(Market Update 08-09)
by Edgar J. Steele
December 15, 2008
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Below is an email I sent three weeks ago to a small group of exceptionally-forgiving friends of mine, in which I pre-announced my hunch that things have changed fundamentally in the precious metals (PM) markets. I almost sent it to our full list, as I do today, but held back in view of the many painful emails I have received over the past six months from those who have suffered paper losses on silver they bought at my recommendation.
Though personally I have suffered tremendous losses as a result of the government's months-long manipulation of the dollar, silver and gold, it has pained me even more deeply to know that others have sustained such losses, at least partially in reliance upon my outlook.
Fortunately, most have followed my recommendations to the letter and bought only physical silver and taken personal delivery. They will be made whole and then some. A whole lot more than "some," I firmly believe.
Some list members, like myself, have been foolish enough to ignore my fundamental advice to hold only physical PMs, which is all that I continue to support publicly. They and I took substantial positions in mining stocks on margin and we got destroyed during the past few months. It was a calculated risk. I never imagined that the government would drive down PM prices while the stock market crashed and simultaneously inflate the dollar beyond the bounds of all reasonable foresight. Our recent experience illustrates the folly of investing (gambling, actually) with borrowed money.
Now I have no choice but to continue to gamble on the leverage inherent to mining stocks, though I have been stopped out of all my margined positions. As noted below, I believe that the fundamentals have shifted once again, more in line with what existed a year ago.
I still like Pan American Silver (PAAS) and Gold Corp (GG), but am particularly impressed with Coeur d'Alene Mines (CDE), which has declined well beyond the average during the past few months (to less than 10% of its value a year ago, becoming a true "penny stock" today) and which appears to have more headroom than most, as a result. I have bought as much of CDE as I could with what remains of my brokerage account balances (not much), though I continue to hold modest positions in PAAS and GG, as well as a couple of small firms that I cannot in good conscience suggest to others.
Copyright ©2008, Edgar J. Steele
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