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XMFSinchiruna (27.88)

Don't Fold Your Gold or Silver

Recs

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September 23, 2011 – Comments (72)

I'm at Fool HQ this week, and so will likely not have the opportunity to provide the sort of in-depth analysis of this week's developments that I would otherwise post. But I did want to take a moment, given the sheer ferocity of yesterday's price action in pm equities -- and indications of additional pain for today -- to encourage my fellow Fools to remain long and strong those precious metals.

Many of you will recall my prediction that, although gold and silver would follow the broader market lower for a bit when the next bout of indiscriminate liquidation struck, gold and silver could be expected to find their bottom relatively swiftly and convincingly. I think by now it is crystal clear to all that few safe havens remain for risk-averse capital, and in contrast to 2008, this time gold and silver are very much on the radar screen of unnerved investors the world over. Treasuries are not a smart choice, so the smart money will flock to them in ever-smaller numbers with each successive financial shock.

Furthermore, current price levels for gold and silver remain comfortably within the realm of what was considered likely from a techncal perspective. We had a rapid and seemingly tireless run-up for months, and a healthy pullback was long overdue to pave the way for the next leg higher. Gold had gapped up a while back in the $1,660 to $1,680 area, so that range has been on the table as a possible re-test. And if that should fail to hold, we will examine major support levels within the $1500s. In all, we're talking about the move of the past 2 months or so that is being re-tested.

Meanwhile, all these developments spurring the exodus from equities are -- while certainly unfortunate in every respect -- massively bullish for gold and silver. The Eurozone crisis is showing ever-increasing scale and severity, and calls for substantial monetary-policy response are gaining traction ... including calls for the IMF to come to the rescue with SDRs.Three major US banks just received a sobering credit downgrade, Bank of America is beneath the Buffett put and heading lower, and yet few seem ready or willing to concede that the winds of resurgent financial crisis are beginning to blow here on our side of the Atlantic. Operation Twist was bullish for gold, as were the FOMC comments that accompaned it. We have interest rates frozen at zero-bound through at least mid-2013, offering gold investors a virtual guarantee of renewed upside momentum.

Remember, you lose nothing in the midst of this correction unless you sell into weakness. These are the sorts of moments that separate successful pm investors from the pack, and I am here to encourage you to countenance this pullback with resilience and unbroken perspective. The trend is your friend, and there is quite simply no reasonable case to be made that gold's run suddenly ended at $1,922 or whatever it was a few weeks ago. What would the headline read? "Gold's 10-year secular bull market finally broken by a cascading Euro debt crisis, zero-bound interest rates in the US, competitive currency devaluation, accumulating sovereign debts, and eroding economic outlooks. Um... I don't think so!

If you're fortunate enough to have cash on the sidelines here, you have an uncommon opportunity to get long precious metals equities at prices that are more reflective of $1,000 to $1,200 gold prices and $20 to $25 silver prices than they are of the current reality. That's your moat.

The standout bargain in my view is Primero Mining. I was backing up the truck at $3. At $2.60, I'm simply flabbergasted. HL at $6 after the dividend policy just released? Insane.

But the opportunities are not in gold and silver alone. Check out Cardero Resources and Cline Mining. These met coal juniors has been decimated by recent price action in met coal stocks, but ask yourself whether the entirety of Peabody Energy's "global supercycle" could have reasonably been reversed by the recent downward revision of global growth expectations and Asian import demand. Met coal plays remain a compelling story, and the entry levels being offered here are frankly unbelieveable. I've been a big buyer of coal stocks into this weakness, and I thoroughly expect them to perform admirably. Look at the majors: they are ALL incredible bargains. ANR is a megabargain. Same goes for copper. I'd be a confident buyer of copper stocks here, and into any further weakness. Teck and FCX at $30 are looking delicious.

I wish you all could be here at Fool HQ. I wish you all could see first hand what an incredible pool of talent resides at this company.

Hang in there through these dark days on the market, and don't lose hope that you will indeed get through it.

Fool on!

72 Comments – Post Your Own

#1) On September 23, 2011 at 10:51 AM, jed71 (33.41) wrote:

Thanks for the encouragement, Chris. I am getting beaten up pretty badly on some junior miners this morning and always good to hear another perspective.

I hope I didn't strap my tinfoil hat on too tightly this morning, but this certainly seems like manipulation after yesterday's shellacking. Another 8% lower on silver this morning and 3% on gold? I have a few bullets left but not many - may hold them for a technical bottom of gold at $1500 and silver around $25 (maybe a little higher than that). Best wishes.

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#2) On September 23, 2011 at 10:59 AM, jwebbzor (< 20) wrote:

BRD fell through its $1.40 support, trading right now at $1.36. I bought a little bit just to lower my average, but I'll save most of my capital incase this dip goes deep.

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#3) On September 23, 2011 at 11:46 AM, cbwang888 (25.99) wrote:

Silver lead the slide in London trading hours for 2 consecutive -7% days. Wondering why?

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#4) On September 23, 2011 at 12:11 PM, SN3165 (< 20) wrote:

Chris, were do you see silver going from here, and what do you think of exploration companies like Tyhee that need to go to the market for  financing?

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#5) On September 23, 2011 at 12:32 PM, JakilaTheHun (99.93) wrote:

Gold and silver are down because your thesis is completely wrong. It's always been wrong. 

Gold, silver, and commodities have been charging upwards because of negative real interest rates in China and the lending binge the PRC engineered; not to mention the Yuan devaluation created by the Dollar peg.  All of this created an epic real estate bubble in China.  That bubble is now crashing.

It has absolutely nothing to do with the policies of the US Federal Reserve.  There is no hyperinflation in the US.

A Chinese real estate crash will destroy all commodities, including gold.  It will also cause the Canadian and Austrialian economies to go into recession. 

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#6) On September 23, 2011 at 1:05 PM, Frankydontfailme (27.42) wrote:

Jakila, how can you say it has nothing to do with the federal reserve? If the federal reserve could act to weaken the dollar, and the yuan was pegged to the dollar.....

There is certainly not hyperinflation in the us. Potentially hyperdeflation with bouts of staglfation. Hyperdeflation has always been incredibly bullish for gold and silver. If countries respond by debasing their currencies (which they have) then hyperinflation can't be ruled out in the future.

