A long term view that everyone really MUST understand and be prepared for.

I want to show you what could turn out to be the trade of a lifetime.  Literally, the best trade of your entire life.  It has to do with gold miners and more specifically the juniors.  As you can see from the chart below, since 2011 they have gotten crushed.  The December low of $29 was an 84% whacking from the peak.  Folks, the DJIA was only down 89% at the end of the Great Depression.  We are approaching depression extremes for the juniors.  This is not some leveraged options based fund that loses value over time.  These are just small operators struggling to make a profit in the current environment.

So now you should be asking, why did they get crushed so badly?  Isn't 1 ozt of gold still $1200 or $1300 bucks?  I mean, that is a far cry from the $200, $500, $900 gold price of not that long ago.  The answer is simple: inflation.

Mining is energy and equipment intensive work.  Technology has not really changed how we mine gold in any significant way.  To do it we still have to dig, transport and filter millions of tons of dirt to retrieve the metals.  Then the metals have to be refined and distributed and sold at retail.  Miners have gotten kicked in the FACES by our liberal government's corrupt inflation.  It was driven by the quintupling of the monetary base from $800 billion pre-crisis to its current level of  about $4 trillion with a T.   Here is a link to the data straight from the lying con men themselves.

In chart form it looks as shown at left (again, straight from resources made available by the con men).  If you want to know why you cannot get ahead, it's because we all didn't stand behind Ron Paul in 2008.  He would have let the bankers crash by taking down the federal reserve ( His slogan was, "Audit the fed and then end it").  Yeah we all laughed at "Crazy Ron" but we did it out of our own ignorance.  I have only two people in the entire world that I have ever referred to as a "hero".  I do not give that title out lightly and I cringe when others do.  But Ron Paul is one of those people not only because he lived his principles during decades of public service while ignorant people laughed at him but even more so because he took the time to try to get through to us, the common people, about the dangers of a dishonest money supply.  The core of what I know about economics came right from Dr. Paul's teachings.

In any case, because of the watering down of our money supply, $1200 or $1300 per ozt barely covers the current "all in" cost of production.  "All in" means the total cost of production including all business factors, interest payments on loans, the cost of getting permits and doing government mandated environmental studies, etc.  As you can see below from DRD Gold's quarterly report, the all in cost was $1327 per ozt.  Below that you can see that the average price per ozt received was only $1298 for the same quarter.  If they had to account for all in sustaining costs they would not have made a profit.  The bottom line is that $1300 is not a high price relat ive to production costs and if gold falls much below that, some of these guys are going to have to suspend operations (go dormant) and others will go BK. 

 
The majors have better economy of scale so they are a bit better off, but lower gold prices are likely to kill off some of the juniors.  When you start seeing that, think "bottom is near".  Why?  Because the industry is not going to go away.  There is still a big global demand for gold and it is only going to increase going forward.  Recent news from the federal reserve indicates that they have no capability, plan or even desire to unwind their balance sheet because of what they know that would do to interest rates and thus to the economy.  The fed speak they use is "hold until maturity".  In other words, there are no buyers.  It was only after this announcement that gold began to rally.  In any case, if miners begin going under then those remaining in the game will eventually be able to command higher prices.  


The above chart of the junior miner ETF (GDXJ) is telling us right now that, after 3.5 years of getting creamed, a bottom draws near.  We are currently either in a new bull market (the blue line, less likely) or in the 4th wave of an ongoing bear that will have 1 final wave down shown worst case in red.  

When this bottoms, and it will within the next 6-9 months, you want to have a nice pile of cash to throw into JNUG because the gains are going to be beyond belief ridiculous.  If GDXJ gets knocked down to 10-12 bucks then expect at least 10 x out of it during the subsequent recovery (see black 4 as the prior 4th bounce target, worst case).

I've been building the case that the US and in fact the world is now, after a 100 year hiatus from economic conservatism (the federal reserve was founded in 1913...), beginning to swing back that way.  Debt is economic liberalism and so is fiat currency.  At some point the world will re-monify gold and when it does the demand will skyrocket.  The miners will go from being kicked in the face to riding in limos.  Decades of pushing away from the only real money on the planet will revert to the mean.  Banks will carry gold in their vaults and corporations will carry it on their balance sheets and yes, coins containing some small amount of gold in each one will return to circulation.  It is perhaps only once in a lifetime that things get so out of whack, so far out of kilter that reversion to the mean represents an opportunity for little guys like us to get rich.  It will be possible for those who time it right.