Nova Gold, the Gold Market and the Euro

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.


Canadian gold miner NovaGold Resources (NG) raised around $100 million on Tuesday, March 9th after selling 18.2 million shares of common stock at $5.50 each. Despite the dilution from this sale and another scheduled sale of 13.6 million shares for $5.51 on March 11th, the stock rallied 9%, closing at $6.88. Together the two sales will increase the outstanding shares of NovaGold by 17%.

The purchasers of Tuesday's stock offering were funds managed by Paulson & Co. Thursday's sales will be to George Soros' Quantum Fund. Both are renowned investors, bullish on gold, and bearish on the euro. The average investor would have trouble realizing that Soros is bullish on gold because of mainstream media reports misrepresenting his outlook. The press reported that Soros stated the gold was in the ultimate bubble, instead of would be in the ultimate bubble because of governments engaging in excess spending and  money printing globally. Bubbles are where investors make the most money, as long as they can control their greed and sell around the top. Successful investors understand this. Unsuccessful investors like to blame the market, instead of how they interact with the market.

The bullishness of Paulson and Soros is even more interesting because of their funds large bets against the euro. The price of gold and the value of the euro tend to move together. The crisis in Greece caused a sharp drop in the euro and is still holding it down. Gold sold down with the euro, although traditionally gold has been a safe haven during crisis periods. It didn't hold up during Credit Crisis selling in the fall of 2008 either, although it closed up on the year. Gold is currently in a sideways trading pattern and the big January and February buying season in China and India is over. Gold prices tend to be weak in the spring because of lower retail demand for the metal. The technical patterns on the chart indicate its price is trendless at the moment.

Ultimately, the value of NovaGold is dependent on the price of gold. NovaGold is sitting on some very huge untapped mineral deposits of gold, silver and copper. For those who think the price of gold will rise sharply in the future, these deposits are like money in the bank that is paying a very high interest rate. Apparently Paulson and Soros are of this opinion based on their actions. In the short-term, NG stock may be highly volatile however. Sharp up and down moves are common. There is also strong long-term resistance around the 7.00 level that was established in 2004, 2005, 2007, and 2008. Yesterday was the third time in recent months that the stock approached this key price. Breaking and staying above it will be a technically significant event.

Investors should remember that gold is in a long-term (secular) bull market that began in 2001. This doesn't mean that prices go up everyday. There will be pauses and dips. You make your money by buying on the dips.


Disclosure: Have held positions in Novagold and gold several times

NEXT: The Economy's House of Cards

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

NovaGold Leads Mining Group on Acquistion

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.

While gold has been struggling recently, NovaGold (NG) went up 15% on December 23rd. The previous day, the company purchased a 100% interest in the Ambler property in Alaska and this set off the rally. It is not the first time that NovaGold has lead the miners in the market. The stock is highly volatile and the company is a magnet for controversy. It is also one of the potentially biggest money makers among the mining stocks.

Like most of NovaGold's properties, Ambler is resource rich and remote. Its contains some of the largest and highest-grade known VMS (volcanogenic massive sulfide) deposits in the world, both in terms of total metal and value per tonne. The deposits consist of copper, zinc, gold and silver. Nova already had a 51% stake in the property and paid $29 million to obtain complete ownership. NovaGold also has a half interest in Donlin Creek, one of the largest untapped gold deposits globally, a half interest in Galore Creek and full ownership of Rock Creek, Big Hurrah, and Nome Gold.

How much you think NovaGold is worth depends on your view for the future prices of gold, silver, copper and other metals. If you think these prices will be going up significantly, and that has been my view for several years now, then NovaGold is one of the cheapest stocks in the market. If you think those prices will be going down in the future, then you are not as impressed with the stock because most of its assets are sitting in the ground and won't be mined for several years. As someone who thinks that there will be significant inflation and dollar devaluation in the next decade, I am quite happy with the company's current mining schedule.

Before the Ambler acquisition, NovaGold stated that it had 15.2 million ounces in proven and probable gold reserves. At $1000 an ounce those reserves are worth $15 billion and at $2000 an ounce they are worth $30 billion. The company also had 78 million ounces of measured and indicated silver reserves, worth over $1 billion at current prices and 5.2 billion ounces of copper reserves worth over $10 billion at current prices. Plug in your own estimates of future silver and copper prices to obtain a likely value of Nova's deposits. The market cap of NovaGold has been in the $1 billion range during December trading. So for $1 of stock, you are getting somewhere around $30 in gold, silver and copper assets at today's prices with the possibility of a much higher value in the future.

