WOW! What a week- Gold!

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We’re sooo close! $1033 all time high. When I reported this morning we did break the Feb Contract high of $1003, and Gold closed just $4.50 short of the Mar. 2008 high of $1003.70. Look for some more big things as the rally gathers steam. Here is a weekly Market Wrap courtesy of Gold-Seeker.com. Have a Great Weekend! Good Investing! – jschulmansr

Here is where I buy my Bullion, get one free gram of Gold just for opening an account! Catch the New Bull! – Buy Gold Online – Get 1 gram free just for opening account!, no minimums – Buy Safely, quickly, and at low prices, guaranteed! – Bullion Vault.com

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Gold Seeker Report – Weekly Wrap Up- Gold and Silver Gain Over 6% on the Week While Dow Falls Over 6%.

By: Chris Mullen, Gold-Seeker.com

	Close	Gain/Loss	On Week
Gold	$999.20	+$24.55	+6.28%
Silver	$14.465	+$0.48	+6.13%
XAU	132.64	+3.73%	+1.34%
HUI	321.45	+3.66%	+3.31%
GDM	1018.70	+4.03%	+3.63%
JSE Gold	2905.93	+45.49	+7.12%
USD	86.49	-1.09	+0.55%
Euro	128.45	+1.70	-0.27%
Yen	107.34	+1.19	-1.28%
Oil	$38.94	-$0.54	+3.81%
10-Year	2.772%	-0.085	-3.82%
Bond	127.59375	+1.328125	+1.04%
Dow	7365.67	-1.34%	-6.17%
Nasdaq	1441.23	-0.11%	-6.07%
S&P	770.05	-1.14%	-6.87%

 

The Metals:

Gold and silver remained near unchanged at about $970 and $14 in Asia and then screamed higher in London to as high as $998.92 and $14.56 by about 9AM EST before they retraced to about $990 and $14.40 in later morning New York trade, but they then rallied to new session highs of $1006.07 and $14.607 in the last couple of hours of trade and gold ended with a gain of 2.52% while silver topped that performance with a gain of 3.43%.

Gold closed just $4.50 from its record high close of $1003.70 set on March 18^th of 2008 while silver remains well short of its 27 year high of $20.64 set on March 5^th of 2008.  Gold and silver’s intraday highs set on March 17^th of 2008 are $1031.85 and $21.34.

 

Euro gold rose to a new record high at about €778, platinum gained $12.50 to $1081.50, and copper fell over 5 cents to about $1.41.  Platinum’s record high of $2255 was set on March 5^th of 2008.

 

Gold and silver equities rose about 3% at the open before they pared their gains slightly midmorning, but they then rose to news highs heading into the afternoon and the miners ended with roughly 4% gains on the day.  The all-time closing highs set on March 14^th 2008 are 206.87 for the XAU, 514.89 for the HUI, and 1553.31 for the GDM.  While all three indices have more than doubled from their lows of four months ago, they still remain about 50% from those all-time highs.  For more on the gold stocks, please see Adam Hamilton’s article posted today at http://news.goldseek.com/Zealllc/1235149548.php.

 

The Economy:

 

Report	For	Reading	Expected	Previous
CPI	Jan	0.3%	0.3%	-0.8%
Core CPI	Jan	0.2%	0.1%	0.0%

 

More homeowners say homes depreciated: survey  Reuters

Dodd Says Short-Term Bank Nationalization Might Be Necessary  Bloomberg

Roubini: Nowhere near end of crisis  Reuters

 

All of this week’s other economic reports:

 

Leading Indicators – January

0.4% v. 0.2%

 

Philadelphia Fed – February

-41.3 v. -24.3

 

Initial Claims – 2/14

627K v. 627K

 

PPI – January

0.8% v. -1.9%

 

Core PPI – January

0.4% v. 0.2%

 

Industrial Production – January

-1.8% v. -2.4%

 

Capacity Utilization – January

72.0% v. 73.3%

 

Housing Starts – January

466K v. 560K

 

Building Permits – January

521K v. 547K

 

Import Prices – January

-1.1% v. -5.0%

 

Import Prices ex-oil – January

-0.8% v. -1.1%

 

Export Prices – January

0.5% v. -2.3%

 

Export Prices ex-ag. – January

0.0% v. -1.9%

 

Net Long-Term TIC Flows – December

$34.8B v. -$25.6B

 

New York Manufacturing Index – February

-34.65 v. -22.2

 

Next week’s economic highlights include the S&P/CaseShiller Home Price Index and Consumer Confidence on Tuesday, Existing Home Sales on Wednesday, Durable Goods Orders, Initial Jobless Claims, and New Home Sales on Thursday, and GDP, Chicago PMI, and Michigan Sentiment on Friday.

 

The Markets:

 

Charts Courtesy of http://finance.yahoo.com/

 

The U.S. dollar index reversed early gains and ended markedly lower on speculation over US bank nationalization and also on rumors of new European intervention/stimulation that lifted the euro in afternoon trade.

 

Oil fell while treasuries rose on persistent worries about the economy and the sustainability of the entire financial system that also sent the Dow, Nasdaq, and S&P markedly lower at times.  The Dow fell below yesterday’s 6 year lows while the S&P was barely able to hold above its late November 2008 intraday/closing lows of 741.02/752.44 and the Nasdaq remained roughly 100 points above its lows of 1295.48/1316.12.  All three indices rallied back higher in the last two hours of trade to actually end the day with only modest losses after having traded roughly 3% lower earlier in the day, but uncertainty still remains quite high as to what will happen next as bank nationalization rumors work through their cycle of being floated and subsequently denied.

 

Among the big names making news in the market Friday were Bank of America and Citigroup, Lowe’s, J.C. Penney, and Saab.

 

The Commentary:

 

“Gold is pushing its record highs from last year, resistance will be formidable, but whether it does it in the next few weeks or in a few months, gold is clearly headed higher, much higher. $1,200 and higher gold is now a possibility in the short-term. Pullbacks will see continued strong investment demand, both from institutional and retail investors. At the rapid rate global paper currencies are being diluted, the destruction of trust and integrity within the financial and banking system and destabilizing consequences such actions will promote, gold and silver are going to attract record amounts of capital seeking wealth preservation.”– Peter Spina, www.goldforecaster.com

 

“As we saw the gold price attack the $1,000 level for the second time, but with far more force, institutional investment demand continued to drive the gold price, forcing the closure of ‘short’ positions [selling when the seller doesn’t have the gold] on COMEX and stunting both jewelry and Indian demand, where higher prices have at least temporarily sidelined these buyers.

 

The demand for the shares of the gold Exchange Traded Funds is so high that the U.S. based SPDR [gold Exchange Traded Fund] fund has surpassed all records.   If one adds just the Barclays Gold Trust shares to World Gold Council based gold Exchange Traded Funds across the world then the total has surpassed the gold holdings of Switzerland making these holding the 6th largest in the World behind the USA, the I.M.F., Germany, France and Italy.

 

Nothing else can describe the fears about monetary stability better than these facts.

 

A mindset change is taking place regarding gold as its virtues are standing in stark contrast to the disturbing financial scene in most countries.

 

We do not believe these price levels will deter long-term institutional investors.   Expect more of the same in the days ahead.”– Julian D.W. Phillips, www.goldforecaster.com

 

“Dear CIGAs,

 

Gold hit the magical number of “$1,000” in today’s trading session in the front month April contract at the Comex and immediately registered newswire flashes across the various services. This is something guaranteed to garner the attention of that section of the public who  are still somehow oblivious about the metal not realizing its role as a safe haven and the ease with which it may be bought or sold. Perhaps they have been too busy lining up waiting for the government handouts that are proliferating faster than the flu virus in winter. Either way, those who have been attempting to hold back the metal, got what they did not want – headlines and interest!

 

Keep in mind that this is only the second time in its history that gold has shot up above the $1,000 level. Generally short-term oriented traders like to book profits when such things occur so it will not be unexpected to see a bit of a pullback from here.

 

I know this does not sound like the words of an inspired market genius but one of two things will happen here. We will get the scenario that I just outlined or the market will shoot sharply higher. If it is the latter, it will be quite telling as it will reveal just how determined, eager or downright terrified people are becoming. Market action of that kind of nature speaks thusly: “get me in at any price – I simply don’t care – I want in”.  Or in the case of trapped shorts: “Get me out at any price – I am terrified of getting wiped out”. In other words, the latter scenario will give us a measure of market intensity. The former will show that there is not yet any panic buying occurring in the gold market even though overall demand is very strong.

 

If the market does set back, I do not expect any subsequent price retracement to be very deep this time around – things have changed since last March 2008 ( a year ago), the last time gold was over $1,000. The price rise this time has been measured, it has been steady, and most importantly, it has not been driven by a rush of hot fund money into the market. The open interest is 60% of what it was the last time the price of gold peaked – while there is a sizeable long position in the Comex gold market, it is well off the levels it reached at that last peak. Also, the reported holdings in the gold ETF, GLD, show that investment money is steadily flowing into this sector. The last time gold was over $1,000 back in March, the reported gold holdings were only 663 tons. As of yesterday, holdings were reported at 1029 tons. Obviously a much larger share of the public is moving into gold. I am hard-pressed to see a reason why all this money would suddenly decide to abandon gold unless of course an economic miracle recovery were to immediately commence. Perhaps the Obama administration will discover a new method of creating money that sees it miraculously fall out of the heavens so deep around us that we do not even have to bend over to pick it up. First time something like this occurred, it was quail. At least you could eat that. Paper does not sound particularly appetizing to me.

 

I should note here that gold priced in British Pound terms and in Euro terms has set brand new all-time highs the last four days in a row. BP gold is closing in on the 700 level and was fixed at 690.353 while Euro-gold is steadily heading towards the €800 level as it was fixed at €782.437 today. Both charts are absolutely stunning to behold. Europe has reached the point where you might say that confidence in paper money has been lost.  Eastern Europe is still a major overhang and fears about a regional default are probably not out of line.

 

Also, we are not yet through the month of February, but gold is on track to put in its highest monthly CLOSE ever. Coincidentally, that occurred back in February 2008 when the front month closed at $975. Next Friday’s close is going to be interesting to say the least. One more thing – gold in inflation adjusted terms is still well off its all time high which on an inflation adjusted basis is over $2,000. The case could me made that even at current levels, gold is not particularly expensive.”– Dan Norcini, More at JSMineset.com

 

“My Dear Friends,

 

Please be advised on the following concerning the Swiss Franc:

 

1. There is an ongoing battle between the US/GB and Switzerland over the full disclosure of the total 19,000 names on the books of UBS wherein tax evasion is said to have been solicited and abetted. In truth, very few of these accounts have been fully revealed and the US/GB wants all 19,000.

 

2. Since hedge funds pry on each other we are getting few very fat international hedge funds. They play the currency market in a big way as it is one of the few markets now able to absorb their interest.

 

As a result of both number one and two much of the media and expert commentary on the Swiss Franc is the use of media for dirty tricks as this is the major tool of these large funds and governments in conflict.

 

I would suggest in this case decision on the future of the Swiss Franc is better made on the 35 year technical price analysis. A short seeking to cover, which generally seems quite correct now amongst the weak versus dollar units, should and is taking place.

 

Negative media and short covering has gone hand in hand in this bear market. Was it not the same in all recent major market failures?

 

Why should currency be any different?

 

Respectfully,”– Jim Sinclair, JSMineset.com

 

“April Gold closed up 25.7 at 1002.2. This was 12.7 up from the low and 2.8 off the high.

 

March Silver finished up 0.555 at 14.49, 0.085 off the high and 0.085 up from the low.

 

The gold market traded sharply higher pushing through the psychological $1,000 per oz price level as escalating anxiety regarding the health of the global economy and financial sector put equity markets in a tailspin for most of the session. Panic selling in the equities market pushed April gold above the July high and to the highest price level since March of last year. Ongoing concerns over rising risk to European banks due to their high exposure to eastern European economies added to the safe haven buying in gold. Strong investment buying interest continued to flow to the gold market on rumors that the government may consider nationalizing some banks. A sharp reversal in the dollar during the selling may have provided some additional support. Gold trimmed gains on profit taking after comments by the White House supporting a private US banking system triggered a sharp bounce in equities.

 

The silver market rallied sharply on strong investor safe haven buying interest that took the May contract to the highest price level since last August. The dive in equity prices and the uncertainty surrounding the health of the economy and banking system triggered the safe haven buying in silver. The reversal action in the dollar added to bullish sentiment. It was impressive to see silver retain most of its gains despite a late session recovery in equity market.”– The Hightower Report, Futures Analysis and Forecasting

 

The Statistics:

As of close of business: 2/20/2009

Gold Warehouse Stocks:	8,458,484	–
Silver Warehouse Stocks:	124,743,230	–

 

Global Gold ETF Holdings

[WGC Sponsored ETF’s]

 

	Product name	Total Tonnes	Total Ounces	Total Value
New York Stock Exchange Arca (NYSE Arca) AND Singapore Exchange (SGX) AND Tokyo Stock Exchange (TSE) AND Hong Kong Stock Exchange (HKEx)	SPDR® Gold Shares	1,028.98	33,082,801	US$ 32,432m
London Stock Exchange (LSE) AND Euronext Paris AND Borsa Italiana AND Frankfurter Wertpapierbörse (Deutsche Börse )	Gold Bullion Securities	132.12	4,247,645	US$ 4,234m
Australian Stock Exchange (ASX)	Gold Bullion Securities	12.49	400,508	US$ 400m
Johannesburg Securities Exchange (JSE)	New Gold Debentures	28.63	920,348	US$ 902m

Note: Change in Total Tonnes from yesterday’s data: SPDR added 4.89 tonnes to a new record high holding and the LSE added 0.13 tonnes.

 

COMEX Gold Trust (IAU)

Profile as of 2/19/2009
Total Net Assets	$2,189,768,426	Ounces of Gold in Trust	2,243,824.921
Shares Outstanding	22,800,000	Tonnes of Gold in Trust	69.79

Note: No change in Total Tonnes from yesterday’s data.

 

Silver Trust (SLV)

Profile as of 2/19/2009
Total Net Assets	$3,617,484,283	Ounces of Silver in Trust	253,738,517.300
Shares Outstanding	257,250,000	Tonnes of Silver in Trust	7,892.15

Note: Change in Total Tonnes from yesterday’s data: 18.4 tonnes were added to the trust to a new record high holding.

 

The Stocks:

 

Barrick’s (ABX) fourth-quarter loss, Buenaventura’s (BVN) increased economic interest in El Brocal, Timberline’s (TLR) receipt of notice from the NYSE, Teck’s sold Hemlo stake to Barrick, Aurizon’s (AZK) renewal in mineral reserves and increase its mineral resource estimate, Anglo American’s (AAUK) job cuts, and Orezone’s (OZN) obtained final court approval for the IAMGOLD (IAG) transaction were among the big stories in the gold and silver mining industry making headlines Friday.

 

WINNERS

1.  Alexco	AXU +23.85% $1.61
2.  Silver Wheaton	SLW +11.53% $7.35
3.  Minefinders	MFN +9.66% $6.13

 

LOSERS

1.  Anglo American	AAUK -15.09% $7.43
2.  Entree	EGI -3.33% $1.16
3.  Ivanhoe	IVN -1.78% $4.42

Winners & Losers tracks NYSE and AMEX listed gold and silver mining stocks that trade over $1.

       

All of today’s gold and silver stock news:

Buenaventura Increases Economic Interest in El Brocal to 46% – “Compania de Minas Buenaventura S.A.A. (“Buenaventura”) (NYSE: BVN; Lima Stock Exchange: BUE.LM), Peru’s largest publicly traded precious metals mining company, announced today an agreement with Teck Cominco Metals Limited (“Teck”) to purchase the 19.8% interest in Inversiones Colquijirca, the holding company that owns a 51.06% stake in Sociedad Minera El Brocal.” More
– February 20, 2009 | Item | E-mail

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Explor Resources Inc.: Private Placement – More
– February 20, 2009 | Item | E-mail

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Queenston Announces $18 Million Financing – More
– February 20, 2009 | Item | E-mail

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Pacific Gold Corp. Announces Stock Dividend – More
– February 20, 2009 | Item | E-mail

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Hana Mining Reports Exploration and Corporate Update at Ghanzi Copper-Silver Project in Botswana – More
– February 20, 2009 | Item | E-mail

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Barrick takes loss on writedown but output strong – “A $773-million charge to write down assets pulled Barrick Gold (ABX.TO) to a fourth-quarter loss, the gold miner said on Friday, but its core earnings came in around estimates on strong copper and gold output.