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#7) On September 23, 2011 at 1:11 PM, Frankydontfailme (27.42) wrote:

Also, please show evidence that the real estate bubble is popping in China.

It is well known that real estate is overvalued in china. The chinese government and chinese central have stated this and acted accordingly in the recent months. I've never heard of a government anouncing a bubble before it happens (not that it wouldn't be possible, doesn't seem likely is all).

I have considered that a chinese hard landing might affect precious metals prices because they are the big buyers (less wealth = less purchasing). However, the affect a chinese hard landing would have on the world's economy would be devestating and unpredictable. How sure can you be sure that the world would not flock to gold and silver? Would debts of nations be sustainable if the world's growth went significantly negative? Would the central banks print? I don't think it matters, frankly. I'm buying the dip, but holding some cash for 1550/28

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#8) On September 23, 2011 at 1:25 PM, wolverine1987 (< 20) wrote:

Jakila,

While you are certainly correct that a China crash will take everything down with it, that really doesn't contradict--at all-- the view that Gold is has appreciated because of some of the factors Chris addressed. Gold and silver have been heavily influenced in their rise--according to almost every bull and bear-- by the fact that most of not all currencies have declined and become far less valuable. It is the currency crisis of faith that is the single biggest factor in Gold's rise. That and the concurrent lack of faith in governments around the world. If Gold was really heavily influenced by negative interest rates and lending binges, the fact that lending has stopped for two years in the U.S. but Gold has still risen contradicts your view. A Chinese real estate bubble as the cause, as you assert, would be news to most of the governments around the world you are gold buyers. they have their won reasons, and China has little do with it.

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#9) On September 23, 2011 at 2:06 PM, SN3165 (< 20) wrote:

Well here is my opinion really quick on Silver companies like GPL and EXK - they have the production to support lower silver prices. Still looking for strong earnings in the next two quarters, especially from GPL because of the sold off inventory. Aurcana, Hecla, Brigus all look good. Brigus just bought at $1.30! $1.30! With gold at $1,650! Bought Kinross 2014 warrants at $2.50. Franco '12 warrants are down to $6 range - good bet if you think gold will rebound in the short term (less than 8 months). Sandstorm Gold crushed down to $1 range - if you missed the run-up, here is your chance.

 Sinch, the one thing I worry about with the microcaps is financing. I know Tyhee and Alexandria will need to go to the market soon. Will they be alright?

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#10) On September 23, 2011 at 2:09 PM, SN3165 (< 20) wrote:

Also got my eye on Southern Copper if copper keeps falling and the stock drops down to the $15 range, forget about it.

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#11) On September 23, 2011 at 2:27 PM, SN3165 (< 20) wrote:

Another move I recently made - I actually successfully sold Primero warrants for a small profit bought .55 sold .58 - even though they are thinly traded. Keeping my eye on this one, looking for a better entry point. The stock has obv. been crushed and the warrants haven't followed as much. We could see the stock at $2.20, and the warrants drop .20 cents... pounce on it.

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#12) On September 23, 2011 at 3:25 PM, Frankydontfailme (27.42) wrote:

Heh. My strategy is similar to yours SN3165. Nibbling at these stocks, they are dirt cheap. If they get cheaper I will continue to nibble.  Gold will rebound. Silver is a triple from here within the next 5 years.

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#13) On September 23, 2011 at 3:28 PM, SN3165 (< 20) wrote:

Always good to keep a long term mindset, and buy when others are freaking out. This too shall pass! 

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#14) On September 23, 2011 at 3:30 PM, SN3165 (< 20) wrote:

But seriously, I absolutely LOVE the warrants. Kinross expires 2014, New gold has a 2017, Sandstorm 2014. 

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#15) On September 23, 2011 at 4:07 PM, XMFSinchiruna (27.88) wrote:

Jakila,

Gold and silver are down because your thesis is completely wrong. It's always been wrong.

That's quite a conclusion to draw from a minor and overdue correction within a decade-long secular bull market. I'll just leave it at that.

It has absolutely nothing to do with the policies of the US Federal Reserve.

You can't be serious. I'll just leave it at that.

"A Chinese real estate crash will destroy all commodities, including gold. It will also cause the Canadian and Austrialian economies to go into recession."

Sounds like a global depression. Hmmm, I wonder whether world governments may seek to pour debt-funded stimulus into such a scenario if it were to play out as you predict. But then again, if you don't think Fed policy had anything to with the run-up in gold this far, then I'm not sure I'll be able to help you see the connection.

You may wish to reconsider your own advice from early 2009:

#11) On January 01, 2009 at 12:28 AM, JakilaTheHun (99.92) wrote:

Gold is an effective store of value that has actually gained value over time (probably due to increasingly higher real costs of extraction). It's a very conservative investment vehicle. Naturally then, anyone who invests in gold in order to make a killing isn't necessarily all that wise. This does not mean that gold is a bad investment, however.

When there is a lot of economic/political uncertainty or a high amount of inflation, gold can be a safe and prudent investment choice as one can retain their wealth via this route. When there is a lot of economic growth and a booming economy, gold will on average underperform the stocks of most successful companies. This is hardly a groundbreaking statement --- it's simply an application of risk-reward principles. Gold is low risk and produces low returns over time; whereas, other investment vehicles such as stocks have higher risks and can produce higher returns over time if one makes wise investment decisions.

History teaches us that currencies can lose value very rapidly once a country amasses a crippling amount of debt. It's happened time and time again. When that happens, holding gold won't net you a fortune, but it will protect what you already have. Even if it offers a low return, gold can be appealing when a currency has become "high-risk".

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#16) On September 23, 2011 at 4:15 PM, XMFSinchiruna (27.88) wrote:

SN,

Regarind technicals for silver, which is always where we turn for guidance in the midst of a correction, there is no better source than Dan Norcini.

http://traderdannorcini.blogspot.com/2011/09/silver-weekly-chart-and-annotations.html

As long as we hold the line at $30, this silver correction may be over as quickly as it began. Any pair of closes beneath that mark would signal deeper and more lasting technical damage. Looks like about $27.50 would be the next support to watch for if we break below $30.

Not for nothing, but this deep drop in silver is cause for celebration over at Primero Mining, buying them time to work out a permanent solution to that silver stream tax issue.

