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Ahead of the Herd With Kootenay Gold

October 31, 2011 by · Leave a Comment 

Richard (Rick) Mills, Ahead of the Herd

As a general rule, the most successful man in life is the man who has the best information

Today I’m speaking with Jim McDonald and Ken Berry of Kootenay Gold Inc. TSX.V – KTN

Jim McDonald P.Geo, President and CEO. Jim co-founded and successfully developed Black Bull Resources, National Gold (merged w/Alamos Gold) and White Knight Resources.

Ken Berry, Chairman and Director. Ken has over twenty years experience in the financing (raising over $300m) and corporate communications of public companies.

Rick: Ken, could you tell us a little bit about the history of Kootenay Gold?

Ken: Jim and I were the founders of Kootenay Gold. I started the public company, than about eight years ago Jim and I had an opportunity to meet, we discussed our philosophies and looked at the various things that we were doing.

There was a lot of positive energy between Jim’s goals, his beliefs and what I was trying to achieve and that has created a real bond and a good partnership over the years. Jim had secured some mineral properties in British Columbia’s Kootenay region (southeast corner of province – R. Mills) and I had the public company. I was a former investment advisor so it was a good marriage between the geological side and the investment/finance side, and that’s where the relationship originally started back in 2003.

Rick: Jim why the focus on the Kootenay’s and how did the transition happen from there down into Mexico?

Jim: Kootenay Gold was the opportunity to get under one umbrella a group of professional prospectors and geologists that I’d been working with on various deals for 15-20 years. I’d been looking for an opportunity to get that expertise going in one direction, under one company banner. That opportunity came up in 2003.

We incorporated the company privately and then went out with a business plan, let’s generate some new projects in a prospective for discovery area using in-house talent, option the properties out and as we build value doing that we will look for more advanced projects.

The Promontorio silver project in Mexico is the advanced project that we acquired. That was in 2006 and Kootenay embarked on the first drilling program in 2007, we made the discovery at the end of the year.

Rick: Jim could you explain to our readers how you structure one of your joint venture deals?

Jim: Sure, the deals are basically structured on an earn in basis, so the idea behind the property generation side is that because we have this expertise, which is quite uncommon, very few companies have the ability to generate projects internally, so that gives us quite an advantage because we are able to identify targets and find mineral projects from the grassroots stage.

Now, at the grassroots stage a mineral project has a pretty high risk profile as to success in finding a mineral deposit. You have to go through quite a few of these projects before you find one so you want to mitigate that risk as much as you can.

You can keep on raising money through financings, and carrying those projects forward yourself, or you can farm them out to others, and because we are able to generate these things, and we are actively doing that all the time, our model works best, and the dilution factor is the least, when we option these projects out.

The best way for us to mitigate risk is to bring partners in and let them advance these projects. Any mining project typically has gone through several operators before the economic discovery is made, that’s common.

It doesn’t happen 100% of the time, but it probably happens 80 or 90% of the time, where a project has had four or five or more companies take a shot at it before a mine is actually discovered. Our Connor Creek property, has now gone through two partners and we are lining up a third.

It’s got a very good gold anomaly and a copper anomaly on it. Having a very strong structural zone it still has good upside and discovery potential. We’re able to, even when the partner hands these properties back, generate more interest and get another partner to test them further if the project still has very good merit.

Rick: If the first, or even second, model doesn’t work, it doesn’t mean the next one’s not going to work. It seems like there is almost always something new to try based on the flow of new information.

Jim: Well yes there is, because when you first go in, you are dealing with a limited amount of information. You’ve come up with enough encouragement, enough of a positive result to say “okay, here is the target, it needs to be tested, let’s test it”. So you do, and now maybe you haven’t taken it to a mine, but during the process you’ve extended the scope of the target, you have realized that the control on the mineralization is something other than what you thought.

Through the process of exploration, you’ve eliminated some areas, but at the same time, if the property is a good one, its led you into other areas of mineralization that need to be tested, and that process is an ongoing one.

The more you learn, the better able you are to target, and the more work you do, even if the results are not very positive, you’ve eliminated areas to test, so your becoming more focused.

