WHY Gold? Well...85 Billion Bailout, AIG, LEH, BSC, Gold, AUY, KGC, ABX, GG

When your Guaranteed Interest Certificates (GIC's) and Savings Account dip below inflation level, what does it mean? Basically, it makes no sense for the public to be saving money. When $100 saved until the next year cannot even overcome inflation and it buys less food/commodities, there is something wrong with the system.

What do you do?

Many people will disregard GIC's and opt for supposedly secure Money Market Mutual Funds. Sorry to inform you, but apparently they're not as safe as you think...either! To top it off it's not FDIC insured up to $100,000 like most Bank Savings Accounts and GIC's are!

Money-market fund dips below safety benchmark

BOSTON (AP) -- The assets of a money-market fund that held $62 billion three months ago have fallen below a safety benchmark intended to ensure investors who put money in can get it all back -- just the second unsettling instance in which a fund has exposed investors to potential losses in the nearly four-decade history of money-market funds.

Reserve Management Co.'s announcement that its Reserve Primary Fund had "broken the buck" after its assets fell sharply because of soured investments in Lehman Brothers Holdings Inc. marked the first such investor exposure to money-market losses since 1994.

Once again I ask, what do you do? When what has been secure and the safety net of the public, bank notes, GIC's, saving accounts, even Treasury notes from the government have little meaning... where do people turn?

GOLD.

Today the US Government added another $85 billion loan to the table for American International Group's (AIG) federally backed bailout - the largest in history. At an interest rate of 11%, people must be asking themselves what they're doing with 2% overnight banking rate and not much more on their savings accounts.

On that note, Gold and Gold producing companies soared up.

KGC Kinross, AUY Yamana, GG GoldCorp, all went up 6-8% while gold went up $52/ounce at one point breaking past $800/ounce from a paltry $740/ounce grim low of last week.

Looking at the graph to the left it's almost as if people woke up and realized the financial system is in chaos and there are still more skeletons to come out of the closet.

With more Federal funding pending for troubled firms - the story now becomes... when does the age of privatization and capitalism end for the US dream?

McCain told ABC's "Good Morning America" on Wednesday that he didn't want to bail out Asmerican International Group Inc., the nation's largest corporate insurer. Yet he said millions of people whose finances were tied up in the company were in danger of having their lives destroyed.

Before the bailout was announced, McCain had said flatly that he would not support a bailout of AIG or any other company.

No support? The Feds are trying to conserve their lifeline, there is only so much left in the barrel of the gun! Keeping the overnight rate at 2% yesterday instead of cutting it further... at least this leaves 8 more possible 0.25% cuts in storage for the Feds, should things turn worse!

Across the border in Canada, Finance Minister says Canadian Banks are well capitalized and Tier 1 ratio remains solid. While that may be a fair statement, oil gas retreating back to $90/barrel will be interesting implications for the surplus that provinces like Alberta has been running at.

OTTAWA, Sept 16 (Reuters) - Canadian banks do not have the same capital problems that some U.S. and European institutions have run into, Finance Minister Jim Flaherty said on Tuesday.

"Since August 2007, OSFI (the Office of the Superintendent of Financial Institutions), the Bank of Canada, the Department of Finance and me as minister of finance have been in unusually close communication with the financial institutions, and obviously the large banks in particular," Flaherty told Reuters.

"There have been concerns from time to time, but where we are now is that our banks are well-capitalized. OSFI is comfortable, the Bank of Canada is comfortable, and I'm comfortable with their capitalization. This is different from the situation with some of the U.S. investment banks and some of the banks that have run into difficulty in Europe as well." (Reporting by Louise Egan; Writing by Randall Palmer; editing by Rob Wilson)

Bottomline, gold is key. We have emphasized bullion and quality gold stocks when it was $740 last week, and continue to say so, fiat currency is spinning out of control with these injection of newly created funds. It's only a matter of time before the dollar devalues further against other currencies in the world.

Some of our favorites are holding up well in this storm and can only get better.

Minera Andes (MAI.to) - up 10% at one point today, bargain under $1 - made $9 million last quarter - Rob McEwan of Gold Corp owns 30%+ of shares
TNR Gold Corp (TNR.v) tiny market cap and 25% on MAI's Copper project - major ties BHP, Canaccord, PI Financial and brokerage houses - will be interesting as story gets out
Mantle Resources (MTS.v) - waiting for Zinc prices to get noticed again - Lundin owns 10%
Serengeti Resources (SIR.v) - ridiculously good drill results and no market appreciation! 0.5% Copper over 480+ metres. (yes metres) - need better market intelligence and marketing!

AIG Insurance, Financial meltdown, TSX, TSX-V lows, DJ below 11,000, what's next?

The outlook sure is bleak! As many have said, the night is often darkest right before sunrise. Just how many more banks and financial corporations at this point is difficult to gauge, unfortunately.

Believe in your convictions that physical commodities cannot be created out of thin air like Fed's bailout money and you will be well rewarded.

The tailwind of yesterday's brutal news of LEHman's bankrupcy and Bank of America (BAC) acquisition of Merrill Lynch (MER) was AIG, the Insurance Giant's rumor of insolvency.

For your background:

American International Group, Inc. (AIG) (NYSE: AIG, TYO: 8685, ISEQ: AIN) is a major American insurance corporation based in New York City. The UK headquarters are located on Fenchurch Street in London, England, UK, Continental Europe operations are based in La Defense, Paris and its Asian HQ is in Hong Kong. According to the 2008 Forbes Global 2000 list, AIG was the 18th-largest company in the world. It became a component of the Dow Jones Industrial Average on April 8, 2004. As of March 16, 2007, AIG Investments, a division of AIG, completed the purchase of 100% of the stock of P&O Ports North America from Dubai-based DP World.

This was a company that had revenues of $110 billion in 2007, and ended yesterday's closing at a paltry $7.7 billion market cap.

