Gabriel Resources Update

May 4th, 2012 | Posted by octafinance in Gold | Portfolio History | Precious Metals | Stocks - (Comments Off)

I will keep this article short as I’m too busy with my work on valuing some gold miners. Today, I added to my Gabriel Resources position at 1.9 CAD/share. I bought the same amount of shares to the one I got with my initial purchase and now my average stock price is 3.9 CAD/share. I bought more shares to average down, as from now on, I believe that even with higher royalties and lower cyanide levels, this stock is cheap. Of course, it could become even cheaper and even a zero in case the government goes nuclear and dissolve the mining license or  refuse to give the environment permits. Today for example, the Romanian new left-leaning government has pledged a moratorium on shale gas exploitation and said that it will review a controversial Canadian plan to build Europe’s largest open-cast gold mine.

http://www.winnipegfreepress.com/business/romania-govt-promises-moratorium-on-shale-gas-exploitation-review-of-open-cast-gold-mine-150169825.html

That is why, please keep in mind that my purchase is not a recommendation. You could lose everything by investing in junior miners. That is why it is best to spread the risk by investing in several miners or to put a small percentage of your shares in each.

There is one very important lesson that all investors should remember. To recover a loss of 10%, the asset must rise 11.11%. To recover a loss of 50%, the asset must rise 100%. To recover a loss of 80%, the asset must rise 400%, and to recover a loss of 100%, the asset must rise “it is never gonna happen”.

The only way to recover a loss of such magnitude is if you can average down. Still, that is one of the most dangerous idea or principle that investor might have and even because it is I don’t recommend it to investors with poor risk management and portfolio weightings . The reason is that, if the stock is really going to zero, you increase your holding and continue to lose until you lose everything. By averaging down you guarantee yourself a big trouble and a huge loss. That is why every investor, as I said many times, should start positions no matter how good they look with a small percentage of its portfolio. Especially in risky junior miners with a potential for triple returns. That is a must because if the holding is a small percentage, you can average down and even with the additional purchases, you can still afford and be fine if the junior fail and go under. If you start with a bigger holding relative to your portfolio size, you can’t average down without later ruin yourself and your portfolio.

NovaGold Position Increased. Update to portfolio.

March 21st, 2012 | Posted by octafinance in Alternative Investments | Commodities | Currencies | Gold | Portfolio | Precious Metals | Stocks - (Comments Off)

Today I increased the portfolio’s Novagold position by 50% to 0.3% of the portfolio.  As Novagold declined about 20% since my initial purchase I have decided to add to the position as I find the stock even more undervalued now. The portfolio’s total exposure to precious metal stocks is now 1.8%.

I still believe that there is significant downside risk to gold, silver and precious metal stocks so I look forward to increasing the portfolio exposure if declines happen. I believe that the total exposure might go up to 5% until a final bottom is formed in this sector.

(more…)

, , ,

Investment in Gold Miners, Gabriel Resources, Allied Nevada Gold and NovaGold

February 19th, 2012 | Posted by octafinance in Alternative Investments | Commodities | Currencies | Gold | Portfolio | Precious Metals | Stocks - (Comments Off)

On February 17, 2012, I bought shares of three gold miners: Gabriel Resources Ltd.  (GBU), Allied Nevada Gold Corp. (ANV) and NovaGold Resources Inc. (NG)

I want to emphasize that these purchases are a part of my portfolio as they are long-term investments and not trades. The allocation of capital is as follows: Gabriel Resources Ltd ~ 1.1% of my portfolio, Allied Nevada Gold ~ 0.4%, and Novagold Resources ~ 0.2%. My total exposure to precious metal stocks in the core portfolio is now 1.7%.

Currently the precious metal stocks are very cheap compared to the metal price. The gold bull market has a long way to go until it forms a bubble phase. The precious metal stocks that I bought have probably an upside of up to 400% long-term (3+ years). I still believe that gold will correct more, probably going to $1400/oz, or even $1200/oz, before resuming it’s uptrend. Still that didn’t stop me from doing these purchases because they are all unique and special situations that might go up significantly, no matter what the price of gold does.

(more…)

, , , , , , , , ,

Electric cars impact on Rhodium Demand

February 16th, 2012 | Posted by octafinance in Commodities | Gold | Portfolio | Precious Metals | Rhodium | Silver - (Comments Off)

In this article I will share with you some more details about the impact of electric and hybrid cars to the rhodium demand, which will also be important for investors in the PGMs (platinum, palladium).

