Showing posts with label Gold Stocks. Show all posts
Showing posts with label Gold Stocks. Show all posts

Tuesday, May 26, 2015

Precious metals rally consolidates

 

Precious metals rally consolidates - gold and silver 2015 US

 

Gold and silver rallied strongly last Friday and into Monday’s overnight trading (UK time) before spending the rest of the week drifting lower from initial highs to consolidate above notional support at $1200 and $17 respectively. As of first thing this morning, UK time in US dollars gold is now up 2.2% and silver 10.2% on the year.

From observing price action, there appears to be continuing underlying physical demand, and on Wednesday the Russian Central Bank confirmed that it had taken the opportunity of sub-$1200 prices to add 300,000 ounces of gold to their official reserves last month. It is also reasonable to suggest that in times of increasing economic and systemic tensions in the Eurozone, some central banks will swap euros for gold to rebalance their reserves.

The Fed released April’s Open Market Committee minutes on Wednesday, which on balance was little more than another holding operation on interest rates, not bringing them forward to June or putting them off to next year. Apart from some minor volatility on their release there has been little effect on precious metal prices.

The next chart is of the gold price in the other three major currencies since 31 December 2014

Precious metals rally consolidates - gold price 31 Dec 2014

In terms of gold prices, the best performance has been in weakening euros with gold up 11.4% so far this year. The European central Bank announced it would look to accelerate its bond purchases in the short-term, leading currency markets to conclude that economic conditions in the Eurozone are weaker than expected, and with the deteriorating Greek situation euro weakness should come as no surprise.

Finally, it is worth drawing attention to developments on the Hong Kong Stock Exchange, where first Hanergy Thin Film fell 47% on Wednesday, wiping $18.6bn off its capitalisation before trading was suspended. This was followed yesterday by a similar collapse in share price for Goldin Financial (Hanergy’s broker) and Goldin Properties, together wiping out a further $16.6bn.

These events are typical ahead of a speculative blow-off in markets, and while Hong Kong’s Hang Seng Index appears to have risen broadly in line with major equity markets, other smaller markets in the region reflect excessive speculation. For example, on the Shenzen Market equities are trading at an average of 67 times earnings, having risen by 12% this week alone, and there are instances of new listings rising more than ten or twenty times in less than a month of trading.

Therefore, there is a growing risk that Hong Kong and Chinese equities could become a financially destabilising risk in the region and possibly further afield, adversely affecting other markets and potentially precious metal demand.

Source: GoldMoney

Thursday, December 19, 2013

Gold Market Report - Thurs 19 Dec

 

Fed Tapering Whacks Gold, Spooks China, "Normalization" Challenged by US Earnings

WHOLESALE London gold sank against all currencies Thursday morning, falling 1.9% vs. the Dollar to hit 6-month lows after initially trading flat overnight despite the US Fed finally reducing its $85 billion per month in asset purchases.

Cutting next month's quantitative easing of US mortgage and longer-term government bond rates to $75bn, the Fed pointed to "growing underlying strength in the broader economy."

US stockmarket indices the S&P500 and the Dow surged to new all-time closing highs, while Treasury bonds fell and spot gold fell through this week's previous low at $1230.

Besides the taper, however, the Fed revised its policy on short-term interest rates, saying it will hold the federal funds rate at zero "well past the time" that the US jobless rate falls to 6.5%, its previous line in the sand.

Overnight in Asia, Japanese shares rose but Chinese stocks fell as the People's Bank of China broke its own rules and took to Weibo, the equivalent of Twitter, to announce a "short-term liquidity operation" after Shanghai's interbank lending rate jump above 10%.

The PBoC usually waits a month before reporting such moves, says the Financial Times.

"It's very clear they want to calm down market fears," the FT quotes ANZ analyst Zhou Hao, noting the previous spike in Chinese interest rates in June, when US Fed chairman Ben Bernanke spoke about possible QE tapering.

Shanghai gold today fell 0.8% in Yuan but increased its premium over international prices from $6 to $11 per ounce.

Amongst Western investors, "More sensible minds realise," says a note from David Govett at brokers Marex, "that on the whole [the Fed news] is not a good move for the precious complex.

"With further tapering probably to come over the course of next year, the outlook remains muted. However, I don't subscribe to the theory that it's all over for the bullion market [and] would be a buyer of dips if we do manage to break below $1200."

Bids in London's wholesale market briefly dropped below that level Thursday morning, hitting a 6-month low of $1199.75 per ounce.

Priced in Sterling and Euros, wholesale gold bullion fell to its lowest since spring 2010, down 29% and 31% respectively from the start of 2013.

Silver tracked gold in Dollars, briefly falling below $19.30 per ounce – a "key level" according to technical analysts at one bullion bank.

Fed tapering "highlights the overall positive sentiment towards the macro economy," reckons UBS analyst Joni Teves.

"Equities are in fierce competition with gold for investor dollars, and this year's trend of rotation away from gold into growth assets is expected to continue into 2014."

"This is another sign of increasing normalisation for the world economy," agrees Matthew Turner at Macquarie Bank. "Gold's insurance function is less desirable in that environment."

"But if the economy is accelerating as people think," counters Albert Edwards in his latest Global Strategy Weekly for clients of French investment and London bullion bank Societe Generale, "how come Thomson Reuters has just reported the fastest pace of US earnings downgrades on record?

"If we are set for a profits-driven economic slowdown, then the low rate of core inflation will start to become a key concern. Deflationary forces are in fact stronger than even the latest [official data] suggests."

Adrian Ash

BullionVault

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Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can fully allocated bullion already vaulted in your choice of London, New York, Singapore, Toronto or Zurich for just 0.5% commission.

(c) BullionVault 2013

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Wednesday, September 26, 2012

Central bank measures, currency devaluation bode well for gold-Pat Mohr

Base metals prices have rallied significantly this month, along with a rebound in spot iron ore prices, as risk appetite has returned to financials, says Scotiabank's Patricia Mohr.

Central bank measures to improve a struggling world economy lifted investor and business confidence this month-"triggering renewed interest in ‘riskier assets,' such as equities and commodities," said Scotiabank economist Patricia Mohr.

In the September 25th edition of the Scotiabank Commodity Price Index, Mohr advised that the near-term boost to global growth will likely be limited, "QE3 has significantly pushed down the U.S. dollar, lifting dollar-denominated commodity prices across a wide swathe."

"An aspect of competitive currency devaluation has also emerged in the aftermath of the Fed and ECB monetary policy initiatives, with Japan, Turkey, and Brazil injecting liquidity into financial markets to push down rates and prevent their currency from appreciating," she said.

"These developments all bode well for gold," Mohr advised. "High gold and silver producers benefit most base metals producers, with high by-product credits from precious metals offsetting rapid operating cost inflation."

"Base metals prices have all rallied significantly in September, with ‘risk appetite' returning to financial markets," Mohr noted. "LME copper prices surged as high as US$3.81 per pound in the immediate aftermath of the September 13 FOMC [Federal Open Market Committee] meeting, though prices have fallen back again to US$3.70 later in the month."

Earlier this month, China's National Development and Reform Commission (NRDC) announced a US$160 billion infrastructure spending program on subways, highways, port terminals and civil projects. "While the program is only one-fourth the size of the massive RMB 4 trillion stimulus offered in November 2008-to rev up China's economy during the ‘Great Recession'-it is significant and should help revitalize industrial activity in the next six months," Mohr observed.

"Spot iron ore prices have rallied back over US$105 in mid-September amid lower stock, a normal seasonal pick-up in steel demand in the Fall and the unveiling of an infrastructure spending program by the NDRC," said Mohr.

"The sharp decline in iron ore prices from an enormously lucrative US$187 per tonne in February 2011 (-44%) has triggered the deferral of some iron ore developments in Western Australia and may lead to a pick-up in M&A activity," Mohr advised. "Asian-Pacific investors will wish to take advantage of lower equity values, though with widely differing views on asset values, deals may be limited to minority stakes in projects in return for off-take agreements, guaranteeing supplies."

Friday, September 21, 2012

Gold rises above $1,770 as bank stimulus cheers buyers

Prices climbed above $1,770/oz on Friday as hopes that central bank measures to stimulate growth will boost liquidity, fuel inflation and keep interest rates very low.

Gold rose back above $1,770 an ounce on Friday as expectations that central bank measures to stimulate growth would boost liquidity, fuel inflation and keep interest rates at rock bottom put the metal on track for a fifth straight week of gains.

Gains in other markets also supported bullion. European shares and the euro rose back up and oil rebounded from a 1-1/2 month low as investors moved back into markets still feeling the benefits of central bank support measures.

Spot gold was up 0.4 percent at $1,773.44 an ounce at 0945 GMT, while U.S. gold futures for December delivery were up $6.10 an ounce at $1,776.30.

The Bank of Japan is the latest central bank to unveil easing measures this week, after the Federal Reserve announced an aggressive asset purchasing programme and the European Central Bank unveiled plans this month to buy bonds of the bloc's heavily indebted countries.