If you think the implication of the disruption of the largest insurance corporations of the world only affects the wealthy and the Wall Streeters, think again! Imagine all the long term care policies this would wipe out, the pension benefits, group benefits, and even more that were sold by aggressive salespeople over the years for AIG. With a company that made $44 billion in insurance premiums in 2007, the collateral damage would be far more tremendous than say, a premium investment bank like Lehman Brothers.

Thus, it was expected that some sort of Fed bailout would be proposed. As I'm typing this entry out, this came across the feed.

The man who built AIG into a global insurance empire has appealed to the US government to save the company, describing it as a "national treasure" which merely needs a temporary helping hand to survive.

Hank Greenberg, who was chief executive of AIG from 1967 until 2005, warned of reverberations around the world if the insurance company fails to pull off a last-minute deal to avert bankruptcy. He spoke out as the Federal Reserve continues efforts to broker a bail-out for the troubled firm. "Given some time, they could raise more funds and sell assets," Greenberg told CNBC television. "That would be in our national interests, let alone the interests of the 100,000 people who work at AIG."

The 83-year-old insurance tycoon, who quit in an accounting scandal three years ago, insisted that AIG is fundamentally sound but has a temporary cashflow crisis. "It's a healthy company financially except for liquidity," said Greenberg. "No organisation around the world has the spread of risk that AIG does. It's a company that opens markets - letting it go down would be a dramatic mistake."

AIG's credit rating was downgraded by Standard & Poor's, Moody's and Fitch late on Monday which has triggered contractual obligations requiring it to come up with some $14.5bn in extra collateral to satisfy trading partners.

Let's hope for many regular 9-5 hard working folks in the US that he is right! But wait, if the Feds step in some more again, where's the money coming from? Oh wait...

Gold's holding nicely and likely to move up, I'd keep watch on the various gold juniors.

Doug Casey and International Speculator, a publication with records of 200%+ picks has initiated a buy recommendation on one of our favorites Minera Andes this month. If you had to pick one newsletter writer to listen to - Doug Casey would be many people's choice. With the additional resource ore at Los Azules, MAI is a screaming buy.

...companies, like Minera Andes, that are suffering a temporary price setback in what he calls a bull cycle. The message is the cheaper they get, the better the bargain. Even with gold at $800, well down from its $1,000 highs earlier this year, the writer continues his theme of dire economic warning. His answer is to take refuge in precious metals and the companies that explore for them -- especially the ones on his buy list. He says if America's finance system crumbles, that would launch the price of gold "to the moon," and the prices of Speculator buys well beyond.

Keep in mind he's also picked up shares himself of TNR based only on the Alaskan properties. Now that he's building a golf resort in Argentina, he's clearly ok with the political and economics stability of the region, wouldn't you agree?

It's a long-standing tradition at Casey Research that we eat our own cooking, so we've bought a lot of property in Argentina in the last few years. But frankly, I wasn't looking for a bunch more trading sardines; that's what stock certificates are for. I really wanted something I could personally use and enjoy. What we did, therefore, was buy 1,200 acres on the edge of the town of Cafayate, in the south of Salta.

Like San Martin de los Andes in Patagonia, Cafayate is going to become another Aspen. Or maybe the resort town of Taos, New Mexico, is a better analog. Located in a huge bowl, surrounded by the high Andes, it's quaint and picturesque. Especially since it's the center of a large wine region. So the area is really more like a "Taos meets Napa."

What we're doing on this land is putting in a world-class golf course, spa, health club, vineyard, equestrian facilities, and, in fact, lifestyle amenities of all types. A library, billiard room, cigar bar – you get the idea. Since good workers go for $200 a month, costs will be low, and services will be excellent. My personal vision is to take the best features from developments I know all over the world and put them together here.

I think we've got the right place, the right idea, and the right time. I also think the cost will be right. I expect it will, initially, go for something like 10%-20% of what something similar – but not even close to as nice – would go for in the U.S.

I hope early buyers will be successful people of a libertarian character; no jerks need apply. Then, as soon as possible, we're going to raise prices as high as possible to keep out the riff-raff.

So that's the story right now. For traveling or an outright real estate purchase, Argentina, all things considered, is my favorite place in the world.

Regards,

Doug Casey

Not all iBanks are made equal... LEH, MER, TNR.v, MAI.to, JPM, BSC Fed "Sunday Bailouts"

It seems like the famous Sunday evening "Bank Bailouts" stuck true once again this week.

Despite what many predicted as another Bear Sterns aka. an easy $2 - 6 - 10 share equivalence stock bet. Is it that easy? Keep in mind the shareholders only received an equivalent of $10 in JP Morgan shares, which immediately fell the morning after (Monday).

The Federal Reserve bailout offer applies *ONLY* to JP Morgan Chase. It's unclear if another large bank would get an identical bailout offer, if they decided to also bid for Bear Stearns. Even if I could raise $1B in capital, I couldn't make a competing buyout offer for Bear Stearns. The Federal Reserve bailout is a key component of the buyout.
JP Morgan Chase is receiving a massive government subsidy, paid by everyone else as inflation. Does this mean JP Morgan Chase is a great investment? That isn't necessarily true. JP Morgan Chase management will pay themselves huge bonuses for their brilliant work. You really need great political connections to receive a massive government subsidy! Some leftovers will trickle down to shareholders.

The key word to note here is inflation.

What goes up when USD is worth less? Physical commodities like food, oil, gas, gold, silver, and copper.

As expected, gold is up nicely today at $770 or so, interesting how a reminder of how fragile the current financial systems are can remind people real value of gold and precious metals.

A great investment opportunity once again in gold and copper stocks, especially juniors with resources and producers who are essentially trading below their cash value. Just imagine heading down to your local bullion and asking for silver and few other key commodities and being told it's gotten cheaper, yet there's no supplies to be bought!?

LEHman Brothers is now trading at a paltry $0.19. The stocks we generally favor here at the sub-$1 range would typically employ less than 30 people and run a very tight and transparent structure with a low rent office. The scary thing is $0.19/share for Lehman is probably worth less than their property lease on Wall Street in New York. Difficult to imagine, but then cold reality bites.