I received an email today from a reader who was worried what will happen to the rhodium demand and investments in the metal, if electric or hybrid cars production increase. In his opinion because more than 80% of the rhodium market demand is from catalytic converters, and in the long run fuel engines are doomed we have to pay attention to the electric cars development.

That’s why I will post here my reply to him as it’s a part of an analysis that I didn’t share with you in my previous writings. I will start with my own opinion that fuel engines are not doomed even in the long-run and that is because of the supply and existence of rare earth metals.

Now, let’s start with a little introduction. Hybrid cars are required to have catalytic converters because they have fuel engines along with electric engines. Hybrids do have catalytic converters and are not a threat to the rhodium demand.

Electric cars don’t need catalytic converter but here are my three main points why electric cars will never be of a much importance to the rhodium demand:

1. Rare Earth Metals in electric cars. There are not enough rare metals in the world to produce much electric cars. About 95% of all rare earth metals come from China, which lowered its export quote to world in attempt to save its resources for the decades ahead and for its own production. For example, electric cars use rare earth metals in their electric motors and car batteries like neodymium which is in deficit even at this increase of electric cars and other tech stuff.

Currently, every Toyota Prius uses 2.2 lbs (1 kg) of neodymium in each motor, while the hybrid batteries each pack 22-33 lbs. (10-15 kg) of lanthanium (another earth metal in short supply). In summary, even if we find more rare earth metals, they will be much more expensive which will make these cars much more noncompetitive to normal. Even now, electric cars are more expensive than gas because such rare metals.

(more…)

, , , ,

Gold put option sold for a 205% profit

September 23rd, 2011 | Posted by octafinance in Commodities | Gold | Options | Precious Metals | Trades - (Comments Off)

Today I sold my Gold put option that I bought for 49,66 USD/oz on August 23 2011. I sold it for 151,43 USD/oz, or a profit of 205% on my invested capital.

The gold put option was a position in my trading account. A speculative play that I make with less than 10% of my total trading account size. I use put options when I detect a parabolic rise of an asset. The options limit the possible loss if I’m wrong, but they also offer me opportunity to leverage my trade. I always buy out of-the-money options, so I pay cheap premium for the option. As after parabolic rise, I do expect huge correction, I prefer to buy cheap out-of-the options and risk less capital for a high return, if I’m right. I also buy the options for a short period of time. Usually I buy options for few months, so they are cheap. In this case my option was bought until November 15 2011.

Summary: Gold put option bought on August 23 2011, for 49,66/oz, with gold price strike 1770 USD/oz, and expiration date 15 October 2011. The gold option was sold on 23 September 2011, for 151,43 USD/oz or a 205% ROIC.

Please see my previous parabolic bets on Silver and Swiss franc and how they ended with huge profits.

, , , ,

Fair value of Gold. Gold as an insurance.

August 24th, 2011 | Posted by octafinance in Commodities | Gold | Precious Metals | Trades - (Comments Off)

By writing this post, I’m sure that I will provoke disaffection in some readers and investors.  It’s really tricky to measure the fair value of gold but still I believe that some gold models offer a fair measure of the value.

Before I start with the fair value of gold I want to say that anyone who doesn’t have gold as a part of it’s portfolio, should add 3-7% on a price weakness. Gold is still the best insurance against currency collapses, hyperinflation and uncertain times. But that’s all. I view gold as an insurance more than as investment. I will buy personally gold as an investment only after and if the gold price goes near or below it’s fair value.

I use two models that measure the fair value of gold:

(more…)

, , ,

Gold put option bought due to parabolic move

August 23rd, 2011 | Posted by octafinance in Commodities | Gold | Options | Precious Metals | Trades - (Comments Off)

Today, August 23 2011, I bought gold put option at 49,66 USD/oz with a strike 1770 USD/oz and expiration date November 15 2011. The put option on gold is for 1.1% of my trading account. The rationale behind this trade is the parabolic move that I detected. To be honest, I’m extremely optimistic that gold and silver will rise long-term and I plan to buy more of these precious metals after they go down big. No matter how much I love some assets, now we must face reality and the fact that gold has risen in parabolic move due to public fear and buying of retail traders. Gold has been up 10 years in a row, which is very unusual in any asset class. I believe that gold is overdue for a deep correction. We have a huge standard deviation parabolic event, which could correct at least a few hundred dollars. When I detect a parabolic move, no matter what the asset is, I usually risk a small amount of my trading account to buy put options while try to be as precise with the timing as possible.

Parabolic moves always end badly. They form because super high optimism about an asset, many factors supporting it, and it goes much higher than 200 DMA. There is also another red flag that might help destroy the parabola and it’s “margin hikes”. (more…)

, , , ,

Web Statistics