Rick: People asked Edison why he kept trying to invent the light bulb after failing a thousand times, he told them, “I didn’t fail a thousand times, I found out a thousand ways it wouldn’t work.”

Jim: Right, well it’s a good analogy because exploration is exactly like that.

Rick: Yes.

Jim: Every bit of information is valuable to you, in one way or another. We’ll bring a partner in and they’ll typically have the ability to earn a 50% to 60% interest from us, and in exchange for that, they have a commitment to spend “X” number of exploration dollars. It could be one million, two million, or three million dollars over what’s usually a three to five year term.

They make scheduled cash and stock payments to us along the way. As a mining cycle goes, we’re dealing with pretty bad markets right now, but nevertheless, base metals have held up pretty good and precious metals are doing very well, and the ability to generate new projects is a pretty rare one, so those exploration properties become more and more valuable as time goes on.

Rick: In a market downturn, mining is cyclical, the property generator business model (PGBM) that Kootenay follows, it might be the best one to follow, you are using OPM, other people’s money.

Jim: Well it becomes in a way a numbers game, you use the science and your expertise to increase your odds. But you’ll typically have to go through a thousand showings to find a mine, and you can accelerate that process quite a bit through the science and through expertise. So you want to get as many of these projects evaluated and tested as you can and these projects that we have, they all represent potential for new discoveries and of course carry forward their inherent value for future joint ventures.

Rick: Having a 100% owned property is much easier to promote then a joint venture and you decide when and how much to spend. Those are components many others following the PGBM don’t have. Tell us about Kootenay’s 100% owned Promontorio Silver Project in Mexico.

Jim: We’re building up the Promontorio project, it’s a brand new discovery of significant size and could immediately change the value of the company.

We’ve got all this high impact potential with the various joint venture  projects that we have. Then, underpinning that value is the Promontorio silver project in Mexico, which is turning out to be quite a big, strong system.

Rick: Promontorio has a significant resource. The AGP resource estimate posted on your website comprises Indicated Mineral Resources of 5.22 million tonnes averaging 52.7 g/t silver, 0.86% lead and 0.96% zinc, containing 8.9 million oz Silver, 99.3 million pounds of lead and 110.8 million pounds of zinc. AGP also estimated that Promontorio contains 0.65 million tonnes averaging 55.7 g/t silver, 0.94% lead and 1.00% zinc in the Inferred category, containing 1.17 million oz Silver,13.4 million pounds of lead and 14.3 million pounds of zinc.

Jim: We’re looking to expand the size of that resource, we started on the largest and most aggressive drill program, with three drills, that has been conducted there to date. We have been in the current phase of drilling since May, with three rigs operating since about the end of June, beginning of July, and we’re generating a lot of very good results on step-out expansion drilling on the Promontorio trend.

Rick: It certainly seems like the numbers are building.

Jim: We can see the continuity is building beyond the resource side. We can see the potential for significant expansion, that resource is real, and we’re possibly half-way through a 25,000 meter program and so we are going to have steady drill news coming for the next three or four months. Then once we wrap the current drill program up we’ll be coming out with a new resource calculation, and taking it to the next stage.

Rick: Jim, can you tell us the location of Promontorio, is there any existing mines, infrastructure in the area?

Jim: Promontorio sits in northern Mexico, so it’s just outbound, west of the high Sierra, that’s in the foothills plains region just about 80 kilometers, in a straight line, from the coast of the Sea of Cortez, Gulf of California.

The access is really simple, it’s a 2-1/2 hour drive from a small international airport at Obregon City, and it sits in that prolific, well, all of Mexico is quite prolific for metal content, but it is just on the western edge of that well-known Sierra Madre mineral belt, where you have numerous silver/gold and gold deposits including Minefinder’s Dolores gold silver mine, Alamos Gold’s Mulatos gold mine, Agnico Eagle’s Pinos Altos gold-silver mine, Gammon Gold’s Ocampo gold-silver mine, Cour D’Alene’s Palmarejo silver-gold mine, Goldcorp’s El Sauzal gold mine and Pan American Silver’s Alamo Dorado silver mine.

You know, when we first went into Mexico and starting looking around with Kootenay Gold, our region didn’t have any significant producers and now today, some seven years later, there are seven or eight significant producers within 100-150 km radius.

