Bargain Days are Here Again in Gold and Silver

I absolutely love it when the manipulative influences of the largest derivatives traders in gold and silver take it into their short-sighted heads to think they arrogantly push the price of gold and silver wherever they fell like it. Sure, their massive short contract buildups and collusive conferences with the spot price fixers can send long investors to the sidelines, but, as they seem determined to forget, that effect is always short-lived. That’s because fundamentally, the world’s a mess and gold and silver are the only places to store and preserve value.

The wonderful side effect of all this pig headedness is that the share prices in the junior companies exploring for and developing gold and silver tend to see their valuations start to erode –especially if the gold manipulators commit to a longer program. With the events in Egypt having apparently zero effect on the price of gold and silver, it is clear from the heavy downward pressure manifested each day in the early part of the western hemisphere day, it is clear there is a massive program underway.

Since when, in the entire history of gold and silver spot prices, has a destabilized key middle eastern country not had an immediate and profound impact on gold and silver prices?

Government-sponsored interference aside, the opportunity for resource industry investors is the discounts that develop in the share prices that have a high correlation to the gold price, or ‘beta’ to gold. As the gold price deteriorates, these companies tend to reflect the diminishing price per ounce of gold in the prices of their own shares.

The spot price for gold has depreciated by $82.90 in the last thirty days, or 5.83%. Shares of Ventana Gold (TSX:VEN) have deteriorated by $0.76 in the same time frame, or 5.7%, giving Ventana a very high beta to gold. That means when the gold price shoots through its previous record of $1,430, investors can expect the share price of Ventana, barring unforeseen events specific only to Ventana, to respond in kind. So for investors to buy now means the potential for a quick 5% gain, which annualizes out to 60% for the year. That’s the kind of performance that can only reliably be achieved in the gold and silver sector.

The volatility in silver is even greater, and many silver producing companies have an exponentially higher beta to the silver price.

Pan American Silver Corporation (TSX:PAA) closed at $40.93 on the 31st of December, the same day that silver itself closed at $30.80. Yesterday, Pan American closed at $32.79, or nearly 20%, while silver in the same time frame is down only 8.38%. So for silver investors to pick up shares of Pan American now, there is a superb opportunity to capitalize on the silver price returning to above $30.00 per ounce.

Obviously, there is risk involved with such a simplified approach. But an analysis of past correlations between share prices of silver and gold producers, and the prices of the actual metals, bears out the fact that these patterns are consistent and reliable.

Gold at the end of the rainbow in a pot with a silver lining.

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