My early years as an investor witnessed my attempt to master all aspects of this enormously complex and difficult field. I repeatedly read or heard of individuals who amassed great fortunes while investing or trading for their own accounts. Some succeeded by trading commodity futures. Others reaped great rewards when dealing in stock options. While still others gained their wealth through day trading or short selling. However, after much study and research it came to me that those who most often achieved their ultimate goals were those individuals who identified a long term Bull Market, invested early in it, and then let the trend work for them. They bought and held during both the various exciting and pleasurable upswings as well as through the sharp, terrifying reversals, as the market ultimately worked higher until it reached its ultimate peak. Then, when the Bull Market appeared to be in its final, frothy stage, they gradually sold their holdings to the late comers who were clamoring to accommodate them.

Throughout this era, I felt that if great profits could be garnered from trading currencies, stocks or bonds by others, certainly I should easily be able to join their ranks. After all, I was quite bright and not only loved the markets but thoroughly immersed myself in learning about and understanding them. In fact, although it was early in my adult life, investing had already become my second occupation. How could I lose, I thought?

I tried them all! During this period I spent many sleepless nights wondering if I had over-leveraged myself. I tossed in my bed questioning if a sharp correction was destined to deepen into a devastating Bear Market. I remember buying call options on General Motors in December, 1974, when it appeared that the great equity Bear Market of 1972-1974 had ended. I paid $1 for each and sold them near their high at $10 several months later. What a rush! I reminisce about buying a number of silver futures contracts in 1976 or 1977 when silver was about $5.00 an ounce. Then, just prior to its amazing run the locals briefly sold silver off to about $4.90. They took silver to about $0.02 below my stop-loss level and stopped me out. I was left in the dust and licking my wounds as I watched silver move higher, questioning if I should acquire a new long position. I never did! Silver traded to $52.50 only a few years later. What a bummer.

In the end, after trying for a number of years to trade with the pros, I lost most of my youthful naivete but gained much experience and wisdom. I tried to focus on my successes and the reasons that I had profited from them. I came to realize and accept both my strengths and weaknesses. Through my experience I recognized that I was not a trader and never would be one. While I had a number of very successful trades, my losses were quite painful and overall I am sure that I lost money. Further, the agony that I often went through when a trade was going against me became more and more difficult to endure. On the other hand, I recognized that I had a great ability to often perceive the emergence of a nascent Bull Market. I realized that the times when I acted upon these correct observations, and bought and held my positions through the unfolding Bull Markets, were the periods when I most prospered from my investments.

In the case of the silver commodity trade described above I was correct on the trend, but I allowed myself to be tricked out of my contracts by the sharper traders in the silver commodity pit. I could have reinstated my positions but I was frightened that once doing so, silver would again move lower and bestow me with further losses. Unfortunately, this is too often the result to which competent investors succumb, when they are seduced by the lust to trade.

Of course I did not immediately refrain from my trading propensity! While intellectually I recognized that it was a mistake, emotionally, I continued to believe that I should be able to trade with the pros. However, such interludes became increasingly less frequent. And, virtually each time that I again tried I wound up kicking myself, saying that I should have known better. I was beginning to learn to protect myself from myself!!

It is one thing to make a fortune trading stocks, commodities or options over the short term, but it is another to consistently do so. It takes a certain type of individual to regularly profit from trading the various markets. Among other attributes they must be extremely disciplined, have nerves of steel, have great experience in trading markets, and possess not only a great understanding of both the market and their opponents, but also a sort of sixth sense. They must be capable of actually feeling a subtle change in the trend of their market. This allows them to either quickly exit their trade to prevent losses, or to increase their exposure to profit. Few people have a combination of these traits and abilities! Still fewer can successfully put them to use as a trader!

At one time or another we all feel compelled to trade. It is exciting. It has the lure of great profits. Successful trades boost our perception of ourselves We feel that if others can do it, why can’t we? Most of us enter trading for all of the wrong reasons!

