Do I See Lipstick On A Pig? Or Is The Stock Market and Gold Still Going Up?

Author: Chris Vermeulen (The Gold and Oil Guy)
Posted: February 2, 2011

As most sophisticated investors and traders are aware, the U.S. Federal government has run up significant deficits and the long term debt burden is becoming a drain on Gross Domestic Product. That being said, most economists are discussing the possibility of a major decline in the value of the U.S. Dollar going forward as inflationary monetary policy begins to strangle growth. While that view point may prove right over the long haul, in the short run most traders are not likely expecting the U.S. Dollar to rally.

The U.S. Dollar is expected to reach a multi-year cycle low in the near future. From the cyclical low, I expect the U.S. Dollar to regain a strong footing and work higher against the crowd. This is not to say that the U.S. Dollar will not eventually decline, but financial markets do not work that easily. Shorting the U.S. Dollar is a crowded trade and Mr. Market punishes crowded trades quite often by pushing prices the opposite of what the heard is expecting. Should the U.S. Dollar find a strong underlying bid, precious metals and domestic equities would feel the brunt force of such a move. While it remains to be seen if the U.S. Dollar rallies, if it does it will catch many traders and economists by surprise and the unwinding of the short dollar trade could unleash a wave of buying that we have not seen for quite some time.

Let’s take a look inside the market…

Major Index Price Action Over The Past 12 Trading Sessions – Bearish
Below is a table showing the main indexes used for tracking the market. The interesting thing about this data is that the indexes which typically lead the market have been deteriorating for the past 12 days and no one has noticed.

In short, the Nasdaq, Russell and Dow Transport indexes typically lead the market

Every radio station and business channel covers the Dow and SP500 indexes therefor the general public hears the market performance based on the those indexes. The problem here is that the Dow only consists of 30 stocks and the SP500 only holds the top 500 companies which is not a full view of the overall market because there are thousands of stocks listed on the exchanges.

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Do I See Lipstick On A Pig? Or Is The Stock Market and Gold Still Going Up?

Detour Lake Increases Gold Reserves 31%, Resources 16%

Author: Dorothy Kosich
Posted: February 01, 2011

RENO, NV - With nearly a 15-million-ounce gold reserve base at its Detour Lake project, Detour Gold officials are now considering increasing annual production.

Detour Gold corporation announced a 31% increase in reserves and a 16% increase in mineral resources at its Detour Lake gold project in northeastern Ontario.

"With 14.9 million ounces [of proven and probable reserves], the Detour Lake deposit remains Canada's largest pure gold play and ranks fourth among the top ten largest gold reserves in North America," said CEO Gerald Panneton.

Detour also reported 20.5 million ounces in global measured and indicated mineral resources. Mine life has been increased from 16 years to 21 years with mill throughput ranging from 55,000 to 61,000 tpd.

Infrastructure construction at Detour Lake has already begun. Production at Detour Lake is expected to commence in early 2013. Panneton said Detour Lake "will be among the largest gold operations in North America."

Detour is initiating further economic studies to assess the potential for increasing the annual production profile once the project has reached production in early 2013.

Officials of the company have scheduled a conference call Tuesday morning to discuss the mineral resource and reserve with analysts.

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Detour Lake Increases Gold Reserves 31%, Resources 16%

Stay Focused Gold Investors

Author: Frank Holmes (U.S. Global Investors)
Posted: January 31, 2011
 
Last week was an eventful week at home and abroad with several events directly showing up in the performance of global markets and the price of gold. On Friday, Egypt’s mayhem in the streets caused uncertainty in the markets, but sent gold shooting up over $21 to close at $1,336.75.

On Wednesday, a continuation of the Federal Reserve’s easy monetary policy pushed gold up double-digits. Earlier in the week, a small hedge fund that had overleveraged itself to gold futures blew out its position, causing the biggest ever one-day reduction in futures contracts for the Comex.