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#17) On September 23, 2011 at 4:43 PM, XMFSinchiruna (27.88) wrote:

And of course Jim Sinclair is also a necessary starting point for time-tested perspective on the gold market.

Jim had this to say about gold today:

Market situations like this will be found to have held and created bear traps in several instances of similar pattern action over the past 30 years WITHOUT having continued further down to first major support. The current corrective pattern over the past 23 trading days strongly implies that the move below $1690 would continue on down to the core at $1665 at minimum as first bottom, and in the extreme to $1615, but not below $1584. This will happen prior to exhaustion and a return to the full bull trend.

So far the remaining successive levels of $2450/$2510; $2850/$2900, and $3280/$3330 are not affected.

Gold shares are being impacted by a field of problems as a result of the large short positions held in almost all. They are being taken advantage of today by pressuring the entities in hopes of causing long term holders to collapse in their commitments.

Respectfully,
Jim

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#18) On September 23, 2011 at 5:24 PM, SN3165 (< 20) wrote:

Thanks, Sinch. Any thoughts on Tyhee?

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#19) On September 23, 2011 at 5:25 PM, Jbay76 (< 20) wrote:

I'm frothing at all the opportunities out there, but bummed becuase I already acted by getting more HL shares at 7, which I thought ws good, but now at 5.69, I feel like a chump.  Its funny how that happens.  I hope this lasts a while so I can get more AXU...man am I frothing at the mouth in anticipation :P

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#20) On September 23, 2011 at 5:52 PM, TheDumbMoney (38.47) wrote:

I am no gold fan, and hold neither long nor short positions in either gold or silver.  But I mostly view this drop as being the result of a situation where gold and silver (on which people have YTD gains) are being sold for liquidity in the face of global margin calls. 

I also note however, Mr. Barker, that short term real interest rates (the Eddy Elfenbein model) have climbed a statistically significant amount since 9/21, ever since the Fed announcement, which because of its the Twist structure pushed long term real rates down, but short term real rates up. 

Have a nice weekend everyone.  Curious to see what happens Monday.  Be safe out there.

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#21) On September 23, 2011 at 6:14 PM, XMFSinchiruna (27.88) wrote:

DTAF... :)  touche.

As I've said before, I think there is real value to paying attention to real interest rates to inform price expectations for gold. I'm not sure I agree that it offers guidance on a micro-timescale like from one day to the next ... I'll have to give that some thought and have a close look at past corrections.

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#22) On September 23, 2011 at 6:22 PM, TheDumbMoney (38.47) wrote:

I'm just ribbing. The traders' twitter feeds I follow are talking a fair bit about margin calls, and Bloomberg had a piece on it I think.

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#23) On September 23, 2011 at 6:24 PM, XMFSinchiruna (27.88) wrote:

SN,

A sudden bout of renewed uncertainty combined with a price correction is definitely a near-term headwind for those who need to raise capital; Tyhee and Alexandria included. When you're a penny stock, every lost penny renders a capital raise substantially more painful for existing shareholders.

The correction is an unfortunate development for these guys. And if it becomes clear the world is slipping into a global contraction with renewed systemic risk to the financial system and currency regimes, it goes without saying that undercapitalized explorers, regardless of existing resources, become high-risk vehicles by virtue of uncertain access to development capital. The wild card there is the vast store of wealth held in cash right now that is keen to invest in gold .... we may find plentiful capital chasing these explorers in a worst-case scenario for the global economy.

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#24) On September 23, 2011 at 6:43 PM, XMFSinchiruna (27.88) wrote:

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/9/23_Sprott_Money_Temporarily_Runs_Out_of_Physical_Silver.html

With gold and silver prices plunging, King World News sources are reporting massive physical demand. One example is Sprott Money, which completely ran out of physical silver. Larisa Sprott, President of Sprott Money told KWN, “It’s been pretty wild, especially the last three or four days because of the price drop. People are trading in their paper money for gold and silver, but we are seeing more purchases of silver net. In fact the buying has been really skewed in favor of silver, there is tremendous demand.”

Our clients are very savvy, sophisticated and when a price drop of this magnitude occurs, they step in and buy very aggressively. Right now there is dramatically increased volume what we are seeing is buying across all spectrums in terms of the size of the orders.

To clarify, we may have some client buying a single tube of silver maples, while at the same time, another client is buying $5 million of 100 ounce silver bars or gold maple leafs. The bottom line here is the drawdown in price is creating a tremendous amount of demand.”

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#25) On September 23, 2011 at 7:29 PM, JakilaTheHun (99.93) wrote:

Sinch,

My views on gold have evolved considerably since Jan '09.

But actually, if you carefully read my statement, you'll notice a major problem with gold right now, relative to gold in late '08 / early '09.  Gold is a low-reward investment that helps 'protect wealth' over a long time period.  Just like housing. 

What happens when those asset classes stop yielding low returns and start skyrocketing?  Oftentimes, this is a signal of a bubble. At this price, gold is a high risk investment. It's no longer trading at $700 - $800 /oz.  When I made those statements, I thought gold should probably trade around $900 - $1000 / oz.  It's shot way past that. 

It's a very crowded trade at this point and it's very "high risk" now. 

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#26) On September 23, 2011 at 8:32 PM, 4thDensity (99.64) wrote:

To say that the performance of gold can only be attributed to Chinese financial movements and nothing to do with debasement of fiat currency in general  (mainly the world reserve currency) printed by the US FED is ignorant at best.  You are right that gold is an investment that protects wealth, but wrong to compare it to housing.  Gold is a monetary financial instrument while housing is not.  Do you see central banks of the world accumulating houses or shopping malls to aid in their financial policies?  No, recently they have been accumulating gold for reasons that are obviously lost on you.  Gold is not in a bubble nor will it ever be. 

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#27) On September 23, 2011 at 8:52 PM, XMFSinchiruna (27.88) wrote:

Jakila, Obviously I disagree. I believe gold is one of the lowest-risk assets one could own at present. Given the macro risks, and the potential for further deleveraging and even global economic contraction, the "risk" ascribed to gold must be understood relative to other sorts of assets.

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#28) On September 23, 2011 at 8:53 PM, Frankydontfailme (27.42) wrote:

Well said 4thDensity..... but gold will likely be in a bubble some day, all secular bulls turn into one. Gold is no where near overowned or a crowded trade right now. It's so oversold even Bath-Boy Buffet would consider its value (except he's too much of a crony-capitalist to admit the truth about anything).

