Buy Gold Stocks, Peter Schiff & David Einhorn

Speaking with KWN’s Eric King, Euro Pacific Capital’s Peter Schiff recommends gold stocks at this time due to the meaningful lag of the sector relative to the high price of gold. Sign-up for my 100% FREE Alerts!

“I think if you look at the underperformance relative to bullion, they (gold stocks) are the cheapest they have ever been.” Schiff told KWN.

Anyone following Schiff’s commentary knows he’s liked gold stocks, especially as the gold bull market enters its second stage—a stage when hedge fund managers start jumping aboard more broadly in both the bullion and stocks.

One such manager, Greenlight Capital’s David Einhorn, has been getting lots of press lately for his decision to lighten up on gold bullion to buy gold shares for his clients.   Einhorn has been a gold bull for several years, but he anticipates that after 30 months of poor performance of the gold stock relative to the metal the time is now to change to a faster horse.

“A substantial disconnect has developed between the price of gold and the mining companies,” Bloomberg News reported Einhorn saying in a conference call to investors. “With gold at today’s price, the mining companies have the potential to generate double-digit free cash flow returns and offer attractive risk-adjusted returns even if gold does not advance further.”

He added, “Since we believe gold will continue to rise, we expect gold stocks to do even better.”

According to Bloomberg, Einhorn has chosen the gold miners ETF, GDX, to expose his fund to the sector’s major producers.  He still favors the metal, but he now wants to get more for his buck from the leverage to the gold price that gold stocks offer investors.

As with any stock, management and operation risks remain as primary concerns to investors taking on exposure to the gold bull market through the ownership of mining shares.  Einhorn’s choice of mitigating that risk through the GDX ETF is a good one, in that a diversified holdings of the world’s major producers reduces his exposure to either a surprise nationalization of a mine somewhere in the world or some other negatively impacting event to one or two of the stocks which make up the GDX.

The graph, below, demonstrates Schiff’s assessment and Einhorn’s bet.  The ratio of the gold price to the GDX has risen to approximately 30 while the gold price rallies to above $1,750.  One would think the gold:GDX ratio would drop rapidly. Not yet.

Note the low gold:GDX ratio between the years 2002 and 2008.  While gold traded below $1,000 (except briefly for a short spell in 2008), the gold:GDX ratio stood at below 20 nearly consistently throughout the six-year+ period.

Today, however, the majors have enjoyed bullion prices above $1,500 for quite some time.  The gold price to the oil price is quite high, which is also favorable to the majors.  Margins of the majors should be ballooning quite rapidly.  It’s only a matter of time investors notice some pretty hefty earnings from the majors, decompressing those P/Es through higher stock prices.  That’s the Einhorn bet.

On Gold: Team Sinclair-Turk 1, Marc Faber 0

Unless the gold price tumbles $400 in response to a surprise 500,000 rise in the Labor Department’s Non-farm Payroll Report, scheduled to be released prior to the NY open today, it appears the team of James Sinclair and James Turk have won the gold in the fight to be right on the move in gold this summer.

On June 23, as gold settled at $1,511, Sinclair stated, “Be prepared for covert QE between July 1st and late August when stimulation goes wild.  Be prepared for gold to take out $1,650 on the upside as magnets at $12,544 come into play.”

At that time, the gold community opined that Sinclair’s multi-year $1,650 gold price prediction may not be reached this year, after all.  Not only was the Sinclair call a gutsy one in the wake of 30+ years of seasonal data which suggested otherwise, it showed a man who’s willing to put his reputation on the line for the greater good of the investment community.  He sells nothing on his Web site, takes calls from anyone seeking his advice at all hours of the day—gratis, and doesn’t grumble or seek credit for his deeds.

And the other man of the gold medal team, James Turk, a man whose knowledge base and, more importantly, integrity, within the global bullion community, had said repeatedly the move in gold during the summer of 2011 will emulate the 50 percent move in the precious metal during the summer of 1982—the time of the Mexican peso devaluation.  He warned traders in June to hold gold during strength, not sell into the seasonal low period as is the custom.

