Resource World Magazine

20 www.resourceworld.com A P R I L / M A Y 2 0 1 4 A s we enter 2014 I keep finding myself studying charts of the strange and perhaps unexpected event has been building through mid- March, 2014. We have been witnessing strong and consistently improving gains in our precious metals investment portfolios. So far this year, gold has gained from a year- end low of near US $1,180/oz to over $1,390 and silver has soared by over 20% from near US $18/oz to just under $22.00. And here I will candidly offer a rather startling prediction. I believe that not only has the year 2014 started out with a relatively strong package of precious metals performances, but there are two special fac - tors at work that could develop within the junior mining sector leading into a bullish run for the ages. The first special factor is the relationship of total dollars invested within the precious metals sector to the sum total of all other 'conventional' investing. An article I read in the widely-respected Barron's magazine about two years ago suggested a ratio of 99.4 for conventional investments versus 0.6 for those directed toward precious met - als. A more recent study authored by The Elemental Economist, Jim Purnell, sug- gested the trend could be toward even more extreme valuations as new annual conven- tional investments totaled about $9 trillion of new money last year while at the same time precious metals holdings declined in value. Precious metals categories might include bullion, mining shares, share options and warrants, and various forms of commodity investments. Conventional investing would include the entire spectrum of everything else, namely blue chip industrial shares (and options), government and corporate bonds and real estate holdings. I believe that a gradual shift toward precious metals investments could easily develop during 2014 and, if it does take place, any inflow of money away from the towering mountain of conventional invest - ments and into the very limited realm of precious metals investments could produce outsized gains for the precious metals side. According to Purnell, one of the most important factors is the dependence of con - ventional investments on a continual inflow of Federal Reserve monies – and that inflow is at risk due to the mountains of Fed debt already in existence. He concludes by noting that if the inflow of new money was some - how interrupted causing an immediate shift away from conventional and into precious metals-related investing, "...any significant move into the precious metals will push their values up to levels never imagined." There is an interesting precedent for this type of action, namely 1968-74. Until 1968, private investment in gold and silver was outlawed in the US and, therefore, the total dollar invested in precious metals was mini - mal while conventional investments drew the lion's share of total monies. Once the American Congress decided to allow private metals holdings beginning January 1, 1975, serious money began to flow into gold and silver investments. Gold soared from under US $40/oz to $200 and many highly specu - lative junior mining shares showed gains which reached upward to 10,000% and more over that six-year period. The second factor was the result of increasing amounts of money pouring into shares which had seen their prices previ - ously collapse. An excellent example of the principle took place from 1977-80. From January 1, 1975 through August 1976, gold plunged by half its value and many of the shares which had risen spectacularly from 1968-74 were decimated, as illustrated by a 70% decline in the then-popular Barron's Gold Mining Index. Then, during the golden bull of 1977-80, increasing amounts of money began to flow out of conventional investments into gold and silver shares as the price of the metals soared by an ultimate 700%! As any qual - ity securities broker could describe, when increasing flows of new buy-side money begin to be invested in shares with deeply depressed prices, the early gains can be spec- tacular indeed and records exist of advances which created numerous new millionaires. The situation in early-2014 is similar in nature as many mining shares saw their prices collapse from mid-2011 through late-2013. Some noted analysts estimated as many as half the mining shares on the TSX Venture Exchange were selling below 10 cents per share. The number of junior shares at depressed prices remains at historic levels. I believe the odds of a quiet 2014 are minimal. It appears reasonable to predict that either growing prosperity or increasing monetary stimulation will take place this year – either of which could drive the pre - cious metals higher. And, if that is so, we could indeed begin to see both factors at work: funds spilling over from conventional to the precious metals side – and those funds driving presently depressed prices sharply higher. There are no guarantees – but back - ground conditions appear to be growing more favourable for truly impressive gains this year in our world of precious metals mining investments. This material is taken from sources believed to be reliable and is provided for information only. Any investment decision should be made only after prior consultation with investment professionals. Leonard Melman is a financial and political writer who focuses on issues relating to the resource sector. Mr. Melman lives in Nanoose Bay, British Columbia, Canada and can be reached at lmelman@ shaw.ca n 2014: a year of special opportunity S P E C U L A T I O N S L e o n a r d M e l m a n

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