Feb 28

Ghoulish Gold: Are You Sitting Comfortably?

Gold Price Comments Off on Ghoulish Gold: Are You Sitting Comfortably?
Gold’s up because of WWIII in Ukraine? Sell it, buy Greek bonds…
 

INSIDER secret, writes Adrian Ash at BullionVault. Financial news-stories are just that. A story, a narrative.
 
Read any report about stocks, bonds, gold or currencies, and you will in fact find someone trying to match event A with event B…where A is the move in an asset price but B is driving internet traffic.
 
“Ukraine tensions hit shares,” said Reuters this Thursday. “Euro drops to two-week low.”
 
“[US] Treasuries rose for a third day,” Bloomberg added, “as political turmoil in Ukraine boosted demand for safer assets.”
 
The aim? To make a sale (ie, capture a chunk of that internet traffic) the writer has to give the reader (or rather, their editor) the emotional comfort of living in a universe where everything fits, everything makes sense.
 
Too bad this universe includes people, let alone markets. We are rarely rational animals. Things rarely fit so well.
 
Oh sure, the latest whispers of WWIII blowing across Europe from the Black Sea have coincided with a drop in Western stock markets.
 
Just for the record, however, the S&P in New York stands pretty much at new all-time highs. Volatility in London’s FTSE-100 just fell to a 1-month low, somewhere around half its daily average of the last 30 years.
 
And yes, the exit of elected despot Yanukovych…and now Russia’s jet-fighter alert…also coincided with a rally in US Treasury bonds.
 
But UK gilts rallied faster, however, with the surge in prices driving yields 7 basis-points lower on Thursday morning alone.
 
And if February 2014 goes down as the month investors panicked over Ukraine’s turmoil, then the biggest safe-haven of all would seem to be Greek government debt.
 
Yes, really. The yield offered to new buyers of Greece’s 10-year bonds fell 1.3 percentage points this month. That suggests (on our maths at least) a price rise of 18% since the end of Jan.
 
Gold in contrast added 6% in Euro terms. Even silver managed only 12%.
 
Greek bonds it is then. The ultimate safe-haven for unceasing news in need of a financial punchline to Ukraine’s all-too human threat of catastrophe.
 
Sincerely, let’s hope we don’t get to see how well Greek bonds or London shares hold up against gold if shooting breaks out on Ukraine’s Russian border.
 
But journalism is, after all, only the first draft of history…a quick stab at hindsight even as events and prices keep moving.
 
True history, wise after the event, says investors always act too late when a true disaster gets ready to strike.
 
Should gold really start to move on news from Ukraine, as we noted of Syria last summer, it would suggest we’re all in for a heap of trouble.
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Feb 28

Easy Money vs. Gold

Gold Price Comments Off on Easy Money vs. Gold
Is that a new uptrend in gold prices? Has easy money hit its end yet…?
 

The DOW doesn’t seem in a hurry to go anywhere. Gold has turned lower, but is still about 12% higher than where it started the year, writes Bill Bonner in his Diary of a Rogue Economist.
 
Our question for today: Is there really a new bull market for the yellow metal?
 
Of course, the answer is only known to the gods and the NSA. For us mere mortals, it fits comfortably into the vast library of which we have forgotten the address and lost the key. Only in the fullness of time will we have the answer. In the meantime, we await developments.
 
But let us poke around in the grass. We will not find the answer we are looking for. But we may find something else that might be useful…
 
Money, by definition, observation and experience, has no intrinsic value. It is just a way to hold your place in line. Or as T. Boone Pickens says, it is “just a way of keeping score in life.”
 
Of course, money keeps score on only a part of life… and probably not the most important part. But in matters material it tells you how you stack up against your fellow man. It also tells you how much of the world’s output – stuff and services – have your name on them.
 
For that purpose, gold is the best thing never invented. A virtual currency such as bitcoin may someday prove superior, but for now gold is No. 1.
 
Alas, there’s a crack in every pot God ever made. And gold, too, has its fissures and faults. Sometimes, it yields to other forms of money. Last year, for example, you could move ahead in line by holding the Dollar. Gold surrendered about 30% of its Dollar value.
 
A major reason why gold so often looks good is that the alternatives so often look so bad. They are nicely summarized for us by Vivek Kaul, who we met recently on a trip to Mumbai, India.
 