The Fed move in particular, which will see it buy $40 billion a month in mortgage-backed debt until the outlook for the labour market improves, helped push spot gold to 6-1/2 month highs at $1,779.10 an ounce.

"With the open-ended scheme to print as much dollars as needed until the U.S. economy recovers, gold's uptrend has fewer barricades on the way at least to earlier highs," Richcomm Global Services senior analyst Pradeep Unni said.

"Charts hint at a major resistance at $1,787-$1,790, where we have failed thrice earlier," he added. "Thus, consecutive closing above $1,790 will be a necessity to avoid a profit-taking correction."

The Fed measures have boosted interest in gold exchange-traded funds, popular investment vehicles that issue securities backed by physical metal.

Holdings of ETFs tracked by Reuters, which includes the SPDR Gold Trust and products operated by London's ETF Securities and Zurich Cantonalbank, have risen 272,302 ounces so far this week, though they have retreated from record highs.

"Once again, the rise in prices has gone hand in hand with inflows into ETFs," Commerzbank said in a note.

STRIKE REPORTED AT ANGLOGOLD

Disruption in the South African mining industry, which earlier this month helped drive platinum prices to levels not seen since late February, showed signs of spreading on Friday.

Workers have embarked on an illegal strike at a mine run by world No. 3 bullion producer AngloGold Ashanti, a company spokesman said on Friday. He said the mine has 5,000 workers and that strikers had not yet communicated their demands.

The disruption comes a day after thousands reported back for work at platinum producer Lonmin after a wage hike deal was reached to end six weeks of industrial action and protest in which 45 people died.

"Headlines out of South Africa continue to capture market's attention despite the agreement reached at Lonmin this week," UBS said in a note. "On the one hand, the end of the nearly six-week-old strike is a positive development as operations can now begin to normalise."

"But on the other hand, the company has now deemed to have set a precedent, with the workers' successful call for wage increases likely to fuel discontent elsewhere," it added. "This puts pressure on other producers to face the same calls and so places further supply risks for platinum over the weeks ahead."

Spot platinum was up 0.6 percent at $1,631.25 an ounce. Among other precious metals, spot palladium was up 1.4 percent at $669.47 an ounce, while spot silver was up 0.6 percent at $34.78 an ounce.

Data from Chinese customs officials showed China's silver imports fell 3.4 pct on the year to 304,216 kg in August, while the year-to-August number dropped 25 percent.

Palladium imports fell 31.53 percent on the year, but platinum imports jumped 43 pct. (Editing by Hugh Lawson)

Source: Reuters 2012

Sunday, September 16, 2012

Fed's aggressive, open-ended QE3 program makes gold a big winner

Analysts concur that gold will hit at least $1,800 by November and silver and PGMs will be among the biggest winners of the Federal Reserve's new third quantitative easing program.

The Federal Reserve's announcement Thursday that it would purchase buy an additional $40 billion per month in mortgage-backed securities, increasing its holdings of longer-term securities by about $85 million each month through the end of the year, as well as keeping interest rates "exceptionally low" until 2015, sent investors running after gold and silver.

Gold futures rose to $1,773.10 per ounce, while silver jumped 6% to $34.78 per ounce.

"Expectations of a stronger U.S. economy resulting from this policy should help industrial demand for industrial base and precious metals, as well as, gold," TD Securities' Bart Melek advised. "The tighter supply/demand conditions should move prices higher, possibly above their respective cost structures."

The uptick in gold and silver also boosted copper to $3.74 per pound, as December palladium rose $9.70 to $689 per ounce. October platinum increased $29.90 to $1,679.50 per ounce. The world's largest bullion ETF, SPDR Gold Shares hit its highest price since February, closing at $171.31 per share while the iShares Silver Trust closed at $33.61 per share, up 4.35%.

TD Securities said it thinks that gold, silver and PGMs will be among the biggest winners from the Fed's commitment to growth. "We see gold jumping to well over $1,800 by year end. The Yellow metal hitting daily highs of around $2,000 is now entering the realm of possibility over the next nine months or so."

"Silver could hit the $38-40 territory, platinum $1,900, while a daily high of some $950 for palladium is also a real possibility by the second half of 2013," said TD Securities.

Analysts interviewed by various news organizations also advised that the Fed's move was supportive for the gold market. Sterling Smith, Citibank futures specialist, told Kitco $1,800/oz gold could occur by early November.

"Gold, in a way, is a pure currency, and that makes it the most interesting and the most favored when we see this type of situation" with quantitative easing, Smith told Bloomberg.

An unidentified U.S. trader told fastmarkets.com. "Gold is the obvious and biggest beneficiary here, which is to be expected after this kind of announcement. It now looks like $1,800 is a near-certainty and the all-time high-water mark ($1,919) could be challenged right around the U.S. presidential election in November."

"Perhaps the most important feature of this FOMC announcement is its open-ended nature," said TD Securities' Melek. "One important bit of communication that they headlines have not talked about, but is very important to gold and other commodities, is the pronouncement that ‘the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens' as it implies willingness to tolerate inflation risks."

"Gold is a big winner, as the opportunity cost of holding zero yielding assets decreases with this over the longer term," Melek advised.

SOURCE : REUTERS

This is the time to buy junior and mid tier golds - but be discriminating

Rising gold price and juniors facing funding crunches are among the factors fueling a spate of M&A activity. Aleksandra (Sasha) Bukacheva*, shares her criteria for targets in the sector with The Gold Report.

The Gold Report: Sasha, what are four or five must-haves for investing in junior mining companies in today's market?

Sasha Bukacheva: To start, I prefer metal producers to developers and explorers, especially in this market.

In terms of specific criteria, number one is quality of the asset base. To me, that means mines with the higher grades and healthy volumes to sustain operations for at least 10 years. Second, I want companies that have manageable growth. A company should be able to deliver growth at a reasonable price and not overspend on a new mine with lower return on capital. Third, I like companies that are unique in some way: in their commodity exposure, exceptionally high grade or mine concentration in a friendly jurisdiction. My fourth criterion is a good management team; the assets are only as good as the people who run them. Fifth is low political risk; everything else being equal, a company with a project in Nevada is more appealing than the one in Ecuador. It's rare that you can find a company that fits all of these parameters, but it's a good frame of reference.

TGR: You cover several companies operating in Argentina. Do you consider Argentina to have low jurisdiction risk?

SB: No, I do not, but Argentina has world-class projects that you might not be able to source elsewhere. By world-class, I mean copper assets that are among the world's largest in the north and exceptionally high-grade precious metals deposits in the south, in the Santa Cruz Province.

Argentina has a fairly long history of mining. There have been years when the mining industry has done well and there are years, like 2012, when the government's policies and decisions have challenged the mining industry. Ultimately, my view is that regimes and policies change, but the quality of the asset base does not. I am willing to hold a company that has a good asset and accept higher political risk as a trade-off.

TGR: Did the European Central Bank's (ECB) move to buy government bonds on the open market change your outlook on the companies you cover?

SB: Absolutely. Everyone has been sitting on the sidelines waiting to see what will happen in Europe and China. The ECB's move was very encouraging. It demonstrates political will to inject stability and is an indication of a more concerted effort in Europe. Any additional stimulus in Europe or China would likely be encouraging for growth, which would be good for commodity prices, which in turn would be good for the mining equities.

TGR: Do you think it could raise the target prices of some of your companies?

SB: Most of my companies still have a way to go to reach my target prices. I am comfortable with my target prices because they are based on certain long-term price assumptions that forecast a slightly more stable world than the one we live in today. I have not changed my commodity prices either. I may revise my price deck in a few months if necessary.

TGR: In addition to the good news from the ECB, we are seeing more quantitative easing from the Federal Reserve. There also is a new round of merger and acquisition (M&A) activity in the small-cap junior precious metal space. Does this signal the start of serious M&A activity?

SB: It looks that way. It makes perfect sense because there has been a valuation disconnect between certain producers trading at higher cash-flow multiples and others trading at lower cash-flow multiples.

A lot of producers see higher gold prices as an opportunity to pull the trigger on an acquisition. But the rationales can vary a lot.

TGR: Is there a pattern or theme among these takeover offers?

SB: In addition to the disconnect in valuation among producers, there is an even greater disconnect between companies with cash flow and those without. Juniors without a source of internally generated funds depend on the market for new equity, and investors are rather skeptical about their ability to source that.

TGR: Are the boards and the management teams of these junior companies now more amenable to takeovers, given the market?

SB: A lot of the juniors feel they are up against the wall and do not have a lot of choice. They have to either take an offer or discontinue their existence as a going concern. Given that choice, management will probably pick an offer that allows them to preserve some sort of value.

We have been encouraging clients to go into bigger caps because of the increased liquidity. Juniors can provide higher returns, but if you need to sell for any reason, whether it is related to your view on stock fundamentals or not, it is a lot harder to move some of those smaller names. And I favor producers in this market environment and they generally have higher market caps.

TGR: Is this move into midtier miners something more brokerage houses are going to do, given the liquidity issues in the small-cap space?