I am here to tell you that the odds are heavily stacked against anyone who tries to trade this gold Bull Market! Further, the price that one must normally pay of sleepless nights and possibly damage to one’s health, not to mention financial losses, are typical attending elements that go part and parcel with a life of trading.

This brings me to the subject of gold and silver. As long term readers know I am convinced that we have entered a secular Bull Market in both metals. Further, I believe that we are presently in only their early stages. Additionally, given the various reasons for the emergence of gold’s Bull Market, and the sequence of events that have transpired since its birth, I am confident that these Bull Markets will not end for several years, at minimum.

It remains to be seen how future events will affect their developments, but it is likely that they will only act to drive the ultimate prices of both metals to levels that will appear incredible to the majority of onlookers. If this is the case, what are the pros and cons of investing, or holding over the long term, versus trading in these markets and in the shares of companies that either produce or explore for them? 

The primary financial benefits of trading in a confirmed Bull Market is that it often gives the trader a form of leverage, and the hope that one can garner larger profits than if he only bought and held. The added leverage has the potential to substantially increase one’s profits. For example, if a person purchases gold futures or gold call options they must only commit a small percentage of the underlying gold’s value to initiate the trade. Then, if prices move higher, the profits that result may be a multiple of those that would accrue if he owned the physical metal. Unfortunately, this can act as a double edged sword if the trade, even for a short period, goes against the trader. And, in isolated situations they may be devastating!

In the case of futures contracts the person is not only liable for his committed margin, but also for all losses that may occur while he holds the contract. In early 1980, the rules regarding silver were changed on the Comex. Silver had run from about $15 to over $50 in the space of only several months. When silver passed $50 the Comex officials mandated that the exchange would only accept orders for liquidation. This forced the longs to sell as no new buy orders could be entered. The result of this rule change was that silver plummeted! It went limit down for a number of days until it again resumed trading in the mid-$30 range. The longs, who earlier had amassed substantial profits, were then faced with staggering losses as they could not exit their trades. They were locked in! Each contract consisted of 5,000 ounces of silver. Thus, when silver fell from over $50 to below $40, the longs lost over $50,000 per contract. Numerous individuals went bankrupt overnight. This is not to say that such an event will be repeated. However, when trading futures, recognize that one’s losses are not limited to their margin requirements.

With gold options the negatives are primarily three-fold. They are often cost prohibitive and the potential of losing your entire investment is likely. The call’s cost may be in excess of an annualized 30% of the underlying gold covered in the optionl. To me even when I was trading, the risk vs. reward was often so onerous that they usually kept me out of options. Further, I often heard, and later confirmed from experience, that the vast majority of options expire with no value. Most option purchasers exit their positions with losses! The last negative is that time is working against you. All options have an expiration date. As time passes the value of the options quickly deteriorates. Eventually, unless your timing is exceptional, that date arrives without an attending rise in gold, and they become worthless.

The case for today buying and holding gold and silver bullion and equities, is primarily that you have the actions of their Bull Markets working in your favor. Yes, you will miss the excitement of trading, but you will also miss the loss of countless hours of sleep! True, you will experience periodic sharp reversals and breathtaking declines when you will show paper losses! Yet, if we are indeed in a Bull Market as I believe, your asset base will inexorably work higher.

The primary reason for trading gold equities is the possibility to enhance one’s return. What you must remember for this discussion is that we are dealing in a confirmed Bull Market that over time will bestow profits upon the investor. Successful trading in gold stocks can occur if one is sufficiently competent and agile to recognize and benefit from short term reversals. However, the primary negative of trading this Bull Market is that the typical investor will too often find himself out of position when a major up-wave develops.

This is not to say that even long term holders should not occasionally reduce or eliminate their positions! During the great gold Bull Market of the 1970's, gold suffered a major secondary correction. This lasted from January 1, 1975, until July 4, 1976. During this period gold plummeted from $200 to $103 an ounce. Gold had earlier surged when the U.S. government announced that on January 1, 1975, Americans would once again be allowed to own gold. However, when that fateful day arrived, everyone who believed that a great influx of buying would result from the lifting of sanctions, were sadly mistaken. Rather than exploding higher, the last buyer had temporarily been satisfied. The result was a harrowing, trying, eighteen month fall in the price of the yellow metal.