Rick: Geology?

Jim: The belt we’re in hosts not only gold/silver deposits, but it also has a copper porphyry and up in the northern extent hosts some of the biggest copper porphyries in the world. This is a very rich mineral belt.

The Promontorio system itself is a breccia hosted epithermal silver/lead/zinc system with a significant gold component in it, which we have discounted until we work out the metallurgy on it.

We’ve done preliminary metallurgy and we’ve got good metallurgical results on recovery of the silver and lead/zinc, in the low 80’s for the silver, and mid 80’s for the lead, and low 90’s for the zinc.

Rick: Have you done any work on the gold at all?

Jim: We’ve done some work on the gold. The gold is refractory, so we need to do additional, what are called department studies, to learn where exactly that gold is sitting, these studies will help us to determine whether we can economically extract it. We’re just negotiating on some contracts to do more metallurgical work in addition to doing detailed studies on what that gold is doing.

Rick: Promontorio has an interesting history, tell us about that and why you initially liked the project so much.

Jim: What attracted us to the project to begin with was it was a former producer, it produced a couple times in the past going back to the 1920s when J.P. Morgan funded a private company to go in there and get it into production.

They were preparing for production when the Yaqui rebellion put a halt to all operations, there were some subsequent efforts of exploration development in the early 1960s. Then in the late 1980s, a private consortium borrowed money from the Mexican government and put Promontorio into production for about three years before it was shut down due to low metal prices.

So what we liked about it when this project was brought to our attention, and was available for acquisition, was the fact that there is established mineral potential, and by the fact that it has been mined a couple of times in the past. And we liked the fact it’s a breccia hosted system. Unlike narrow veins you can have a larger size potential and you can more rapidly build up a resource size of significance with a breccia system.

Also, some of the historic grades that were reported from mining were very high grade, in excess of three to four hundred grams per tonne silver plus the lead/zinc component. So there was good grade potential in it. When we did our due diligence and got on the ground, we saw from the geology that what had been mined in the past was just a small part of a much bigger looking mineral system, and that’s been confirmed by our subsequent work.

Rick: Kootenay is currently running a very large drill program, I consider results to date outstanding, but maybe even more significant is that you are discovering mineralization between the two already discovered zones and on the other sides of these zones.

Jim: What we’re doing is focusing this drill effort, this is the third campaign into it, on a one km long trend. It’s where we have what we call our pit resource containing, in silver equivalent numbers, about 20 million ounces of silver, about half of which is in the silver component and the other half in the lead/zinc component. So, that sits at one end of the one km long trend, and at the other end we’ve got what we call the Northeast Zone, where so far we don’t have a lot of holes, but we’ve got very strong encouragement.

Some of the latest results are 51 meters with 91g/t silver and 3.4% combined lead/zinc with an interior core there of 18 meters, 188 silver and almost 8% lead/zinc, so there’s some really good hits up in the northeast end.

These two zones are 700 or 800 meters apart, but there are scattered holes in between indicating mineralization is continuous between the two and so now we’re stepping off of those zones, and we’re stepping off of the pit resource in the opposite direction as well where we have what we call the Southwest Zone from where we’re getting good results. We’re showing continuity between it and the pit resource. It’s the same zone, so those two zones are connected and in fact one, we see the potential for a doubling of that pit resource, perhaps more, depending on what happens.

Rick: What is the potential upside from here?

Jim: We believe the potential is there for the resource to be in the 50 million ounce silver range plus an equivalent value in the lead/zinc

If we get up into our target range it’s got the potential to make a very nice mining operation. We’re doing all the steps to first of all determine what the size scope is here, and in the next stages after that, assuming we’ve got the positive results that we’re expecting, we’ll be looking for the scope of mining that you might be able to support here.

If we do get into that 50 million ounce range, plus an equivalent value in the lead/zinc, that’s like having a 100 million ounce silver deposit. Then you’ve got a resource that could support a very significant silver producer for a 10 or 15 year time period. You could be supporting something, on one project, that is doing three to five million ounces of silver a year over a 10 plus year time frame, and when you look at the silver producers in Mexico, particularly on the junior/midsize size, that’s a significant asset.

