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December 26,
2005 -To set your mind at ease, I am in no fashion suggesting the
immediate sale of gold or the junior exploration sector shares. On the
contrary, I am confident that they should instead be accumulated during this
nerve-wracking time for most gold investors. It is my belief that following
this course of action will allow us to later distribute our investment
positions when their prices are far higher, and when other investors are
clamoring for them.
I feel that the
last, remaining hold-outs are in the process of liquidating their gold
complex holdings. They've held on with the desperate hope that their
investments would reverse course and allow them to at least recoup their
losses. When they entered the market, they made their purchases primarily for
the wrong reasons! Most of these individuals were not believers of gold's
secular Bull Market. Their sole objective was to profit from their belief
that gold investments represented an easy, highly profitable trade.
They have
already sustained losses. Their concern has burgeoned in lock-step fashion
with gold's recent sharp price decline. This, combined with the extended
junior stock weakness has now transformed their concern into a feeling of
terror that they were wrong and should have earlier sold. Now, the thoughts
of recovering their capital have turned bleak, and the fear that they will
soon face further, devastating losses is consuming their waking moments.
When the
remaining hangers-on have completed their sales, the gold related markets
will be prepared for assaults upon new Bull Market highs. Until then, I
believe that we are now presented with one of the most opportune periods to
acquire your favorite precious metal investments, and at bargain basement
prices.
To most
readers, the information presented in this essay might be considered
ill-timed. Why should I discuss selling gold and the nascent exploration
companies at far higher prices when they seem on the cusp of trading at
markedly lower levels?
What I hope to
achieve is to prepare the reader for the future. This is after the current
reversals in both markets has been brushed aside, and remain only a lingering
remembrance. Later, the time will present itself when gold and numerous small
companies, or the entire exploration sector, are rocketing higher in price.
In my opinion then, and not now, is when sales should be contemplated and
executed. As difficult as it may now seem to hold onto your gold position
and your stocks, it will appear just as hard to sell them when their prices
are surging higher, and our greed clouds our better judgment. Yet, that
will be the time to act, and gather the rich rewards that the seeds of your
present actions will have sown!
The emotions of
the typical investor drive them to sell their investments at precisely the
wrong time, and to covet major purchases when they should be sellers. This is
the reason why we frequently hear a variation of the profound euphemism
"most investors buy high and sell low".
The two most
overwhelming forces motivating mortals are the emotions of fear and greed,
and fear is the most powerful. As investors, if we allow ourselves to succumb
to these, we will perform exactly as I have stated.
This is what
separates the very few seasoned investors and traders from the masses. These
successful individuals have learned to detach themselves, as best that they
can, from their emotions. They know from their own experience that if they
allow themselves to capitulate to their inner voices, they will likely make the
wrong decision.
The secret to
profitable investing or speculating over the long term is obvious to all. It
is to "buy low and sell high". However, from my decades long
experience in the markets, only a handful of people actually can consistently
achieve that goal. Periods such as we are experiencing in the precious metals
arena, "feels" like the time to sell for most investors. The gold
price has collapsed and the junior exploration companies are down and out.
The successful, hardened professional, however, may also feel stressed. Yet,
he forces himself to focus on the bigger picture.
He studies the
long-term chart of gold's Bull Market. The graphics surge and retreat, yet
the overall trend is distinctly towards higher levels. Further, the major
uptrend line remains unviolated from its $252 nadir. Additionally, gold's 50
day moving average is 485.41 and the 200 day average is 448.36. By its moving
average study the eternal metal can still significantly fall and remain in a
fully bullish mode. The pro's fears are further greatly allayed because while
gold was posting new, Bull Market highs it was becoming heavily overbought.
He realized that a correction was destined. The only question in his mind was
when, so he was prepared.
He recognizes
that nothing has changed to challenge the reasons underlying gold's Bull
Market. The United States' balances of trade and payments, and our federal
deficits are continuing to soar with no end in sight. Further, the domestic
money supply is increasing faster than new goods and services are entering
the economy. The Federal Reserve Board is even eliminating the broadest
measure of the U.S. money supply, M3, in March. This will prevent observers
from following the Fed's actions if they open the monetary spigot. This
action will further reduce the purchasing power of the dollar. He looks
around his world, and objectively concludes that prices are moving higher and
faster than the adjusted, government generated indices indicate.