Lehman files for Chapter 11 protection, shares fetch 19 cents-
NEW YORK (AP) -- Lehman Brothers has filed for bankruptcy protection under the weight of $60 billion in soured real estate holdings.

The company's filing for Chapter 11 protection will allow it to restructure while creditor claims are held at bay. The filing was made Monday in the U.S. Bankruptcy Court in the Southern Disctrict of New York.

Lehman's last hope of surviving outside of court protection faded Sunday after British bank Barclays PLC withdrew its bid to buy the investment bank.

The 158-year-old investment bank had said earlier that none of its broker-dealer subsidiaries or other units would be included in the Chapter 11 filing. It says it is exploring the sale of its broker-dealer operations and is in "advanced discussions" to sell its investment management unit.

Furthermore, rates are being cut around the world, even in China. Do you honestly think the US can afford to still hike interest rate to combat climbing inflation?

The overall consensus is a stern no so far. I'm very much inclined to believe that.

Those who believe they are in for the long haul for commodities, hold your course and you will be rewarded. Those wavering between bonds and cash, the time to invest in some worthy juniors and commodities should be very apparent - now.

I know it can be difficult watching your portfolio go down. But imagine if your portfolio or pension fund consisted of Lehman Brothers, Merrill Lynch, Bank of America, or Washington Mutual. I think you would have a better bet with the gold producer majors like Kinross (KGC), GoldCorp (GG), Barrick (ABX), Yamana (AUY), don't you?

John Embry, head analyst of the renowed Sprott Asset Management, had the following to say (sourced from The Gold Report) the last few days. Who would you believe these days... what the Government is telling you you should have in your pension fund, or a fund manager whose success has been built from years of correctly anticipating the next market move for one of Canada's best funds?

John Embry: "When the gold's all gone, the market will go nuts"

