Saturday , 27 May 2017


The Stars are Aligned in 2014 for a Significant Re-rating of the Gold Price! Here’s Why & How to Take Advantage

The stars are aligned in 2014 for a significant re-rating of the gold price. This article presents an update on thePD-Gold-Nuggets8-300x199 demand dynamics in China, discussion around new evidence of manipulation and an illustrative example of the opportunity in gold equities.

So says Eric Sprott (sprottglobal.com) in edited excerpts from his original article* entitled The Chinese Gold Vortex.

The following article is presented by Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!),  www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and the FREE Market Intelligence Report newsletter (sample here; register here) and has been edited, abridged and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.

Sprott goes on to say in further edited excerpts:

Over the past year, we have been very vocal about what we consider an aberration – the complete disconnect between gold supply and demand fundamentals and the actual price of the metal – and this month’s Markets at a Glance presents an update on the demand dynamics in China, discussion around new evidence of manipulation and concludes with an illustrative example of the opportunity in gold equities.

Supply and Demand

While the year is still young, we have been able to gather a few data points from China and they are truly impressive. The table below shows Chinese net imports of gold for the first two months of 2014. So on average, each month this year, China has imported about 204 tonnes of gold, up from about 143 tonnes last year.

maag-4-2014-table1.gif

(Chinese data is taken from the Hong Kong Census and Statistics Department. Swiss data is taken from the Swiss Customs Administration, which started reporting gold exports to specific countries in 2014.)

To put these numbers in perspective, for the full year 2013 total mine supply, excluding China and Russia, averaged 192 tonnes per month…[As such,] China is currently vacuuming, on a monthly basis, all of the world’s mine production plus an additional 10 tonnes…[and it] is supplied by Western Central Banks, which according to our analysis have very little gold left.

  • Swiss import and export data shows that it imports most of its gold from the US and the UK and exports most of it to China and Hong Kong…
  • Similarly, the US…exported…mostly…either to Switzerland or to Hong Kong directly.

While it is still early, the Chinese Gold Vortex is firing on all cylinders and data so far this year suggests that demand will far outstrip supply. (As a side note, we take this opportunity to reiterate that since China does not export its gold production, it is reasonable to assume that net imports into China are a good proxy for demand.)

Manipulation

…We have long suspected manipulation, but it is clear to us that both the physical and paper bullion markets have been tampered with for quite some time, to the advantage of those that are naturally short gold (i.e. the bullion banks and other gold dealers). With the increasing amount of scrutiny from the public, academia, regulators and now lawyers, manipulators should have a progressively more difficult time preventing gold from reaching fair value.

The Opportunity

The stars are aligned in 2014 for a significant re-rating of the gold price. In our opinion, the best way to participate in a return of the gold price to fundamentals is to invest in junior gold miners.

The tables below show EPS estimates under various gold price scenarios and the associated stock price targets, assuming a price-to-earnings ratio of 10x, for both a major (Barrick) and a junior (Crocodile) miner. From the table, it is obvious that junior gold miners have much more leverage to the price of gold.

maag-4-2014-table2.gif

(Estimates are for FY2014. Price returns assume a P/E ratio of 10x. All figures in USD. Source: Sprott Estimates and RBC Capital Markets. For illustrative purposes only, Eric Sprott and Sprott Asset Management Funds beneficially (directly or indirectly) may own in excess of 1% of one or more classes of the issued and outstanding securities of the above securities.)

Conclusion

In summary, the tailwinds are twofold for gold:

  1. the Chinese Gold Vortex is putting an undeniable pressure on the physical market,
  2. the focus on price manipulation makes it progressively harder for price manipulators to operate.

The reversal of this anomalous, yet explicable, market dysfunction could provide astute investors with multi-hundred per cent returns. Do not miss this Golden Opportunity!

Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.

*http://www.sprott.com/markets-at-a-glance/the-chinese-gold-vortex/ (© Sprott Asset Management LP 2014)

Related Articles:

1. Gold: Buy Now & You Buy Right! Here Are 4 Reasons Why

Q: Is now the time to buy more gold or to finally get in the game? A: Yes. Make sure that you take advantage of today’s price and “mine” your own gold. [Here are 4 reasons why that is the case.] Read More »

2. Gold Stocks Could Jump 100% in the Coming Year – Here’s Why

It’s not crazy to think that gold stocks could easily double from their current levels if you realize the extreme condition the gold-stocks-to-gold ratio is in – and if you know your market history. Let me explain. Words: 336; Charts: 1 Read More »

3. Don’t Invest In a Mining Company Unless You Get the Right Answers to These 11 “Must Ask” Questions From Management

90% of the management teams you interview will be unable to present a reasoned argument for pursuing their project and to justify the approach they are using so let’s examine Rick Rule’s 11 “must ask” questions, one by one. Read More »

4. A Miraculous “Jesus-like” Resurrection for Gold and its Shares Is Long Overdue

The damage has already been done. Junior mining companies have already dropped 80%. Rather than wallow in the injustice of the apparent gold market manipulation, I believe it is better to apply the wisdom, “if you can’t beat them, join them.” Read More »

5. Gold Producer Stocks Dramatically Undervalued: Don’t Miss This Blood-in-the-Streets Opportunity

While the waterfall decline in gold stocks is painful for those of us already invested, the reality is that this is a setup we get a shot at only a few times in our investing life. It’s a cruel irony that those who are fully invested are now faced with the buying opportunity of a lifetime; however, it would be a shame for anyone to miss this blood-in-the-streets opportunity. Read More »