Stripping out the writedowns, which covered three mines in Tanzania and Australia as well as last year’s acquisition of Cadence Energy, Barrick, the world’s top gold miner, earned 32 cents a share. This compared with analysts’ forecasts of 30 cents a share, as polled by Reuters Estimates.” More
– February 20, 2009 | Item | E-mail

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Timberline Announces Receipt of Notice From the NYSE Alternext US LLC Regarding Minimum Listing Requirements – “The Exchange based their analysis on Timberline’s September 30, 2008 financial statements which report stockholders’ equity of $3.55 million. As of Timberline’s interim financial statements for the three months ended December 31, 2008, Timberline’s stockholders’ equity had already increased to $4.62 million and Timberline’s management believes that it will continue to make significant progress in the rest of the fiscal year towards meeting the requisite standards to ensure its continued listing on the Exchange. Timberline intends to submit a plan to the Exchange by March 13, 2009 outlining the steps the Company expects to take in order to bring stockholders’ equity into compliance with the continued listing standards of the Exchange.” More
– February 20, 2009 | Item | E-mail

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Affinity Gold Corp. Enters Into Letter of Intent With Peruvian Company to Acquire Mining Concession Rights – More
– February 20, 2009 | Item | E-mail

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Tiomin Invests in Kivu Gold Corp. – More
– February 20, 2009 | Item | E-mail

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Orezone Obtains Final Court Approval for IAMGOLD Transaction – “IAMGOLD Corporation (Toronto:IMG.TO – News)(NYSE:IAG – News)(BOTSWANA: IAMGOLD) and Orezone Resources Inc. (Toronto:OZN.TO – News)(AMEX:OZN – News) (“Orezone”) jointly announced today that the Ontario Superior Court of Justice has issued a final order approving the terms of the arrangement with IAMGOLD.” More
– February 20, 2009 | Item | E-mail

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NWT Uranium announces grant of options – More
– February 20, 2009 | Item | E-mail

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Inmet Mining presentation at BMO Capital Markets 2009 Global Metals and Mining Conference – More
– February 20, 2009 | Item | E-mail

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Tombstone Exploration Receives Layne Christensen Proposal for 2009 Drill Program – More
– February 20, 2009 | Item | E-mail

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Blue Note Subsidiary Obtains Creditor Protection – More
– February 20, 2009 | Item | E-mail

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Symbol Change: CGFIA.OB, Minority Shareholders RULE! Colorado Goldfields Inc. Issues B Shares and B Warrants Exclusively to Beneficial Owners – More
– February 20, 2009 | Item | E-mail

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Barrick Gold posts loss after writedowns – “Barrick Gold Corp (ABX.TO) reported a fourth-quarter loss on Friday as it took a non-cash charge of $773 million, mostly related to goodwill writedowns at four assets.

The world’s top gold miner lost $468 million, or 53 cents a share, compared with a profit of $537 million, or 61 cents a share, a year earlier.” More
– February 20, 2009 | Item | E-mail

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Clifford M. James acquires beneficial ownership of additional common shares of TVI Pacific Inc. – More
– February 20, 2009 | Item | E-mail

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Cadillac Closes $2.3 Million Financing – More
– February 20, 2009 | Item | E-mail

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JNR Announces Drilling Program Underway at Way Lake Uranium Project – More
– February 20, 2009 | Item | E-mail

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TVI Pacific announces issuance of common shares to discharge certain pre-existing obligations – More
– February 20, 2009 | Item | E-mail

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Teck Cominco sells Hemlo stake to Barrick – “Teck Cominco (TCKb.TO) has agreed to sell its 50 percent stake in the Hemlo gold operations to joint venture partner Barrick Gold (ABX.TO) as part of Teck’s plan to raise cash and pay down debt, the companies said on Friday.” More
– February 20, 2009 | Item | E-mail

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Kinbauri Announces Private Placement – More
– February 20, 2009 | Item | E-mail

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Minority Shareholders RULE! Colorado Goldfields Inc. Issues B Shares and B Warrants Exclusively to Beneficial Owners – More
– February 20, 2009 | Item | E-mail

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AuEx Ventures, Inc.: Klondike North Drill Results – More
– February 20, 2009 | Item | E-mail

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Mountain Capital Acquires the Inco Lithium Property – More
– February 20, 2009 | Item | E-mail

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Canasia Industries Corporation: Rodren Drilling Ltd. to Drill the Reed Lake Prospect – More
– February 20, 2009 | Item | E-mail

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Aurizon reports mineral reserve renewal and mineral resource update for Casa Berardi mine – “Aurizon Mines Ltd. (TSX: ARZ; NYSE Alternext: AZK) is pleased to report a renewal in mineral reserves and an increase in the mineral resource estimate for its Casa Berardi mine, located in north western Quebec, Canada.” More
– February 20, 2009 | Item | E-mail

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Barrick Gold: Cash Flow Rises to a Record $2.2 Billion in 2008 – “Barrick reported record operating cash flow of $2.21 billion for 2008, a 27% increase over $1.73 billion in the prior year. Net income was $0.79 billion ($0.90 per share) compared to $1.12 billion ($1.29 per share) in the prior year. Adjusted net income rose 60% to $1.66 billion ($1.90 per share)(1) compared to $1.04 billion ($1.19 per share) in the prior year period.” More
– February 20, 2009 | Item | E-mail

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Anglo American cuts 19,000 jobs as profits fall – “Mining company Anglo American PLC said Friday it will cut 19,000 jobs this year and suspend dividend payments after reporting a 29 percent drop in 2008 profits. The company said it hoped to cut the jobs — 10 percent of its managed work force — through layoffs, natural attrition and scaling back contractor arrangements.” More
– February 20, 2009 | Item | E-mail

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– Chris Mullen, Gold Seeker Report

 

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Disclosure: The owner, editor, writer and publisher and their associates are not responsible for errors or omissions.  The author of this report is not a registered financial advisor.  Readers should not view this material as offering investment related advice. Gold-Seeker.com has taken precautions to ensure accuracy of information provided. Information collected and presented are from what is perceived as reliable sources, but since the information source(s) are beyond Gold-Seeker.com’s control, no representation or guarantee is made that it is complete or accurate.  The reader accepts information on the condition that errors or omissions shall not be made the basis for any claim, demand or cause for action.  Past results are not necessarily indicative of future results.  Any statements non-factual in nature constitute only current opinions, which are subject to change.  Nothing contained herein constitutes a representation by the publisher, nor a solicitation for the purchase or sale of securities & therefore information, nor opinions expressed, shall be construed as a solicitation to buy or sell any stock, futures or options contract mentioned herein.  Investors are advised to obtain the advice of a qualified financial & investment advisor before entering any financial transaction.

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Look for a Special Edition This Weekend, Until then Good Investing! – jschulmansr

Catch the New Bull! – Buy Gold Online – Get 1 gram free just for opening account!, no minimums – Buy Safely, quickly, and at low prices, guaranteed! – Bullion Vault.com

====================================

Nothing in today’s post should be considered as an offer to buy or sell any securities or other investments; it is presented for informational purposes only. As a good investor, consult your Investment Advisor/s, Do Your Due Diligence, Read All Prospectus/s and related information carefully before you make any investing decisions and/or investments. –  jschulmansr

Going For The Gold!

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As I write Gold today has touched a high so far of $1000.30! If it breaks this level and holds then $1025-$1050 will be the next stop. At this point I would buy on any dips. This run is going to take us at least to $1050 oz. cont…

**********We officially just broke the $1003 all time high! *************** ******************Market up $28.50 to 1005.00!!!***********************

cont…

After that then we will probably see a retracement potentially down to previous resistance levels now support levels.

I would not be worried at all if we go as low as $940 – $960. That would be normal market action. However a note of caution, as Gold is not necessarily following normal market action as evidenced by the dramatic run to $1000 and then down to $690 approximately.

I am still a buyer on any dips and at this point I am holding my physical gold and still getting in to some of the Gold and Silver producers who are still selling at or near book values. As far as DGP goes I am still holding my position and will let you know when I exit that trade.

Remember in the worst case scenario with Gold, you are still locking in the “buying power” of your current dollars. With Bernake running the monetary printing presses at full steam, we will see inflation return. Already the true (not government manipulated figures) inflation rate is running at 6% – 9% depending on who you are following. However, when I go to the grocery story and see a package of hot dog buns that I could buy a few months ago at $1.00 for a package of 8, now selling for as high as $4.00 for the same package; it would seem that the true inflation rate is way higher up around 12% – 18% already!

So I am still looking at “protecting my dollars”,  by converting them into Gold. You would be wise to do the same, because soon the manipulated value of the dollar will come crashing down; along with all the other major currencies as all of the central banks are printing money and trying to flood their markets with liquidity. 

As I mentioned in yesterday’s post  Gold is on a major Bull Market run and all of the movement is based on current financial pressures, still without any major news like a new war/conflict especially in the Middle East (i.e. Israel taking out Iran’s nuclear reactor), or major terrorist act. Buy gold “wholesale” thru Comex, take physical delivery, if we all do this we’ll be putting major pressure on the “shorts” and potentially cause a “short squeeze”! Then you see Gold bid up to some amazing levels and be able to jump in and make some quick profits.

“Nothing will unnerve the paper gold shorts more quickly and do more to undercut their confidence than to strip them of the real metal and force them to come up with more hard gold bullion to make good on deliveries. “Stand and Deliver or Go Home” should be the rallying cry of the gold longs to the paper gold shorts.” –Trader Dan Norcini

Otherwise, hang on to your hats as the “Gold Express” has left the station and is barreling down the tracks! – Good Investing! – jschulmansr

Here is where I buy my Bullion, get one free gram of Gold just for opening an account! Catch the New Bull! – Buy Gold Online – Get 1 gram free just for opening account!, no minimums – Buy Safely, quickly, and at low prices, guaranteed! – Bullion Vault.com

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Gold Pole Vaults to $1000 – Market Watch

 

 

 

 

By Polya Lesova, MarketWatch

Last update: 10:07 a.m. EST Feb. 20, 2009

NEW YORK (MarketWatch) — Gold futures topped the key $1,000 mark for the first time in nearly a year on Friday, as global financial and economic worries boosted the safe-haven appeal of the precious metal.

In recent action, gold for April delivery traded at $995.30 an ounce, up $19.50, or 2%, on the day. It earlier touched a high of $1,000.30.

Stocks fell to fresh bear-market lows in early action on Wall Street, with the Dow Jones Industrial Average ($INDU:

“There is a risk here of a panic sell-off in stock markets and the next leg down in the stock bear market looks imminent, as the ills of the global financial system virulently infect the global economy,” said Mark O’Byrne, executive director at Gold and Silver Investments Limited, in a research note.

“While gold has become overbought in the short term, its medium and long term fundamentals are as sound as ever,” he said.

Gold for February delivery, the front-month contract which registered very little volume, was last up $19.30, or 2%, at $995.40 an ounce on Globex. The February contract expires on Feb. 25. Earlier, February gold hit an intraday high of $999.50 an ounce.

On Thursday, the Dow industrials finished at 7,465.95, down 89.68 points to end at the weakest level since Oct. 9, 2002.

“The price slide of U.S. equities, with the Dow Jones Industrial Average falling to its lowest level since October 2002, should result in a continued positive mood of investors on gold,” said Eugen Weinberg, an analyst at Commerzbank.

Also on Globex Friday, March silver futures rose 46 cents, or 3.3%, to $14.39 an ounce, and April platinum futures gained $12.50, or 1%, to $1,089.00 an ounce.

March palladium futures gained 40 cents, while March copper futures fell 5 cents, or 3.5%, to $1.42 a pound.

Polya Lesova is a New York-based reporter for MarketWatch.
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Gold has a “True Bull Run” – Financial Post

Source: MineWeb.com

 

 

Gold was, at the time of writing, close to $1,000 again. It would seem this level is inevitable sooner rather than later and this time the yellow metal may spend rather more time in the four figure area.

Author: Lawrence Williams
Posted:  Friday , 20 Feb 2009

LONDON – 

As this article was commenced, the gold price was at $997 and seemingly inexorably headed towards breaching  the US$1,000 level once again.  Indeed by the time you read this it may well already have done so.  April futures had already marginally gone through the $1,000 level.

The big question is, assuming spot gold does push through $1,000, will this be third time lucky for the gold bugs?  Gold has breached $1,000 twice beforehand and on each occasion its climb into the four figure level was shortlived.  This time it may well be a different situation with the likelihood that the price is poised to go higher still – and maintain its position above $1,000 for some little time to come.

Gold’s dollar high of $1,033.90 was achieved seemingly a very long eleven months ago but only remained at this exalted level for a few days , before crashing back.  Indeed as stock markets began to collapse and then plunged in the second half of the year, much confidence was lost in gold as an ‘insurance policy’ as it fell back to the high $600s at one stage, but the realisation came about that the main reason for the price decline was that funds and institutions were having to liquidate any tradable assets to meet their commitments, and gold s nothing if not tradable at any price.

Gold soon recovered and started a steady run back up to current levels despite rising markets and a strong dollar – usually both signs of a likely weakness in the gold price.  Indeed gold broke new price records in virtually all currencies other than the US dollar and now it looks highly likely to do so in terms of the now not-so-mighty greenback itself.  Meanwhile stock markets in general have started to fall back again as the world realises that the various stimulus packages worked out by clutching-at-straw governments are unlikely to improve matters drastically and much of the world heads for depression – or something approaching one.  There is no doubt we are already in recession in the West and depression is just the next, and infinitely more dangerous, phase of the current reality.

Gordon Brown has certainly not saved the world, and Barack Obama’s deification status is already tarnished after only a few days in office.  It is becoming apparent that what the politicians and economists with clout feel could be remedies to what is facing us ahead are nothing but untried and unproven stopgaps which patently are not working – or not at least yet.

Meanwhile banks are digging themselves further and further into the mire with more collapses and nationalisations likely, countries will default on their commitments and matters will continue to deteriorate unless some financial miracle happens.

Indeed the only world saviour may yet be China, but at what cost?  There are indications that the Chinese may have been in part responsible for the depth of the fall in commodity prices by halting industrial plants and infrastructure spending ahead of the Olympic Games and not resurrecting it afterwards as it could see an advantage in keeping prices down.  But the Chinese did not foresee the collapse in the western financial system exacerbating the situation dramatically and the global downturn came back to bite the Chinese in the bum as its exports crashed and huge numbers of people were thrown out of work – a potential cause of serious unrest.

Beijing has since taken steps to resurrect its infrastructure programmes.  Projects which were lying idle are at full swing again, but this is too little too late for much of the rest of the world. It may serve to keep China itself out of recession – and perhaps throw a lifeline to commodity producers to help them maintain output and support prices, but it’s definitely too late for much of the rest of the global economy which is in a frightening downward spiral.

But – with regards to securing commodity supplies and controlling future markets we are seeing China, with its huge funding capabilities, tieing up supplies, making major strategic investments in mining and metallurgical companies – and also in some other important western entities – and also providing loans to enable what they see as potential strategic partners stay in business.  But again, as we saw in yesterday’s European Nickel announcement on finance, there are China-benefiting clauses in most of these ‘strategic’ agreements.

It was Alfred Lord Tennyson in one of his Arthurian epic poems who used the phrase “The old order changeth, yielding place to new” and that is extremely apposite phraseology for what is happening now.  US economic imperialism has started to be replaced by a Chinese version.

But what has this to do with the gold price?  Because the Chinese were perhaps too late in re-implementing their own stimulus, which could have mitigated the global downturn at an earlier stage and possibly eased its speed, depth and perception, the realisation that gold could actually be the best way of protecting one’s assets began to filter through to previous unbelievers in the yellow metal. 

This has shown itself in the unprecedented inflow into metal purchases and ETF holdings which seem to be accelerating as the crisis deepens.  Never mind the fall-off in Eastern investment grade jewellery demand and the big rise in gold scrap sales.  ETFs are picking all this up (and global gold production is falling anyway).  But no matter, investment strength is always driven perhaps more by perception than by fundamentals (at least in full-scale bull or bear markets) and the current thought seems to be gaining more and more ground that gold is about the only serious safe haven out there.  The dollar may have proved to be a good bet of late, but everyone knows that pumping out money will ultimately be inflationary – and gold is traditionally a great inflation hedge too.

Indeed what gold is doing now is demonstrating that all western currencies are weak, rather perhaps than that gold fundamentals are strong, and the currencies are all devaluing against gold which is regaining its position as ultimate money – a position which believers say has never gone away!

So what of the performance of gold while this article was being written.  Well the price pulled back a little from the brink of bursting up through the $1,000 level and is, at the time of writing, sitting at $994 again, but the overall upwards drive for the moment seems unstoppable as financial news elsewhere continues to deteriorate.  Once gold goes through $1,000 this time it is not unreasonable to suggest it should perhaps stay there for a lot longer than last time – and maybe there is the prospect of a far higher peak.  Gold metal, ETFs, stocks and funds could have a way to run yet.

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Have A Great Day! – Good Investing! – jschulmansr

Catch the New Bull! – Buy Gold Online – Get 1 gram free just for opening account!, no minimums – Buy Safely, quickly, and at low prices, guaranteed! – Bullion Vault.com

========================

Nothing in today’s post should be considered as an offer to buy or sell any securities or other investments; it is presented for informational purposes only. As a good investor, consult your Investment Advisor/s, Do Your Due Diligence, Read All Prospectus/s and related information carefully before you make any investing decisions and/or investments. –  jschulmansr

 

 

 

 

Gold has a ‘true bull run’

This ‘bubble is still being blown up,’ analyst says

Jonathan Ratner, Financial Post  Published: Thursday, February 19, 2009

 

 

 

 

 

 

 

 

 

Safe-haven demand and a lack of investment alternatives continue to help gold break from its traditional trading relationships, rising toward a new record, despite a strong U. S. dollar and weak crude oil prices.

In fact, analysts at Genuity Capital Markets noted that gold has been trading more than US$200 per ounce above its normal value relative to the greenback. The firm also pointed out that the opportunity cost of holding bullion has diminished, with treasury yields at record lows and demand fundamentals deteriorating in the broader commodity and equity markets.

