With what is happening with the price of gold these past few days it is imperative to take a look at the long and short of it all (the trends, that is). In doing so it shows that we are still very much in a long-term bull market but in a short-term (yes, short-term) bear market. Let’s take a look at some charts that clearly outline where we are at and where we could well be going. Words: 625

So says Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!) and www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds)  in an article written on behalf of www.PreciousMetalsWarrants.com (The Authority on Warrants). Please note that this paragraph must be included in any article reposting with a link* to the article source to avoid copyright infringement.

Wilson goes on to say:

Physical Gold

As can be seen in the graph below the 70s experienced 2 major bull markets and an 18 month bear market in between while continuing to trend upwards.

Right now, I believe we’re at a period not unlike early 1975. Then, as it is now, the uptrend is still intact. True, gold has dropped below the 28 week (200 day) simple moving average but is still above the 65 week moving average as can be seen in the weekly graph for gold as of December 14th, 2011:

 A look at the chart below of the daily close of the price of gold over the past 3 months clearly shows that an excellent way to trade gold is to buy and sell on the basis of the 20 day  Exponential Moving Average. EMA is a  moving average that gives greater weight to more recent data (in this case the past 20 days) in an attempt to reduce the lag of (or “smooth”) the moving average.  

Gold Miner Stocks

No discussion about gold would be complete without taking a look at the performance of the HUI index which consists primarily of large and mid-cap gold producers. As the graph shows below it is struggling terribly underperforming equities in general and gold by a wide margin. Be that as it may, most analysts believe it is just a matter of time time (Goldrunner writes in Goldrunner: Gold, Silver and HUI Index to Bounce Back to Major Highs by May 2012 that  the HUI could almost double in the next few months – see here for his rationale) before the precious metals mining (and royalty streamers) sector closes the gap as a result of much healthier bottom lines.

Gold Miner Warrants

If you agree that the gold and silver mining sector has no where to go but up in the next few months serious consideration should be given to investing in the long-term warrants that are offered by a few of the constituents of the HUI. Warrants generally enable an investor to take a similar position in a company for approximately 60% less dollars deployed and realize gains often double that of the associated stock. No warrant ETFs exist but a look at my proprietary Gold and Silver Warrants Index entitled Gold and Silver Warrants: An Insider’s Insights (see here)   and this article entitled Gold & Silver Warrants: What are They? Why Own Them? How are They Bought & Sold? (see here) will provide you with major insights into this extremely small and unknown investment option.

Conclusion

When I look at the charts above it is obvious that gold has just undergone a pre-Christmas sale of epic proportions which I think is probably the last opportunity to get in before it continues in trend upwards. The financial crisis in Europe has chased people out of gold and equities hitting gold stocks with a double whammy making for an ideal entry point at this time. The long-term gold and silver warrants have been hit hard making them the buy of the decade. That being said, who knows what nasty surprises the powers to be might throw our way in the months to come in 2012 but whatever they might be gold and silver, in all its investment forms, should do very well long-term, thank you very much.

*http://www.munknee.com/2011/12/these-charts-say-it-all-gold-is-still-a-buy/

Related Articles:

1. Don’t Look a Gift Horse in the Mouth – Buy Gold Now With Both Hands! Here’s Why

Since the fundamentals still point to gold’s long-term viability… why [are] investors responding by selling gold…? I was always told not to look a gift horse in the mouth… [so] take advantage of the dip. Words: 962

2. Goldrunner: Gold, Silver and HUI Index to Bounce Back to Major Highs by May 2012

With the present major correction in gold, silver and the mining sector it is important to look at the big picture and see what the charts are saying from a technical fractal relationship with what happened back in 1979 when the last truely major bull run occurred. To date the situation is, frankly, no different than it was back then unfolding just as it should. As a result we can expect MAJOR upward price action in physical gold and silver and in their mining (producers, developers, explorers and royalty streamers alike) in the next few months on their way to their respective parabolic peaks in the years ahead. Read on. Words: 1604

3. When This Pullback in Gold is Put into Perspective It’s No Big Deal – Here’s Proof

Daily and monthly gyrations in the price of gold are nothing to fret over…The price will recover and, in time, fetch new highs…Here’s proof. Words: 264

4. Gold Tsunami: on the Cusp of $3,000+?

Gold is in a bull market and, [believe it or not,] so are the gold stocks despite their struggle as a group to outperform gold… but [neither] is anywhere close to a bubble, nor the speculative zeal we saw in 2006-2007. Thus, it begs the question” “What lies ahead and when can we expect the initial stages of a bubble?” To figure this out we first need to get an idea of how long the bull market will last and then where we are now based on various indice analyses. [Below I do just that.] Words: 785

11. Gold & Silver Warrants: An Insider’s Insights

With a tsunami of interest in the future prospects of gold and silver mining companies (and their stock prices as a result) I have been asked to publish an updated version of my one-of-a-kind proprietary index of commodity-related companies with long-term warrants (CCWI) and its sub-category of just gold and silver companies with long-term warrants (GSWI). This article gives you some insights into the ‘secret world’ of warrants and slices and dices the make-up of both indices identifying the constituents of each for your edification. Words: 1184

With all the interest in physical gold, silver and other commodities these days, and the large/mid-cap companies who mine the metals and the juniors who are exploring for them, it begs the question: “Why is no one writing about the merits of investing in the long-term warrants associated with a few of those companies?” Merits? Absolutely! Here is a primer on virtually all that you need to know about warrants and how to invest in them for major profits. Words: 3278

So says Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!) in an article written on behalf of www.PreciousMetalsWarrants.com (“The Authority on Warrants”). Please note that this paragraph must be included in any article reposting with a link* to the article source to avoid copyright infringement.

Who in the world is currently reading this article along with you? Click here

Wilson goes on to say:

The proprietary Gold and Silver Warrants Index (GSWI) returned 92% and generated a 60% leverage of dollars deployed in 2010. Now that I have told you why you should consider investing in warrants and no doubt have your undivided attention read on as I outline:

• what warrants actually are,
• which companies have long-term tradable warrants,
• when the warrants should be exercised by,
• where these companies have their various mines and
• how to go about buying and selling them.

It is unfortunate that almost all Americans and most Canadians (investors, brokers, financial advisors/planners and financial writers alike) are either unaware of, or not very familiar with, warrants but this article will change all that.

Why Invest in Warrants?

As I mentioned above warrants associated with gold and silver mining with a duration period of 24 or more months were up 92% in 2010 and 140% in 2009 in U.S. dollar terms (see a recent article here on the subject entitled Exposed! The Unknown World of Gold, Silver and Commodity-related Company Warrants). That compares very favorably with:

• the GDXJ (a basket of mid- and small-cap miners) which was up ”only” 55%,
• the GDX and HUI index (baskets of mid- and large-cap miners) which were each up 33%,
• that “laggard” gold which was up a “paltry” 30% and
• silver which was up a whopping 83%

With returns like that isn’t it about time you became aware of this asset class and how to go about claiming “the pot of gold” or “silver spoon” for yourself – or your clients?

Investors’ ignorance (that is such a harsh word but you know what I mean) about warrants is probably due to the fact that:

• they are listed almost exclusively on the Canadian stock exchanges;
• the SEC has put some limitations on trading in them for Americans;
• they seem complicated because of their differing time durations;
• they require some specific knowledge as to how to go about buying and selling them and
• they are limited in number.

That being said, it is “oh so easy” if you know what you are doing and, again, this article will explain everything in detail.

What are Warrants?

A warrant is a security giving the holder the right, but not the obligation to acquire the underlying security at a predetermined (i.e. exercise) price and for a specified period of time (i.e. term or duration). For the difference between warrants, options and LEAPS read this article.) 

 www.munKNEE.com  is for sale!

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Contact: Editor [at] munKNEE.com for details

A Breakdown of the Warrant Asset Class

1. Number of Warrants by Commodity

a) Only 135 companies have tradable warrants of which 67% are in the commodity/natural resource sector, i.e. mining or drilling, exploring and/or developing or purchasing via royalties.

b) Only 33 companies – yes, only 33 – have tradable warrants (37 in total) with an expiry date of at least 24 months duration which I consider to be the absolute minimum duration period and, as such, are included in my proprietary Commodity-related Companies Warrant Index (CCWI).

c) Of the 33 companies with long-term warrants:

• 19 companies are involved in some aspect of precious metals mining (as included in the GSWI);

• 8 are involved in base metal mining including zinc (1), uranium (1), nickel (1), coal (2), cobalt (1) and iron ore (2);
• 5 are involved in oil and gas operations and
• 1 is agricultural-related.

