Don Coxe Conference Call – 4/8/11

· Used the 5 year chart of gold to show its resistance levels to consider its next upside target. 1448 was the resistance level which it recently broke through. We can expect all sorts of resistance at 1500 gold. Given the amount of options there will be a ton of overhead resistance at this level.

· Silver is the best performing metal since last summer and has now broken through the 40 level.

· This is all part of a bigger story. There is no longer any doubt that the big theme being discussed by central bankers is commodity inflation. When we only had food inflation they could use the explanation that this was only due to crop failures in various parts of the world. But with the breakout in price of oil that is no longer the case and this explanation will no longer work.

· This has set off real alarm bells with central bankers as they will remember when oil got to $140 which set off the stock market crash and recession. Now they are faced with a terrible dilemma. Do they raise rates like the ECB did?

· Pressure from food was confirmed in overnight trading and higher prices of corn, wheat, soybeans, and cotton spiking. Food story is a huge one. Foods and fuel inflation are problematic.

· Don said he doesn’t envy the central bankers on this one. Encourages everyone to read the article today in the Gillian Tents(sp?) column in Financial Times about the hostile comments made by Latin American representatives about US policy and its QE2 and what its done to the weak dollar and its impact on Brazilian real.

· The voters certainly are seeing that what they are buying including clothes are all going up in price. Bernanke is unlikely to be believed when he says there is no inflation.

· Although Reserve is independent it is being roped in by the rising power of the tea partiers.

· Commodity story is no longer the story that is off to the side. We are now coming up to some moment of truth for the central bankers and the rising stock markets. (Bernanke said he wanted the stock markets up which has happened.)

· Last night there was a good rally in Japan stock market despite the fact they had another big earth quake. It is up close to its high.

· What we see is a paradox. We have had a big change in leadership as to what stocks are now trading up versus those that were down. Agricultural stocks which had way outperformed metals and oil have not changed places with oil stocks and miners rising. Stocks have outperformed the buillion this time which has not happened before. Why is buillon dragging behind the miners? (He mentioned that money has been moving out of GLD and into investments but frankly I could not understand his reasoning) .

· Don is cheered by movement in the miners as they hold the gold in the ground and so should have moved with the price of the buillon which they are now doing.

· Big miners are buying up the explorers to be able to add to their reserves.

· Another paradox is that SLW is barely up this year from its high of last which tells you that investors are wondering whether business models of streaming companies can be maintained. People are now wondering whether SLW can continue to get these kinds of contracts given their current unbelievable profit margins. (spread between what they are charged and what they can charge for the metal)

· Investors who want to play the metals are going into the exploration companies versus ETFS and have done “astoundingly well” in the last couple of weeks.

· He did, however mention albeit briefly that the commodity stocks are not doing as well as they can if the commodity prices remain at these levels. Given the political nature of what’s going on in the Middle East, the oil prices will need to remain higher than previously as the governments need to give more of their profits to the “civil servants.” This means they will need higher oil to maintain all their payouts and bribes, etc. Whereas it was said previously that the perfect price for oil used to be between $65 and $80, this has now accordingly moved up above $90. We may then have a new floor for oil. This price then will not be just a short term blip. Shows once again that the Canadian Oilsands stocks at this new price level will be hugely economical (were at $74 oil).

· Keystone Pipeline is becoming a big talking issue. Obama and the greenies are proposing to delay it based on environmental issues. Obama talks about not buying dirty oil from Canada. Gartman has done a good essay on it today and said the environmentalists are concerned that a pipeline leak could pollute the US aquifer.

· If the US keeps up these discussions then Canada will have no choice but to build a pipeline to deliver oil to China and if it does, the US will be cutoff and have to rely even more on middle east oil.

· Now that the US has proven how to unlock shale gas, others around the world will be able to use this as well to unlock their nat gas energy reserves.

· Bad news for uranium will probably be made up by nat gas.

· Bond market – yields have been going up whether 2, 5 or 10 year. Bernanke is buying Treasures at a record rate and the question is who will buy when he stops. Means that yields will have to go up.

· There will be more troubles and this will get more and more like the 70’s when workers had problems, investors had issues and governments fell. One can only wonder how much longer this can last when the oil price for Europeans is now at $124.

· He If PEs get clipped significantly then we will have commodity related stocks do much better than stocks that sell to consumers.

· Paul Volker’s previous solution to deal with inflation by taking short term interest rates to over 20% will not work this time as that would produce a depression.

· It is clear that Coxe is bearish on general stock market.

· Commented on the silver story – assume 60% is due to investment and 40% due to industrial use. This then helps explain why it has so outperformed the gold. Thinks it is related to the person on the street who is getting concerned and who can better afford silver than gold. Silver minting cannot keep up with demand for the silver. The “democratization” of the precious metals space.

· The reason for the underperformance of the gold mines is that with buillon there is no risk versus with the miners. But if you look at the reserves they hold in politically safe areas of the world he believes there will be a “rethink” of this approach.

· Someone mentioned to Don that he just came from a conference and the CEO of GOM (don’t quote me on that as it was hard to hear the symbol) said that he thought as soon as interest rates start going up, that it will cool the push for gold. Don disagreed. He explained that he believes there is a fundamental change in the way you look at assessing risks. Sovereign debt risk is something new. Risk free asset are now viewed as PMs. E.g., people are now reassessing the fundamental risks of investing in Treasuries. This means that in these times you may have to go back to JP Morgan’s statement so long ago that the only money in the world is gold, everything else is credit.