“Gold’s run since autumn, 2008, has been a true bull run, rising despite the strength of the U. S. dollar and outperforming virtually every other commodity and currency class,” said Canaccord Adams analyst Steven Butler. He told clients that bullion has set recent new highs in euros, pounds and Canadian dollar currency terms, among others.

Canaccord raised its peak gold price by another US$150, to US$1,100, now that gold has broken through the firm’s previous target of US$950.

“It is fair enough that gold may be in a bubble, but we think the bubble is still being blown up,” Mr. Butler said.

While credit risk has fallen from its recent highs, he noted that it is as elevated as during gold’s first peak last March, which coincided with the collapse of Bear Stearns. However, gold is still below the US$1,003 high set about a year ago.

Meanwhile, inflation may not be registering yet in terms of near-term expectations, but Canaccord believes that it and a general devaluation of paper currencies will be the result of the concerted monetary and fiscal policies to reflate the global economy.

Gold is known as a measure of real assets value because of its ability to preserve value during inflationary times. However, during disinflationary times like these, the current global growth and demand landscape also supports the notion of too many dollars chasing too few gold ounces, according to Ashraf Laidi, chief market strategist at CMC Markets in London.

He noted that the equity/ gold ratio has fallen about 85% from its 1999 peak, which occurred when gold stood at 20-year lows and equities reached their highs at the top of the dot-com bubble. Just as the equity/gold ratio stands at 18-year lows, the ratio of total financial assets to physical gold is near the low end of its historical range.

Mr. Ashraf also pointed out that the world’s available gold stock stands at only 5% to 6% of total global stock and bond market valuation.

Sustained investor interest in gold throughout 2008 helped push U. S. dollar demand for bullion to US$102-billion, a 29% annual increase, according to the World Gold Council. Its Gold Demand Trends report said identifiable investment demand for gold, which incorporates exchange-traded funds (ETFs), bars and coins, rose 64% last year. This is equivalent to an additional inflow of US$15-billion.

Genuity noted that holdings of the largest gold ETF, SPDR Gold Trust (GLD/NYSE), have increased by 26% since the beginning of 2009. So while bullion held in depositories on behalf of gold ETFs continues to grow from record levels, price volatility is an important consequence on both the upside and downside.

The ease of investing in gold via ETFs is matched by the ease of disinvestment, said Jeffrey Nichols, managing director of American Precious Metals Advisors.

“Just as quickly as gold-ETF depository holdings have grown, so might they shrink when sentiment changes,” he told clients.

This has already contributed to short-term volatility and may do the same for the long term, given that gold’s ultimate peak could be much higher than many had expected.

jratner@nationalpost.com

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Catch the New Bull! – Buy Gold Online – Get 1 gram free just for opening account!,

no minimums – Buy Safely, quickly, and at low prices, guaranteed! – Bullion Vault.com

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Gold stocks are flavour of the month again amongst major analysts – MineWeb

Source: MineWeb.com

 

The recent strong performance of the gold price vis a vis weak stock markets in general is again making gold stocks attractive to institutional and individual investors.

Author: Steve James and Euan Rocha – Analysis
Posted:  Friday , 20 Feb 2009

NEW YORK (Reuters) – 

The prospects for equity markets and numerous sector indexes have dimmed during the global recession, but gold and the companies that mine it have not lost their luster.

With gold prices nudging their all-time high and energy and other costs falling, mining company profit margins are widening, making their shares attractive, analysts said on Thursday.

“Within the next year, we will see the gold stocks sell at significant premiums to traditional earnings measures or net asset value measures,” said Robert Lutts, chief investment officer of Cabot Money Management in Salem, Massachusetts, which manages $400 million of client assets.

“I have owned Barrick Gold for one reason only — because it has the biggest pile of gold in the ground,” Lutts said of the world’s biggest gold producer, Canada’s Barrick Gold (ABX.N Quote)(ABX.TO: Quote).

“New interest continues in this increasingly attractive sector,” JPMorgan analyst John Bridges wrote in a note. “We feel all funds should have a core long position in the metal or the equities.”

Moreover, analysts expect acquisitions in the gold sector to accelerate, as larger players pounce on their cash-strapped smaller colleagues, in a bid to grow their asset base.

“I believe in investing in both bullion and stocks,” said Jeffrey Nichols, managing director of American Precious Metals Advisors. “Large companies with strong cash positions are in a good position to take advantage” of a higher gold price.

Lower fuel, raw materials and equipment costs, combined with weaker Canadian and Australian dollars and a flight to gold as a safe haven, have spurred gold miners’ stocks recently.

The gold and silver index , which comprises major U.S. and Canadian gold mining stocks, has more than doubled over the last four months. Spot gold was selling for $978.80 per ounce in New York on Thursday, closing in on its all-time high of $1,030.80 from last March 17.

“At these levels, we’d encourage new investors to begin by buying a little Newmont,” Bridges wrote, after Newmont Mining Corp (NEM.N: Quote), the world’s No. 2 gold producer, reported better- than-expected fourth quarter results.

Since most major gold players no longer hedge production, they stand to gain from the recent run-up in gold prices.

Nichols touts Barrick and its Canadian peer, Goldcorp Inc (G.TO: Quote). “In general, I like Barrick and Goldcorp because they are well managed, with management you can trust, providing a good return on investment.”

Credit Suisse analyst David Gagliano saw Newmont as an attractive investment after its solid fourth-quarter results.

“Newmont is entering the sweet spot,” he wrote in a research note noting higher production, lower costs and lower capital expenditures due to the proposed start-up of Boddington, which will be Australia’s biggest gold mine.

“Add to this the favorable gold backdrop and declining raw material costs, and we believe Newmont is set up nicely for a strong 2009,” wrote Gagliano.

Peter Spina, who operates Goldseek.com, a website for investors, said now is the time to invest in gold miners.

“I think mining companies are looking a lot better,” he said. “With costs down, the profit margins are expanding and people are saying: ‘Where should I invest in this market?’ The gold mining companies are the place to be.”

Spina noted that capital markets appear to be opening up.

“We are now seeing more competition for capital where three months ago it was impossible,” he added.

Spina likes the junior players, such as Denver-based Gold Resource Corp (GORO.OB: Quote), which is developing projects in Mexico.

Genuity analyst Tony Lesiak expects larger gold players to swoop in on some of the smaller miners.

“Merger and acquisition activity in the gold sector could be poised to accelerate,” Lesiak said.

He cited the improved outlook for precious metals, the disconnect between larger companies and cash-starved juniors, and a paucity of internally available quality growth projects.

Ian Nakamoto, director of research at MacDougall, MacDougall & MacTier, favored unhedged miners.

“Most producers have an unhedged book, but rising production, such as at Goldcorp and Kinross (Gold Corp (KGC.N: Quote)(K.TO: Quote,) are what come to mind,” he said.

(Reporting by Steve James, Euan Rocha and Frank Tang in New York and Cameron French in Toronto; Editing by Andre Grenon)

© Thomson Reuters 2008. All rights reserved.

==========================

In a previous post I gave you a partial list of Tier 1, Tier 2, and Tier 3 mining companies and their websites. Then in another post I gave you questions you should ask when you are doing your due diligence before making any investment in the stocks of these companies and those mentioned in today’s post. Clicks on the links to view.- jschulmansr

Catch the New Bull! – Buy Gold Online – Get 1 gram free just for opening account!, no minimums – Buy Safely, quickly, and at low prices, guaranteed! – Bullion Vault.com

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Gold Sector: Mergers and Acquisitions Set to Soar – Seeking Alpha

Source: FP Trading Desk

The gold sector could see a flurry of takeover activity in the coming months, according to Genuity Capital Markets analysts Tony Lesiak, Christine Healy and Michael Gray. With that backdrop, they have broken down a number of potential targets.

They believe that 2009 could be a big year for gold M&A for a number of reasons: rising bullion prices, the growing valuation disconnect between juniors and seniors, recent financings by the seniors, and a shortage of internal growth projects for the seniors.

So who could get bought? The analysts ranked 10 junior gold producers and 20 junior development companies on the unusual measure of estimated total acquisition cost per attributable, recoverable ounce.

 

On that basis, the top three producer targets are Allied Nevada Gold Corp., Mineral Deposits Ltd., and Kirkland Lake Gold Inc. (KGLIF.PK), while the top junior development targets are Andean Resources Ltd. (ANDPF.PK), Colossus Minerals Inc. (CSIMF.PK), Comaplex Minerals Corp. (CXMLF.PK), Gabriel Resources Ltd. (GBRRF.PK), and Osisko Mining Corp. (OSKFF.PK).

 

“We recommend a basket approach to investing in any of these names given the speculative and single-asset nature of the companies,” they wrote in a note to clients.

With the exception of Gabriel, these are all companies that are often considered takeover targets. Gabriel has problems with NGO opposition in Europe, but the analysts figure that if the company can ever get government approval for its Rosia Montana project, it would be a logical target for Newmont Mining Corp. (NEM).

The most likely North American buyers in this market include Newmont, Barrick Gold Corp. (ABX), Kinross Gold Corp. (KGC), Eldorado Gold Corp. (EGO), and Alamos Gold Inc. (AGIGF.PK), they wrote.

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Decoding What Gold is Telling Us – Seeking Alpha

By: Simit Patel of Informed Trades.com

Well, gold bugs around the world have been having a good chuckle of late, as the market is re-affirming the often eccentric and practically religious views of gold bugs: gold is up over 11% for the year in US dollars, and up over 4% over just the past five trading days. Which begs the question: why? There are a few possible answers to this question:

1. Deflation. This crisis is global, and everyone is flying to safe stores of wealth. Over the big picture of human history, gold has served as the best store of wealth — and thus gold is rising. In many ways this is the classic “gold is money” argument, one typically championed by Austrian economists. Robert Blumen has offered an excellent explanation of this argument.

2. Inflation. Gold is typically a hedge against inflation concerns, and as the US federal government continues to aggressively “stimulate” the economy, the rally in gold may be a reflection of increased concerns regarding inflation.

So which one is it?

In my opinion, both. With that said, I view inflation as the larger concern, as I have said many times before. If the environment were truly deflationary, Treasury bonds would be the true recipients of flight to quality, as well as dollar holdings in FDIC insured banks. Instead, 20+ year Treasury bonds have fallen by more than 13% thus far (as measured by TLT). Negative correlation between TLT and precious metals suggests inflation, not deflation. The chart below illustrates.

click to enlarge

Deflationists will point to the fact that the US dollar may be strengthening relative to other fiat currencies — although this is not necessarily a reflection of deflation, as it could simply be interpreted as weakness of all global currencies, all of which are falling against gold. More relevant may be the rise in PPI and energy prices in January of 2009. While one month alone does not provide sufficient evidence for a substantive reversal in macroeconomic trends, it is not consistent with deflation, and may suggest that the Fed’s inflationary actions in the second half of 2008 may be kicking in.

Conclusions for Trading

The recent activity in the market has led me to make the following revisions:

1. The forex market is increasingly a trader’s environment, perhaps even a daytrader’s environment.

2. Gold and silver may retrace, perhaps even by several hundred dollars, though I would view it as an opportunity to buy on dips. The global economy is getting worse and conditions are being aggravated by the actions of central bankers. As a result, the fundamental case for gold and silver will get stronger.

3. Counterparty risk is rising — this strengthens the argument for increasing the physical delivery portion of one’s precious metals portfolio.

4. Because of inflation concerns, my bias is against short positions in all asset classes. If I were a trader of stocks or commodities, I might look into shorting positions relative to a broader index (i.e. short a particular stock while going long the sector ETF, under the rationale that the stock will do worse than the entire sector).

5. Oil’s behavior has been quite peculiar; I’ve yet to find a convincing explanation for why it’s moving the way it is. As it escapes my fundamental analysis, and as I find it less appealing than currencies from a technical analysis perspective, I’ll stay away from oil.

6. As gold becomes too expensive for many, silver will grow in appeal. And as silver fell more than gold during the second half of 2008, it may be set for a larger rally.

Disclosure: Long gold and silver.

 

 

 

 

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Short Stories: Anglo American, Rio Tinto, Xstrata, Alcoa – Seeking Alpha

By: Jessica Johnson of Short Stories

Anglo American (AAUK), the mining and natural resource company, presents its results today and according to the Financial Times, its CEO, Cynthia Carroll, may face some tough questions. Falling platinum, diamond and copper prices have taken their toll on Anglo’s profit margins, and analysts will be looking for signs of progress from Ms. Carroll’s cost-cutting drive.

As you can see from this graph of Anglo’s shares outstanding on loan (%SOOL), there has been a recent increase in the short position of the stock, which, over the last ten weeks, is up from 1% to 2.2%. However, this is still a small percentage, compared to Xstrata (XSRAF.PK) (for example), which has just under 10% of its SOOL. Xstrata and Anglo’s other rival Rio Tinto [RIO/LSE] (RTP) have recently used a rights issue and a cash injection from China to shore up their balance sheets, whereas Anglo has manageable debt levels. RIO currently has 1.5% SOOL, which is up from 0.7% in January and down from 2.7% in December.

 

 

Anglo American:

click to enlarge

Xstrata:

click to enlarge

Rio Tinto (UK Listing)

click to enlarge

The S&P 500-listed stock Alcoa Inc. (AA), which produces aluminum (partly through the mining industry), has seen a rise in its %SOOL. It is up from 2% in October, but down from 8% ten days ago and currently stands at to 6%. This is in line with a fall in its share price, which over the last six months has fallen from $30 to $7. A particularly severe fall in price occurred between September and October when the stock fell from $30 to $10. Since that time, short investors have continued to take profits as the price ebbs around the $10 mark.

click to enlarge

Disclosure: None

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My Note: With the exception of Alcoa, I think some of these Short traders are going to lose their shirts especially as Gold continues it’s Bull Stampede!- jschulmansr

Catch the New Bull! – Buy Gold Online – Get 1 gram free just for opening account!, no minimums – Buy Safely, quickly, and at low prices, guaranteed! – Bullion Vault.com

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Third time lucky for gold – the ultimate money? – MineWeb 

 

 

 

 

Dow Jones Industrial Average

S&P 500 Index

$INDU 7,336.68, -129.27, -1.7%) off more than 100 points, or 1.5%, at 7,357, and the broad S&P 500 index ($SPX: $SPX 764.48, -14.46, -1.9%) down 10 points, or 1.4%, at 768.

METALS STOCKS

Gold tops $1,000 for first time in nearly a year!

Has World War III Started?

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Has World War III already started? According to Marc Faber it has! Check out his interview. Next do you think the government can lose? According to this pundit not only will it lose it is going to lose big! Finally, for years now China has been coming to the rescue by buying Treasuries and US Debt, what will happen when they and other countries stop? Continuation of series from yesterday’s post. Just In! Peter Schiff Interviwed on Russian TV- Get Prepared!  adjust your portfolios and if you own Precious Metals hang on for the ride of your life!- Good Investing!- jschulmansr

Marc Faber on the Economy, Gold, WWIII – Seeking alpha

By: Tim Iacono of Iacono Research

Another good interview with Dr. Marc Faber, this one over at Bloomberg where he’s been a regular for many years (recent appearances at the likes of CNBC are somewhat unusual as he tends to go against conventional wisdom, something that abounds at CNBC).

Click to play in a new window

There’s lots of good stuff in this one – the outlook for the global economy, oil, gold, base metals, natural resource stocks, World War III having already started…

On the subject of alternatives to the government solutions for the current problems, he was asked how he expected the populace to stand for the government doing nothing?

That’s the problem of society. If people can not accept the downside to capitalism, then they should become socialists and then they have a planned economy. They should go to eastern Europe twenty years ago and to Russia and China for the last 70 years.

How do you tell that to somebody in Detroit who’s losing his home today?

 

 

 

Why is he losing his home? Because of government intervention. The government – the Federal Reserve – kept interest rates artificially low and created the biggest housing bubble, not just in the U.S. but worldwide. That is what I’d explain to the worker in Detroit.

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How the Federal Government will Lose in 2009 – Seeking Alpha

By: Rob Viglione of The Freedom Factory

Through a combination of incompetence and greed, the federal government has placed itself in a position of checkmate. There is no way to finance its budget deficits without devaluing the dollar or causing interest rates to rise. With $10.6 trillion in debt, $8.5 trillion in new money created or given away in 2008, and multiple years of trillion dollar deficits planned by Obama, government has no way to fund its extravagances without either printing a lot more money or borrowing unprecedented sums.

This means that either Treasury bonds will crash, or the dollar will suffer significant devaluation relative to foreign exchange or precious metals, especially gold.

TV Does Great Interview With Peter Schiff (Russian TV, That Is)

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Remember Dare Something Worthy Today Too!

 

Market forces are telling the world to shed unproductive assets and shrink capacity, yet central banks and governments around the world, in particular the U.S., are refusing to listen. Rather than allow markets to snap back to sustainable equilibrium from previously artificial highs, the federal government clings to the notion that forcibly shuffling resources, propping up asset prices, and diluting the money supply will magically save the day.

There are consequences to everything. The consequences of shuffling resources (taxing productive ventures and doling out those resources to failing ones, i.e. bailouts) are stunted growth for good businesses and propagation of bad ones. Artificially propping up asset prices means that those who are generally less competent remain the custodians of society’s capital, and diluting the money supply inflates aways everyone’s wealth over time, particularly harming the poor and middle class.

