The time has come to protect yourself.
On Sept. 13, Federal Reserve Chairman Ben Bernanke pledged to
unleash a thirdwave of quantitative easing (QE3) to combat the
According to the Federal Reserve, thecentral bank intends to
purchase $40 billion worth of mortgage-backedbonds per month for an
undetermined amount of time. At that rate, it will only take a year
forthe Fed 's already bloatedbalance sheet to expand by another
half-trillion dollars as it gobbles up bonds to keep borrowing
rates artificially low.
But the program may go further than that. Unlike the first two
monetary injections, this third round is open-ended -- there is no
fixed dosage limit orexpiration date.Asset purchases will continue
indefinitely until thejob market is back in gear.
Only time will tell whether or not this strategy pays off and
jump-starts theeconomy . Even if the plan works wonders, it will
still come at a cost... You can't just create more money out of
thin air without devaluing it. Investors know this. Sooner or
later, one of themarket 's biggest threats --inflation -- is bound
to kick in.
Simply put, your dollars probably won't buy as much in 2014 or
2015 as they do today. And that's why just like QE1 and QE2, the
launch of QE3 has encouraged droves of investors to stockpile part
of their wealth in gold and other hard assets like oil, timber,
copper, andreal estate ... anything but depreciating
For example, silverfutures jumped nearly 5% on the day of the
announcement. Palladium touched $690 per ounce after moving higher
for the ninth consecutive day -- the longest winning streak since
Tin, zinc, nickel, sugar, grains, gasoline... everything rose
across the board on the Fed's announcement. We've given back some
of those gains since then, but periodicprofit taking is to be
expected. And remember, this is just the post-announcement bounce
-- the first dollar hasn't even been spent yet.
These tremors in the trading pits have been felt in the equities
markets as well. But some stocks have responded much more
enthusiastically than others. As is often the case, junior
explorers have been the biggest beneficiaries of this rally.
Take the copper sector, for example.
During the past month,
Orocobre Ltd. (
, which has a tinymarket cap below $250 million, has been blown
forward to an 18.3% gain. Industry leader
Freeport McMoran (NYSE:
has sailed just 8.8%
It's the same for the gold sector.
Heavyweight Barrick Gold (NYSE:
has turned in an 8.9% return during the past month. Not bad, until
you stack it up next to smaller miners such as
, which is up 20%, or
Centerra Gold (
, whose stock has jumped 38.9%.
For the most part, junior explorers had fallen the hardest
during the financial crisis and were the most attractively priced
per ounce of metal in the ground.
With QE3 officially underway, investing in hard assets like gold
and silver (and the companies that mine for the metals) is the best
solution to safeguard against the erosive impact of inflation on
your purchasing power.
One potential idea I like is
Endeavour Silver (NYSE:
. Endeavour is still small, but growing rapidly. The company has
aspirations of joining the upper-echelon of senior producers.
Management has outlined a goal of reaching 10 million ounces in
annual silver production -- and the firm is well on the way.
It has delivered seven straight years of rising silver
production -- with output expanding more than 600% during that
As they say, past performance doesn't necessarily indicate
future returns. But aside from the QE3 tailwinds, there are several
other reasons why Endeavour is poised to reward
For starters, silver production is expected to rise 32% this
year to crack five million ounces. Gold output is forecast to
increase by 54% to 34,000 ounces. And looking ahead, the company
has four new projects underway and tens of thousands of prospective
acres to explore.
But risingvolume is only part of the picture. The company is
also capturing fatter profits per ounce.
Endeavor's cash costs are moving in the opposite direction of
its peer group. Since 2007, the average cash costs to mine an ounce
of silver across the industry have risen to $6.83 from $2.59.
Meanwhile, Endeavor's costs have fallen to just $5.08 last year,
from $9.38 in 2007.
With a realized silver price of $35.61, the company pocketed
$30.53 in gross profits for every ounce sold -- for a juicymargin
Risks to Consider:
Now, it's important to remember that with just three mines in
operation, any hiccup in mining operations could be costly.
Endeavour produces few base metal byproducts like lead or zinc,
which leaves the firm wholly dependent on precious metals
Action to Take -->
Nevertheless, the stock has already climbed 7% since QE3 was
announced. And with rising production and stronger silver prices, I
see good things happening on thebottom line .
-- Nathan Slaughter
[Note: There is a nuclear energy crisis that will hit the U.S.
in 2013. In total, 31 million U.S. citizens will be affected. And
as the country scrambles to react, a small group of stocks could
shoot up by 100% or more. To learn more about this looming crisis,
and how to profit from it, click here.]
Nathan Slaughter does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC owns
shares of FCX, NG in one or more if its "real money"
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