2. Number of Warrants by Company Market Capitalization

Everyone seems to think that warrants are only associated with penny stocks but that is simply not the case. Of the 33 companies in question:

• 4 have market caps in excess of $2.5B;
• 1 has between $500M and $1B;
• 2 are between $250M and $500M;
• 10 are between $100M and $250M while
• 16 are less than $100M.

How to Trade Warrants

Buying and selling warrants can be very confusing if you are not aware of the unique information required to do so and understand just how to go about it. Below you will find all the information you need to know on the subject:

1. Buying Warrants

a) TSX/TSXV Symbols
Warrants trade exactly like the underlying common stock and, as such, they are assigned a symbol. Since most warrants are associated with Canadian companies it is easy for Canadian investors to execute orders using their Canadian symbol but less so for Americans.

b) CUSIP Numbers
For American investors the best and most accurate way to trade in warrants is to use the security’s CUSIP number which stands for the Committee on Uniform Security Information Procedures. The American Bankers Association established this format of unique codes for all North American stocks, bonds, puts, calls, warrants, etc. as assigned by Standard and Poor’s. The CUSIP number consists of a combination of 9 characters, both letters and numbers, which act as a sort of DNA for the security uniquely identifying the company or issuer and the type of security. The first 6 characters identify the issuer and are assigned in alphabetical order; the 7th and 8th characters, which can be alphabetical or numerical, identify the type of issue; the last digit is used as a check digit.

c) Pink Sheet Symbols
Stocks and warrants that trade on the Pink Sheets fall into one of two categories:

1. companies that don’t meet the listing requirements of the New York, American or Nasdaq stock exchanges or
2. companies — usually foreign — that are unwilling to jump through the regulatory, legal, and accounting filings that accompany listing on the major exchanges. That is the case with most of the commodity-related companies with warrants. They are Canadian based and see no reason to create a duplicitous legal and accounting department just to be traded on the NYSE. They have already met all those legal, regulatory, and accounting requirements in their own country and feel that the burden is on YOU to read their home country filings

and consist of a 5-alpha symbol ending in ‘F’ for Foreign for the 5 warrants that fall into this category.

2. Selling Warrants

Some investors erroneously believe that you have to hold warrants until the expiration date but that is the worst thing you can do because when warrants expire they will do so without any monetary value i.e. they are worthless. Instead, investors must treat warrants as they would stocks and either sell then when the warrants have met their price objective or well before they expire.

3. Exercising Warrants

a) Leverage
The leverage of a warrant – the extent of the advantage or disadvantage of buying the warrant at its current price relative to the current price of the associated stock given the exercise price of the warrant – is a doable calculation but is better left up to those in the business to provide. www.PreciousMetalsWarrants.com is one such provider calculating the leverage of each warrant at both random stock price levels and at fixed stock price percentage increases which is ideal for comparing the leverage advantage of one warrant versus another. To my knowledge of the 3 sites that provide warrant information they are the only one that provides this unique time/price increase calculation.

It should also be noted at this juncture that www.PreciousMetalsWarrants.com is the most comprehensive site on warrants providing:

• a complete list of ALL commodity related warrants both short- and long-term;
• the Canadian and/or U.S. stock exchange or Pink Sheet trading listing symbol of every warrant;
• the CUSIP number of every warrant;
• the exercise price of every warrant;
• the conversion terms of every warrant;
• the duration (i.e. expiry date) of every warrant;
• an evaluation (under-, over- or fair-value) of every warrant;
• the product involved with every company listed
• the location of operation of every company listed
• a subscription service (see details here) containing all of the information outlined above and much more
• advise related to buy-back offers and stock exchange arrangements that present themselves
• a free weekly newsletter (sign up here) related to warrants and much more

b) When the Exercise Price is Achieved
It is important to note that if your warrants are “in the money”, i.e. the common stock is trading above the exercise price of the warrants, and the warrants are approaching the expiration date, you must take some action because, unlike call options where the value of the expired option is placed automatically into your brokerage account, that is not the case with warrants. When warrants expire they expire worth absolutely nothing!

From an American perspective you have only one viable option and that is to sell your position before the expiration date (and to do so 6 to 12 months before the expiry date is highly recommended because the value of a warrant often drops drastically during its final months of life) because, according to U.S. law, Americans cannot exercise a Canadian warrant unless its associated shares have been registered with the SEC because, should they exercise a warrant, they would be receiving a newly issued share which would be illegal.

From a Canadian perspective you have the option of either exercising the warrants (i.e. converting them into actual stock in the associated company according to the terms of the warrant) once they are “in the money” or selling them outright at any time before they expire.

Dudley Baker of www.PreciousMetalsWarrants.com has this to say on the subject:

Frequently I am asked whether warrants should be exercised if they are trading in the money…and my answer…is always the same – why bother!

For U.S. investors, to exercise or not to exercise is a non-issue because virtually all of the warrants trading on the resource shares are associated with Canadian companies and the warrants are not registered in the U.S. and, as such, while U.S. investors can buy and sell warrants, they are not allowed to exercise them.

Canadian investors could exercise the warrants, but again, why bother doing so? If you own warrants of a company you like, you will need to have your brokerage firm send the warrant certificate to the company’s transfer agent along with the exercise price at which point they would send you the common shares of the company. As I see it why not just sell the warrants in the market and if you really like the company and want to continue with them, then just purchase the common shares. Simple, clean and saves a lot of time and paperwork and you are in the exact same position.

c) When an Early Buy-Back Offer is Made
Should a company make an offer for your warrants via an early buy-back offer you have the choice of either accepting the offer or selling your warrants outright unless the company had a specific early call feature (which you should have been aware of at the time of purchase) in which case you would be legally obliged to sell.

d) When There Is a Stock Exchange Arrangement
In a stock exchange arrangement, the warrants will continue on as warrants of the acquiring company with the same expiration date and with the exercise terms adjusted to reflect the terms of the stock exchange in the merger. The owner of said warrants will want to assess the prospects of the new owner to assess the upside potential of their ‘new’ warrants and if the assessment is not positive to sell out before others come to the same conclusion.

4. Interacting With Brokerage Firms

a) Canadian Brokers

As there are symbols for all Canadian warrants Canadians will find the placing of orders very easy to execute and, as such, convenient to use online brokerage firms if so inclined. Be that as it may, please make note in the last paragraph in this section how ‘exactly’ to go about placing your order with a broker.

b) Non-Canadian Brokers

The situation is not as straight forward for those individuals using non-Canadian brokerage houses because many online brokers are not set up with the symbols for the warrants you might wish to trade. As such, it will be necessary to deal with a broker directly and have him/her enter the order for you. Because a broker needs the correct symbol for placing the order the most important thing you can do is give the broker the actual CUSIP number for the warrant you wish to purchase and, where possible its Pink Sheet symbol, to avoid any confusion on the part of your broker.

5. Communicating with Non-Canadian Brokers

Your broker may need to be educated on how to exercise an order. As such, never ‘ask’ your broker if they will execute your order for warrants but, instead, ‘tell’ them exactly what you want them to do. If you just ‘ask’ many brokers will say they don’t trade in Canadian warrants so they can’t execute your order. However, if you ‘tell’ them exactly what you want them to do on your behalf most will be more than happy to comply – and below are exactly what instructions you should give them.

6. Placing an Order to Buy or Sell

Warrants, like many small cap stocks, often have very thin markets (i.e. demand) and, as such, usually have a big spread between the bid (the price at which you are willing to make a purchase) and ask (the price at which you are willing to sell) price. As such, it is imperative that you place only “limit orders” when buying or selling warrants associated with Canadian commodity-related stocks.

• When American investors go online and see that a warrant of interest is trading with a U.S. symbol placing an order should be problem free. However, if it has a Pink Sheet symbol the price for the most recent bid or ask price should not be used as a basis for establishing a new bid or ask price because that price will just be the last trade in the U.S. and therefore may be days, weeks or even months old compared to the bid and ask prices on the more active Canadian exchanges. In such situations you should visit here for the up-to-the-minute bid and ask prices, as quoted in Canadian dollars. You can also go here where you can access comparative charting capabilities for both the warrant and the associated stock, recent news on the company, its latest financials, 30 day price history and access to the most recent research on the company. You will also need to go to a currency conversion site to get the current U.S. dollar to Canadian dollar exchange rate because you will be buying the warrants priced in Canadian dollars.