John Embry, Chief Investment Strategist for Sprott Asset Management and renowned industry expert, has researched the sector for 30 years. He expresses disbelief as he explains today's irrational pricing in this exclusive interview with The Gold Report. He attributes gold's alarming distress to "violent intervention by the paper players." But he's convinced they can only hold prices down for so long and forecasts four-digit gold by January 2009. Juniors present the best opportunity to leverage the coming gold price explosion and he shares his favorite names. The Gold Report: In our last interview you said gold would unquestionably detach from the dollar. Ten months later, gold is still tethered. John Embry: The downturn in both gold and silver was literally preposterous in magnitude relative to the rise in the dollar. This was a violent intervention by the paper players. Three U.S. banks on COMEX shorted something like 8,000 contracts in a very short time. That's more ounces than all the world's miners produce in a month. TGR: Can they keep doing that forever? JE: No, they can't. This is similar to what happens when you compress a spring. You hold it down but when it comes up, it springs back hard. We'll see a violent reaction in the gold price soon. TGR: Will we have to wait six months or six weeks? JE: If gold hasn't moved up by the end of this year, I would be very surprised. People don't realize how distressed the gold mining industry is. Even at $1,000, miners weren't doing very well. At $800, the entire industry is in crisis. Costs have risen so much, nobody's making any real money. In fact, some mines are starting to close. TGR: Could mines reopen when gold reaches $850 or $900? JE: Gold would have to be at least $1200 before mines reopen. TGR: Is now the time for the majors to start acquiring? JE: I don't understand why the majors aren't acquiring because I've never seen anything like the discrepancy in value between the big cap stocks and the small stuff. Many interesting smaller companies are trading for a song; whereas, Agnico-Eagle and Goldcorp and Kinross are aggressively valued. TGR: Some of the juniors have lost 80%. JE: If you had told me we'd see this kind of carnage in the juniors while the gold was still north of $800, I would have said impossible. One of the reasons is that investors are giving up and gold funds, ours included, are under redemption pressure. This creates forced selling with insufficient buying and that leads to the most depressed prices since this cycle began in 2000. TGR: How long can this go on? JE: I don't know but I've got some that actually are selling below the cash on their balance sheets. TGR: Do you want to give us some names? JE: Orvana Minerals Corp. (TSX:ORV) has an extremely efficient mine and has generated a lot of cash from it-considerably more cash than the stock's trading for. There is $75 million in the bank with a $60 million market cap. Orvana has a very profitable mine plus another ore body that would be easily developed and they are both in the good part of Bolivia. TGR: You said they couldn't even afford to mine with gold around $800? JE: You can't get into production because it's hard to attract capital and the capital costs have risen so much, but an existing mine with a good orebody is fine. This credit problem will significantly impact gold production over the next three or four years. There's a bunch of mines coming off the table as they get depleted and the high-grade ores run out. Without new mines, production is going to fall regardless of the gold price. The supply-demand gap, which is already yawning, is growing wider and wider. Central banks will do what they can to fill the gap but if they can't, the price is going to explode. TGR: You said Orvana has an efficient mine, and money in the bank that exceeds the market cap. Can they bring gold out of the ground profitably? JE: They're making an extraordinary profit. TGR: So they have cash flow. JE: The problem is that it's a short-life mine with only a couple of years left. They do have other assets, although they're being valued at less than nothing. TGR: Should investors wait for gold to go above $1,000 before investing in the juniors? JE: Things have gone much farther down than I could have imagined in my worst nightmare. If you are confident that the gold price is going higher, this is an ideal time to be picking away and buying a diversified list of very good quality, cheap juniors. I've made the most money in my life buying things that are out of favor because there's no downside risk, certainly from a fundamental standpoint. When the worm turns, these things could double very quickly. When that happens it'll be hard to buy. Start picking away now, as long as you share my opinion that the gold will see a hefty price rise over the next 12 months. TGR: How does an investor determine which juniors merit a closer look? JE: It all revolves around the people and the asset. I look for companies with strong financial support, a legitimate project with a 43-101 resource and sound management. Using those criteria, you can make a reasonable evaluation of what the net asset value is. You can put in your own gold prices while knowing that they're not going to be cash-starved. TGR: Do we have to work through this panicked selling before stocks will change? JE: As long as people are abandoning the sector and taking money out of these funds, then there's a lot of irrational selling. The fund manager has no choice but to sell. This is creating a phenomenon where prices don't make much sense. The larger cap stocks are the ones being bid up; they trade because generalists buy them. There's a far bigger pool of capital prepared to buy them. That's why you've got this remarkable discrepancy in valuation between the little guys and the big guys. TGR: Other people we've interviewed are concerned about a real crash in the overall markets. JE: We've already had the crash in the junior gold shares. That brings up the naked short selling of these stocks. I think there are grounds for a suit. A lawyer has been phoning me on this subject. Someone is trying to bring a suit against the perpetrators. There has clearly been nefarious activity in these stocks because they get driven down to a level where they can't put their head up without getting pounded back down again. TGR: If the market crashes, it'll pressure the gold funds. JE: That assumes that the gold price doesn't explode. If the market crashes, the authorities are going to pour so much money into the system to try to avert economic disaster. Money has to go somewhere. Some of it will go to gold. If the gold price heads higher, you've got the cheapest gold stocks in history. Maybe they won't get dragged down in the crash. Maybe the big caps are going to crash. TGR: Big caps gold stocks? JE: Big caps period. Investors have already abandoned the illiquid stocks and huddled in the big caps. TGR: A lot of people are saying that they see a slowdown in deflation. Do you agree? JE: I think the problem is potential deflation because I am a great believer in Austrian economics and we've had the greatest credit abuses in history. There's an awful lot of debt and you're stuck creating more of it to keep the momentum going. The real issue here is, can you do it? There is a good argument for a deflationary spiral like the Great Depression. On the other hand, this time paper money isn't anchored. Everything's fiat and the government can create it with the stroke of a pen or the touch of a computer key. If you really want to pin me down, I'd say we're going to have a hyper inflationary depression. The value of money will be destroyed and economic activity will grind to a halt. It'll be the worst of all possible worlds- a South American meltdown. If that happens, the one thing I want to own is gold. I have been investing more in bullion recently than in stocks. I already own some stocks. But I do believe that if bullion performs as I expect it to, the stocks will do well. If you go back to the 1930s, the best performing things on earth were the gold stocks. TGR: They went down in the beginning. JE: They did, but these have already gone down. That would make the case that we had the bear market in gold. I guess they could go down 90% from the peak prices, but still the risk/reward heavily favors the reward side. That is not true for large cap stocks, particularly those that make up the indices. TGR: But if the price of gold doesn't turn around, don't a lot of juniors risk bankruptcy? JE: If they're not in production and are fairly careful, they can gear back. The ones in production and losing money are at the greatest risk of bankruptcy. If gold doesn't turn soon, they won't be able to finance their operations. A lot of these guys lose money and just kept going out and raising more. They just keep losing money, so they close the mines. That's also very bullish for gold. We're going to have less and less gold in production. TGR: What about the juniors that aren't in production? JE: I'm not worried about the ones that have real ore bodies and have gotten pounded down to where they're trading at $10, $15, or $20 an ounce in the ground. TGR: Because they'll be taken out? JE: They'll be taken out or they've hit bottom and, as long as they have enough capital to move forward, they can gear down. Small, quality gold shares are proxies for a higher gold price. The problem is that the gold price is so severely suppressed vis a vis other commodities that the whole business has become uneconomical. TGR: What percentage should an investor have in bullion and in what form? JE: Central Fund of Canada Limited (CEF.AMEX; CEF.A. TSX) and Central GoldTrust (TSX: GTU.UN; GTU.U:AMEX:GTU) are really excellent vehicles in which to hold gold. I'm very leery of funds that have no allocated gold. Whereas, in Central Gold Trust, which I'm involved with, it's a sort of sister company of the Central Fund- so I know the Spicers that run it very well. I know for a fact that you can go look at gold in the vault. So they are perfect vehicles in this environment. If the worst happens and everything goes to hell in a handcart, you want bullion. So the core of your portfolio has to be bullion. Depending on how much money you've got, you can decide what percentage you want to wager on the upside. If the gold price goes where I think it's going soon-to $2,000-then some of these gold stocks will look pretty good. They're depressed enough that they will move faster than gold. They could go up three to five times when gold goes doubles. TGR: So you recommend a core holding of bullion. Do you believe people should have coins? JE: Absolutely. I'm a big believer in coins and actually have them in addition to physical gold as part of my position. TGR: Would the balance be in producers and exploration companies? JE: I can't pound the table for any of the large cap producers because they don't represent terrific relative value. However, when the gold price goes up, they're going to go up in price. My view is that some of the smaller ones will go up a lot more. It depends on what your goal is. If you only want to protect yourself, own nothing but bullion. But if you want some leverage and to make some money, then you should probably get some intermediate and smaller gold stocks that have been really taken to the wood shed and pounded. TGR: Do you want to talk about a few of those? JE: One that I've been a great fan of for quite a while is Wesdome (WDO.TSX). It has performed horribly. It has two operating mines, one in Quebec and another in Ontario. The high Canadian dollar beat them up quite a bit and they were in the red, but now both mines are cash flowing positively. This stock trades around $.85, so it has a market cap of $85 million. If the gold price goes to $2,000, these two mines will spin money and I suspect the stock will go up fivefold. A stock like that at these prices is a gift. It's in production, so you don't have to spend any more money. Quebec is probably the best place on the planet to mine. Lake Shore Gold (TSX:LSG) is another one that I like. It's not in production yet, but it has wonderful sponsorship, which will take it into production. The stock trades around $1.20 and has a market cap somewhat higher than Wesdome, but it's probably got a couple million ounces of very economic grade. Even more importantly, Hochschild, the big Peruvian silver player, has taken 35 to 40% of the company at twice the current price. They will put it into production. I know the ore body intimately and it's a good one. This stock, which has been pounded down to $1.20, is excellent value. TGR: Where are their mines located? JE: This one is located in Timmins in Ontario. JE: Going a little further afield, there's AXMIN Inc. (AXM.TSX.V). It just got annihilated. They have four million ounces in the Central African Republic. It was at $1.40 and is now down to $.15. You're buying the people because they discovered the Geita Mine, now in production in Tanzania, which is one of the more successful mines in Africa. This is the best exploration team in Africa. They've got this project in the Central African Republic with a proven reserve and, then another one in Ghana and a third in the Sierra Leone, which they're moving forward. The stock has been blasted, but they've got Audax Petroleum, one of the big Swiss oil companies, which owns 50% of this company, to back stop to any extent required. There's no financing risk; they have assets; and the best mine-finding team in Africa. You get all this for $30 million. TGR: And it just got clobbered. JE: I don't understand why. I talked to the company and we went over everything. It's simple. There are more sellers than buyers. TGR: People are panicking. They're selling anything and everything. JE: You can come up with a zillion reasons why a stock is going to go lower, but at some point you've got to put the pin in and say, this is really a great value. I believe the gold price is going up a lot. If I buy something and with 10% or 15% on the downside worst case, and I can make five times on the upside, that represents a good investment. TGR: That brings the buyers out. Everybody's hoping investors return from their summer vacations and start focusing on the values of some of these companies. JE: It's going to take a fairly significant advance in the gold price. If there's a major stock market debacle and gold moves in the opposite direction that will shine more light on the gold shares and the money will go there. TGR: You talked during our last interview about Gold Fields Limited (NYSE & JSE: GFI), Minera Andes Inc. (TSX :MAI;OTCBB:MNEAF), Aquiline Resources Inc. (AQI.TSX.V) and African Gold Group, Inc. (AGG.V). Do you have any comments on them? JE: Gold Fields, for example, just reported 80 million ounces in reserve and another 246 million ounces in resources. Sure, South Africa is an issue but half of their production is outside of South Africa. I think Gold Fields, for a big cap stock, is literally a gift at these prices. The other ones like African Gold have gotten pounded, I'm not quite sure why � it's just a thin stock and when you get forced selling, it gets driven down. It's got legitimate projects in Ghana and Mali. TGR: How much lower can they go? JE: That's the big question. You do the metrics. Calculate how many ounces of resource. What're you paying for it? These stocks are so low I've seldom seen anything cheaper in my career. It's odd that the gold picture is so remarkably bullish, even with this price hit, which I don't think was necessarily a natural hit. I think it was assisted. If the bottom's not near, then my whole thesis on gold is wrong and I don't think it is. TGR: Could the powers that be continue to drive gold down? JE: They have a financial crisis of epic proportions and the last thing they want is for gold to become the go-to asset, so they've been throwing everything at it but the kitchen sink. That strategy has resulted in unprecedented shortages of physical gold. Half the bullion dealers and coin dealers in America can't get it. The U.S. Mint suspended production of Gold Eagles. They claimed it was due to a shortage of blanks. I don't believe that. I think it's a physical shortage. COMEX has created an irrationally low price and people are coming out of the woodwork buying it. TGR: And they can't replace it. JE: The fact is that all this stuff at central banks has been leased and swapped and sold into the market. It's gone; it's not coming back. So we're running out. The question is when will it be completely gone-that's when the market will go nuts. TGR: Are you forecasting that for January of 2009? JE: That's when we'll have four-digit gold-maybe higher four digits. As this credit crisis unfolds, the gold market can come into its own again. Attempts to discourage people by pounding the gold will end. When everyone realizes what's going on, I think it'll have a salutary effect on the gold price. TGR: What would be in the top ten holdings? JE: Aurelian Resources Inc. (ARU:TSX) is an interesting one-arguably the best find in the new century. It has a minimum of 10 to 13 million ounces. Because it's in Ecuador they're having all the problems with Correa's government. Kinross has put in a bid to take them out. The bid has given the stock a lift, but it's a remarkable asset and I hope this deal doesn't go through. TGR: Another company we've been hearing a lot about recently, too, is Minera Andes Inc. JE: Rob McEwen put a lot of money into Minera and they have a solid asset in South America. It remains a solid company. TGR: John, as usual, we appreciate your time. JE: It's always best to talk when things are at their worst because I think that's when the opportunity is the greatest. When we have another conversation six months from now, I think it'll be a much happier one.

