Gold Takes a Break as Indian Buying Season Ends

This week, we saw a slight decline in precious metals prices as festival gold buying during India’s Dhanteras and Diwali settled. The price of gold, silver, and platinum showed significant support near $1,045, $17.40, and $1,350 respectively.

New JV Projects

This week, major gold miner, AngloGold Ashanti (AU) and major diamond miner, DeBeers announced a groundbreaking joint venture project to explore and eventually mine minerals in the ocean.

Top Takeover Talk

China’s state-owned China Minmetals Corp is looking for potential takeover targets, specifically gold mines in Australia and Canada, according to a top executive. Thus all eyes are on Canadian and Australian juniors with significant gold reserves.

Best Recent High Grade Discovery

Apollo Gold (AGT) recently announced assay results from its Grey Fox property near Timmins, Ontario, at which high-grade gold between 8 and 277 g/t au was intercepted.

Top Coin News

The new 2009 American Buffalo gold coins went on sale last week and have quickly become the US Mint’s best-selling coin. Since then, over 71,000 coins have been sold, far more than the American Eagle gold coin’s sales for the entire month of October. Given such high demand for the Buffalo, the US Mint raised its price by $100 to $1,118.88 per coin.

Silver: The Undervalued Precious Metal

Gold and gold stocks may have set records last week, but silver and silver stocks have yet to rebound to last year’s highs. As a result, gold has grabbed the spotlight even though silver has been and continues to be, by far, the better investment.

This year, The price of silver has increased by 63% compared to gold’s mere 30% rise. Furthermore, if you bought silver after the 2008 market correction (last November), then your investment would have doubled compared to a 53% gain if you invested in gold.

Even since the start of the precious metals bull market, silver has been a better investment than gold. From November 2001 to March 2008, the price of silver has surged 416% compared to gold’s 317% advance from April 2001 to its all-time high last week.

The reason we believe that silver will continue to outperform gold is that silver is still severely undervalued. Just take a look at the 1:60 ratio of the price of gold to silver, which is not only much higher than a historical average of 1:15, but higher than current production rates. Roughly 80 M ounces of gold are produced annually, compared to about 600 M ounces of silver–a ratio of just 1 to 7.5! This implies that silver should be trading at $142 an ounce. Although it may be a long time before silver reaches that price, silver still has a long way to go in order to close the gap between its absurdly undervalued market price and its true value.

Gold & RBY Soar to New Heights

Yesterday, gold and many precious metals stocks set new records. The price of gold hit a new (nominal) high above $1,070, before quickly retreating. Similarly, shares of Rubicon Minerals (RBY) reached a record price of $4.80, over 20% higher since our September 28th commentary.

New JV Projects:

Last week, Platinum Group Metals (PLG) announced details on a second joint venture project with Japan Oil Gas and Metals National Corporation (JOGMEC). In Japan’s efforts to accumulate precious metals assets, the company will invest $3.2M for 37% interest in the new 60 sq. mi exploration area in South Africa’s platinum-rich Bushveld complex. On Monday, shares of PLG jumped nearly 15% and volume remains twice as high as average.

Takeover Targets:

This week, Solitario Exploration (XPL) announced that it has upped its bid for Metallic Ventures (MTLVF) to $18 B after learning that Metallic Ventures received a bid from a third party. The news of the rival bids pushed MTLVF shares up nearly 9% in intraday trading on Tuesday.

Recent High-Grade Discovery:

Exeter Resources (XRA) recently released bonanza-grade drill results between 9 and 942 g/t Au, and 92 and 29,452 g/t Ag at its Cerro Moro, Santa Cruz, Argentina property. This is by far, one of the best high-grade gold and silver discoveries of the year.

Analysts Bullish on 2010 Gold Price

If you ask leading analysts, gold prices will continue to reach new highs in the coming months. Last week, a Deutsche Bank analyst announced that gold prices would reach $1,100, saying, “We are positioning for fresh highs in the gold price.”

A few weeks earlier, Credit Suisse analysts told clients to expect gold to continue to rise in September and October.

Similarly, RBS analyst, Stephen Briggs said he expects the price of gold to reach $1,100 and that “Gold’s long-term history as a harbinger of inflation, or gauge of inflation expectations, is clear…”

They’re not only bullish on gold. Industrial metals are expected to rise as well. Societe Generale (SocGen) gave investors a bullish outlook on industrial metals, citing, “very positive fundamentals.”

One reason for all the increasingly bullish sentiment regarding precious metals prices is speculation regarding the end of US Dollar hegemony.

Yesterday at the G-7 meeting in Istanbul, US Dollar weakness was a hot topic. Almost immediately after an official statement suggested that no action should be taken to soften the Dollar’s decline, gold prices jumped from about $1,003 to $1,020 within a couple of hours.

Furthermore, there are increasing reports that the Dollar will no longer be used as the sole currency for oil trading. Although denied by key officials, the mere speculation was enough to push gold prices to record (nominal) highs of over $1,033 this morning.