There are two kinds of orders that can be placed when attempting to buy or sell a security:

1. Market Orders: A market order does not have a set price and is therefore executed immediately at the current ‘market’ price. Markets, especially OTC markets, can be highly volatile, and the price of execution may differ dramatically from the price at time of order entry. Those who use market orders are more concerned about the speed of the execution as opposed to the price.
2. Limit Orders: A limit order has a set price and may only be executed at the set price; however, a limit order may never get executed because the market may move away from the set price. Those who use limit orders risk not having an order executed.

a) To place an order to buy, for example, 5,000 warrants of ABC Mining Company with a CUSIP number of 123456789 and you want to limit the price you pay to $1.43 Canadian then give your broker these specific instructions:

• “I want to buy 5,000 ABC Mining Company warrants, CUSIP number – 123456789 – at a ‘limit price’ of $1.43 in Canadian dollars”. Add the words “which will be good until cancelled” if you are entering a stink bid or if you are trying to buy a very thinly traded warrant.
• Ask your broker to confirm the order by reading the order back to you and it’s done. It is as simple as that!

b) To place an order to sell 3,500 warrants of ABC Mining Company with a CUSIP number of 123456789, for example, and you don’t want to part with your warrants for less than, say, $1.69 Canadian then instruct your broker as follows:

• “I want to sell 3,500 ABC Mining Company warrants, CUSIP number – 123456789 – at an ‘ask price’ of ‘no less than’ $1.69 in Canadian dollars” and again add the words “which will be good until cancelled” or “until the close of business today” if you want the opportunity to reassess your ask price at the end of the day.
• Ask your broker to confirm the order by reading back your instructions to you and it is done. Again, it is as simple as that!

Why Bother Investing in Warrants

1. Last year a basket containing 1 each of the long-term commodity-related warrants went up 91% while their associated stocks “only” went up 57%.
2. Warrants are priced about 60% less on average than their associated stocks and, therefore, you are in an ideal position to leverage your dollars very effectively.

There’s your answer as why you should consider investing in warrants as opposed to their associated stock. Investing in warrants gives you the opportunity to earn more dollars (in percentage terms) with considerably fewer dollars at risk.

Conclusion

It warrants (pun intended!) becoming more knowledgeable as to the which, when, where, why and how aspects of buying/selling warrants – and now you are!

* http://www.munknee.com/2011/11/gold-silver-warrants-what-are-they-why-own-them-how-are-they-bought-sold/

Editor’s Note:

Sign-up for Automatic Receipt of Articles in your Inbox or via FACEBOOK | and/or TWITTER so as not to miss any of the best financial articles on the internet edited for clarity and brevity to ensure you a fast an easy read.

Related Articles:

3. What Are Warrants, Options & LEAPS?

 

 

Investors are always looking for ways to maximize their gains and warrants, options and LEAPS are a good way to do just that. These investment vehicles are very similar to each other except for issue of time. [Let me explain.] Words: 752

 

4. Options: The Best Way to Optimize Leverage of Your Gold Investments

 

 

 

In our quest for the best gold investment vehicle – one that exerts direct undiluted correlated returns to the gold price with added leverage that is quantifiable to a reasonable accuracy – we think that options are the best choice. Words: 690

 

Whilst it is true, more often than not, that mining stocks move in the same direction as gold [and historically outperform that of the physical metal based on their better beta statistics] there are periods where this relationship does not hold. That is one of the reasons we currently have no interest in trading or investing in mining stocks. Why form a bullish view on gold and buy mining stocks based on this view, only to see gold rise and mining stocks fall? [Instead,]… our preferred strategy to optimize and maximize potential profits… is using options that are directed based on the price of gold with no other factors influencing their performance. [Let us explain why.] Words: 1235

With all the interest in physical gold, silver and other commodities these days, and the large/mid-cap companies who mine the metals and the juniors who are exploring for them, it begs the question: “Why has no one written about the 91% returns and the 60% leverage generated by the long-term warrants offered by a select few miners and royalty companies in 2010?” The information in this article and the links to a variety of resources will change all that and make you ready and able to reap the benefits from investing in this much misunderstood asset class. Words: 2585

So says Lorimer Wilson, editor of both www.FinancialArticleSummariesToday.com  (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!). Please note that this paragraph must be included in any article reposting with a link* to the article source to avoid copyright infringement. If this article does not contain the 9 hyperlinks provided which are crucial to the full picture intended please go to the original source for access to those links.

The answer to the question  ”Why has no one written about the 91% returns and the 60% leverage generated by the long-term warrants offered by a select few miners and royalty companies in 2010?” is simple : Almost all Americans and most Canadians (investors, brokers, financial advisors/planners and financial writers alike) are either unaware of, or not very familiar with, warrants. Those few who think they are in the know unfortunately have very limited knowledgeable as to the which, when, why and how aspects of buying and selling warrants.

It is little known fact that those commodity-related warrants with a duration of 24+ months  were up 91% in U.S. dollar terms in 2010. That compares very favourably with:

• the GDXJ (a basket of mid- and small-cap miners) which was up ”only” 55%,
• the GDX and HUI index (baskets of mid- and large-cap miners) which were each up 33% and
• that “laggard” gold which was up a “paltry” 30%!

With returns like that isn’t it about time you became aware of this asset class and how to go about claiming “the pot of gold” for yourself or your clients?

Investors’ ignorance (that is such a harsh word but you know what I mean) about warrants is probably due to the fact that:

• they are listed almost exclusively on the Canadian stock exchanges;
• the SEC has put some limitations on trading in them;
• they seem complicated because of their differing time durations;
• investing in them requires some specific knowledge as to how to go about buying and selling them and
• they are limited in number.

That being said, it is “oh so easy” if you know what you are doing and, again, this article will explain everything in detail.

What are Warrants?

A warrant is a security giving the holder the right, but not the obligation to acquire the underlying security at a predetermined (i.e. exercise) price and for a specified period of time (i.e. term or duration).

A Breakdown of the Warrant Asset Class

a) Number of Warrants by Commodity
-  As of October 15th, 2011, only 135 companies have tradable warrants of which approx. 90 (67%) are in the commodity/natural resource sector, i.e. mining or drilling, exploring and/or developing or purchasing via royalties. (See here for a complete list.)
- Only 33 companies – yes, only 33 – have tradable warrants (37 in total) with an expiry date of at least 24 months duration which I consider to be the absolute minimum duration period (See here for details.)
- Of the 33 companies:

• 19 companies are involved in some aspect of precious metals mining of which 2 are royalty payment companies;
• 8 are involved in base metal mining including zinc (1), uranium (1), nickel (1), coal (2), cobalt (1) and iron ore (2);
• 5 are involved in oil and gas operations and
• 1 is agricultural-related.

b) Number of Warrants by Company Market Capitalization
Everyone seems to think that warrants are only associated with penny stocks but that is simply not the case. Of the 33 companies in question:

• 4 have market caps in excess of $2.5B;
• 1 has between $500M and $1B;
• 2 are between $250M and $500M;
• 10 are between $100M and $250M while
• 16 are less than $100M.

How to Trade Warrants

Buying and selling warrants can be very confusing if you are not aware of the unique information required to do so and understand just how to go about it. Below you will find all the information you need to know on the subject:

1. Buying Warrants

a) TSX/TSXV Symbols
Because warrants trade exactly like the underlying common stock they are assigned a symbol. Since most warrants are associated with Canadian companies it is easy for Canadian investors to execute orders using their Canadian symbol but less so for Americans.

b) CUSIP Numbers
For American investors the best and most accurate way to trade in warrants is to use the security’s CUSIP number. CUSIP stands for the Committee on Uniform Security Information Procedures of the American Bankers Association which established a format of unique codes for all North American stocks, bonds, puts, calls, warrants, etc. as assigned by Standard and Poor’s. The CUSIP number consists of a combination of 9 characters, both letters and numbers, which act as a sort of DNA for the security uniquely identifying the company or issuer and the type of security. The first 6 characters identify the issuer and are assigned in alphabetical order; the 7th and 8th characters, which can be alphabetical or numerical, identify the type of issue; the last digit is used as a check digit. (For a complete list of stock and warrant CUSIP numbers and their related stock CUSIP numbers trading on the TSX/TSXV exchanges go here.)

c) Pink Sheet Symbols
Many U.S. brokerage firms are not willing to open a ‘foreign account’ (i.e. an account that allows a U.S. based investor to purchase Canadian securities using Canadian symbols). Using Pink Sheet symbols (a 5-alpha symbol ending in ‘F’ for Foreign) are an alternative way to go for the 5 long-term warrants that have such designations. (For a complete list of commodity-related stock and warrant Pink Sheet symbols go here.)

