Friday, January 12, 2007

The Nationalization threat

This week have seen new declarations from both Hugo Chavez of Venezuela and Bolivian President Evo Morales about their intentions to nationalize various industries. Earlier in the week the Fiji army took possession of a mine belongings to Emperor gold mines. While the mine was recently mothballed due to heavy losses if was still a illegal seizure of private property and a sign of the danger of both high commodity prices and the anti western feelings growing in many parts of the world

While it's still unclear how Bolivia and Venezuela will handle these moves to nationalize major industries, it is very clear that this is a great potential danger to investors. The options open to these states can be varied from simply seizing the properties up to paying fair value for and taking on the debts for these ventures. This means you could take a 100% loss or break even but don't expect a profit.

I continue to believe that it's essential that people hold a substantial amount of their metals investment as physical gold and silver and this is the perfect example why. Putting some portion into the market is a great way to leverage your investment and make some serious money when gold and silver go up, but you must factor in the risk involved in stocks. Companies have different levels of exposure to unstable regions and it is important that investors research and measure risk before taking the plunge. Bolivia for example will impact some of the larges silver miners in the world, Pan American Silver and Coeur d’Alene Mines plus some smaller ones who probably have less diversification of production. Know what your are buying, what assets they have and where, investigate the political situation if you have to but don't buy blind.

The nationalization threat has hit oil, mining and energy for two reasons, 1. a shift in more countries to an anti western (aka American) sentiment 2. Greed, these countries were more than happy to suck up billions in economic development from exploration with zero risk. Now that commodities are growing more lucrative they wish to seize the profits without ever having taken the risks. As oil and gas become more depleted in the years ahead expect to see more nationalization risk in more countries. Weakness in the U.S. dollar will pump up silver and gold prices which will add more temptation by leaders to ignore the rule of law and contracts for profit.

Be careful, research, know your risks and your acceptable level of risk, but most importantly own phyiscal silver and gold as a secure investment before you start wagering on mere paper.

Gold and silver had big moves today, I hope you got in early.

Thursday, January 11, 2007

RRSPs with a Golden Lining

Finally! We finally have a product that will allow Canadians to hold physical gold within their RRSPs. As reported in the Globe and Mail today , starting monday we can buy physical gold bullion through and which will be held for your RRSP at the Royal Canadian Mint.

While we have had the right to hold gold and silver in our RRSPs since the 2005 federal budget nobody bothered to develop a product that qualified. While I'm not familiar with Questrade, their affiliation with Kitco and the Mint gives me reason to be optimistic about it's qualtiy of management. Gee, I sure wish they would advertise on my site;) payment in bullion would be fine! Oh hell, who am I kidding, I'd take junk silver.

I am disappointed however that there is still no product to hold silver, at 5-10 cents per month per ounce I guess it would not workout but it's still disappointing. A product for silver would certainly take a fair bit of silver off the market, perhaps fear of shortages or somebody's self interest in maintaining the silver shorts was involved. Don't sneer, it's my perogative to be cynical and paranoid.

In my opinion silver is still the better investment due to market size, potential shortages etc, but since you can't hold silver in your RRSP gold is a wonderful second choice. I wonder how well transfers from another instituions self directed RRPs will be handled? I'll let you know when I try.