SB: Every brokerage house makes its own decisions. At Fraser Mackenzie we have a lot of freedom to pick the names that we like. However, to me there is more value in intermediates than in majors. I think intermediates right now are a better place to be because they're better cashed up. Their operating track record is a little bit more stable than that of the juniors. They have a better asset base and are better positioned to weather the storm than some of the juniors. Certain intermediates that have better assets or nice growth profiles are more accretive to shareholders because it moves the needle for them.

TGR: Any advice for retail investors in this market?

SB: The best advice is to not be complacent. You have to know your companies and understand why you are buying a specific stock. You need to know the catalysts, and most important, you have to understand the risks and not be afraid to sell if you have to.

Investors ought to look at their portfolios and steer clear of anything that might not hold up for 12 months if that company cannot raise money.

If you ask me, this is the time to buy. This is not the time to sell. But be very discriminating in the companies you want to get behind.

TGR: Sasha, thank you for your time and your insights.

*Aleksandra (Sasha) Bukacheva is a mining research analyst with Fraser Mackenzie, covering precious and base metals producers and development-stage companies. Previously, Bukacheva was a part of the Mining Equity Research team at Haywood Securities in Vancouver. Prior to that, she was vice president of finance and administration for a TSX.V-listed junior mining company and worked at Brendan Wood International as head of the energy sector. Bukacheva is a CFA Charterholder and holds a Master of Science degree from the London School of Economics and Political Science.

Source: The Gold Report

Friday, September 14, 2012

Gold Market Report - 14 September

"Inflation Risks Higher" After Fed Launches QE3, Analysts See Gold Hitting $1850-$1900

WHOLESALE MARKET gold bullion prices held above $1770 an ounce for most of Friday morning's London trading, near their six-month highs hit after the US Federal Reserve announced a third round of quantitative easing (QE3) yesterday, leading to warnings that the risk of inflation has risen.

"After the move [gold bullion] had, not just yesterday, but over the last two or three weeks I think it would be natural to look for a period of consolidation," says Credit Suisse analyst Tom Kendall in London.

"But certainly going into the back end of this year, I would be looking for gold to be getting towards at least the $1850 level."

Silver bullion traded around $34.70 an ounce this morning, also close to new six-month highs, as stocks, commodities and the Euro all moved higher after Fed policymakers voted 11-1 in favor of new asset purchases.

"Silver is poised to test the next resistance level at $35.4," one trader in Shanghai tells newswire Reuters. 

"The recent rally, which has lifted silver by about 25% over the past month, is suppressing short-term physical demand"

The Fed announced Thursday that it will purchase $40 billion of mortgage-backed securities per month, and will continue such purchases until the outlook for the labor market improves "substantially".

In addition, the Fed will continue its policy aimed at lowering longer-term US Treasury bond yields, known as Operation Twist, due to run until December. The Fed will also continue its policy of reinvesting principal payments on currently-held mortgage-backed securities back into this asset class.

In its statement, the Federal Open Market Committee said that the combined effect of its actions would amount to around $85 billion of asset purchases per month until the end of 2012.

"This is a Main Street policy, because what we're about here is trying to get jobs going," Fed chairman Ben Bernanke told a press conference following the announcement.

"We're trying to create more employment. We're trying to meet our maximum employment mandate, so that's the objective."

"[Bernanke will] fight and fight until he sees a real improvement in the economy," says Ethan Harris, New York-based co-head of global economics at Bank of America Merrill Lynch.

"He's not going to let his critics stop him. He believes quantitative easing can help the economy and the Fed can avoid inflation, so he'll just keep at it until there's a real turn in the economy."

The latest nonfarm payroll data suggest the US economy added 96,000 jobs in August, below the 150,000-200,000 Bernanke estimated in April is needed to meet Fed unemployment projections.

The US unemployment rate meantime has remained above 8% since February 2009.

"There is not a specific number we have in mind [for unemployment]," Bernanke told reporters.

"But what we've seen in the last six months isn't it."

In addition to announcing asset purchases, Fed policymakers extended their guidance for near-zero interest rates to at least mid-2015, beyond the previous guidance of late 2014.

US Treasury bond prices fell overnight for bonds with maturities of three years or more, pushing longer-dated yields higher.

"[The Fed's decision to leave] purchases open-ended and extending their guidance means a steeper yield curve, as there is more inflation risk," says Societe Generale trader Sean Murphy in New York.

"The need to come out with the operation at all is alerting everyone that there is a long road in this recovery and there are still many things that need to be addressed."

"Controlling the fire of inflation once it is roaring is a difficult task," warns Congressman Kevin Brady, a Republican from Texas and vice chair of the Joint Economic Committee.

"The Fed is overly confident about its ability to pick the right time to withdraw all this stimulus."

Economist Paul Krugman however says that it's "good to see the Fed moving, finally".

Writing in his New York Times column, Krugman adds that "the Fed seems to be trying to 'credibly promise to be irresponsible'" as a way of raising inflation expectations, something Krugman advocated the Bank of Japan do back in the 1990s.

"As [Bernanke] himself said," adds Neal Soss, chief economist at Credit Suisse and a former New York Fed economist, the Fed has built up a lot of capital with respect to inflation credibility...the point of having capital is, from time to time, to spend it."

"Should the Fed expand its balance sheet by a further $1.3 trillion," says Standard Bank strategist Walter de Wet, "it would lift our fair value estimate for gold to around $1900. As a result, even from current levels of gold at $1770, we still see substantial upside for the metal."

Here in Europe meantime, Spain would be "daft" to ask for a bailout on top of the €100 billion it has already agreed to fund banking sector restructuring, according to German finance minister Wolfgang Schaeuble.

"I'm not in the camp that says 'take the money,'" Schaeuble said in an interview Thursday.

"I'm one of those who says we should do everything possible to convince the markets that...speculation against Spain is without any basis in reality."

"Our desire and intention," said Spain's budget minister Cristobal Montoro yesterday, "is to return again to being a reliable partner in Europe that doesn't ask for anything."

On the currency markets, the Euro rallied above $1.31 against the Dollar for the first time since early May this morning. Despite this strengthening, Euro gold bullion prices set a record high at Friday morning's London Fix above €1359 per ounce, before drifting lower towards lunchtime.

Ben Traynor

BullionVault

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Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK's longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics. Ben writes and presents BullionVault's weekly gold market summary on YouTube and can be found on Google+

(c) BullionVault 2012

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Wednesday, September 12, 2012

Rob McEwen: gold should be in your portfolio and it's going to $5,000

In an upbeat presentation at the Denver Gold Forum, Rob McEwen forecast that gold is going to $5,000, while setting out the path forwards for the company which now bears his name - McEwen Mining.

This year's Denver Gold Forum kicked off yesterday morning and one of the early speakers was Rob McEwen of McEwen Mining. He has a great name in the industry due to his long term stewardship of Goldcorp, which was largely responsible for building the gold mining major to the strong position it holds today. Nowadays he runs McEwen Mining - a U.S. headquartered and quoted developing gold producer for which he has the avowed intent of bringing into the S&P 500 by 2015 - and with one gold/silver mine in production, a second just starting up with its first gold pour expected in a matter of weeks, a third in permitting and a very significant copper/gold/silver project at the exploration stage he may be well on his way to achieving this aim.

But it is perhaps as an avowed believer in gold that McEwen attracts a strong following at a conference of this type, perhaps the most significant annual gold event in the calendar- and he opened his presentation with a strong statement of his beliefs in this respect.

"Understand This! Gold is Money" was his opening statement with a strong recommendation that investors should have gold in their portfolios now, before then showing a slide giving his assessment of the loss of purchasing power of all major currencies against gold over the past 11 years of the gold bull market. According to the slide the best performing currency against gold was the Australian dollar which had only lost 68% of its purchasing power vs gold over the period - while the joint worst performers were the U.S. dollar and the South African Rand, both of which had lost 85% against gold. This is one interpretation that can be drawn from the dramatic rise in the gold price over the period But regardless it did serve to make the point that an investment in gold would have served investors well in virtually any currency.

In McEwen's view, currency purchasing power will continue to erode through out of control debt accumulation by virtually all major governments - indeed he showed another chart showing the virtually identical growth performance of gold .against that of the rise in U.S. national debt with government continuing to debase their currencies through their current economic policies.

He also pointed to an interesting correlation between the performance of gold stocks in U.S. Presidential election years and the XAU index invariably falling vis-a-vis gold itself in these years. And, with the actual election date drawing nearer he felt that gold stocks will be due for a revaluation upwards once the political posturing by the two main candidates is over and a recovery into what he sees as a great purchasing opportunity in gold stocks. "Now is the time to commit" says McEwen. "gold is going higher - to $5,000".

McEwen does have a pretty good track record in this respect. One remembers that when gold was sitting at around $700 only a few short years ago, he was adamant that it would soon hit $1,000 when to non gold believers this seemed unlikely, yet only a few short months later the gold price did indeed rise above that level.

On McEwen Mining, which was formed from the merger of Minera Andes - which he described as a gold producer with no growth pipeline - and U.S. Gold - which had a growth pipeline but no production, making an ideal fit, he outlined the path forwards with a planned production growth from its first three mines of almost 3x by 2015 from a current 105,000 oz to 290,000 oz gold equivalent.

