Subscribe for 12 months with recurring billing - $199

Buy 12 months of subscription time - $199

 

Search Gold Prices
Gold Price
[Most Recent Quotes from www.kitco.com]
Our RSS Feed

Gold Updates by Mail

Enter your email address:

Follow Us on Twitter
Monday
Nov022009

High River Gold (HRG) Financing Covers Debts, Has Downstream Implications!

HRG Logo 31 July 2009.JPG

We now have the latest update from Chris Charlwood which is not only interesting but it also calls for some action on your part.

To all Minority Shareholders of HRG,
 

By my calculations, upon closing of the $57M financing with Troika (via Polenica Investments, announced 10/27/09), HRG is essentially debt free on a net basis ('net' being debt minus cash & 3rd party shares). At the end of Q2, HRG stated their debt position was $135M. Deducting cash at that time, debt was $112M. If on Nov. 13 HRG reports $26M in positive cash flow from operations for Q3 (an approx. average of the 1st two quarters) then debt is down to $86M. With this $57M financing, it brings the debt down to $29M. The shares HRG owns in third party companies including Detour Gold are worth approx. $50M based on current market prices. Hence, HRG has more than enough cash and shares now to cover all debts as they come due plus fund the exploration program at Buryatzoloto and for general corporate purposes. When the debt is cleared, the company looks like it will be producing over $100M/yr in free cash flow from operations.

With Friday's closing price at $.39, HRG's current market cap sits at (an extremely low) approx. 3 times cash flow from operations. HRG's peer group of West African and Russian mid-tier public gold companies (Polymetal, Randgold Resources, Petropavlovsk - formally Peter Hambro Mining, Golden Star Resources, Red Back Mining, Semafo Inc., Highland Gold) is trading at an average of approx. 19.3 times Q2 Operating Cash flow on an annualized basis. If HRG were trading at this average multiple, the share price would be C$2.95. HRG was trading at $3.40 early last year. The minimal 5% discount to market price and zero warrants negotiated in this financing may suggest a floor in share value at $.38.

There are several other aspects of this financing. It provides cash to keep all facilities with Nomos Bank and Royal Gold current. With the Severstal debt being retired with some of the proceeds, it takes away the risk of them calling in their loans due to breached covenants. It is interesting to note that rather than Severstal increasing its shareholdings by converting its debt, this transaction reduces its ownership from over 61% to just over 50%. Upon closing of this financing, HRG will have approx. 798.9M shares outstanding. Severstal owns approx. 400.7M shares (50.16%). Minority will own approx. 398.2M shares (49.84%) including Troika and approx. 248.2M shares (31.06%) excluding Troika.

The disappointing aspect of this financing is that minority shareholders communicated to HRG management that they would be interested in participating in a Rights Offering to prevent dilution. It seems like these requests have been ignored by HRG management in favor of a financing with Troika. Herein lies the main concern. Troika has arranged and consulted on many financings and other transactions for Severstal in the past. Although Troika may have sold off part of this financing to its investors, they may choose to use influence to have these shares tendered to or voted with Severstal in a future minority buyout transaction. If Troika were a related party they would not be permitted by Securities Commission's policies to vote as part of the minority on the transaction. Policies of the Securities Commission will require in most circumstances a valuation and a majority of the minority vote in an amalgamation proposal. The valuation can be challenged by the minority. Almost 90% of minority holding approx. 248.2M shares did not tender to Severstal's previous attempt to take HRG private at $.30. Those holding approx. 165M shares indicated in writing that they would only tender at an average price of $1.41. If Severstal decides to make another minority buyout bid in the $.60 range, they will be up against a heavy resistance campaign from current minority shareholders. The good news is that excluding Troika votes, the remaining minority still own more than the 199.1M shares required (over 50% of minority) to block any amalgamation attempt.

A group of institutional shareholders have written to the TSX to ask that a rights issue should be brought to all shareholders and this transaction cancelled. At the very least, they believe that these shares, due to "related party status" should be deemed "non-voting" in any further buyout transaction attempt by Severstal. If this potential state of affairs also troubles you, I suggest that you write to the TSX and the Ontario Securities Commission expressing your concerns and putting them on notice that in any subsequent transaction this issue will come to a head. Visit this website for OSC https://web1.osc.gov.on.ca/en/ContactUs/ct_cat-form.jsp and e-mail TSX at info@tsx.com. Time is of the essence.