For the record, stocks and warrants that trade on the Pink Sheets fall into one of these two categories:

• companies that don’t meet the listing requirements of the New York, American or Nasdaq stock exchanges or
• companies — usually foreign — that are unwilling to jump through the regulatory, legal, and accounting filings that accompany listing on the major exchanges. That is the case with most of the commodity-related companies with warrants. They are Canadian based and see no reason to create a duplicitous legal and accounting department just to be traded on the NYSE. They have already met all those legal, regulatory, and accounting requirements in their own country and feel that the burden is on YOU to read their home country filings.

c) Leverage
You can calculate the leverage of a warrant – the extent of the advantage or disadvantage of buying the warrant at its current price relative to the current price of the associated stock given the exercise price of the warrant – yourself, or you can get it free here.

2. Selling Warrants

Some investors erroneously believe that you have to hold warrants until the expiration date but that is the worst thing you can do because when warrants expire they will do so without any monetary value i.e. they are worthless. Instead, investors must treat warrants as they would stocks and either sell then when the warrants have met their price objective or well before they expire.

3. Exercising Warrants

a) When the Exercise Price is Achieved
It is important to note that if your warrants are “in the money”, i.e. the common stock is trading above the exercise price of the warrants, and the warrants are approaching the expiration date, you must take some action because, unlike call options where the value of the expired option is placed automatically into your brokerage account, that is not the case with warrants. When warrants expire they expire worth absolutely nothing!

From an American perspective you have only one viable option and that is to sell your position before the expiration date (and to do so at least 6 months before the expiry date is highly recommended because the value of a warrant often drops drastically during its final months of life) because, according to U.S. law, Americans cannot exercise a Canadian warrant unless its associated shares have been registered with the SEC because, should they exercise a warrant, they would be receiving a newly issued share which would be illegal.

From a Canadian perspective you have the option of either exercising the warrants (i.e. converting them into actual stock in the associated company according to the term of the warrant) once they are “in the money” or selling them outright at any time before they expire.

b) When an Early Buy-Back Offer is Made
Should a company make an offer for your warrants via an early buy back offer you have the choice of either accepting the offer or selling your warrants outright unless the company had a specific early call feature (which you should have been aware of at the time of purchase) in which case you would be legally obliged to sell.

c) When There Is a Stock Exchange Arrangement
In a stock exchange arrangement, the warrants will continue on as warrants of the acquiring company with the same expiration date and with the exercise terms adjusted to reflect the terms of the stock exchange in the merger. The owner of said warrants will want to assess the prospects of the new owner to assess the upside potential of their ‘new’ warrants and if the assessment is not positive to sell out before others come to the same conclusion. (For guidance in regards to buy-back and stock exchange situations you might want to subscribe to this fee-for-service site where the well-informed editor provides advice to subscribers.)

4. Dealing With Brokerage Firms

a) Canadian brokers: As there are symbols for all Canadian warrants Canadians will find the placing of orders very easy to execute and, as such, convenient to use online brokerage firms if so inclined. Be that as it may, please make note in the last paragraph in this section how ‘exactly’ to go about placing your order with a broker.

b) Non-Canadian brokers: The situation is not as straight forward for those individuals using non-Canadian brokerage houses because many online brokers are not set up with the symbols for the warrants you wish to trade. As such, it may be necessary to deal with a broker directly and have him/her enter the order for you. Because a broker needs the correct symbol for placing the order the most important thing you can do is give the broker the actual CUSIP number for the warrant you wish to purchase and, where possible its Pink Sheet symbol, to avoid any confusion on the part of your broker.

c) Communicating with non-Canadian brokers: Your broker may need to be educated on how to exercise an order. As such, never ‘ask’ your broker if they will execute your order for warrants but, instead, ‘tell’ them exactly what you want them to do. If you just ‘ask’ many brokers will say they don’t trade in Canadian warrants so they can’t execute the order. However, if you ‘tell’ them exactly what you want them to do on your behalf most will be more than happy to comply – and below are exactly what instructions you should give them.

5. Placing an Order to Buy or Sell

Warrants, like many small cap stocks, often have very thin markets (i.e. demand) and, as such, usually have a big spread between the bid (the price at which you are willing to make a purchase) and ask (the price at which you are willing to sell) price. That being the case, it is imperative to place only “limit orders” when buying or selling warrants associated with Canadian commodity-related stocks.

When American investors go online and see that a warrant of interest is trading with a U.S. symbol placing an order should be problem free. However, if it has a Pink Sheet symbol the price for the most recent bid or ask price should not be used as a basis for establishing a bid or ask price because that price will just be the last trade in the U.S. and therefore may be days, weeks or months old compared to the bid and ask prices on the more active Canadian exchange. In such a situation you should visit here for the up-to-the-minute bid and ask prices, as quoted in Canadian dollars. You can also go here where you can access comparative charting capabilities for both the warrant and the associated stock, recent news on the company, its latest financials, 30 day price history and access to the most recent research on the company. You will also need to go to a currency conversion site to get the current U.S. dollar to Canadian dollar exchange rate because you will be buying the warrants priced in Canadian dollars.

There are two kinds orders that can be placed when attempting to buy or sell a security:

1. Market Orders: A market order does not have a set price and is therefore executed immediately at the current ‘market’ price. Markets, especially OTC markets, can be highly volatile, and the price of execution may differ dramatically from the price at time of order entry. Those who use market orders are more concerned about the speed of the execution as opposed to the price.
2. Limit Orders: A limit order has a set price and may only be executed at the set price; however, a limit order may never get executed because the market may move away from the set price. Those who use limit orders risk not having an order executed.

If you want to place an order to buy, for example, 5,000 warrants of ABC Mining Company with a CUSIP number of 123456789 and you want to limit the price you pay to $1.43 Canadian then give your broker these specific instructions:
1. “I want to buy 5,000 ABC Mining Company warrants, CUSIP number – 123456789 – at a ‘limit price’ of $1.43 in Canadian dollars”. Add the words “which will be good until cancelled” if you are entering a stink bid or if you are trying to buy a very thinly traded warrant.
2. Ask your broker to confirm the order by reading the order back to you and it’s done. It is as simple as that!

If you want to place an order to sell 3,500 warrants of ABC Mining Company with a CUSIP number of 123456789, for example, and you don’t want to part with your warrants for less than, say, $1.69 Canadian then instruct your broker as follows:
1. “I want to sell 3,500 ABC Mining Company warrants, CUSIP number – 123456789 – at an ‘ask price’ of ‘no less than’ $1.69 in Canadian dollars” and again add the words “which will be good until cancelled” or “until the close of business today” if you want the opportunity to reassess you ask price at the end of the day.
2. Ask your broker to confirm the order by reading back your instructions to you and it is done. Again, it is as simple as that!

Why Bother Investing in Warrants

1. Last year a basket of 1 each of the long-term commodity-related warrants went up 91% while their associated stocks “only” went up 57%.
2. Warrants are priced about 60% less on average than their associated stocks and, therefore, you are in an ideal position to leverage your dollars very effectively.

There’s your answer as why you should consider investing in warrants as opposed to their associated stock. Investing in warrants gives you the opportunity to earn more dollars (in percentage terms) with considerably fewer dollars at risk.

Conclusion

It warrants (pun intended!) becoming more knowledgeable as to the which, when, why and how aspects of buying/selling warrants – and now you are!

The parabolic rise in Gold and in Silver still have a very long way to go as measured directly off of the late 1970’s Charts.  In fact, we expect the arithmetic ratio targets for Gold and for Silver, based on the late 1970’s rise for each, to get blown away since we are seeing a logarithmic rise in dollar inflation compared to the late 1970’s. We have just hit the point where the more parabolic rise in Gold set off the leverage for the Gold Stocks in the late 1970’s. Therefore, we expect the real parabolic PM Stock Index Bull is just now commencing. Let me explain. Words: 1769

So says an article written by Goldrunner (www.GoldrunnerFractalAnalysis.com) who goes on to say:

Gold has been rocketing up to, and through, the price levels that we laid out many months ago (although a couple of months later than we had expected). This is the equivalent move for Gold that we have recently seen Silver making.  As Gold starts to rise more parabolic on the log chart, it creates a very important consequence for the Precious Metals (PM) stock indices since they are heavily weighted in Gold Producers.  Suddenly, the price of Gold is rocketing up through, and above, the mining costs of the Gold Producers and triggering heavy leverage for the earnings of those Gold Miners.  

Early in the week of August 8^th we laid out for subscribers to our service our expectations for a major double bottom in the HUI index and the GDX ETF at around the 100 week exponential moving average – the start of the first of three major Precious Metals Stock momentum moves to come.  Since that time both the HUI and the GDX have created the important sequence of price rises and re-retests to confirm the start of the momentum move, resulting in a very important break-out in both indices this past Friday.