While the stock is cheap on a valuation basis, it is not without risk. Mining the substantial deposits in Nova's properties is not without its difficulties and this accounts for why its shares sell at a discount. Proponents argue that this discount is much too large however. Nova is also a favorite of day traders from both the long and the short side and this increases its volatility. While NovaGold has been trading in the $5 to $6 range in December, it sold for over $20 in late 2007. Its all-time high was over $50 in 1987. Nova doesn't have to go back to those levels though to make investors money.

Disclosure: Long NG and GDX.

NEXT: New Homes Reveal Old Problems with Government Statistics

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21


This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Gold Rockets Higher

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.

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In a bull market there is always a higher price down the road for those who wait for it. Gold amply demonstrated this concept by hitting a new all time high yesterday (and again this morning). Tuesday's move was sudden and vertical and it took place even though the U.S. dollar was rallying strongly and stocks were selling off. While investors constantly worry about sharp sell offs, they don't usually consider that sharp rallies are also possible for bullish assets. While gold led the way up, silver and then the miners started tagging along shortly thereafter. Eventually all of the inflation trade assets followed. Look for this pattern to repeat.

At the 5:15PM end of New York trading, spot gold closed at $1085.30 yesterday, up almost $25. This took out resistance around the $1070 level. Gold was in a trading range between approximately $1050 and $1070 for awhile before testing its $1025 breakout point. Spot gold has gotten as high as $1094.30 early this morning. This is important implied resistance at $1120. Spot silver closed yesterday at $17.20 up 73 cents. It was up almost a dollar at one point. The 200% leveraged gold ETF DGP was up 4.7% and the 200% silver ETF AGQ was up 10.4% yesterday. Some mining stocks did even better. Novagold (NG) was up 13.2% and Hecla (HL) was up 18%. The U.S. trade-weighted dollar, after rallying strongly in the morning, lost its momentum and essentially closed flat.

What seems to have caused yesterday's gold burst is a story of karma worthy of a Hindi movie. As reported in this blog early Tuesday morning, India bought 200 tonnes of IMF gold. The sale took place during a two-week period that ended on October 30th. This news was generally available in the evening New York time on Monday. Nevertheless, more the one U.S. media outlet reported that India would be or was buying 200 tonnes of gold during the trading day on Tuesday. Gold which had been meandering in price suddenly started moving straight up on the intraday charts blowing out the shorts along the way. The karmic element comes into the story if you know India's past with the IMF. In 1991, during a financial crisis, India had to borrow money from the IMF and was forced to ship its gold reserves to London as collateral. Now they are buying the IMF's gold! Will a future time come, when a Western country has to borrow money from India and in turn be forced to ship their gold to New Delhi?

The movements of gold and the U.S. dollar in the last few days are significant for another reason as well. Since the Credit Crisis began the dollar has rallied before Fed meetings, during the meeting and at least into the day after the meeting. Gold has sold off in response. Things have changed noticeably this time. The Fed met yesterday and is meeting today. The dollar had the usual pre-arranged rally before the meeting and gold was weak, but then things went screwy. Gold suddenly shot to news highs on a big rally and the dollar rally faded as the meeting began. The dollar is already selling off strongly today before the meeting has even ended. Perhaps gold is just too strong and the dollar is just too weak for this manipulaton game to go on any longer.

NEXT: Inflation Trade Picks Up

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21


This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Dollar Breaks Down; NovaGold Breaks Out

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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The U.S. dollar had a serious technical breakdown last night. The trade-weighted dollar traded as low as 75.44 in the pre-market this morning, well below important support at 76.00. Almost every currency on earth is rising against the greenback in a global orgy of dollar dumping. Behind the scenes buying efforts of central banks to prop up the U.S. currency have failed so far. They have yet to bring out the big guns, although they have little ammunition to put in them if they do. Even under the best of circumstances holding up a collapsing currency is like trying to stop a tsunami.

Gold and silver have become the collateral damage of the central bank efforts, but this is only evident in U.S. trading. Gold hit another record high last night in Hong Kong, selling for over $1070 at one point. It traded in the mid $1050s in early New York trading. Silver hit $18.09 in Hong Kong, another yearly high, but was $17.71 shortly after U.S markets opened. You can expect the battle for gold and silver pricing will eventually be won in Asia.

