Seeking Alpha - Gold and Precious Metals

I am going to step out on a limb in this report and cover what I think to be an intermediate top in the precious metals sector. Everyone I speak with and from the hundreds of emails I get I would say the vast majority are bullish on gold and silver. That being said, I feel we are 3-8 days away from a pop and drop in the price of gold.

Below are my explanation and charts of what I think is unfolding.

In a recent piece, Nomura Group highlighted some of the more interesting gold ratios with the implication that gold is bumping up against some high historically levels: (Click to enlarge)

Since first breaching the $20 an ounce level on Tuesday for the first time in nearly two-and-a-half years, the silver price has advanced above that mark about a dozen more times, in each instance being sent lower in short order.

Since bottoming at the end of July, gold has rallied about $100/ounce.

As shown below, the metal is now trying to break through its June highs. Gold got within a dollar and change of that high Wednesday before pulling back about $7.

Mining investors interested in the future of mining in British Columbia should be excited about the revenue-sharing agreement forged with the local aboriginal communities surrounding these mines. This agreement will take a lot of pressure off the mining companies who, up until now, have negotiated directly with indigenous nations. These negotiations were often riddled with strife and animosity.

Historically, the building of a new mine in BC was an almost impossible task due to land disputes and tense negotiations with the aboriginal population. However, the lack of mine development has caused poverty, crime and unemployment levels to increase. The government is now playing a more active role in bridging the conflicting needs and interests of the opposing sides. If mines open, unemployed citizens would find employment and tax revenues would blossom. Gold and silver prices are reaching new highs and British Columbia leadership is realizing that now is the time to get mines going. The aboriginal people have also experienced the ramifications of a dismal economic situation. They want their local communities to reap the long-term benefits of renewed mining activity.

We have a classic technical setup in the gold chart (I am using the gold ETF since the commodity has a one-day delay in the charting software). Gold has retraced to come within smelling distance of all time highs. From here you either get a double top formation or a breakout.* Generally in a slower moving chart, such as this, the stock/commodity will not break through on the first try, but we'll see how it goes.

*technically there was a mini double top back in June which formed within a week, from which a quite substantial selloff occurred, so perhaps classifying this as a 'double top' formation is a bit off, as this is the third foray into the area. (Click to enlarge)

By Brad Zigler

Real-time Monetary Inflation (last 12 months): -1.9%

So, traders came back from their summer escapes yesterday (well, a lot of traders, anyway; the trading floor population will likely not come to full force until after the High Holidays). Business, as a result, picked up for precious metals. Gold and silver both were bid up—though the reasons for the buying befuddled some market observers. From talk among the trade, buying was pretty much just something to do.

This year's bumper gold-mining deals are putting a fat price on gold-in-the-ground...

WHATEVER'S LURKING in Andean Resource's (ANDPF.PK) data room – opened to suitors for two years, but now closed after Goldcorp (GG) trumped Eldorado's (EGO) US$3.3bn bid – it must be pretty spectacular.

click to enlarge

Disclosure: No stocks mentioned

It was an exciting day for silver early on, the metal poking its head above the $20 an ounce mark for the first time since March of 2008 – not once, but twice - before dipping back down to the high $19 range where it seems likely to end today.

I like to analyze stocks by looking at a company's long-term financial results - cash flow, revenue, and what not, and looking at the interplay of these things with stock price. But I have found this approach to be all but useless in picking gold stocks. The performance of gold miners has nothing to do with their current financials other than simply having enough capital to pursue their projects. You see valuation ratios all over the map during their big climbs, much more so than with any other type of stock. They defy just about any monetary type of analysis that may work reasonably well on stocks in general.

So how do you analyze the miners other than projecting the price of gold? Well, you have to resort to leaning on the expert opinion from the people who know more about gold mining than you ever will. These people can be book writers, commentators, newsletter writers, or Ralph, your barber. But all these people suffer from one or both of two key shortcomings (1) they are not geologists and (2) they are not officers of the mining company. It stands to reason that these are the people who know at least as much as the most informed newsletter writer, and probably more. I wouldn't think the company's officers surrender all the key information they possess to anyone on the outside.

As a general rule, the most successful man in life is the man who has the best information.