All the company's main properties are located in the Americas - one each in the U.S, Argentina, Mexico and Chile, which he felt were all good environments, although he did have some doubts about the prospects for getting profits out of Argentina, the location of the current flagship San Jose silver/gold mine - a jv between McEwen Mining and Hochschild with the latter as operator. But the major growth prospects are the El Gallo silver/gold complex in Mexico - for which the main expansion feasibility study has just been completed - and then Gold Bar in Nevada - a past producer which is moving through permitting with first production as a low cost heap-leach operation due on stream in 2015. Meanwhile, waiting in the wings is the potentially enormous Los Azules copper project in Chile which McEwen claims to be the highest grade major undeveloped copper project in the world and with the 7th largest resource. There may be some creative statistical selection to come up with that particular assessment, but it is, nonetheless a potentially very significant copper project indeed.

But again it is gold that is McEwen's main focus - nowadays tempered with silver which is perhaps something of a change in his viewpoint from his Goldcorp days. He also points out that McEwen Mining has no debt, a young, talented management team, a development strategy that is unfolding as planned and a good production growth profile. And, with a huge personal investment in it, he is putting his money where his mouth is - a sign of real belief in the future of the company which bears his name.

Wednesday, August 29, 2012

Gold Market Report – 29 August 2012

Bernanke Disappointment "Could See Gold Correct", ECB "May Need to Take Exceptional Measures" says Draghi

WHOLESALE gold prices dipped below $1665 an ounce during Wednesday morning's London trading, slightly below where they started the week, while stock markets also edged lower, with markets focused on upcoming meetings of central bankers in the US and Europe.

Silver prices fell to $30.76 an ounce – in line with last week's close – as other industrial commodities also ticked lower, following news that iron ore prices in China had dropped for the 13th day in a row.

On the currency markets, the Euro held its ground above $1.25 this morning, with two days to go before Federal Reserve chairman Ben Bernanke gives a speech on monetary policy at the annual Jackson Hole conference of central bankers.

A number of analysts have already predicted that the Fed will announce further monetary easing when it meets in a fortnight.

However, "the Jackson Hole conference is not the forum for Bernanke to make any strong commitment to easing," reckons Marc Ground, commodities strategist at Standard Bank.

"[But] this will not prevent the market from attempting to 'read between the lines' — leaving room for all manner of interpretations and price responses."

"In terms of further easing, nothing has been decided," Federal Reserve Bank of Dallas president Richard Fisher, a non-voting member of the Federal Open Market Committee, said Tuesday.

"Nothing is predestined."

"Gold prices could correct, possibly abruptly and steeply, should Bernanke's speech again hint of distancing the Fed from further monetary policy easing," says James Steel, chief commodities analyst at HSBC.

"We see near-term risks of a reversal if Jackson Hole does not deliver what the market is hoping for," agrees Nick Trevethan, senior metals strategist at ANZ.

European Central Bank president Mario Draghi has cancelled his scheduled Jackson Hole appearance, citing a heavy workload. The ECB's Governing Council holds its monthly policy meeting next week, where it is expected to outline plans to stabilize the Euro, which could include intervention in sovereign debt markets.

In an interview published by Der Spiegel on Sunday, German Bundesbank president Jens Weidmann warned that "central bank financing can become addictive like a drug".

"The role the ECB appears ready to take on will overburden the central bank," added Juergen Stark, former ECB chief economist who resigned last year, in an opinion piece published by newspaper Handelsblatt Tuesday.

"[It] will allow its independence to be further eroded by politics...and ultimately, the central bank will no longer be able to fulfill its core task of delivering price stability. There is the risk of higher inflation – not today, not tomorrow, but in the medium- to long-term."

"It should be understood," counters Draghi in a piece published in Die Zeit today, "that fulfilling our mandate sometimes requires us to go beyond standard monetary policy tools...this may at times require exceptional measures."

Elsewhere in Europe, Catalonia has become the third Spanish region to ask Madrid for a bailout, saying it will ask for €5 billion.

Earlier this week it was reported that the national government has agreed to regional spending plans that would see them exceed agreed budget deficits by up to 10%, according to the Financial Times. Spain's prime minister Mariano Rajoy however insisted Tuesday that his government is not negotiating a bailout.

Spanish banks saw private sector deposits fall at a record rate in July, according Bank of Spain figures published yesterday.

Here in the UK, Britain's richest people should pay an emergency tax to avoid a breakdown in social cohesion, according to deputy prime minister Nick Clegg, who leads junior coalition government partners the Liberal Democrats.

"If we are going to ask people for more sacrifices over a longer period of time...then we just have to make sure that people see it is being done as fairly and as progressively as possible," Clegg says in an interview with the Guardian Wednesday.

The volume of gold bullion held to back shares in the SPDR Gold Trust (GLD), the world's largest gold ETF, rose to its highest level since March yesterday, hitting 1289.5 tonnes.

By contrast, the volume of silver bullion held by the world's biggest silver ETF, the iShares Silver Trust (SLV), fell slightly to 9763.5 tonnes.

Ben Traynor

BullionVault

Gold value calculator | Buy gold online at live prices

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK's longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

(c) BullionVault 2012

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Gold Market Report - 28 August 2012

Will Push Gold Higher", But Euro Problems "Haven't Disappeared"

from Ben Traynor

BullionVault

Tuesday 28 August 2012, 07:15 EDT

Fed Easing Discussion "Will Push Gold Higher", But Euro Problems "Haven't Disappeared"

SPOT MARKET gold prices traded just above $1660 an ounce during Tuesday morning's London session, a few Dollars down on last week's close, while stocks and commodities were also broadly flat on the day and US Treasuries gained.

Silver prices rallied to nearly $31 per ounce, having fallen back through that level a day earlier, before easing back towards lunchtime.

"Although in an uptrend, gold does not appear as technically strong as silver," reckon technical analysts at Scotiabank.

On the currency markets, the Euro climbed back above $1.25, having dropped below that level during Tuesday's Asian trading, with analysts continuing to speculate on the prospects for a third round of quantitative easing (QE3) from the Federal Reserve.

Over the weekend, the leaders of France and Germany, the Eurozone's two largest economies, both said they wish to see Greece remain in the Euro.

"For me, the question should no longer be asked," said French president Francois Hollande, following Saturday's meeting with Greek prime minister Antonis Samaras.

"Greece is in the Eurozone."

"I want Greece to remain a part of the Eurozone," said German chancellor Angela Merkel a day earlier.

"We expect from Greece that the promises that were made are implemented, that actions follow words."

Greece is asking for a two-year extension to meet its commitments to austerity measures, and has proposed issuing short-term T-bills to cover the estimated €18 billion funding gap this would create.

Representatives of the 'troika' of lenders – the European Central Bank, European Commission and International Monetary Fund – are due to visit Greece next month to report on the government's progress towards its commitments, although their report may not be published until October, a Commission spokesman said Monday.

"It's not in German interests to kick Greece out of the Eurozone," says ING economist Carsten Brzeski in Brussels, speaking to Bloomberg.

"Everyone realizes that it's in the German interest to solve the crisis. At the same time, [Germany has] become weak enough to show them that they're not an economic island anymore."

"The Eurozone has been quiet of late, but that doesn't mean the problems have disappeared," adds Jeffrey Rhodes, global head of precious metals at INTL FCStone.

"The US economy has been sluggish and there is a growing belief that there is going to be QE3 soon. This anticipation is driving the market."

"We expect the Fed to ease policy further in September," agrees Steve Barrow, head of G10 research at Standard Bank, adding that easing could take one of various forms, such as QE, cutting rates interest rates on banks' excess reserves, or extending the length of time the Fed says it expects rates to stay at historic lows.

Fed chairman Ben Bernanke is due on Friday to give a speech on 'Monetary Policy Since the Crisis' at the annual Jackson Hole conference of central bankers. It was at this even two years ago that Bernanke hinted at a second round of quantitative easing, which the Fed implemented a few weeks later.

"We expect there to be QE3 by September and gold will move substantially higher," says Philip Klapwijk, global head of metals analytics at consultancy Thomson Reuters GFMS.

"More cash is coming into the market from investors...ETF demand has picked up and will continue to grow as prices rise."

Last week saw the world's largest gold ETF, the SPDR Gold Trust (GLD), add nearly 12 tonnes of gold bullion, taking the total to 1286.5 tonnes, the highest level since April.

On New York's Comex meantime the difference between bullish and bearish contracts held by gold futures and options traders – known as the speculative net long position – jumped by nearly a fifth in the week ended last Tuesday, according to weekly data published by the Commodity Futures Trading Commission.

Russia's central bank added 18.6 tonnes of gold to its reserves in July, according to IMF data published last week. Kazakhstan, Kyrgyz Republic and Ukraine also opted to buy gold, while Guatemala and Mexico reduced their holdings. 

Turkey, whose reported official reserves includes gold held at the central bank by commercial banks, saw its gold reserves grow by 18% in July, the IMF data show.