In this as in every Bull Market there will be at least one such periodic, major price collapse. I can not more strongly recommend that if you sense that gold is encountering such a period, or that an external shock occurs that might precipitate such an event, that you immediately and sharply reduce all gold and silver related positions. Similarly, in the case of a given gold or silver equity, if the fortunes for a company negatively changes it is best to look for another similar equity to switch into. These are the only reasons that should financially motivate you to terminate your gold related investments as long as you remain confident in your belief of gold’s Bull Market.

Returning to buying and holding during a Bull Market the primary negatives are two-fold. First, is that it is boring! You will miss the excitement of trading! The second is that you risk being out of the market during a major price advance.

With normal secondary corrections, I feel that all but the most sophisticated traders should ride them out. They are a common thread that appear during all Bull Markets. Last Friday, many new traders were whipsawed out of their trading positions when gold plummeted sharply below support only to recover to near unchanged. Under these circumstances it can be quite difficult to reenter the trade. Often, as in the case of my earlier discussed silver futures experience, you will not have the courage to again make purchases before gold moves higher. This will force you to miss out on the profits that would have accrued if you had remained invested. Bull Markets have a tendency to move higher while carrying as few investors with them as possible. Gold Bull Markets are no different! If you allow yourself to be faked out of your position, by trying to be cute and trade the market prior to a major gold advance, it is not gold’s fault if you miss the rise, it is yours! 

The dollar has again weakened and recently broke to a new low, with the U.S. Dollar Index penetrating its earlier nadir at 92. Its recent strength appears to have been spent and the direction of least resistance now seems to for the further posting of new lows. The closing announcement emanating from the recent annual IMF meeting did not help the dollar. They called for, “more flexibility in exchange rates”. The fashion in which their statement was crafted intimated that a weaker dollar would be acceptable by their members. The marketplace took this as sufficient reason to sharply take the dollar lower.

The dollar rebounded slightly after posting its subsequent low. I believe that when it violates this low point it will quickly move to still lower levels. A number of financial experts are predicting a dollar collapse when that occurs. However, I believe that the government and Federal Reserve will do everything in their power to guide the dollar’s decline in as a controlled fashion as possible. If the dollar plummets it has the potential to precipitate a loss of confidence by foreigners in not only itself, but also in their confidence in the United States. If this occurs foreign central banks as well as their citizens will begin to liquidate their U.S. holdings. This in turn will cause a sell-off of U.S. Treasuries which will result in not only sharply higher domestic interest rates, but it also has the potential to set off an inflationary domestic episode.

I have discussed the eventuality of such an inflationary event since the inception of my newsletter. Nearly 50% of all U.S. Treasury securities are held by either foreign central banks or other foreign entities. The sale of a significant amount of these Treasuries will trigger a sequence of events. First, it will force bond prices sharply lower and U.S. interest rates higher. This will severely damage our economy. Next, the Federal Reserve will be forced to issue a large amount of newly created dollars to purchase the Treasuries. Many of these dollars will enter our money supply and will likely generate an inflationary event that may make the similar event in the late 1970's look mild by comparison. Finally, when foreigners sell their dollars to acquire their own currencies, it will hasten a further deterioration in the dollar’s international value. Dangerously, as bonds and the dollar are driven lower, it may create a cascading effect which will magnify the intensity of the calamity.

It is for these reasons that our Administration and the Fed are terrified of a free falling dollar. If the U.S. dollar’s decline gets out of their control and moves it sharply lower, foreign holders will become frightened that they will sustain greater currency losses. Recently, other nations have been anxiously watching the dollar’s decline and have even been inflating their money supplies in an effort to maintain their parities with the dollar. If the U.S. currency begins to sharply fall panic may set in. Their concern may change to fear that the dollar could collapse on the international marketplace. This may motivate them to sell much of their holdings to protect themselves from further loss. This, in their effort to salvage whatever they can.