Rick: One asset producing that much silver is uncommon.

Jim: It typically takes two or three mines for companies to get into that 3-5 million ounce silver production per year. If you’ve got one asset that could support that, that’s a very good asset. So this kind of explains why we’re so excited about the prospects at Promontorio.

Rick: What are some of those midsize producers that produce four to six million ounces per year?

Jim: Endeavour Silver is one, First Majestic another, they are definitely in the senior midsize range now. First Majestic started out as a junior producer several years ago in Mexico. I think they have four mines going now, and they are in that six million ounce per year range, and with projections for much bigger going into next year.

Rick: It seems like Kootenay has something to offer every type of retail investor. You’ve got nine joint ventures and one 100% owned development property.

Jim: Well yes, so we do, we’ve got a lot to offer. We’ve got a really strong team put together, both from the technical side and the financial side. We’re a well-rounded company with a good business plan in place, a real good core asset and then all those generative projects which could lead to brand new exciting discoveries.

Rick: You’ve got strong management, ability to raise money, and quality projects.

Jim: Yes.

Rick: And also very important, a decent share structure.

Jim: We’ve done a good job of maintaining the share structure. We’ve always kept a close eye on that.

Rick: One of the benefits of the project generator model.

Jim: Yes, and it’s also a benefit of having a management team that owns a large part of the stock position, it’s in their interests to keep that dilution down.

Rick: That places them right onside of the retail investor, doesn’t it?

Jim: Yes, it does.

Rick: Ken, anything you want to add?

Ken: No, I think Jim’s done a great job of giving an overview of the company. I’ll just touch on the issue of outstanding shares. That’s 45 million shares, so as mentioned, it’s a great share structure, and the project at Promontorio is more advanced than ever before. There is a constant flow of news coming out with this current 25,000 meter drill program underway, and the initiation of baseline studies as well, bodes well for the future of Promontorio.

Rick: How’s the treasury right now Ken?

Ken: We are fully funded for the current 25,000 meter program, that means fully funded right through to the end of the year, and as you talked about with the joint ventures, our partners are funding those grassroots exploration projects.

Rick: Kootenay has a lot of potentially good news flow over the next while. 

Ken: News will flow right through to the end of the year and into the first quarter of 2012.

Rick: It’s been a pleasure talking to you Ken and Jim, thank you.

Richard Mills has previously written two articles regarding Kootenay Gold

Richard (Rick) Mills
[email protected]

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Richard is host of Aheadoftheherd.com and invests in the junior resource sector. His articles have been published on over 300 websites, including: Wall Street Journal, SafeHaven, Market Oracle, USAToday, National Post, Stockhouse, Lewrockwell, Uranium Miner, Casey Research, 24hgold, Vancouver Sun, SilverBearCafe, Infomine, Huffington Post, Mineweb, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, Calgary Herald, Resource Investor, Mining.com, Forbes, FNArena, Uraniumseek, and Financial Sense.

How Will Precious Metals React to the EU Bailout Plan?

October 31, 2011 by · Leave a Comment 

By Eric McWhinnie, Wall St. Cheat Sheet

After numerous jukes and headline rumors, the world finally received a so-called EU solution.  After threatening with a total insolvency Greece situation, European leaders were able to talk bondholders into accepting a 50% haircut on Greek debt.  Furthermore, the euro zone leaders agreed to increase the firepower of the European Financial Stability Facility.  The markets reacted quite well to the news, even if it was just a knee-jerk reaction.  The Dow surged 340 points, and is now on track for its biggest monthly percentage gain in nearly 25 years. Gold and silver also had big gains on the news.

On Thursday, gold futures for December delivery jumped $24.20 to settle at $1,747 per ounce, while silver futures gained $1.80 to close just above $35.  With the EU plan crafted, where does gold and silver go from here?  Unfortunately, the plan does not instantly solve the financial problems of Greece, let alone the world.  The plan calls for the EFSF to be increased to 1 trillion euros, by leveraging the fund.  The leverage could be done by two ways, either by loss guarantees to buyers of euro zone debt, or by a special purpose investment that will be created in the coming weeks, in hopes to attract investment from China.  “The leverage could be up to one trillion euros under certain assumptions about market conditions and investors’ responsiveness in view of economic policies,” said Herman Van Rompuy, the president of the European Council.”  This begs the question, how will more leverage solve the financial mess in the euro zone? Leveraged debt is what ignited and intensified the credit bubble.  If anything, the EU plan provides more uncertainty about the long-term financial stability of markets.  When uncertainty and debt rises, gold and silver tend to do the same.