This small hedge fund trader fell victim to one of the oldest flaws in capital markets—arrogance with excessive leverage. This is the same infallible, overleveraged attitude that took down Fannie Mae, Lehman Brothers, Long-Term Capital Management, Enron and a number of Main Street American Home Buyers who leverage themselves 100-to-1.

By overleveraging his small $10 million fund, he was able to control the equivalent of South Africa’s annual gold production, according to the Wall Street Journal. That’s one small fund controlling an amount of gold equal to the world’s third-largest producer?

Leverage of this magnitude is impossible to manage, no matter how intelligent the investor. However, danger and crisis can equal opportunity for long-term investors. All these events have created a lot of short-term noise but not derailed the long-term story.

Life is about managing expectations and that’s why we educate investors to anticipate before they participate (View our Anticipate Before You Participate presentation) by studying the DNA of volatility inherent in different asset classes.

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Catalyst Copper: The “Must Own” Investment of 2011

Author: James Winston (Winston's Growth Stock Report)
Posted: January 24, 2011

Aside from gold, many gurus are saying copper will be the commodity of choice for resource investors for 2011 and the foreseeable future. Sparking this bullish sentiment are the basic economic facts that copper demand is outstripping copper supplies.

Since the market meltdown of 2008, copper has rallied strongly based mainly on the furious demand from China, the world’s biggest consumer plus other emerging nations.

The vast majority of institutional reports I’ve read have summarized that mining companies will not be able to ramp up production fast enough to balance the supply/demand deficit this year. Bart Melek, a global commodity strategist with BMO Capital Markets echoes many analysts when he says “It’s our top commodity pick.” In fact all the big guns you’re familiar with are very strong on copper including Morgan Stanley, Barclays Capital, Goldman Sachs and others.

Going forward over the next few years, analysts are advising this tightness on the supply side will continue. The Royal Bank of Scotland stated, "We believe that future copper mine capacity growth will barely suffice."

So given this bullish copper market the burning question is; how are we going to maximize this opportunity for ourselves?

As I’ve stated many times before, there are two times to make fantastic capital gains in the resource sector. The first time is when you buy a penny stock that makes a discovery. This is what we positioning for with Petromanas Energy (PMI, TSXV) as an example. The second time to make incredible profits is just prior to the production stage. We saw this with Nevsun Resources (NSU, TSX) last year which about tripled from January to December.

In the copper market one of the big stories over the last 12 months has been about a junior company called Copper Mountain (CUM, TSX) whose share price has also tripled over the last 12 months. Copper Mountain Mining Corp. is nearing production with their Copper Mountain Project in southern British Columbia. A recent price target from Canaccord is set at $7.80. The market cap is currently about $700 million.

Interestingly, our number one junior copper pick, Catalyst Copper (CCY, TSXV) and their La Verde project in Mexico, is currently floating around 16 cents and has a lot of similarities to the Copper Mountain deposit.

The big difference with Copper Mountain is that they are starting production this June, 2011. Catalyst is still developing their resources which appear to be open in all directions including to depth. When comparing the copper grades and resource numbers of the two projects and you can see the potential that CCY has at only pennies per share.

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Catalyst Copper: The “Must Own” Investment of 2011

Marshall Auerback: Fiscal Policy Setting Stage for a New Bubble

Author: Brian Sylvester (The Gold Report)
Posted: January 26, 2011

Marshall Auerback, corporate spokesperson for Toronto-based Pinetree Capital, is a so-called "hedge fund" strategist. He believes that deficit spending is not bound by anything other than inflation, which, he says, is of limited consequence right now. Marshall believes the U.S. government's main goal should be to reduce unemployment, and he predicts the gold price is likely to remain rangebound between $1,100 and $1,400 an ounce in 2011. However, his long-term outlook for precious metals remains rosy given that "casino capitalism" is setting the stage for a new bubble. In this exclusive interview with The Gold Report, Marshall reveals some of Pinetree Capital's precious metals holdings and explains why he fears for the global economy.