Kaul’s new book, Easy Money: Evolution of Money from Robinson Crusoe to the First World War, tells the sorry story of the competition – the substitutes, the ersatz currencies, the monetary impostors that the world has seen come and, inevitably, go.
 
The origins of today’s money system can be found in Venice in the 12th century. The Bank of Venice was founded in 1171. Other banks realized they could make a business of holding deposits from rich merchants who were profiting from trade with the East. They took deposits of gold and gave receipts, which gradually came to be trusted. Writes Kaul:
“As time went by, some banks developed a reputation for probity and honesty. This led to merchants, who had accounts with these banks, simply transferring receipts of these banks when they had to pay one another. This led to these receipts functioning as “paper” money. 
 
“In some time, people running these banks also figured out that their depositors do not all come on the same day asking for their deposits back. So, in the intermittent period, they could loan out the deposited money to others for a fee. They could also simply print fake deposit receipts not backed by gold or silver, but which looked exactly like the original deposit receipt and lend that money out.”
History doesn’t always give you a clear view of the future. But sometimes, the story of the past has the same cast of characters, themes and plot twists.
 
In the American colonies, for example, Mr.E-Z Money was one of the first immigrants to step off the boat.
 
After him, in 1690, it must have been an early Bush who came up with the following idea: The colony would raise an army to invade Quebec, then the capital of New France. What exactly the Yankees had against Quebec was never made clear. But humans entertain the gods, from time to time, with blunders and blockheadishness.
 
In the event, an army was raised. The expedition set out. It was a disaster. Thirty men died fighting. Two hundred died of smallpox. And the loot, which was meant to pay for the adventure, was never captured.
 
What to do? Issue paper money!
 
Called the “Massachusetts Pound,” it was already on the decline when it was made legal tender in 1721. Already, merchants had drawn its measure and refused to take it. So, the government reacted in typical blockhead fashion: It made it a crime not to take the paper money at face value.
Other colonies were close behind. Here in Ben Bernanke’s home state, the assembly was wrestling with the bills from its own failed expedition. What could be done?
 
In 1702, it decided: Print money!
 
One bad idea led, like a sink drain to a sewer line, to an even worse one. Soon, paper money was flowing all through the colonies. And it stank. Rhode Island was the “biggest money printer of them all,” writes Kaul. Against hard currency, its paper money lost about 95% of its value by 1748. “In Pennsylvania, the most responsible colony when it came to printing money, paper currency had lost 80% of its value.”
 
Later, these paper monies disappeared completely. Go figure.
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Feb 28

Gold/Silver Ratio "Flat Like Prices"

Gold Price Comments Off on Gold/Silver Ratio "Flat Like Prices"
2014 will prove tough for miners who can’t post good margins…
 

BENJAMIN Asuncion and Geordie Mark of Haywood Securities forecast 2014 gold and silver prices of $1300 and $21.50 respectively.
 
Speaking here to The Gold Report, they argue that with prices flat at best, the gold and silver miners who will thrive will be those blessed with the prudent but aggressive management that can post good margins at today’s prices.
 
The Gold Report: Gold is up for the year. Do you expect this trend to continue?
 
Benjamin Asuncion: For 2014, we’re officially forecasting an average gold price at $1300 per ounce. We’ve elected to err on the side of conservatism in our commodity forecasts, which leaves company valuations to be more reflective of operating performance than reliant on higher metal prices.
 
TGR: Ambrose Evans-Pritchard of The Daily Telegraph says if the Federal Reserve “has to back off [tapering] again, gold will have a fresh lease on life.” Do you agree, and do you think the Fed is committed to tapering?
 
Geordie Mark: I agree that if the Fed backs off tapering, it’s a total game changer for sentiment. Janet Yellen, the new Fed chair, has certainly been quite cautious as to how she’s going to approach monetary policy, so right now we’re in a wait and see period, but that being said, the market now appears to show a certain positive sentiment for precious metals companies.
 
TGR: We’ve seen various currency panics around the world in recent weeks. Will this lead to a flight to safety in the US Dollar?
 
Geordie Mark: Ultimately, strengthening of the US Dollar likely will be based on a strengthening US economy rather than capitulation of other major currencies. The outlook with regard to tapering demonstrates broader directional strength in the US Dollar. We might be able to expand on that.
 
TGR: For several years, what’s been good for the US Dollar has been bad for gold and vice versa. Is this a new iron law, or could it change?
 