For decades the federal government has gotten away with this reshuffle and inflate game, but the pawns are drowning, the rooks helpless, and the knights ready to turn on the King. Perhaps this is overly dramatic. Clearly, I doubt the capability of the Federal Reserve, Congress, and Obama to “fix” the economy; rather, I strongly believe they are destroying it by forcing us all to drink this Keynesian Kool-Aid. However, whether or not the economy recovers amidst this historic central government action, there are two phenomena we can exploit to our advantage:

• Short the US dollar
• Short US Treasuries

In “When will the great Treasury unwinding begin?” I show how government debt has been bid to unsustainable levels and will likely fall. The one concern I see stated all too often is that the Federal Reserve will keep buying Treasuries to artificially depress interest rates. This will, it is claimed, keep bond prices inflated. The one undeniable counter to this is that government must somehow fund its $1.2 trillion estimated 2009 deficit. It cannot do this by issuing and then buying the same bonds. It can only raise revenue by selling bonds to other parties, or by diluting the money supply by cranking up the printing presses. There are no other options. There you have it – we have the government in checkmate!

The likely outcome is that they will try to do both. That is why I am heavily shorting both 30-Year Treasury bonds and the dollar. Both assets will likely lose as the government becomes increasingly desperate and the world’s biggest buyers realize there are better alternatives available. Make your bets now before it becomes treasonous to bet against Big Brother!

Disclosure: Long UDN, short TLT, long GLD.

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Five New Forces to Drive Gold Higher – Seeking Alpha

By: James West of The Midas Letter

Gold naysayers habitually point to the relatively weak performance of gold relative to the broader market over the last 5 years. Given the market today, that argument is increasingly wrong, and the naysayers are soon to either admit their mistake, or pretend that they were never naysayers at all. That’s because during the last 3 months, five major new forces have emerged to compound the previous strong drivers of the gold price up to now.

These new forces are as follows:

1. China has stopped buying U.S. debt.
   An interesting piece in the New York Times today signals that China, up until now the biggest buyer of U.S. Treasuries and bonds issued by Fannie and Freddie, is moving towards an end to that policy. China holds over US$1 trillion of such paper, and as interest rates collapse, there is less and less incentive for them to buy American.China has made several adjustments to programs that used to give banks and other financial institutions within the country incentive to buy U.S. assets, which means essentially that these same customers for assets will now be looking for Chinese products.The effect this will have on gold is two-fold. In the first place, reduced demand for U.S. debt will hamper Obama’s plans to keep printing money, because the one limiting factor that still seems to be respected in terms of how much paper can be printed, is the idea that there must be a counterparty to every issuance of T-Bills to warrant continued printing. Theoretically, less demand for T-Bills will force a rise in interest rates to attract investors. But that does not appear forthcoming, which will make the U.S. dollar weak relative to other currencies – especially gold.The second effect is that by eliminating incentives for Chinese banks to acquire U.S. denominated assets, investors there will divert more funds to holding gold as a hedge against their current U.S. dollar holdings, which will be diminishing in value.
2. Future discoveries of gold deposits will diminish dramatically.
   The biggest source of gold ounce inventory for major gold producers is the discoveries made by the several thousand juniors who scour the earth in search of favorable geology. With the collapse in base metals prices, many of these juniors are under increasing pressure to consolidate and downsize, and many more will disappear altogether.That means less money going into gold exploration, and that means the number of new discoveries that can be acquired by majors is going to go down sharply in the coming years. In theory, as gold continues to outperform all other asset classes, there will be a rush back into junior gold exploration, but that won’t happen until gold is taken much higher and investment demand for it soars.
3. Existing by-product gold production will fall sharply
   In copper, zinc and other base metals mines around the world, gold occurs in metallic deposits as a by-product of some other dominant mineral. In the United States, 15 percent of gold production is derived from mining copper, lead and zinc ores.With the collapse in prices for these metals, the by-product production of gold is most often insufficient to justify the continued operation of the mine profitably, and it is likely that a significant amount of this by-product gold production will cease along with the shutdown of these operations. The result will be less gold production from existing operations, contributing to the now even faster growing gap between supply and demand.
4. Gold is becoming mainstream
   One of the biggest contributors to gold’s unpopularity as a main street investment is that it has been mercilessly derided and ridiculed by mainstream investment media and institutions. There is very little opportunity for an investment advisor to insinuate himself into a gold purchase transaction, since most anybody who wants to hold the metal can visit their local bullion exchange or mint and buy as much as they’d like. Because the massive investment institutions that dominate the investment advisory business can’t make a fee out of advising you to buy gold, they try to convince you to purchase other asset classes which their firm has either originated or is a participant in a syndication of investment banks selling such products.Thanks to the widespread coverage of the questionable integrity of these complex securities, and since many main street investors have been burned by their investment advisors (they feel), there is increasing main street advice being doled out to buy gold. One need only search Google news on any given day to discover that headlines critical of gold are now replaced with headlines singing its praises.
5. Gold is the best performing asset class of the decade
   Now that the global financial meltdown has got up a head of steam, investors are hard pressed to find any investment that has performed well over the last ten years as consistently as gold. The chart below outlines this performance and appears here courtesy of James Turk’s GoldMoney.com.

Gold Performance: 2001-2008 (click to enlarge)

As you can see, any investment still returning an average of 10 – 17 percent is a winner, compared to everything else you can generate a chart for. As this intelligence permeates the none-too-quick popular investment imagination, and, combined with the other 4 factors, gold is going to be where the world’s next crop of millionaires is minted.

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A Lesson In Geo-Political Energy + Gold News

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My Note- Today I present an interesting article about the Geo-Political ramifications of the Battle for the Caspian Seas, plus some of the latest Gold News. Gold today is making a much needed correction in prices, if Gold can hold here and/or we have any increase in tensions of the Middle East; I think the next leg will take prices into the $900-$950 range.- jschulmansr

Geopolitical Energy Centered on the Caspian Sea – Seeking Alpha

By: Michael Fitzsimmons of Musings From the Fitzman

I’ve just finished reading a fascinating book authored by Lutz Kleveman entitled The New Great Game. The book is about Kleveman’s visits to all countries surrounding the Caspian Sea and to the countries involved in actual and proposed oil and gas pipeline routes required to bring Caspian Sea energy assets to the world market. He interviews an amazing cast of intriguing characters along the way.

The investigative journalist delves deeply into the geopolitical implications of world powers struggling to control Caspian Sea energy reserves – some of the largest remaining oil and gas fields in the world. It is fitting the game of chess was invented by the Persians. It is worth purchasing The New Great Game just to gaze at the maps on the inside and backside covers…each central Asian country being ruled by a government or dictator who one minute moves diagonally like a bishop, only years later to morph into a rook and move horizontally and vertically like a knight, and every once in awhile going hay-wire and imitating the unorthodox movement of a knight. Who will win the great game? What will OPEC’s response be to non-OPEC oil production in the Caspian Sea region? How will China and Russia respond to American military might in the region? Only time will tell.

The map below shows the countries surrounding the Caspian Sea which are Russia, Kazakhstan, Turkmenistan, Iran, and Azerbaijan.

Most people are fairly familiar with the oil history of Baku, Azerbaijan dating back to Russian oil discovery and production in the early 1870s. Kleveman relates an interesting story of Swede Robert Nobel who was the older brother of factory owners Ludwig and Alfred Nobel who had become very wealthy producing arms and dynamite. Robert had been sent to Baku with 25,000 rubles to purchase Russian walnut to make rifle butts. Instead, he caught Baku oil fever and bought a small refinery. After only a few years, the Nobel Brothers Petroleum Producing Company vaulted over Rockefeller’s Standard Oil as the largest oil producer in the world. Later, the Nobel’s invented the first oil tanker in a story well told in Daniel Yergin’s The Prize, for which, ironically, Yergin won the Nobel Prize for non-fiction literature in 1992. And yes, the prize is named after the same Nobel family as those men seeking walnut wood for rifle butts in Azerbaijan.

Fast forward to today: Baku Azeri oil is being shipped to the Mediterranean Sea and world markets via the so-called BTC (Baku-Tbilisi-Ceyhan) pipeline. The picture below shows the pipeline’s route from Baku, Azerbaijan through Tbilisi Georgia, and finally to the Mediterranean Turkish port of Ceyhan.

This pipeline was hailed as the “Contract of the Century” by Azeri officials very much interested in getting their oil to market independent of Iranian and Russian involvement. Of course, the US was more than mildly interested in this solution as well. The pipeline is owned by a consortium of energy companies, among them:

• British Petroleum (BP): 30.1%
• State Oil Company of Azerbaijan (SOCAR): 25%
• Chevron (CVX): 8.9%
• StatOil (STO): 8.71%
• ConocoPhillips (COP): 2.5%

BP is the BTC pipeline operator.

The big question in today’s energy riddle is how to route the large energy assets of the Caspian Sea to the world market and thereby offer America an alternative to OPEC supplies. Take the giant Tengiz oil field, discovered of the coast of Kazakhstan, as an example. Estimated at up to 24 billion barrels of oil Tengiz is the sixth largest oil field in the world. It is one of the largest oil discoveries in recent history. The Tengizchevroil (TCO) joint venture has developed the field since the early 1990’s. The partners are:

• Chevron: 50%
• ExxonMobil (XOM): 25%
• KazMunayGas (Kazakhstan): 20%
• LukArco (Russia): 5%

Chevron has predicted that Tengiz could potentially produce up to 700,000 barrels of oil per day by 2010. The field also contains large reserves of natural gas. On the downside, the oil is very high in sulfur content, once reason western technology was so desperately required. Currently the oil from the Tengiz field is piped from Kazakhstan through Russia to the Russian Black Sea port of Novorossiysk via the CPC (Caspian Pipeline Consortium). The BTC pipeline is a competing option, preferred by the US to bypass Russia, but is expensive: the oil must first be tanked across the Caspian Sea from Tengiz to Baku, and then offloaded into the BTC pipeline infrastructure. French energy giant Total is interested in developing a common sense alternative pipeline through Iran which everyone knows is obviously the most economically viable solution, withstanding the geopolitical climate in Iran. Of course the US does not favor this route at all.

The US’s long favored route for Caspian Sea energy was first suggested and studied by Unocal (now part of Chevron). This countries involved in this route are highlighted in color in the picture below.

This so-called Central Asian pipeline was to begin with a natural gas pipeline from huge Turkmenistan gas fields through western Afghanistan to the Pakistani deep water port of Gwadar on the Gulf of Oman (Indian Ocean). The natural gas pipeline was to be followed by an oil pipeline along the same route, serving not only the energy starved countries of Pakistan and India, but the world energy markets as well. The US believes this route, bypassing Russia and Iran, as well as the congested Straits of Hormuz, is in the strategic interest of the US as a secure non-OPEC source of oil.

But the key word in the last sentence was “secure”. Unilateral policy decisions by the US in Iraq and elsewhere have instigated a tide of central Asian anti-American resentment. The Taliban, once supported and funded by the US, are now in control of the pipeline’s route. The pipeline project has been delayed until “control” and “security” has been established. Anti-American opposition in Pakistan is also a problem, regardless of that countries dire need for the energy and potential income the pipeline could deliver.

The US’s oil centric foreign policy agenda is apparently to irritate the two major powers in the Caspian Sea region: Russia and Iran. With the USSR’s disintegration in 1991, all the former Soviet states in the region were being eyed for their energy reserves. At the same time, Russia still considers these former states as within their “sphere of influence”.

Instead of joining with the Russians in mutually beneficial energy projects, technology transfers, and contracts, the US instead decided to take the opposite approach: it first propped up a government in Georgia irritating the Russians. Then the US supported NATO membership for former USSR countries Ukraine and Georgia. The US also proposed missile defense systems on Russia’s western borders, further infuriating the Russians. Russia finally had enough and acted in Georgia as George Bush was attending the Olympics in China. Russian actions put exclamation points on the obvious – it can take out the BTC pipeline any time it wants, and is resentful of American military meddling in its backyard.

The prior secret agreements between Putin and Bush to fight the mutual “terrorists” foes appear to be in the distant past. Recent activities involving Russian natural gas transports through Ukraine underscore the vulnerability of Europe’s energy supplies. Europe currently imports some 40% of its natural gas from Russia, and this amount is bound to increase in the future. This further complicates the puzzle by placing US actions at odds with supposed allies in Europe.

With respect to Iran, the US has military forces in Iraq, Afghanistan, Uzbekistan, Kyrgyzstan and elsewhere in the region – completely surrounding Iran. The US has further tried to isolate Iran (to the dismay of the Europeans who vitally need Iranian energy) by imposing economic sanctions on the country. Iran was one of three countries with distinguished membership in George Bush’s “Axis of Evil”. These US actions have left the Iranians no choice but to develop nuclear weapons in order to protect themselves against the same kind of American aggression they have witnessed elsewhere in the region.

Meantime, flawed US/Israeli policy, combined with Israel’s recent activities in the Gaza strip and the powerful Jewish lobbying efforts in the US for military action in Iran, seem to increase the odds for more conflict in the region.

Have US foreign policy moves in Central Asia been successful? Yes and no.

One bright spot is Iraq. Iraq was always the priority in “the war on terror”, not because the terrorists were there (they are now…) but because Iraq holds the world’s second largest oil reserves after Saudi Arabia. Many of Iraq’s oil fields also have the important advantages of being sweet crude (high quality), are shallow, and are under pressure, making Iraqi production costs very low – in the neighborhood of $10/barrel. For those who actually believe the US government’s marketing job of WMDs, “freedom”, etc. as a pretext for invading Iraq, please note the recent announced that Iraq’s oil resources are now “open for business” and up for bidding. Western oil companies such as BP, ExxonMobil, Chevron, and Royal Dutch Shell (RDS.A) stand to benefit handsomely in Iraq while at the same time boosting the country’s oil production by some 2-3 million barrels over the new few year. So, Iraq can be considered a US success story assuming security is maintained and the oil can reach the market. A big if, but time will tell.

The BTC can also be considered a success. It has operated fairly reliably, and has shown to be a fairly secure source of Caspian Sea oil. This was a huge project, and many people in the oil business doubted its success and completion. But it’s up and running today and survived Russia’s recent invasion of Georgia. That said, the BTC’s continued success is extremely dependent on maintaining security in the area.

Now it’s time to head to Afghanistan and take care of business over there. Boy-oh-boy is that going to be one tough nut to crack. The Afghan/Pakistani issue is so deep I can’t even begin to cover it in enough detail to do the subject justice. Those who believe the US motives in Afghanistan are simply “terrorism” or “freedom” should take note that the US fully supported and funded the Taliban when it was decided they were the best option with respect to getting the Central Asian pipeline built. Unocal sponsored the Taliban on trips to Houston to stay at 5-star hotels and visits to NASA. It was only later when the Taliban wouldn’t “play ball” that the US stopped their support and labeled the Taliban terrorists. Even the US installed Afghani President Hamid Karzai worked as an advisor and consultant to Unocal during the initial Central Asian pipeline feasibility studies.

So, US policies have had some successes in the region as far as oil is concerned. From a humanitarian aspect, well, I’ll leave that up to the reader to figure out on his or her own. From an economic standpoint, one would have to make a detailed analysis of military spending versus the economic benefits in order to come to any conclusions. Perhaps I will write an article on this some day, but for now, I’ll sidestep that question as well.

For the US, I am not such an idealist to think for one minute the symbiotic “Pentagon-Petroleum” relationship will change anytime soon. Further, as a realist, I also understand how important the game being played in Central Asia is. I am aware of the actions the US and other world powers are taking in Central Asia in order to acquire the energy reserves they need to power their economies. My eyes are wide open.

What I continue to struggle with is why the US directs so many resources and dollars toward these overseas strategies while at the same time almost completely ignoring what steps could be taken to reduce our foreign oil requirements by adopting some fairly simple and obvious policy changes. It, quite simply baffles me. Even a cock-sure trader hedges his bets now and again. The most amateur investor knows some diversification is prudent. So, why does the US continue oil centric policies which are certain to lead to more conflict, more debt, more trade deficits, and a weaker economy and currency?

Most readers are very familiar with my proposed energy policy, but I will add the link yet again in the hopes that someday, someone out there with a bit of power and influence will read it and make it happen.

So what does all this have to do with investing you ask? In a word: everything. Where can US investors put their money these days? Financials? Consumer cyclicals? Auto makers? I think not. Despite current low oil prices, the recent strength in the US dollar, and the subject matter of this article, I continue to believe the best opportunity for US investors is to participate in energy companies and to buy gold. Now, I know that some of you who read my articles earlier in the year and went out and bought my recommended stocks got a hurt, and hurt bad, right along with me and everyone else. I’m truly sorry, and feel bad if my advice caused you any pain (at least realize I felt the pain as well!). That said, let’s look at the 2008 returns for some of my picks:

• British Petroleum (BP): -36.1%
• Chevron (CVX): -20.7%
• ConocoPhillips (COP): -41.3%
• ExxonMobil (XOM): -14.8%
• Schlumberger (SLB): -57%

Not awfully bad, considering these returns (from this weekend’s WSJ) do not include the nice dividends some of these companies’ payout and the S&P500 was down 38.5% in 2008, its worst year since 1931. At the same time gold held up rather well, gaining 7% in the course of the year.