If you have not done so, please send me an e-mail to my address below if you would like to be included in future communications. Communication amongst us will become important if there is an amalgamation attempt.

References:

Financing announcement

http://media3.marketwire.com/r/FinancingAnnounce

Q2, 2009 Financials

http://media3.marketwire.com/r/Q2Financials

For more information, please contact

Chris Charlwood
Retail Investor
604-718-2668
Rainerc7@gmail.com
Click here to see all recent news from this company



Have a good one and stay calm.

Got a comment – then fire it in.

To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address.

For those readers who are new to this site and are interested in the nuclear power sector that is currently coming back to life, you may want to subscribe to our Free Uranium Stocks Newsletter, just click here.

For those readers who are also interested in the silver bull market that is currently unfolding, you may want to subscribe to our Free Silver Prices Newsletter.
Sunday
Nov012009

Agnico-Eagle Mines Limited: BUY, SELL or HOLD?

AEM Chart 01 November 09.JPG


Last week closed with one of our favourite gold producers, Agnico-Eagle Mines Limited (AEM) taking a hammering as this sector took a breather and Agnico released poorer news than the market anticipated. As we see it the initial sell off has been followed by stop loss programme selling taking the stock down to $53.53.

First of all we will take a quick look at the results and try and assess if the sell off is justified or not, starting with the opening paragraph:

TORONTO, Oct. 28 /CNW/ - Agnico-Eagle Mines Limited ("Agnico-Eagle" or the "Company") today reported a quarterly net loss $17.0 million, or $0.11 per share, for the third quarter of 2009. This result includes a non-cash foreign currency translation loss of $22.9 million, or $0.15 per share, as well as stock option expense of $5.1 million, or $0.03 per share. Additionally, the result included a gain on the sale of marketable securities of $5.9 million, or $0.04 per share. In the third quarter of 2008, the Company reported net income of $14.0 million, or $0.10 per share.

We draw your attention to the net loss of $0.11 per share for the third quarter which is enough to scare any analyst into issuing a down grade notice.

Digging a little deeper we have this snippet:

Full year production is now expected to be approximately 500,000 ounces of gold. The decrease from previous guidance is due to the slower than expected ramp up of the Kittila mill, the mining of lower grade blocks at Goldex and the higher than expected ore dilution at the start-up of Lapa. The early stages of commissioning the plant, specifically the filter presses in the mill, at Pinos Altos is also taking longer than expected. However, as detailed below, each of these operations made significant progress late in the third quarter of 2009. As these operational improvements continue into the fourth quarter, record quarterly gold production of approximately 170,000 ounces is expected.

So the above tells us that they have failed to meet their guidance notes and therefore deserve the negative market reaction. However it also says that the fourth quarter production is expected to be at record levels, which is very positive and should have added some balance to any review.

To read the news release in full please click here.

The management have moved quickly with a damage limitation exercise such as this appearance on BNN by Sean Boyd, CEO, Agnico-Eagle Mines Ltd., who appeared on BNN to discuss the company's third quarter earnings results.

Sean Boyd, CEO, Agnico-Eagle Mines Ltd.JPG
Sean Boyd pictured on BNN

In a nutshell Sean explains that they have had start up problems, mechanical difficulties, tailings problems and various technical difficulties. These appear to be have been largely resolved. La Rhonde mine is still going well and he mentions costs going down from $450 to $350 in 2010. To see this 5 minute interview just click here.

Next we will take a quick look at the chart and as you can see it is something of a disaster with around twenty dollars being wiped off the stock price on very heavy turnover. Also not the the technical indicators are on the floor and the RSI is at its lowest for some time, standing at 22.53. This is deep into oversold territory which we interpret as a buy signal.