Investors are starting to realize that gold is a storehouse of value and a safe haven in times of turmoil. Gold’s price has risen because of the abuse and mismanagement of our monetary and currency systems - throughout history, gold has always shone the brightest when trust breaks down, confidence falls and fear climbs.

Since gold stopped being money, it's become 75% more valuable on average...

SO GOLD is now at "fair value" according to Bill Bonner, long-time gold bug (and my former boss/partner-in-crime at The Daily Reckoning's London HQ).

By Brad Zigler

Just this week, the GDX/GDXJ ratio—a barometer of investor aggressiveness—reached a new low at 1.66. For those unfamiliar with the ratio, GDX is the Market Vectors Gold Miners ETF, a fund comprising established gold producers, while GDXJ is the Market Vectors Junior Gold Miners ETF, a larger portfolio heavily weighted in junior exploration and development companies.

My reading this past weekend included What Makes Civilization? The Ancient Far East and the Future of the West. The book is written by David Wengrow and published by Oxford University Press. It looks at the ancient advanced civilizations of Egypt and Mesopotamia and gleans insights that apply to events in today's world.

In particular, the book challenges the idea that civilizations develop by exchanging ideas with each other. Wengrow claims that, although the two ancient civilizations he studies developed over two thousand years of interaction, each retained certain basic practices and ideas unaltered. He concludes that civilizations don't share as much as we once thought.

Silver’s performance has been outstanding recently, but it is not uncommon for the white metal to have extreme volatility both ways in its price moves. Let’s turn to the long-term silver chart to see what is in store for the white metal (charts courtesy by StockCharts.com.)

click to enlarge images

By Bryan McCormick

Gold has been on a scorching run since late July, and now the price of the precious metal and its ETF proxy are heading toward lifetime highs. For the SPDR Gold Trust (GLD) that high is at $123.56, less than a dollar from its current price.

By Matt Hougan

Back by popular demand, HardAssetsInvestor refeatures a conversation with Adrian Day, one of the true pioneers of global investing. For years, the London native has run a boutique global investing firm (Adrian Day Asset Management) that combines complete independence, a global purview and a long-term value philosophy to bear on the markets. HardAssetsInvestor.com's Editor-in-Chief Matt Hougan caught up with Adrian recently to discuss his view on gold, platinum, wheat and the broader commodities landscape.

Reality is the great antidote of hope. Whenever my colleagues and friends ask me for my global economic outlook, by the time I’m done, they always provide a cheeky response about the depressing nature of my outlook. However, the outlook doesn’t have to be depressing at all for those willing to face reality and take a proactive stance. As a realist, if the outlook calls for great pessimism, then great pessimism is what I will necessarily convey, even if it is not what the people want to hear. Though I’m an optimist at heart (as any entrepreneur will tell you, one has to be an optimist to survive as an entrepreneur), I separate this inherent personality trait of mine from the realism of my wealth-consulting persona. When providing wealth management consultations, anything but realism will harm your clients. The wealth management industry is full of optimists, not realists. An optimist will tell you that the market outlook is the best in a decade (in any market) when reality calls for a mildly optimistic outlook, and that the market outlook is recovering and provides great value when reality calls for a pessimistic, or even a strongly pessimistic, outlook. A pessimist will tell you that the market is long overdue for a correction in the middle of a long rally when fundamentals point to sustainability, and that a crash is around the corner when fundamentals are slightly negative. However, a realist will be pessimistic when conditions justify pessimism and optimistic when conditions justify optimism.

Hope is a dangerous drug to willingly ingest in the investment world or any type of world for that matter. Remember the below wildly popular 2008 campaign ad? What has hope done for Americans since then?

Executive Summary: Impala Platinum (IMPUY.PK) is currently Vestact's least sucessful recommended stock, because we picked it in March 2008 when they were trading much higher than they are now. However, we feel strongly that environmental concerns around the world will lead to steadily rising sales of Platinum, at good prices, for autocatalytic convertors on petrol and diesel engines. Impala has the reserves to remain a major player in this industry for many decades, and has a great dividend-paying record. In time, that all time high price of R365 per share will be surpassed.

Impala Platinum reported their full year numbers to June 2010 last week, on the 26th of August 2010.