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#29) On September 23, 2011 at 9:01 PM, XMFSinchiruna (27.88) wrote:

Kdak posted this sobering CNBC interview with Jim Rogers:

http://caps.fool.com/Blogs/jim-rogers-on-cnbc-22/645749

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#30) On September 23, 2011 at 9:45 PM, Raambo20 (< 20) wrote:

I was overweight gold miners after the HUI broke out of its trading range a couple weeks ago, and got whacked really bad today.

The reason I was long gold in the first place, was as Sinch said, I thought in times of extremem volatility in panic people would rush to safe havens like Gold. In the past as the market sold off, gold would go up and my faith in the fact that it was a save haven was reinforced.

As we have obviously seen however the last two days gold got hammered far more than the Dow or S&P, when I would have expected it to rally with treasuries or the dollar and I cant figure it out. Silvers status as a monetary metal is also in question as I dont think any asset hailed as a "safe haven" has dropped 26% in two days.

Usually I would lick the salt off my wounds, close my eyes and buy some more, but if we are going to see mass liquidation like in 2008 this might not be a smart idea. 

 /End Rant 

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#31) On September 23, 2011 at 10:04 PM, XMFSinchiruna (27.88) wrote:

"Silvers status as a monetary metal is also in question as I dont think any asset hailed as a "safe haven" has dropped 26% in two days."

Silver's status as a safe haven is entirely intact. This is a long-overdue corrective move exacerbated by indiscriminate liquidation. Safe haven assets prove their value over the longer haul, and silver promises to rocket through $50 before very long ... and I hope you're still along for the ride when it does.

I understand what you're going through! I watched my portfolio take on massive losses in 2008, but how glad do you think I am today that I didn't let the depth or ferocity of that selloff shake me out of my precious metal positions?

Ongoing developments are bullish for gold, with the dollar's sharp rise creating the sole headwind of near-term note. CME raised margin requirements for both metals, which is a good for a more orderly advance going forward. We're hearing whispers of the sorts of scenarios that could send gold soaring on a moment's notice. These are enormously uncertain times, and I am sure glad I have gold and silver exposure. If you're patient and retain the long-term view, I think you will be glad as well.

Good luck! I'm here for you if/when you have questions. A lot of us are in this together.

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#32) On September 23, 2011 at 10:19 PM, SN3165 (< 20) wrote:

@23, thank you Sinch. What do you think the chances are that these microcaps like Tyhee or Alexandria might have to go to, say, a royalty company like Franco Nevada for financing  ?

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#33) On September 23, 2011 at 10:35 PM, walt373 (99.79) wrote:

Jakila, Obviously I disagree. I believe gold is one of the lowest-risk assets one could own at present. Given the macro risks, and the potential for further deleveraging and even global economic contraction, the "risk" ascribed to gold must be understood relative to other sorts of assets.

Deleveraging and economic contraction are generally deflationary forces and I believe deflation is bearish for gold. Although I have heard people say gold does well in both deflation in inflation, I don't buy that. Keep in mind that gold is traded purely on sentiment because it has no fundamental value. Since gold is seen as an inflation hedge and generally not as a deflation hedge, I believe the run-up has been in anticipation of inflation, not deflation. If this inflation does not occur, but deflation instead, I don't see how that can be bullish for gold.

The way I view the correction in gold is this: deflation is becoming likelier throughout the world. The US is entering a double-dip recession. Chinese voluntary slowdown is decreasing demand for commodities as they stop spending massively on infrastructure and RE. Possibility for RE bubble collapse as well. In Europe, defaults, banking crisis, austerity leading to recession/depression. All of these are deflationary forces. And the gold market sees that the Fed, is out of bullets.

Which, by the way, was based on a misunderstanding to begin with. The Fed does not have much power to create inflation in this environment. Many people incorrectly believed that QE2 was inflationary. QE2 was an asset swap of cash for short term treasuries. This is what happened: banks holding treasuries traded them in for cash, then turned around and deposited that money straight back into the federal reserve banks. That money never entered the real economy. When banks owned treasuries, they were basically lending money to the US govt for very little interest. Then, after QE2, they were again lending money to the US govt for very little interest.

The way money supply would be expanded is through lending. But increased lending did not happen because we are in a balance sheet recession and consumers continue to deleverage, meaning the demand for loans is low. QE2 did not increase lending and thus did not change the money supply. It was a non-event to the real economy. The one thing QE2 did do is create a misconception that the Fed was "money printing," which distorted financial markets. People are realizing now that it was all an illusion.

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#34) On September 23, 2011 at 10:44 PM, mhy729 (32.71) wrote:

I've been seeing a lot of comments on Tyhee and Alexandria, but none on Caza Gold lately...has Caza gone bust the way of Northern Abitibi?

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#35) On September 23, 2011 at 10:52 PM, Raambo20 (< 20) wrote:

@31 Thanks, you are certainly right that the people who held on during the 2008 debacle and bought more at the bottom did very well shortly thereafter. I always tell myself to never sell no matter what happens unless my original thesis has changed for whatever reason.

There are a number of events as you mention that could send investors running for safe haven assets, im just wondering if they will chose Gold, or flock to the dollar, thereby reducing the value of Gold in dollar terms. That being said i agree with you that the margin requirements are a good thing, the more strong hands in the better the more orderly an advance.  

 On another note now that I think about it the POG has averaged some pretty high numbers since the last quarter, and as long as the POG doesn't break down completely I think the miners still have the potential to show some really strong numbers in Oct/Nov. Hopefully with all other equities underperforming this will draw some capital in.

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#36) On September 23, 2011 at 11:12 PM, XMFSinchiruna (27.88) wrote:

walt373,

That topic has already been wholly resolved within these pages. With all due respect, your contention that gold's rise is a reflection of inflation expectations is a severe oversimplification of a complex tapestry of gold's myriad fundamental drivers.

QE2 was no illusion. It expanded the Fed's balance sheet by another $600B on top of the obscene rate of preceding expansion. It injected artificial demand into the Treasury market that prevented bond yields from reflecting reality. It retained the conditions under which stagflation began to take hold, and likely will again when the threat of contraction yields further stimulus and policy intervention.  Operation Twist will achieve virtually nothing, aside from buying a touch of time until market conditions render QE3 more palatable.