The bad news was some of my theme picks didn’t do well at all. Energy services, which at one point in 2008 were my “number one investment pick”, simply got hammered. Likewise, my advice to get into strategic metals via Vanguard Precious Metals (VGPMX) was a disaster as the stocks in this fund were sold off big time during the great leverage unwinding.

Making matters worse was the huge distribution VGPMX made at the end of the year which just infuriated me. I actually called Vanguard and asked them how a fund which lost over 60% for the year could possibly justify making a year end taxable distribution that equaled roughly 12% of the fund’s entire NAV?! I mean, if you sold enough to make such huge gains, why the hell is the fund down 60%? If you didn’t sell, and watched the stocks go down, why not sell the losers so that the losers and gainers cancel each other out so that no taxable distribution takes place? I was told I simply “didn’t understand”. They were right, I don’t! Seems to me even a moron could manage a fund better than that. The loss in the fund’s NAV I can understand. The huge year end distribution is simply inexcusable.

What I learned during the year is this: if a person wants to invest in precious metals, buy gold, take personal delivery of it, and bury it in the backyard and forget about it. Sure, people flock to the US dollar in times of crisis, but did anyone see the action in US treasuries last Thursday and Friday, as well as the headline in Barron’s this weekend? The financial mismanagement by the US government, Treasury, and Federal Reserve combined with the lack of a strategic long-term comprehensive energy policy must lead to a long-term weakening of the US currency. So, buy oil, buy gold. When inflation comes back, it will come back very quickly and these hard assets will once again take off like a rocket. I mean, how can the economy not re-inflate with the Federal Reserve printing US dollars as fast as the presses will print them?

My picks for 2009 are as follows: XOM, BP, CVX, COP, SLB and gold bullion, in particular American Eagles and Canadian Maple Leafs.

Goodbye 2008! Indeed, very soon we will be saying goodbye to George W. Bush as well. Let’s all hope that 2009 will be better than 2008. It won’t take much! Let’s also hope that the new administration hedges its foreign policies bets with a bet on the American people and what we can do at home by enacting a strategic long-term comprehensive energy policy. In the meantime, buy Kleveman’s book The New Great Game, enjoy, and learn. The last paragraph of the book sums up my feelings perfectly.

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Get The Book: The New Great Game – by: Lutz Kleveman

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Gold Due for a Pullback; Silver Approaching Resistance- Seeking Alpha

By: Jeff Pierce of Zen Trader

I like gold here as an investment going forward- I just liked it a whole lot better a few weeks ago. I think we at the top of this wedge formation and due for a pullback and the RSI could come back to the previous high around 50. That would be very constructive and bullish allowing this metal to bust through 900 on its next run. While I don’t have a specific price target for where I think it will correct to, the 20-day moving average seems like a reasonable guess.

Obviously if tensions heat up in the Middle East this could fuel another rise in gold and all bets are off. However I’ve learned in the past not to underestimate gold’s ability to correct quickly so I took my profits on Friday and will enter on a pullback. I wanted to be flat going into next week as anything can happen when all the fund managers get back from vacation.

Silver has been up 6 straight days and is fast approaching resistance. I would rather it pause here and gather some strength to possibly break through the 11.75 area instead of shooting straight up using up all it’s firepower. Use any further strength to unload positions and wait for a pullback to add or establish new positions.

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Profiting From Bernanke’s Super-Fed and Obama’s Newer Deal – Seeking Alpha

By: Naufal Sanaullah of The Gotham Fund and Dorm Room Derivatives

The historic wealth destruction of 2008 was obviously deflationary. Defaults strip away wealth. Institutions respond by selling assets to raise capital. Widespread deleveraging leads to supply expansion in assets and contraction in money and credit (i.e. deflation).

Nevertheless, the response has been unprecedented in its own merit. Government debt held by the public was $5.51 trillion when September began; by the end of 2008, it had risen to $6.37 trillion. The more than $1 trillion expansion in Treasury borrowing surely partially serves to offset the $438 billion budget deficit. But what about the additional half a trillion dollars?

On September 17, the Treasury announced the creation of the the “Supplementary Financing Account” in the Federal Reserve. This is a capital reserve in Fed financed by the Treasury selling new debt and it greatly expands the Federal Reserve’s balance sheet, albeit stealthily. The excess capital is trapped in this Fed account and does not reach currency in circulation. As of January 2, $259 billion is in this Treasury-financed cash pool and counting the Treasury’s “General Account” with the Fed, there is a total of $365 billion sitting at the Fed. The capital itself is money borrowed by the public, so its immediate net effect is deflationary.

On top of that, the Fed in an unprecedented gesture has started incentivizing excess bank reserve deposits by issuing interest on these holdings. Rather than being lent out, liquidity provided to banks by the Fed is thus trapped as it earns interest deposited at the Fed. The Fed is essentially issuing debt, and banks are engaging in what amounts to be a dollar-based Fed vs. interbank carry trade. Banks borrow money from the Fed, deposit them back into the Fed (use borrowed dollars to purchase Fed debt), and profit from the differential between the fed funds and overnight rates (profit off of the difference between the interest rates offered by Federal Reserve and other banks).

Less than $40 billion a year ago, the excess reserve deposits held by the Federal Reserve has ballooned to $860 billion. The banks can also deposit printed money into a Fed category called “Deposits with Federal Reserve Banks, other than reserve balances,” which is what the Supplementary Financing and General Accounts also fall under.

The “Other” subsection of these deposit accounts, which can be construed to represent bank deposits, has increased from $281 million in September to $15 billion today. Both the reserve and non-reserve deposits comprise another huge pool of excess liquidity on the Fed’s balance sheet that doesn’t immediately affect circulated currency.

Another Fed-induced cash trap has been in the form of increased reverse repurchase agreements, which are up to $88 billion. Reverse repurchase agreements are the offering of collateral in exchange for a cash loan. The Fed has utilized reverse repurchase agreements in its liquification of banks. It buys off toxic defaulting assets in exchange for cash and immediately reclaims the cash by selling the banks T-bills. The Fed printed money to pay for these T-bills, so there is excess liquidity that is trapped in time-sensitive debt. But why would the Fed be taking liquidity away from the system?

The Fed’s balance sheet suggests it has been cranking the printing presses like mad. Fed liabilities have expanded to $2.26 trillion, up over 140% since September. However, currency in circulation is up only 7% in that same time period. Where is this “trapped” $1.37 trillion? The answer is the Fed has confined it into temporary cash pools, whether in the Supplementary Financing Account or excess reserve deposits or in time-sensitive T-bills. The Federal Reserve seems to be sequestering all of this cash to buy time for the Treasury to finish its funding activities. What is scary is this wave of future bailout funding is probably not even close to what will be needed for Obama’s infrastructure and stimulus spending, which will be comparable only to FDR’s and will be liquidity injected directly into the economy.

But who is going to keep funding this expansion Treasury debt issuance? The American public is broke and cannot offer its capital in return for terrible yields. Foreign nations don’t have the means or will to continue financing our debt. Commodity prices have collapsed, cutting deeply into foreigners’ export revenues. Oil is down from highs around $150/barrel this past summer to around $40/barrel now.

According to the CIA World Factbook, China has a $6 billion budget surplus. However, it announced a $585 billion economic stimulus package in early November to be invested by the end of 2010. The Chinese government agreed to provide only $170 billion of the the funds, in an effort to prevent an unreconcilable deficit. How will China raise the other $415 billion for continuous use until the end of 2010? Surely, local governments and private banks and businesses can’t finance such a large package in the midst of a historic recession.

The only reserve China can tap into to finance its stimulus package is its $1.9 trillion foreign exchange reserves, $585 billion of which is in US Treasury securities. Also, according to the Guangzhou Daily, in mid November, the People’s Bank of China began an effort to increase its gold reserves from 600 tons to 4500 tons to diversify risk held by its huge dollar debt reserves. Financing its stimulus package and gold purchases would require selling Treasury securities, but becoming a net seller of US debt could have disastrous economic, political, and even militaristic consequences for China, so it will be interesting to see how events unfold. What seems for certain, however, is that China can no longer purchase more American debt to finance the US Treasury (and consequently the Fed).

This is a problem echoed by the rest of the big creditor nations. After China, the biggest holders of American debt securities are Japan, the UK, Caribbean banking centers, and OPEC nations. Japan is facing enormous headwinds as its quality-focused exports are suffering massive demand destruction as its consumers abroad lose wealth at epic proportions in the economic crisis. Japan was a net seller of US Treasuries in 2008 and with the current wealth destruction, it is highly unlikely it will switch to a net buyer of American debt. The British demand for American debt represented Middle Eastern oil-financed investment, but with oil prices collapsing, it will be next to impossible for this proxy demand from the UK to rise and finance additional debt.

The demand for US debt by Caribbean banking centers is because of their tax laws and because of the dollar’s status as the international reserve currency. As the credit crunch leads to liquidity destruction in Caribbean banks and the dollar slowly loses its reserve status, these tax haven banking centers will no longer be able to buy additional US debt. OPEC nations’ US debt demand, similar to the UK’s, is tied to Middle Eastern oil revenues financing American consumption (of their oil exports). As oil prices tank, as will OPEC nations’ economies and they too will have no wealth to buy up more American debt.

Bernie Madoff is well-recognized as the biggest Ponzi scheme in history, at $50 billion. I beg to differ with that claim. The United States has financed debt with debt since the late 80s, when its external debt/GDP broke the 0 mark. Since then, it has risen to over 100% of its GDP (which in itself is quite artificially inflated because of manipulated hedonics-adjusted inflation figures), and now stands at $13 trillion. That is what’s called a debt bubble. Bernie who?

But the debt bubble appears ready to collapse. The literal pyramid scheme is finally running out of investors, and many Treasury ETFs (like SHY, TLT, IEF, and IEI) are showing classic parabolic topping patterns and the next few weeks should confirm or deny my suspicions. Interest rates are at an obvious floor at zero, so there is nowhere to go but up. That means bond prices have nowhere to go but down, and the way bubbles burst, the falling prices will cascade into more selling until the debt bubble deflates and all the spending is financed by quantitative easing. The minute the Treasury finishes its current funding activity, the debt bubble will begin its collapse. Judging by gold backwardation (discussed later) and the bearish charts on the bubbly debt ETFs, I think the debt monetization and dollar devaluation will begin within the next six weeks.

With an insolvent public and no foreign demand for Treasuries, the Federal Reserve will monetize debt to finance its continued bailouts and economic stimulus. This is purely created capital pumped right into the system. This is not anything new for the Fed– for the past two decades, it has kept interest rates artificially low and created massive artificial wealth in the form of malinvestment and debt-financing. In the past, the Fed has been able to funnel the inflationary effects of its expansionary monetary policy into equity values with its low rates, which discourage saving, causing bubble after bubble, in the form of techs, real estate, and commodities. The excess liquidity (the artificial capital lent and spent because of low interest rates and debt financing) was soaked up by the stock market, which gave the appearance of economic growth and production. With inflation being funneled into equity and real estate over the last two decades, illusionary wealth was created and the public remained oblivious to the inflationary risk and the much lower real returns than nominal.

Now that the “artificial wealth bubble” being inflated for the past two decades is finally collapsing, one of two scenarios can occur: capital destruction or purchasing power destruction. Capital destruction occurs when the monetary supply decreases as individuals and institutions sell assets to pay off debts and defaults and savings starts growing at the expense of consumption. This is deflation and the public immediately sees and feels its effect, as checking accounts, equity funds, and wages start declining. Deflation serves no benefit to the Federal Reserve, as declining prices spur positive-feedback panic selling and bank runs, and debt repayments in nominal terms under deflation cause real losses.

Purchasing power destruction is much more desirable by the Fed. Its effects are “hidden” to a certain extent, as the public doesn’t see any nominal losses and only feels wealth destruction in unmanageable price inflation. It breeds perceptions of illusionary strength rather than deflation’s exaggerated weakness. The typical taxpayer will panic when his or her mutual fund goes down 20% but will probably not react to an expansion of monetary supply unless it reaches 1970s price inflationary levels. In addition, the government can pay back its public debt with devalued nominal dollars, which transfers wealth from the taxpayers to the government to pay its debt. Inflation is essentially a regressive consumption tax, which the government wants and the Fed attempts to “hide”. Not only is the Treasury’s debt burden reduced, but the government’s tax revenues inherently increase.

The Fed, in an effort to minimize inflationary perception, has for the last two decades supported naked COMEX gold shorts to keep gold prices artificially low. The Fed, as well as European central banks, unconditionally supported these naked shorts to deflate prices and stave off inflationary perception, as gold prices stay artificially low. This caused gold shorts to be “guaranteed” eventual profit, by Western central banks offering huge artificial supply whenever necessary, causing long positions in gold to be wiped out by margin calls and losses.

Now that the economy is contracting, the Fed won’t be able to funnel the excess liquidity into equities or other similar assets. It also can’t allow the excess liquidity of today, which is different in both its size (already $1.37 trillion) and nature (it is printed “counterfeit” money and not malinvested leveraged and debt-financed capital), to be directly injected into the economy. That would prove to be immediately very inflationary, as more than three times the money is chasing the same amount of goods, technically leading to 300% price inflation. These figures are strictly based on monetization of the Fed’s current liabilities, not including any future deficit spending (which is sure to dramatically increase, especially with Barack Obama’s policies), the American external debt, or unfunded social programs that need payment as Baby Boomers retire.

In order to funnel the excess liquidity into a less harmful asset, the Fed appears to be abandoning its support for gold naked shorts, causing shorts to suffer their own margin calls and cause rapid price expansion in gold. On December 2, for the first time in history, gold reached backwardation. Gold is not an asset that is consumed but rather it is stored, so it is traditionally in what is called a contango market. Contango means the price for future delivery is higher than the spot price (which is for immediate settlement). This is sensible because gold has a carrying cost, in the form of storage, insurance, and financing, which is reflected in the time premium for its futures. Backwardation is the opposite of contango, representing a situation in which the spot price is higher than the price for future delivery.

On December 2, COMEX spot prices for gold were 1.99% higher than December gold futures, which are for December 31 delivery. This is highly unusual and it provides strong evidence to the theory that the Fed is abandoning its support for gold shorts. Backwardation represents a perceived lack of supply (in this case, the artificial supply the Fed would always issue at strategic times no longer existed), causing investors to pay a premium for guaranteed delivery. On May 21, when crude oil futures reached contango, I started waiting patiently for the charts to offer a short sell trigger because the contango represented a supply glut relative to perception and current pricing. Oil was priced at $133/barrel at that time and six weeks later, on July 11, oil topped at $147, and six days later crude broke its 50DMA on volume and triggered a large bearish position against commodities that resulted in some of my most profitable trades last year.

I consider gold’s backwardation as a similar leading indicator to the opposite effect—a dramatic increase in prices. Crude began its most recent backwardation in August 2007 at around $75/barrel and increased dramatically over the next nine months to $133/barrel at contango levels. Backwardation, especially in the case of gold prices, reflects a lack of supply at current prices and is very bullish.

But why would the Fed abandon its support for naked COMEX shorts? What makes gold such a desirable asset to attempt to direct excess liquidity into? The unique nature of gold and precious metals provides its desirability in this Fed operation. Gold has little utility outside of store of value, unlike most commodities (like oil, which is consumed as quickly as it’s extracted and refined), so its supply/demand schedule has unusual traits. Most commodities and assets go down in price as the public loses capital, because the public has less to consume with and that is reflected in demand destruction that leads to price deflation. Gold is not directly consumed and its industrial use and consumer demand (jewelry) is at a lower ratio to its financial/investment demand than almost any other asset in the world.

As a result, gold is relatively “recession-proof,” as evidenced by its relative strength in 2008. Gold prices rose 1.7% last year, which is quite spectacular considering equity values went down 39.3%, real estate values went down 21.8%, and commodity prices went down 45.0% in the same period (as determined by the S&P 500, Case-Shiller Composite, and S&P Goldman Sachs Commodity Indices, respectively). Because gold is not easily influenced by consumer spending, highly inflationary gold prices don’t do any direct damage to the public and are a good way to funnel excess liquidity without economic destruction.

Federal Reserve Chairman Ben Bernanke is a staunch proponent of dollar devaluation against gold and is very supportive of President Franklin D. Roosevelt’s decision to do so in 1934. In the past, manipulating gold prices to artificially low levels was beneficial because it prevented capital flight into a non-productive asset like gold and kept production, investment, and consumption high (even if it were malinvestment and unfunded consumption).

Bernanke’s continued active support of gold price suppression would lead to widespread deflation that would collapse equity values and cause pervasive insolvencies and bankruptcies. Insolvency in insurers removes all emergency “backups” to irresponsible lending and spending, which would surely ruin the economy. Bernanke’s plan seems to be to devalue the dollar against gold with huge monetary expansion, causing equity values to rise and economic stabilization. I’ve heard estimates of 7500 and 8000 in the Dow Jones Industrial Average as being minimum support levels that would cause insurers and banks to realize massive losses, causing widespread insolvencies in them and other weak sectors like commercial real estate that would irreversibly collapse the economy.