James Turk is founder of bullion storage service GoldMoney.com.

On June 14, Turk told King World News to expect the unexpected in the price of gold during the summer’s intermission period of June-August.

“Everything is all set for new record high prices in both metals this summer, which is going to surprise a lot of people,” he said.  “I just think that people don’t really understand what can happen this summer.  We’ve spoken before about the summer of 1982 when the gold price rose 50% from June to September, propelled back then by the Mexican debt default.”

Turk added, “This summer, you could see a move higher in gold and silver that literally shakes the world.”
And shake the world they did.

For the first time in the infomercial CNBC’s 20-year history, the echo chamber of Wall Street’s tread-worn stock hucksters such as the likes of Morgan Stanley’s David Darst, decided it’s best to hedge its bet against plunging into the credibility abyss along side Morgan Stanley, or worse, Standard & Poor’s, by finally covering gold’s 11-year rally and by beginning to admit that the world may not be flat after all.

Gold’s emergence as a bona fide asset at CNBC is especially telling, as the duped legion of Lord Haw-Haws for the 40-year “in-crowd” intellectual dictatorship presently ruled by economist icons Paul Krugman, Ben Bernanke, Alan Krueger and other pseudo intellectuals at Princeton’s Woodrow Wilson School appear to sense that these despicable frauds will soon be exposed as a two-bit pack of 15th century shamans—at the very least!

And it could turn out that the year 2011 will be seen as the turning point of tyrannical rule of the U.S. dollar, in smaller part, in Libya and Egypt, but in a much more meaningful way in the fall of the evilest of empires of them all, The Fed—and just maybe a mass movement back to the principles of the U.S. Constitution is underway.

Jim Sinclair and James Turk are due some credit for their parts in exposing the most ruthless of tyrannies, The Fed, over the many years, and luckily have been afforded a mic now that the decade-long bull rally in gold has made their points illustrative.

And for the runner up to this inconsequential sideshow “bet” among raging gold bulls, Marc Faber, he is, indeed, not only the most entertaining money manager of the planet, he’s woken up more people to gold as the ultimate form of money than both Sinclair and Turk over the past several years through his made-for-television personality and cover of his Swiss-national status.  Americans can’t get away with making fun of the dollar like a Swiss can.  Ask U.S.-born Peter Schiff, another one who’s gotten it right.

These three man have gotten the overall trend in gold right for a decade, which is really all that investors need to know.  Long-term investors of gold did equally well irrespective of the hard-money advocate you follow.

Jim Rogers: What now for Commodities?

Jim Rogers said the commodities bull market is still on track to higher prices, but he isn’t buying anything right now.

In an exclusive interview with IndexUniverse.com, the commodities king said the downdraft in commodities the markets experienced in June isn’t unusual. “It’s the way the world works.”

“If you look at oil, for instance, it has gone down over 50% three or four different times since 1998,” added Rogers.  “That’s what markets do, and they will continue to do that.”

When asked whether the commodities bull market that he envisioned more than a decade ago and about which he wrote in his book, “Hot Commodities,” is still intact, Rogers said, “yes.”

Close followers of Rogers know he likes agriculture more than any commodity, longer term.  Populations are growing in size and prosperity in Asia, bringing with that growth an upgraded and voluminous diet—the demand side of the price equation.  On the supply side, Rogers notes the aging of farming personnel will pose challenges to the restocking of qualified talent.

“We know that there are huge shortages of agriculture developing,” he said.  “I don’t know if you knew this, but the average age of farmers in America is 58 years old. In 10 years, they’re going to be 68, if they’re still alive. Throughout the world, we have serious, maybe even catastrophic developments in agriculture, which is going to hurt us all over the next couple of decades.”