We don't know how next week will pan out, it could be more of the same as investors despairingly throw the towel in and further stop loss limits are triggered. The management team needs to go into overdrive and hit the road with a very good explanatory message. And, of course there is the on-going battle between gold and the dollar which will also influence our fortunes. Finally there are the broader markets which appear to have peaked and a sell off there could also impact on precious metal producing companies. This is the way we see it and yes we have not mentioned politics or the price of oil and a myriad of other factors, but we are aware of them.

In conclusion we think that the punishment does not fit the crime and that the selling has been overdone. So we see it as a buying opportunity. This week we will seriously consider making another purchase of the Agnico's stock and may also buy a few of the longer dated Call Options.

Hope this note helps.









Have a good one and stay calm.

Got a comment – then fire it in.

To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address.

For those readers who are new to this site and are interested in the nuclear power sector that is currently coming back to life, you may want to subscribe to our Free Uranium Stocks Newsletter, just click here.

For those readers who are also interested in the silver bull market that is currently unfolding, you may want to subscribe to our Free Silver Prices Newsletter.























Wednesday
Oct282009

Gold, the DOW and the USD

Gold, DOW, USD Chart 29 Oct 09.JPG

A quick comparison between gold prices, the DOW Industrial Index and the US Dollar raises a few tricky questions as gold has slipped back below its previous resistance level of $1033/oz. We can all remember last year when the broader markets tanked and the gold and silver stocks were also dumped regardless of golds performance.

As we see it the DOW will correct at some point and that point appears to have arrived at the 10,000 level, although pierced, it has not been held, with the DOW closing at 9,762.69 today. This sell off has been accompanied by a small but significant rally in the dollar which in turn has put a cap on gold and silver prices as evidenced by the HUI which has dropped from 450 to 380.
The broader markets could well continue to head south as they have put in a terrific rally since March and should be due for a breather.

Also note that this rally would appear to based on stimulus and not economic activity as it has been described as a jobless recovery. A recovery without an increase in jobs lacks the foundation of a true recovery in our humble opinion. A stock market rally based on quantitative easing is one to be cautious of as a retraction could be upon us just as quickly as the rally. Assuming that the broader market sectors will head south we are left pondering the possibility of the mining sector being thrown out with the bath water.

Our opinion for what it is worth is that the DOW will endure some retraction but not on the scale that we had last year. The mining sector is suffering right now but we expect it to be short lived as their 'worth' will be seen as dependent on the performance of gold and silver and not connected to the industrials. Again the performance of the precious metals producers is still inversely linked to the dollar and the dollars rally will also be short lived before it resumes its trek south.

In conclusion hold fast to your core position and ride this one out, its not the first time and it wont be the last time that we get buffeted and pressured to part with our holdings. Our tiny sector has suffered this sort of thing all the way up to this record level in gold prices and has recovered to trade higher each time.

Also note that a number of stocks are now considerably cheaper and the next few days and maybe weeks could present us with some bargain prices so make use of this 'dip' to acquire a few more of your favourite stocks in an orderly manner.

Have a good one and stay calm.

Got a comment – then fire it in.

To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address.

For those readers who are new to this site and are interested in the nuclear power sector that is currently coming back to life, you may want to subscribe to our Free Uranium Stocks Newsletter, just click here.

For those readers who are also interested in the silver bull market that is currently unfolding, you may want to subscribe to our Free Silver Prices Newsletter.
Monday
Oct262009

Kinross Gold Corporation Update 26 October 2009

KGC Logo 06 May 09.JPG

Kinross has released an update on its Paracatu expansion project in Paracatu, Minas Gerais State, Brazil, as follows:


The Company has revised its overall guidance and now expects to produce approximately 2.2 million gold equivalent ounces at an average cost of sales per ounce of $435-450 for full-year 2009.

We have highlighted the overall production figures first as that is as much as some of our readers want to know, the snippet below captures the jist of the news release but if you do want to read the whole message then please click here.


As a result of lower than expected production from Paracatu, the Company has revised its regional guidance for Brazil, where production for the full year 2009 is now expected to be 420,000-440,000 gold equivalent ounces at an average cost of sales per gold equivalent ounce of $645-670.

Based on the expansion plant’s current operating levels and an expected production run rate of approximately 35,000 gold equivalent ounces per month in the fourth quarter of 2009, the Company expects full-year 2009 gold equivalent production at the Paracatu operation to be approximately 340,000-360,000 ounces, at an average cost of sales per ounce of $700-735.

