Gold and Silver Red Hot : Is 2011 PDAC Conference One Indicator of Near Term Top?

PDAC is the Prospector and Developers Association of Canada and they held their annual show in Toronto over three days, March 6-9.

I didn’t attend, but reports show that the event was surreal. Over 27000 people attended this trade show. When gold was trading for $260 dollars back

around the turn of the century the attendance was fewer than 2000. Nobody cared about natural resource stocks back then! This should tell

you something.If hoards of people are interested in buying an asset, the price of that asset will be higher than if nobody is interested in

buying the product. Basic supply and demand: more buyers than sellers make the price go up. This absolutely applies to gold mining stocks. In fact, it

relates to gold and gold mining stocks very vividly.Gold mining stocks, especially the tiny exploration companies

have very small market capitalizations and are thinly traded. This means that very few shares trade on an average daily basis and the price to buy all of

the stock in a given exploration company might be very low compared to other assets. The reason these exploration companies are

cheap by comparison is most of them have nothing! These little companies are often nothing more than a few men who have

convinced some other men to give them money so that they can spend it at a very fast rate. I like what Mark Twain said, “A gold mine is a hole in the

ground with a liar standing next to it.” Most of the companies at the PDAC conference have nothing but a piece of near worthless bush land

and hope. This is very dangerous for your investment dollar. These ‘penny stocks’ may seem cheap compared to other industries, but the

reason is, they have nothing. If you buy 10000 shares at 50 cents in any one of the hundreds of worthless companies, such as what the serially

successful natural resource investor Rick Rule of Global Resource Investments Ltd. calls, Amalgamated Moose Pasture Mining, you could

easily see your investment drop by over 75% when the hype dies down. Sure, penny stocks can make some smart investors, like Rule, 10

times their money over and over, but good companies are as rare as needles in a haystacks and the people who can identify them, are even rarer.

When the attendance ofa mining show like PDAC rises by more than 10 times in around 10 years and the gold and silver price is white hot, it may

be an indicator that many of these shares are at least due for a correction; meaning, they have risen too far too fast and will likely fall to a level that is

well supported by the market.Personally, if silver fell to $18 an ounce on a spike, I wouldn’t be that surprised.The price per ounce has

more than doubled in less than a year! I do think that, long-term, silver is going much much higher, so I am holding onto a core position, but I recently

took profits in many junior silver mining shares and even sold some 5 oz silver bars, which were ‘less liquid’ than my personal favourite, the

Canadian Silver Maple, 1 ounce bullion coin. I will be buying these as the price falls. If silver falls to around $33 an ounce, I’ll buy a

bit, $29 I’ll buy even more, $25 an ounce more still….if it gets to $20 or less, I’ll throw all I’ve got at the white metal! Silver seems to be very well

supported at around $18 per ounce, since it traded around this level for many months.I could be completely wrong and silver and gold

could continue on to more new highs.For the record, I think that volatility is very low and has been for a long time now. The VIX is an

index which tracks volatility. It’s complex but basically when the NYSE drops, the VIX goes up. If we see increased volatility and investors and traders run to ‘cash’ we could see

the U.S. dollar rally. Junior mining shares, silver and other hot commodities and asset classes could get killed. When the smoke clears, you’ll be able to buy these

shares at much lower prices. Some of you may be saying, “this guy’s nuts, a new war in North Africa, Japan in ruins, civil unrest and political instability

around the world, how could gold not continue on to $5000 an ounce?” Gold is different than silver. Gold is money. Look at the charts. Gold’s ascent has been sustainable.

Silver’s is euphoric! Nothing goes up in a straight line. The slightest ‘positive’ news spin could take a lot of traders out of the gold market. What would happen to silver? The term “sell in May and

go away” exists for a reason. There may be many smart investors and speculators looking to lighten up on various hot asset classes in the coming months. Keep in mind,

when you look at your portfolio.Physical gold is insurance against money-printing-governments and it always has been. This doesn’t mean you won’t get a

better price in the months to come. Wait and see if PDAC is an indication of a short term top in natural resource stocks!