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By Robert Fitzwilson of The Portola Group

January 15 (King World News) - The Great Western Gold Robbery Is About To End

Last week we wrote about the “Great Gold Robbery” in the mid-1800s and how minuscule it was compared to the global gold robbery that is currently taking place, as the great gold repositories of the Western world have been virtually exhausted.  As we know, the vast majority of this physical metal has been or soon will be sent to Asia, never to be seen again....

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The final phase of the gold robbery began last week with the attempts to buy Osisko Mining and Allied Nevada shares at these artificially depressed prices.  Even compared to gold, the mining shares have been truly savaged as you can see from the 10-year chart below which shows the mining shares are down about 12% over the last 10 years, while gold is up roughly 165% during that same time frame:

It is hard to imagine that gold is still 43% higher than in early January of 2009, but the mining companies are down 31% during that same time frame.  The mining companies are certainly not without blame.  Barrick’s disastrous misadventure with the Pascua Lama project would take the top spot in our view.  It is also true that the miners are leveraged plays to the price of the underlying metal and costs have risen, particularly energy.

However, what it also shows is how tremendously undervalued the mining sector has become.  The two suitors for Osisko and Allied Nevada probably acted out of fear that the window for making such attempts is rapidly closing.  As you can also see by the second chart below, the HUI has decisively crossed the 50-day moving average.  To call this a breakout will require the index to surpass the 240 level in a similar decisive fashion.

The trading began today with the expected attempt to try and drive gold and silver sharply down.  It succeeded, but the action in the miners was telling.  Instead of following suit, the miners have staged a strong performance to the upside, despite the negative performance for the underlying metals.  While the Dow Jones and the S&P 500 are also having a decent move to the upside, the percentage gains for many of the mining companies far exceed that for traditional equities.

The action we are seeing today is very typical of market bottoms.  As suitors try to pick off grotesquely undervalued mining shares, investors should consider doing the same thing.  Substantial returns come to those with the courage to overcome the fear in their central nervous system and buy when sentiment is so extremely negative and the facts warrant it.

For the management teams of the mining companies, focusing on cost cutting and increasing production are the intelligent reaction to current conditions while we await a confirmation of the turn.  It is better to sell cheap metal than cheap shares.  The last remaining repository in the world for gold and silver lies underground at these mines, and we hope that the companies can survive the mergers and acquisition gauntlet.

© 2014 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

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