"There's a lot of talk of gold coming back as a safe-haven asset," says Bernard Sin, head of currency and metal trading at Swiss refiner MKS. 

"As long as the QE3 discussion is on the table, gold will continue to trade higher."

Ben Traynor

BullionVault

Gold value calculator | Buy gold online at live prices

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK's longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

(c) BullionVault 2012

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Sunday, August 26, 2012

Indian gold imports under threat from price rally

Gold imports are set to fall further this year as global bullion prices are driven higher by surplus cash in the market and by a weaker dollar, delegates at a major conference on the metal said on Friday.

As it is the biggest consumer of bullion, India's demand has traditionally been a key determinant of gold prices, although it has been overtaken in recent years by the weight of Western investors seeking sanctuary from the global financial crisis.

Speculative and investment demand has led prices to more than double since 2008, curbing purchases from price-sensitive Indian buyers. India's gold imports in the second quarter plunged more than 56 percent on the year to 131 tonnes, according to industry body the World Gold Council.

"For the gold price (rally) to continue, someone else would have to step in to replace India," said one London-based bullion banker attending the International Gold Convention in Hyderabad.

"Investors in America or in Europe might step in and make up the difference, but it (India's falling consumption) is something that will have a negative impact on the gold price."

Gold prices, currently near $1,670 an ounce, are set to end Friday with their biggest weekly rise since early June, up 3 percent, after minutes of a Federal Reserve meeting showed the US central bank is set to deliver another round of monetary stimulus "fairly soon" unless the country's economy improves considerably.

"Gold is very sensitive to statements from the central banks, largely from the US Federal Reserve and European Central Bank," said Sunil Kashyap, managing director and head of Asia Pacific and Middle East at ScotiaMocatta.

Kashyap pointed to a perception that gold is a hedge against the inflation that could result from looser monetary policy.

"The logic is, if there is more money in the system, there is potential for inflation in future."

Philip Klapwijk, global head of analytics of the London-based consultancy GFMS, said gold prices could peak at $1,800-$1,850 an ounce by the end of 2012 as demand in China, the second largest consumer, continued to increase.

"We expect prices to continue to rise in the next few months," he said. "If you have China further cutting interest rates to stimulate the economy, then Chinese investors may buy more gold bars."

Kashyap said prices of the yellow metal were likely to consolidate in the range of $1,640-$1,700 an ounce until October, with an upside bias. He said the gold market will also look at demand from Diwali, India's peak festival season.

Government increased import duty for gold earlier in the year, from 1 percent to 2 percent, and then to 4 percent. One bullion banker said delegates at the conference were speculating that this may be raised further to at least 7 percent.

"They want to encourage more people to spend money on Indian goods and consume things in India that will help the economy, rather than have all this money tied up in gold bars and gold jewellery," he said. "The government sees gold as a dead asset."

Local dealers reported an increase in the amount of gold flowing into India unofficially, and scrap sales are on the rise as high rupee prices and a slowing economy result in a mass selling of jewellery in India, he said.

These factors may result in a repeat of the strike action carried out by jewellers in March, the banker added, particularly if the government further increases duties.

Silver prices could be at $35 an ounce by the end of the year, up 15 percent from the current levels, Klapwijk said, while prices of platinum, which has been a "star performer," are likely to touch $1,700 an ounce compared with about $1,550 now.

Monday, August 20, 2012

Expect junior and midtier gold stocks kickstart with $2,000 gold - coming soon

Michael Fowler* expects gold to finally break through the $2,000/ounce barrier into 2013 and how this should affect mining stocks. Gold Report interview.

The Gold Report: It seems that not much has happened in either the metals or mining shares markets since you last spoke with The Gold Report in March. What's it going to take to get people excited again?

Michael Fowler: Talking about gold, the price has been churning sideways. In my opinion, what's really going to get people excited is that the gold price should actually go up quite strongly into 2013. The other point is a moderation of some of the current cost pressures in the mining business. On the metals side, we've seen a lot of softness in worldwide demand but I think that coming into 2013, we're going to get a better metals market as China continues easing its monetary policy. So I see a pickup in demand coming into 2013.

TGR: We've experienced all sorts of conditions, events and expectations over the past couple of years that probably could or should have taken gold past $2,000/ounce (oz). What do you see on the horizon that will finally get some major money flowing into precious metals or have the rules changed due to some other factors that are not obvious?

MF: Gold essentially reacts to monetary liquidity and to the concept of depreciating currencies around the world. Looking at gold in terms of euros or some of the other currencies, it's done quite well. It just hasn't performed in terms of U.S. dollars. The thing that I see on the horizon is potentially a weakness in the U.S. dollar. This could come about from the U.S. having to raise its debt ceiling, or it could have something to do with the Federal Reserve coming up with Quantitative Easing 3, which could happen in the short term and probably within the next six months. So, a de facto weakness in the U.S. dollar is going to be an important factor for gold to go past $2,000/oz. I'm looking for that to happen in 2013.

TGR: It seems that no matter what happens, the dollar ends up being the refuge of last resort. People talk it down and complain about all of the debt problems and everything else. Yet, when they have a choice, they seem to flee into the dollar, which defeats the price of gold going up.

MF: That is the case now. There seems to be a lot of confidence in U.S. treasuries or the U.S. currency but, in a sense, that's probably a mistake. The debt situation is going to get some attention when the debt ceiling is hit again. It is certainly going to get some attention during or after the election in the U.S. I think people are going to start focusing on the U.S. situation more and more. For instance, the city of San Bernardino in California recently announced it was going bankrupt. These problems are all over the place in the U.S. I just think it's a matter of time before people are going to focus on it, and then some confidence is going to be taken out of U.S. assets and U.S. treasuries.

TGR: Turning to the mining industry, there have been some real surprises with the rising costs and changing economics with projects being put on hold and that sort of thing. Besides energy prices, what's causing these increases and is this temporary or a new built-in factor of concern?

MF: It's amazing that, although costs have been going up for the past 12 years, suddenly everybody is getting really excited about it. What's behind the rise, first and foremost, are labor costs, because there is a lack of qualified people in the industry. When the Internet bubble was hot, people were going into the high-tech sector rather than mining and other sectors. There's been a big exodus of baby boomers out of the business, such as mining engineers, explorers, etc., and a lack of qualified people to replace them. So it's a question of supply and demand. Apart from labor, there is power. Power costs have gone up along with reagents, steels, materials and lots of other input costs. Some of these things will abate but the labor issue is big and not just temporary.

TGR: These things eventually sort of self-compensate, but they do cause temporary problems in the short term.

MF: Companies are trying to find solutions here, such as putting into production higher-grade ore bodies, which will lower costs on a per-ounce basis. Also, the mining business probably has to rethink itself like the auto industry where car manufacturers source or even produce modules of cars in countries with a lower cost base. An example would be buying SAG mills and equipment in China or other countries. Companies are going to have to start moderating increasing costs, which are a main reason why gold stocks have done quite poorly compared to the gold price. The gold price really has to start outpacing cost inflation for us to get really excited about the sector again.

TGR: You spoke in the past about companies perhaps over-financing themselves at the wrong time. With most stock prices down, raising money for non-producing explorers and developers must be difficult in this environment. What's your perspective on that?

MF: There's a two-tier situation out there right now for explorers. Some companies, in my opinion, have raised much more money than they need for their programs over the next two years. I think that's a very bad situation with blame to go all around. Even the investment funds are over-financing some of these juniors. On the other hand, you have some juniors that don't have any money and are having a hard time financing their programs or even their overheads. It may take at least six months before they can go back into a market where they can actually finance themselves.

TGR: Would you consider the companies that have over-financed successful or maybe not so smart? I guess it depends on what prices they raised funding.

MF: At the time that they finance, they probably feel very smart and are probably very smug about it. In the past, we would raise money for these juniors for a year or two of exploration work, and then they would come back to the market and get judged on their performance. Now, some have enough money for many years of exploration.

TGR: We're in the summer doldrums now. When things do pick up, where do you think we'll get the best action among the different mining groups that you follow?

MF: In the gold sector, I would put the majority of my money in the junior to midtier producers. I'd also put money into some of the interesting turnaround and recovery situations. Our company focuses on the junior producers and explorers and I'd be putting roughly 15% of my money into that group. It's going to take some time for those companies to turn around, except for specific situations.

TGR: You don't think that the major producers are going to have the first shot at a little bigger movement?

MF: I think they will have better movement but, unfortunately, I don't think too much of some of the bigger-cap names. With what you see in their earnings and news coming out recently, they haven't been good at all. I'd avoid them.

The majority of my money would be in the junior midtier producers, emerging producers and some more or less turnaround producing situations. That would be the bulk of it. Then about 15% would be for explorers and developers.

TGR: There's been a real revival in eastern Canada among all these old underground mines that have been around for 50-100 years. The higher gold prices certainly changed the economics.

MF: Yes, they have, but costs have gone up as well. There is some potential for open-pit situations in that area and a lot of the companies are actually focused more on that than they were previously because, as you mentioned, they were mostly underground mines.