This gold price expansion, set off by the massive short squeeze, will continue until gold prices reflect gold supply and Federal Reserve liabilities in circulation. The “intrinsic” value of gold today (called the Shadow Gold Price), calculated dividing total Fed liabilities by official gold holdings, is about $9600/oz, compared to around $865/oz today. This gold price calculation essentially assumes dollar-gold convertibility, as is mandated by the US Constitution and was utilized at various periods of American history. The near-term price expansion in gold, mainly led by abandonment of gold shorts and the first traces of inflationary risk, should show $2000/oz by the end of this year. As the leveraged deals from the pre-crash credit craze mature, with the majority of them maturing in 2011-2014, there will be more monetary expansion for debt repayment, which will structurally weaken the US Dollar (which is inherently bullish for gold) and will also provide new excess liquidity to be funneled into precious metals. This leads me to believe gold will be worth $10,000/oz by 2012.

The US Dollar’s strength as the equity and commodity markets collapsed was due to deleveraging and an effect of the Fed’s temporary sequestration of dollars, taking dollars out of supply. That is over. Oil seems to be putting in a bottom on strong volume, no one is left to buy any more negative real yield securities the Treasury is issuing, and gold has started looking very bullish.

But a good speculator always considers all situations. Even if deflation is to occur, which I see as next to impossible, gold prices should still rise to $1500/oz levels next year, because it has shown relative strength as one of the most viable assets left to invest in. In addition, the short squeeze occurring in gold will provide substantial technical price expansion, even in the absence of dollar devaluation. Because of this, I suggest gold as an investment cornerstone for the foreseeable future.

I see the market breaking down from these levels to about the November lows, starting on Monday. Commercial real estate stocks like Simon Property Group (SPG), Vornado Realty Trust (VNO), and Boston Property Group (BXP) should lead the down move, as well as insurers like Allstate (ALL), Prudential (PRU), and Hartford (HIG), banks like Goldman Sachs (GS) and Morgan Stanley (MS), and retailers like Sears Holdings (SHLD). I recommend short positions (including leveraged bearish ETFs like SRS and FAZ) and buying puts against these stocks for the very near term. If the market indeed breaks down but shows bouncing/strength around 7500-8000 in the Dow Jones, that would confirm to me that the Fed is able and willing to inflate its way out of this crisis and I will sell my bearish positions and buy into bullish gold positions.

Because in inflation the dollar is devalued, I am a proponent of owning bullion and avoiding gold ETFs, but I do believe gold and gold miner stocks will provide great returns over the next few years. Royal Gold (RGLD), Iamgold (IAG), Jaguar Mining (JAG), Anglogold Ashanti (AU), Newmont Mining (NEM), Randgold (GOLD), Goldcorp (GG), and Barricks (ABX) are among my favorite gold equities at this early stage in the process. Their charts are all quite bullish and look to see much more upside. I believe gold will pullback for a few weeks as the market continues lower and deleveraging occurs, but like I said, I don’t believe the Fed will allow the markets to breach its November lows. If indeed deflation wins out and the Fed can’t prevent equity value collapse, I will just hold on to my aforementioned bearish positions and trade in particularly those securities for the foreseeable future, and I suggest you to do the same.

Literally the only thing that I find suspicious in all of this is the fact that I see so many inflationists out there and I even see commercials on TV about precious metals. I usually like to stay contrarian to the public, which I consider irrational and wholly incompetent. But this enormous debt and monetary expansion is a structural problem that common sense may provide better insight for than the most complex of models and theories.

I leave you with this, a quote from Fed Chairman Ben Bernanke about President Franklin D. Roosevelt’s 1934 Gold Reserve Act, which was the greatest theft of wealth I’ve aware of in American history:

“The finding that leaving the gold standard was the key to recovery from the Great Depression was certainly confirmed by the U.S. experience. One of the first actions of President Roosevelt was to eliminate the constraint on U.S. monetary policy created by the gold standard, first by allowing the dollar to float and then by resetting its value at a significantly lower level … With the gold standard constraint removed and the banking system stabilized, the money supply and the price level began to rise. Between Roosevelt’s coming to power in 1933 and the recession of 1937-38, the economy grew strongly.”

My predictions: gold at $2000/oz by the end of the year and $10,000/oz by 2012 and silver at $30/oz by the end of the year and $130/oz by 2012.

Disclosure: Long SRS, SRS calls, TBT, TBT calls, gold bullion.

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Please Feel Free To Comment on any of these articles! – jschulmansr

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Kinross Gold Leads Gold Sector Rebound – Seeking Alpha

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Kinross Gold Leads Gold Sector Rebound – Seeking Alpha

By: Sam Kirtley of Gold-prices.biz

Sam Kirtley has been involved in investment in the financial markets for a number of years and has experience in stock investment and analysis as well as options trading. He is now a writer and analyst for various websites including uranium-stocks.net, gold-prices.biz, and silver-prices.net.

Gold stocks have been bouncing back recently, but few can challenge the extraordinary recovery of Kinross Gold (KGC), which has more than doubled since its low below $7. This is a sign that KGC is indeed one of the best gold mining companies in the world, since it has bounced back the furthest and the fastest.

(click to enlarge)

Technically some good signs from KGC are that the Relative Strength Index is moving higher having bounced up off the oversold zone at 30. Similarly, the MACD is trending northwards and is now in positive territory, but can still rise a lot further before giving an oversold signal.

If one is to have favourite shares, Kinross Gold Corp would certainly be one of ours, as it has been a holding of ours for years now, although we have traded the ups and downs when the opportunities presented themselves.

Having originally acquired Kinross at $10.08, after a large rally Kinross then went through a bit of a pull back so we signalled to our readers to “Add To Holdings” at discounted levels of around $11.66. We also gave another ‘Kinross Gold BUY’ signal when we purchased more of this stock on the 20th August 2007 for $11.48. On 31st January, 2008, we reduced our exposure to this stock when we sold about 50% of our holding for an average price of $21.96 locking in a profit of about 93.60%. On the 24th July, 2008, we doubled our holding with a purchase at $18.28 giving us a new average purchase price of $14.50.

As well as trading the stock, we have also dabbled in options contracts with Kinross, buying call options in KGC on the 16th June, 2008, paying $2.68 per contract and selling them on the 28th June 2008 for $5.30 per contract generating a 100% profit in two weeks. We then re-purchased them after they dropped for $2.50, and we are still holding them, although at a significant paper loss.

The reason we like Kinross Gold Corp so much is that it fits our criteria almost perfectly. When we look for a gold stock to buy, we are looking for solid fundamentals, a stable geopolitical situation and most importantly, leverage to the gold price itself.

As far as the fundamentals go, Kinross is a mid to large cap gold producer with a market cap of $9.47 billion. Some may consider this too large a company to offer decent leverage to the gold price, but as shown by the recent performance of the stock price, Kinross is definitely providing that leverage.

As well as leverage to rising gold prices, Kinross is also growing well as a company in its own right. Having made a gross profit of $390.40M in 2006 and then $501.80M in 2007 and with the Sep 08 quarterly profits at $269.80M, Kinross appears to be on track for another good year of record profits. There is also something in the financials that is particularly helpful in the present credit environment. In the last report from KGC, out of the $1284.80M in current assets, Kinross has a massive $322.90M in cash. This means it is well positioned to face any liquidity issues and will not be forced to try and raise money in the current difficult credit conditions.

Therefore, we continue to like Kinross and maintain our stock and option position in the company. Kinross Gold Corp is not only well positioned to benefit from rising gold price, but it is also a great company in its own right, with good growth potential. A full list of the stocks we cover can be found in our free online portfolio at http://www.gold-prices.biz.biz.

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Goldcorp Expected to Get 40% Gold and Silver Reserve Boost at Penasquito

Source: Financial Post Trading Desk

By: Jonathan Ratner

 Goldcorp provided an update for the Penasquito project in Mexico on Monday, a day ahead of its tour for analysts and shareholders.

The miner said its capital cost estimate is less than 10% higher than the original estimate of US$1.494-billion and construction continues to progress well.

When engineering work is complete, Goldcorp expects an approximate increase of 30% in gold reserves and a 15% to 20% increase in silver, lead and zinc reserves for year-end reporting.

There is also the potential for initial resources to be declared for bulk mineable and high-grade underground zones, as well as the Noche Buena property nearby, noted Canaccord Adams analyst Steven Butler. He assumes reserve additions will be roughly 40% for gold and silver and around 16% for lead and zinc.

Concentrate shipments are scheduled to being in the fourth quarter of 2009 and commercial production is expected for the following quarter. Meanwhile, shipments of large trial lots are anticipated in 2009 now that concentrate samples have been provided to select smelters, Mr. Butler said in a research note.

The analyst also noted that Goldcorp’s optimization efforts are underway. They include the possibility of recovering precious metals from low-grade lead ore that was previously considered uneconomic, the potential for underground bulk mining beneath currently defined open pits, and the possibility of cheaper power from a dedicated facility through a partnership with an independent provider.

Canaccord rates Goldcorp a “buy” with a price target of US$32 per share.

Jonathan Ratner 

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The Fed Still Manipulates Gold and The Markets

By: Jake Towne of Yet Another Champion of the Constitution

In a dynamic duo of articles published last weekend, I predicted the fall of the Dollar via a Gold-based perspective, and a US Treasury-based perspective. I want to round off and perhaps even reinforce my theory with a few more opinions and thoughts, which of course may be faulty as the major decisions are still at the mercy and discretion of the Fed, whom I have learned to never underestimate. To be a real “expert” in economics today requires one to be an “expert” in predicting government interventions, so it is all guesswork unless one is an insider. I am highly interested if there are any crucial facts I am missing by the way, please leave any counterarguments below.

I own some gold and if gold goes down I’ll buy some more and if gold goes up I’ll buy some more. Gold during the course of the bull market, which has several more years to go, will go much higher. – Jim Rogers, famed commodities trader, last week

I have written previously how the Fed creates and destroys money, but the example I used of open market operations (OMOs) has changed dramatically in 2008. The Fed is, on a daily basis, still altering its Treasury holdings, but more importantly propping up other assets by buying them, such as mortgage-based securities, Citigroup (C), AIG, etc. The Fed balance sheets have plunged from its historical levels of ~95% Treasury securities to less than 32% Treasuries, which hampers OMOs since the assets purchased will likely find no willing buyer on the market.

It may seem like the Fed is creating lots of money (and they are) but remember that $7.76 trillion, $8.5 trillion, WHATEVER the new number will be by the end of this week, pales in comparison to the amount of financial derivatives in existence, which per the BIS at last count (and just over-the-counter!) was $684 trillion. I am not sure if I ever wrote this phrase in this column before, but I’ve always viewed the financial crisis as a “Triple-D” crisis. Dollar. Debt. Derivatives.

There is another method of money destruction that I have not overlooked and want to mention. In an economic “disintegration” or a monster of a recession, money can also be destroyed by corporate, government and private bankruptcies.

In the debt-based world we live in, I think money destruction could be seen in shocking scales far exceeding the imaginations of the Keynesian-economics-based minds of the Fed and other central bankers. For instance, comparatively there has been much less noise in the commercial mortgage markets. However, if a lot of businesses fail, which has been known to happen in any recession, how do you suppose those mortgages will be repaid to the banks? In such a scenario, central bankers have just two options: create replacement money to re-inflate supply, or revalue the currency to an asset (very likely gold, after all central bankers do not hold at least some gold for their collective health, the yellow stuff is nice life insurance for fiat currency, ain’t it?).

In this eye-popping December 4 essay by James Conrad, he reasons the central bankers will revalue to some sort of a gold standard to escape oblivion, and the price of gold will go from $750 per ounce to $7500-9000. [Remember the “price” is not REALLY going up, after all 1 ounce of gold is the same from day to day. What it really means is that all fiat currencies are going to be massively devalued as the worthless scraps of paper and electrons they really are!]

There is a legal requirement that, in every futures contract that promises to deliver a physical commodity, the short seller must be 90% covered by either a stockpile of the commodity or appropriate forward contracts with primary producers… Things, however, are changing fast. As previously stated, the first major mini-panic among COMEX gold short sellers happened last Friday. As of Wednesday morning, about 11,500 delivery demands for 100 ounce ingots were made at COMEX, which represents about 5% of the previous open interest. Another 2,000 contracts are still open, and a large percentage of those will probably demand delivery. These demands compare to the usual ½ to 1% of all contracts.

Time for Captain Calculator! On December 5, the open interest was 264,796 contracts (at 100 troy ounces per bar). This equates to 823 tonnes, a very significant amount equal to about 10% of the total gold reserves claimed by the United States, the world’s largest holder. There are 26.5 million ounces in contracts and only 2.9 million ounces in COMEX warehouses to cover deliveries as Dr. Fekete notes here. Over 40% of the warehouse totals will be delivered before January 1.

Where is the gold to cover the rest of the contracts? In the ground? In central bank vaults? At the GLD London vault? I do not know the answer, but I agree with Fekete’s comment on gold’s recent backwardation and Conrad, the traders requesting delivery are skeptical there is enough.

Conrad then proceeds to outline a very convincing (to me) proof that ends with:

It is only a matter of time before gold is allowed to rise to its natural level. Assuming that about half of the current increase in Fed credit is eventually neutralized, the monetized value of gold should be allowed to rise to between $7,500 and $9,000 per ounce as the world goes back to some type of gold standard. In the nearer term, gold will rise to about $2,000 per ounce, as the Fed abandons a hopeless campaign to support COMEX short sellers, in favor of saving the other, more productive, functions of the various banks and insurers.

Revaluation of gold, and a return to the gold standard, is the only way that hyperinflation can be avoided while large numbers of paper currency units are released into the economy. This is because most of the rise in prices can be filtered into gold. As the asset value of gold rises, it will soak up excess dollars, euros, pounds, etc., while the appearance of an increased number of currency units will stimulate investor psychology, and lending and economic output will increase, all over the world. Ben Bernanke and the other members of the FOMC Committee must know this, because it is basic economics.

 

Hyperinflation is nasty stuff. I first wrote about it in my July article “Calling All Wheelbarrows: Hyperinflation in America? (Part 2/2)” and a fellow Nolan Chart columnist, Republicae, with far more experience than I wrote “The Hyper-Inflationary Trigger.”

Jim Sinclair, precious metals expert, comments here:

I recently completed the same mathematics that helped me so much in 1980 to determine the price that would be required to balance the international balance sheet of the US.

Balancing the international balance sheet is gold’s mission in times of crisis.

I recently did the math again and was sadly shocked to see what the price of gold would have to be to balance the international balance sheet of the USA today. That price for gold is more than twice Alf’s projected maximum gold price.

 

Alf Field’s maximum projection is $6,000 per troy ounce. Wow, guess Captain Calculator can take a vacation! On that note I would like to end with a reminder to the republican, Republican, and the third person who is reading this:

“We renew our allegiance to the principle of the gold standard and declare our confidence in the wisdom of the legislation of the Fifty-sixth Congress, by which the parity of all our money and the stability of our currency upon a gold basis has been secured.”

– Republican National Platform, 1900

“We believe it to be the duty of the Republican Party to uphold the gold standard and the integrity and value of our national currency.”

– Republican National Platform, 1904

“The Republican Party established and will continue to uphold the gold standard and will oppose any measure, which will undermine the government’s credit or impair the integrity of our national currency. Relief by currency inflation is unsound and dishonest in results.”

– Republican National Platform, 1932 [Above are sourced from H.L. Mencken, A New Dictionary of Quotations on Historical Principles from Ancient and Modern Sources (1985, p. 471)

“We must make military medicine the gold standard for advances in prosthetics and the treatment of trauma and eye injuries.”

– the only mention of gold in the Republican National Platform, 2008. Try searching for ‘gold’ or ‘dollar’ here.

Well, the Gold Standard ended in the US in 1914 when the first unbacked and “unsound” Federal Reserve Notes were printed. Ok, I hate the Fed, but fellow columnist Gene DeNardo phrased it best in his intriguing article “MV=PT A Classic Equation and Monetary Policy“:

When the economy grows in a healthy way, we all share in the profit as our currency becomes stronger and is able to purchase more.

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Inflation on Sale as Deflation Dominates Markets

By:  Eric Roseman of  The Sovereign Society

The time to start building fresh positions in oil, gold, silver and TIPs has arrived. Even distressed real estate should be accumulated if credit can be secured.

Over the next 6-12 months the United States, Europeans, Japanese and Chinese will eventually arrest deflation. And long before that materializes, hard assets will begin a major reversal following months of crippling losses.

Since peaking in July, the entire gamut of inflation assets has collapsed amid a growing threat of deflation or an environment of accelerated price declines. The last deflation in the United States occurred in the 1930s, purging household balance sheets, corporations, states, municipalities and even the government following two New Deals.

Thus far, U.S. CPI or the consumer price index has not turned negative year-over-year. Yet as oil prices continue to lose altitude and other commodities have been crushed, input costs and price pressures continue to decline dramatically since October. The only major component of CPI that continues to post modest year-over-year gains is wages. And with unemployment now rising aggressively this quarter it’s highly likely wage demands will also come to a screeching halt.

Plunging Bond Yields Discount Danger

In the span of just six months, foreign currencies (except the yen), commodities, stocks, non-Treasury debt, real estate and art have all declined sharply in value in the worst panic-related sell-off in decades. More than $10 trillion dollars’ worth of asset value has been lost worldwide in 2008.

What’s working since July? U.S. Treasury bonds and the U.S. dollar as investors scramble for safety and liquidity.