Kinross Gold Corporation trades on the Toronto stock Exchange under the symbol of ‘K’ and on the New York Exchange under the symbol of ‘KGC’

Have a good one.

To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address.

For those readers who are also interested in the silver bull market that is currently unfolding, you may want to subscribe to our Free Silver Prices Newsletter.

For those readers who are also interested in the nuclear power sector that is currently coming back to life, you may want to subscribe to our Free Uranium Stocks Newsletter, just click here.

Saturday
Oct242009

When Will Inflation Really Hit Us?

Inflation 25 oct 09.JPG



Some interesting reading this weekend is this 'take' on inflation by Terry Coxon, Editor, The Casey Report

Most of us are gathered at the station, watching for the Inflation Express to come rumbling in. But we've been waiting for a while now. Just when should we expect the big locomotive to arrive and start pushing the prices of most things uphill?

We’d all like to know the exact date, of course, but no one can know for sure. Not even a careful reading of the Mayan calendar will help. What we can do is estimate a time range for price inflation to show up, and that alone should have some important implications for investment decisions.

Why It’s Expected

The reason for expecting price inflation is the recent, rapid growth in the money supply and the deficit-driven likelihood that more such growth is coming.

As of July, the M1 money supply (currency held by the public plus checking deposits) had grown 17.5% in a year's time. That's not just unusually rapid, it's extraordinarily rapid. Since 1959, M1 has grown more rapidly in only one other 12-month period – and that was the one ending last June, when the M1 money supply jumped 18.4%. Even in the inflation-plagued 1970s, growth in M1 never exceeded 10% in any 12 months.

Dropping large chunks of newly created money into the economy leads to price inflation, because the recipients are likely to find themselves overprovisioned with cash. As they try to unload the excess, they bid up the prices of the things they buy, whether it be stocks, shoes, gasoline, silver coins, or granola. The sellers of those things then find themselves cash rich and start doing some buying of their own, and so the wave of excess money and the bidding it inspires propagate through the economy.

The process isn't instantaneous. It takes time. Just as each player in the economy has a sense of how much of his wealth he wants to hold in the form of money, everyone will move at his own speed to make adjustments when his actual cash holdings seem to be off target.

And the process can seem to stall, especially when fear is growing. When people are worried or otherwise feel a heightened sense of uncertainty, they will gladly hold on to abnormally large amounts of cash – for a while. But when fear abates, as it will when the economy begins to recover from the recession, that temporary demand for extra cash will also fade, and the hot-potato process of trying to pare down cash balances will emerge to do its inflationary work.

But when?

The speed at which the public tries to unload excess cash and the timing of the effects have actually been measured, in the work of the late Milton Friedman and his monetarist colleagues. The method was indirect and roundabout, and so the results, unsurprisingly, were nothing as precise as nailing down the value of a physical constant.

What the monetarists (or the first of them to be equipped with computers) found was that when the growth rate of the money supply rises:

The initial effect is on the prices of bonds and stocks, an effect that comes within a few months.

The peak effect on the growth rate of economic activity comes about 18 to 30 months after the pick-up in the growth rate of the money supply.

The peak effect on the rate of consumer price inflation comes about 12 to 18 months after that, which is to say it comes 30 to 48 months after the peak growth rate in the money supply.
As Friedman famously put it, the lags in the effects of changes in monetary policy are "long and variable." He might have said, "It's a big, wide blur, but we're sure we've seen it."

And even that picture exaggerates the precision that's available to us. The emergence of money substitutes, such as NOW accounts and money market funds, has added its own muddiness to the picture of how growth in the money supply translates into growth in the level of consumer prices. It is only because the recent episode of monetary expansion has been so extreme that we can look to the results just listed for an indication of what's to come.

If you apply the findings of the monetarists to the present situation, here's what you get. The peak growth rate in the money supply occurred last December, so based on the general monetarist schedule:

Some of the effect on stocks and bonds should already have been felt.
The peak effect on economic activity should come between the middle of 2010 and the middle of 2011.

