This morning currency traders had their world rocked.
Japan 's Finance Minister, Yoshihiko Noda, confirmed that Japan
had intervened in the currency market to buy dollars in an effort
to weaken the rallying yen. A strong yen, which has reached 15-year
highs, is crushing Japanese businesses that rely on exports. As
reported by the Associated Press this morning,
Toyota Motor (
estimates that each 1-yen rise versus the dollar decreases the
company's earnings by $351 million. Ouch.
With the yen up around 10 percent versus the dollar this year
Prime Minister Naoto Kan took the reins to act on the behalf of
domestic producers and push the yen back down. Statements from
government officials this morning suggest that the country
considers 82 yen per US dollar to be the right level at which the
currency won't hurt Japan's economy.
So buy, baby buy was the move - and so far it's working. The
dollar is up and the Nikkei rallied over 2 percent, led by
exporters such as
Sony Corporation (
***But small cap investors aren't going to rush out and buy
shares of Sony, Toyota, or start trading in currencies to take
advantage of this move by the Japanese. There is a better way to
play this development, and it's not as obvious as the above
When volatility in currencies ramps up there is one asset that
investors should turn to for protection, and gains. You've probably
guessed where I'm going with this if you've been a reader of this
letter - so I won't keep you waiting.
I'm talking about gold. Gold is a safe haven asset that represents
stability and wealth protection when countries start messing with
their currencies. And I suspect we're going to continue to see more
and more countries tinkering.
***Gold has been on a tear lately, rising above the $1250 level
that served as resistance back in June. I suspect we'll see gold
You also know by now that my favorite way to play the strength
in gold is through junior and mid-tier mining companies. Why?
Because these companies see their profits grow exponentially as
gold prices rise.
A quick example:
If gold prices are $1000 an ounce, the average gold miner makes
about $400 per ounce in profit. But if gold rises to $1200 an
ounce, they make $600 in profit, or 50% more! Gold rose 20%, and
gold miners make 50% more profit. That profit is eventually
reflected in the stock price.
Gold over $1,100, and surely gold over $900, is here to stay. As
a result, gold miners stand to make significant profits. What's
more, major mining companies are looking to increase operations
without spending the millions required to explore for new mines.
Exploration comes with significant risks - so these companies are
looking to buy juniors and mid-tier producers that are close to
production, or already producing.
As an article in yesterday's
The Wall Street Journal
stated, the choice for miners is,
"Buy or build? For the world's major mining groups, their
wallets bulging amid tight commodity markets and natural limits
to their own capital spending, the answer is both."
With volatility picking up in the currency markets, gold prices
rising, and gold mining majors looking to increase production to
take advantage of the surge in gold, small cap investors should be
looking for exposure to small mining operations.
And I have just the one for you. But I can't give you its name.
In order to find out what I consider to be one of the best
opportunities in the small cap gold mining space right now you need
to request the special report on this opportunity.
This company has one of the lowest cash costs of gold in the
industry, and its stock is a screaming buy right now. In fact,
through yesterday's close shares have rallied 8.5 percent so far
this week and the buying opportunity is starting to close.
Let me show you what I mean.
A subscriber to
Small Cap Investor PRO
wrote in recently asking if there was a price divergence between
this company and the price of gold. When these divergences arise I
point them out to subscribers so they can take advantage of the
buying opportunity. This is what the subscriber wrote:
"A while back you had a chart in one of your e-mails
containing the relationship between gold and [company X]. At the
time there was a divergence between the two. [Company X] was not
tracking with the price of gold and you mentioned that it would
snap back in line and presented a great buying opportunity. Do
you remember that chart?
Subscribers received the following chart showing the price
This was on September 9
, and since then the gap has begun to close as this stock has
rallied. Check out this chart, which I pulled today...
This company's stock has moved sharply higher over the last
week, and while the gap is closing, this buying opportunity still
exists. What's more, this is the second time in the last few months
subscribers have been able to take advantage of this gap.
This is a great company, and the recent move by Japanese
authorities to buy dollars and drive down the yen is just one more
reason why safe haven assets like gold are likely to remain
My favorite way to gain exposure to gold is through small cap
mining companies - they have the greatest opportunities for growth,
their profits grow exponentially as the price of gold increases,
and they are attractive takeover candidates for mining majors.
Check out some gold mining small cap stock and let me know what
your favorite ones are. I just might include your comments in a
future issue. And if you're interested in checking out my favorite
small cap mining company,
and receive the special report on this company.