Two Signs We May Have Reached Capitulation: Common Stock Warrants Watcher Dudley Baker

TM editors’ note: This article discusses a penny stock and/or microcap. Such stocks are easily manipulated; do your own careful due diligence.

Looking to leverage the upside of inevitable rising precious metals prices without the risk of buying mining company stocks? In this interview with The Gold Report, Dudley Baker, founder of Common Stock Warrants, shares his approach to evaluating companies for longevity and the opportunities warrants in those companies might play in the right circumstances.

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The Gold Report: A lot has changed in the resource space since we interviewed you last. From your perspective in Mexico, how did we get to where we are today?

Dudley Baker: I stay abreast of the views of our friends—Rick Rule, Frank Holmes and many of the others in the business. Despite the toll low gold and silver prices have taken on companies and portfolios, I remain confident that those of us still invested in this sector will be greatly rewarded for our patience. It’s just a matter of time.

We are four years into this pullback right now, which means we have to be getting close to the end of this bottoming process. Two recent events stressed to me that we are near a bottom. One was the folding of our friends Casey Research into Stansberry & Associates Investment Research. Over the last decade Doug Casey has built an empire of services and expert newsletter writers. That he would join forces makes me think we must be near a bottom.

A second one that hits even closer to home for me is that I recently received an email from my brokerage firm at market close on Friday that it was going out of business. This was a total shock. We have used Penn Trade for the last 10 years. The parent, Pennaluna & Company, is based in Coeur d’Alene, Idaho, and has been in business since 1926. Most of the firm’s client base included resource investors. That is a dramatic contrarian sign that maybe, just maybe, we are close to a bottom.

TGR: If that’s the capitulation that Rick Rule has talked about, what would the signs be that regular investors are starting to come back?

DB: Let’s face it. The average investor does not want to step in right now. For me, if I can find opportunities, I’m still going into this market. Is it premature? Perhaps. But I don’t want to miss all the upside coming. I’m afraid average investors are going to wait until we have one hell of a rally before they get their confidence back. It’s going to take something well north of $1,250 an ounce ($1,250/oz) gold before the generalist takes notice, and at that point there’s a high probability that it will be too late.

TGR: What if, as many have predicted, we end up with sub-$1,000/oz gold?

DB: It is always a possibility that we could go down from here. I do not want to see lower prices, but it could break down. If we break the previous low, $1,070/oz, there’s no support until we get to $1,000/oz gold. That could happen really quickly and the faster the better. Let’s get it over with. If we have to have a final cleansing, bring it on. Let’s not drag this thing out for months. Then we can get a fresh start on a new uptrend.