Gold – the Rise in Value is Escalating, Caution is Warranted

We review many writers daily and it seems that everyone is predicting a further massive rise in the value of gold. The view seems to be almost universal.

Mr Market
Remember that when everyone is sure about some direction in the market, Mr. Market waits for his OPPORTUNITY to take everyone’s wealth away and teach us that Mr Market is, and always has been UNPREDICTABLE.

Gold Should Rise Further
Given the current view internationally, demand for gold seems to rise almost like a Tsunami, overtaking every barrier and continuing to rise. Many writers that we think are very credible, are predicting $2,000 gold, and then $5,000 gold. This could very well happen.

Tonight on the CBC – the Canadian National Network – speakers were prophesying an imminent rise in the value of gold. That is about as mainstream as one can get.

Remember That When Taxi Drivers are Unanimous in their Opinion, it is time to run for the hills.

The US Debt Default
Currently there is a very caustic debate ongoing in the USA about raising the debt ceiling and many are predicting that there will not be a compromise. Some feel that the Republicans and Tea Party members believe that they were elected to put a halt on increased spending and are determined to live up to their campaign promises, regardless of the effects of this policy. More and more people are predicting disaster and recommending the purchase of gold.

I will not dwell on what the effects will be of a failure to reach compromise on the debt ceiling, but suffice to say that there will be compromise. Likely, instead of a rise in the debt ceiling being the end of the matter, the compromise will probably be a short time frame and then a re-addressing of the issue in 3 or 6 months. That should satisfy all sides to a limited degree.

The US dollar meanwhile continues to lose purchasing power, and precious metals continue to achieve new heights in value.

European Debt
Meanwhile, the European nations continue to argue and dither as Greece, and now Ireland, and even Spain, swirl in a downward debt spiral. Fear abounds everywhere. Speculators continue to pile into precious metals.

Will the Value of Gold Rise?
Probably. It probably will rise further, and maybe rise a lot.

But I urge the reader to use caution. Remember every bubbly in memory. Whether it was the tech boom with the NASDAQ predicted to hit 50,000 (it is now 2,700), or the predictions of the DOW hitting 25,000 (it is now 12,000), or the price of oil predicted to hit $300 (it is now $100), and so on. Every time in memory, what was inevitable, turned out not to be inevitable.

What to Expect
Gold will likely rise. Your problem is, WHEN WILL IT RETREAT? If you are one of the few able to ride the rising train, and jump off just at the peak, you will do fine. We do not expect to have that insight.

So we urge some caution. Make your own decision as to whether to ride this train further.

Economics 101
As demand rises, or as the price of gold escalates, more people are searching for it. New mines are being proposed around the world, and these much higher prices mean that formerly unproductive gold mines, are now coming back into production. Abandoned mines are being re-opened. Over time, supply will rise, although currently demand seems to be outstripping supply.

A Safer Way to Play this Speculation
We are believers in junior resource stocks, especially junior gold stocks. As time passes, these juniors are getting closer to actual production and as one after another goes into production, they will make enormous profits and their share price will rise accordingly.

Whether gold’s current price is $1,600, or perhaps $1,000, there will still be enormous profits. A fall from $1,600 to $1,000 (just as an example) would equate to a 40% drop. For all of those speculators who jumped on the bandwagon after the price passed $1,000, there would be large losses.

But for gold producers who have a cost of around $500 to $600 per ounce, and a sale price of $1,000 per ounce, the profits will be enormous.

So we ask, why gamble that gold will continue to rise in value? Play it safe and make money.

Invest in junior resource stocks.

By Larry Cyna

Mr. Cyna is an accomplished investor in the Canadian public markets for over 20 years, and has managed significant portfolios. He is a financing specialist for private and public companies, and has expertise in real estate and debt obligations. He has assisted private companies accessing the public markets, has been a founding director of public companies and continues as a strategic consultant to selected clientele. He is and has been a director, a senior officer and on the Advisory Board of a number of TSX and TSXV public companies in the mining, resource, technology and telecommunications sectors, and the Founding Director of two CPC’s with qualifying transactions in mining and minerals. He was an honorary director of the Rotman School of Management MBA IMC program, has completed the Canadian Securities Institute Canadian Securities Course & Institute Conduct and Practices Handbook Course, was a former Manager under contract to an Investment Manager at BMO Nesbitt Burns, a roster mediator under the Ontario Mandatory Mediation Program, Toronto, a member of the Institute of Corporate Directors of Ontario, a member of the Upper Canada Dispute Resolution Group, and the Ontario Bar Association, Alternate Dispute Resolution section. He obtained his designation as a Chartered Accountant in Ontario in 1971 and was the recipient of the Founder’s Prize for academic achievement together with a cash reward. He became a CPA in the State of Illinois, USA in 1999 under IQEX with a grade of 92%. He is a Member of the Institute of Chartered Accountants of Ontario and the Canadian Institute of Chartered Accountants. He holds certificates in Advanced ADR & in Civil Justice in Ontario, Faculty of Law, University of Windsor, certificate in Dispute Resolution from the Ontario Institute of Chartered Accountants. Previous accomplishments are Manager of Cymor Risk Consultants LP specializing in Risk Management Assessment; CEO of Cyna & Associates specializing in mediation and ADR; Founder & Senior Partner of Cyna & Co, Chartered Accountants, a fully licensed and accredited public accountancy firm with international affiliations; and was a partner in a large public accountancy firm. Mr. Cyna is well known in the Canadian Investing community. He is invited to, and attends presentations given by public companies usually 3 or 4 times each week. These presentations are intended by the various hosting companies to present their inside story to sophisticated parties and Investment Managers for the purpose of attracting funding, or of making parties more interested in acquiring shares of those companies. Being a part of this keeps Mr. Cyna deeply involved in the current market and leads to numerous investment opportunities.

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