Gold Stock Bull

Ron Paul:
- M3 Money Supply Up by 42% Over Past Two Years (measured by private sources)
- Inflation is soaring
- Fed purposefully debasing the dollar
- History is on the side of hard money
- Fiat money always end
- Gold is the only thing that can bring stable prices
- In the last few years, the price of oil has tripled in dollars, but is flat in terms of gold
- The middle class is being wiped out, due to price inflation and deliberate depreciation of the currency

Bernanke:
- Blah, blah, blah, Federal Reserve Act and price stability
- I understand you would like to see a gold standard, but that is really something for Congress
- All this inflation stuff is the fault of the price of oil rising. Blame OPEC.

Gold Stock Bull is now offering the monthly subscription newsletter “Road Less Traveled,” which includes a view of the Gold Stock Bull portfolio and rationale for why each stock is included. Subscribers will also have access to the members area of the website, which includes real-time updates of any changes to the portfolio.

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The last six months has wiped out 12% of the value of the S&P 500 and shaved a full 18% off the NASDAQ. During this same time period, gold has increased by 45% and silver by 63% (2/27, 2:00 am PST). Yes, those are 6-month returns, not annualized figures. In risk of being painted “alarmist,” I would like to point out that if the next six months don’t get any better, the S&P will post a 23% annual decline and the NASDAQ will drop 33%. If you include a 10% inflation factor, the average investor could stand to lose 30-40% of their net worth in just 12 months. If real estate makes up any part of their portfolio, they could lose over half of their net worth by August of 2008. Ouch!

These numbers are nothing to scoff at. The economy is extremely unfit; indeed, in many ways worse than the conditions that precluded the Great Depression. The coming economic collapse will likely bring a great deal of suffering to millions of Americans who have grown up spoiled by the benefits that come with a strong manufacturing base, easy credit and a printing press for the world’s reserve currency. Times are changing.

Despite a flurry of announced bailouts, stimulus packages and rate cuts, the markets have reacted with indifference and a shrug. We witness momentary spurts that give the talking heads something positive to cheer about and then a quick resumption of the downtrend. The dollar is the rock and the economy is the hard place, but they are going down together.

In the same twelve months that could wipe out over half of the average investor’s portfolio, an investor who has allocated his portfolio equally amongst short ETFs, gold, silver and energy companies, could potentially double his or her worth. Granted, the latter investor would also have to deal with inflation, but purchasing shares of Canadian gold, silver and energy companies reaps the added reward of currency inflation. The Gold Stock Bull Portfolio is full of exactly these types of companies and is up 20% during the first two months of 2008 alone.

If you are to weather this storm, protect your wealth and even profit during the next few years, you should consider going short the stock market and long precious metals and energy. Starting in March, I will be offering a detailed view of my portfolio and subscription to “The Road Less Traveled,” the Gold Stock Bull newsletter. You can get details and subscribe here. I will continue to publish free articles on the markets, but specific stock picks and investment strategies will be saved for subscribers.

“I shall be telling this with a sigh
Somewhere ages and ages hence:
Two roads diverged in a wood, and I–
I took the one less traveled by,
And that has made all the difference.”
-Frost

Vista Gold (VGZ) shrugged off the overall gold market decline yesterday and advanced 4.5% on heavy volume. There was no news and Vista was one of the only gold miners to advance amidst a sea of red. Again today, Vista is up 8% on higher-than-average volume, while the GDX is up only 1%. The stock is selling at just under $5 and looks cheap compared to a high of over $12 just 18 months ago. However, it is worth noting that they spun off their large Nevada property portfolio in May of 2007 and have recently completed the acquisition of various mineral properties adjacent to their Guadalupe de los Reyes Project in Sinaloa, Mexico.

There has been some speculation of a buyout coming and certainly there are investors accumulating shares with some belief in a breakout. With 9.7 million measured and indicated ounces and a market cap of just $166 million, the company appears to be undervalued. A quick calculation (market cap/M&I ounces) gives Vista an “Enterprise Value per Ounce” of just $17, while most advanced explorers are well over $50. Plus, most of Vista’s properties are located in low-risk areas such as the Paredones Amarillos and Guadalupe de los Reyes in Mexico, Mt Todd in Australia, Yellow Pine in Idaho, Awak Mas in Indonesia, Long Valley in California and Amayapampa in Bolivia.

Vista Gold has recently changed their company strategy with a new focus on moving to production. With gold prices nearing $1,000 per ounce, it is becoming economically viable for smaller companies to consider producing. Vista Gold’s CEO Michael Richings stated:

“In the past we acquired properties with proven mineralization and added value through exploration to build our resource and reserve base. Now we are focused on moving our properties to feasibility and positive production decisions.”

I am not sure what is moving Vista’s share price higher, but quiet accumulation of this type often precedes a breakout. Risk-tolerant investors might consider taking a position at these levels in anticipation of an acquisition or significant news. With high quality properties, nearly 10 million M&I ounces and such a small market cap, I would not be surprised to see a resource-hungry major swoop in and buy the company. Higher metals prices are here to stay and with BHP aggressively going after Rio, I expect the industry’s consolidation to pick up pace in 2008.

Disclosure: I do not currently own shares of Vista, but will be keeping a close eye on the stock and am considering taking a position in the coming days.