Here Is The Investment Opportunity Of A Lifetime

Rule: “The thing that is most interesting to me right now is the turbulence in energy markets. The energy markets are so large and there has been such incredible turbulence in them that it has definitely caught my attention. The focus of my financial attention has been attempting to get either debt or equity deals done among the micro-cap issuer community in junior mineral or exploration companies. In that I have been unsuccessful….

Eric King: “The sentiment on gold and silver is at the dead lows even though the metals have bounced here.”

Rule: “I think that’s a continuation of an earlier theme, and I don’t think people are paying attention. In the gold and silver markets you have been seeing the futures market for a substantial period of time setting price, as opposed to the physical market.

At the same time you are seeing the selling pressures that drove the physical market lower begin to abate. Those selling pressures were the unwinding of leveraged, momentum-driven carry trades. These involved either gold futures or the gold ETFs.

All of this has resulted in a massive accumulation of physical gold and silver into very strong hands. This involves players in the Eastern hemisphere, as well as retail investors who are unleveraged, that are buying physical gold and silver.

We are also beginning to see the futures markets bottom out at the same time the physical market is incredibly strong. We have also seen the gold lease rates have gone up fairly substantially. This strongly suggests that a lot of the physical gold, which was in bank hands and available for leasing, has been disposed of into the physical markets.

These are fairly bullish signs. I can’t tell you exactly how it’s going to play out, but I do believe that at the very least, in the near-term, the gold and silver markets will stabilize.”

Eric King: “With things as decimated as they have been in the gold and silver space, many times you see markets come out of the hole and it doesn’t really take news to drive it. The markets just start going higher.”

Rule: “You are exactly right. What happens is that you exhaust the sellers. The interesting thing is that the buyers are somewhat exhausted too. It’s sort of like two ‘world class’ fighters who have been battling for 13 rounds and only have 2 more rounds to go, but neither have much energy left to hit each other.

But what you just said is exactly what I’ve experienced in past market cycles like these. The stocks start to move up because they stop moving down. Again, you exhaust the sellers. Everybody is looking at tax loss selling this year, but people forget that you have to have some gains to shelter with the losses. And U.S. speculators haven’t done that.

Furthermore, in Canada where you can take losses this year against gains that you acquired in the three prior years, what you are finding is that the people usually were able to use up those prior gains with last year’s losses. So I suspect that tax-loss selling this year will be much less pronounced than it has been in earlier seasons.

I strongly believe that the highest quality mining shares will move higher the rest of the year, and I certainly believe that the worst of the pressure is off of the junior stocks. There has just been a lack of buyers to meet the lack of sellers.”

Source: http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/7/12_Rick_Rule_-_Here_Is_The_Investment_Opportunity_Of_A_Lifetime.html

Paulson Gold Fund Down 65% In 2013

With spot gold prices down 28% year-to-date, it appears John Paulson‘s Gold Fund has managed to create some epic high-beta losses.

In a letter to investors, Paulson explains his fund fell 23% in June, is down 65% in 2013; but do not fear – as he concludes time and time again, the gold fund will “produce outsized returns in the long-run”.

From Bloomberg:

John Paulson, the billionaire hedge-fund manager seeking to rebound from losses tied to bullion, posted a 23 percent decline in his PFR Gold Fund last month, according to a letter to investors.

The drop brings losses in the strategy, formerly known as the Paulson Gold Fund, to 65 percent since the start of the year, the firm said in the July 3 letter, a copy of which was obtained by Bloomberg News. The fund, which consists mostly of Paulson’s own money, is the smallest strategy of the $19 billion money manager and the only one to post losses this year.

The firm reiterated its commitment to investing in bullion and stocks of gold producers for protection against currency debasement as central banks pump money into the global economy. Gold dropped 12 percent in June, the most since October 2008, after Federal Reserve Chairman Ben S. Bernanke said he may start reducing bond purchases that have fueled gains in financial markets globally.

“Although the timing is uncertain, if you have a long-term view we believe the funds offer the potential for outsized returns,” the firm wrote in the letter.

Armel Leslie, a spokesman for Paulson & Co. at Walek & Associates, declined to comment on the letter.

What is there to say.