Greece’s current debt burden is 160% of its GDP.  The 50% haircut on Greek debt will reduce the country’s debt to 120% of GDP by 2020.  Does this sound like an ideal situation?  “Even if investors fully sign up to the plan, this would still be an unsustainably high level of debt,” said Jonathan Loynes, chief European economist at Capital Economics. “Accordingly, further Greek restructuring or defaults seem very likely in the future.”  The EU plan sets the financial markets up for more disappointment and more money printing.

The EU plan also requires banks to hold higher quality assets on their books.  Core tier one capital levels will be raised to 9%, which means that euro zone banks need to raise roughly 106 billion euros to meet the new levels.  Banks may need to receive government support if they cannot raise the money on their own.  The EU plan says that “guarantees on bank liabilities” may be needed to assist banks.  The key question is, how will EU governments pay for all these actions?  “European bank recapitalization remains an aspiration rather than a reality,” said Ian Gordon, a banking analyst at Evolution Securities in London.

I believe this is not the last bailout plan that Greece will receive.  Greece already received one bailout of 110 billion euros in May 2010, and will likely need more bailouts going forward.  Bailouts do not solve massive debts and spending problems that plague many countries.  Attention is already focusing on Italy, which just saw its 10-year bond price at record levels.  Gold and silver are hedges against the debt ridden world that we live in.  As investors lose confidence in governments and countries, precious metal prices will continue to rise.

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Gold Miners’ Leverage Effect Is Gone. But For How Long?

October 31, 2011 by · Leave a Comment 

By Willem Weytjens, Profitimes

To explain briefly why mining companies SHOULD have a leverage effect to increasing metal prices, I will illustrate this with a simple example.In this article, we will have a look at the so called “leverage” effect that mining companies are supposed to have to the underlying metal prices.

Suppose you have a mining company X.
X is mining gold, which is trading at $300 at the moment. However, the company has to pay its employees, has to pay for exploration of the mines, it takes a lot of money to build the mine, and so on. Assume it costs $500 to mine one ounce of gold. Initially, the company will make a loss of $200 for each ounce of gold mined. However, when the gold price rises to $500, the company will break even.
With a gold price of $600, the company will make $100 profit for each ounce of gold mined.
Now here is the key: if gold rises now from $600 to $700 (16.66%), the profits will rise from roughly $100 to $200, which is +100%!
So even though the price of gold rose only 16.66%, profits doubled. So each $ increase in the price of gold, will lead to more profits for the company. When profits soar, the stocks are also expected to soar.

However, of what we have seen in recent years, it looks like this is definitely not always the case.

Some examples of gold stocks that have risen substantially more than the price of gold are ANV (Allied Nevada Gold) and GOLD (Randgold Resources), as we can see in the following charts:

Chart: Freestockcharts.com

Chart: Freestockcharts.com

The kind of companies shown above, seem to be rather an exception.
Some other gold mining companies have performed equally to GLD, such as RGLD (Royal Gold) and GG (Gold Corp.).

Chart: Freestockcharts.com

Chart: Freestockcharts.com

However, as a result of the financial crisis in 2008, most gold stocks got beaten down so much that sentiment is so bearish, that it looks like these companies will never be able to increase profits or cash flows from their operations.
Some examples are AU (AngloGold Ashanti) and NEM (Newmont Mining). However, please notice that both these stocks are currently near their long term red resistance line. If price would manage to break above these lines, these stocks could be in for one of the biggest rallies you will ever experience in your life, as money will flow into the most undervalued stocks, and when suddenly everybody starts to chase after them, they could rise at the speed of light:

Chart: Freestockcharts.com

Chart: Freestockcharts.com

When we look at the HUI index, we can see that from 2005 until 2008 (right before the financial crisis), the price of the HUI index was highly correlated with the price of Gold. However, recently, the HUI index has been lagging the price of Gold in a way that asks for a huge rally of mining stocks, or a huge drop of the Gold price, or a mixture of both. This can’t sustain in the long term, and with gold now being in a favorable position, we think the HUI index will play catch up with Gold.

