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Thursday, September 10, 2009

The Argument for investing in Gold!

gold cast barImage by hto2008 via Flickr

I am not a gold bug. I am a realist, but even at $1000 per ounce, gold may be a good investment right now for several reasons. Here are some of them:

The banks have had a great run this summer. After coming back almost 100% since it's lows in March, I have sold some of my TD Stock. (Yes it is still a good stock, but at 100% return, it's time to take some profit, no matter what stock you are in) I have also solidified some other gains, but continue to hold on to some small tech firms with huge upside potential such as Wilan Technologies and Ballard Power .

I don't believe the United States is anywhere near being "out of the woods" in it's recovery. A year after the crash, Wall Street is up to it's old tricks . There is a very good chance of an even larger correction in 2010 than we saw in 2008. No one really knows of course, but all the warning signs are in place. The bounce in the markets has been spurred by massive Government interventions, to the point where the most important man on Wall Street is Barrack Obama.

Many U.S. banks are still in serious trouble and hundreds more will fail over the next year. Institutions like Fannie Mae, Freddie Mac, AIG, etc, will "never" recover!!! The smartest guys in the room (Goldman Sachs, J.P. Morgan etc) as always, have come out on top, but even they have an uphill battle as the USD battles runaway liquidity while they still have to value those "toxic Derivatives" that haven't gone away. Wall Street bankers are now trying to do to our life insurance policies, what they did to our mortgages. They are still trading in over the counter derivatives with no transparency, and are paying huge bonuses to executives (sound familiar).

The commercial real estate market is facing a real crisis of re-financing. It could actually cause the next crisis. The domestic real estate market is sliding again and will until at least 2011. Creditors like China are searching for other stores of value, outside of the U.S. dollar. Besides commodities, China is investing in gold and actually telling it's citizens to do the same. Several large U.S. hedge funds are also investing in gold and finally, the Hong Kong government is currently in the process of moving their gold reserves to a domestic site from London. Now, if there is another crisis caused by the paper creating Vultures of Wall Street , do you really think the American public will allow their administration to launch even more expensive bailouts? Neither do I. That is why many investors are turning to a standard of value that reaches back thousands of years.

Gold investors know full well that, most of the worlds gold supply is already above ground. That is why major firms often go back to old, proven, gold fields with new technology to find and extract what remains. Let's face it, the days of individuals panning for gold in a river bed are long gone, but that doesn't mean exploration stops. It merely changes.

While contemplating which gold investments to make, I have been following this story with keen interest. A small American gold company, Apollo Gold (TSX: APG) (NYSE - Amex: AGT) of Denver Colorado, started producing gold at it's Timmons, Ontario site called "Black Fox" earlier this year. Since May when it produced it's first ounces of gold from that mine, it has been on the radar of a number of gold speculators and has been rated a strong buy because of that production, which has reached over 32,000 ounces in four months. Many feel it is very much undervalued and currently under the radar.

What has gold bugs truly salivating is a recent drill result that, at least in one new hole, in it's "Grey Fox" site (approx 30 km away) indicated a result of 455 g of gold per ton of ore. Now, in an industry where 3-5 "grams" of gold per ton is considered worthwhile, well.... you can fill in the blanks. Since then they conducted more drilling in August at Grey Fox, which have not been officially released yet, but oddly, two weeks ago, Apollo bought up the mineral rights to the entire stretch of land between Black Fox and Grey Fox giving them access to the entire fault line where, in prior years, there was a very productive gold mine.

One of the previous occupants of these claims, Cameco, sold off it's gold interests to concentrate on Uranium (which it now dominates) In one of it's last reports on this area, it's geologists mentioned that they believed a deeper drill may result in a greater find. Apparently, that's exactly what Apollo Gold has done, with a stunning result! I've noticed the share price go from .30 cents to .45 cents in the past 10 days, as they raised another $10 Million through private placement, and no drill results have been officially released yet. I couldn't resist, so I bought in at .45

12 month Analysis estimates (see below) are $2.76 based solely on the Black Fox production. However, the Grey Fox strike has caused an even bigger stir but we won't know the full story until the most recent results are released in late October 2009. I know this part of the equation is speculation but, sometimes, you have to read the tea leaves as best you can then, take the plunge. I believe that, at this price, I am well protected with at least a 250% upside built in. As the rest of the world invests in gold in the traditional sense (bullion, bars, coins etc) or in the large companies which are already producing large quantities from their mines (Rio Tinto, Barrick, Hemlo etc) I think Apollo Gold might be a home run, maybe even a grand slam. One word of caution: Apollo has it's gold hedged at $876, however it's production cost is $400 and dropping.

The last time I made such an investment,( nine years ago) it was in Novagold at $1 share. It went to $18 At that time, gold was just over $300 per ounce. Many analysts are predicting gold in a year at $2,000. Some are even throwing out a top end of $3,000 or more. That seems extremely excessive to me, but the $2,000 range is possible. Certainly, $1200 in the short term is likely.

If you are tired of feeding the Vultures of Wall Street., you may wish to investigate this opportunity like I did. I am not risking too much and neither should you. Now, don't take my word for this speculative gold play (or anyone's word for that matter). Do your own research on this or any company you wish to invest in. You may wish to invest in gold by merely buying gold bars or coin or buying ETF's (exchange traded funds of gold stocks) as I am also considering.

Apollo Gold Corp - check it out (TSX: APG / NYSE Amex: AGT).

Update Sept 25th 2009, Apollo Stock - over 7 million shares traded in two days!

Nasdaq.com Target price for Apollo Gold
12 Month Price Target Range




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