Historically, commodity rallies go anywhere from 13–17 years. I think we're probably seven, eight, nine years into this one. We've got at least five years left, maybe longer. You're going to see some brand-new minted millionaires in the next three–five years in gold and silver junior stocks, the physical metals and in the related futures.

Roger Wiegand—aka Traderrog—produces Trader Tracks to provide investors with short-term buy and sell recommendations and give them insights into 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. After 25 years in real estate, Roger has devoted intensive research time to the precious metals, currency, energy and financial market for more than 18 years now. His varied background—which also includes graphics, writing, editing, sales, marketing, commercial printing, consulting and trading—helps shape the view he shares. In addition to Trader Tracks, Roger 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 and, of course, The Gold Report. Visit Roger and Jay's website at Tel: 718-457-1426, Claudio Bassi, manager

 Want to read more exclusive Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Expert Insights page.

1) Brian Sylvester of The Gold Report conducted this interview. He personally and/or his family own the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Gold Report: Timmins.
3) Ian Gordon: I personally and/or my family own shares of the following companies mentioned in this interview:Timmins Gold, Golden Goliath, Millrock and Lincoln. My company, Long Wave Analytics is receiving payment from the following companies mentioned in this interview, for receiving mention on my website, Golden Goliath, Millrock and Lincoln Gold.

The GOLD Report is Copyright © 2010 by Streetwise Inc. All rights are reserved. Streetwise Inc. hereby grants an unrestricted license to use or disseminate this copyrighted material only in whole (and always including this disclaimer), but never in part. The GOLD Report does not render investment advice and does not endorse or recommend the business, products, services or securities of any company mentioned in this report. From time to time, Streetwise Inc. 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.

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