Chart: Freestockcharts.com

When we measure Gold stocks in Gold, we can see that many stocks are now at or near historical low prices:

Chart courtesy stockcharts.com

To give you one particular example of a stock we mentioned above, we take NEM (Newmont Mining). NEM is now trading at about 3.8% of the price of gold. In order for the ratio to go back to its historical average of about 8%, NEM could more than double, even if Gold would stay flat.

Chart courtesy stockcharts.com

Another nice example of a stock that is trading near its lows when measured in gold is Tanzanian Royalty Exploration:

Chart courtesy stockcharts.com

Conclusion: Although the mining stocks should have a leverage effect to a rising price of the metals they have in the ground, we can see that because of the financial crisis this leverage effect has often disappeared.
However, with the crisis in Europe only worsening, and the US on the brink of financial disaster, we think it’s just a matter of time before the rating of the perceived “safe haven US Government bonds” will be lowered again.
When this happens, investors have nowhere to go but GOLD. When the mass finally realizes that the mining stocks are severely undervalued, the mining companies could start a rally like you will only see once (or maybe twice if you’re lucky enough to become old) in your life.

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Are Gold & Silver Investing Safe-Havens Again?

October 31, 2011 by · Leave a Comment 

By Eric McWhinnie, Wall St. Cheat Sheet

Over the past month, gold and silver have remained in a trading range.  Gold had difficulties breaking through $1,700, while silver lost momentum as it rose near $33.  However, recent developments such as Greece deadlocks and US debt worries have once again returned gold and silver to their rightful safe-haven status.

Gold and silver never really lost their safe-haven status per se, but traders were not treating the metals as such.  Gold and silver were caught in the tide with equities.  The WSJ recently reported that since July 1, 90% of S&P 500 stocks have moved in the same direction on the same day on 26 days.  For comparison, this only happened 38 days for all of 2010.  This week is a different story.  Gold futures for December delivery increased $48 on Monday, and another $16 on Tuesday.  Silver futures have climbed nearly $2 in the same period.  The move higher yesterday was very telling for both metals.

Despite the Dow falling more than 200 points, gold and silver both managed to climb higher on Tuesday.  More importantly, gold and silver edged past their trading ranges of $1,700 and $33, respectively.  The breakout can partly be attributed to the declining US dollar.  Since reaching above 79.50 at the beginning of October, the DXY index has declined more than 4%.  The European Union is doomed to fail because the divide between the northern and southern countries is just too great, former Fed Chairman Alan Greenspan told CNBC in a recent interview.  If the US dollar was a true safe-haven, it would be rising against all currencies, sharply.  Instead, the US dollar is setting new record lows against the Japanese yen.

Investing Insights: What’s Going On With Gold?

While many are focusing on the Eurozone debt crisis, concerns about the US continue to rise.  Last Friday, Bank of America’s Merrill Lynch unit warned that the US is in for another credit downgrade by the end of the year if Congress fails to agree on a long-term plan to deal with the nation’s staggering debt load.  “The credit rating agencies have strongly suggested that further rating cuts are likely if Congress does not come up with a credible long-run plan” to cut the deficit, Merrill’s North American economist, Ethan Harris, wrote in a report. ”Hence, we expect at least one credit downgrade in late November or early December when the super committee crashes.”  On Friday, August 5, credit agency Standard and Poor’s issued the United States its first domestic credit downgrade in history.  After the downgrade, gold surged 13% to $1,880 in about two weeks.  Silver increased 10% to reach $43 in the same period.  If you apply these same percentages from where gold and silver were trading at during the time of Merrill Lynch’s warning, we could see gold trading at $1,850 in a couple weeks, while silver would reach $34.50.  Of course, the US has not received another credit downgrade yet, but if traders try to front run a possible downgrade, these appear to be quite reasonable price targets.

