By James West
December 31, 2010
With gold and silver prices both boiling ferociously into record territory repeatedly throughout the last half of 2010, the outlook for 2010 looks even more bullish for the monetary metals. Forget the perennially fallacious predictions of the financial mainstream. There’s nothing but higher prices for both these metals on the horizon.
The reason is elementary. With the United States firmly entrenched in its own death spiral financing, whereby it has no choice but to continuously prop up its crumbling economy with monthly injections of increasingly abundant and therefore declining in value paper dollars as the only means to generate big numbers in the stock market, gold and silver will rise.
Even if all of the gold ounces purchased, hoarded and fabricated into jewelry each year were replaced by new discoveries, both gold and silver would keep rising, simply in relative value to the U.S. greenback.
Gold is finishing up 2010 with its strongest year on year price increase since the decade-long bull market first picked up a head of steam in 2001 with a gain of 28.8 per cent.
Silver, however, was a brighter star, having finished the year up over 80% since its 2009 close of $17 an ounce. Closing 2010 at over $30 an ounce, it has been an even better performer over the last ten years, now up over 600% as compared with gold’s almost 500% increase in the same period.
The less well-known precious metals, which also qualify as both precious and money, palladium and platinum, are also both stellar performers in the last year, having risen by 95% and 15% respectively.
But even copper has set new records this year, and consensus estimates point to that trend continuing into 2011 and beyond. Gold Fields Mineral Services predicts copper will reach CA$11,040 per tonne by 2015.
Buying the physical metals is obviously a safe bet going into 2011. Since the United States leadership lacks both the intellectual capital and the moral fortitude to responsibly manage its currency and its economy, investors around the world will succeed handsomely just exchanging their U.S. paper money for precious metals.
But the real money in 2011 is going to be made in the junior mining companies who will be the source of replacement ounces for all of the major mining companies who need to pay a premium for advanced discoveries that are needed to their much larger valuations.
In the period from the beginning of 2010 to the end of 2010, there were no less than 520 stocks on the precious metals-heavy TSX Venture exchange that returned over 100% in value within the 12 month period. No other class of public company equity even comes close, with most other sectors performing as net losers in the same period. No other exchange can demonstrate anywhere near that number of stock doubles within a single sector.
The TSX Venture composite index shot up an incredible 48% in 2010, which makes it one of the world’s best performing stock exchanges for the year. Compare that performance to the measly 17.85% offered up by the Dow Jones Industrials or the paltry 12.6% delivered by the S&P 500.
Its not just the level of performance that is enriching investors. On December 17 the TMX Group announced that Toronto Stock Exchange and TSX Venture Exchange together established a new trading volume record yesterday, December 16, 2010. Year-to-date combined volume traded was 166,174,821,823 shares, which surpassed the previous record of 165,351,274,278 set on December 31, 2009.
So the increased liquidity in these exchanges demonstrates that the trend for 2011 is clearly for more investment in natural resources and commodities.
The surge in commodity performance has also been a boon to the Canadian dollar, which rose to an 8-month high on the back of commodities prices.
Possibly the best trades investors can make in 2011 is to take their declining in value U.S. dollar holdings, use those to buy equities in the surging precious metals exploration stocks, and then sell them in Canadian dollars in a year’s time. Investors will capture not just the leverage to the prices of gold and silver offered by successful Canadian juniors. They will also benefit from the strengthening Canadian dollar versus the U.S. dollar as that trend continues into 2011.
Even oil is set to rise through $100 a barrel in 2011, which will hurt consumers at the pump. The best hedge against higher fuel prices is owning shares in publicly traded energy exploration stocks that can deliver 100% gains or better in a single year if they discover new reservoirs of hydrocarbons.
There is a time coming when the global investing public will suddenly clue into what is right now a not well known fact: the best place to make money in 2011 will be on the Canadian TSX and TSX Venture exchanges.
James West is the publisher of the highly influential and widely respected Midas Letter at midasletter.com. Midas Letter Premium Edition features 5 stock picks on the first Sunday of each month on the TSX Venture Exchange. The 2009 model portfolio performance was 237%. Until December 31st, subscribers to Midas Letter Premium Edition will enjoy it at an annual rate of $39 per month in perpetuity, and be entered to win US$100,000 in gold bullion. After January 1, the price is $49 per month.
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