On December 5, 30-day and 60-day T-bills yielded just 0.01% – the lowest since the 1930s while the benchmark 10-year T-bond traded below 2.55% – its lowest yield since Eisenhower was president in 1955. Even 30-year bonds have surged as the yield recently dropped below 3% for the first time in more than four decades.

The market is now pricing a severe recession and – possibly – another Great Depression. Despite a series of formidable regular market interventions by central banks since August 2007, the credit crisis is still alive and kicking. The authorities have not won the battle …at least not yet.

Heightened inter-bank lending rates, soaring credit default swaps for sovereign government debt and plunging Treasury yields all confirm that the primary trend is still deflation.

To be sure, credit markets worldwide have improved markedly since the dark days of early October. Investment-grade corporate debt is rallying, commercial-paper is flowing again and companies are starting to issue debt once more – but only the highest and most liquid of companies. For the most part, banks are still hoarding cash and borrowers can’t obtain credit.

The real economy is now feeling the bite as consumption falls off a cliff, foreclosures soar and the unemployment rate surges higher. These primary trends are deflationary as broad consumption is severely curtailed, with consumers preparing for the worst economy since 1981 and rebuilding devastated household balance sheets.

But at some point over the next 12 months, the market might transition from outright deflation or negative consumer prices to some sort of disinflation or at least an environment of stable prices. That’s when inflation assets should start rallying again.

Inflate or Die: The Name of the Game in 2009

The battle now being waged by global central banks, including the Federal Reserve is an outright attack on deflation. Through the massive expansion of credit, the Fed and her overseas colleagues are on course to print money like there’s no tomorrow to finance bulging fiscal spending plans, bailouts, tax cuts and anything else that helps to alleviate economic stress.

Earlier in November, the Fed announced it would target “quantitative easing” and “monetization,” unorthodox monetary policy tools rarely or never used in the post-WW II era.

Without getting too technical, the term “quantitative easing” means the Fed will act as the buyer of last resort to monetize Treasury debt and other government agency paper in an attempt to bring interest rates down. Quantitative easing aims to flood the financial system with liquidity and absorb excess cash through monetization or purchasing of government securities.

Through monetary policy, the Fed controls short-term lending rates but cannot influence long-term rates that are largely set by the markets; the Fed now hopes it can influence long-term rates through quantitative easing. And since its announcement two weeks ago, long-term fixed mortgage rates have declined sharply.

These and other open market operations directed by the Fed and Treasury will eventually arrest the broad-based deflation engulfing asset prices. It will take time. Inflation is the desired goal and is the preferred evil to deflation, a monetary phenomenon that threatens to destroy or seriously compromise the financial system. Policy-makers have studied the Great Depression, including Fed Chairman Bernanke, and the consequences of failed central bank and government intervention in times of severe economic duress are unthinkable.

Ravenous Monetary Expansion

According to Federal Reserve Board data, the Fed is now embarking on a spectacular expansion of credit unseen in the history of modern financial markets.

The total amount of Federal Reserve bank credit has increased from $800 billion dollars to $2.2 trillion dollars (or from 6% to 15% of gross domestic product) as the central bank expands its various liquidity facilities in an attempt to preserve normal functioning of the financial system.

The Fed’s ongoing operations to arrest falling prices are targeted namely at housing – the epicenter of this financial crisis. It is highly unlikely that the United States economy will bottom until housing prices find a floor. Quantitative easing hopes to stabilize this market.

Buy Gold Now

Relative to other assets in 2008, gold prices have declined far less. The ongoing liquidity squeeze has forced investors to dump assets, including gold to raise dollars. I suspect this short-term phenomenon will end in 2009 once the ongoing panic subsides and credit markets become largely functional again.

Gold should be accumulated now ahead of market stabilization. As the financial system gradually comes back to life over the next several months or sooner, the dollar should commence another period of weakness; there will be little incentive to hold dollars with short-term rates at or close to zero percent. The Fed will be in no hurry to raise lending rates.

Still, the Japanese experience in the 1990s warns investors of the travails of long-term deflation.

The Japanese, unlike the United States, only started to seriously attack falling prices in the economy in 1998 through massive fiscal spending. In contrast, the U.S. is already throwing everything at the crisis after just 17 months.

I expect the United States to print its way out of misery and, over time, and conquer deflation. But the cost will be humungous and at the expense of the dollar, U.S. financial hegemony and calls for a new monetary system anchored by gold.

It’s literally “inflate or die” for global central banks. Inflation will win.

My Note: If you haven’t START BUYING PRECIOUS METALS NOW! Especially GOLD -I AM!    jschulmansr

 

Emerging Metal Miners Attractive to Value Investors – Seeking Alpha

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Emerging Metal Miners Attractive to Value Investors – Seeking Alpha

By: Mike Niehuser of Beacon Rock Research

There appears to be an enhanced investment opportunity for long-term value investors in emerging producers selling near cost of investment or book value. We see the mining sector gaining in interest for value investors as they screen for companies selling at 52-week lows, below book value, and with potential to expand margins and earnings. Wholesale redemptions by investors, along with tax loss selling in both the U.S. and Canada, are creating opportunities for value investors looking to acquire companies with both real assets and the potential for increasing production.

Reduced global lending and investment, which caused a shortage of liquidity, has resulted in a deflationary environment unfavorable to commodities, including precious and base metal prices. Recent actions by governments and central banks are largely inflationary, which should lead to higher gold and silver prices as banks begin to lend and invest. A reduction in credit risk should spur a resumption of global growth, increasing demand for commodities and leading to higher base metal prices. While this cycle appears inevitable to long-term investors, this scenario may be delayed by credit markets or anti-growth policies including protectionism, higher taxes, and increased regulation.

It follows that deflation in the near term should be favorable for companies that have cash or the ability to operate profitably at current metal prices. Clearly, the inflationary environment in the mining industry in 2007 has reversed and costs of labor, materials and supplies are moderating or declining. Recent declines in the price of fuel lifts a burden on both operating profits and the barrier to resumption of economic growth. As this situation persists, should metal prices rebound, margins will also expand, leading to potentially significant appreciation for emerging producers above current levels.

China continues to be important for sustained economic growth through wealth accumulation and investment in infrastructure. Despite concerns over declining rates of growth, China still maintains near double-digit annual growth rates. The ongoing demand for precious metals as a store of value, and base metals for the production of goods and infrastructure, remains immense. China’s 1.3 billion people consumed $1.2 trillion last year, while America’s 300 million consumed $9.7 trillion. While China is criticized for a lack of domestic markets, this situation may be revered as financed by its central bank’s reserves, largely composed of U.S. treasuries.

NovaGold’s market cap is significantly less than the sum of the book value of its three major projects: 

NovaGold Resources Inc.’s (NG) market cap is currently about $317 million, which is only slightly higher than the book value of its Rock Creek gold mine including property, plant, and equipment, plus development costs. This would imply that the market is currently attributing no value for NovaGold’s share of its 50% ownership in its two world-class projects, the partnership with Barrick Gold Corporation (ABX) on the Donlin Creek gold project and with Teck Cominco Ltd. (TCK) on the Galore Creek copper-gold project. NovaGold’s share of the total investment in property, plant, and equipment plus development costs at Donlin Creek is $238 million, with $360 million on the Galore Creek project, for a total of $868 million on these three main assets. NovaGold’s market capitalization is about one third of its share of the capitalized investment in these projects.

NovaGold Gold Pour, Rock Creek Mine, Nome, Alaska

Source: NovaGold

We understand that Barrick is working toward completion of a Feasibility Study on Donlin Creek by 1Q09. This would mean that a majority of NovaGold’s 50% ownership of this gold resource of 31.7 million Measured and Indicated ounces should move into the reserve category and allow for the start of the permit process. In addition, Teck Cominco is anticipated to provide an update on a new design plan for the Galore Creek project, which would be the basis for an updated Feasibility Study and initiation of permitting. Continued development by Barrick and Teck Cominco should assure markets, leading to NovaGold’s market cap appreciating toward total book value.

NovaGold is in the process of commissioning its Rock Creek gold mine in Nome, Alaska, and has recently completed its first gold pour. NovaGold is scheduled to produce 100,000 ounces annually, generating an estimated $25-$35 million in 2009, at an average cash cost of $500 per ounce. NovaGold is working to increase the resource to extend the mine life to ten years. Management estimates that production from the Rock Creek mine, plus cash on hand and proceeds of other non-core assets, should provide funds for planned activities for the next twelve months. NovaGold remains a viable company with significantly undervalued and unrecognized assets.

Etruscan’s market cap is less than the book value of its Youga gold mine which does not include the development potential of projects in West Africa:

Etruscan Resources Inc.’s (ETRUF.PK) market cap is currently about $73 million, which is less than its investment in property, plant, and equipment, plus development costs for the Youga Gold project of about $109 million. The Youga Gold Mine produced 7,450 ounces of gold in October; this was about 14% above September production of 6,572 ounces of gold, and 11% above estimated average monthly production. We suspect that with further optimization, production may continue to exceed published scheduled production, important to build its treasury to fund further development. Cash costs should improve through project stabilization to an estimated $450 per ounce for the life of the mine. The project includes a program to limit price exposure of the gold price on the downside to $629 per ounce.

The current market cap does not appear to reflect Etruscan’s other assets. Etruscan may have the largest land position of any mining company in West Africa. We are looking for additional reports on their Bitou project about 35 kilometers from the Youga Gold Mine and new discoveries in southwest Ghana. We are also quite keen on further developments on its recently announced rare earth deposit in Namibia. As the market cap of the company is now less than the construction cost or book value of the Youga Gold Mine, value investors have the upside to increasing gold prices, as well as exploration in West Africa, Namibia, and its diamond assets in South Africa.

Minefinders’ market cap is close to book value and half base case economic study of Dolores mine:

Minefinders Corporation Ltd. (MFN) has a market cap of about $250 million, slightly above the book value of its Dolores gold-silver mine in Chihuahua, Mexico. Current book value of the Dolores mine, including property, plant, and equipment plus development costs, totaled $203 million as of the end of June 2008. The total budget for the project is $191 million, which includes about $10 million for contingency, with available cash and credit to complete construction. Incidentally, Minefinders recently negotiated an additional $10 million in credit for additional working capital.

Minefinders recently began leaching ore, a major milestone, and anticipates its first gold and silver production in the next few weeks. Previously they had targeted producing 10,000 ounces of gold and 350,000 ounces of silver in the remainder of 2008. They report crushing at a rate of 15,000 tpd, close to the design capacity of 18,000 tpd. Estimated operating cost for gold equivalent during ramp up may range from $400 to $450 per gold equivalent ounce, declining to $297 per gold equivalent ounce over the average life of the mine, scheduled for 15 years.

The Dolores open pit mine currently has 99.3 million tonnes of Proven and Probable reserves, containing 2.44 million ounces gold and 126.6 million ounces of silver. The most recent economic study estimated an NPV at a discount rate of 3% to be $563 million (metal assumptions of $675 gold and $13 silver). The study did not include the potential benefit of adding a 3,000 tpd flotation circuit to increase recoveries of gold and silver in the pit, or located in a high-grade gold-silver resource below and parallel to the identified reserve. As Minefinder’s market capitalization is close to the book value of its investment, and less than one half of its base case economic study, we also consider the company to be significantly undervalued and of interest to value investors.

Mercator’s market cap is less than almost half book value and profitable at significantly lower metal prices:

Mercator Minerals Ltd.’s (MLKKF.PK) market cap is currently about $72 million. As of June 30, 2008 the book value of its Mineral Park mine near Kingman, Arizona, including property, plant, and equipment and development costs was over $141 million. The original budget for both phases of the 50,000 tpd facility ($128 million for stage one and $62 million for stage two) is about $200 million. Mercator is completing commissioning and anticipates production in the near term and has completed and paid for about 40% of stage two.

The first stage of the Mineral Park mine was financed by debt. The balance of the second phase will be paid out of cash flow from the first phase, remaining cathode copper production, and cash from the sale of its silver stream to Silver Wheaton Corp. (SLW). The mine has an estimated life of 25 years, and with a strip ratio of only 0.18, the project has good economics. Cost of production, assuming a 50-50 split for production of copper and molybdenum (net silver credits from Silver Wheaton), is estimated at $1.28 per pound and $6.49 per pound, respectively.

Their pre-feasibility study, assuming metal prices of $1.53 copper, $10.16 molybdenum, and $7.50 silver (prior to the sale to Silver Wheaton), estimated an after-tax IRR of 51% and NPV of $426 million with a 1.8 year payback of capital. As Mercator’s market capitalization is about one-quarter the estimated value of the pre-feasibility study and one-half the book value of the Mineral Park mine, the company should be of interest to risk averse value investors.

Acadian’s market cap is less than Scotia mine book value and replacement value not including significant gold assets:

Acadian Mining Corporation’s (ADGLF.PK) market cap is about $14 million. This is less than one-half book value of their Scotia Mine operation in Nova Scotia, including property, plant, and equipment plus development costs of approximately C$30 million. This includes the cost to acquire the mothballed Scotia Mine and bring it into production. Management estimates the replacement cost of the Scotia Mine to be about C$100 million.

Acadian brought the operation into production in 2007 on time but faced challenges in early 2008 due to difficult weather conditions. This was followed by declining zinc and lead prices. Management estimates an operating breakeven rate of $0.55 per pound zinc-lead, and overall company breakeven of $0.59 per pound zinc-lead. This was prior to the decline in the Canadian Dollar to the U.S. Dollar, which benefited Acadian, as their costs are in Canadian Dollars. Prior to declining metal prices, management implemented an aggressive cost reduction program, with plans to resume development of its gold assets in 2009.

Acadian has a gold resource in Nova Scotia of about 1.6 million ounces. When Acadian acquired the Scotia Mine it was expected to centrally process gold resources. Record zinc and lead prices accommodated restart of the mine as previously designed. Should base metals stabilize at lower levels, we expect management to revisit the original concept of processing gold ore. We estimate this could be accomplished in six to eight months at a cost of C$5 to C$10 million.

Disclosure: The author is long NG, ETRUF.PK, MFN, and ADAIF.PK. An affiliate of the author’s employer provides corporate advisory services to NG, ETRUF.PK, MFN, MLKKF.PK and ADAIF.PK.

My Note: I am also long NG and am looking at the others-jschulmansr

Junior Gold Miners Are Dirt Cheap – Seeking Alpha

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Junior Gold Miners Are Dirt Cheap- Seeking Alpha

By: Graham Summers of GPS Capital Research

Wrong again!

Numerous pundits have made a big deal of stocks’ recent rally and gold’s plunge. Some even went so far as to claim that gold has lost its “safe haven” status. They’re horribly mistaken.

For one thing, gold has held up incredibly well compared to both stocks AND commodities this year. Stocks have fallen 32% in 2008 thus far. Oil is down 26%. Zinc is down 58%. Gold is only down 16%.

In simple terms: Had you put all of your money in gold at the beginning of 2008, you would have outperformed virtually every asset class in existence. It’s also worth considering that much of the downward pressure in gold has come predominantly from the “paper” market.

As I’ve written on these pages before, the physical or bullion market in gold is extremely tight due to unprecedented demand. The US Mint has stopped producing several coins because it cannot keep up with investors’ appetite for bullion. Indeed, most bullion dealers are now charging premiums of 8-9%. This time last year premiums were only 2-3%.

However, due to institutional liquidations and outright manipulation in the paper market, gold struggles to clear even $800 an ounce. And while the paper market for gold has been hit pretty hard, gold mining stocks, particularly the juniors, have been absolutely creamed.

It’s not hard to see why.

An individual gold mining junior might have a daily dollar volume of $5-$10 million. Even smaller hedge funds ($50 million in assets) could crush one of these with a $1-2 million sale (never mind intentional crushing from shorts).

The result is that gold mining stocks are at historic lows relative to the price of gold. If you go back to 1984, mining stocks have only been this cheap relative to the price of gold two other times: 1986 and 2001, both of which were around the END of BEAR markets.

In fact, today, numerous gold juniors are so cheap that they’re trading below book value. Let me put this in perspective: at these levels these companies are cheaper than their mining assets alone. By buying today you are essentially getting the gold reserves for FREE. Below is a screen I ran last week. The data comes from Yahoo! Finance.

Company Name	Symbol	Market Cap	Total Cash	Total Debt	Price/ Book
NEVSUN RESOURCES	NSU	41.0M	59.9M	0	0.966
RICHMONT MINES	RIC	37.2M	25.2M	0	0.801
KIMBER RESOURCES	KBX	27.2M	5.5M	0	0.799
ALLIED NEVADA GOLD	ANV	107.2M	51.6M	2.2M	0.709
ENTREE GOLD	EGI	47.0M	61.9M	0	0.698
VISTA GOLD NEW	VGZ	32.0M	33.4M	22.4M	0.601
KEEGAN RES	KGN	13.1M	10.2M	0	0.547
CENTRAL SUN MINING	SMC	7.2M	4.7M	0	0.177
OREZONE RES	OZN	57.1M	13.2M	0	0.165

The most common accusation leveled against gold juniors is that the credit crisis will stop them from receiving the credit necessary to fund their operations. However, as the above table shows, many of these companies are already sitting on substantial cash hoards. In addition, some that are already producing gold throw off enough cash to fund their operations without additional loans or credit.