The Gold Report

John Embry is chief investment strategist at Sprott Asset Management. Embry, an industry expert in precious metals, has researched the gold sector for over 30 years and has accumulated industry experience as a portfolio management specialist since 1963. He joined SAM as Chief Investment Strategist in March 2003 with focus on the Sprott Gold and Precious Minerals Fund and the Sprott Strategic Offshore Gold Fund, Ltd. Prior to joining Sprott, Embry was Vice-President, Equities and Portfolio Manager at RBC Global Investment Management, a $33 billion organization where he oversaw $5 billion in assets, including the flagship $2.9 billion Royal Canadian Equity Fund and the $250 million Royal Precious Metals Fund. Visit The GOLD Report - a unique, free site featuring summaries of articles from major publications, specific recommendations from top worldwide analysts and portfolio managers covering gold stocks, and a directory, with samples, of precious metals newsletters. To subscribe, please complete our online form (http://app.streamsend.com/public/ORh0/y92/subscribe) The GOLD Report is Copyright � 2008 by Streetwise Inc. All rights are reserved. Streetwise Inc. hereby grants an unrestricted license to use or disseminate this copyrighted material only in whole (and always including this disclaimer), but never in part. The GOLD Report does not render investment advice and does not endorse or recommend the business, products, services or securities of any company mentioned in this report. From time to time, Streetwise Inc. directors, officers, employees or members of their families, as well as persons interviewed for articles on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.

Are you panicking yet? LEH, WM, MER, FDIC Failed Banks + Drop Oil Gold Silver??

While paying a few silent moments in honor of the September 11th attack victims in World Trade Center, switching my focus to the stock market today seemed like another barrage is happening on the various exchanges.

