Gold Making Parabolic Gains in Euros and Canadian Dollars

Top NIAnswers

What is the best type of physical gold to buy?

When buying physical gold, it is important to pay as close to the current gold spot price as possible. Stay away from rare numismatic gold coins that have a premium built in for their collectible value. You are buying the gold for the value of its gold content only, not the rarity of the gold coin itself. In the event of a currency crisis or hyperinflation, all gold of equal weight will be worth the same.

Typically you will find 1 oz gold rounds to be priced closer to the gold spot price than official government  gold coins. However, there is one advantage to government produced gold coins: they are instantly recognizable and are easier to barter with than a gold round that somebody might want to weigh and test the purity of before accepting as payment. NIA considers the 1 oz American Eagle to be the most recognizable/liquid gold coin, with the 1 oz American Gold Buffalo and 1 oz Canadian Maple Leaf tied for second, and the 1 oz  South African Krugerrand and 1 oz Austrian Philharmonic tied the third.

They each contain 1 oz of gold. However, the American Eagle and South African Krugerrand both contain a small amount of silver and copper to make them more durable. The American Eagle and South African Krugerrand gold coins contain 91.67% gold, 3% silver, and 5.33% copper and have a total weight of 1.0909 oz. The American Gold Buffalo, Canadian Maple Leaf, and Austrian Philharmonic gold coins are each 99.99% pure gold and have a total weight of  1 oz.

What are the largest premiums over the spot price of gold that you would spend to purchase 1 oz gold coins?

The largest premium we would pay for a 1 oz American Eagle gold coin over the spot price of gold is 5%. The largest premium we would pay for a 1 oz American Gold Buffalo, 1 oz Canadian Maple Leaf, 1 oz South African Krugerrand, or a 1 oz Austrian Philharmonic is 4%. The largest premium we would pay for a 1 oz gold round is 2%.

Do you recommend buying fractional gold coins that weigh less than one ounce?

Stay away from 1/2 oz, 1/4 oz, and 1/10 oz gold coins. You might have to pay a premium of 10%-40% over the spot price of gold to purchase these fractional gold coins, and it is unlikely that you will end up receiving as large of a premium when you sell them or barter with them. When the U.S. dollar becomes worthless, instead of using fractional gold coins to barter for smaller items it will be easier to barter with 1 oz silver coins, which will rise in value by a much larger percentage than gold coins anyway.

How much silver was mined worldwide in 2013?

The silver institute hasnt yet released total 2013 silver production figures, but in 2012 the world produced 787 million ounces of silver up 4% from 757 million ounces of silver in 2012.

NIA calculates from publicly available data that in 2013, the top 26 producers of silver mined total silver of 295.9 million ounces down 2% from 301.9 million ounces in 2012.

How much palladium was mined worldwide in 2013?

Total global palladium production in 2013 equaled 6.835 million ounces down 1.725% from 6.955 million ounces in 2012.

What companies are the worlds largest miners of palladium?

1) Norilsk Nickel (GMKN.RU/NILSY) with operations in Russia,  2) Anglo Platinum (AMS.ZA/ AGPPY ) with operations in South Africa and Zimbabwe, 3) Impala Platinum (IMP.ZA/IMPUY) with operations in South Africa and Zimbabwe, 4) Lonmin plc (LON.ZA/ LNMIY ) with operations in South Africa, and 5) Stillwater Mining (SWC) with operations in Montana, 6) Vale S.A. (VALE) with operations in Canada, 7) Aquarius Platinum (AQP.ZA/AQPTY) with operations in South Africa and Zimbabwe. 8)  North American Palladium (PAL)  with operations in Canada, 9)  Northam Platinum (NHM.ZA/ NOC.BE)   with operations in South Africa, and 10)  Glencore Xstrata plc (GLNCY)  with operations in South Africa and Canada.

Are there any companies that primarily produce palladium?

Stillwater Mining (SWC) and North American Palladium (PAL) are the only two primary palladium producers in the world. However, SWC is the only financially sound primary palladium producer in the world. SWC is NIAs #1 favorite palladium stock suggestion. SWC has a strong balance sheet with $496.02 million in cash and $310.7 million in debt, for a net cash position of $185.32 million. PAL has a poor balance sheet with $10.13 million in cash and $243.66 million in debt, for a net debt position of $233.53 million.

Excluding special income and charges, SWC reported a 2013 operating profit of $179.32 million vs. PAL reporting a 2013 operating loss of ($6.482 million). SWC generated $149.4 million in cash flow from operations, more than 24X larger than PALs $6.15 million in cash flow from operations. SWC reduced its debt by $166.19 million vs. PAL issuing $64.29 million in additional debt.

How do you know Russias Palladium stockpiles have dried up?

For many years, demand for palladium has been surging while Russian palladium production from mining has been declining. Since 2010, palladium demand has surpassed the total amount of palladium produced from mining and recycling, but palladium prices have been held artificially low due to the Russian government selling off its palladium stockpile allowing the growing palladium deficit to be filled.

It is estimated that over the last 8 years, the Russian government has sold off a total of 6.8 million ounces of palladium from its stockpile an average of 850,000 ounces per year. However, it is believed that Russian palladium stockpile sales have declined from 1.3 million ounces in 2008, to 1.1 million ounces in 2009, 0.8 million ounces in 2010 and 2011, 0.25 million ounces in 2012, and only 0.1 million ounces in 2013. This is a strong sign that its palladium stockpile has been exhausted.

What is the best Gold ETF?

The SPDR Gold Shares ETF owns physical gold and trades under the symbol GLD. It is by far the largest and most liquid Gold ETF, with a total net asset value of $33.42 billion as of July 25, 2014.

Are there any Gold ETFs that are leveraged to make double or triple the gains/losses of gold?