TGR: Maybe you can summarize what you're expecting in the precious metals markets, how that's going to benefit the mining shares over the balance of the year and what people should be looking at so they can get the biggest bang for their buck.

MF: As I mentioned in March, the industry is on sale. There is an even bigger sale going on right now. The valuations are cheap and it's a great time to invest in some good names. The catalyst, to my mind, is going to be a macroeconomic situation, which is ultimately going to weaken the U.S. dollar. We may be seeing that coming up into the fall, with a focus on the debt situation in the U.S.

I believe that the cost concerns in the industry will abate a bit here because energy prices have come down, but inflation is going to be a built-in factor going forward. I'm looking for the gold price to outstrip the cost inflation. So coming into 2013, I'm looking for a $2,000/oz gold price, which should provide some impetus for people to look at gold shares again. I think investors have to look for growth situations. There is a likelihood that some will be taken over. I wouldn't be despairing too much at the moment. Despair usually means opportunity, and I think the opportunity is right at hand.

TGR: Thanks for joining us today, Michael. We'll all be eagerly awaiting that $2,000/oz gold price to see where it takes us.

MF: Thank you, Zig.

*Michael Fowler, senior mining analyst with Loewen, Ondaatje, McCutcheon Ltd., has worked in the investment industry since 1987 as a base and precious metals mining analyst for numerous high-profile firms. His coverage list included the major North American gold mining companies, but is now focused on small- to mid-sized companies. Previously, Fowler worked as a geophysicist involved in mineral exploration for 10 years. He was involved in the discovery of the high-grade Cigar Lake uranium mine in Northern Saskatchewan in the early 1980s. Fowler holds a Master of Business Administration from Cranfield University, UK; a Master of Science in mineral exploration from Leicester University, UK; and a Bachelor of Science in geology with geophysics from Liverpool University, UK. He is a member of the Institution of Materials in the UK and a member of the Canadian Institute of Mining and Metallurgy.

Article published courtesy of The Gold Report

Friday, August 17, 2012

Gold and silver in short supply and highly leveraged in currency war

Ron Struthers* has crunched the numbers and his indicators have him thinking we will soon see gold move easily above $2,000/oz, taking silver higher with it. Interview with The Gold report.

The Gold Report: Last November, you talked about indicators you use to make investment decisions, mentioning the S&P 500, the PHLX Gold/Silver Sector Index (XAU:NASDAQ), the AMEX Gold BUGS Index (HUI:NYSE) and the TSX Venture Exchange. You recently predicted junior explorer stocks would stay low over the summer before recovering, along with the commodity price. What indicators are behind that, and do you foresee a dramatic rise or a gradual slope?

Ron Struthers: We have seen a downward correction in the market space, a deflation scare because of Europe, and that has been the theme for some time-a battle between deflation and inflation-while central banks print money to make up for a contraction in money because of imploding debt and slowing economies. But everything has corrected substantially; the senior gold stocks bottomed in May, and since then, gold has gone sideways. Gold stocks and the S&P 500 have rallied, but we've only seen part of a potential summer rise so far. Now the S&P 500 is at 1,400 and the high before the correction was 1,420. There will be substantial resistance, but the S&P 500 should rise above that.

On the correction, the S&P held its 200-day moving average and bounced off, forming pretty close to a perfect doji star reversal pattern. That's a strong candlestick indicator of a major bottom. With gold stocks measured by the AMEX Gold BUGS Index, we've seen the same doji star reversal pattern (that is a dark, down candle in a downtrend, followed the next day by a doji cross indicating indecision and the third day a long up or white candle); thus the predicted bottom during the early summer. A nice rally went into mid-June, came back down in mid-July and then bottomed close to the May bottom but above it, which makes sense, since the doji star reversal pattern indicates a bottom. The July lows were close enough for a double-bottom, meaning we have a strong base to rise from.

I closely watch the old Reuters Commodity Index, referred to as the Reuters Continuous Commodity Index (CCI), which has a strong correlation with the TSX Venture Exchange. It has been a constant measure of the same baskets of commodities and weighting, the only index for longer-term analysis. Most of the mainstream is fooled by the new Reuters CRB Index that is widely quoted in the mainstream press. It became a black box algorithm in 2005, constantly adjusting weightings every month, giving the perception of a better performing index. But that's far from the truth-it's just another modification to mask the inflation rate.

Meanwhile, while some say the commodity bull market is over, we are really seeing a correction in the continued bull market. The new CRB index has gotten nowhere close to its 2008 high, but the true measure of commodities, the CCI , reached well above the 2008 high of about 600. It fell back to 600 in late 2010 and went to a new high of almost 700 in 2011. The higher inflation scenario from excess money printing is alive and well.

Short term, both commodity indexes bottomed in May, and are moving steadily higher. The old CCI bounced off 500; now it is at 563, and it was 566 a few weeks ago. The bottom stands mainly because agriculture prices won't come down anytime soon, but there has been a strong correlation between both the CRB and CCI indices and the TSX Venture Index going back to 2008. We have seen a substantial rally in the CRB, so the TSX Venture should soon follow, and the move will be dramatic because the gold stocks and juniors are so depressed. They have not seen such low valuations since the 2008-2009 bottom, when there was severe panic in the market. We had an average gain of 155% in 2009 with gold stocks in my newsletter. I see the same opportunity now for late 2012 and 2013.

TGR: So this could be a sharp jump instead of a gradual increase?

RS: We could see a strong move over a six-month period, which most would consider short term.

TGR: How can you tell the difference between a correction and a turn toward a bear?

RS: I watch for several things in the long term. To be termed a bear, it should break substantially below a previous long-term low. The S&P 500 held above its 200-day moving average, so it didn't get into bear territory. You might call gold stocks a short-term bear market-the correction is about nine-months long. However, we have not broken down below the early 2010 low where the 2010-2011 rally started, so long term on a 5- or 10-year chart, we have not seen a lower low.

TGR: What impact could the presidential election have?

RS: Elections are not a factor. Whoever is elected will work for Wall Street and the big investment banks. There may be short-term reactions, but we will continue our course, with artificially low interest rates, quantitative easing and money printing until the bond market cracks and interest rates rise. The U.S. debt is bigger than Europe's; it just has not received the same attention.

In addition, the Federal Reserve will probably hold off quantitative easing (QE) until after the election. It wants to maintain the illusion of being unbiased and doesn't want to be seen as affecting the election. After its September meeting, something could change; it could argue that changes won't have an effect until after the election, but for now, it will stay the course and use the QE3 when they really have to-after the election.

TGR: You say it is easy to outmaneuver automatic trading systems. Does that impact the junior market, where volumes are lower and volatility can be affected?

RS: It is surprising that computer trading has entered the smallest juniors, even the thinly traded nickel and dime stocks, but computer trading is taking advantage of their volatility. With these little stocks, the programs look for ways to come between the buy and the sell and skim pennies. It sounds like nothing, but it is happening with thousands of stocks daily. Computer trading is also active in the higher priced juniors with more volume, trading between $0.50 and a few dollars a share; you will also see this with the huge amount of 100-share trades.

Something else happens with computers, but is attributed less often to automatic trading: that is severely shorting the junior gold stocks. In the past, we have seen short trading on the senior and midtier gold stocks, but now we see a lot of shorting on junior producers, too. Strangely, most of the short positions came at the bottom of the market in May /June, so it won't take much to put them underwater, and short covering could add fuel to a rally.

There has been a big increase in computer trading; there are more professional traders in the market and fewer retail investors. There are also more exchange-traded funds that hedge in a lot of these stocks. With the extensive shorting, we are either seeing intervention in the gold stocks or the reflection of strong beliefs that the gold bull market is over. However, in the latter case, they will be proven wrong, and that is why short covering could be substantial.

TGR: Last year you were liquidating your portfolio, based in part on the jump in the price in silver, and by extension, gold. Silver is now at $28/ounce (oz) and gold is still around $1,600/oz. How are you adjusting your portfolio to fit this new reality?

RS: Gold and silver often rally together and both are in short physical supply and highly leveraged-the same ounce of gold or silver has been sold 50-100 times. We are in a currency war. Countries are fighting to keep the fast-moving money in their currency to prop up their huge debt loads; gold and silver are competing currencies.

The U.S. has intervened to keep interest rates low, trying to keep the system afloat and intervening to keep the stock market up, but commodities and gold lower. Europe is doing the same thing. Meanwhile, a lot of Eastern countries, with huge U.S. dollar and euro reserves, are trying to diversify out of these debt-ridden currencies into other currencies, including gold. Every month we see news of mostly Eastern central banks-including India, China, Russia, and Korea, etc.-buying gold. Physical gold is in short supply, but they know the price is being held down with intervention in the paper commodities market. We are seeing a continuous flow of gold from the West to the East, the same thing that sparked the big rally in the late 1970s to 1980. This will happen again; it just depends on when the West does not want to give up any more physical gold to the East, at least at these prices. In that case, we will soon see gold move easily above $2,000/oz, taking silver higher with it.

TGR: How high could silver go?