THE GOLDEN PARABOLA

We can see on the chart of Median Line Log Gold below, Gold started a sharp rise right about the time that the debt ceiling was raised.  That announcement provided the need for further debt monetization via further aggressive dollar inflation.  The timing of the start of the higher angled rise came right on time per the 70’s chart for Gold.  Many have been looking for Gold to re-trace heavily from this run, but we believe that we are seeing the early start of a more parabolic move for Gold that will take Gold much higher by year-end, or into early 2012. 

The next upside target for Gold will likely be up to around the $2250 target we have already laid out, then up much higher after a short correction, before Gold takes a bit of a breather for a few months.

So far, Gold has shot up to $1915, then re-traced to our first support line on the arithmetic Elliott Wave Channel chart that we have shown in the past.  We expect that line of support to hold since Gold has barely scratched the surface of the similar rise that Silver recently made as it busted upward from $17.50 to rocket up to $49.50. 

The next Gold chart is a log chart showing that the top dotted angled line that lies in the area of $2250 is analogous to how far Gold fell out of the main channel during the deflation scare back in late 2008.  We expect that top dotted line to serve as the next upside resistance level where we will see a bit of a correction before Gold continues to explode higher into year-end, or into early next year.  All of the metrics of Gold’s rise up to this point are mute once Gold busts out in a parabolic form on the log chart as seen in the late 70’s.

THE SILVER ROCKET

Back when Silver was trading around $30 we laid out targets for Silver in a multiple topping process as seen in the late 70’s and in 2006.  At the time we laid out a range of $48 to $49 for the first resistance line for Silver into May/June with the potential for Silver to spike up to as high as $56. 

Silver hit that first line of resistance with traders coming in overnight on a Sunday in April to hammer Silver down to a very similar percentage reaction as we saw in 2006.  At this time Silver is rising back up as it did in 2006 to reach for the next high in the expected multiple top formation.

In the 2006 chart of Silver, below, we can see the sharp correction that is very similar to the recent price reaction.  In fact, the RSI and price pattern for Silver are almost identical twins in the two periods as Silver moves back up to expected new highs toward the $52 to $56 area. 

Some were calling the similar Silver reaction to that in 2006 as a crash and the end of the Silver Bull.  The arithmetic ratio target for Silver off of the 70’s chart is up to around $150 for the PM Bull, yet, since the current PM Bull is at a higher Elliott Wave Degree than the 1970’s, we perceive the potential for Silver’s high to come in at multiples of the arithmetic target.  If true, then we should see similar multiples for Gold and for the PM Stock Indices, also.

2006 SILVER

THE CURRENT SILVER ROCKET CHART

SUMMARY/ REVIEW

The nature of the price rise for Gold, and for Silver, are somewhat different as seen in the current and 1970’s charts for each.  The chart of Silver tends to rip higher in sudden emotional price drives whereas the rise of Gold tends to be a much smoother parabolic form.  The price of Gold is the true reflection of the amount of dollar devaluation in progress as we have often noted in the past so the US Dollar Index becomes a fairly impotent guide to dollar inflation in this part of the cycle where global competitive currency devaluations are in full swing.

At this point, we believe that the parabolic rise in Gold and in Silver still have a very long way to go as measured directly off of the late 1970’s Charts.  In fact, we expect the arithmetic ratio targets for Gold and for Silver, based on the late 1970’s rise for each, to get blown away since we are seeing a logarithmic rise in dollar inflation compared to the late 1970’s. (To keep abreast of daily developments in what is happening with physical gold and silver, various PM indices and specific gold and silver mining and royalty stocks please subscribe to our service here. To read more of public access articles please go here.)

We have just hit the point where the more parabolic rise in Gold set off the leverage for the Gold Stocks in the late 1970’s. Therefore, we expect the real parabolic PM Stock Index Bull is just now commencing.  We expect that the break-out last Friday will eventually be seen as the first of three PM Stock momentum runs yet to come.  Fasten your seatbelts!

Related Article

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

So says Jeff Nielson (www.bullionbullscanada.com)  in an article* which Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has further edited ([  ]), abridged (…) and reformatted below for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement. 

Nielson goes on to present a few things to look for:

1. A Minimum of 1 Gram of Gold per Ton of Ore
For gold miners, the starting point would be to look at ore with 1 gram of gold per ton of ore. That’s right, ore with as little as 1 gram/ton is potentially rich enough to support commercial mining. Of course, with this low level of concentration of gold, it will generally require both vast tonnages and favorable geology for ore of such a low grade to support commercial mining operations. Generally speaking, what exploration companies are looking for is ore with several grams of gold per ton.

What companies looking for gold (and mining gold) need to see is enough tons of such ore to justify all the preliminary drilling, the resource estimate, the feasibility study, and ultimately the construction (and operation) of a mine.

2. Large Ore-bodies Compressed within a Narrow Range of Depth
Even when looking at the quantity of gold in an ore-body, tonnages alone do not tell the whole story. Companies drilling for gold sometimes go down a mile or even further beneath the ground. What companies (and investors) want to see is for the quantities of gold in these ore-bodies to be compressed within a relatively narrow range of depth.

For example, let’s suppose that two companies have identical grades and tonnages of gold in their properties. The “veins” of gold for Company A start at 50 feet below the surface, but continue all the way down to 5,000 feet below the surface. With Company B, on the other hand, the gold doesn’t start until 200 feet beneath the surface, but the mineralization only goes down 1,000 feet.

It would obviously require much more excavation for Company A merely to get access to all its ore, and likely much more ore extracted to mine all the gold. All of this additional blasting and digging dramatically erodes the potential profitability of the mine, so how the gold is distributed within an ore-body is a factor which investors must note in their research.

Much of this information is revealed to us in the drilling samples which mining companies extract and analyze. A drilling core sample is a vertical cross-section of the ore which ideally is perpendicular to the vein in question – so that the sample represents a “true width” of the particular vein. Since veins of ore can exist at various angles relative to the surface, and can also bend and twist through the Earth’s crust, it can be very challenging for the miners doing this drilling to produce such ideal core samples.

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Assuming this is the case, when you examine the drilling results of a mining company, the data is generally presented as a series of “intervals” in each core sample, with each “intercept” representing a separate vein of gold. Thus, the drill samples will tell miners (and investors) the grade of the ore, the thickness of veins, and the number of veins – over the total depth of the drilling sample. This means that an ideal core sample would demonstrate high grades (i.e. averaging several grams per ton), thick veins, and (hopefully) many such veins. Since these intervals can be very thick, in some cases exceeding 100 feet, the grades within veins can vary considerably. Where the concentrations are unequal, the person evaluating the core sample will generally also list sub-intervals within the intercept – and indicate the especially rich segments of such intervals.

There is an incredible amount of variation in veins of ore. In the extreme, very rich ore can contain hundreds or even thousands of grams per ton. While veins of ore can (and do) exceed a hundred feet in thickness, such veins can also be extremely narrow – sometimes only a few feet thick. Indeed, it is not uncommon in the case of “high grade” ore for the geological formation to be a series of very rich grades, but very narrow veins.

3. Easy Access
Naturally, this incredible geological diversity means that there are numerous methods for mining ore. Our primitive ancestors (and modern “prospectors”) got most of their gold through “panning” or “dredging” gold that has reached the surface – and been washed into the beds of rivers and streams. For gold that is near, but still beneath the surface, the preferred method of mining is generally an “open pit” operation. As the name describes, this is where instead of constructing a true “mine” under the ground, a mining company will simply start at the surface and strip-off one layer of rock after another.

a) Open Pit Mining
The advantage of open-pit mining is that it avoids the costs and engineering challenges of constructing an underground mine. Secondly, pit-mining operations are generally very large-scale operations – requiring vast tonnages of ore to justify all the equipment and manpower necessary to run such an operation. However, as companies go deeper and deeper with their pit-mining, extracting gold becomes relatively more expensive. As a result, in the case of ore-bodies which start at the surface, but continue to considerable depths, it is not uncommon for a mining company to initially extract ore in an open-pit operation – and then after the near-surface ore is extracted, construct a conventional mine to extract the remaining ore in the most economical manner.

b) Underground Mining
Generally speaking, a company will need to find higher grades of ore to economically justify an underground mine than an open-pit mine – although as I mentioned earlier, open-pit mines are generally only economically feasible where there are vast tonnages of gold for extraction.

While veins of gold are relatively narrow, the length of these veins can run for miles beneath the Earth’s surface. Some of the world’s largest/oldest mines end up as vast labyrinths of tunnels occupying areas of many square miles. As a result, even more important than the data which is obtained vertically through each individual drill-sample are the number of such drill-holes produced in a drilling program.