The peak effect on consumer price inflation should come between the middle of 2011 and the end of 2012.

A More Particular Schedule

This time around, should we expect things to move more rapidly or more slowly than average? My bet is on slow, which would push the peak inflation rate out toward the end of 2012. One reason for slow is that the government's rescue packages are delaying the process. Rescuing banks that are choking on bad loans postpones the day of reckoning for both the banks and the loan customers. It retards the pace of foreclosure sales (whether of real estate or other collateral) and puts the deleveraging that has been going on since last fall into slow motion. A wilting of the recent stock market rally would confirm this.

Investment Implications

The big plus about the Mayan calendar is that, right or wrong, it is very definite about things. Human civilization will come to an end, I'm told, on Dec. 21, 2012 – not on the 20th and not on the 22nd. There was no room for monetarists in those step-sided pyramids, but there still are few what-to-do implications from the monetarist findings.

1.When you hear would-be opinion leaders cite the current absence of rising prices at the supermarket as proof that all the new money isn't a source of inflation, don't believe them. It is much too early for the inflation bomb to be going off, even though the powder has been packed and the fuse has been lit.

2.If the large and growing federal deficits and the Federal Reserve's unprecedentedly easy policies tempt you to leverage up on inflation-sensitive assets, such as gold, give the idea a second thought. It likely will be a year or more until price inflation becomes obvious and undeniable (which is what it would take to bring the general public into the gold market). In the meantime, your inflation-sensitive assets could get paddled rudely as the deleveraging that began last year continues.

For at least the next year, the simple, fire-and-forget strategy is 50-50 gold and cash – gold for what looks to be inevitable but on its own schedule, cash to be ready for the bargains that may show up while we're waiting for the inevitable to arrive.

The editors of The Casey Report keep their ears to the ground, listening for the first rumblings of the inflation stampede coming in. But you can bet on rising inflation – and interest rates – right now and be way ahead of the investing herd. To learn more about investing in this all but inevitable trend, click here.

Have a good one.

To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address.

For those readers who are also interested in the silver bull market that is currently unfolding, you may want to subscribe to our Free Silver Prices Newsletter.

For those readers who are also interested in the nuclear power sector that is currently coming back to life, you may want to subscribe to our Free Uranium Stocks Newsletter, just click here.





Wednesday
Oct212009

A Readers View of the Current Situation

Car for one hundred dollars.JPG


Enlightenment here it comes. Understanding around the world that paper money was a depreciating reality has been around for a long time, but understanding and realisation are two different things. The tipping point came with QE. The realisation that governments and bankers are the enemy of one's personal wealth has finally dawned upon an increasing amount of ordinary people turning them towards the only recognised form of safe value namely gold.

People are buying it, the real stuff not paper promises or ETFs a bit here and a bit there, none of which is reported. Two, the quoted jewellery sales are a complete fraud, 40% of "Gold' Jewellery is an alloy, add in 50 to 100% mark up and how much gold have you really got? But these are not the real factors. Far eastern governments have realised that their paper currency investments are at risk, not only are they diversifying but also planning a world currency based partly at least on gold.

At $1000 an ounce there is not enough gold around, however with a universally fixed price at $60000 an ounce there is. Ridiculous you say? Well step into my time machine to the year 1909, Along comes an analyst and tells you that in 100 years the dollar in your pocket will buy 100th of what it will buy today and that gold will be valued at fifty times the then present value. You would at least mentally have consigned that analyst to the funny farm. Fast forward today, if I tell you that the ounce of gold in your account will be worth 100 times as much in 100 years, knowing what you now know would you send that analyst to the madhouse? Particularly since what I am suggesting is only 60 times as much.

How would the central bankers get the gold? Confiscation? well no. Since as the price went up to say $5000 every one would rush to sell thinking what a bargain they got, not knowing that the price was to be fixed well above that. Fantastic speculation you say? Well maybe, but such a price would solve the problem of a world currency based upon gold would it not?  That is the basis now for the expectations. So far all the predictions of a reduction in the present gold price because of COTS and fancy lines drawn upon graphs are not happening in the way previous highs in the gold price have induced, this is because of personal physical buying at the local level, the heavy buying at governmental and central bank level, the realisation that much of the central bank gold is only 22 Carat if it is even there and the understanding that the criminal debasement of currency carried out around the world via QE in such a manner that makes Madoff look like a school kid is nothing more than bare faced robbery.