The dollar's reprieve here is only momentary, and so too shall be gold's counter-cyclical decline. 

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#37) On September 23, 2011 at 11:19 PM, XMFSinchiruna (27.88) wrote:

mhy,

No, Caza's weakness is purely a function of its early stage of development. Broader market pessimism allows no premium for an unproven land package no matter how strategically positioned, preliminarily promising, or how reliably well managed. IMO, a couple sets of positive drill results are all that are needed to carve a bottom into Caza's shares.

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#38) On September 23, 2011 at 11:44 PM, XMFSinchiruna (27.88) wrote:

Northern Abitibi, as you reference, is indeed facing a difficult challenge and its prospects are uncertain. The meager market cap makes capital raising an uphill battle, but I would point out that recent trenching located 3 new zones of mineralization at Viking, and a few additional assays and results of a geophysical survey are still pending. Northern Abitibi was always a somewhat elevated risk because it is not located within one of Canada's primary gold districts, but expectations for an initial resource of around 400k oz would have made up for that shortfall in perceived prospectivity. Problem is, even though I am convinced further exploration at Viking would yield an attractive small-scale economic resource, the market cares only that the initial resource was only 131,511 oz., and it may not provide the conditions necessary for the company to complete the drilling that would be needed. Then again, Viking is not too far from Rambler's Nugget Pond Mill, so there might be options for some very small-scale harvesting of existing resources to fund further drilling (operations of that scale, not requiring a mill, would face little trouble obtaining permits).

That pretty much sums up my thoughts on Northern Abitibi. My apologies to fellow Fools who may have taken a little haircut in that one, but I also trust no one would have been overly aggressive with respect to allocation toward such a highly-speculative early-stage play. Also, I was pretty clear the moment its initial resource came in so far beneath expectations that the company's outlook had been materially impaired, and so I trust Fools made moves to limit any further downside risk.

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#39) On September 23, 2011 at 11:50 PM, walt373 (99.79) wrote:

That topic has already been wholly resolved within these pages. With all due respect, your contention that gold's rise is a reflection of inflation expectations is a severe oversimplification of a complex tapestry of gold's myriad fundamental drivers.

I had read the previous posts but did not see much about deflation. I agree that there are many fundamental drivers behind gold, but I believe they boil down to inflation and currency debasement. Can you please elaborate on this tapestry? Specifically, in what scenarios can deflation occur that would be bullish for gold. Thanks.

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#40) On September 23, 2011 at 11:51 PM, Frankydontfailme (27.42) wrote:

For those that are into market timing, here's Peter Grandich:

http://corporateinterviews.com/interviews/AFewMinutesWithPeter23September2011/grandich23SEPTEMBER2011.html

 

In my opinion, Grandich is the absolute best for short term precious metals trends. An absolute genius. He called the pullback in silver around 49, the bottom around 35, the top in gold around 1900 etc etc.

From his newsletter: 

 

It’s That Time Again! Gold $1,689 Silver $32.34 and $100,000 Challenge

Posted: 23 Sep 2011 05:34 AM PDT

Ever since first entering the bullish side of gold back just above $300 in 2003, I’ve noted what I called last great buying opportunities before gold and silver moved to higher trading levels. Sometime today I believe such can be the case again. Ideally, I would like to see gold closer to $1,650 and silver $30. But with such volatility in the markets, it’s almost impossible to time such bottoms to the minute or hour. The best course of action may be to step in now and scale down buy to the numbers I spoke about if the market continues to go lower from here on through the day.

My $100,000 Challenge – Nobody has been more wrong on the direction of gold then Jon Nadler. He also has ducked any challenge put to him and instead remains arrogant and in denial of his horrific track record. I hereby am willing to wager $100,000 with him that gold hits $2,000 before it hits $1,400 (about $300 either way). I welcome a financial journalist or recognized investment authority to hold the bet. Come on Tokyo Rose, here’s your chance to redeem your poor record.

 

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#41) On September 24, 2011 at 12:08 AM, Frankydontfailme (27.42) wrote:

Walt, without going into the fundamentals (gold is money, gold is scarce) look up the price of gold (and silver) during any deflationary period.. say the great depression. And I get that this situation was different because there were runs on banks for gold ( we were on the gold standard).... how about the price of gold in Yen during their lost two decades?

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#42) On September 24, 2011 at 1:18 AM, traderbach (< 20) wrote:

Sinch.

 Are you in a position to comment on SVM yet? Or anyone else have comments on them? Have been following them with interest.  Many fools also are curious.  Would appreciate anything you may be able to say at this time.

 Thanks as always for your time!

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#43) On September 24, 2011 at 1:56 AM, walt373 (99.79) wrote:

Frankydontfailme,

I found this website for historical Japanese inflation rates. It looks like technically the long Japanese deflationary period lasted from 1999-2005, although they are in deflation again now. The Nikkei bubble burst in 1990 so I would say they started experiencing deflationary pressures around then.

Also, here is a chart of gold in yen. Seemingly contradictory to the title of the second link, gold actually fell by about 50% from 1990 to 2000 against JPY. It was not until the current gold bull market began that it made back its losses and more.

It seems pretty inconclusive. I would say the gains/losses were far more impacted by the bull/bear markets in gold rather than deflation in Japan. Also, keep in mind, the global economy was doing great while Japan was going through their recession, so gold being a global commodity probably does not reflect Japan all that much.

I'm interested in the mechanics of why gold would or would not perform well in a deflationary period. Considering that cash and bonds would do well in deflation, if gold does well vs cash, while real assets (commodities, RE, stocks) fall vs cash, gold must really be killing stocks at that point. Guess someone had this thought before me and invented the FSG ETF :)

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#44) On September 24, 2011 at 4:47 AM, Vells77 (< 20) wrote:

>>>"Gold's 10-year secular bull market finally broken by a cascading Euro debt crisis, zero-bound interest rates in the US, competitive currency devaluation, accumulating sovereign debts, and eroding economic outlooks. Um... I don't think so!<<<<

Now this fool knows what he's talking about. We ain't seen nothing yet, the gold rush is only going to start.