Analysts Love Rubicon Minerals

Shares of Rubicon Minerals (RBY) have lifted over 500% since our buy alert last year and recently closed at an all-time high of $ 4.45, up over 10% since our last commentary. During such time, the company released great news including a possible southwestern extension of the F2 zone at its Phoenix Gold project as well as being listed on the S&P/TSX Global Mining Index. Moreover, analysts have recently increased coverage of RBY and are increasingly bullish:

“With the intersection of a substantial zone of high-grade gold
mineralization in hole 122-10, the company appears to have identified
a new F2-like zone of structurally controlled mineralization.”

- Canaccord Adams on 9/15

The discovery of a potential new high-grade gold structure adjacent to the core F2 Zone… further demonstrates the projects substantial exploration potential…these results highlight the accelerated pace of drilling results to the market…our 12-month target price rises to $6.00 per share (from $5.00). We maintain our Speculative BUY recommendation.”

- Daniel Earle, TD Newcrest on 9/15

“Hole 122-10 is a significant step for RMX (Rubicon TSX symbol) in identifying look-a-like structures to the F2 Zone. BMO Research expects that RMX will focus drilling on this area and beginning delineating the dimensions of this new zone.”

- Andrew Kaip, BMO Capital Markets on 9/15

“…the intersection in hole 122-10 is exceptional, with a particularly
wide gold-bearing interval….deeper than most of the higher-grade intersections reported to date. This opens up a target area of high-grade potential for further drilling.”

- Timothy Lee, Dundee Securities on 9/14

“…we are moving our target price from C$4.30 to C$5.00. In our
opinion, the summer drill campaign will in all probability continue to
establish that the F2 Zone is in fact materially larger than what we previously believed (1.5 million ounces)…We continue to recommend RMX as a BUY, and believe that RMX’s discovery is in the early stages of being defined.”

- Barry Alan, Research Capital on 9/14

“As the shaft continues to be deepened simultaneously with underground and surface drilling, we expect ongoing positive results from all nine areas of the 9x drill program. Thus far, four areas remain largely unexplored, and opportunity remains for the strike to extend beyond the existing boundary of the 9x areas (1,200m length) to
the SW and NE.”

– Andrew Mikitchook, Thomas Weisel on 8/31

“…Rubicon’s resource will wind up being a lot more than 3 million ounces. Deposits at Red Lake wind up growing consistently over time…Rubicon probably has 5 million ounces or more in their F2 property which would support a price in the $5 plus range in the next two years…”

- Brian D. Pacampara, Motley Fool on 8/27

“we could see a 3.0–8.0m oz deposit in the F2 Zone. Valuing contained ounces at $200–250/oz, we arrive at a range of potential share prices, of C$3.60–12.10 (C$3.65-11.80 fully diluted).”

- Graham Copley, Macquarie Research on 8/18

Still Doubt the Bull Market?

After last year’s huge stock market correction, it’s understandable if you’re still apprehensive about trading or investing. Since then, the markets have rebounded in the biggest 10-month rally since 1937. So if you still doubt the bull market then you’ve missed out on all the action. In less than 2 months, the price of gold rose $ 90 and has revisited $ 1,010 for only the second time ever. On Friday, the price of platinum finally broke the $ 1,300 resistance level, up considerably from a low near $800 last year. Silver has performed the best, having advanced over 25% since July.

Our preferred gold stock, RBY hit an all-time high of $ 4.00 last week, up well over 400% since our fall buy alert. If this isn’t a bull market, then I don’t know what is.

It’s not just precious metals either. The DJIA recently broke through the 9500 resistance level, the S&P is firmly above 1000 points, and those troubled bank stocks that were worth pennies per share last fall have rebounded by triple-digit percentages.

So everything’s trading above 50-day moving averages, which traders and investors generally regard as the best time to hold. Nevertheless, many think that we’re running out of gas and that just isn’t so. Surely short-term corrections are expected, but there’s still a lot of upwards momentum left.

We can say this with confidence because at the height of the markets in 2008 (before the correction), the price of oil was beyond $ 140. Now it’s only half that price (see charts below).

So really, this leg of the bull market has only begun and should run well into 2010. Even in bull markets there are better times to buy than others, so use your best judgment.

RBY Reaches All-Time High

The bull rages. Today our recommended gold exploration stock, Rubicon Minerals (RBY) reached an all-time high of $ 3.79 per share, after climbing to a new high of $ 3.59 yesterday. Earlier this week, the company updated investors of ongoing drilling at its Phoenix Gold Project in Ontario, which revealed not only more high-grade gold, but a 20% increase in strike length.

Also significant was the fact that RBY’s volume was at all-time highs. Yesterday volume was 5 times higher than on average, indicating new investor/trader interest.

As RBY reached new highs, the price of gold advanced by $25 dollars to over $980, its best single-day performance in over a month. Gold is once again nearing the important $ 1,000 mark, but it must break this resistance level this month in order for the bull market to continue. If it does, then we could only guess how high the price of gold and RBY will go.