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I absolutely love it when
the manipulative influences of the largest derivatives traders in gold and
silver take it into their short-sighted heads to think they arrogantly push
the price of gold and silver wherever they fell like it. Sure, their massive
short contract buildups and collusive conferences with the spot price fixers
can send long investors to the sidelines, but, as they seem determined to forget,
that effect is always short-lived. That’s because fundamentally, the
world’s a mess and gold and silver are the only places to store and
preserve value.
The wonderful side effect of all this
pig headedness is that the share prices in the junior companies exploring for
and developing gold and silver tend to see their valuations start to erode
–especially if the gold manipulators commit to a longer program. With
the events in Egypt having apparently zero effect on the price of gold and
silver, it is clear from the heavy downward pressure manifested each day in
the early part of the western hemisphere day, it is clear there is a massive
program underway.
Since when, in the entire history of
gold and silver spot prices, has a destabilized key middle eastern country
not had an immediate and profound impact on gold and silver prices?
Government-sponsored interference
aside, the opportunity for resource industry investors is the discounts that
develop in the share prices that have a high correlation to the gold price,
or ‘beta’ to gold. As the gold price deteriorates, these
companies tend to reflect the diminishing price per ounce of gold in the
prices of their own shares.
The spot price for gold has depreciated
by $82.90 in the last thirty days, or 5.83%. Shares of Ventana Gold (TSX:VEN)
have deteriorated by $0.76 in the same time frame, or 5.7%, giving Ventana a
very high beta to gold. That means when the gold price shoots through its
previous record of $1,430, investors can expect the share price of Ventana,
barring unforeseen events specific only to Ventana, to respond in kind. So
for investors to buy now means the potential for a quick 5% gain, which
annualizes out to 60% for the year. That’s the kind of performance that
can only reliably be achieved in the gold and silver sector.
The volatility in silver is even
greater, and many silver producing companies have an exponentially higher
beta to the silver price.
Pan American Silver
Corporation (TSX:PAA) closed at $40.93 on the 31st of December, the same
day that silver itself closed at $30.80. Yesterday, Pan American closed at
$32.79, or nearly 20%, while silver in the same time frame is down only
8.38%. So for silver investors to pick up shares of Pan American now, there
is a superb opportunity to capitalize on the silver price returning to above
$30.00 per ounce.
Obviously, there is risk involved with
such a simplified approach. But an analysis of past correlations between
share prices of silver and gold producers, and the prices of the actual
metals, bears out the fact that these patterns are consistent and reliable.
Gold at the end of the rainbow in a pot
with a silver lining.
James West
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