 

 

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#45) On September 24, 2011 at 9:04 AM, MoneyWorksforMe (< 20) wrote:

While most of you argue over gold and silver's move in the short term, I will describe why you should be bullish on these metals, and to a lesser extent commodities over the next 5 or so years as concisely as this:

Most of the world's major governments are saddled with ever-increasing, enormously high amounts of debt. These governments are staring at a train, with the words "DEBT CRISIS" imprinted on the side of it, which is headed directly for them as they lie hopelessly on the track. 

One must ask their self this question, "With preexisting levels of debt extremely high, and the global economy dramatically slowing, how will major governments be able to make their debt payments?" Can anyone even begin to fathom the U.S. government, with annual budget deficits on the order of 1.5 trillion, and near zero growth trying to pay back 15 trillion in today's dollars? 

The end result is the same as that of a public company that is in the red and desperately needs to raise capital to fund short term debt payments: massive dilution.

The easiest and most convenient way for the world's major economies to avoid a debt crisis is through currency devaluation, and that is clearly the path they have begun to take.  

A trillion dollars/euros 5-10 years from now will buy substantially less than it does today...

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#46) On September 24, 2011 at 9:40 AM, Frankydontfailme (27.42) wrote:

Interesting points Walt. I would generally agree that you can't draw a conclusion either way on gold in yen.

First off, the definitions are key here. People tend to define deflation and inflation in many different ways. Neoclassical economists define inflation as an increase in CPI. Austrian economists define inflation as an increase in the money supply.

Here is an excerpt from Mish Shedlock, a deflationist who called the housing bubble, the rise in gold and treasuries:

"Don't Get Hung Up on the Term "Deflation"

I get emails nearly every day about prices. I also get emails nearly every day about money supply. Here's the deal:

If money supply is your measure of inflation, we are in it and likely will be for a long time.If the CPI is your measure of inflation, we are in it, and may remain in it more often than not.
That really has been my stance for years. Nothing has changed. People get hung up on the term "deflation". Perhaps I should have made up a new name.

After all, the term "stagflation" was invented to explain what Keynesian clowns thought impossible (rising inflation and a recession). Keynesian thinking should have died right then and there. Unfortunately it didn't, and the economy still suffers today because it didn't."

 -Mish

 

 

Prices of things are not a good measure of inflation versus deflation because prices are ruled by supply and demand (as well as supply and demand of money in circulation plus available credit). If we truly are at peak oil (for example) we would expect the prices of almost everything to eventually rise, at least in real terms. Looking at the money supply, as you previously suggested, is not sufficient in its own, because the money supply does not necessarily get into the publics hands. Right now trillions are sitting on banks' balance sheets and are not being lent out.

Anyway, if we want to talk about gold in inflation versus deflation, we need to have the same definition. Clearly gold doesn't always rise in inflation (see Great Moderation), clearly it sometimes does rise in inflation (Stagflation of 70's, any hyperinflation), it can also rise in deflation. Frankly, there is no magical bullet to determine the price of gold, as Sinch repeatedly says.

To begin to understand gold you must understand all of the factors. Supercycles (and what causes them... DEBT), supply, demand, where the demand comes from, central bank intervention, inflation, deflation, money supply, interest rates etc.

It's complicated :) (and also really simple)

Nonethless, to say that deflation is gold's Kryptonite so definitively without further explanation is more than a little superficial. If there is further analysis you could guide me to I would absolutely be interested. 

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#47) On September 24, 2011 at 9:58 AM, skypilot2005 (< 20) wrote:

On September 23, 2011 at 11:44 PM, TMFSinchiruna (99.36) wrote:

"Northern Abitibi, as you reference, is indeed facing a difficult challenge and its prospects are uncertain. The meager market cap makes capital raising an uphill battle, but I would point out that recent trenching located 3 new zones of mineralization at Viking, and a few additional assays and results of a geophysical survey are still pending."

I am keeping my shares securly in my glove box.  At the current price, there is not a lot of relative downside risk. IMO

FYIs as referenced, above.

http://www.naminco.ca/docs/NR11-11%20Results%20holes%20121%20to%20128%20final.pdf

 

http://www.canadianminingjournal.com/press-releases/story.aspx?id=1000587845

 

September 19, 2011

 

"Northern Abitibi Mining Corp. (“Northern Abitibi”) is pleased to provide additional trenching results from the Vikinggold property in Newfoundland, along with assay results for drill holes 122, 123, 127 and 128.

Trenching Program

Trenching and prospecting at the end of the 2011 field program have resulted in the discovery of 3 new zones of mineralization. A grab sample from a large boulder of altered granite from the northeast end of the Viking trend has returned 12.1 grams per tonne (g/t) gold. This result is on trend with previously released high grade samples, including 9.9 g/t gold and 52 g/t silver over 1.4 metres, and verifies the presence and continuity of high grade mineralization in the northern part of the Viking Trend.

These samples are from a newly outlined zone of alteration which is distinct from the Thor Trend and which has now been outlined at surface over an area roughly 1300 metres long by 150 metres wide."

I own a few K shares.  As Sinch mentioned a while back, it is highly speculative.  I would not initiate a new position, today.  But, I am leaving the shares I own in the glove box, for now. 

But, that's just me.

As a note, there are not a lot of peripheral information sources for this company.  Especially, locally.  It makes it difficult for even me, :) to get a clear "picture".

Sky Pilot

Official Web Link Assistant to Sinch

 

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#48) On September 24, 2011 at 11:45 AM, SN3165 (< 20) wrote:

I wouldn't even think of shedding Caza this early in the game. The potential for a multi-million ounce resource is big, IMO. After some research I am hoping Tyhee's updated Feasibility with more recent gold prices will lift the shares up.

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#49) On September 24, 2011 at 1:40 PM, XMFkmoney (99.61) wrote:

You mentioned that you think gold is a low risk investment. I am wondering how low risk.

My dad is retired and he likes to keep at least one year of expenses on hand just to be safe.  He typically puts this money in a savings account.

Over the next year is he safer with $12,000 in a savings account or keeping  ~7oz of gold in a safe deposit box? He's particularly nervous about things right now so he wants two years expenses on hand.  Should he put an extra $12,000 in his savings account or get another 7oz of gold? 

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#50) On September 24, 2011 at 2:05 PM, Frankydontfailme (27.42) wrote:

Diversify XMF. 2 ounces of gold, 100 ounces of silver, 3,000 us dollars, 3,000 canadian dollars... for example...