Finally the real risk that what has happened will persuade more and more persons to call their paper contracts upon maturity this December and later.  Do you think that I am mad? No madder than the analyst in 1909 and we know what happened since then do we not?   Think about it and use imagination, however much you use will not be enough. 


R


Have a good one.

To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address.

For those readers who are also interested in the silver bull market that is currently unfolding, you may want to subscribe to our Free Silver Prices Newsletter.

For those readers who are also interested in the nuclear power sector that is currently coming back to life, you may want to subscribe to our Free Uranium Stocks Newsletter, just click here.

Tuesday
Oct202009

Gold, Silver, HUI and the Dollar Compared

Gold Comparison Chart 21 Oct 09.JPG

A quick look at the above chart and we can see just which investment vehicle has performed the best over the year so far. The unhedged gold and silver producers as represented by the Gold Bugs Index, known as the HUI is in pole position with a terrific gain of 146%.

This is good news for the holders of stocks as for a while the stocks went through a lackluster period losing their leverage to the precious metals sector. It now looks as though a return to the norm is well and truly in progress as the stocks provide a better return to the investor then the physical metal, which they should as owning them carries a number of risks.

In second place we have silver which has put in a magnificent performance with a gain of 84%. Still nowhere near its all time high so silver has a long way to go, however we do expect it to have outperformed gold by the time this bull market comes to an end.

Gold is playing its part admirably despite the detractors and the knockers predicting much lower levels for gold. Inflation aside it is standing at record levels and we expect it to continue to be the trail blazer for the next few years.

The US Dollar is heading south and down about 12% over the same period. Many are looking for a bounce at this point and a recovery to take place. We expect the dollar to be drift lower despite putting in the occasional mini rally which will put a temporary cap on gold prices. However the time will come when the precious metals will rise regardless of the dollars behavior.

Your thoughts are of course most welcome and it would help if you can add your comments and questions via the comments section under each article as we just cant find the time to answer all the emails that we receive.

Have a good one.

To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address.

For those readers who are also interested in the silver bull market that is currently unfolding, you may want to subscribe to our Free Silver Prices Newsletter.

For those readers who are also interested in the nuclear power sector that is currently coming back to life, you may want to subscribe to our Free Uranium Stocks Newsletter, just click here.

Monday
Oct192009

USD To Rally Within Bearish Channel?

USD To Rally Within Bearish Channel?



The USD is in a strong down channel as shown on the chart above. Although the overall trend for the greenback is still firmly bearish, there are opportunities for the greenback to rally within this channel, and that is when buying/trading opportunities will appear in gold.

For instance, at present the US Dollar has been falling over recent weeks, and we have seen gold burst up to make new all time highs. However the greenback is now at the bottom of its down channel, so it is getting some technical support from the lower bound of this trading range. It is likely that the US dollar could rally to near 77, to the top of its down channel, before retracing its steps to fall yet further and make another lower low close to 75.
It would be with this US dollar rally, and the subsequent drop in gold that would accompany it, that those who aren't yet long the yellow metal to get long at a slight discount. Or those who are already long, this could be a time to add to your positions and increase your exposure.

With gold breaking up through $1033, we are confident that we are in the midst of a tremendous rally in gold prices, which will drag up gold stocks such as those detailed in our portfolio.


$1200 gold will be here sooner than you think, so get long and hold on!



To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address.

For those readers who are also interested in the silver bull market that is currently unfolding, you may want to subscribe to our Free Silver Prices Newsletter.

For those readers who are also interested in the nuclear power sector that is currently coming back to life, you may want to subscribe to our Free Uranium Stocks Newsletter, just click here.


Sunday
Oct182009

Gold Prices: An Alternative View

Emirates Business.JPG

In an article entitled 'The fall of gold price could be as spectacular as its rise' by David Robertson of Emirates Business 24/7 an alternative view is presented regarding gold prices that may be of interest to you, as follows:


The price of gold hit another record last week of $1,070 an ounce and it would surprise nobody if yet another record was set this week.