6. Huge Rebound in Gold & Silver Stocks Coming Soon – Here’s Why

It’s been a tough road for precious metals but the path ahead has strong potential of being significantly profitable and in a short period of time. The buying opportunity that we’ve spoken of for months could be days away. When precious metals equities rebound, they rebound violently. Read More »

7. What Does Slowdown In China Mean for Gold Prices?

The latest data shows that China is slowing tremendously and this should have positive effects on the future price of gold. Here’s why. Read More »

[It has been] suggested recently that there must be collusion between America and China over the transfer of gold from Western capital markets. They assume that governments know what they are doing, so there is a bigger game afoot of which we are unaware. The truth of the matter, though, is simply that China and Western capital markets view gold very differently. Let me explain. Read More »

10. Check It Out: Gold Stock Manias in 79/80, 82/83 & 95/96 Saw 2,000 – 4,000% Returns – and It Could Happen Again

The timing of this article may seem incongruous given the current weak performance of gold and gold stocks but that was the identical situation in each of the past manias – both the metal and the equities didn’t excel until the frenzy kicked in. The following documentation (exact returns from specific companies during this era are identified) is actually a fresh reminder of why we think you should hold on to your positions – or start accumulating them, if you haven’t already. (Words: 1987; Tables: 7)

11. 2013 Will Go Down In History As THE Best Buying Opportunity for Gold & Silver Metals and Stocks – Ever!

The precious metals complex is arguably at its most bearish sentiment since the start of the bull market 12 years ago. Either the bull market is over or this will prove to be a tremendous buying opportunity. It’s clear that anyone who doesn’t believe in Gold for the long-term has sold and judging from the sentiment indicators, Gold is now in much stronger hands than when it was trading at these prices at the 2012 and 2011 lows. Despite all of the bearish sentiment, the panic and bad-mouthing, Gold (and Silver) has maintained its consolidation. Thus, if Gold is able to hold this support and turn higher, it should approach $1750 to $1800 faster than one would think. This year will go down in history as one of the best buying opportunities for both the metals and the stocks. Words: 675; Charts: 3

12. Gold Miners Have Hit Rock Bottom! Now’s the Ultimate Buying Opportunity

Looking at the recent Gold Miners price action and crash-like conditions, I cannot hide my excitement. As we judge the recent cyclical bear market within the longer term secular uptrend, we can see that Gold Miners are becoming very attractive. Whether it is the technically oversold levels that only occur a handful of times over a generation, the rock bottom valuations on nominal or relative basis, or the extreme sentiment that the overall sector is going through, all of these indicators point to one conclusion: we are fast approaching a major buying opportunity. [I support that contention below with the use of 8 charts and a full explanation of each.] Words: 1133; Charts: 8

13. The Five “M’s” for Picking Gold Mining Stocks

With gold miners, in general, so attractively valued relative to the gold bullion price, the question becomes which stocks are the most compelling and have the best leverage to robust precious metals prices…In order to find the diamonds in the rough, I use what I call “The Five M’s” for mining stocks… Market cap, Management, Money, Minerals and Mine life cycle. [Let me explain each .] Words: 1146

14. Country Risk Ratings Ranked 1 – 47

Precious metal miners operate in a large variety of countries and our interest in these mining companies on the one hand and country risk exposure on the other led us to compile a comprehensive list of jurisdictions of concern to precious metal investors….[numbering 47 in total. All 47 countries are ranked below]. Read More »

15. 8 Criteria For Choosing a Top-Notch Gold Mining Company

When gold goes  up again, I believe we’ll find that the junior miners that have been crushed into the dust will be tomorrow’s value plays. Your  goal, then, is to identify these “diamonds in the dustbin” today. Below are 8 ways I’m finding tomorrow’s gold value plays today. Read More »

16. 9 Things to Look for When Choosing a Junior Mining Company to Invest In

In mining exploration, an “anomaly” is a geological formation that might attract a prospector’s interest. However, one rule of thumb is that you have to look at 1,000 anomalies to find one prospect and fewer than one prospect in a thousand turns into a mine. In other words, finding a mine is a million-to-one shot and that is one reason why junior mining stocks are highly speculative. Another reason is that it’s much easier to launch and promote one of these stocks than it is to build a profitable business. So junior mines attract more than their share of unscrupulous operators and stock promoters. Words: 504

17.  Jeff Nielson: What to Look for When Considering Which Gold Mining Companies to Buy

While investing in gold mining companies is not quite as simple as novices to this sector might at first conclude, neither is it so overwhelmingly complicated as to make these companies inaccessible to individual, retail investors. Below are a number of things to look for when considering an investment in such companies. Words: 2745

18. Jeff Nielson: More of What to Look for When Investing in the Gold Miner Sector

With gold recently trading at its nominal high it is only natural that investor curiosity about precious metals mining companies should start to grow and the fact that relatively few investors know much about the various types of companies in this market sector is an indication that this market is many years away from peaking. [This article will change all that.] Words: 1912

19. Focus on Quality Junior Gold & Silver Companies to Maximize Returns – Here’s Why & How

The outlook for many junior resource companies in 2013 is grim so investors should focus on those who own quality undeveloped gold and silver deposits in safe stable countries. Such companies offer exceptional value in that they provide the best exposure to a rising precious metals price environment – and the assets the world’s mining companies desperately need. [Let me explain.] Words: 1328; Charts: 15 Read More »

20. Why Invest in Junior Miners?

Leverage is the simple answer. It is not uncommon for junior mining companies to experience huge gains (10x or more) very quickly as news of a discovery is made known to the public. Words: 893