Or instead, 3,000 dollars Phillip Morris, 3,000 dollars Proctor and Gamble, 3,000 dollars GoldCorp, 3,000 dollars cash (if he's comfortable with the stock market, which I wouldn't blame him for not being). 

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#51) On September 24, 2011 at 5:17 PM, XMFkmoney (99.61) wrote:

Thanks for the response. He already has a diversified stock portfolio. He's looking to take some of that money out to pay his bills next year.  He doesn't want to assume the risk of the stock market. That's why he's wondering about gold. Which is safer, his savings account or his safe deposit box with gold?

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#52) On September 24, 2011 at 8:23 PM, Frankydontfailme (27.42) wrote:

There is no way to know for sure whether gold or the dollar will be worth more in a year. Since the birth of our modern free floating exchange monetary system in 1971, gold has gained (on average) 25 dollars a year. That being said, past performance is no predictor of the future. We are in tumultuous times. The dollar will strengthen until the fed eases more, or congress gives the world a reason to doubt us (could be sooner rather than later).

Gold has been more volatile than the dollar. Gold could lose 20% value in one year (unlikely but possible).

 The dollar, however, has also been quite volatile recently. There are good reasons for this. The world is finally starting to act to move away from the dollar as a reserve currency, rather than just mumble about it (like Charles de Gaulle). Central Bank policy is increasingly unstable and unpredictable (as is fiscal policy). The value of the dollar and the value of gold are unpredictable. Only long term trends can be anticipated.

Gold is in a long term uptrend, the dollar is in a long term downtrend. With a long enough time frame, gold will win.

To answer your specific question, the dollar is safer in a one year time period (in my opinion). Over any longer time period (even two years) I'd rather hold gold.

I suppose that's what you're getting at. It's an absurd question (if your goal is to illustrate how the dollar is a better safe-haven than gold, forgive me if I assume incorrectly). One should not hold gold to pay their bills one year later. It's a store of wealth over the long term. It should be part of even a short term portfolio if it's also held with diversified cash and equities.

Oh, and by the way. I wouldn't hold gold at a US bank (maybe goldmoney.com) - see executive order 6102 

 

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#53) On September 24, 2011 at 9:58 PM, JakilaTheHun (99.93) wrote:

Walt373's analysis of QE2 is right on. 

People are still fighting the last war.  The Fed had loose monetary policies from 1998 to 2004, because they failed to take into account the inflationary forces in the housing sector. Instead, they actually lowered interest rates when they should have been raising them. 

In 2011, it's a completely different environment. The Fed can try to push money back into the real economy, but there's little they can do with falling housing prices and virtually no demand for loans. QE2 was a monetary non-event; which is why we still don't see any significant inflation. 

The argument that there is high inflation has always been flawed.  If there's inflation, you'll see rising real estate values first and foremost.  The only assets going up have been commodities, but that's precisely because of "the other bubble" in China; it has little to do with what's going on in the US. 

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#54) On September 25, 2011 at 10:37 AM, XMFSinchiruna (27.88) wrote:

XMFkmoney

Based upon your prior commentary on gold, I am having a very hard time believing that your question is sincere.

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#55) On September 25, 2011 at 10:43 AM, XMFSinchiruna (27.88) wrote:

skypilot, Please understand, there is significant downside risk with Northern Abitibi, which is precisely why I ceased highlighting the shares when that disappointing initial resource came out. There is also significant upside potential if they can manage to access sufficient funding to complete the work necessary to expand the resource to where the market will take notice, but it is very important to remain cognizant of the risks.

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#56) On September 25, 2011 at 4:08 PM, XMFkmoney (99.61) wrote:

It's a sincere question between my dad and I.  My opinion was that since his short term contracts were in dollars it was safer for him to have his short term money in dollars. AT&T and his mortgage lender are going to ask him for dollars for the life of those contracts.

I also told him that he could get the counter opinion at the Fool and I'd post the question for him. 

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#57) On September 25, 2011 at 4:23 PM, AvianFlu (41.20) wrote:

I am surprised nobody has referred to the front page Wall Street Journal article from a couple of days ago referring to the drop in gold and silver prices being a result of investors needing to raise fast cash in order to cover stock losses.

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#58) On September 25, 2011 at 4:49 PM, mjmac89 (< 20) wrote:

SN3165,

Where and how do you trade the Primero and other warrants you mentioned in one of your earlier posts? It sounds like an interesting trade to me, and I'd like to look into it further.

Thanks for any light you can help shed. 

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#59) On September 25, 2011 at 6:38 PM, SN3165 (< 20) wrote:

Here is the US symbol.

http://finance.yahoo.com/q?s=MNCWF.PK

Read up first at preciousmetalswarrants.com and other websites you can find. Here is a recent blog post - http://caps.fool.com/Blogs/pm-warrants-a-huge-boost-to/638724

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#60) On September 26, 2011 at 12:53 AM, walt373 (99.79) wrote:

XMFkmoney, you're asking if gold is safe to a bunch of gold bulls in this thread. Let me just point out that gold has dropped 9% in three days and 13% since the beginning of the month. Gold had a bubble in the 70s and crashed spectacularly. The bulls think this time is different. I'll let you decide if they are right or not but there is clearly some risk.

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#61) On September 26, 2011 at 4:11 PM, Frankydontfailme (27.42) wrote:

Ok Walt, apparently the dollar is a safe haven, which can never undergo corrections. XMF, please have your father look up the historical dollar price of virtually anything over the last century... Coca-cola, copper, gold, housing, the down jones. The dollar is not a safe haven, it's bound to lose. Obviously stocks are better than gold, and gold stocks are better than most non-gold stocks.

 Here is the long term price of gold in dollars (back to 1790, log-scale):

http://htmlimg3.scribdassets.com/56a19r58sg148d92/images/19-f03ae6cb05.png

What is safer over the long term... gold or the dollar? Compare those that bought gold at the peak in 1981, versus those that held dollars since 1981.....

 

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#62) On September 26, 2011 at 10:59 PM, walt373 (99.79) wrote:

I never said the dollar is a safe haven. I never even said gold is not a safe haven. I just pointed out that gold has fallen a lot in the past month and that it had a bubble a few decades ago. These are just facts. XMFkmoney, I guess it's up to you to define what a safe haven is and what kind of time horizon you are using. What exactly is... "safe"? What about "haven"? Hmm...

