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Gold, Silver Investments Will Keep You From Getting Burned

July 20, 2011 by  

Gold, Silver Investments Will Keep You From Getting Burned

Like many others, we keep watching — and feeling the effects of — the jittery European economic scene with a mixture of anxiety and fascination. From Greece and Ireland to Spain, Portugal and, most recently, Italy, the specter of sovereign debt default and its potentially horrific consequences continues to haunt Europe and the wider world beyond.

As we’ve observed before, the factors of psychology and confidence are playing an enormous part in this scenario. Indeed, there has actually been no significant deterioration in Italy’s financial situation thus far, so the recent surge in bets against Italy’s debt appears to be largely psychologically driven.

The challenge for EU leaders, in conjunction with the International Monetary Fund, which is expected to play an important role in achieving a solution, is to finalize an agreement with the banks that effectively backs up the weaker countries without further delay. Delays are toxic and debilitating when it comes to the essential tasks of regaining market confidence and supporting the euro.

Until the Euro Zone gets its act together and more clarity emerges from the situation (and even more so if it doesn’t), we look to gold and silver, as usual, for safety and value.

And the problem doesn’t come only from Europe and doesn’t involve only the euro. Our own U.S. dollar is under siege, too. At this very moment, 16 nations are uniting to bury the U.S. dollar.

The U.S. government seems to be intent on helping them, as it continues to spend — and print — our currency into oblivion.

Again, to dodge the coming damage in what’s likely to be very uncertain and turbulent times ahead, we recommend safety in gold and silver.

Our specific gold-related picks in this category are: NovaGold Resources (NG), which is our current favorite; Goldcorp (GG); Barrick Gold Corporation (ABX); and the SPDR Gold Trust ETF (GLD). We also like Gabriel Resources Ltd. (GBRRF); although, at this time, it is clearly a more speculative play. (See below for more about Gabriel Resources.)

As for silver investments, we favor First Majestic Silver Corp. (AG), Tahoe Resources Inc. (THO, THOEF), and the iShares Silver Trust ETF (SLV).

Solar Energy And Silver

Despite the recent funk in the solar market, reflecting the fall-off in sales in Europe (the world’s largest solar market, with nearly 75 percent of global installed capacity), we have our eyes fixed on the long-term. The Chinese do as well. They have achieved dominance in the industry in only a few years, and they are actively moving forward to solidify their dominance even further.

In that light, we are convinced that the best way to play solar’s future development is via silver stocks. Silver paste is in most crystalline silicon photovoltaic cells, which is the most common type of solar cell, and also in the mirrors used in concentrated solar collectors.

Out of more than 1 billion ounces of silver produced annually, demand from solar manufacturing now comprises approximately 10 percent. But shortages may occur sooner rather than later, not only because mining output gains are likely to be limited for the time being, but also because the U.S. Geological Survey estimates that at current consumption rates the world’s economically minable silver reserves will be exhausted in a little more than 20 years.

Rising silver prices has manufacturers scrambling to come up with effective ways to use less of the metal (note: there are no viable substitutes). Even if they are successful, the increased demand for solar cells will keep silver prices on a rising trajectory.

Add to this situation the investment demand for silver. As gold hovers around $1,600 an ounce (and it’s likely to go even higher in the long run), silver, aka “the poor man’s gold,” is going to be in ever greater demand from buyers eager to protect their savings but not ready, willing or able to pay the cost of gold.

Our view for the short term: From a purely technical perspective, if silver can remain above $38.50 per ounce for a few consecutive days, it could open the door for a run at the previous highs around $50. If that happens, as we witnessed during the last rally in April, such a move will result in gains of 15 to 20 percent in the shares of our favorite silver mining plays noted above.

Romanian Gold Mining Developments

Recently, we noted a jump in the shares of Gabriel Resources Ltd. (GBRRF), following the announcement that an independent panel had completed a six-month investigation and issued an archaeological discharge certificate for the Carnic open pit at its Rosia Montana gold and silver project in Romania.

Gabriel still needs a number of approvals from the government of Romania before it will be permitted to fully commence operations at the mine. But the stock’s favorable reaction to the news provides a preview of what we could see in coming months if Gabriel moves closer to actual start-up. There will be a progress report on this question issued with the company’s quarterly results in the first week of August.

We received more news about Romania gold and silver mining: Barrick Gold Corporation (ABX) is taking a 9 percent stake in Carpathian Gold Inc. (CPN:CN) for $20 million. Carpathian Gold representatives said they will use the cash to fund development on its Rovina Valley Project in Romania, and the company will otherwise benefit from access to Barrick’s technical expertise.

Does this development indicate that there’s more than meets the eye when it comes to Romanian gold exploration? We’ll be watching this closely.

–Stephen Leeb

Stephen Leeb

has analyzed and identified macro-economic trends for more than three decades. He is a recognized authority on the stock market and commodities, especially oil and precious metals. He is often credited as the first to foresee market-changing events, and predicted the spiraling costs of oil well before others. Dr. Leeb has authored seven books, including the New York Times Bestselling Business Books, The Coming Economic Collapse: How You Can Thrive When Oil Costs $200 a Barrel (2006), Game Over: How You Can Prosper in a Shattered Economy (2009), and the forthcoming Red Alert: How China's Growing Prosperity Threatens the American Way of Life (2011). He is also a frequent contributor to 'Fox Business News,' Bloomberg, ABC, and CNN. He serves as Head of the Advisory Board for Leor Exploration & Production, LLC, as an Advisory Board member of Electrum USA Ltd., one of the world's largest privately held gold exploration companies, and in the same capacity for Sunshine Silver Mines Corp., a privately held silver exploration company. Dr. Leeb received his bachelor's degree in Economics from the University of Pennsylvania's Wharton School of Business. He then earned his master's degree in Mathematics and Ph.D. in Psychology from the University of Illinois in just three years, an academic record that still stands.

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