Monday, October 29, 2007

Canadian Frustration with Precious Metals

There has been a lot of rumbling from Canadian investors that precious metals are not making them the kinds of gains that U.S. investors are having. I have to agree we are not making the same returns on our metals but I beg everyone not to panic, hold out a little longer and you’ll see the profit for your perseverance.

I also want people to recognize that while U.S. gold investments are doing great it’s at the cost of huge (but hidden) inflation as oil, food, imports all go nuts because of U.S. dollar devaluation. If your $10,000 of gold goes up 15% and all of your household expenses follow it up 15%, have you gained?

So how will we get rich? You ask!

I don’t claim we necessarily will get rich; I do believe that in the end we will do much better than those sitting on stocks, bonds and cash. The only way we will get rich involves huge positions or such economic calamity that while you might get rich most of your families and friends will get wiped out. Instead we should hope for healthy gains without an implosion as a preferable scenario to getting rich and watching the markets burn.

The first goal of metals investment should be to retain wealth; fiat money is devaluing around the world, even in Canada. Despite the insane strengthening in the Canadian dollar in the last year we still have inflation as oil, food, services have all increased in price in the last 12 months. While Canadian dollar strength has mitigates much of this inflation we are still losing value as we purchase our day to day needs. The chance of a calamity such as a U.S. currency collapse or hyper-inflation is not huge but big enough to warrant continued holding of a 5-10% in your portfolio, do not panic and sell.

Secondly, the BoC will eventually feel the heat from the tourism, manufacturing, and agriculture sectors that are already loosing customers and jobs due to the exchange rate. To fight this trend the BoC (and the ECB) will have no choice but jump into the U.S. dollar race to zero. Once again Canada will ease interest rates, pump monetary creation and allow our dollar to weaken towards some predetermined sub parity goal that is satisfactory to industry. I firmly believe that the Gov and industry would be quite happy with a long term 0.90-0.95 cent dollar.

Why Hold?

Recent metals strength supports the long term trend of higher prices.

Recent Canadian Dollar strength allows us to buy on the upward trend with more abandon than we would at a 0.90 dollar, use it and enjoy, more ounces is your goal

There is no danger of U.S. credit tightening; therefore gold will not weaken dramatically.

Should the U.S. dollar collapse in the interim the flood of money into metals will boost prices much faster than any other currency will move, there is still safety and potential in metals, even with a bloated Canadian dollar.

Eventually the BoC will have no choice but to weaken the loonie and when it does those who hold metals will see very large appreciation over a short period of time.

So have no fear folks, even we Canadians will have our opportunity to make money in metals. For the more adventuresome investor it might be time to buy U.S. dollar positions after Wednesday’s upcoming Fed announcement. Canadian industry cannot afford a 1.05 currency right now (which we did hit today) and something will be done to weaken its value. Had I more capital and the stomach for futures I’d be betting against the Canadian dollar very soon. Of course I’m no expert but consider these things before you bail on your pretty shiny bars and coins.

On other topics, I attended the Cambridge House Investment resource Conference show in Toronto last week and with the exception of one speaker with a silly and unrealistic view of the peak oil problem I enjoyed the speakers. Over the two days I gained a lot of information on various companies and an overall feel for the U.S. and global market. I look forward to next year’s conference and I recommend anyone who has the chance to attend any of the other shows in Vancouver, Phoenix, Calgary, to do so!

Despite my previous reluctance, I think I'll highlight a few of the companies I saw and discussed with reps at the show. I won't make any recommendations or speculate on prices I'll just show you the companies that rightly or wrongly appealed to me.