Gold and Silver Updates

I am increasing my bullish bias on gold.

Fundamentally, the big picture points to a continuous devaluation of currencies.

Europe needs the EFSF to bailout weak nations in the Euro Zone. Japan intervened the yen to fight against the dollar. The Swiss decided to peg the Franc to the Euro, which is to me a big mistake.

IMF said that there are no resource barriers to solve the Euro crisis. In another word, more money supply and bailouts.

There are increased currency wars and bailouts and thus more money dropping from helicopter.

The fundamental of gold is not being recognized yet by the main stream media and the hedge funds.

Instead it is currently being sold because of liquidity squeeze as hedge fund redemption increased and tighter short term credits because of debacle of MF Global and the European banks.

All of these happenings virtually guarantee that gold will have a bigger role as we move forward. Gold will be the last store of value standing when everything gets wrung out with the euro and then the dollar. Focus is now on the euro but at some time focus will shift to the dollar. We had a spirited gold rally after ECB cut the rate as this was recognition that there would be more money printing. Ultimate reason for holding gold is because of the large amounts of paper printing….eventually there will be so many adjustments and so much pain that someone will want something like gold.

What is not recognized now is gold has no counter party risk. It cannot be created arbitrarily. It has historic intrinsic monetary value. It is a matter of time that it will be recognized.

The negative outlook presents opportunities for precious metal investors.

I am particularly interested in adding to my mining shares. There is a substantial disconnect has developed between the price of gold and the mining companies. Over the last 3 weeks, I have added some juniors and they are doing very well.  The disparity on real valuation and market value is so high that it is a rare opportunity that only comes once every few years.

I may have to wait 6-12 months maximum. In between, I may see another violent corrections although gold price movement is positive now but there are no definite signs clear up trend yet.

What are my strategies now?

I am holding on to a core position of gold and gold mining shares which I will not sell. These positions are hedged. Cost is being reduced through short options and dynamic collar strategies.  I have plenty of cash to patiently wait for the right timing.

Besides I am doing the following:

1. Compile a list of seniors to add on any weakness – a capitulative  bottom followed by a clear reversal. These companies need to fulfill the following criterion:

                                                    i.     Good cash flow and margins

                                                   ii.     Good organic growth without acquisition

                                                 iii.     Efficient production cost

2. A list of junior and exploration companies with the following criterion:
1. Confirm reserve with huge growth potentials
2. Cash to ride through any credit squeeze
3. Potential to be acquired
4. Some companies at advanced exploratory stage and positive preliminary economic assessment with potential for strong valuation growth.

Some of the companies in my portfolio are discussed in my blog posted today. I am still doing my research to gather a group of companies. The companies that I have accumulated over the last 3 weeks are:

1. NAK
2. SQI
3. TMM ( Listed in Canada)
4. NSU
5. TGB
6. SVM
7. SWC
8. SQI ( Listed in Canada )

For the time being, it is my beliefs that companies that I have added the last 2 weeks have the potential to high 80% profit if there is a Santa Claus rally. If there is a major breakdown in the Euro zone, they may another major run down for gold and silver. This negative break down will be fast and may last 2-3 months.  This will be a good time adding shares by selling puts and using the profit to accumulate shares.

I will also sell half my shares if the target of 100% is reached by the end of the year giving my other half a risk free ride.

In summary, the fundamentals look better every day but the technical signals are not convincing and may even break down. Gold at 1800-1840 will be a very important test for resistance.   Price can lag the fundamental for a period of time. So I have to wait for technical signals before going really bullish. Meanwhile, I am trying to maximize the trading range to reduce cost by selling options.