What I can't work out is why. The fundamentals certainly do not support the price. Real demand, three quarters of which comes from jewellery, is non-existent as the high prices and general economic climate have put people off buying pretty baubles.

Even investment demand from exchange traded funds (ETFs), which drove up prices last year, has stalled. The other usual factors influencing gold investment demand – systemic risk and inflation fears – have also been rather subdued. The gold price usually tracks indices plotting risk and inflation forecasts, but in the past few months there has been a divergence with the threat of bank failure and rampant inflation falling while gold has continued to rise.

The most common explanation for gold's surge has been the weakening of the US dollar against the euro so investors are switching their assets from currency into something a little more solid. There is probably an element of truth in this, but enough to send gold to $1,070 an ounce?


Time will tell and this week could well set the tone for future progress in the precious metals arena. We expect gold to hold and go higher but then again we would wouldn't we!


Have a good one.

To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address.

For those readers who are also interested in the silver bull market that is currently unfolding, you may want to subscribe to our Free Silver Prices Newsletter.

For those readers who are also interested in the nuclear power sector that is currently coming back to life, you may want to subscribe to our Free Uranium Stocks Newsletter, just click here.





Thursday
Oct152009

The Dollar in Your Wallet Is Only Worth 18¢

As much as that we ask, a take on the purchasing power of the dollar by Jeff Clark, Senior Editor, Casey’s Gold & Resource Report

“A dollar is worth only 70¢ now,” my Dad jabbered as we worked in the backyard. “And they say it’ll only be worth 50¢ in a few years.”

It was the mid-‘70s. I was helping my Dad build a dirt road to our barn and he wasn’t happy. Not about the hard work or humidity, but from what was happening to the dollar. Inflation was starting to kick into high gear, grabbing headlines that even a girl-chasing teenager could understand.

I remember being appalled by the thought of going to the store and having the clerk demand $1.30 for an item marked $1. Knowing what I know now, my thinking wasn’t that far off.

We lived in a small Pennsylvania town just a Sunday drive from where redneck jokes started. The local paper once ran a story of a blue-collar worker in the next county over who had stuffed a tidy wad of dollars into the back of his gun cabinet early in his working life. The money was discovered by the family after his death. While saving money is good, the duck-hunter equivalent of Family Mattress Bank & Trust won’t keep your money from depreciating; the stash of $10s and $20s had lost over half their purchasing power since he’d hidden them some 30 years earlier.

About the same time the gun locker was being lined with legal tender, both of my grandfathers – unbeknownst to me at the time – bought some gold and silver coins for me and likewise stored them away. I inherited one set a few years ago and got the others just last month. And the purchasing power of the coins is still the same as it was 30 years ago.

You can probably recall similar experiences about the dollar and what it was “worth” from your childhood. Even if you can’t, you intuitively know my conclusion is correct: the dollar ain’t worth what it used to be. And gold really does protect the purchasing power of saved wealth.
Happy Anniversary, Fiat Dollar

In August, the U.S. dollar celebrated its 38th anniversary as a fiat currency.
When Roosevelt issued his infamous 1933 presidential diktat, forcing delivery (confiscation) of gold owned by private citizens to the government in exchange for compensation, gold was $20.67/oz. In January 1934, the price was raised to $35/oz and the U.S. government pocketed the difference – and essentially devalued the dollar by 69%.

Yet the dollar remained convertible, and foreign central banks could redeem their dollar reserves for gold. This presented no problem when the U.S. was running trade surpluses and foreigners didn't have many dollars to exchange for gold. But in 1965, France’s President Charles de Gaulle started aggressively exchanging his country’s dollars for gold and loudly encouraged other countries to do likewise. That year U.S. gold holdings fell to a 26-year low.
Several schemes were tried to stop the drain on the U.S.’s hoard, including lifting the price to $42/oz early in 1971, but nothing worked. The run on the dollar did not abate. With the U.S. unable to eliminate its trade deficit, Nixon was faced with the stark reality of another dollar devaluation. He opted instead to close the gold window on August 15, 1971, ending dollar-for-gold convertibility. The dollar was suddenly off the gold standard, and half of U.S. gold holdings had disappeared. The greenback began to “float,” meaning it wasn’t tied to any standard and could be printed at will.
So how’s it done since then?

