Metals and Mining Shares – What A Difference A Week Makes! By...

Metals and Mining Shares – What A Difference A Week Makes!

By Peter Grandich

May 22 , 2006

www.grandich.com



On Thursday May 11, 2006, at 1:00 p.m., I issued a special Alert that said, “An overbought/oversold indicator of mine that I’ve used since before the 1987 stock market crash, has given the most overbought reading ever for both copper and gold… I’m going to suggest that risk in gold, silver and copper is now equal to, or much higher, than reward in these markets for the near term. The long awaited sharp correction is within hours or days away at the most.”

I appeared on Canada’s “Report on Business Television” (by far, North America’s best financial network) on Friday, May 12th http://www.grandich.com/robtv.05.12.06a.htm and stated that I believed the day before began a correction that could see us drop 10% to 15% in just days or weeks (go to about the 56 minute mark in the interview).

I gave my thoughts to several media outlets, but my comments to the Daily Telegraph –U.K., http://www.grandich.com/docs/telegraph_05-15-06.pdf created the most “fan” reaction. I guess that was due in part that the reporter used this headline “Unsustainable gold on the brink of crash, says US metals guru.” Never do I recall using the word crash to describe my outlook, but I assume he took it upon himself to assume that was my theme after I told him. He quotes me in the article:

“I think there will be a very short, sharp correction of 10 to 15pc, in the worst case reaching a floor of around $575 an ounce.” I hardly think that’s a crash.

It’s been an interesting week or so, to say the least!

Good News – Bad News

Lets get the bad news out of the way first. Many of the “Johnny-come-latelys” to the metals and mining share markets have been beaten up pretty badly. While we’re all accountable only to ourselves and have no one else to blame for our investments (unless we have given someone complete discretion over our portfolio), I do have some sympathy for these folks because they were led to the slaughter in part thanks to some “big name” so-called experts. These “experts” had missed most of the run but scrambled to get themselves in front of the pack by issuing big new upgraded bullish opinions at or near the top. What bothers me about many of these folks was the belief they “changed” their opinion not because they wanted to, but because they had to in fear of looking like complete fools. This is harsh of me and may come across as arrogance but I’m disgusted to see some in the media beat a path to the door of someone who was basically on the wrong side for years, but almost ignore someone who hit a near bulls-eye for 5+ years. I’m not referring to myself but to Bill Murphy of http://www.gata.org.

I won’t name them, but there are several folks who were basically bearish or indifferent to the metals for many years, then “suddenly” began to urge folks to jump in with both feet. The media would issue a headline that such and such raised their outlook for gold to now average around the current price or even higher for next 12 months. What you don’t know is this group’s last call was so far surpassed they had no choice but to raise their forecast (kind of hard to have a $450, 2006 forecast when gold is $650). Yet, a man like Bill Murphy, even if you don’t believe any of his reasons for believing gold would do what it did, who nevertheless had the correct forecast versus these others that didn’t, was basically ignored by most media outlets. I found it ironic and a little sad that the Wall Street Journal would finally give him some print, albeit not in the most favorable light, at the exact top for gold as of now. I’ve heard many within my own industry knock Bill and GATA and tell me how all their claims are hogwash. Here’s what I have to say to them – I would rather end up on the right side of a market for all the wrong reasons then on the wrong side of a market for all the right reasons.

Forgive me for my little tirade but it has bugged me. I may lose some media exposure for this but I needed to say it.

The good news is: there’s a light at the end of the tunnel. While we can still see another 10% or so down from here (especially in copper- if not more), I do think by stepping aside last Thursday, the majority of the correction I foresaw is now behind us – especially in the mining and exploration shares. We can still move sideways to down through June, but I now think real further weakness is strictly a buying opportunity (except in copper- where I see another 20% down).

Gold –

I believe it’s wise for you to separate gold from other commodities going forward because while supply versus demand factors remain bullish, geopolitical and economic events evolving and surrounding the United States should have the biggest positive impact on gold’s direction.

In case you didn’t read this alert, http://www.grandich.com/docs/alertGL_04-04-06.pdf , let me just say:

The only party that doesn’t know the U.S. Dollar is dead, is the U.S. Dollar!!!!!!!!!!!!!

In case you ever wondered what it must have been like when the Roman Empire fell apart, let it be known you’re at the beginning of the end for the United States as the world’s biggest economic power. America is on the cusp of economic and political upheaval, unlike anything it has experience in its entire history!!! The days of robbing Peter to pay Paul are coming home to roost. The Hatfield’s and McCoy’s will have nothing over the Democrats versus Republicans going forward. The aging crisis in America is going to make the energy and terrorism crisis “second-fiddle.” Most Americans still have no idea how many parts of the world no longer welcome their “Uncle Sam” with open arms. This is going to be a critical blunder of theirs as they continue to live way beyond their means. The ramifications of becoming debt junkies hasn’t even crossed their minds yet, but when they realize their “pushers” (foreigners who fund our deficits) will demand much higher interest rates and political clout in exchange for their capital, America will have a wake up call like nothing they’ve ever experienced- including the Great Depression.

Gold is the best alternative currency and the ultimate safe-haven investment. It’s going to take a major breakdown below 80 basis the U.S. Dollar Index to cause gold to hit four digits, but in my heart of hearts, that’s only a question of when, not if. I hope my friends in Vancouver won’t hold my bad Canucks joke against me when America falls and I need a place to stay.

Silver –

The “kissing cousin” of gold is likely to ride the coattail of gold but I do think gold must be the bigger of the two in most holdings.

Platinum and Palladium –

I’ve stated that they should hold up better due to the best supply versus demand scenario besides Uranium and they have for the most part. If there’s such a thing as blue-chip metal, Platinum is it.

Copper –

I believe it has been ignoring real fundamentals since above $2.50. I think it ends up there, if not lower, before too long. I was far too early in my bearish sentiment but I do believe it’s better to be a year too early than a day too late. We will learn to live and prosper in mining shares with a $2-$2.50 copper price.

Uranium –

Same old story – the no-brainer metal on its way to $75.

U.S. Dollar –

D.E.A.D. – R.I.P.

Oil –

This oil bear is once again popping up his head in believing $75 is the top for the cycle. But knowing hurricane season is around the corner and Iraq was just the opening act for Iran, I’ll just return to my hole and await further development. I do believe Natural Gas could be very interesting in the next month or two.

Mining and Exploration Shares –

I said in my May 11th issue, “…the second half of 2006, and especially 2007, is setting up to be the speculative frenzy most have been patiently waiting for.”

While shares in general can decline another 10%-15%, the bulk of the froth has been removed, especially in the junior resource market. In fact, I do believe the next 60-90 days could offer one of the best entry points into the junior market since the bottom in 2001-2002. I’m highly prejudiced since part of my livelihood is made within that industry, but it’s my most humble opinion.