The trained investor also takes Dr. Benjamin
Bernanke, the next likely Federal Reserve Board chairman, at his word. He
knows that Dr. Bernanke will not hesitate to create a dollar flood. He opines
that the once almighty dollar is destined to again weaken on the foreign
exchange markets due to this and the other above factors. Further, he has seen gold break out above major
resistance points in all of the primary world currencies. This he knows from
experience, is destined to attract new gold buyers from the corners of the
globe.
For these and
numerous other reasons he now patiently waits. He will act when he feels that
the time is opportune for him to accommodate the frightened sellers, by
buying their unwanted metal and exploration shares.
I have given
reasons why the accomplished investor already is in the gold markets, and is
awaiting another entry point for gold related acquisitions. When will he
sell?
WHEN TO SELL GOLD
"Bulls
make money, bears make money, but pigs get slaughtered". This is a time
tested euphemism that gives one an idea why greed is the greatest destroyer
of an investor's capital. When the gold Bull Market resumes its upward trek,
it is likely destined to perform in a similar fashion as it has to date.
While it trends higher in price it will continue to encounter numerous
secondary corrections, such as the one that we are experiencing. This, in its
inexorable climb to its final, bull peak. Some corrections will be swift and
steep. Others will require much time while the gold universe grinds lower
across the board.
Recognizing
this truth the professional, successful trader will sell into strength when
the gold market becomes overextended and overbought such as we recently
experienced. However, this action should be strictly reserved for the
seasoned, prescient trader.
For the rest of
us, we will likely best profit from the gold Bull Market by buying and
holding throughout its duration, with a few caveats. As one's confidence
grows by observing the market move higher in price, and from greater
comprehension of the ongoing factors driving the gold bull, we may add to our
positions. However, this will only be on weakness, such as presently exists.
The investing
public has yet to recognize the presence of gold's Bull Market! Each time
that gold moved sharply higher, the investment media downplayed its
underlying bull trend. Gold advances were characterized at various times as
being driven by different factors. Among these were a falling dollar, a
rising oil price, speculators, China and India buyers, and sunspots.
The time to
exit gold will be when "everyone" including your local waiter and
cabby knows that gold is going higher, and when the future of common
stocks looks bleak and interest rates are surging. This is when you should
begin to satisfy the frantic public by selling them some of your cheaply
acquired gold assets.
You should never
attempt to pick the absolute top! I for one know from experience! However, if
you gradually sell into a steeply rising market when these factors are
unfolding, you will average a substantial profit above your original cost.
WHEN TO SELL EXPLORATION COMPANY SHARES
The
experienced, successful investor benefits greatly from speculating in the
junior company market. He recognizes that few of these stocks will achieve
the ultimate success of either bringing a mine into production, or being
acquired by a larger concern. However, he also knows that the life cycle of
the better managed companies can allow him to reap substantial rewards.
Whenever a
company announces a major acquisition or important progress on a project, its
shares can experience a large price rise. It is not unusual for many of these
companies to soar 50% to 100% or more in any given bull year, if not in the
space of a few weeks. Thus, success for the juniors does not hinge on
production or a take-over. In fact, a company that is on the way towards
ultimate failure but that repeatedly excites the market, can reward its
shareholders with profits that are a multiple of their initial investments.
Consistent profits can be garnered.
Unfortunately,
the average investor allows his greed to make him overstay his welcome. He
will maintain his position when one of his favorite companies rises sharply
in price for fear of missing even greater profits. He will then ride it lower
and curse his poor luck.
There are
thousands of small mineral or energy companies. This makes it nearly
impossible for all of the newly emerging stocks to be properly evaluated by a
large number of players. The best fashion in which the average investor can
handsomely profit from the speculative exploration companies is to enter a
company before the marketplace full recognizes the merits of their management
or their projects. You will acquire your shares relatively cheaply. This will
give you the best risk vs. reward potential with the least downside risk.
It may take a
while for your management team to either acquire the right project or to
generate some other form of market excitement. However, when one of your
well-selected stocks announces news to which the marketplace greatly
responds, you will be well rewarded for your patience.
This is the
reason why any substantial price advance should be met with some selling on
the investor's part. In Financial
Insights, I attempt to feature companies that are in their infancy, but
are managed by experienced, proven management teams. I have been fortunate to
have discovered more than my share of companies that were either acquired at
a substantial price, or moved into production.