The best performing mining stock in North America yesterday was NovaGold (NG). This has been the favorite mining stock of the New York Investing meetup for a few months now and members have been encouraged to accumulate it at $4 and under this summer. Nova closed at $6.02, a new yearly high, yesterday and broke out of the handle of a cup and handle formation. While earnings were released yesterday, current income is not the relevant factor in NovaGold's stock price. It owns probably the biggest untapped gold deposit in the world. This asset only becomes more valuable as the price of gold goes up. The bears have been trashing Nova all the way from its recent low around $3.30 to the current $6.00 price telling everyone to sell the stock. Expect them to come out of the woodwork now that the breakout has taken place and they are really getting killed in their short positions.

The falling dollar is helping to prop up other commodities (all of which are priced in U.S.dollars). Light sweet crude oil almost hit $74 this morning and looks like it might finally reach an important Fibonacci retracement around $77. Seasonal weakness is likely to restrain oil prices this fall and early winter however. There may be more follow through today in the big rally in grains that started Monday (GRU is the ETF for this investment). There should be a pull back within the next couple of weeks or so that provides another entry point however. Long term bonds were also selling off this morning and interest rates rising. Double short ETF TBT, which rallied strongly off a bottom last Thursday and Friday should be watched. Holding a country's paper assets when its currency is declining is never a good idea.

NEXT: The Dollar, the Fed, Housing and the Economy

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

The Inflation Trade

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our Video Related to this Blog:

Gold had another record close yesterday, the third one in four days. The near term futures contract closed at $1018.90 and was as high as $1023.30 intraday. The breakout level is $1004 and above. Gold still needs to take out its all-time intraday high of $1033. Silver closed at $17.33 and traded as high as $17.50. The New York Investing meetup mentioned gold was a good buy at $740 and silver in the the $9 to $10 range. We have also discussed in our meeting the ETF's DGP and AGQ that are 100% leveraged and move twice as much up and down as gold and silver do. These highly volatile ETFs are not appropriate for risk-adverse investors. For those who want to broaden their investments to include gold and silver miners , we proposed the ETF GDX. Our favorite gold stock is NovaGold (NG) which was first mentioned in this blog when it was just above $3.

The precious metals are going up for the same reason as global stock markets. Governments throughout the world are pumping massive amounts of liquidity into the financial system. This shows up in stock prices first and in consumer inflation later (it can take many years before the full impact is felt). The statistics indicating economic 'recovery' are usually not adjusted for inflation and what is being touted as economic growth by the mainstream media has a significant component of rising prices to it. This is only the beginning however. In a few years inflation is going to get incredibly ugly. When it becomes apparent that there is no 'real' growth, the stock market rally will fizzle - and the government will print even more money to stimulate the economy. The stock market is currently historically overbought based on some criteria. Over 90% of stocks on the NYSE are trading above their 200 day moving averages. A number in the 70% range is usually enough for a top.

Gold and silver are the ultimate protections against inflation and anyone concerned about inflation should make them the cornerstone of their investing strategy. I will hold as much as 50% of my portfolio in these metals and their miners during their bullish periods. The other two major inflation hedges are energy and agricultural commodities. Oil is seasonally weak in the fall and usually best bought early in the year and sold in the summer (as the New York Investing meetup did with DXO). Its seasonal pattern is almost the exact opposite of gold and silver's. Natural gas is the energy commodity of choice at the moment since it is seasonally strong in the fall. Agricultural commodities are dependent on weather as well as inflation. Good weather during the U.S. summer has driven many of their prices to very low levels. It might be worth taking a look at RJA or DBA (RJA is more diversified) and start putting a little of them away for a non-rainy day.

The other inflation trades include industrial metals and shorting long-term U.S. bonds. The New York Investing meetup mentioned FCX in the winter and Alcoa (AA), UYM and XME in the spring (as well as Harry Winston - HWD). These stocks have already had major rallies. They are partially dependent on inflation and partially dependent on the economy doing well going forward, so they are not the major bargains they once were. The short bond trade did well between December and June (bond prices went down and interest rates went up), but there has been some give back during the summer. TBT is a leveraged ETF that allows the average investor to short long-term bonds. When the economy heats up, interest rates go up. During bouts of inflation interest rates go through the roof. TBT works if either or both take place and it is currently at a reasonable price.

NEXT: Quadruple Witching Today; Market Update

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.