The Gold Report: Marshall, let's talk macroeconomics. You, like Economist Warren Mosler, believe that government spending is not limited to how much a government can tax the population or borrow. Essentially, you believe government spending is limitless and that deficit spending ultimately creates jobs. Please explain how that works.

Marshall Auerback: That's a slight mischaracterization of our position. It's not so much that people like Warren, myself or some of these so-called "hedge fund" economists like Randall Wray or Jan Kregel, say deficit spending is limitless; we say deficit spending is not operationally constrained by any external or financial constraints. We don't exist under a gold standard. Under the gold standard, your spending was limited by the gold in your central bank. If you started running low on gold, then the gold would start to leave the country.

Interest rates would rise to attract additional gold inflows whilst higher interest rates would slow down domestic economic activity and thereby prevent overheating. Effectively, it would become a self-correcting mechanism. That sounds wonderful except that it didn't deal adequately with the huge demand shocks of the sort that we had in 2008, the Great Depression or several of the depressions that we had during the 19th century.

As far as government deficits go, what we argue is that there are no financial constraints—there is a real resource constraint. In other words, inflation is the ultimate constraint. We shouldn't be constructing fiscal policy with some sort of vague, undefined notion that it's fiscally sustainable. Nor should we define "fiscal sustainability" via some arbitrary number as Kenneth Rogoff and Carmen Reinhart have done in their recent book, This Time Is Different: Eight Centuries of Financial Folly, wherein they say if a debt-to-GDP ratio gets above 90%, then bad things start to happen. That's not an accurate way to look at it because you have to consider the economic context and the institutional arrangements governing the economy. A pure fiat currency regime, as we have in the U.S. or Canada, for example, is vastly different than a country which operates a currency peg system, such as Latvia or Argentina in the 1990s.

The United States also experienced six periods of depression that began in 1819, 1837, 1857, 1873, 1893 and 1929.Therefore, every significant reduction of the outstanding debt, with the exception of the Clinton surpluses, has been followed by a depression, and every depression has been preceded by significant debt reduction. The Clinton surplus was followed by the Bush recession, a speculative private-debt-fueled euphoria, and then the collapse in which we now find ourselves.

The jury is still out on whether we might yet suffer another great depression. While I cannot rule out coincidences, seven surpluses followed by six and a half depressions (with some possibility for making it the perfect seven) should raise some eyebrows. And, our less serious downturns in the postwar period have almost always been preceded by reductions of federal budget deficits. This brings me back to an obvious point: the federal government is big—especially since WWII—and movements of its budget position have a big impact on the economy. That's the point we are trying to make.

Under the type of regime we have in Canada or the U.S., there is no inherent reason why any level of government spending should be fiscally unsustainable over a longer period. You have to look at the economic context; clearly, you shouldn't have deficits of the magnitude you have now when you have unemployment down at, say, at 3% or 4%, or if you've got a capacity-realization rate close to 90% or 95%.

Clearly, in these circumstances government spending should be reined in. In fact, it will be because tax revenues rise sharply, social welfare expenditures come down and deficits tend toward balance. This is exactly what happened during the 1990s. However, what we're seeing right now is that the private sector has demonstrated a large propensity to save and deleverage. That decision, in many respects, can be facilitated by the government running larger budget deficits. Absent that, you get 1930s-style debt deflation.

We also tend not to view government spending in isolation the way a lot of people do, but rather on a stock-flow, sectoral-balances approach. If you want government spending decreased, where are you going to get the offset? In other words, is the current account going to move into surplus (as is the case in Asia, for example), or are you going to start seeing private debt increase? Those are the kinds of variables one has to examine.

I think that the real central flaw in most macroeconomic analysis is it doesn't incorporate these sorts of accounting flows when considering government spending. Therefore, you get all sorts of misconceived policy approaches like you have right now across the globe.

