Have gold and silver finally bottomed? As all of our clients know and those that follow us religiously on our blog and on this newsletter, I’ve been bearish on gold and silver now for nearly the entire year to date. At maalamalama, we’ve only been long in gold and silver mining stocks for 40 days this year and in cash the rest of the time regarding our allocation to mining stocks. I’ve also been providing many warnings regarding the great fragility in US stock markets, Asian RE markets and emerging market currencies, and the last time I’ve issued so many warnings about the overall fragility of the global financial system was in 2008, right before the global financial crisis hit, so please take heed of these warnings. All my look fine on the surface, but if you look beneath the surface of the incessantly propped up US stock market indexes, for example, you will discover collapsing breadth that is flashing all kinds of warning signals for a coming major correction, if not crash. Banker committed market fraud is only sustainable until it is not.
As you can see above, the TSX Venture Composite Index, the best representative of Canadian junior mining stocks, are now 85% below their valuation with respect to gold price since the start of the gold bull in 2001. Of course, only 37.5% of the TSX Venture Composite Index is comprised of materials (gold, silver, etc.) while the other major sectors are energy and information technology, so this is not a pure reflection of the undervaluation of just gold and silver junior mining stocks; however, it should provide you an idea of how undervalued gold and silver junior mining stocks are at the current time. In addition, if we chart the XAU Philadelphia gold and silver index against the price of gold, this index is 78% below the valuation respective of gold price since the start of this gold bull in April 2001. So we are truly entrenched in a situation where gold and silver mining stocks are at their lowest valuations of this entire bull market. We many not be there yet but we are getting close and our clients will know when the time to go long in gold/silver assets will be again for this once in a lifetime opportunity. Of course, it’s not as easy to pick the best gold and silver mining stocks as simply picking the companies that have the largest deposits are the companies that have the largest highest-grade reserves in production.
For example, two of these companies that fit that description are Northern Dynasty and Gold Fields, but as you can see from the charts below, Northern Dynasty has now declined -41% since its yearly high and is down -26% on the year and Gold Fields has performed even worse, down an incredible -53% since its yearly high and down -40% on the year.
As we’ve shown with our maalamalama Platinum H1 2015 performance of +31.6% with our junior miner portfolio, many factors go into selecting only the best gold and silver mining stocks as 90%+ of the stocks in this sector will perform terribly because of risks inherent in the company that you cannot assess just from looking at the size of discoveries or the grades of gold and silver reserves and resources.
Regarding our performance since inception on 15 June 2007 to year-end 2014, our Crisis Investment Opportunities portfolio has outperformed our benchmark XAU Philadelphia Gold & Silver index by +107.71% and major global indexes like the Australian ASX200, UK FTSE100 and even the “most stable, strongest” global stock market index, the US S&P 500, respectively by very significant margins of +69.37%, +59.85%, and +22.98%. Over this same time period, we have even outperformed the widely lauded US Horseman Capital Management hedge fund (with over $2B in AUM) by a wide margin of +32.57%. To see a complete disclosure of our returns for our CIO and Platinum portfolios, please click here. In this document, we discuss our (mostly) successes, our upfront disclosure about our one (outlier) year of failure, and our modifications to our strategy that will prevent a repeat of our one year of bad performance in the midst of mostly years of massive outperformance during 8 years of operation. If you believe that US stock markets are due for a huge fall due to incessant Central Banker intervention and manipulation of these markets higher as we do, then we expect the above margins of outperformance between our products and benchmark global indexes to widen even further over the next 5-7 years.
The number one question we have received all around the world is how do you invest in such volatile markets when listening to mainstream media TV shows and publications are completely devoid of the truth of market health? The answer is with a healthy dose of skepticism about the MSM narrative and an even healthier dose of patience with strategies based upon fundamental market realities which have struggled for the past couple of years. Since our launch in June of 2007 until year end 2014, our Crisis Investment Opportunities portfolio has outperformed our benchmark Philadelphia Gold & Silver index by +107.71% and the US S&P 500 by 23%. During this same investment period, our maalamalama CIO newsletter portfolio even beat the Horseman Capital hedge fund, a fund lauded as one of the best hedge funds in the entire world, by a whopping +32.54%. So while there may be specific years during which other indexes like the S&P 500 or hedge funds have outperformed us, over a longer time frame over 7 1/2 years, very few have been able to match our long-term performance. This year during H1 2015 our Platinum membership junior mining portfolio returned +31.60% while the benchmark S&P/TSX junior mining venture index fell -3.60%. Finally, and most importantly, when many of our clients asked us to suggest Chinese stock market ETFs this past March, April and May, we avoided the June collapse by stating that Chinese markets contained way too much risk to invest in them, even if they did continue to rise in the short-term. So come by maalamalama.com to uncover how we can help you manage these times of fragile markets, fragile currencies, and fragile economies. Further discover what assets we continue to avoid, and when we think it will be a fortuitous time to re-enter gold and
silver assets again.
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