A Life-Long Stock Market “Gold Bug”
May 28, 2010
By Jim Deeds
I became a “gold bug” stock market “speculator” back in 1968, when gold sold for $35 an ounce. I was a new stockbroker at Dean Witter and read an off-beat book called “Death of the Dollar”. It made sense. I started buying stock in Dome Mines, Campbell Red Lake, and Rosaino (silver) for myself and clients (probably the only gold and silver stockbroker working for Dean Witter back then). These were some of the largest mining companies in precious metals back then...all on the NYSE and ASE. Their prices went up slowly at first...but 3 years later some were already “doubles”.
In 1974, when gold was approaching $200 an ounce, our FED who always has the best interest of “average American citizens” at heart, announced a new and continuing sell-off (dump) of our nation’s gold reserves in the world market “to protect the integrity of the dollar.”
Fortunately, (or unfortunately), the 1974 market “crash” had greatly reduced my commissions (income) starting in late 1973, and I had sold most of our stocks to support us during “the dip.” With four kids entering college, our precious metal investments in gold and silver stocks were sold near their 1973 highs to set aside for college tuition.
Even with “my” government working against me in 1975, I still believed 100% in “The Death of the Dollar” and so with “tiny investment after tiny investment”...I started over in the gold and silver stock market. My wife’s #1 travel dream was always to see the animals of Africa. So, two investment seminars in 1975 and 1977 fit perfectly with my growing interest in gold. South Africa was the world’s leading gold producer back then. The trips stretched our budget, but four great things happened:
1. I became well educated on South African gold mining and became friends with the very best mining analyst in S.A...Peter Miller.
2. Barb and I heard all of the best cross section of leaders in S.A. talk about both of their problems (apartheid) and opportunities (business).
3. On side trips, we got to see Rhodesia and Victoria Falls, Egypt, Botswana, and best of all...a week visiting the best game parks in Kenya, (an added bonuses for a gold stock speculator.)
4. Back home, I honestly did know something most other stockbrokers didn’t know...during the bull market in gold from 1970-1980.
In late 1974, I had already started buying shares in Vaal Reefs (the world’s largest gold mine back then) when its S.A. share price had fallen from above $25 back to under $10 in responses the U.S. Fed gold sale. Selling at $10, Vaal Reefs still paid a $1 dividend...so we were paid well while we waited for the stock price to go up. By 1980, VALLY had traded above $140 a share and was paying an annual $10 dividend.
Did I hold it to the top? No, (only one client did.) Being a stockbroker, and living on commissions with four kids in college, most of us sold a couple years into the move at $28. A “near triple” seemed pretty good...and we bought new S.A. “juniors” named Libanon, Silifontein, East Driefontein and Impala Platinum, which also rode the bull market in gold up to 1980. A stock I bought for everyone...named Durban Deep, cost $1.65 in 1975 but a “grey-beard” (actual) old gold analyst I met in S.A. in 1977 said, “It was a marginal mine, even though it had huge low grade reserves, and would never actually mine gold.” So we sold in 1977 at $2.65. He was right about Durban never mining any gold. But when gold went above $500 an ounce in 1979-’80...Durban stock became a “future CALL” on gold prices...and the stock traded above $50 a share. TRUE SPECULATION AT A MARKET TOP EVEN IN GOLD...A GREAT LESSON FOR THE FUTURE!
Did we “get rich” with our gold investments in the 70’s? No...not exactly. We made small investments in gold, silver, and platinum stocks each year. But our big “investments” were in Chuck Githler’s annual investment conferences around the world (they were tax deductable!) The trips to South Africa, Rhodesia, Egypt, Kenya, Botswana, London, Paris and Switzerland, Miami, S. F., and Hong Kong and Beijing and Shanghai...were TRULY SOME OF THE VERY BEST INVESTMENTS WE MADE IN OUR LIFETIME.
1990-2000
After being a “regular stockbroker” with my own choices of unique investments in American Enterprise following the 1980 gold top...by the time 1990 arrived it was getting tough. So...I left the brokerage business in 1992...“It no longer made any sense!” The dot-com tech – “perception is reality” markets of the 90’s just didn’t add up to an “old fashioned” real-money gold guy.
2000 and Forward
When platinum was $350 in 1999 and gold went below $300 in 2000...it all made sense again! We started small...first in Frano Nevada. This Canadian gold royalty company had seen its stock price go up all through the 90’s (unknown to me) on a 30% compound annual rate of gain. Pierre Lassonde and Seymore Schulich were (and are) among the smartest and most efficient business builders ever... and also happened to be in the gold business. PROOF YOU ALWAYS INVEST IN THE VERY BEST HONEST MANAGEMENT. Our initial small investment doubled before they merged with Newmont Mining and became key players in management. Then Newmont share price tripled. We also bought an old favorite...Couer ‘de Alene Mines at a dollar in 2000... but a couple years later when the shares were trading above $5 it became apparent, at least to me, that the long-time CEO was more interested in huge personal gain than in building shareholder value for us...so we SOLD.
From 2002 on, we focused on a few of the best growth energy companies (coal, natural gas, oil) with most of our funds still in stocks like Agrico Eagle Mines, Silver Wheaton, and Silver Standard. They all did quite well as growth stocks rapidly building future gold and silver reserves.
Then...in 2008... “the whole market, really didn’t make any sense anymore”...so we sold everything. Our initial investment in 2000 shares of AEM at $17 a share in 2004 reached a high of $82 (on the NYSE). We first sold at $68 to buy a new 4-runner...and then sold the rest at $48 on the way down to pay-off our home mortgage. (AEM finally bottomed in early 2009 at $20...is back up at $60 today. As a “gold stock speculator” we usually hold stocks 2-3-4-5 years in what we believe are the companies with the fastest growing precious metal reserves.
Early 2009...we bought back, after the “market crash”, in the companies with the best and largest North American reserves. Nova gold at $1.50...Hecla at $1.15, Alexco at 80¢ and later Silver Wheaton. We started relatively small (although you got a lot of shares for a dollar)...and have been adding (averaging-up) ever since. In 2009, the return on our “gold stock” speculative portfolio was 159%...we were fortunate to get started near the bottom.
2010?
A great new year for our “speculative gold stocks”...up until 2 weeks ago. After being up better than 50%...the recent worldwide currency, stock market, and savings ( gold and silver) scarce saw our stocks drop 30% in less than 10 days...really fast!
Looking ahead from today (May 24) I believe this was only a “normal correction” in gold and silver. My long term goal, for gold, has always been “over $6000 an ounce” for the past 20 years (remember? Death of the Dollar!)
And, from my experience with Durban Deep, we now own gold and silver mine shares with the largest reserves...not currently producing companies. So THESE ARE SPECULATIVE...They are a call on the future much higher price of gold. They are, because of this, much more volatile and price sensitive to the gold bullion price...both up and down.
WILL THESE BE THE ULTIMATE BIGGEST WINNERS LIKE DURBAN DEEP? TIME WILL TELL...WE’LL SEE. Each day is a new day...the world and businesses are always in a state of change. So our buy – hold—sell decision is always a new choice or a confirmation of our plan...each and every new day.
TOMORROW...
Since only 5% of American people currently are invested in gold or silver as an investment...and I’d guess over 80% of gold and silver mining shares are bought and sold by hedge funds, precious metal market manipulators, and day traders trying to “make a quick buck”...it appears there could be 100 to 1000% or better returns ahead for gold stock speculators.
WE’LL SEE!
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