TGR: Isn't your approach somewhat counterintuitive?

MA: It's counterintuitive to the extent that we normally compare government spending to household spending. People say we can't spend beyond our means, and that way of thinking fits into people's own intuitive experience. But you and I are not the same as a government. A government is a monopoly. It's controlling the currency. If you and I had printing presses in our basements and we were able to print $20,000 whenever we needed, we wouldn't be debt constrained in the same way that private businesses or individuals are today.

Clearly, a government is in a unique position because it's the only entity that issues currency and, in effect, creates new net financial assets. The household analogy breaks down because we fail to distinguish between users and issuers of currency.

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Chris and Michael Berry: Correction Will Be Short-Lived

Author: Brian Sylvester (The Gold Report)
Posted: January 21, 2011

Correction? What correction? Chris Berry, founder of House Mountain Partners, and Michael Berry, publisher of Morning Notes and Discoveryinvesting.com, think the 2011 price correction in precious metals is nothing but a passing fancy, and that gold and silver will be back on their respective ascents by year-end. If anything, gold and silver equities are currently on sale. In this exclusive interview with The Gold Report, Chris and Michael reveal some of their favorite gold and silver plays in Colombia and the Yukon.

The Gold Report: Gold and silver are off to rocky starts so far this year. But some gold pundits are still bullish on gold, predicting the yellow metal could finish 2011 at about $1,600/oz. Is the roughly 4% drop we've seen in the 2011 gold price simply profit taking by gold investors, or is something more fundamental behind gold's price weakness?

Michael Berry: Well, I don't think there's anything fundamental about it. The gold price ran up toward the end of the year. There was a lot of positioning by the buy-side investors in gold and silver. I think the situations of both gold and silver are fundamentally different today—particularly silver, which could soon have reasonable position limits in the futures markets. We don't yet know what they'll look like.

Legislation on the horizon is going to force hedgers and manipulators of these markets to reduce their short positions. I think it's remarkable that gold traded above $1,400/oz. When I was first involved with silver a few years ago, it was trading at $4.20/oz.; in late December, it traded over $30/oz. I think this current pullback is simply a correction—a needed correction. I don't think it's a fundamental change in the precious metals market at all. If you look around the world today, you see everybody printing money. Economies are trying to drive their fiat currencies down. It's a race to the bottom—Brazil, China, the United States. There is weakness in Europe because of problems with sovereign debt, and those problems aren't completely solved; neither are the problems in the U.S. I just read a report this morning about the state of Illinois needing to raise personal income tax by 75%. People are very leery of the dollar and of fiat currencies in general. Gold and silver will both benefit from that. Maybe gold will go down another 5% or 6%, but then we'll have a nice bounce back.

I should also add that the dollar's been stronger. When the dollar is strong, commodities fall. The dollar is still in demand because it's the world's reserve currency. You've got to have dollars for both deleveraging and paying off debts. There are these periods when the dollar gets stronger and that has a dramatic, negative impact on commodities. It has been a bit painful, and we could still see some weakness in the precious metals and shares; but, in the long term, I don't think fundamentals have changed. I think they have only become stronger.

TGR: What's the average price we're going to see for silver and gold in 2011?

MB: I think gold is probably going to average $1,500/oz., and possibly reach as high as $1,600/oz. That would be a good move for gold if it could do that. I hesitate to predict an average for silver. There will be a short covering in silver. There are still a lot of commercial traders, including JP Morgan, which were significantly short in the silver futures market. The mints around the world are producing several million 1 oz. silver coins a month. We could really see silver go quite a bit higher. But I think we will easily have $35/oz. or $40/oz. If geopolitical and economic trends continue down their current paths of excess liquidity, these metals will move up.

TGR: For the sixth consecutive year, China boosted its gold production. It produced a record 340 tons of gold in 2010—a record—while it imported another 210 tons of gold. What does this tell us about China's potential to impact the gold price and its view of the yellow metal in general?