RS: It will hit resistance at $50/oz again, but eventually it will break through. If that does not happen on this next rally, it will on the next one. We are speaking in dollar-inflated terms; $50/oz was the high from 1980, and we still are not above that, but gold has gone up well above the 1980 high of about $850/oz.

TGR: What percentage of your portfolio do you have in cash versus stocks, and juniors versus mid and large caps?

RS: It has been about the same since 2008, adjusted a bit here and there, but we keep about 20% in physical gold and silver, keep cash up around 30% because of uncertain times, and then keep about another 15-20% in good dividend stocks. With the low interest rates, some good dividend interest is great. These dividend companies have served as pillars of strength in our portfolio during this period. I devised what I call a Millennium index of dividend stocks we use to invest here. The last 30% or so we invest in gold stocks, mining and energy stocks.

TGR: Are you looking mainly at gold juniors or producers?

RS: I have a mixture. I have about 20% in the senior and midtier golds. There is a lot of leverage in the junior producers and advanced juniors, so I have about 25% in small and emerging producers and another 20% in advanced. We put about 15% into the small exploration plays that seem promising and 20% into some of the energy stocks-I call them energy and cleantech, but they can involve some of the other areas, like graphite.

TGR: So what advice would you give an investor who wonders what to do going into the fall?

RS: Always diversify. Returning to my portfolio weightings: keep a good cash cushion because if you don't have cash, you don't want to sell at potentially depressed prices to raise it. Keep 20% in physical gold and silver-you know you have it in your possession-or something like the Central Fund of Canada, which has been around a while and is audited, so you know the gold it is actually there. Many exchange-traded funds and gold are so leveraged that I am worried a lot of people have ended up paying for the same gold ounce, and you don't want to be one of them if the financial system falls apart further.

Dividend stocks are also a good idea; it is nice to have income coming into your portfolio. The rest should be in some gold stocks, the juniors, but again-diversify. It is good to own 10-15 stocks in that sector, since it can be volatile, especially on the exploration side. You can lose money in some, but if you hit it big in just one or two others, your portfolio's still up substantially.

TGR: Thanks for your insights.

*Ron Struthers, editor of Struthers' Resource Stock Report, retired at an early age from IBM, where he spent many years in customer service and as a systems, business and inventory analyst. He began the Struthers' Resource/Tech Stock Report almost 20 years ago. The report covers senior and junior companies with ample trading liquidity. Since 2000, $1,000 invested in Struthers' Model Portfolio ended 2011 at $9,244, $1,000 in Struthers Newsletter Stocks ended at $22,270 and $1,000 in Struther's Millennium Index, started in 2003, was worth $3,884 at the end of 2011.

Article published courtesy of The Gold Report

Monday, July 23, 2012

Minimizing risk in junior gold stock investment

Joe Mazumdar* of Haywood Securities explains why some juniors are positioned to do better than some majors in the current geopolitical climate and he counsels pragmatism: Gold Report interview.

The Gold Report: Let's cut to the chase, Joe. With the stock prices of gold mining companies in free fall during the past year, why should gold investors stay the course?

Joe Mazumdar: One of the underlying fundamentals driving the gold equity market is what investors believe about the future supply and demand for gold. With respect to supply, global gold production has grown at a compound annual growth rate (CAGR) of 3% over the past four years despite a 15 -17% CAGR increase in the gold price over the same period. We note the risk of constraints on future production, which includes the paucity of large deposits for majors to replete their reserve base, operating and capital cost escalation, skill set shortage and increasing geopolitical risk, not to mention the current financing environment.

We've seen the gold price in various currencies go up 5-18% since 2011. In the Brazilian real and Indian rupee it's been up as high as 30%. Gold price appreciation has been problematic in countries such as India that traditionally support gold via physical demand due to high local prices. Consequently, a higher proportion of the physical gold demand has migrated to China, where the gold price appreciation has been more modest due to the strength of the currency. Overall, with gold fluctuating around US$1,550-1,600/ounce (oz), we're seeing net speculative positions reduced to the point that if we do have positive news on the gold front, such as another round of quantitative easing, there is a lot of room for these positions to rise and provide a significant lift to the gold price.

Currently, long-term investment demand for gold is being supported by exchange-traded funds. For diversification purposes, gold is being purchased by central banks. In many emerging markets, the proportion allocated by central banks to gold is rather low compared to the Western countries. Therefore, the potential exists for sovereign nations to further diversify their reserve base into gold. Volatilities are down off of the highs of Q3/11 and closer to long-term levels. Lower volatility would increase gold's appeal as a safe-haven asset.

TGR: What strategy should gold investors employ in an uncertain market?

JM: If you think gold prices will continue to move sideways, you should lean toward dividend-paying gold stocks, seniors to intermediate firms with low cash costs and a diversified asset base, predominantly in a low geopolitical risk jurisdiction, that are currently producing gold. If you think gold is headed up, then we advocate for leveraged plays, which come with a higher risk profile and include gold explorers, developers and junior producers. Notably, juniors are trading at best as to the gold price of 1.5-1.7, on an annualized basis, over the last quarter.

TGR: How do high interest rates affect the price of gold as compared to currencies?

JM: Interest rates vary globally as the global economy over the past few years has been running at two speeds. Western countries, which are combating anemic growth, have experienced protracted periods of low real interest rates; emerging markets are still battling inflationary pressures that have led them to maintain higher interest rates. Currently, risk averse investors seeking shelter from the sovereign debt crisis in Europe have sought out U.S. bonds, in particular, pushing yields down while driving the U.S. dollar higher. The higher U.S. dollar has driven commodity prices lower in U.S. dollar terms. Investor interest in low-yield, safe-haven assets lies in protecting their investments rather than seeking higher yields in riskier jurisdictions. Gold's ability to compete for a slice of the demand pie for safe-haven assets will, I believe, be important over the near to medium term.

TGR: What are the key indicators of a gold mining company in trouble-the signs of a management that may not be able to weather the downturn in stock prices and restricted access to development capital?

JM: In a nutshell, developers and explorers that are not producing cash flow are in danger. Important indicators to look for include the company's current cash position, the catalysts coming up and whether or not the firm has the cash to deliver the catalysts. Then we ask: Will the catalysts impact the stock positively? Where is the project located and what is the permitting environment? Are there social-license-to-operate issues? Is there a technically savvy management team? Can the team convince the debt market that it can deliver on its execution plan?

Management is the key to success for developers in the junior market. Possessing an in-situ resource alone in the current environment may not be attractive unless there is a competent management team that has the capacity to get the project permitted and is technically competent enough to execute the development and production plan. These management teams can provide access to alternative financing streams. If the skill set of the current management team seeking to progress a development project lacks development and/or operations experience, the stock is not going to go very far right now.

Although we believe it's a buyer's market for development assets, we are seeing more acquisitions of producing assets. Well-priced producing assets present less risk of permitting or social-license-to-operate issues and capital-cost escalation than a development project.

TGR: When is it generally prudent to sell holdings in a troubled company?
JM: Many believe the market will turn, and we believe it will, but the time frame is uncertain and in the long run we're all dead. Currently, we have noted the longer-term investors are willing to increase positions in equities within their current portfolio but less willing to take on new names. Short-term investors continue to pursue opportunities to reduce their position and sell into liquidity events such as a resource update or drill results.

TGR: How do you find companies to recommend?

JM: We lean toward companies with assets primarily in low geopolitical risk jurisdictions with infrastructure. Infrastructure is critical as it impacts capital (roads, power lines, transportation, remote camp, for example) and operating expenditures (diesel versus grid power, for example). The grade of a deposit may look great, but if it doesn't have power from a reliable grid and requires diesel, for example, it may only deliver weak margins and require higher capital expenditures (capex). Processing one gram of ore only works with inexpensive and reliable power such as in areas of Ontario and Quebec. If, however, the company needs to build a 100-kilometer power line, the capex quickly becomes unreasonable and is at risk to escalation. Once we narrow the jurisdiction, we seek the higher-grade deposits with a similar mining method (open pit versus underground bulk versus underground selective) within the area, which provides ample cushion for potential cost over-runs. A metallurgically simple ore body that can deliver recoveries in the 90s is desirable. We either seek companies that can provide assets that can generate a good margin with a manageable capital expenditure requirement or one with an asset that would provide a merger and acquisition (M&A) target for a major to intermediate producer seeking to replete its reserve base.

TGR: Let's talk about geopolitical risk. Is it increasing worldwide?

JM: I believe that major gold corporations should be concerned, if they are not already, with their geopolitical risk profiles with respect to current and future production. They need to diversify-whether it's the South African companies that need more assets outside of South Africa or other companies that have a bit too much of their production profiles based in high geopolitical risk jurisdictions. With all of the news about creeping nationalism, higher tax revenues, royalties, ownership and overall increasing geopolitical risk, firms need to mitigate the risk by investing more in increasing current production and reserves in lower geopolitical risk environments. The amount of global gold production in low geopolitical risk jurisdictions-such as the U.S., Canada, Australia, Chile and some Scandinavian countries-is just below 30%.

TGR: Back to the majors: what cost-benefits do senior companies generally use to assess the merit of repleting gold reserves?