It is the accumulation of dozens (and often hundreds) of drilling samples which map-out the dimensions of any given ore-body. Obviously, if such holes are placed closer together, the data obtained is more precise. However, with drilling being a very expensive process, there is a large economic incentive for companies to space-out the holes quite widely (at first) to gauge the overall dimensions of an ore-body. Then subsequently once those dimensions are identified, companies will “fill in the gaps” with more drilling within this perimeter – in order to provide geologists with enough data for a “resource estimate”.

With drilling ore-bodies being such a capital-intensive process, drilling always begins tentatively. Modern “imaging” technology and other forms of geographical analysis (including near-surface “trenching”) will provide companies with some initial “targets” for there first drilling efforts. Also, since every extra foot which these drills bore into adds to the costs, an initial drilling program will generally involve only a dozen drill-holes or so (sometimes even less) and unless the geologist has reason to suspect that mineralization is very deep, those first drill-holes will also be quite shallow.

What to Look for in Drilling Results
For potential investors viewing the results of such drilling, there are two indicators which they typically look for:

1. to see most if not all of the drill-holes showing significant levels of mineralization (i.e. several grams of gold per ton in each intercept).

2. to see evidence of even greater mineralization. Specifically, they will look to see if the drilling reports that mineralization is “open” (i.e. it continues beyond the scope of the original drilling). Mineralization could be “open” in any direction laterally, and also potentially “open at depth” – meaning that mineralization still continues lower at the deepest depth reached by the drill hole. The miners themselves are naturally even more interested in such data – since this information will guide them in deciding where to drill their next holes, how many such holes they should drill, and how deep they should go with subsequent holes. The nature of the “game” is to try to learn (and demonstrate) as much about an ore-body as possible – with the least possible expenditure of capital.

Since exploration companies generally have no sources of revenue, being efficient (and a little lucky) with their drilling can and does determine which of these companies will survive and thrive, and which will struggle to stay afloat or simply fold.

What to Look for in a Feasibility Study
Once a drilling program has identified a body of ore with the potential to support a commercial mining operation, this is only the starting point of analysis. A “feasibility” study must be done to evaluate a number of other factors (a more preliminary form of this analysis is called a “scoping study”).

1. % of Gold Oxides vs Gold Sulphides
Ore containing gold falls into two categories of chemical/geological composition: sulphide-based ores and oxide-based ores. Gold “oxides” are preferable for mining since the chemical “bond” which locks the gold to other chemical elements is not as strong. As a result, processing such ore is cheaper, easier, and generally yields a higher “recovery” rate than with gold sulphides.

2. % of Gold that can be Extracted
The “recovery rate” is self-explanatory. It is the percentage of gold contained in a given quantity of ore which is successfully extracted, and ready for further processing (and ultimately refining into bullion). In simple gold oxides, a recovery-rate above 90% is not unusual. However, because gold oxides contain gold that is cheaper and easier to extract, most of the world’s easily accessible gold oxide deposits have already been mined – meaning that modern miners are forced to obtain much more of their gold in sulphide-based bodies of ore.

With gold sulphides, the much tighter chemical bond between the gold and other elements is much more technically challenging. Attempting to extract the gold using the same methods of extraction as with gold oxides would result in vastly inferior recovery-rates – closer to 50% recovery. Primitive methods of secondary processing of such ore were developed, which improved recovery rates, but resulted in vast quantities of highly-toxic waste.

Unless such “tailings” were collected and contained very carefully, the result was generally environmental devastation. Such primitive gold-sulphide mining operations have been among the worst “offenders” when it comes to mining-based pollution. Fortunately, modern technology has devised new methods for extracting gold from sulphide deposits – which are not only much more environmentally “friendly” but also yield higher recovery-rates.

Thus, while it is generally preferable for a mining company to mine gold oxides, sulphide deposits are no longer as problematic with respect to both costs and permits as they were in the past. Which leads to another important issue for gold miners, and mining, in general – permits.

3. Ease of Permitting
It doesn’t matter how many millions of ounces of gold a mining company discovers if it is never allowed to mine it. Thus, potential investors must look at the location of any gold deposit both in terms of local and national considerations. Locally, deposits which are close to large populations or environmentally sensitive sites will generally have more difficulty (and need to provide better operational guarantees) to obtain approval for a commercial mining operation.

However, just as looking for gold in districts which have a history of successful mining tends to provide better chances of success, similarly it is more likely for miners to obtain the necessary permits and approval for a new mine in areas which have previously approved other mines in the vicinity.

Potential investors should not simply assume that mining companies are necessarily big polluters, and the enemies of local inhabitants. Modern, responsible mining operations can co-exist with human habitation, and even be compatible with all but the most-sensitive natural habitats.

Despite this fact, the receptiveness of national governments toward mining operations varies dramatically from nation to nation. Some governments have a strong aversion to any mining, either through previous, negative experiences with other primitive or reckless miners, or simply due to an out-dated fear of such problems. New companies seeking to obtain permission for a future mine can face sometimes insurmountable problems here, so potential investors must take note of the jurisdiction where a particular deposit is located.

Similarly, some local populations have similar aversions to mining or there may be some competing claim to the right of a miner to build and operate a mine. As such, there is no substitute for investors “doing their homework” in such situations –to assign a realistic probability for the company in question to obtain final mining approval.

4. Presence of other Polymetallic Ores
Up to now, I have been discussing hypothetical bodies of ore with the unstated assumption that they only contain one commercially valuable mineral. In fact, most bodies or ore which contain gold or silver will generally contain one or more other mineral elements with commercial value.

These “byproducts” will add additional complications to the processing of ore, although modern metallurgy has progressed to the point where these problems are nothing more than minor considerations. Typically what occurs is that the metallurgist will seek to maximize the recovery-rate of the primary metal (gold or silver) with secondary processing yielding lower recovery-levels for the other metals contained.

Naturally, these byproducts will offset the production costs of the primary metal, through the “credits” obtained by selling these other metals. This lowers the production costs for each ounce of gold/silver (the “cash costs”), however it also dilutes the “purity” of the miner.

For example, a gold miner which obtains 25% of its revenues from copper also contained in the ore, or a silver miner which also produces large amounts of lead and zinc (both very common scenarios) are no longer the “pure plays” which are favored by investors. Such companies generally receive inferior valuations relative to revenues/profitability, and also are affected by price-changes for these other metals.

5. Availability of Financing
Even where geological conditions are favorable, and national and local governments are amenable, satisfying these many criteria still does not guarantee that a mining company will be able to capitalize on these factors, and construct and operate a profitable mine.

Mining is one of humanities most capital-intensive industries, and investors in mining companies were made aware of this fact in the most brutal manner possible – after most of the global banking industry simply cut off all capital to this industry. Many smaller companies were literally destroyed. Some were forced into formal bankruptcy, while many others exist much like the large collection of zombie-banks: while they are still in operation, they are so starved for capital that it will be years (if ever) before these companies can regain their previous health and momentum.

Now that capital markets have again opened up for the mining industry, financing becomes more of a strategic factor for investors. Pure exploration companies will have to raise new capital each time their last source of funding begins to dwindle. Companies at a more advanced stage will typically seek a new infusion of capital each time they seek to make another major step in going from finding a deposit to mining it. Thus investors must keep track of both the current cash position of these companies, and what stage they are in with respect to development of their property.

Conclusion

Those investors who do their homework, diversify into a “basket” of these companies, and exercise discipline in their buying and selling should expect to be able to leverage the gains of precious metals and obtain a higher rate of return than in bullion, alone – over the long term. However, the volatility of these companies is not for the timid – make sure you’re ready for the “ride” before you choose to get on one of these “roller-coasters”.