MB: Stepping back in history, China was on a silver standard for several hundred years. It was pulled off the silver standard through a deflation and a hyperinflation caused by FDR's administration in the 1930s. China has always been a proponent of hard—not fiat—money. As the country eventually allows its yuan to appreciate, it's going to want to have that back. I think what China is doing is very shrewd. It is mining a lot of gold and importing a lot of gold; that will, in essence, back its currency.

China is now the largest silver producer in the world. It will not be a formal precious metal backing, but it will certainly bring power to the Chinese currency as, ultimately, it floats relative to the dollar. The country will have to float its currency at some point because its economy is suffering from inflation. Already it is moving toward convertibility. China really needs a higher yuan to stem investment inflows into the country and douse inflationary tendencies. I think it's very important that the country mine as much gold and silver and import as much gold as it can with its vast foreign exchange surpluses, which continue to accumulate.

TGR: You and Chris recently gave some presentations on The Yukon Room, an online investment conference focusing on the Yukon. Please outline what you discussed there.

Chris Berry: A lot of the work my father and I do focuses on the emerging quality of life cycle associated with the emerging world. Natural resources really underpin this cycle and are the backbone of any economy. I'm referring to the hard assets needed to make the refrigerators, cars and iPods, etc. that add to one's quality of life. With that concept in mind, I visited the Yukon last summer on a property tour. I consider the area an emerging market, but not in the same sense as China or India or Colombia. I think the Yukon shares a lot of similar characteristics with those places, albeit on a smaller scale. There are very few untapped mining exploration areas in developed countries these days. The Yukon is a perfect example of a location with high exploration upside. With The Yukon Room, we advanced the thesis that the Yukon is this generation's emerging market from an exploration perspective.

TGR: You talked a bit about Antioquia Gold Inc. (TSX.V:AGD) in your last interview with The Gold Report in July 2010. The company owns the Cisneros gold project in Colombia and recently published some metallurgical test results from the ore there. What do you know about those tests?

CB: The results from the tests are very promising; they told the company the metallurgy is in great shape. What's most important, though, is that the test results increased the size of the deposit significantly in both strike length and depth. The depth has reached to about 325 meters. In 2010, Antioquia drilled 79 holes and hit gold in all but two of them. The other two holes actually weren't a total loss, as results from those told the company where not to drill.

After Antioquia published the press release on the metallurgical tests, I spoke with President and CEO Rick Thibault. In 2011, he says Antioquia will go underground at Cisneros to get more details on the mineralized gold structures. Another thing I'll say about the company is that core from four holes is still in the assay lab. Those holes were drilled into new underground structures. We don't know the results from those holes or what story they're going to tell, but there could be additional upside there.

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Gold Should Hit $2000 This Year - John Embry

Interviewer: Geoff Candy
Posted: January 19, 2011

Sprott Asset Management's Chief Investment strategist likes gold but prefers silver and is very positive on gold stocks

GEOFF CANDY:  Welcome to this week's edition of Mineweb.com's Gold Weekly podcast.  Joining me on the line is John Embry, Sprott Asset Management's chief investment strategist. John I've been speaking to a number of commentators recently, trying to get a handle on what the global economy is going to look like in 2011 - how do you see things playing out?

JOHN EMBRY:  It's an excellent question because as you know there's a lot of controversy about what is unfolding.  It will probably hold together to the extent that there's just so much stimulus being applied to it, both monetarily and fiscally - these deficits are ginormous and interest rates - they're still zero based.  The inflation is becoming rampant in a number of key commodities and when this feeds through to the consumer chain, it's going to really impact the public's ability to consume - in the Western world in particular - that's going to be a big negative going forward.

GEOFF CANDY:  And of course looking at your latest note, you don't see the end to the stimulus any time soon.