Our government and Federal Reserve recognize this eventuality. They will do whatever they can in order to stave off the repercussions of such an event as long as possible. It remains to be seen if our officials and Fed will be successful over the brewing dollar storm. Our leaders may win in the short term, but unfortunately in the longer one my bet is on the markets. 

The U.S. stock market has been in a Bear Market rally for over a year. The recent joint penetration to the upside of both the Dow Industrials and Transports, above earlier correction rally highs, suggests that the correction has a further distance to advance. Despite the fact that it appears to have gathered steam it remains founded on feet of clay. I believe that it’s legs can be knocked out from under it at any time! .

I continue to feel that an avoidance of common stocks remains the conservative and safest position to take. Those who are profiting from this brief period of positive price action will likely look back upon it as having been a mistake and wishing that they had avoided it. The various talking heads and journalists continue to promise that conditions are improving. Yet, haven’t they been singing the same song for over three years? And, I wonder how many investors wish that they had exited the market when these soothsayers began their rants? When the bear again resumes control it will likely be with an initial vicious decline that will trap those who believed these alleged experts. To me it is far safer to invest in a Bull Market such as the one in which gold resides. Further, it offers a far greater risk vs. reward. 

Since my last Letter gold’s advance has been cut short. Gold has since attempted to find support at the $370 level. However yesterday, October 17, the shorts again moved to break the yellow metal and drove it below $370. At one point they had December gold down about $7 to $366.50, but it quickly rebounded and ended the day with only a $1 loss. Thus, gold continues to present great resilience to decline. However, given its sharp $13 pounding on October 3, it will likely take several more weeks for the noble metal to repair its internal damage and again probe new high levels.

There remains a substantial amount of bullishness on the part of the minority, the perennial gold bulls. Despite the fact that the main street investing public completely disbelieve’s gold’s Bull Market, many of those who recognize it are steadfast and unshakeable in their actions. It is an interesting dichotomy! Importantly, the increasing number of believers of gold’s upward trend still have one foot out the door. They repeatedly panic with each decline. These are the likely reasons for the great volatility that we have been experiencing within all sectors of the gold world.

The vast majority of today’s mainstream investors are doing little more than gingerly delving into the gold arena as traders. They will scalp the various markets for a point or two and run at the first sign of a reversal. Gold’s Bull Market to date has been the personification of a Bull Market in action. It continues to plod higher with sharp, short set-backs, while keeping the public out! This is the stuff of which great Bull Markets are made! This is enormously positive for gold’s future advance. Later, when gold is at a far higher level, the crowd will appear. It will be as if they will all simultaneously recognize that gold has indeed been in a major Bull Market. It will only be at that time when I will begin to look for the exits.

We may have experienced the corrective lows, but the bears are determined, and may win out in the short term and temporarily drive gold lower. I suggest that you hold tight as we ride out yet another correction and await the return of the bull. 

Gold equities have mirrored gold’s decline. Yet, as has been the case for the past several months, they have been even more steadfast in giving up share points. The majors as depicted by the XAU and HUI indices, are again within striking distance of their Bull Market highs despite the fact that the yellow metal is over $20 below its recent peak.

The exploration companies on the other hand are mixed. Despite gold’s correction there have been a number of juniors that have actually moved to higher levels. While the majority have slightly weakened there appears to be little desire on the part of their shareholders to sell these companies. This is not surprising as this market is still catching up with the vastly oversold condition that existed in July. Further, the resource market is entering a transformation period. This is due to the enormous number and value of the financings that are being recorded in the sector.

The past four to six months has witnessed an influx of an incredible amount of capital into the resource exploration sector. During this time-frame one or more equity financings have been announced on most days. Well over $1 C. billion has already been injected into these tiny companies, with more on the agenda and awaiting closings. It is probable that given the exceptional amount of money that will be used to advance dozens upon dozens of credible projects, that we will witness at least one major discovery in the coming months. This is what the industry desperately needs in order to advance it to the next level. I am confident that when the first important discovery is announced the focus of investors will turn to the juniors. When this occurs, many the companies that we follow in Financial Insights should be among the market leaders. 