Fiat = Faulty
The following chart tracks what has happened to the purchasing power of the dollar and gold since the gold standard ended in 1971. After adjusting for inflation, you can plainly see the erosion of a dollar bill, now able to purchase only 18¢ of what it did in 1971, vs. an ounce of gold, which has not only stood up but increased in purchasing power.


Purchasing Power of Gold vs Dollar.JPG


Today, the amount of bubble gum you get for $1 could have been purchased for 18¢ in 1971.
In sharp contrast, you can buy about 3½ times more bubble gum today with the same gold coin you had in 1971.

There are two overriding conclusions from this chart:

The dollar has consistently lost value since coming off the gold standard.
While gold’s price has fluctuated, its purchasing power has endured. This fact will not change and is the reason you should own physical gold. It’s what I call the 4 P’s: your Personal Purchasing Power Protection.

The Dollar Is Going Lower

At Casey’s Gold & Resource Report, we firmly believe the dollar must go lower. But if you’re new to the topic, or unclear of our reasons, I’ll bet I can convince you in the next 60 seconds...
1. Money printing
The U.S. monetary base (coins, paper money, and central bank reserves) at the end of August 2008 was about $800 billion (minus dollars held abroad). In response to the economic crisis, the U.S. government has printed so much money that the monetary base has swelled to $1.7 trillion. This is the largest expansion in history and a staggering devaluation of the dollar. It means that for every dollar in America one year ago, the U.S. government has created 2.1 more of them.

Here’s the most recent picture of the monetary base:


Monetary Base.JPG


You can see the unprecedented money printing that began last fall. The ramifications of this continual carpet-bombing of liquidity are clear: when banks begin to lend again, or because of reason #2 below, the dollar bill in your wallet will lose significantly more value.
You can believe in deflation as much as you want today, as long as you believe in inflation as much as you can tomorrow.

2. Debt
Taking on debt is like getting a tattoo: it doesn't go away, and it’s pretty painful to get rid of.
In the U.S., our current debt picture looks like this:
National debt $11.6 trillion (but ’09 GDP is only $8.3 trillion)
Government spending YTD $2.4 trillion (but tax revenue is only $1.2 trillion)
Government bailouts $11.8 trillion (equals $38,815 per U.S. citizen)


But the granddaddy of them all are the unfunded liabilities (meaning, they are not covered by an asset of equal or greater value).
Medicare/Medicaid liability $39.6 trillion
Social Security liability $10.6 trillion
Prescription drug liability $8.5 trillion
Total unfunded liabilities $58.7 trillion


So where is the money to pay for all this going to come from? The government has only three choices to meet these liabilities:
1.Raise taxes
2.Cut spending
3.Allow inflation to rise from money printing, diluting the debt burden
You can debate the likelihood of the first two, but everyone at Casey Research is personally betting #3 will come to pass.

Meanwhile, what is the liability of gold? ZERO. When you hold a gold coin in your hand, no one else’s problems, deficiencies, liabilities, or ability to pay come into play.

Although there are many uncertainties in the world, the future purchasing power of gold is not one of them. Buy gold until the monetary chart and debt figures above honestly don’t worry you. Let gold serve its purpose for you by protecting the purchasing power of the dollars in your possession.

Gold can indeed give you solid returns, especially in times of crisis like these, when people start flocking to it as an uncertainty hedge. But select gold (and silver) stocks can gain even more with gold’s run-up – so far we’ve seen up to 6:1 leverage from large-cap gold producers. One company in particular has provided steady gains even as the Dow and S&P tanked last year; that’s why we call it “48 Karat Gold.” Click here to learn more.




Have a good one.

To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address.

For those readers who are also interested in the silver bull market that is currently unfolding, you may want to subscribe to our Free Silver Prices Newsletter.

For those readers who are also interested in the nuclear power sector that is currently coming back to life, you may want to subscribe to our Free Uranium Stocks Newsletter, just click here.