JOHN EMBRY:  I don't think that they can really put an end to it for the simple reason that the financial system is so fragile.  If you really analyse the US banking system which I know to some degree, and you look inside the numbers - they're marking a lot of their stuff to what I call ‘fantasy' not the market, and then they got superimposed so that the massive quantities of derivatives in there and it seems to be that they just need more and more liquidity to make sure that the thing doesn't bust.  So yes, I love the expression ‘QE to infinity' which was coined by my friend Jim Sinclair.

GEOFF CANDY:  What does this mean for gold prices?

JOHN EMBRY:  I couldn't be more bullish actually, despite the rather slow start we've had to the year - this is typical.  This is now the third year in a row that gold has been leaned on at the beginning of the year and gold shares have done very poorly at the outset only to recover smartly as the year has gone on.  I see exactly the same thing unfolding this year - the fundamentals are impeccable.  The price has clearly been suppressed here in the paper markets.  The physical demand is on fire - both gold and silver in physical demand is terrific, particularly in the East where you see huge premiums opening up on the quoted prices and sentiment strangely enough, in the face of all this is really quite negative.  A lot of people have been discouraged by the short term price action.  I believe it's another fabulous buying opportunity.

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Gold Should Hit $2000 This Year – John Embry

Alka Singh: Gold Equities' Upside Greater than Gold
 
Author: George Mack & Karen Roche (The Gold Report)
Posted: December 20, 2010

Frequently prospecting for new mining companies in natural resource-rich nations, Rodman & Renshaw Senior Analyst Alka Singh is just back from Argentina. The Gold Report caught up with her to sift through her thoughts on the precious metals industry. Her current objective is to seek out gold and silver producers with growth potential beyond the price appreciation of commodity metals.

The Gold Report: You follow both precious and base metals for Rodman & Renshaw. From the lay investor's perspective, what's the difference? What are the value drivers in precious versus base metals that investors should know?

Alka Singh: That's a great question because a lot of people think that precious metals (PMs), uranium and base metals are all metals and mining. What they don't understand is that there are different drivers for each sector. The supply and demand determine the price of gold, but the gold price also changes based on the fiat currencies. Gold, silver, platinum and palladium are viewed not only as commodities but also as a store of value. As the demand for precious metals (jewelry and ETFs) increases so does the price of these commodities. But as the precious metals are also a store of value, people consider these as good as cash and their prices increase as the U.S. dollar depreciates.

On the other hand, base metals are driven primarily by global economic activity and, particularly, by growth in the BRIC (Brazil, Russia, India and China) economies. Growth in these countries has a great impact on the base metals. To some degree, they are also driven by currency exchange rates. Because all these commodities are priced in U.S. dollars, they tend to appreciate as the dollar depreciates; however, you'll see precious metals appreciate more than base metals just because they are perceived as a store of value.

Investors realize the dollar is depreciating and wonder if they should just buy copper, nickel, zinc or lead. They're frustrated because the dollar keeps depreciating, and they see gold or silver appreciating while base metal prices remain the same. Part of that is because if the U.S. and other economies are not doing well—no buildings, bridges or hybrid cars being built; the demand for copper, nickel, zinc, lead—all of these base metals—actually goes down or stays flat. As governments keep printing more money, precious metals appreciate faster than the base metals when there is lack of economic growth. So, that's the key difference in the value drivers.

TGR: So, precious metals can be thought of as a currency, whereas base metals are simply raw materials.

AS: You got it, yes.

TGR: Alka, are we in an unusual situation where we see growth in the BRIC countries and pretty much worldwide devaluation of every nation's currencies? Have you seen this in the past where both base and precious metals can appreciate at a distinctive rate?

AS: I'm sure there have been situations like this in the past, but today it's more dramatic because every country is trying to out-print the other. China is keeping its currency low, while the U.S. is printing so much money in an effort to keep the dollar down. All I'm saying is the rate of change is different this time. More countries are depreciating their currencies due to slow economic development, which causes precious metals to go higher than base metals.