Whenever a junior company moves substantially higher in price it is wise to take at least some if not half of your money off of the table. This is to protect your investment capital from the great inherent risks that attend all exploration and development companies. It is a rule of thumb in this industry to act in this fashion when a company more than doubles in price. If you act in this fashion, and such a company meets with even a temporary setback, you will be comforted by the fact that you had protected your investment. Further, you will have the capital to acquire shares at lower levels should the conditions warrant. Additionally, if your company continues to move sharply higher you will own your remaining stock at essentially a zero cost basis. In this event, you will still handsomely profit.

Below are a number of new developments that were announced during the past month. These have positively affected the fortunes of some Financial Insights followed companies.

Alamos Gold stated that they have initiated an underground drilling program. This is to test their theory of the existence of high grade gold bearing structures within their Mulotos Deposit. Further, these heavily mineralized ore bodies are believed to be oxide in nature. If they are correct this will both raise the grade of the deposit as well as increase the gold recovery.

Brett Resources announced the results from their initial work program on their La Frontera project in Argentina, as well as the acquisition of four additional nearby claims. These encompass about 1500 hectares. A hectare is about 2.4 acres. Sampling of one outcrop returned assays of over 4,000 gr./tn. of silver and 0.92 gr./tn. of gold over 5 m. The average grade of all of the samples on their eastern block of claims was 681 gr./tn. of silver with some gold credits. They anticipate initiating a drill program by year-end.

Shares of Cardero Resources have roared back after suffering a market collapse only a few months ago. They have returned to their La Providencia and Chingolo silver projects and are currently in the process of their second drill program. Results should begin to be reported in the next several weeks. Their joint-venture with Anglo American on their Baja, Mexico project has been attracting an enormous following. Anglo has a number of their best geologists working on the land package and are advancing it faster than anyone anticipated. The Anglo team is led by Dr. Richard Sillitoe who is believed by many to be one of the world’s foremost copper-gold explorers. It is likely that Anglo will be prepared to drill test a number of targets by the beginning of the year. Additionally, Cardero acquired a private Peruvian company that owns 30,000 hectares in what is fast becoming a newly recognized iron oxide copper gold belt (IOCG). This belt is thought to begin in Chile and extends through the coastal portion of Peru with its eventual end in Mexico. It is thought that the excitement surrounding Cardero’s recent stock advancement emanates from Anglo’s belief that Cardero may have acquired a potential IOCG belt in the making. While I was confident that Cardero would recover, due to my great belief in the exceptional talent and ability of their management, I am blown away by the rapidity with which it occurred. Despite the earlier disastrous set-back on their Olaroz silver project it may still provide investors with excitement. Further, their Anglo American joint-venture, as well as their individual entrance into exploration for IOCG, has the potential to prove quite successful.

Durban Roodepoorte Deep reported the acquisition of a 20% interest in the Porgera Gold Mine in Papua, New Guinea. This increased their gold reserves by over 1.25 million ounces and adds 2.6 million ounces to their resource inventory.

Endeavor Mining Capital released an impressive earnings report. It amounted to about $23 C. million or $1.55 C. per share for the year ending August 31, 2003. This increased their investment capital base from about $36 C. million to about $56 C. million. Additionally, their current net asset value of $3.71 C. remains less than their share price. I continue to believe that the marketplace is only now beginning to recognize their potential. I am confident that they will one day trade in excess to their NAV which will likely trend considerably higher.