Quick glance shows Washington Mutual (WM) down another 22% (below $2...from $35 a year ago), Lehman Brothers (LEH) is down 40% ($4.85), and Merrill Lynch down 20% or so.

Stocks slump on economic woes

Wall Street retreats as investors worry about Lehman Brothers' outlook, a big jump in the trade deficit and a weak jobs report.NEW YORK (CNNMoney.com) -- Stocks tumbled at the open Thursday as investors faced renewed worries about Lehman Brothers' solvency, a wider-than-expected trade deficit and a weak unemployment claims report.

The Dow Jones industrial average (INDU), the Nasdaq composite (COMP) and the Standard & Poor's 500 (SPX) index all slumped at least 1.2% in the early going.

On Thursday, the Commerce Department said the trade deficit for July surged to $62.2 billion. That's compared with the $56.8 billion in June, and much worse than expectations from a consensus of economists surveyed by Briefing.com, who had projected $58 billion.

At times in these markets, one has to step away from the monitor, the tickers, and the various Blackberry devices alerting you how fast your 401K's and RSP accounts (for Canadians) are dropping like flies. Think clearly and ask yourself...

did you really believe investing in major banks are safe? Well, so far 11 banks have failed, including our notable IndyMac in the NY States which was the biggest one in recent news. Whatever ended up happening to the BSC Bailout investors, did they get $10/share for their $2 investments?

Not counting the Ivy-League investment banks like Bear Sterns and the eerily-similar stock price of renowned Lehman Brothers (LEH) in the last few days, 11 is (take a look at the picture to left), the highest number of record bank failures per year... in the last 20 years.

Are we in a bear market? I think the cold reality has to be accepted.

What generally is the hedge again skyrocketing inflation, slow economy, and everything else - has been housing, gold, copper, and commodities.

So why isn't it the case this week? If you haven't noticed, gold and silver prices has been dropping. Copper has been holding steady however around the $3.20 mark.

Price of Gold has dropped past what many considered to be the "resistance level" since the last gold run up to $1,000.

As I'm writing it's now around $740/ounce.
Silver is faring much worse, with prices dropping to $11 and lower. This is below the one year-low and with no bottom seeming to end. Various analysts have issued theories about the uncontrolled spectulation in the futures market and ComEx.

Today's market opening was grim for the Financial Sector. Can the US Government afford more banking bailouts?

SeekingAlpha's Prudent Investments offers the following insights:

Simply put, yes it can. In the days following the bailouts of Fannie Mae (FNM) and Freddie Mac (FRE) there have been countless pundits on television and many articles on Seeking Alpha and other investment sites proposing the misplaced thesis that we should worry about the US government's finances following the recent bailouts. The prevailing idea is that if the market's bad debts are transferred to the government, then the government will be the one having the problems.

The responsibilities piling onto the government include the Bear Stearns (BSC) liabilities, the Fannie Mae and Freddie Mac liabilities and potentially Lehman Brother’s (LEH) liabilities. While these are significant issues and will likely act as albatrosses around the neck of the next administration, they were necessary actions that will support the financial framework of not only the United States but the world as well.

Below are some of the more common questions that have appeared around the financial community over the last several days:

• How much can the government add to its $9.6 trillion debt before it too cannot handle its own liabilities?
• When will foreigners refuse to let the US government borrow money?
• When will the dollar truly collapse?

• 
  

I think the answer is more like the US Government will have to.

The consumer confidence is already shaking. Gone are the days where financial news only affected the elites on Wall Street and Bay Street. Food prices, oil prices, job loss in the markets % all have started to impact even your everyday 9-5 working families. On a slightly entertaining side news, divorce rate is set to drop, as unhappy couples can no longer afford a divorce (and/or paying separate rent).

Back to adding to the National Debt - it simply does not make sense that USD$ is rising again Euros and Chinese's RMB when more bailouts are expected. Stick with your tangible resources companies of Gold and Copper. Questions and comments are happily answered, cheers!

Bloody September, Fannie / FRED buyout, LEHman Brothers rumors - reminder of BSC, Coal Plays, TSX and Commodities?

The TSX and the TSX-Venture has lost huge amount of grounds in the past 12 months. Just how bad it is? Take a look.

In terms of points, the Venture board closed at 1771.63 yesterday.

Two short weeks ago when we were still feeling the summer vacation days winding down, it was 2130.19 on August 8, 2008. What is happening here? How does a venture board filled 80% with junior explorer and some hybrid small producers of gold, copper, silver, and other precious and base metal get to this point?

Well, let's take a look at the headlines from around the world and we'll soon see.

Many brokers and analysts agree, while the commodity market will have to improve shortly, the juniors that are running low on cash or are unable to strike joint venture deals to farm out properties and get some capital injections. TNR's Argentinean subsidiary was running at a profit before they took focus on big expensive projects like Salto and Tapau. MAI Minera Andes made $8.9 Million Dollars last quarter from production of their San Jose mine and they're getting hit hard today (so far it's down from $0.98 to $0.85 at the time of writing)... keep in mind they just added a 11 billion pound copper reserve (43-101 compliant) yesterday! This is below their 52-week low of $0.86...

Does this even make sense anymore? Is McEwan wrong and we should be stuffing cash under our beds?

I hope the answer is a resounding NO. I know it's difficult to watch your portfolio drop lower and lower into the red, but persistent investors who understand it's not what's wrong with the mining industry but rather the credit and financial sector dragging everything down.

For more assurances - last I checked copper is in high demand. Circuit boards, alloys, base metal productions and industrial uses, copper is far different than gold which is traditionally considered a hedge against inflation and erosion of the dollar.

LONDON (Thomson Financial) - Copper prices could rise next year, with the market set to remain 'very tight' as growth in mine supply fails to keep up with ongoing demand growth from China, said Adam Rowley, executive director of mining and commodities research at Macquarie Bank.

'We expect the market to remain finely balanced in 2008, with China again providing strong growth, offsetting weakness in the developed world,' he said.