Back in 2008 during the financial crisis, when most of the world economies weren't doing well, we saw base metal prices going down every day. Gold prices also declined, but not as much and at a slower rate than the base metals.

TGR: What's your forecast for the PM sector in the coming year? Do you expect continued price appreciation in these commodities?

AS: For 2011, I see gold prices at $1,350 an ounce and silver at $28, which is close to where they're right now, but not a big increase. I'm not using higher-than-current prices because I believe, at some point, we'll see the U.S. economy starting to improve and all this quantitative easing (QE) will end. People have QE2 all priced in. While there is a good chance we'll see more QE, its impact shouldn’t be as great—or the quantitative easing wouldn't be as big—if we see the U.S. economy improving with more job creation. I'm keeping my fingers crossed, but I think gold, silver and other precious metals will stay where they are right now.

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Alka Singh: Gold Equities’ Upside Greater than Gold

Steve Palmer: Get in Early, Short Gold

Author: Brian Sylvester (The Gold Report)
Posted: December 15, 2010

If you're looking for an upward-trending outlook on gold from AlphaNorth Asset Management President and CEO Steve Palmer, it's not coming anytime soon. "If you just look at the supply/demand factors outside all the gold investment demand, it's not a pretty picture," he says. But he's still making money on junior gold equities. The AlphaNorth Partners Fund, about 10% of which is comprised of gold small caps, has averaged returns of 28.4% since it started in 2007. In this Gold Report exclusive, Steve explains his position on gold and shares some of his favorite gold juniors in the Yukon.

The Gold Report: For our readers, who may not know much about AlphaNorth Asset Management, please give us an overview of your company, its funds and how you manage them.

Steve Palmer: My partner Joey Javier and I founded AlphaNorth in 2007. In December of that year, we launched the AlphaNorth Partners Fund, which is a long-biased, small cap-focused hedge fund. We focus on Canadian securities, primarily. The goal of the fund is to maximize returns over the longer term. I should also comment that it's a diversified fund, so it's not a strictly resource fund. Typically, it's half resource focused and half technology and special situations.

TGR: The fund has averaged annualized returns of about 28.4% since it launched in 2007. Congratulations!

SP: Thank you.

TGR: You're welcome. In another interview, you said you select these companies based on what you call "inefficiencies" in the small-cap space. What constitutes inefficiencies?

SP: In the Canadian micro-cap and small-cap spaces quite often there's a lack of general awareness of company fundamentals, especially if there's no research coverage or institutional ownership. Frequently, there are orphaned companies with some exciting prospects and nobody knows about them. So, we try to identify these early stage situations and get on board at a cheap price before they become widely known.

TGR: How do you find these companies? Is there a certain process you go through? Or, are your decisions influenced by what you hear on Bay Street?

SP: Well, we have quite a large network of friends and people in the investment business who are giving us ideas all the time. We do some of our own screening, as well.

TGR: You started in the investment business back in the mid-1990s as a research associate, and then you became an analyst. I know from some previous interviews that you very much believe in technical analysis of companies. Are we talking discounted cash-flow models or charts? Are we looking for catalysts?

SP: Technical analysis in terms of reading stock price charts to complement our fundamental research. Technical work has been very useful for us in the past, as it helps us time our buy and sell decisions.

TGR: What sort of charts?

SP: I use candlestick charts exclusively. We overlay several other technical indicators on our candlestick charts. These charts were not very common in the mid-1990s but now they're used much more to identify patterns. We have found technical analysis particularly useful in instilling sell discipline; for instance, selling is the trickiest component of investing. A lot of people buy in at the same time, but timing when to sell is the hardest part.

TGR: What are some rules of thumb that you've managed to work out for selling?

SP: One rule of thumb from your fundamental analysis is to have an idea of what a company is worth. When it gets into that range, you're looking for an opportunity to sell. We wait for the charts to confirm it's time. At other times, they help you say, "Well, I think this thing may go further still."

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Steve Palmer: Get in Early, Short Gold