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Doug Casey believes the current gold
correction has bottomed. Speaking to me a few days ago, he said: "With
rare exceptions—that are mainly luck—only liars buy at the exact
bottom and sell at the exact top. Purchase of precious metals remains the
most prudent thing you can do to protect your wealth, and a very reasonable
speculation at this point. Gold is not the giveaway it was at $250 back in
2001, but it's very reasonable near $1,400 now.
"I think mining stocks have also
bottomed at this point, and there are several great speculations available
today. All the so-called quantitative easing—money printing—by
governments around the world has created a glut of freshly printed money.
This glut has yet to work its way through the global economic system. As it
does, it will create a bubble in gold and a super-bubble in gold stocks. This
remains in the future; what we've seen so far is just foreshadowing."
Note that in Doug's view, it doesn't
really matter whether gold has bottomed or not; what matters is that
opportunities now exist to buy low in order to later sell high.
Consider this chart of the price of gold
and a junior gold miners ETF, over the last year:
Several things are evident in this
chart. The first is that—as has been well established over decades of
observation—gold stocks are much more volatile than gold itself. Note
that this is true on the upside as well as on the downside. It reinforces
Doug's edict that while the reason to own gold is prudence, the way to
speculate for profit on upward movements in gold is to buy stock in the right
gold companies.
This also highlights the second
compelling thing about this chart: Gold stocks have lost much more ground
than gold itself and now offer much more imminent upside, if Doug is right
about where gold is going next.
There's no need to reiterate all that
we've said about the runaway global money printing and its inevitable
consequences for gold. Please see previous Conversations with Casey and
articles in this column for more on this. Assuming you're on board with the
premise, the question is what to do if Doug is right about the market
bottoming.
The answer is obvious: It's
time to buy.
However, as Doug likes to say,
speculation is not a synonym for gambling; you want a good speculation to be
as safe a bet as possible.
While we do expect gold to rise in the
near term, it may dip again before jumping up to new highs and exploding into
the Mania Phase of this bull cycle—so right now we're focusing on
companies that have major deliverables in the near term.
Imminent Push, as we call it, dictates
where we place our chips today.
In the current issue of the International
Speculator we're summarizing Doug Casey's current top 3 junior
gold stock picks, all of which have major news pending.
#1: The Explorer-Turned-Producer
Normally,
we're skeptical when an explorer aspires to become a producer, as exploration
and production are two completely different businesses requiring two
completely different skill sets. However, this company was founded and is run
by a mining engineer, and its two current projects have an unusually short
path to production.
The first project is relatively small
but high grade, and required very little capital to build the mine and plant.
Production is scheduled to start by the end of this month. The question at
this point is not whether it can be done or will be done, but whether
operations will be as profitable as projected.
Those projections were exceptional: The company
should be able to pay back the initial $6 million investment within two
months, followed by another $40 million or so in free cash flow.
Since publication of these projections,
the company has drilled into more high-grade gold beside and below the
current deposits being worked. This gives us two ways to win on this play in
the near term: If the cash starts flowing next quarter (as we think it will),
the shares should soar; and if the company keeps making this little project
bigger, that can only add to the upside.
However, the best part of this story is
the company's second project, which is already much larger and high
grade—this one is showing world-class potential. And with cash flowing
from the first project, the value in the second one could be brought to
market with little or no dilution for shareholders.
That gives the stock what we call
"ten-bagger" potential (meaning share prices could rise 1,000% or
more), and it'll start happening in the weeks and months ahead.
#2: The Takeover Candidate
Doug
Casey's second top pick for today is a company that is almost certainly on
the verge of being bought out by a larger company, at a hefty premium for
current shareholders.
The story may not have ten-bagger
potential, as larger companies rarely offer more than a 100%
premium—that is to say, more than double the average of recent share
prices. But such rapid gains overnight, combined with the very high
probability of their occurring in the near term, make the stock an
outstanding speculation.
How can we be so sure this will happen?
Pick #2 owns the mineral rights to a
property that is completely surrounded by the property of another company
that has made a multimillion-ounce gold discovery in one of Canada's best
mining jurisdictions. It's not just a matter of location, either—our
little company has already demonstrated that the gold mineralization
continues onto its neighbor's land, including some exceptionally thick and
high-grade intersections.
The only reason this opportunity even
exists is that many mining executives were nervous about making acquisitions
during gold's recent downturn, so the larger neighbor's management probably
thought that they had all the time in the world to take over our pick. And
they were right; no one else has bought it yet.
However, an intermediate producer has
just bought our little company's neighbor, and there's no reason to believe
that this larger buyer will leave our company's gold in the ground, just
across the property line.
There are no sure things in junior
mining speculation, but this takeover is as close as it gets—and we
expect it to happen before the end of this year.
#3: The Holy Grail of
Exploration
Doug's
third pick for today's market is a relatively straightforward value-adding
proposition.
One can make money mining gold, even on
a small scale, if the grade is high enough. One can also make money mining
low-grade gold, if its characteristics are amenable to low-cost production
methods and the deposit is large enough to allow economies of scale.
The best of both worlds,
obviously, is to find a deposit that is both large and high grade.
That's extremely rare, of course. Many
of those discoveries are in basket-case countries that are either too
dangerous to work in or where the government is likely to steal your mine if
you build it. Large, high-grade discoveries with little political risk are
the holy grail of mineral exploration.
This company has just such a deposit in
one of the more pro-business jurisdictions of Latin America, and its current
drilling campaign will both upgrade the current resource estimate and make it
larger—potentially much larger.
The drilling now under way has already
returned spectacular results of the sort that move share prices sharply
upward, especially when the sector itself is up. So if Doug is right about
where gold is headed, we should see these shares rise faster than gold in the
months ahead—and a big leap is likely when the company issues a new
resource estimate calculation.
We're confident this one's getting
bigger and better, and it has a short fuse.
Bottom
Line
I
apologize for the secrecy, but it simply wouldn't be fair to existing International
Speculator subscribers to just give these companies' names away.
Two of them have market caps in the $20-million range, and announcing their
names in this space could drive up their share prices considerably. You'll
find an article with the names and stories of all 3 of our "recovery picks"
in our just-released September issue.
Here's what I would suggest: Take full
advantage of Casey's 100% satisfaction guarantee and try the International Speculator for three months, at no risk at all.
You can see what we're recommending and if you're not fully satisfied, you
cancel any time within those three months and get all your money back,
promptly and no questions asked.
If you're not happy with the newsletter,
just cancel. If you're not making the kind of money you're expecting to make,
just cancel. And even if you miss the three-month mark, you can still cancel
later and get a prorated refund. It's really that simple. Just click here to get started. And don't wait; if we're right, these
deals won’t be around for long.
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