JM: In the end the acquirer should be convinced that the project is accretive on either a near-term cash flow (CFPS) or longer-term net asset value (NAVPS) per share basis. The recent trend in M&A has been for production over development projects as the latter carries the risk of capital escalation, execution and permitting risk, among others. Hence, what appears to be accretive on a NAVPS basis one day may not be the next day.

Previously there was a lot of pressure from the investment community to show growth. The problem is when you're producing at levels of 4-8 Moz, it's difficult to show 3-5% annual growth rates. Currently, the investing community has shifted its collective focus and reverted to production at steady-state levels with dividends over concerns of escalating capex and delays with project development either organically or via acquisitions. Nonetheless, for majors a lot of ounces must be repleted on an annual basis just to maintain production levels, let alone grow them. I don't believe that any company wants to show a declining production profile to the market.

TGR: Any final thoughts on the market situation?
JM: In the near term, financing constraints will continue to be an issue effectively restricting the volume of news flow from many junior mining equity plays. We anticipate that many will reduce their burn rates and push their catalysts back while re-benchmarking expectations.

But I still see opportunities for companies with well-managed assets in low geopolitical risk jurisdictions that can produce near-term cash flow to be financed. We note the trend toward more debt financing and away from traditional equity financing. If the capex is manageable, say, in the $100-200M range, other alternatives to finance the project may be available such as vendor financings, selling of royalty, streaming off byproducts, doing some debt and a smaller proportion of equity. We acknowledge that a junior developer with a large capex requirement (over $500M) may be difficult to finance in the current environment.

TGR: Thank you for your time, Joe.

JM: You are welcome.

*Joe Mazumdar is a senior mining analyst with Haywood Securities in Vancouver. He served as director of strategic planning at Newmont Mining and was the senior market analyst for Phelps Dodge. He has held a variety of geologist positions with other mining companies working in South America, Australia and Canada, rounding out ~20 years of industry experience. Mazumdar holds a Bachelor of Science degree in geology from the University of Alberta, a Master of Science in exploration and mining from James Cook University and a Master of Science in mineral economics from the Colorado School of Mines.

Article published courtesy of The Gold Report - www.theaureport.com

Wednesday, July 11, 2012

As our monetary system has become so corrupt, it is important to hold physical gold

Our modern day monetary system has been pervaded by greedy, power seeking liar’s, thieves and cheats. A week does not go by without a new story about another bank fraud or some illegal activity perpetrated by a supposedly “reputable” financial institution. And it seems that the more reputable the institution, the bigger the fraud. The latest LIBOR scandal is just another example of our corrupt monetary system.

Libor is the benchmark for trillions of dollars of loans worldwide — mortgage loans, small business loans, personal loans. It is believed that Libor is tied to transactions with a notional value of $500 trillion, and that it is the most important bench mark regarding interest rates. The recent LIBOR scandal is probably the biggest banking scandal in history. So far, the scandal has been limited to Barclay's, a big London-based bank that just paid $453 million to U.S. and British bank regulators. But, be rest assured that they are not the only bank involved in this scam. All major UK banks, including the Bank of England have been implicated and so has the British government.

Whether it is Robert Diamond, the Deputy Bank of England Governor Paul Tucker, or John Corzine of MF Global, when questioned these unscrupulous, dishonest scoundrels suddenly suffer from memory loss and deny any knowledge of any of the events in question. But, no doubt their net wealth has expanded exponentially, and for sure none of them will ever be convicted. Yet, the former head of the IMF, Dominique Strauss Khan was arrested on some futile allegation of sexual harassment. And, if some poor soul who has been out of work for months and who out of desperation has been forced to commit a crime in order to buy food for his family, be sure will be arrested and given life imprisonment.

The world has gone mad, and the very fabric of democracy is now at threat. In a proper democracy governments are elected by the people to serve the people. But, nowadays governments are elected by the people to serve the governments. And, in some cases, governments aren’t even elected.

Instead of penalising these corrupt individuals, governments will turn a blind eye to all the thievery and conjure up a new unrelated scenario to blame for all their misdeeds. The Patriot Act, also known as the FICA act is just an example of the insanity of people in power. Suddenly, it is bad to have cash, and every single person is now a suspected money launderer. And, any innocent law abiding citizen, who wants to open a simple bank account must now answer a list of the most meaningless and irrelevant questions. Of course, the bank will try to beguile you into believing that this process is necessary in order to prevent money laundering and terrorism. Yet, the biggest thieves of all, are the bankers themselves.

While I am the first to acknowledge that there are some incredible benefits to our modern day banking system, I am also constantly amazed at what is going on. It has become so corrupt that I wonder where it will all end.

In the meantime the main central bankers continue to use the same policies that have already been proven ineffective, and as the financial crisis worsens, I am totally bewildered by the actions of investors who turn to government bonds as a safe haven for their money. Although the US is now the largest debtor nation in in the history of the world, it is still able to borrow for 10 years at less than 1.8%. And, the US dollar still remains the world's reserve currency and for now it remains the largest and most liquid market. In some cases since rates are so low, investors are even prepared to pay governments to have their money!

The economic data released during last week was pretty dismal and indicates that global economies are on a trajectory of slower economic growth. On Friday International Monetary Fund IMF managing director, Lagarde, said that the organization will cut global growth forecast this year.

“What I can tell you is that it will be tilted to the downside and certainly lower than the forecast that was published three months ago,” she told an economic forum in Tokyo during a week-long Asian tour.

“And that is predicated on the right set of actions being taken in Europe in order to avoid very significant deterioration and to eliminate major threats.”

In April, the IMF projected 2012 global growth to be at 3.5%while 2013 growth was projected to be 4.1%. That was an upward revision from January's estimate of 3.3% in 2012 and 3.9% in 2013. But it's believed that recent development and economic data has prompted IMF to lower the forecast again.

On Thursday, the central banks of China, Europe and the UK announced measures that would hopefully stimulate the global economy.

The People's Bank of China cut its benchmark lending and deposit rates for the second time since early June. The PBoC cut its one-year yuan deposit rate by 25 basis points and its one-year lending rate by 31 basis points. The central bank also announced more relaxed rules on lending, allowing bank lending rates to fall to 70% of the benchmark rate, down from 80% currently.

The BoE left the benchmark interest rate unchanged at 0.5% but expanded the asset purchase program by another GBP 50 billion. According to the BoE, business indicators showed "continuation of weakness" in the economy in near term, "both at home and abroad". Also, the central bank remained concerned with the "indebtedness and competitiveness of several euro-area economies" which weighed down on confidence.

And, the ECB cut the main refinancing rate by 25 bps to 0.75%, a historical low. The deposit rate was lowered from 0.25% to 0.00% while marginal lending rate was lowed from 1.75% to 1.50%. In the press conference, ECB President Draghi said. "We see now a weakening basically of growth in the whole of the euro area, including the country or the countries that had not experienced that before,” Mr. Draghi said at a news conference after Thursday’s announcement.

The rate cut from ECB and PBoC as well as BoE's asset purchase program expansion provided no support to market confidence. But rather, they were seen as sign of deep worry from central bankers. With interest rates at zero, individuals who rely on savings are going to see the value of their money dissipate. However, at the same time, financial institutions can now borrow money for nothing. But, while it is hoped that they use these low rates to offer it to borrowers in attempt to stimulate business, they would rather invest it in some useless government bond with a high yield. In time, when these relatively high yielding bonds collapse these financial institutions will be squealing once again that they are not prepared to take the loss. And, of course in the meantime, while banks are being saved and the corrupt banking system is being preserved, nothing is being done to stimulate global economic growth which is the key to solving this problem.

So as these egregious acts of the bullion banks, politicians and leading financial leaders continue, astute people are losing faith in the system. This will lead to a loss of confidence in the fiat currencies. And, as an alternative asset class, we will see a major shift to gold and silver as people strive to protect their wealth.

As I have stated previously on numerous occasions, it is better to put your faith in gold and silver than our current political and financial leaders. Owning physical gold and silver is perhaps one of the best decisions you can make.

TECHNICAL ANALYSIS

Gold prices continue to find resistance around the 50 day MA as well as at the $1625/oz level. However, I expect a break of these levels in the medium-term.

About the author

David Levenstein is a leading expert on investing in precious metals . Although he began trading silver through the LME in 1980, over the years he has dealt with gold, silver, platinum and palladium. He has traded and invested in bullion, bullion coins, mining shares, exchange traded funds, as well as futures for his personal account as well as for clients.

His articles and commentaries on precious metals have been published in dozens of newspapers, publications and websites both locally as well as internationally. He has been a featured guest on numerous radio and TV shows, and is a regular guest on JSE Direct, a premier radio business channel in South Africa. The largest gold refinery in the world use his daily and weekly commentaries on gold.

David has lived and worked in Johannesburg, Los Angeles, London, Hong Kong, Bangkok, and Bali.

For more information go to: www.lakeshoretrading.co.za

Information contained herein has been obtained from sources believed to be reliable, but there is no guarantee as to completeness or accuracy. Any opinions expressed herein are statements of our judgment as of this date and are subject to change without notice.