* Original Source

Related Articles:

1. 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

2.  Goldrunner: a Gold & Silver Tsunami is Approaching – Fast!

A tsunami doesn’t start with a bang, but with a whimper. The first sign is a little hump in the water way out in the distance that is barely notable. Anyone who catches a glimpse of it simply continues to expect the day to be the same as the last many days – calm and beautiful waters along the shore. This is the point where we are, today in the Precious Metals sector. Many have seen the little roll of water out in the distance as Gold edged up in the first move of a more parabolic slope, yet most investors are mired in the same expectations of yesterday – a return for Gold to correct down into a lower base. Our analysis based on the fractal relationship to 1979 shows, however, that the mid 900s are a realistic target for the HUI by the end of the year or early in 2012; that $52 to $56 should be achievable for silver, with $58 to $62 as real possibilities; and that Gold should go the $2250 level followed by $2500 with the potential for $3,000, or a bit higher, now on the radar screen. Let me explain why that is the case. Words: 2130

3. Gold Stocks: Get Ready, Get Set, GO!

Both gold and silver continue to trade well below their inflation-adjusted highs in nominal terms, and the market is now beginning to acknowledge the profit potential that precious metals equities offer at today’s bullion prices. We believe the equities will offer more upside than the bullion over time. Many of the smaller names are well priced and have momentum behind them. The prospects for gold stocks look extremely bright [for very good reasons. Let us explain.] Words: 2250

10. 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

11.  Best Hedge Against Inflation Is Owning Gold and Silver Mining Stocks

We are about to encounter major inflation and the absolute best hedge against such inflation is by investing in the companies that mine gold and silver. You often get leverage of 2 to 4 times the price appreciation of gold or silver. If gold goes up by 50%, your miners may very well double or triple in value. Words: 1426

12.  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

14.  Gold & Silver Company Warrants Warrant Your Attention

Talk about a small world we live and invest in! The galaxy of warrants trading on the TSX/TSXV consists of only 167 planets (i.e. constituents) in total of which only 40 are stars associated with 34 commodity-related stocks that have sufficient brightness (i.e. 24+ months duration) to warrant (the pun is intended!) the attention of earthly investors. My telescope has identified each of them and below I provide you with the particulars of each so you will be in a position to do your due diligence and begin to prosper above and beyond what you could achieve investing in the commodities and/or stocks themselves. Words: 1674

There’s an old saying that “Gold doesn’t pay interest” and, [while that's] true,…right now [there are] six well-known gold miners are yielding just as much – or more - than government bonds [as outlined below].

Newmont Mining (NEM) yields a solid 1.9% – 48 basis points more than 7-year Treasuries (a basis point is equal to 0.01 so 48 basis points are 0.48) [and] according to government data from treasurydirect.gov  this has never happened before  going back to 1987, the first year Newmont paid a dividend.

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[In addition,] Yamana (AUY), Agnico-Eagle (AEM) and Barrick (ABX) - for the first time ever – are yielding more than 5-year Treasuries. [Then there are] Goldcorp (GG), Kinross (KGC) and the Market Vectors Gold ETF (GDX) [who are currently yielding] nearly twice as much as 3-year Treasuries.

Of course, mining stocks aren’t risk-free but, in a world where central banks led by the Federal Reserve are gutting the value of their currencies and, let’s be honest, entire governments’ ability to repay debt has come into question, Treasuries aren’t so “safe” either.

A Dirt Cheap Dividend Play – But Not For Long!

[In] the chart below we’ve [compared] the Market Vectors Gold Miners Trust ETF (GDX) with the popular SPDR Gold Trust (GLD). GDX offers a basket of mining company stocks [and] GLD closely tracks the price of gold bullion… GLD has rallied 30% this year [while] the gold miners (GDX) have only jumped 10%.

click on image to enlarge

It’s hard to say what’s going on here for sure. Investors are piling into physical gold and the SPDR gold trusts and, so far, they’ve been richly rewarded but, while holding physical bullion is a better “end of the world” hedge, investors seeking short-term gains should instead focus on the miners.

Here’s why:

1. How many businesses do you know with profit margins like this? The typical miner has production costs south of $600 an ounce, and is actively selling gold for $1,800+. Newmont (NEM), for example, reached a 27.68% profit margin in Q2, about on-par with red-hot Apple Computer (AAPL) at 25.58%.
2. As central banks and sovereign wealth funds continue to accumulate the yellow metal they will have no choice but to buy mining companies…If they attempt to buy bullion alone, they will push the price up too high, too fast.
3. Mining stocks are much more liquid than bullion coins and bars. You never have to search for a willing buyer or haul them off to a local bullion dealer. Just point, click and sell from your brokerage account.

What Could Possibly Go Wrong?

1. If somehow Bernanke’s magic pixy dust stimulates the economy into full recovery – mining stocks could take a hit but there is no evidence that a “recovery” is around the corner – and any recovery driven by printed money – by nature – must be inflationary.

2. If the banks and the stock market shut down for months, gold stocks (heck, every stock) will be worthless – so if you’re one of those Mayan doom and gloomers, ignore this article and get yourself a case of Johnny Walker Black and a good prayer book.

3. It’s possible panicked governments will attempt to grab hold of the last remaining gold supply by nationalizing the mines. This type of mass “theft” is more likely than a repeat of 1933, when Americans were commanded to turn over their gold coins but, still, it’s a long-shot considering no currency is backed by gold.

4. If commodities, especially oil, steel and rubber, go through the roof and gold doesn’t keep up, that would impact the mining companies’ profit margins.

Wait a Second! These Stocks Crashed in 2008-2009, Didn’t They?

Yes they did – and investors that stuck to their guns did very well. This time around, gold is trading over 2.5-times higher today than it was in 2008. So barring a crash, that should put a higher floor under well-run mining companies.

Bottom line

Gold is money. It can’t be printed or spread-sheeted into existence – but it can, and must, be pulled from the earth. Right now some of the world’s most well-run mining companies are trading at a clear discount to gold. On top of that, six of them pay higher yields than US Treasuries with the added bonus of potentially explosive dividend growth.

If you believe in the dollar and trust the government to guard its value – whatever little remains – stick with Treasuries. If you are willing to take some short-term risk, select mining stocks could help protect your wealth and pay you a growing stream of dividends in the months ahead.

*http://seekingalpha.com/article/292975-6-gold-miners-now-yield-more-than-u-s-treasuries?source=email_portfolio

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So far in 2011 gold prices have increased [approx. 8] percent.. while the stocks of gold [mining] companies in the HUI have… declined 13%…[As such,] this year’s carnage has created a substantial opportunity to buy healthy gold mining companies at their second-cheapest level in nearly 30 years compared to gold bullion. [Let us explain.] Words: 1265

 3.  Sell Your Gold Now – and Buy Its Producers Instead – for Greater Returns

I believe that the masses are stumbling over themselves to buy gold when the far better value is to own the companies that control so much of the supply. I will probably be pilloried for this by the gold bugs, but I’m going to hold my ground: now is not the time to buy gold and it may be a great time to sell it. Words: 435

The GDX has declined over 10% on a closing basis [since the end of May and] late last week broke the major support zone when it closed below 52.50. That is not good news for the gold mining bulls, but given the current dynamics of price and volume action in GDX, a bounce is due. [Let me show you why.] Words: 850

Connor Agrees With Goldrunner: Gold and Silver About to Take Off

The gold bull is now on the verge of launching the most spectacular up-leg of this 10 year bull market. This spring we should see the final parabolic rally of the massive C-wave advance that began in April `09…[taking gold up a further 15% or so to approx. $1650, silver up a further 40-45% to as high as $50 and the HUI up  to somewhere between 800 and 900 (i.e. +40-60%). Let me explain the specifics:] Words: 1216

So says Toby Connor (goldscents.blogspot.com) in an article* which Lorimer Wilson, editor of www.munKNEE.com, has edited ([  ]), abridged (…) and reformatted below for the sake of clarity and brevity to ensure a fast and easy read. (Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.) Connor goes on to say:

Gold’s 4-Wave Price Pattern

Gold moves in an ABCD wave pattern, driven not only by the fundamentals of the gold market,…but also by the emotions of gold investors and the thin nature of the precious metals market. Let me explain gold’s 4 wave pattern.

• The A-wave is an advancing wave that begins, and is driven by, the extremely oversold conditions created during a D-wave decline…A-waves usually retrace a good chunk of a D-wave decline [and] can often test the all time highs but rarely move above them.
• The B-wave is a corrective wave spawned by the extreme overbought conditions reached at an A-wave top.
• The C-wave is where the monster gains are made. They can last up to a year or more. The current C-wave is now almost two years old. They invariably end in a massive parabolic surge as investors and traders chase a huge momentum driven rally.
• Parabolic rallies are not sustainable so the final C-wave rally ends up toppling over into a severe D-wave correction as the parabola collapses [as the] smart money [begins to take] profits into a move that they know can’t be sustained. 
• Then the entire process begins again [as the graph below illustrates].

The Influence of the U.S. Dollar on the Price of Gold

..[T]he Fed’s ongoing debasement of the [U.S.] dollar is one of the main drivers of this bull but let me take this one step further and show you [in the two long-term charts below] how the dollar’s three year cycle drives these major C-wave advances and how the move down into the dollar’s three year cycle low always drives a final parabolic C-wave rally [in the price of gold]… 

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The Dollar’s Three Year Cycle: the last 7 three year cycle lows [are shown] with blue arrows [and] the average duration from trough to trough is about 3 years and 3 months. [T]he dollar is now moving into the timing band for that major spike down in the next 2 to 3 months. 

