Gold Correction

Gold is one of the few assets in the world which is in a primary bull market, meaning that the asset is rising overall, despite periods of downward movement. We're in one such period now, which is going to act as a brake on all gold-related assets, including mining stocks like Seabridge Gold SA which I've recommended.

I still think the stock is a long term win, but I must say that it's likely it will go into correction mode (in fact, it already has fallen $6 or so from its recent peak, a 20% decline). Those with a short-term frame may think about selling, even at a loss, in order to get back at a lower price.

Since I expect the overall market to begin another period of decline, I like a stock that will move inversely to the market, like DXD. (Remember, DXD is for short-term trading only; it has mathematical characteristics that make it a poor long-term investment.)

I suppose I now have to break my 10 grand bit into two groups: long term and short term. Long term, stay with Seabridge, even though you're down right now. It'll come back. Short term, take the loss and move into DXD while you wait for SA to bottom out.

As Treasuries Swoon and the Dollar Falls, Gold Advances

Gold has been on a tear the last few days, taking back its role as the bomb shelter of financial assets. During the tail end of the boom years (2006-2008) gold began to move in tandem with stocks. The market would be up, and so would gold. That was unusual.

Now gold is back to moving inversely to markets. As I wrote yesterday, US Treasuries are falling, causing yields to rise. (Check out ^TNX) As I write this, the market is experiencing a bounce as it absorbs the activity of the last few days. The dollar is also falling, and has breached the psychologically important 80 level.

Seabridge Gold (SA) is now up to $30.66. If you bought Seabridge Gold back when I said, your money would've grown to $11,927 by now. I see SA going to $40, so hold on to what you've got. I also own Exeter Resource Corp (XRA). Exeter is a small-cap gold mining company from Canada, which is home to many such mining companies. Many of these are unsound, and will get shaken down by the movements of the gold price, but Exeter is one that will remain, I think, as they have very low levels of debt and they seem to have a solid business plan.

It's a good idea to have some GLD, the exchange traded fund that holds gold bullion, as well as some SLV, and some physical gold and silver in your possession. Another good way to invest in gold is through Goldmoney.com.

The Case for Seabridge Gold

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Those of you who know me know that I've been recommending Seabridge Gold (SA) for some time now. (Just so you know, I hold a substantial amount of this stock) The company is designed to provide a leveraged investment which is tied to the price of gold. Their purpose is to turn cash to gold, rather than the opposite, which is what most miners do.

Let me now present a brief analysis of the value of Seabridge stock. (As of now, it is selling for $29.30 a share, so if you bought it yesterday when I suggested it, you've already made money.) Seabridge owns properties which contain gold and copper. When these holdings are considered at current prices, we find they are worth a rather large sum: about $63 bil. Of course, the problem with resources in the ground is that they have to be extracted and refined, a costly process. But even with very stringent extraction costs of $800 an ounce for gold and $1.80 a pound for copper, we find that the company's resources are worth about $9 bil. If we divide that by the total amount of shares outstanding (about 38 million, including stock options) we get a price per share of $234, a rather far cry from the price of the stock now. Even if we take only the reserves that have been measured, rather than inferred, we get $136.

This company is undervalued by the market, and hence it represents a great opportunity.

10 Grand: Sell DDM, Buy SA

The time has come to sell DDM (for now). I recommend Seabridge Gold (SA). Seabridge is a "resource hoarding" company, and their resource of interest is gold. They do no mining, but rather they buy the best gold mining land they can.

If you sold your 370 shares of DDM now, (for $29.45) you'd have $10,912.42 (assuming your trades cost $9.99; that is what I pay over at Ameritrade.) If you buy SA at $28, you can afford 389 shares (assuming you don't use margin, a wise move in these difficult times). You are now up 9.1%.

Only invest what you can stand to lose.