The PowerShares DB Gold Double Long ETN, which trades under the symbol DGP, is leveraged to make double the gains/losses of gold futures.

The VelocityShares 3x Long Gold ETN, which trades under the symbol UGLD, is leveraged to make triple the gains/losses of gold futures.

What is the best Silver ETF?

The iShares Silver Trust ETF owns physical silver and trades under the symbol SLV. It is by far the largest and most liquid Silver ETF, with a total net asset value of $6.74 billion as of July 25, 2014.

Are there any Silver ETFs that are leveraged to make double or triple the gains/losses of silver?

The ProShares Ultra Silver ETF, which trades under the symbol AGQ, is leveraged to make double the gains/losses of silver futures.

The VelocityShares 3X Long Silver ETN, which trades under the symbol USLV, is leveraged to make triple the gains/losses of silver futures.

What is the best Platinum ETF?

ETFS Physical Platinum Shares owns physical platinum and trades under the symbol PPLT. It is by far the largest and most liquid Platinum ETF, with a total net asset value of $778 million as of July 25, 2014.

Which five agricultural commodities are the most undervalued with the largest upside?

As of June 20, 2014, the five agricultural commodities that are most below their all time highs adjusted for price inflation are: 1) Sugar -96.5%, 2) Cocoa -93.6%, 3) Coffee -92.3%, 4) Cotton -89.5%, and 5) Wheat -89.1%.

Which precious metal is the most undervalued and which is the most overvalued?

From a long-term perspective, silver is the most undervalued and is currently 91.6% below its all time high adjusted for price inflation. Historically, silver has been the most volatile precious metal consistently making the largest percentage gains during periods of high inflation, but consistently making the most dramatic percentage declines when inflation becomes less of a concern.

Palladium appears to be the most overvalued. Palladium reached its all time high adjusted for price inflation in January of 2001 vs. gold, silver, and platinum each reaching their all time highs adjusted for price inflation between January and March of 1980. Palladium is currently 56.9% below its all time high adjusted for price inflation, the least of all the precious metals.

However, palladium has the most short-term momentum behind it and just this month reached a new 13-year nominal high. Even if the South African mining strikes come to an end, palladium could still move higher in the short-term due to the Russian governments palladium stockpile recently becoming depleted, which was used in recent years to fill palladiums growing supply deficit.

What should I look for when analyzing a gold/silver companys balance sheet?

You should first determine its total cash position comprised of cash, cash equivalents, and short-term investments. Then you should determine its total amount of financial debt, by combining both its short and long-term debt. Then calculate its net cash position, by taking its total cash position and subtracting its total financial debt. Afterwards, calculate the companys net cash per share by dividing its net cash position by its total shares outstanding. If you take the companys latest share price and subtract its net cash per share, you will determine what value is being given to the companys actual business operations and non-cash assets.

Next, you should calculate the companys current ratio by taking its total current assets and dividing by its total current liabilities. If a company has a current ratio of below 1, it means they dont currently have enough liquid assets to cover their debts that are owed over the next 12 months. NIA has a strict rule of avoiding all stocks with a current ratio of below 1, because they could be at risk of going bankrupt. A current ratio of between 1 and 1.50 means the company could face a liquidity crisis if it has problems collecting on its accounts receivable. A current ratio of between 1.5 and 3 is healthy, and above 3 is strong!

You should then calculate the companys working capital by taking its current assets and subtracting its current liabilities. You can also calculate the companys working capital per share by dividing its working capital by the companys shares outstanding. If the companys working capital exceeds its net cash position, it means that after collecting its accounts receivable, selling its inventories, and paying off its accounts payable its cash position will increase (or vice versa).

You should then calculate the companys book value, by taking its shareholders equity and dividing it by the companys shares outstanding. If the companys shareholders equity isnt displayed, you can calculate it by taking the companys total assets and subtracting its total liabilities.

You should also calculate a companys tangible book value by taking its shareholders equity and subtracting its intangible assets and goodwill, before dividing by the companys shares outstanding. A companys tangible book value provides a more realistic value of what shareholders would receive if the company shut down its operations, paid off its debts, sold off its assets, and paid out the proceeds to its shareholders.

How do you calculate a gold/silver exploration companys cash burn rate?

To calculate a gold/silver exploration companys cash burn rate you need to calculate its annual free cash flow. First, you need to access its latest quarterly cash flow statements. Under Cash Flow Operations you need to look for its total quarterly operating cash flow (aka cash flow from operations). Afterwards, under Cash Flow Investing you need to look for its quarterly capital expenditures. Simply add these two numbers together to calculate the companys latest quarterly free cash flow, which for an exploration company with no revenues will be negative, and will equal its latest quarterly burn rate.

Afterwards, we suggest doing the same for the previous three quarters then adding together its total free cash flow during the companys four most recent quarters to calculate its trailing twelve month burn rate. As an alternative, if the company recently implemented cost reductions or increased its quarterly expenditures you can simply annualize its latest quarterly burn rate by multiplying it by four.

Then we suggest taking the companys net cash position and dividing by its annual burn rate, to calculate how many years worth of cash the company currently has on its balance sheet.

How many years worth of cash is it good for a gold/silver exploration stock to have?

Generally, if a companys cash position is enough to last for 5 years or more you wont have to worry about substantial short-term dilution, unless the company intends to raise the funds necessary to bring its project into production. If the company only has enough cash to last 12-24 months, there is high risk of short-term dilution and you should only consider the stock as a short-term swing trade. If the company doesnt have enough cash to last 12 months, substantial short-term dilution is practically guaranteed and the stock should be avoided. Companies with 2-5 years worth of cash will typically be patient and seek to raise money on favorable terms, such as after a large rally to a new multi-year high.