Entree Gold pulled off a major coup. They renegotiated the joint-venture terms on their Shivee Tolgoi Project in Mongolia. They reached an agreement where they will own 100% of the project. Their cost will be $5.5 U.S. million and 5 million shares of stock. Further, they announced a major $10 C. million financing to pay for the acquisition as well as to give them working capital to advance it. I was told that the financing was several times oversubscribed. With 100% ownership of their project a substantial amount of doubt will be removed from the company. Shivee Tolgoi completely surround Ivanhoe’s Turquoise Hill property. They recently renamed their Far North Zone, copper-gold discovery the Hugo Dummett.. Further, Entree’s inverse polarization survey of this extension of Ivanhoe’s discovery indicates that the Hugo Dummett may continue onto Entree’s property for up to 2 km. Additionally, Entree is completing work on three additional high priority targets which they anticipate drilling next year. Entree has become THE AREA PLAY for Robert Friedland’s Ivanhoe Mine project! There’s a saying among geologists. It is, “ the best place to find a mine is next to an existing one”. Given the fact that the Hugo Dummett mineralized is extremely large, rich and growing, the marketplace appears to believe that Entree has enormous potential. Further, it is likely that many investors of Ivanhoe stock are switching into Entree. With Ivanhoe’s market capitalization attributed to their Mongolian play at about $2.5 C. billion, Entree’s tiny one of less than $75 C. million appears enormously attractive.

International Curator will be changing its name to Canadian Gold Hunter. They announced the completion of their $1.53 C. million financing. This places them in a good financial condition to begin drilling their various projects on a year around basis. They are completing surface work on two of their important British Columbian targets and expect to drill test the Bob Creek in the Fall. This will be followed up with another round of drilling of their Assean Lake project in the winter with likely year drilling resulting as they test additional targets. Their share price again traded sharply higher last week and the company continues to look for additional world class projects.

The shares of Northern Dynasty moved sharply higher since my last Letter. The copper price is fast approaching $0.90 U.S. which greatly improves the viability of their substantial Pebble Deposit project. Further, they announced a new round of encouraging results which indicates that they are expanding the size of the deposit. 

General Minerals is in the process of refocusing their efforts in a new, unique direction. They are now going to approach mineral exploration by financing geologists who control what the company believes are already important projects.

Geologists are similar to all of us. If possible, they try to save the best projects with the greatest potential for themselves. Unfortunately, most geologists have neither capital nor the ability to attract same. This is where General Minerals can fill a void and simultaneously substantially benefit.

General Minerals will seek out the best available properties and earn into them from their struggling geologist owners. They will initially limit it to about eight to ten projects. Their plan is to acquire a 51% interest, plus warrants, by spending in the neighborhood of $250,000 C. per project. Thus, if their initial work on a given property proves successful, it will not only likely benefit its share price, but they can then focus on progressing it. This will allow them to spread their risk while exposing themselves to the greatest upside potential with minimal financial loss. In effect, the company will have eight to ten, or eventually more, satellite companies under the General Minerals umbrella. This will give them and their shareholders a similar chance for success as if they had invested in eight or more independent junior companies.

I believe that this is an incredible concept! It greatly exposes the company to numerous high quality projects and thus enhances their chance for a successful outcome. Further, General Minerals already possesses two important, 100% owned projects.

General Minerals recently joint-ventured 7,250 hectares of their enormous Atocha silver project in Bolivia to Esperanza Silver Corp. (EPZ-TSX-V; $1.02). General Minerals spent over $5.9 C. million on the project and have test mined about 3,000 tonnes of ore grading about 750 gr./tn. of silver. They identified about a ten kilometer trend, which they control, within which numerous silver occurrences have been identified. Under the agreement, Esperanza must give General Minerals some cash plus 4 million common shares and an additional 4 million, two year warrants exercisable at $1.05 C. Further, General Minerals retained the majority of their land position in the silver trend which they will either explore on their own or similarly joint-venture.

General Minerals also owns the Vizcachitas copper porphyry in Chile. The company has performed a pre-feasibility study that defined a resource of 283 million tonnes grading 0.60% copper with some molybdenum. The resource is near surface and has the potential to be expanded. It is low grade but is becoming interesting attractive due to the rising copper price.

I believe that the combination of General Mineral’s new focus, its stockholding in Esperanza Silver, the Vizcachitas project and their $1.5 C. million in working capital will allow the company to offer shareholders the opportunity to benefit on a number of different fronts. If any of these prove successful the company and its shares will dramatically benefit.