Gold is now hitting new highs. There is one school of thought that when old high prices are surpassed, there is nothing but vacuum as to price above. Nobody is waiting to sell at break even. Back on March 10, 1969, gold surpassed the old high price. Subsequently, it increased by 347%. After that, on December 10, 1974, the previous high was again surpassed. Gold subsequently increased by another 334%. Has such a time arrived again? Nobody knows but the probability is rather high that it is.
Back in 1979, knowing nothing about the mining business (terrible business, just awful!), I took the princely sum of $5,000 and opened an account with a broker on the Vancouver Exchange (one of the most manipulative and corrupt exchanges possibly on the planet). Instructions were to the broker: spread the money between approximately 50 gold mining companies and pay no more than 25 cents per share. In a little over a two year period, that investment was not only an out of the park grand slam home run, the cover left the ball somewhere above the last bleachers in the stadium. Only a few of the companies paid off, the rest disappeared into oblivion, never to be heard from again. Moral of the story: spread it around!
I offer a possible candidate for such a basket of stocks. Gold American Mining Corporation (SILA on OTCBB). They have exploration property in Mexico and the United States (Nevada). The Mexican prospect is located close to the Mexico's richest gold mine, La Cienega and Mexico's largest mine, La Herradura (of tequila fame, just kidding). It is thought that Gold American's property is part of the same mineralized structure of those two fabled mines. The Nevada property is located in Clark County approximately 30 miles southwest of Las Vegas in the Goodsprings/Yellow Pine mining district. Known as the Keeno (how aptly named!) Strike Property, there are 240 acres that are accessible for a bulk handling open pit operation. Only further sampling and drilling will determine the true extent of Gold American Corp's gold reserves on the Mexican property. The Nevada property consists of multiple old played out mining digs.
Share price for SILA at close on 9/17/2010 was $.86. The 52 week high has been $1.45 and the low was $.40. The chart is unimpressive. Average shares traded per day is around 500,000 and the shares outstanding are slightly under 75 million.
If/when gold again goes parabolic in price, mining and explorer shares tend to out perform gold itself, often by many multiples. As speculators, part of our job is to observe where the herd moves under any given set of circumstances, get there first, buy up all the grass and then wait for the herd to arrive. When they do, we feed them the grass. The mining business is fraught with bamboozelry, flimflam and outright fraud. Given that fact, it is best to apply a shotgun approach to longer term speculation in the sector. When the herd arrives, any company with the word GOLD in it will be in demand. Even Gold Medal Flour. Diversify, diversify, diversify, use your own due diligence and good hunting.
Yours in the never ending search for trading edges, Market Sniper.