Never forget what I said about the pigs getting
slaughtered! No matter how good the news, if you convince yourself to take a
portion of your money off of the table whenever an important price advance
occurs, you will eventually own shares in a good company for free. Further,
be extremely careful when investing in companies that already have a series
of positive, market moving announcements. Their share prices will likely
reflect this state and be inflated.
From my experience, the higher priced the stock, the
further that it can fall! I suggest that the reader reads, or rereads my
essay, "How to Profit on the Road to
Failure". It is at the bottom of my Financial Insights
home page. You will then better understand the pitfalls that lurk around the
corner of every stage of a project's development. This includes potential problems facing a company
that has successfully taken a project to the stage where it is in the process
of mine construction.
The greatest
likelihood for success in this investment field occurs when you early and
cheaply acquire shares managed by a group of individuals, who have achieved
earlier mining success. In this fashion, with relatively low risk, you can
wait while they develop their company and even make a mine. When one of your
companies progresses towards the development of an important orebody, you
have the opportunity to be there. You will have sold some of your shares
after each important announcement, and will still have some left over at
little or no cost to you.
I believe that I would be remiss if I did not
discuss a major secondary correction that will likely unfold sometime during
this great, gold Bull Market. It may be similar to the one that emerged when
gold was legalized in the United States as1974 ended. This frightening,
eighteen month price decline took gold from 200 to103.50. While it could
arise sooner than I expect, I believe that gold's 1980 bull high of $875,
could be a likely target price range for the beginning of such a major
correction.
The period from
the end of December,1974, to gold's mid-summer 1976 nadir, saw devastation
accrue to gold and gold share holders. Those few that sold an important part
of their positions on the final explosive rise towards $200, replaced their
sold metal and shares for pennies on the dollar.
With both gold
and the junior stocks, as well as with the primary gold producers, I feel
that an astute investor should prepare for the likelihood of a repeat performance.
Do not meet your investment end like the pig who got slaughtered. When your
greed tells you to hold onto your positions, while gold is raging higher,
take some profits and prepare to reenter these markets after a respite. Your
pockets will be full of cash, and bargains will abound in these sectors. This
is how the pros survive and prosper in the investment arena. You must act
like one, to be one.
______________________________
By
: Dr. Richard
S. Appel
www.financialinsights.org
The
above was excerpted from the January 2006 issue of Financial Insights ©
December 25, 2005.
I
publish Financial Insights. It is a monthly newsletter in which I discuss
gold, the financial markets, as well as various junior resource stocks that I
believe offer great price appreciation potential.
Please
visit my website www.financialinsights.org where
you will be able to view previous issues of Financial Insights, as well as
the companies that I am presently following. You will also be able to learn
about me and about a special subscription offer.
CAVEAT
I
expect to have positions in many of the stocks that I discuss in these
letters, and I will always disclose them to you. In essence, I will be
putting my money where my mouth is! However, if this troubles you please
avoid those that I own! I will attempt wherever possible, to offer stocks
that I believe will allow my subscribers to participate without unduly
affecting the stock price. It is my desire for my subscribers to purchase
their stock as cheaply as possible. I would also suggest to beginning purchasers
of these stocks, the following:
always place limit orders when making purchases. If you don't, you run the
risk of paying too much because you may inadvertently and unnecessarily raise
the price. It may take a little patience, but in the long run you will save
yourself a significant sum of money. In order to have a chance for success in
this market, you must spread your risk among several companies. To that end,
you should divide your available risk money into equal increments. These are
all speculations! Never invest any money in these stocks that you could not
afford to lose all of
Please call the companies regularly. They are controlling
your investments.
FINANCIAL INSIGHTS is written and published by Dr. Richard Appel and is
made available for informational purposes only. Dr. Appel pledges to disclose
if he directly or indirectly has a position in any of the securities
mentioned. He will make every effort to obtain information from sources
believed to be reliable, but its accuracy and completeness cannot be
guaranteed. Dr. Appel encourages your letters and emails, but cannot respond
personally. Be assured that all letters will be read and considered for
response in future letters. It is in your best interest to contact any
company in which you consider investing, regarding their financial statements
and corporate information. Further, you should thoroughly research and
consult with a professional investment advisor before making any equity
investments. Use of any
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