Geordie Mark: That’s definitely been the argument in the past. However, the big thing here is that we’ve got another player that could firm up the gold price: China.
 
Benjamin Asuncion: The Chinese typically take a longer view on investing in gold. Last year we saw outflows from exchange-traded funds (ETFs) in the order of roughly 30 million ounces. That amount was quite close to the amount of gold being imported by China from Hong Kong.
 
The amount of gold being replaced annually is growing significantly slower than the money supply. So we are seeing support for higher metal prices, and the ounces out there are in demand, given the lower prices that are reducing production.
 
TGR: What’s your 2014 forecast for silver?
 
Benjamin Asuncion: We’re currently using $21.50 per ounce in our valuations, based on a gold price of $1300 per ounce, which implies a silver-gold ratio of about 60:1. This ratio is fairly consistent with the ratio we’ve seen from 2000 onward. Looking at the relationship between the two metals, historically silver has correlated closely with gold but demonstrated roughly twice the volatility.
 
TGR: Unlike gold, silver has industrial uses. How does the supply-demand question in silver look?
 
Geordie Mark: On the supply side, the majority of silver production comes as a byproduct of other mining operations (ie, lead and zinc), therefore, the silver price doesn’t necessarily dictate the economic viability of these mines. This results in an appreciable amount of silver supply that’s fairly agnostic to the silver price, which translates to greater fluctuations in prices, particularly on the downside.
 
On the demand side, we have industrial applications accounting for roughly half of the total demand, followed by jewelry, coinage, photography and silverware. Investment demand accounts for the remainder, for which the silver ETF holdings are a significant source. On the ETF side, we see a different picture compared to gold, with gold ETFs shedding ~30% last year, in contrast with a more optimistic picture of silver ETFs posting a marginal increase.
 
TGR: Gold and silver equities have lagged prices significantly in recent years. Is this changing?
 
Benjamin Asuncion: So far this year, we’ve seen this change as gold and silver have been relatively lackluster with each posting gains around 10%, a stark contrast to the equities that have risen upward of 30-40%, pointing to improving sentiment.
 
TGR: The crisis in precious metals equities is almost three years old. What must junior gold and silver mining producers do to ensure their survival?
 
Benjamin Asuncion: To ensure survival in the paradigm of declining metal prices, companies have trimmed non-operational expenditures (i.e., corporate general and administrative, and exploration) and deferred significant capital projects to preserve the balance sheet. We’re also seeing some signs of more selective mining (i.e., focusing on higher grade and higher margin production). However, the latter requires a longer-term outlook. 
 
One of the criteria we evaluate companies on is their ability to endure at current metal prices – those without significant burdens like hedges or onerous amounts of leverage or debt. We’re focusing on companies with attractive valuations that we see have the opportunity for lower cost growth profiles with the means to fund development plans. Having said that, given the current equity valuations, sometimes it’s cheaper or less risky to wait and buy ounces than drill them.
 
TGR: What must junior explorers to do survive?
 
Geordie Mark: Juniors need to differentiate themselves from their peers. Right now these companies need to take a step back and take time to assess or re-assess their portfolios. Exploration targeting metrics need to be cognizant of prevailing commodity prices and thus look for mineralized systems capable of potentially operating in a lower commodity price environment. Such strategy also follows for those companies with defined assets that need to be re-examined in light of a lower commodity price environment. Such strategies likely will make those companies capable of attracting available capital in the markets. Above all, companies must continue to move forward rather than to stagnate.
 
TGR: What do you think are the sources of optimism for investors in 2014?
 
Geordie Mark: Ultimately, turnarounds in operator performance. We’re looking for mining companies to deliver on costs and to improve margins. Commodity prices will do what they do; they are out of our control. But solid operations performance by the companies is expected to be returned in equity valuations as the market regains confidence in individual companies, as well as in the sector as a whole.
 
Benjamin Asuncion: The story going into Q1/13 was declining cost profiles from operators. Some delivered on that last year, and some didn’t. However, across the board most are still pointing to improved performance in 2014 relative to 2013. That’s one source of optimism.
 
The other thing we’ll be looking for in 2014 is companies that can execute on acquisitions and consolidate stranded assets. Even companies that operate and execute may be constrained by other considerations, such as being laden with more debt than they can service in the current metal price environment.
 