Inverse Move of Gold to U.S. Dollar: the extreme left translated nature (topped in less than 18 months) of the current cycle [as seen in the chart below] gives high odds that the final low, when it arrives, will move below the last three year cycle low. That means that sometime between now and the end of May we should see the dollar fall below the March `08 low of 70.70 [- and] that crash down into the final three year cycle low will drive the final parabolic move up in gold’s ongoing C-wave advance. Every major leg down in the dollar has driven a major leg up in gold since the bull began. I really doubt this time will be any different.

…[O]nce the dollar bottoms and begins the explosive rally that always follows a major three year cycle low it will initiate the severe D-wave correction in the gold market. Gold investors will want to exit at the top of the C-wave if at all possible and avoid getting caught in the D-wave decline.

Developing Patterns on the Gold Chart

There is a developing pattern on the gold chart that once it reaches its target will be a strong warning for traders and investors to exit so they don’t get caught in the D-wave profit-taking event as the parabola collapses. This T1 pattern is a four-part pattern with the first and second legs up being almost equal in magnitude, separated by a midpoint consolidation that allows the 200 day moving average to “catch up”.

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The current T1,[as shown on the chart below,] has a target [for gold] of roughly $1650ish once gold breaks out of the consolidation zone. 

The fourth part of the pattern is the D-wave correction which should retrace to test the consolidation zone between $1300 and $1425. At that point the next A-wave will begin and we’ll repeat the whole process all over again.

What To Expect From the HUI

During the last major moves higher in the gold market, miners, which are leveraged to the price of gold, stretched 35% to 45% above the 200 day moving average. At the latest peak the HUI was only 25% above the mean – a strong clue that this was not the final C-wave top. [As such,] I expect we will see the HUI stretch 40 to 60% above the 200 DMA at the final top later this spring.

Even Brighter Prospects for Silver

Let me be clear though. I have no desire to buy gold. I doubt I will ever buy another ounce of gold again. The real money will be made in silver [and particularly silver miners] during this final C-wave advance and in the miners…

Silver has been exhibiting exceptional strength compared to gold for 7 months now. The consolidation on the silver chart [as shown below] is much larger than on the gold or gold miner charts.

I expect that massive consolidation to drive silver up to test the old 1980 high of $50 by the time gold puts in its final C-wave top.

Conclusion

[In summary, Connor forecasts:

• gold going to $1650ish (+15-20% from current level) ,
• silver going to as high as $50 (+ 40-45% from current level) and
• the HUI going to 40 to 60% above the 200 DMA (while the current HUI 200 DMA of approx. 550 would put the HUI somewhere between 700 (i.e. + 25%) and 800 (i.e. +45%) the 200 DMA at the final top will be much higher than the current  550 and therefore the HUI will be that much higher than the aforementioned 700-800) at the final top.

Interestingly, Connor's forecasts are somewhat similar to those of Goldrunner who, using fractal analysis, projects:

• gold going to $1860 into the May/ June period based on the late 70’s Fractal and even higher if the market psychology is volatile enough - up to $1975, or even up to $ 2250;  
• silver reaching $52 - $56 into May – June of 2011 and
• the HUI going to 940 to 970 by mid-June as being a distinct possibility.]

The time to get on board is before gold breaks out of the consolidation. Once it does the parabolic move should be underway and your chances of a significant pullback to enter the market will decrease significantly.

*http://goldscents.blogspot.com/2011/02/golden-fireworks-are-about-to-begin.html

Given the American national debt and deficit problems … the U.S. greenback has the potential for considerable downside … and by axiom, gold bullion has significant upside potential to $1,500 per ounce over the short to mid-term time horizon of 1 – 2 years and $4,000 per ounce over the longer term. Words: 1104

Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com, provides below further reformatted and edited [..] excerpts from Ian Gordon and Christopher Funston’s (www.longwavegroup.com) original article* for the sake of clarity and brevity to ensure a fast and easy read. They go on to say:

The entire world is now in an economic depression which always occurs at this point in the 60 to 70 year long cycle we refer to as the Longwave Cycle.

The Longwave Cycle
An understanding of the Longwave Cycle enables us to identify where we are in the cycle, to recognize each season in the cycle and, critically, to determine the move from one season to the next. That determination enables us to make correct investment decisions. There are good and bad investment mediums appropriate to each of the seasons. Typically, investments that perform well in one season do poorly in the following season.

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The Longwave Winter
In the Longwave Cycle there is always a deflationary depression and this occurs in the winter of the cycle. The onset of winter is signaled by the peak in stock prices which ends the biggest stock bull market of the cycle. During the Longwave winter, debt is purged, which causes huge stress and significant bankruptcies to creditors and debtors alike. In order to protect ourselves from the financial and economic onslaught that ensues, we buy precious metals, particularly gold and the gold equities of producers and explorers.

Deflation Coming
During this recent surge in gold activity, there appear to be many investors getting aboard because they fear a return of the demon inflation. They perceive that many economies are on the road to recovery from the recent economic downturn and credit crunch, thus they are looking for an insurance policy as a hedge against an inflationary outbreak. As previously mentioned, gold can also appreciate in value within a deflationary economic environment. While inflation may rear its ugly head at some juncture well down the road, it is a deflationary outlook that Long Wave Analytics is embracing as the most realistic probability to unfold over the near to mid-term time horizon. Witness the Japanese deflationary experience which is still unfolding.

Understanding Inflation and Deflation
Understanding inflation and deflation is critical to making the right investment decisions. Strictly speaking, inflation is simply an increase in the supply of money and deflation is a decrease in the money supply. Most financial advisors are now calling for inflation to resume and even hyper-inflation to run rampant in the United States, because of the Federal Reserve’s current effort to circumvent deflation by excessive money printing. We are of the opposite, and certainly the minority, view.

We believe that central banks will be unable to forestall deflation and that when it arrives, it will be unprecedented in magnitude. This conclusion is based upon three factors:

1. Once the debt bubble is unwound, it is deflationary in nature because it is painful and results in bankruptcies on both side of the ledger. Actually, it takes money out of the system and during our Kondratieff winter, trillions of dollars of debt will be expunged.

2. Under these circumstances, banks won’t lend money because those banks that survive bankruptcies, and most won’t, will conserve it. Consumers and corporations won’t be able to borrow money, even if they so desire.

3. The velocity of money will essentially come to a standstill, since there will be none to spend. Money will be hoarded, either under the mattress, or in banks that consumers believe will survive the debt deflationary onslaught. During inflation, as in the 1970s, the velocity of money increases as people spend their money today, rather than pay higher prices tomorrow. In deflation, as in the 1930s, those few people with money curtail their spending in the knowledge that prices will be lower tomorrow, next month and next year. As the early 19th Century saying goes ‘money like manure, does no good till it is spread’.

Between October 1929 and April 1933, despite the desperate efforts of the Federal Reserve to reflate the economy, money supply contracted by 28%. The argument today – supported by Ben Bernanke, the current Federal Reserve chairman – is that the Fed didn’t do enough at that time… This interpretation is at best false and at worst dishonest. All strenuous efforts by the Federal Reserve to overcome deflation failed back then because the amount of money coming out of the economy, through bankruptcy and bank failure, overwhelmed the Federal Re¬serve’s attempts to reflate.

We are gold bulls and deflationist but most gold bulls are inflationist. How do we explain this dichotomy? During inflation, the price of gold rises along with all other ‘things’, such as out-of-print comic books, art, antiques, etc. Why? Because as we have just explained, during inflation the price of everything rises and people buy today because prices are cheaper than they will be tomorrow. In these times, gold is viewed primarily as a commodity, although it does still perform a minor monetary role versus the dollar, which is being debased through monetary inflation. In the inflationary summer there is absolutely no threat to the banking system because debt is not that high and there is no threat to the economy because money is plentiful and easy to access. So, when the threat of inflation passes, as in 1980, the prices of gold, commodities, comic books and antiques fall.

However, deflation is another kettle of fish, since it comes about through the destruction of the financial system and the economy, because of the bursting of the debt bubble. When that occurs as in 1873, 1929, and now, there is fear and panic.

In all panics, there exists an instinctive will in all of us to survive. We instinctively turn to the people and things we trust. When it comes to money, people always go to gold – or gold equities.

*http://www.longwavegroup.com/publications/winter_warning/2009/_pdf/2009_Winter_Warning_Volume_10_Issue_1.pdf

Editor’s Note:

• The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
• Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above.
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