I can’t tell you when gold will finally break to new highs again. And I certainly cannot vouch for the above companies as being great investments (I haven’t done nearly enough research to formally recommend any of them). But one thing I can tell you is that taken as a whole, gold mining stocks are at extremely cheap levels relative to the price of gold. If you’re looking for value in today’s market, this is a great place to start.

My Note: I have a long position in all of these stocks and am adding to them-jschulmansr

 

The Gold Report | Lemieux: Gold’s Behavior Flies In The Face Of Every Theory

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Eric Lemieux: Gold’s Behavior Flies in the Face of Every Theory

Streetwise’s The Gold Report

Eric Lemieux: Gold’s Behavior Flies in the Face of Every Theory
Source: The Gold Report  10/31/2008

 

In an exclusive interview with The Gold Report, Eric Lemieux, metals and mining analyst with Laurentian Bank Securities, describes gold’s inexplicable descent as a violation of market fundamentals. Eventually the worsening supply deficit will energize the precious metals sector and when it does, he believes the junior explorers will be well positioned to benefit. He focuses on the emerging mineral wealth of the James Bay area of Quebec and discusses his favorite explorers.

TGR: You cover 25 to 30 mineral exploration properties, primarily in the James Bay area, owned by four exploration companies. Although there are 20 to 30 exploration and mining companies are in the area, you focus on only a few of those companies. Why the James Bay area, and why these companies: Midland Exploration Inc. (TSX.V:MD), Virginia Mines Inc. (TSX:VGQ), Eastmain Resources Inc. (TSX:ER) and Sirios Resources Inc. (SOI) (TSX.V:SOI)?

EL: Let’s start with “Why James Bay?” In the 1970s, Hydro Québec wanted to harness the rivers to build hydroelectric power stations in the James Bay area. As part of its due diligence, the company hired consultants to assess the geological potential of the area. The report came back stating that there was very little potential. This proved not to be the case, but by then the perception had already been created that the area had low mineral potential. James Bay was considered the little brother of Abitibi—the poor little brother. Then in 2004 Virginia Mines made a major discovery, the Éléonore deposit. This is a world-class, perhaps 6-million-ounce plus deposit currently being developed by Goldcorp Inc. (TSX:G) (NYSE:GG) —and it wasn’t supposed to be there.

TGR: And it’s in an area where, thanks to Hydro Québec, there’s good infrastructure.

EL: That’s right. Hydro Québec built roads and airports providing access in the James Bay area. When you consider the infrastructure, plus the discovery of the Éléonore deposit, the area becomes very interesting. In addition, the Québec government is favorable to the mining industry. Also, James Bay is located in the Cree First Nations area and, unlike the situation in other jurisdictions in Canada, there is a 40-year history of partnerships between Hydro-Québec and the Cree as well as other participants. And then, of course, there’s the question of electrical power. The hydroelectric dams and power stations are already there. Any company that requires electricity for a long period of time can negotiate with Hydro Québec, which has a reputation for providing cheap electricity for sound industrial development. When you add it all up, the area has promising mineral potential, a good social framework, existing infrastructure, and a favorable permitting environment.

TGR: There’s also access to a skilled work force because Abitibi is just south of there.

EL: Exactly. The Abitibi has a rich mining heritage. So the proximity means you have access to that work force as well as a depth of knowledge. That’s a tremendous advantage.

TGR: What do you think are the prospects for another discovery the size of the Éléonore deposit?

EL: This is an underexplored area, so I think it’s just a matter of time. It’s been four years since the discovery of the Éléonore deposit. We’re just starting to scratch the surface and there could be some surprises in the years ahead.

TGR: Does the fact that existing infrastructure makes exploration in the James Bay area less costly give mining companies operating there an edge in today’s market?

EL: I think so, depending of course on how far commodities drop. If you can find high-grade deposits in this area, all of the advantages we discussed help offset lower commodity prices. In the current financial crisis, projects that require huge capital investments will be almost impossible to finance. That’s a huge handicap compared with smaller, high-grade projects that require less capital, and have a high payback or a quick payback time. So I think projects in the James Bay area are well positioned in today’s economic climate. Equally, exploration costs are less as road and dam infrastructure provides access and adds to beneficial logistics.

TGR: That explains why you like the geography. Let’s return to the second part of the question—why just these few companies out of the 30 or so that have property in this area?

EL: Based on the criteria I use, these companies are the best. The first criterion is the quality of the management team. If you have solid management, everything else falls into place. Then I assess the quality of the projects, the geological potential, and the share price.

TGR: Given the financial turmoil, do you think the junior companies you’re focusing on can withstand this downturn?

EL: The companies I’ve selected have what I call a partnership approach. They farm out part of their property to a JV partner who finances the exploration. Midland Exploration uses this model. Of course, the financial health of the partners is also important, because if the partners are not healthy, the work will not get done. Three of my four companies have great financial health, so they’ll be able to continue through the downturn. Some of them were able to finance last spring when the market was rather favorable. For example, Eastmain Resources did a $16 million financing that puts them in a strong financial position. And Virginia’s business model has always included a very large treasury, which stands at about $45 million. Plus the company has structured its agreement with Goldcorp to include an advanced royalty on the Éléonore deposit that will start bringing in US$100,000 per month in April 2009.

TGR: Who is Midland’s JV partner?

EL: Midland has several partners. One of them is Agnico-Eagle Mines (TSX:AEM), a major Canadian gold producing company. It’s in a good financial position and has a good asset base. Another is Breakwater Resources Ltd. (TSX:BWR), which was struggling a little even before the recent financial crisis, so that’s a bit of an unknown. My understanding is that Breakwater is still living up to its commitments. Midland has more than $4 million in its treasury, so it will be able to weather the storm. Keep in mind that in addition to looking at a company’s financial strength, you also have to review its obligations. A company may have cash, but if it has entered into agreements that require it to do work and spend money, it doesn’t have the freedom to just sit on its money in a downturn. In evaluating these companies, it’s important to examine how their agreements are structured.

TGR: Is Eastmain also following the JV concept?

EL: Eastmain, which has a sizeable portfolio of properties, has a few agreements with partners, including Barrick Gold Corp. (ABX). But for the most part, Eastmain owns 100 percent of its properties, which gives it the advantage of being able to step back and preserve cash. So I think both Eastmain and Midland are in very good positions. Virginia is probably the best one as a junior mining exploration companies because it has a great financial position, has strong management and has developed the expertise required to be successful in any economic environment.

TGR: Do Virginia, Midland, Sirios and Eastmain have contiguous properties? So if one of them makes a substantial discovery, we could expect the others to follow suit?

EL: That’s only partially true. They have a few contiguous properties, but also some that are very separate. I think each one possesses a different expertise, and is focused on a different area. That said, if there were another major discovery, it would put benefit the whole area and any property there will gain some indirect value.

TGR: When do you think the market will return to a supply-and-demand dynamic and what will it take to get the prices of well-positioned juniors back up?

EL: At the first sign of an economic downturn, investors pull their money out of the most speculative stocks. That’s why the junior explorers started to decline at the end of 2007, before the rest of the market. It’s a bit like the canary in the coal mine. The downfall started much earlier than September of this year and I think that’s unfortunate because it’s been a slow, agonizing downward process. The situation has been compounded by the fact that we’re having this huge financial economic crisis that appears to be spiraling out of control. I think we’ll eventually hit bottom, and then the markets will stabilize and start picking up again. When it does, I think the junior exploration industry will be well positioned. Why? The supply imbalance existed before the downturn and this deficit can only get worse. At some point, people will realize that we have to invest in the commodities and that will energize the industry.

TGR: It’s difficult for most of us to understand why, given the supply imbalance, commodity prices—especially gold—have declined so much recently. What’s your take on this?

EL: The decline in gold prices flies in the face of every theory. The U.S. dollar has been appreciating and the U.S. economy is going through a recession. Gold should be increasing in value in the face of all this uncertainty. To see the price of gold going down right now is almost unexplainable in my opinion. It begs the question, is this due to some type of manipulation, either directly or indirectly?

Eventually people will realize that you can’t sustain both very low commodity prices and a very high U.S. dollar because it violates certain fundamentals. Back in February 2002, an article in The Economist talked about a potential crisis resulting from businesses using financial instruments that they didn’t understand (credit risks). But everyone just turned their backs and carried on. I think it’s a matter of restoring common sense to the market. I am, in particular, in agreement with a written statement made by the general manager of the Québec Mineral Exploration Association, that says that markets must return to their original mission—to finance economic development and not speculation.

TGR: Hedge funds and money markets have had to liquidate, which is causing a lot of turmoil. Once that settles out, won’t supply and demand start to play a stronger role again?

EL: Agreed. And when that happens, I think the metals commodities industry will be in a strong position to benefit.

TGR: When do you think this might happen? Three months? Six months? A year?

EL: I estimate six months.

TGR: When we get back to supply and demand as the market drivers, and the commodities come back, what range do you think gold and copper will trade in?

EL: I think they’ll return to the levels we saw at the beginning of 2008, and I think these were fair prices. I don’t like skyrocketing prices because that’s not good for the long-term viability of the industry. I think gold was trading around $850-$920 in January. It may have touched $1,000 later in March. Good companies are able to make money when gold is in that $850 range. Copper was trading around $3.50, a price that made sense in terms of the supply and demand. These are viable long-term prices. There will be fluctuations and I wouldn’t be surprised if we see a huge spike when the markets initially rebound. But for the overall health of the industry, as long as it is a normal price, everyone comes out a winner.

TGR: To what extent do speculators play a role in these huge spikes?

EL: I think much of it is due to speculators. Having said that, I think speculators have their right to be there. I think it makes the market more fluid. Unfortunately, as we’ve seen with the financial crisis, when there’s excessive abuse, it’s unhealthy. I think we’re in the mess we’re in now because Wall Street really went to an extreme, to total deregulation.

TGR: So you think the market will regain equilibrium over time.

EL: Yes. I believe we’re experiencing the results of probable financial industry fraud. Time will tell who was responsible. I hope we will hold the perpetrators accountable. Unfortunately, I think certain elements are trying to sweep all this under the rug.

When I was young, banks were always viewed as being very conservative. They were the blue chips. Now that we’ve witnessed fraud and abuse in the banking and insurance industry, I hope people will see that banks are not necessarily the best, safest investment. And perhaps this will change their perception of a speculative market or industry, like mining, and they will be able to invest in these markets knowing that a dollar spent there will be a dollar well spent.

I hope the perception of the mineral exploration industry will change because I think there are a lot of good players and, fundamentally, people are trying to discover, develop, or produce a tangible asset. In this day and age, I think something that is tangible has its worth. Once people get to know the industry they will realize that it does have value and maybe has been undervalued for many years. At the very least, I hope that people will be more diligent in regards to what was regarded as a conservative industry (financial) and realize that the mining and mineral exploration industries have made much progress and deserve a better appreciation.

Éric Lemieux, MSc, P. Geo., is a Mining Analyst who joined Laurentian Bank Securities (“LBS”) in January 2008. Prior to joining LBS, Eric worked for nine years as a consultant responsible for applying Regulation NI 43-101- for the Autorité des marches financiers (“AMF”) as well for the New Brunswick Securities Commission. Eric had previously worked at the Montreal Exchange and prior to that had managed exploration projects for Cambior, Noranda and Soquem. Eric holds two master’s degrees, one in Mineral Economics from the Colorado School of Mines (1997) and in another in Metamorphic-Structural Geology from Laval University in Quebec City (1992). Eric hold a B. Sc. in Geology from Laval University (1989).

Roubini Sees Crisis Worsening, Hurting Emerging Markets- Bloomberg

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 Roubini Sees Crisis Worsening, Hurting Emerging Markets October 23 (Bloomberg) — Nouriel Roubini, the New York University economics professor who two years ago predicted the financial crisis, speaks at a conference in London about the prospect of further market turmoil and the risk of a protracted global recession. (Source: Bloomberg)

This is the guy who correctly predicted the financial crisis two years ago – Definitely worth a listen/view
 

 

To watch the whole report go here Bloomberg  click on the watch now link to story.

Diamonds Are Forever and Now Can Be Traded Online Too!

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Diamonds Are Forever, And Can Now Be Traded Online Too

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by Robin Wauters on October 21, 2008

Who knew you could auction real diamonds much like you could sell your stamp collection on eBay?

Well, not really, but pretty close. DODAQ has launched a demo version of what appears to be the first ever online diamond exchange, enabling professional traders to buy, sell and hold certified polished diamonds like stocks. The company offers a two-way auction for traders and facilitates electronic transactions with real-time tradable pricing.

Now, it’s been a while since I’ve traded any diamonds, but according to company management the mechanism is bound to make waves in the industry. The way it works now, is that there’s no real fixed price for polished diamonds. The few inventory lists that give an idea of which stones are out there, are often inaccurate or incomplete. Buyers and sellers pretty much agree on pricing based on a scheme that’s distributed on a weekly basis, but without any real, dynamic transaction data that can be used for benchmarking.

DODAQ aims to provide a centralized, global meeting place that enables basically anyone to trade or invest in diamonds, with transparency on rates. The platform also allows outsiders to start investing in diamonds and set up a virtual holding. Obviously, the biggest challenge for the company is building a market place so secure that it’s able to convince industry professionals diamonds can effectively be traded online ‘like any other commodity nowadays’ (not my words). In order to brush off skepticism, the authenticity and actual existence of every stone is graded and guaranteed (including insurance), and the polished diamonds are locked in a vault facility together with their certification documents.

DODAQ acts as a custodian, so it charges a fee for the vault service and takes a commission of maximum 1,5% on any transaction. You can sign up for a demo account and play around with $500,000 on a dummy balance. I embedded a video below that outlines what DODAQ does in a nutshell.

 

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• Fat Man – interactive design & development collective | Dodaq makes the Crunch
  October 21st, 2008 at 4:15 am
• DODAQ: World’s first online certified diamond exchange
  October 21st, 2008 at 5:32 am
• Diamonds Online Too… « Dynamic Disruption
  October 21st, 2008 at 5:42 am

Comments

Envy – October 21st, 2008 at 3:07 am PDT

this is interesting… really cool idea, but in order to work the power houses have to buy in….

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mahalo bruddah – October 21st, 2008 at 7:56 am PDT

I wonder if I can by a CDO on this badboy — collateralized deadpool obligation

jk, actually right now diamonds are priced per the rappaport report or some bs like that.

the only problem is that a lot of jewelers base the pricing that they can acquire a diamond for a customer off that report and the cost is known when the customer is there. If there is an auction, the price is up in the air for two days.

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Amit Bhawani – October 21st, 2008 at 3:25 am PDT

Can they be easily traded like stocks? Also who would verify the quality?

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Robin Wauters – October 21st, 2008 at 5:18 am PDT

Yup, traded just like stocks, or more like gold actually (try the demo).

“All diamonds published on the DODAQ platform have first been graded by a recognised gemological grading laboratory and are received with their original certificates into the DODAQ vault.”

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gresh – October 21st, 2008 at 7:32 am PDT

Riiiight.

Either the people behind this idea don’t really understand how diamonds are graded and traded in the real world, or they are hoping you don’t really understand how diamonds are graded and traded in the real world.

I’m betting the latter.

 

 

 

LeoDiCaprio – October 21st, 2008 at 3:39 am PDT

Haven’t you seen the blood diamonds movie dude? …diamonds suck

en.wikipedia.org/wiki/Blood_diamonds

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mickey – October 21st, 2008 at 4:05 am PDT

its unlikely anyone’s going to overthrow debeers, but they can try
rankmaniac

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yann – October 21st, 2008 at 4:09 am PDT

What a nice video

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Fat Man – October 21st, 2008 at 4:10 am PDT

As developers of the promo, I can tell you this is an incredible application. I’ve seen it in clear cut action, so to speak and it’s going to cut a swathe through the diamond trade.

Congrats to Simon & team at Dodaq.

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Colnector – October 21st, 2008 at 4:36 am PDT

Next: put/call options on diamonds

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Aaron Cohen – October 21st, 2008 at 5:20 am PDT

I hope the guys at DODAQ have bullet-proof cars and 24/7 secuirty escorts for their families. The cartel does not like upstarts like this.

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John Stephens – October 21st, 2008 at 6:31 am PDT

At first I was apprehensive that such a thing could even be done but on closer inspection, having used the site, this looks like it could really change things – ultimately for the better. Fascinating stuff. I look forward to reading more.

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Jonathan Mervis – October 21st, 2008 at 7:31 am PDT

This will certainly be interesting. The diamond world isn’t used to startups of any kind. Not in the least, something like this.

As a financial instrument, why not trade diamonds like any other commodity? But, if you are choosing just ONE diamond for your fiancee, I highly recommend seeing a stone in person. Any gemologist will tell you that no two stones are ever the same, and that each has its own “fingerprint” and will handle light refraction differently. There are 57 angles to a diamond, and each stone is cut slightly differently, according to the natural growth of its crystals.

Two stones of the same 4 C’s can produce very different effects of light and sparkle. This is a subtlety that is often times lost when people compare diamonds, site unseen, and assume the 4 C’s tell the whole story. But when you put the two stones next to each other, you might be surprised at how obvious of a difference there could be.

It’s very helpful to categorize diamonds with the 4 C’s, but as you can imagine, a 10 minute crash course in the 4 C’s can’t replace a lifetime of experience in diamonds. It’s the same in any industry, where reading a wikipedia article on something doesn’t make you a real expert. You’ll have solid footing, though, and that’s a good start.