TGR: Since the bear market in gold and silver equities began in April 2011, a fair number of investors have been holding on to battered stocks with the view that there has to be a turnaround. Some stocks have continued to fall. Should investors cut their losses, cull these stocks and consolidate in companies that look like better bets?
 
Benjamin Asuncion: I think this consideration really has to be taken on a position-by-position basis. Our consensus here is generally evaluating all project merits, but companies that are not advancing their projects and just whittling away at their treasuries are not good bets.
 
I think that investors still looking for exposure within the exploration side should examine companies that still have plans to expand their projects, companies that are still in some sense moving forward. From an investment point of view, if investors are holding onto an explorer that isn’t doing anything to advance its project or is overburdened with debt, they really aren’t getting anything by holding on to that company. Looking forward 12 months, what will be different with that company? Investors should review their portfolios with a view to determining which companies can survive with reasonable commodity price expectations.
 
Geordie Mark: Ben is saying that investors should become more company specific in their investments. What’s crucial is dynamic management in creating value, whether it’s by additional discovery, augmenting production or undertaking cost control and improving operating margins. All of those factors are exceedingly important components of creating future value for shareholders. They are the positive milestones to put equities in a more positive light.
 
TMR: Ben and Geordie, thank you for your time and your insights.
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Feb 28

Western Copper And Gold Analysis Says Casino Project “Could Be Interesting”

Gold Price Comments Off on Western Copper And Gold Analysis Says Casino Project “Could Be Interesting”

An Article entitled “Western Copper And Gold – The Casino Project Could Be Interesting Despite The High Capex” provided an analysis on Western Copper and Gold (TSX:WRN) that detailed risks and examined economics using different commodity prices.

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Feb 28

Shareholders Okay Primero’s Acquisition of Brigus Gold

Gold Price Comments Off on Shareholders Okay Primero’s Acquisition of Brigus Gold

Primero Mining Corp. (TSX:P,NYSE:PPP) and Brigus Gold Corp. (TSX:BRD,NYSE:BRD) announced that their shareholders have voted in favor of Primero acquiring Brigus. The acquisition is set to close on March 5, 2014.

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Feb 28

SPDR Gold Trust Set for First Monthly Inflow in Over a Year

Gold Price Comments Off on SPDR Gold Trust Set for First Monthly Inflow in Over a Year

Reuters reported yesterday that the SPDR Gold Trust (ARCA:GLD) is set to see its first monthly inflow of metal in over a year. That’s due to weaker data out of the United States, which has led to increased interest in the metal.

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Feb 28

Latin American Minerals Granted Expanded Environmental Permit

Gold Price Comments Off on Latin American Minerals Granted Expanded Environmental Permit

Latin American Minerals Inc. (TSXV:LAT,OTCQX:LATNF) announced the receipt of an expanded environmental permit that authorizes heap-leach gold extraction at the Independencia mine, which is situated at the company’s Paraguay-based Paso Yobai gold project.

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Feb 28

Klondex Mines Details Progress at Fire Creek and Midas

Gold Price Comments Off on Klondex Mines Details Progress at Fire Creek and Midas

Klondex Mines Ltd. (TSX:KDX,OTCQX:KLNDF) provided an updated on both its Midas Gold and Silver Mine and Mill, and Fire Creek Gold projects. At Midas, operations began on February 19th and is currently running at a rate of 600 tpd; the first dore pour is expected to be on March 4th with an initial shipment to Johnson Matthey on March 6th. At Fire Creek, bulk sampling is fully commissioned and benching the Vonnie and Joyce veins is well underway.

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Feb 28

Golden Reign, Marlin Gold Enter Gold Streaming LOI

Gold Price Comments Off on Golden Reign, Marlin Gold Enter Gold Streaming LOI

Golden Reign Resources Ltd. (TSXV:GRR) announced yesterday that it has entered into a binding letter of intent (LOI) with Marlin Gold Mining Ltd. (TSXV:MLN) regarding a US$15-million gold streaming agreement for its Nicaragua-based San Albino deposit.

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Feb 27

PJX Acquires Vine Extension Property from Klondike Gold

Gold Price Comments Off on PJX Acquires Vine Extension Property from Klondike Gold

PJX Resources Inc. (TSXV:PJX) announced the completion of a purchase and sale agreement with Klondike Gold Corp. (TSXV:KG) under which it will acquire a 100-percent interest in the Vine Extension property.

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