Gold is getting popular. Every day, another bank, investment advisor, or hedge-fund manager speaks out in support of the precious metal. We still advocate constantly adding to your physical gold holdings as a form of savings. But with all the fanfare, I would expect gold to draw back on its way "to the moon."
Today, the Financial Times and Bloomberg published stories on gold. The FT points out that the U.S. mint sold 92,000 ounces of the popular "American Eagle" coin last month – nearly four times what it sold a year ago. Other countries' mints are also reporting strong sales.
"Large purchases of coins are perhaps the ultimate sign of safe-haven gold buying," said John Reade, a precious-metals strategist at UBS. Bullion holdings at gold-backed ETFs are also at a record high, 1,317 tons. Bankers say the move is being driven by the "very rich," who are hoarding the metal in vaults.
Bloomberg says gold speculators are betting on $1,000 an ounce gold by April. Open interest in options that allow the owner to buy gold for $1,000 by April increased 24% this year to 9,934 contracts, up from 8,005 at the beginning of the year.
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Physical gold sales are strong, but not small-cap Canadian mining stocks. They're up since November, but many are still wallowing at dirt-cheap prices. I've found three of them for the next issue of Extreme Value. In each case, you're mostly getting cash and securities for your money with a cheap option on a diverse array of natural-resource exploration properties and holdings in gold and silver bullion. If gold is so popular... why are these stocks so cheap?
Extreme Value pick Procter & Gamble (PG) got a nod from Barron's today. The magazine notes P&G is trading at its lowest price-to-earnings (P/E) multiple (13.9) and offering its highest dividend yield (3%) in 20 years. Shares have fallen 14% this year – versus a 3.8% drop for the S&P 500 – and they're currently trading at 52-week lows.
I recommended Procter & Gamble last summer, but it didn't get below my maximum buy price until very recently, helping Extreme Value readers avoid most of the 14% drop reported in Barron's. I don't predict price movements. I merely told my readers not to buy the stock until we were sure it was selling for half its intrinsic value or less. I did the same thing with UPS, and readers have avoided some of its recent selloff, too.
Waiting until world-dominating franchises sell for significant discounts to intrinsic value was the bear market strategy I told readers about last summer. If you know the intrinsic value and refuse to pay more than, say, half of that amount, it's easy to have patience – the all-important trait most investors lack. You know exactly what you're doing. You're exploiting the market instead of letting it tell you what to do.
Goldman Sachs moved a three-day conference from the Mandalay Bay Resort & Casino on the Las Vegas Strip to a more mundane San Francisco Marriott. The bank reportedly paid a $600,000 cancellation fee to Mandalay Bay, according to an anonymous hotel employee. Goldman spokesman Ed Canaday confirmed the venue change, but couldn't comment on the cancellation fee. Nor did he know if the company was saving money or spending more with the move. "That's not the driving reason behind it," Canaday said. "The decision to relocate the conference is based on our best efforts to operate according to the requirements of the new landscape of our industry."
That's what you get when the government takes over: $600,000 spent primarily, perhaps even solely, for the purpose of maintaining appropriate levels of political correctness. In a way, though, it's entirely appropriate for our banks to be more worried about appearances, since they're so utterly short on substance.
Tomorrow at 4 p.m. Eastern time, we will host a Phase 1 conference call where we'll give details of what could be the best-performing stock we've ever recommended. This little-known biotech company is developing what some experts say "could become the best-selling drug in history." Phase 1 editor Rob Fannon will be on the call with an obesity expert Ph.D. at Johns Hopkins University. They'll explain everything you need
to know... including why we expect this stock to return 400% overnight. We've been following this company for two years, waiting for an upcoming announcement that could send this stock soaring. To learn more, click here...
New highs: none.
If you like an investment more than gold right now, let us know: feedback@stansberryresearch.com.
"Everyone is touting gold. It's been said before when everyone likes something it's time to get out. Does that apply this time. Also what about silver, is that less attractive than gold?" – Paid-up subscriber Phil Michael
Ferris comment: While I'm not hearing about gold from the usual mom-and-pop sources that often signal a top, lots of newsletter writers (including me) are writing about it, and that's never a good sign. My guess is we're early on the inflation call. A huge spike in inflation is inevitable, though not necessarily imminent. The Fed's money machine has a huge hole to fill. It'll take longer than anyone expects for the hole to fill up enough to start overflowing. But that's purely a guess, and I've found some dirt-cheap, safe little mining stocks, which I believe will go up anywhere from two- to tenfold in the next few years.
"I think Texas should cecede from the union. Texas people are conservative and thrifty. They are religious and respectful. I heard somewhere that Texas is the only state with the legal right to cecede. And what does Texas need with the rest of us anyway? They've got more oil than they can use themselves, grow any kind and quantity of crop their population can eat, refines most of the gasoline for the rest of us, offers affordable housing that isn't crashing in price like the rest of the country. Texas should get out before the union collapses." – Paid-up subscriber Nathan Thompson
Ferris comment: I'd love to see Texas break away and get its own, gold-backed currency. It could also have a banking system that punishes deposit-based lending as though it were fraud or embezzlement. As for whether or not it's "allowed" to secede, any law that says a state isn't permitted to separate itself from the Union deserves to be broken immediately.
"I found it quite interesting to read about the cashflow opportunities in Detroit's housing market. I used to teach real estate investing students back in 2003-2004 for Robert Allen, author of Nothing Down. Detroit was quite the hot market then for beat up little houses and apartment buildings, but I wasn't convinced and moved on to other markets. Detroit had too many bombed out neighborhoods for me and GM was falling fast. I'm sure that some investors have made good investments there and others have lost their ass. My favorite place to buy is in South Bend Indiana where you can buy a decent 4 bedroom, 2 bath home with a garage for $5,000-10,000 with rehab costs of $2,000-10,000. They seem to rent well and the property tax relief package came through reducing property taxes by 50% or more. Savvy investors can own a house that will pay for itself in 3-5 years. After that it's a great cashflow investment. South Bend has an efficient code enforcement policy that is keeping the town looking way better than Detroit. Notre Dame University is a source for tremendous pride for the area. With two other universities in town and three large hospital employment is relatively good. What's Detroit got that South Bend doesn't? The Detroit Lions." – Paid-up subscriber Kurt J.
Ferris comment: Thanks for the info. Real estate speculators... or maybe just homebuyers... take note.
Regards,
Dan Ferris
Medford, Oregon
February 10, 2009