Casey Research

Sep 9th 2013

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Doug Casey: 3 Stocks to Own When Gold Recovers

Dear Reader, We've written recentlyand many times beforeabout the foolishness of trying to time a market. In hindsight, however, market peaks and troughs become increasingly obvious. In a recent conversation with Doug Casey, he told me that the general uptrend in gold since June is evidence that the general downtrend since September 2011 has ended. While Doug is not omniscient, I've seen him when his speculator's instinct kicks inand over the years its accuracy has been nothing short of astounding. It seems that instinct is now telling him that gold and gold stocks have bottomed. Of course, if the Fed announces a tapering of its money printing this month, that would likely whack gold again. Depending on how drastic the language of the Fed announcement is, we could see a renewed sense of panic among gold investors, and the actual bottom for this correction could be just ahead of us rather than just behind us. Either way, prices are already low. Ben Bernanke said he would only turn down the government's printing presses if employment figures improved substantially. Since those remain rather weak, there may not be any tapering announcement at all this month, and if there is, it will likely be marginala toe in the water. It's also worth pointing out that if Doug is right about the US economy finally exiting the eye of the storm, there will likely come a "moment of truth" when people realize that the inevitable has become imminent and every asset class across the board gets hit, including gold. That downturn will be enduring for many assetspermanent for some, but very short-lived for gold. It may turn out to be the last great buying opportunity in this gold bull market, but it could well happen at prices much higher than today's, so we don't intend to keep our money on the sidelines waiting for it. In other words: yes; we are buyers today. Our article below describes the sort of opportunities we are seizing today. It is, I freely admit, something of a sales pitch for the Casey International Speculatorbut if Doug is right about the gold market having bottomed, there's never been a better time to subscribe and find out what he himself is buying. Sincerely,

Louis James Senior Metals Investment Strategist Casey Research

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Gold 1,388.80 1,282.60 1,703.20

Silver 23.84 19.52 32.62

Copper 3.23 3.17 3.52

Oil 110.53 105.30 95.53

Gold Producers (GDX) 28.01 24.03 49.13

Gold Junior Stocks (GDXJ) 47.42 37.12 91.12

Silver Stocks (SIL) 15.29 12.12 22.23

TSX (Toronto Stock Exchange) 12,820.92 12,469.32 12,139.73

TSX Venture 954.92 912.83 1,258.30

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Doug Casey: 3 Stocks to Own When Gold Recovers Louis James, Chief Metals & Mining Investment Strategist

Doug Casey believes the current gold correction has bottomed. Speaking to me a few days ago, he said: "With rare exceptionsthat are mainly luckonly liars buy at the exact bottom and sell at the exact top. Purchase of precious metals remains the most prudent thing you can do to protect your wealth, and a very reasonable speculation at this point. Gold is not the giveaway it was at $250 back in 2001, but it's very reasonable near $1,400 now. "I think mining stocks have also bottomed at this point, and there are several great speculations available today. All the so-called quantitative easingmoney printingby governments around the world has created a glut of freshly printed money. This glut has yet to work its way through the global economic system. As it does, it will create a bubble in gold and a super-bubble in gold stocks. This remains in the future; what we've seen so far is just foreshadowing." Note that in Doug's view, it doesn't really matter whether gold has bottomed or not; what matters is that opportunities now exist to buy low in order to later sell high. Consider this chart of the price of gold and a junior gold miners ETF, over the last year:

Several things are evident in this chart. The first is thatas has been well established over decades of observationgold stocks are much more volatile than gold itself. Note that this is true on the upside as well as on the downside. It reinforces Doug's edict that while the reason to own gold is prudence, the way to speculate for profit on upward movements in gold is to buy stock in the right gold companies. This also highlights the second compelling thing about this chart: Gold stocks have lost much more ground than gold itself and now offer much more imminent upside, if Doug is right about where gold is going next. There's no need to reiterate all that we've said about the runaway global money printing and its inevitable consequences for gold. Please see previous Conversations with Casey and articles in this column for more on this. Assuming you're on board with the premise, the question is what to do if Doug is right about the market bottoming. The answer is obvious: It's time to buy. However, as Doug likes to say, speculation is not a synonym for gambling; you want a good speculation to be as safe a bet as possible. While we do expect gold to rise in the near term, it may dip again before jumping up to new highs and exploding into the Mania Phase of this bull cycleso right now we're focusing on companies that have major deliverables in the near term. Imminent Push, as we call it, dictates where we place our chips today. In the current issue of the International Speculator we're summarizing Doug Casey's current top 3 junior gold stock picks, all of which have major news pending. #1: The Explorer-Turned-Producer Normally, we're skeptical when an explorer aspires to become a producer, as exploration and production are two completely different businesses requiring two completely different skill sets. However, this company was founded and is run by a mining engineer, and its two current projects have an unusually short path to production. The first project is relatively small but high grade, and required very little capital to build the mine and plant. Production is scheduled to start by the end of this month. The question at this point is not whether it can be done or will be done, but whether operations will be as profitable as projected. Those projections were exceptional: The company should be able to pay back the initial $6 million investment within two months, followed by another $40 million or so in free cash flow.
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Since publication of these projections, the company has drilled into more high-grade gold beside and below the current deposits being worked. This gives us two ways to win on this play in the near term: If the cash starts flowing next quarter (as we think it will), the shares should soar; and if the company keeps making this little project bigger, that can only add to the upside. However, the best part of this story is the company's second project, which is already much larger and high gradethis one is showing world-class potential. And with cash flowing from the first project, the value in the second one could be brought to market with little or no dilution for shareholders. That gives the stock what we call "ten-bagger" potential (meaning share prices could rise 1,000% or more), and it'll start happening in the weeks and months ahead. #2: The Takeover Candidate Doug Casey's second top pick for today is a company that is almost certainly on the verge of being bought out by a larger company, at a hefty premium for current shareholders. The story may not have ten-bagger potential, as larger companies rarely offer more than a 100% premiumthat is to say, more than double the average of recent share prices. But such rapid gains overnight, combined with the very high probability of their occurring in the near term, make the stock an outstanding speculation. How can we be so sure this will happen? Pick #2 owns the mineral rights to a property that is completely surrounded by the property of another company that has made a multimillion-ounce gold discovery in one of Canada's best mining jurisdictions. It's not just a matter of location, eitherour little company has already demonstrated that the gold mineralization continues onto its neighbor's land, including some exceptionally thick and high-grade intersections. The only reason this opportunity even exists is that many mining executives were nervous about making acquisitions during gold's recent downturn, so the larger neighbor's management probably thought that they had all the time in the world to take over our pick. And they were right; no one else has bought it yet. However, an intermediate producer has just bought our little company's neighbor, and there's no reason to believe that this larger buyer will leave our company's gold in the ground, just across the property line. There are no sure things in junior mining speculation, but this takeover is as close as it getsand we expect it to happen before the end of this year. #3: The Holy Grail of Exploration Doug's third pick for today's market is a relatively straightforward value-adding proposition. One can make money mining gold, even on a small scale, if the grade is high enough. One can also make money mining low-grade gold, if its characteristics are amenable to low-cost production methods and the deposit is large enough to allow economies of scale. The best of both worlds, obviously, is to find a deposit that is both large and high grade. That's extremely rare, of course. Many of those discoveries are in basket-case countries that are either too dangerous to work in or where the government is likely to steal your mine if you build it. Large, high-grade discoveries with little political risk are the holy grail of mineral exploration. This company has just such a deposit in one of the more pro-business jurisdictions of Latin America, and its current drilling campaign will both upgrade the current resource estimate and make it largerpotentially much larger. The drilling now under way has already returned spectacular results of the sort that move share prices sharply upward, especially when the sector itself is up. So if Doug is right about where gold is headed, we should see these shares rise faster than gold in the months aheadand a big leap is likely when the company issues a new resource estimate calculation.
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We're confident this one's getting bigger and better, and it has a short fuse. Bottom Line I apologize for the secrecy, but it simply wouldn't be fair to existing International Speculator subscribers to just give these companies' names away. Two of them have market caps in the $20-million range, and announcing their names in this space could drive up their share prices considerably. You'll find an article with the names and stories of all 3 of our "recovery picks" in our just-released September issue. Here's what I would suggest: Take full advantage of Casey's 100% satisfaction guarantee and try theInternational Speculator for three months, at no risk at all. You can see what we're recommending and if you're not fully satisfied, you cancel any time within those three months and get all your money back, promptly and no questions asked. If you're not happy with the newsletter, just cancel. If you're not making the kind of money you're expecting to make, just cancel. And even if you miss the three-month mark, you can still cancel later and get a prorated refund. It's really that simple. Just click here to get started. And don't wait; if we're right, these deals won't be around for long.