In the oil market, Rogers sites the lack of meaningful new discoveries to offset Asia’s insatiable demand for crude, reminiscent of the days post WWII in the United States as industrial growth jumped into overdrive to supply a war-torn world with everything from household appliances and automobiles to military and commercial planes.  China isn’t selling air force fighter planes yet, but it sells just about everything else that can fit into a big box store.  Nevertheless, China has overtaken the U.S. in oil imports.

“I do not see any major new sources of supply [of oil]. We know that the known reserves of oil continue to decline worldwide,” Rogers explained.

And as far as the hottest commodity since the summer of 2010, silver, Rogers likes it for the rest of the decade and wants more of the poor-man’s precious metal on pullbacks.  He had said early in May that the moonshot move to $50 in April didn’t look healthy and hoped for a pullback to kill the froth.

“Well, I’m long silver, and if it goes down more, I hope I’m smart enough to buy more,” he said.  “I didn’t particularly like seeing it spike, because anything that turns into a parabolic move has to be sold. And I don’t want to sell my silver. I want to own it 10 years from now. Fortunately, that spike did break, and I find that encouraging and bullish.”

Jim Rogers wants more Silver – after the Market “calms down”

In an interview with India’s television program, ET Now, Jim Rogers said he wants more silver, but won’t consider another purchase until the silver price “calms down.”

“I’d rather see silver go down, yes, for a while,” said Rogers. “And I don’t know how far down, again, depending on what causes it to go down.  Then, I hope I’m smart enough to step in and buy some more.”

As the co-founder of the famed Quantum Fund, the 68-year-old Roger has witnessed various commodities get overstretched in prices throughout the years, so he remains cautious after a 149% rise for a Troy ounce of silver to as high as $49.79 on Apr. 25, from a closing price on Sept. 14 of $19.99.

But, according to Rogers, the price of silver has not gone “parabolic,” yet, but he’s worried that the silver price may continue its breathtaking climb, turning him into a seller of the monetary metal.

“Well, I hope it stops going up so fast.  I own silver,” he said.  “But if it keeps going up it will turn into a problem. If it goes parabolic, I certainly hope silver calms down and goes down for a while.  I say that as somebody who owns it.”

Rogers has repeatedly stated he’s heavily invested in commodities—especially, now, holding those commodities which have not reached nominal all-time highs, as is the case for silver—for the duration of the bull market—a duration that he has previously suggested could run another decade, maybe longer.

“If it [silver] goes down, I hope I’ll buy more, and ultimately it will go much, much higher,” he said.  “But if it goes up too much too fast then I’ll have to sell.”

When asked about a short-term outlook for the commodities rally—as investors weigh the prospects of a U.S. Federal Reserve jumping on the interest-rate-hiking bandwagon—Rogers facetiously responded by suggesting that investors should take advice from proclaimed market timers on television programs.

However, on a longer-term investment horizon, Rogers expects he’ll make money in all commodities, including silver, in one way, or another.  If the world’s central banks are successful restarting an overall sluggish global economy, demand for commodities is forecast to continue outstripping supply.  If the world’s largest and second-largest consumer-driven economies, the Eurozone and United States, continue to struggle, then the prospects for an acceleration in the rate of currency devaluations of the euro and dollar will re-emerge, according to Rogers.

“If the world economy gets better, I’m going to make money in commodities because shortages are developing,” he said.  “If the world economy does not get better, I’m going to make money in commodities because they’re going to print a lot of money.”

When asked to comment about what would make him a seller of silver, Rogers doesn’t take cues from a chart.  The time to sell silver depends upon a context of fundamentals by which the price is driven, he said.

“If silver went to $150 this year, I’d have to think about selling because then obviously it would be getting parabolic and it would be very, very dangerous,” said Rogers.  But, “If suddenly WWIII breaks out, I wouldn’t sell silver at $200 this year.  It depends on what’s happening and what causes it.”

For the past couple of years, Rogers has underscored silver as a commodity whose time has yet to come because of its relatively low price compared with the metal’s all-time high price of $50.35 set in the first quarter of 1980. If, or when, the price of silver eclipses its 31-year all-time high, the only commodity left behind the all-time record price parade would be natural gas.