'Supply is growing, but not quickly enough to swamp the copper market. Any major supply disruption next year could result in another period of serious copper shortage.'

Look in your favorite electronics and tech toys like Nintendo Wii and iPhone, each uses significant amount of chips and copper. Gold is a great conductor and used in exotic connectors like high end gadgets that audiophiles use on Shure and Grado $500/pair earphones.

That's real world thinking, I urge my readers and colleagues to not get caught up in the mass media dilution of intellectual thinking.

The Fannie Mae and Freddie Mac saga continues today, with FNM and FRED up slightly and trading like a rollercoaster. On what, more tax dollars to make up for failed executive compensation control and due dilligence?

LEH Lehman Brothers are having a field day on the NYSE today, on suspicion from investors and analysts of potential liquidity problems.

Uh oh, where have we heard this before?

Oh that's right, another bailed out finance corporation called Bear Sterns. They issued PR saying no problem with liquidity and the very same Sunday weekend - was bailed out by Feds at $6/share. If you'll notice, BSC doesn't trade anymore on NYSE - do you think FNM will be the same soon? I hope those investors get in quick, and get out real fast with the 20% gain today.

At times one has to think clearly without external media focus. Keep in mind leading and highly regarded investment guru such as Cramer was found touting BSC at $45 merely days before the eventual tanking of the stock.

"BSC is fine!" he said days before the drop. Youtube video linked.
Last I checked, having a stock dropping $32 to $2 over a weekend isn't exactly fine... but what do we retail investors know?!!

____________

My conclusion amidst all this chaos and confusion is - know that paper money (fiat) can never fully replace commodities and tangible goods.

The terms fiat currency and fiat money relate to types of currency or money whose usefulness results, not from any intrinsic value or guarantee that it can be converted into gold or another currency, but only from a government's order (fiat) that it must be accepted as a means of payment.^[1]

With the continual erosion of US dollar inevitable (where do you think billions of dollars are coming from? TAX DOLLARS of course!) - I recommend some bullion coins and well positioned junior mining stocks, for when the market wakes up, you'll be asking yourself why you didn't buy more of KGC, AUY, GG, TNR, and MAI.

US Dollar to Face Repercussions of GSE Bailout

The US GSE turmoil has global implications, because of the large agency holdings by foreign central banks. Our view is that most foreign central banks will likely avoid investing more in US agencies in the months ahead, but will increase their buying of US Treasuries instead. This uncomfortable substitution is only possible because the US still commands the most liquid and deep financial markets in the world and, in times of global turmoil, the dollar is still the currency to hold, especially for EM (emerging market) central banks. Also, the fact that the world is still experiencing aggregate excess savings should help fill US financing needs. However, over the long run, we believe that the US – both the public and private sectors – will need to fundamentally reform and restructure in order to continue to attract foreign capital. According to latest US Treasury data (see Preliminary Annual Reports on US Holdings of Foreign Assets and Foreign Holdings of US Assets, August 29, 2008), foreigners demonstrated a huge appetite for USD assets in 2007. Total foreign holdings of long-term USD securities increased from US$7.8 trillion in 2006 to US$9.8 trillion in 2007, with US$1.3 trillion of this annual increase from increased foreign holdings of US long-term debt securities, including US Treasuries, agencies, agency ABS and corporate bonds. Foreigners are dominant in some of these markets.

Stephen Roach, Head Economist, Morgan Stanley

US Bail Out Sundays! FRED, FNM, AP wonders where the $ is coming from?

What is it with Sundays and last minute Finance Bailouts?

I think Wikipedia and Urban Dictionary will need a term pretty soon for Bailout Sundays where corporations that undertook unsuccessful gambles such as purchasing subprime mortgages in worthless areas supported by unsustainable income - get bought out and no one get hurt (at least, short term speaking).

The U.S. Treasury is expected to announce early Sunday afternoon details of a plan under which regulators will effectively take temporary control over government-sponsored mortgage investors Fannie Mae and Freddie Mac.

The Treasury won't necessarily make a large injection of capital immediately into the ailing companies, which provide the bulk of funding for U.S. home mortgages. But people familiar with the plan said the Treasury will stand ready to provide capital as needed, depending how quickly losses deplete the companies' meager capital holdings.

Taken from Wall Street Journal, it's another move that's sure to leave longterm shareholders out in the dry.

If you're a fund manager with 10% of your fund or portfolio in Fannie, you probably want to start looking at the employment papers...

FNM is trading at $0.70, down from their 52 week high of $60 USD. That's almost 1/100, can you say ouch?

If there is little market confidence in U.S. financial institutions right now, maybe this is why: government bailouts of banks this year have left shareholders high and dry.

Before the Asian markets opened Monday, Treasury Secretary Hank Paulson announced that his agency would bail out struggling Fannie Mae and Freddie Mac, which together guarantee nearly $5 trillion in American mortgages but have a fraction of that amount in available capital. Fannie and Freddie combined, which own or guarantee roughly $5.2 trillion of U.S. home mortgages

What would you rather have, companies that have tangible and appreciating assets like gold and copper, or a bunch of paper telling you unemployed homeowners with negative home values (ie. mortgage value is higher than home prices) will pay you back higher than your GIC rates?

U.S. unemployment rate climbs to 4-year high in July

The unemployment rate in the United States rose to 5.7 per cent — a four-year high — as employers reduced payrolls by 51,000 jobs in July, the U.S. Labour Department said Friday.

Unemployment in June stood at 5.5 per cent.

The tumble in payrolls was not as bad as some economists had been expecting. Projections had pointed to a cut of 72,000 jobs in July

Speaking of having tangible assets in the ground, one of our favorites here, McEwan's largely owned Minera Ande's announced a surprisingly high resource calculation at Northern Argentina (think Chile - world's biggest copper producer) - Los Azules deposit.

To those who thought calling it a deposit was premature - think again.

11 billion pounds of Copper (Cu) inferred resource - 43-101 compliant.