Franydontfailme, if you want to use the extremely long time horizon argument, then stocks completely crush everything. Both are very volatile in the short term. So according to your argument, stocks are an even better safe haven than gold. And you know what, it's OK if you bought stocks in the year 1999 because I'm sure they will have overtaken cash after 30 years.

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#63) On September 27, 2011 at 11:42 PM, Frankydontfailme (27.42) wrote:

Thats absurd Walt. Of course stocks are great for the long term. Of course stocks will beat gold in the long term. 

That being said: 

Stock are down a lot as well these past couple months.... oh an there's been a bubble in stocks about every decade.... (just facts)

 

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#64) On September 28, 2011 at 3:26 AM, walt373 (99.79) wrote:

Of course it's absurd - that's my point. Obviously, stocks are not a safe haven despite the fact that they will beat cash over the long term. So what makes gold safe but not stocks?

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#65) On September 28, 2011 at 3:47 AM, walt373 (99.79) wrote:

Well, let me just say what I believe. Let me know if you disagree.

-Stocks and gold are not safe havens by any means over the short term, this much is obvious.

-They are generally not safe over the medium term either (2-5 years), because depending on what price you buy, you may still lose money. You just have to look at some cyclical bear markets in gold and stocks. Some last for 5+ years.

-In the long term, they are safer, but not always. If you are buying at the top of a bubble, it may take you 20 years to recover losses. In the meantime, you can see some 70%+ drawdowns. If you cannot handle these kinds of losses psychologically, you will sell, in which case you will never recover your losses. Cash will be down a lot too due to inflation, but probably less than bubble crashing losses.

-Over the extremely long term (20+ years), gold and stocks are probably safer than cash at this point, as the losses from inflation are running over 50% even at modest inflation rates.

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#66) On September 28, 2011 at 3:53 AM, walt373 (99.79) wrote:

And, in the case of hyperinflation, gold will soar. So will stocks of companies that own real assets - take a look at what happened to the Zimbabwe stock exchange.

In deflation, stocks crumble. Gold - well, we were discussing that earlier, guess that is inconclusive.

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#67) On September 28, 2011 at 10:42 AM, Frankydontfailme (27.42) wrote:

Fair enough Walt. I agree completely. Do you then agree that it is wise to have a diversified portfolio that includes both stocks and gold?

Our conversation got sidetracked because I was responding to XMF who  specifically asked if it was better to hold cash or gold for a one year time period (as if the answer to this question proves that cash is a safe-haven over gold.)

About the bubble thing, well yeah. But the point is savy investors should be wise enough to buy when everyone is selling (now for gold) and sell when everyone is buying.... if they aren't savy enough they need to be honest with themself and diversify completely (bond, stocks, gold, commodities, real-estate) and occasionally rebalance.

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#68) On September 28, 2011 at 12:33 PM, walt373 (99.79) wrote:

Yes, I have no problem with holding gold in a diversified portfolio, emphasis on diversified. I view gold as a long-term asset, one with a similar risk and time-horizon characteristics as stocks. Gold can do better than stocks in some cases, such as stagflation or an armageddon scenario. But generally, stocks have much better long-term returns. So I think of gold more as a hedge than an actual investment, and would not allocate an outsized position in it because of relatively poor risk/return profile in the long run in most cases. Protect yourself with gold, yes. Gamble on it with a huge position, so that you suffer severe losses if the world does not end up going down the toilet, no.

One problem I have with gold is that it's hard to tell if it is in a bubble or not. And like my previous post mentions, stocks and gold are relatively safe in the long run except when you buy in a bubble, so it is a key risk. At least with stocks, you can look at valuation measures. If the market is trading at a P/E above 30, you know, it's probably prudent to stay away. With gold, all you have to look at are historical returns, ratios like gold to money supply, prior peaks and troughs, etc. These figures all have huge swings over long periods of time and I am not convinced that they are the actual drivers of gold returns, merely coincident indicators that could look completely different in the future than they did in the past. There's very little to ground yourself on. So could gold be in a bubble right now? I don't think you can say for sure.

I am a contrarian by nature so I want to buy gold when it is hated or ignored. That was earlier this decade. Sentiment has swung in the other direction. Yes, there's still some room left to improve sentiment. There are still doubters like me. But we are undoubtedly closer to the "love" than "hate" side by now. In this situation, I think people should be cautious about gold.

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#69) On September 29, 2011 at 2:03 AM, Frankydontfailme (27.42) wrote:

Ok, but you overestimate the predictability of stocks. P/E ratios? Maybe in the long term. Maybe if you use the case-shiller average earnings over the last decade. The fact is, using last year's earnings (or analysts expected next year earnings) are no guarantee of future returns. Nevermind gaurantee, is there even a correlation?

Gold is harder to value? In my opinion, people are less comfortable valuing gold because the media does not talk about the methods to value gold. Instead the media talks about the methods to value stocks (P/E). So people are more used to valuing stocks. Even though the methods they use are more or less garbage.

Nonetheless, while gold should be part of a diversified portfolio  (I bought some physical gold and silver today), stocks are far  better. Hey how about some gold and silver STOCKS. This is what TMFSinchurina has been saying all along...

And by the way, the absurd strawman that gold only goes up when the world is ending.... can we cut that out? 

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#70) On September 29, 2011 at 4:03 AM, walt373 (99.79) wrote:

I never said stocks are easy to value, I just said you can at least kind of tell when they are in a bubble. When internet stocks are trading at 1000 times sales and analysts are talking about the price/eyeballs ratio, it's actually fairly easy. How do you detect a bubble in gold?

Fine, I won't say gold only goes up when the world is ending. My point is, I just get the feeling some people have like 50% or more of their portfolio in precious metals related holdings. What's your opinion on that kind of allocation?

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#71) On September 29, 2011 at 7:34 AM, Frankydontfailme (27.42) wrote:

I would never, and do never recommend that type of allocation to anything. And yet, I'm 90% in gold, silver and mining equities (after this dip). So... (maybe I'm young and soon to go broke, but I'd do it again).

Buy anyway, I've enjoyed the discussion. Thanks 

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#72) On September 29, 2011 at 11:58 AM, walt373 (99.79) wrote:

Yes, thank you too for the discussion. Good luck to you.

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