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Gold and Silver HEADLINES South African Gold Miners' Union Offers Some Compromise as Strike Hits (Reuters) As anticipated, a strike for higher pay by South African miners started last Tuesday night and immediately impacted production at many of the country's gold mines. Output at 16 of the 23 gold mines involved was partially or severely affected. More surprisingly, most strikers went back to work a few days later, after accepting wage increases of between 7.5 and 8.0%. The stoppage was estimated to cost South Africa roughly $35 million a day in lost production. Fortunately, it was a peaceful event this year, in contrast to the violent illegal stoppages last year, when more than 50 people were killed. What will be the economic consequences of yet another increase in mining costs in South Africa? We'll seebut they won't be good. India to Try More Measures to Curb Gold Imports (Mineweb) India continues its policies that attempt to restrain gold demand. The government raised the tariff on gold imports again, and the Forward Markets Commission hiked margins on the precious metal in futures trading. Steps were also implemented to control inbound shipments. Effective September 2, the import tariff for gold was $461 per 10 grams (up from $432), and margins on gold futures rose to 5%. As a consequence, gold prices reached an all-time high that day of $522.54 (34,500 rupees) per 10 grams. After oil, gold is the second-largest contributor to India's current account deficit, so it's no surprise to see the government panicking, but price controls like these never work. We expect the consequences for India to be severe; watch this space. Gold Nanotech Patents Are Skyrocketing (Mining.com) The usefulness of gold in different industrial applications, especially in medicine, is increasingly impressing scientists around the world. Gold nanoparticles are already used in a number of areas, including rapid diagnostic tests (RDTs), targeted drug and radiation delivery, air and water purification, and even in solar-cell technology that generates electricity. As a result, nanogold-related patents have skyrocketed over the past decade. In just five years, the number of nanogold patents per year grew 300%, from 500 in 2008 to 2,000 in 2012.
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The effectiveness of nanogold for medical applications has been nothing short of amazing. Dr. Jim Denham, professor of radiation oncology at Newcastle University in Australia, said in a discussion about the role of nanogold in targeting prostate cancer via radiation treatment: "To me it's one of the best things that's happened in my medical practice. It's rare to see something that works so dramatically." Gold does not need to see increased industrial demand in order for us to be right about where the price of gold is goingbut it sure doesn't hurt.

This Week in International Speculator and BIG GOLDKey Updates for Subscribers International Speculator

One of our gold production companies announced unambiguously good news this week, increasing its output target for the year. This is one of the many reasons we like this producer.

Our speculation on imminent gold production from this company is coming true. BIG GOLD

The September issue of BIG GOLD focuses on silver and has two silver bullion offers just for subscribers. These are discounts you won't find elsewhereones that could pay for your subscription. Get our latest research on the silver market with a risk-free trial offer.

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