Source: http://www.zerohedge.com/news/2013-07-08/and-scene-paulson-gold-fund-down-65-2013

“Policymakers Should Be Cautious Seeing Gold’s Drop As A Vote Of Confidence”

In principle, holding gold is a form of insurance against war, financial Armageddon, and wholesale currency debasement. And, from the onset of the global financial crisis, the price of gold has often been portrayed as a barometer of global economic insecurity. So, does the collapse in gold prices – from a peak of $1,900 per ounce in August 2011 to under $1,250 at the beginning of July 2013 – represent a vote of confidence in the global economy?

To say that the gold market displays all of the classic features of a bubble gone bust is to oversimplify. There is no doubt that gold’s heady rise to the peak, from around $350 per ounce in July 2003, had investors drooling. The price would rise today because everyone had become convinced that it would rise even further tomorrow.

Doctors and dentists started selling stocks and buying gold coins. Demand for gold jewelry in India and China soared. Emerging-market central banks diversified out of dollars and into gold.

The case for buying gold had several strong components. Ten years ago, gold was selling at well below its long-term inflation-adjusted average, and the integration of three billion emerging-market citizens into the global economy could only mean a giant long-term boost to demand.

That element of the story, incidentally, remains valid. The global financial crisis added to gold’s allure, owing initially to fear of a second Great Depression. Later, some investors feared that governments would unleash inflation to ease the burden of soaring public debt and address persistent unemployment.

As central banks brought policy interest rates down to zero, no one cared that gold yields no interest. So it is nonsense to say that the rise in the price of gold was all a bubble. But it is also true that as the price rose, a growing number of naïve investors sought to buy in.

Lately, of course, the fundamentals have reversed somewhat, and the speculative frenzy has reversed even more. China’s economy continues to soften; India’s growth rate is down sharply from a few years ago. By contrast, despite the ill-advised fiscal sequester, the US economy appears to be healing gradually. Global interest rates have risen 100 basis points since the US Federal Reserve started suggesting – quite prematurely, in my view – that it would wind down its policy of quantitative easing.

With the Fed underscoring its strong anti-inflation bias, it is harder to argue that investors need gold as a hedge against high inflation. And, as the doctors and dentists who were buying gold coins two years ago now unload them, it is not yet clear where the downward price spiral will stop. Some are targeting the psychologically compelling $1,000 barrier.

In fact, the case for or against gold has not changed all that much since 2010, when I last wrote about it. In October of that year, the price of gold – the consummate faith-based speculative asset – was on the way up, having just hit $1,300. But the real case for holding it, then as now, was never a speculative one. Rather, gold is a hedge. If you are a high-net-worth investor, or a sovereign wealth fund, it makes perfect sense to hold a small percentage of your assets in gold as a hedge against extreme events.

Holding gold can also make sense for middle-class and poor households in countries – for example, China and India – that significantly limit access to other financial investments. For most others, gold is just another gamble that one can make. And, as with all gambles, it is not necessarily a winning one.

Unless governments firmly set the price of gold, as they did before World War I, the market for it will inevitably be risky and volatile. In a study published in January, the economists Claude Erb and Campbell Harvey consider several possible models of gold’s fundamental price, and find that gold is at best only loosely tethered to any of them. Instead, the price of gold often seems to drift far above or far below its fundamental long-term value for extended periods. (This behavior is, of course, not unlike that of many other financial assets, such as exchange rates or stock prices, though gold’s price swings may be more extreme.)

Gold bugs sometimes cite isolated historical data that suggest that gold’s long-term value has remained stable over the millennia. For example, Stephen Harmston’s oft-cited 1998 study points to anecdotal evidence that an ounce of gold bought 350 loaves of bread in the time of Nebuchadnezzar, king of Babylon, who died in 562 BC. Ignoring the fact that bread in Babylon was probably healthier than today’s highly refined product, the price of gold today is not so different, equal to perhaps 600 loaves of bread.

Of course, we do not have annual data for Babylonian gold prices. We can only assume, given wars and other uncertainties, that true market prices back then, like today, were quite volatile.

So the recent collapse of gold prices has not really changed the case for investing in it one way or the other. Yes, prices could easily fall below $1,000; but, then again, they might rise. Meanwhile, policymakers should be cautious in interpreting the plunge in gold prices as a vote of confidence in their performance.

Source: http://www.zerohedge.com/news/2013-07-08/ken-rogoff-policymakers-should-be-cautious-seeing-golds-drop-vote-confidence