Remember that junior we mention from time to time, TNR Gold Corp? Last we checked they have 25% back in on Los Azules... you think TNR would be trading higher than $0.20 a share eh?

Minera Andes's Los Azules at 922Mt of 0.55% Cu inferred

2008-09-08 10:56 ET - News Release

Mr. Allen Ambrose reports

MINERA ANDES ANNOUNCES A MINERAL RESOURCE ESTIMATE OF 922 MILLION TONNES OF 0.55% COPPER AT LOS AZULES

Minera Andes Inc. has provided the results of an independent resource estimate at the Los Azules copper deposit located in western San Juan province, Argentina. The inferred mineral resource, at a 0.35-per-cent total copper cut-off, is defined by an area approximately 3.7 kilometres by one kilometre in size and contains a high-grade, near-surface copper core in the north. This resource estimate will form the basis of an economic scoping study (NI 43-101 preliminary assessment) planned for completion at the end of the year. In addition, the mineralized copper target remains open to the north and at depth.

At a 0.35-per-cent total copper cut-off, the inferred resource at Los Azules is 922 million tonnes grading 0.55 per cent copper, containing 11.2 billion pounds of copper.

The mineral resource estimate at different copper cut-off grades is summarized in the attached table.

Renowned analyst newsletter writer David Coffin tells his suscribers to buy MAI and associated juniors around area. For TNR, it should only be a matter of time, the story is getting more and more real everyday... first deposits in the ground from JV's, and next they should be announcing Salto and Tapau results, not to mention Eureka (60 million tonnes Historic Reserve Gold!)

If you don't usually follow newsletter writers, for your reference the Coffin Brothers are one of the most followed and highly regarded analysts. One brother provides the finance background while the other checks in with unbiased geological review of the properties. Unpaid nor commissioned like so many other out there means very little biase towards advertisers on their website, and such.
With luck, Minera Andes will add production Copper to Los Azules soon, keep in mind this company made $9 million last quarter based on 49% operating profit from San Jose only. The junior tagging along for the ride TNR will see some interesting appreciation once cashflow comes in for Los Azules.

Needless to say, I would certainly keep both on your watchlist.

Investment Due Dilligence - What and Why of Choosing a Junior

In this grim market, the bright side of things is there are deals on quality juniors everywhere.

Last time we used Mr. Jay Taylor's approach to due dilligence, this time let's review another successful (some would say more widely-followed) analyst/writer - Mr. Doug Casey.

He has a simple system called the 8P's of Picking an Investment in Mining Firms, let's review them briefly as it's a very reasonable and great structure for new investors to do their homework on the companies they're putting hardearned dollars in. In next week's post I'll describe companies using this method as an example.

1. People
No matter what anyone else tells you - the people in the company can make the biggest difference in the world. Past experience, credentials, success history, not to mention their network can allow better private placements, less dilution, focused exploration efforts and delays, and also well publicized company. (see: US Gold's McEwan who was ex-CEO of Gold Corp up to 2004 and TNR's Schellenberg who was involved in big buyout with DeBeers Diamond with Winspear Diamonds at over $300 million and is well known around mining circles). Tip - call up your favorite analyst at your brokerage firm and ask for the CEO's reputation and successes... I'm positive Canaccord Capital would recognize both of those names above!

2. Property
Obviously the land has to be decent - was there historic resource calculations? Was there past drilling results (mineralization doesn't exactly walk away once it's there! That fast anyways)... was there past producing mines? (yesterday year's technology versus today's - chances are there might be more resources deeper that they missed!)

As charming and polished as the execs might be, no analyst will visit a piece of property and come back raving about glow-in-the-dark rocks. You need some solid and convincing drill core samples and/or assay results, resource estimates, and even feasibility reports in some advanced company's cases.

This point also ties into Politics but we'll get there.

3. Politics
How is the local treating the companies down there? Chances are your laborers are around the area... do you have a contracting company backing you up that has extensive mining experience and well respected? Is laborer and skilled technicians/geologists readily available?

How is the attitude to mining over there, does the government ban certain type of mining due to environmental issues? All key issues to think about during any stage of mining whether it's exploration or production! Higher cost / taxes = lower profit. Simple!

4. Promotion
As much as you would like to believe it's a rational market, is there a consistent marketing and focused investor relations message from the company? Of course it's a chicken-and-egg theory, but technically good results should already attract attention, coupled with ongoing communication and marketing efforts - the increased visiblity should reflect nicely in share prices. (at least in bull markets anyways - not sure about this year!!!)

5. Push
Also known as newsflow. Keep in mind most of your retail investors and analysts are not drill technicians with frontline information. Most commonly they only get updated and excited a company when new results come out! With that said news release timing is also very important... many companies don't control their newsflow when the market starts waking up... they rely on their JV partners to release news and this momentum can be all lost without the right news!!

6. Price
What's the share price now and what's the market cap?

Depending on number of properties, certain milestones have to be reached by 200 million shares fully diluted, for example most companies would be producing at some small level by then usually. That also means the company may have been around for awhile - and sometimes even if the other P's are good, investors may just get tired of the same company logo and such!

Dilution is another thing, in a difficult market dilution occurs faster because share prices are lower - companies have to issue more just for the same amount of money!! Thus the original shares are now worth less because there's more people to share the pie with you when and if properties strike gold/copper!

7 & 8 Paper and Phinancing
Share structure is another story - what's the warrants at? Options? Any hostile parties holding your options or warrants that will send the price crashing down when they sell? Here once agani it's nice to have longterm convicted shareholders in the company looking for the big payoff, not the small jumps of 5-10% here and there!

Another is trading volume, a thinly traded stock may mean many things including large longterm institutional holding - which is great! But it may also signal liquidity issues for new retail investors.

What's the ask-bid like usually? Take a look! It's important to have this data on Stockwatch or Real Time Platform... after all how do you know you can sell at $0.20 if there's only 1,000 bid at $0.20 (meaning it's $200) and you invested $500? The other $300 in this case will go down the list or be added to offer side as a block!

Questions / Comments ALWAYS welcome.