Although the US dollar continues to receive spurts of strength, mostly due to euro weakness, investors around the world are focusing on gold and silver as real safe-havens.  Earlier this month, the world’s first offshore yuan-denominated spot gold contracted started trading.  GoldCore explains that the move makes it “more convenient for Chinese people and high net worth individuals holding yuan to invest in the precious metal and opens a new way to hedge.”  Furthermore, the move comes from a “push by Chinese authorities for a more international role for its currency and as an alternate reserve currency to the embattled dollar and euro,” GoldCore said.  Meanwhile, the US is scrambling to find ways such as variable interest rates to make its debt look more appealing.  The Treasury is considering issuing $20 billion blocks of three-year floating notes, but has not released any further details.  Michael Pento, president of Pento Portfolio Strategies explains, “America is just a very short time away from facing reality, and reality is going to be interest rates that rise due to overwhelming supply and inflation,” he says. “People have forgotten about the debt debate in the US, but it’s coming back to the forefront very quickly.”

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Relative Strength Analysis is Important for Gold Stocks

October 31, 2011 by · Leave a Comment 

By Jordan Roy-Byrne, CMT, The Daily Gold

Relative strength is defined as the measuring of one market against another over a specific period of time. Relative strength is an important concept in any bull market. After all, if you’ve found the bull market why not find the leaders? We consider relative strength particularly important when analyzing gold and silver stocks. There are hundreds of gold and silver stocks and despite the larger trend, they won’t always trend in the same direction. As a result, you need to be a stock picker in this sector if you want to earn the best returns.

How do you apply this analysis?

We use GDX and the HUI as our indicator for the large gold stocks. Lets take a look at GDX. The market has been in a trading range for the past year. A weekly close above $58 should confirm the bottom.

When the market is in a trading range, you need to buy relative strength and avoid the weak performers. The stocks that are weak can break support while the strongest stocks will either trend higher or remain comfortably above support. The present time is a perfect opportunity to employ this analysis. GDX remains in a long consolidation though may now be heading for a breakout in the next few months. As an investor you need to be aware of the strongest stocks and the weakest stocks.

Let me give a few examples.

A well known and well supported company very recently saw its stock plummet more than 20% on account of bad news. Production at one of its mines is ceasing indefinitely. Yes, this is bad news and cannot be predicted. However, we completely avoided this company due its poor relative strength. The shares were in a clear downtrend for most of 2011. As a result, its long-term moving averages were flattening and the shares fell below the moving averages. Sure, the bad news was random. The stock could have put in a bottom. However, it’s consistent poor performance for the majority of the year was a warning sign.

On the other side is one of my favorite companies, currently up 34% year to date. This company has great management and its shares benefited from a recent resource increase at one of its projects. The shares have trended higher for most of the year though declined almost 30% in September, yet remained above support from early 2011. As we pen this the shares are within 10% of a new all-time high and would likely benefit from a further move higher in GDX.

In this type of environment of a long and large consolidation one needs to employ relative strength analysis to find the winners and avoid the losers. This will not always be our strategy. If and when GDX breaks to a new high and the sector gains big momentum then we will want to find the undervalued companies that are starting to move and have huge upside potential.

It has been a difficult year for the gold and silver stocks as a whole. However, there have been winners here and there. In our premium service we’ve focused on relative strength and as a result our performance has crushed GDXJ and GDX in a difficult year. Now that GDX appears to be bottoming, investors need to choose the stocks which will benefit. The stocks with the best relative strength will be the first to breakout and will perform the best over the next couple of months. That is where your performance should come from. At the same time, we are recommending a few juniors and are keeping our eyes open for the big winners of 2012. If you’d like professional guidance in navigating this bull market and finding the best performing stocks, then we invite you to learn more about our service.

Good Luck!

Jordan Roy-Byrne, CMT
[email protected]

Philip Barton: How much gold stock is there really?

October 31, 2011 by · Leave a Comment 


1:44p CT Saturday, October 29, 2011

Dear Friend of GATA and Gold:

In fascinating commentary published this week, Gold Standard Institute President Philip Barton compiles evidence that the world’s gold stock may be 10 times or more the generally accepted estimate of 170,000 tonnes.

Of course GATA long ago established that officially reported Western central bank gold reserves likely exaggerate greatly the metal the central banks actually have in their vaults, insofar as most refuse to differentiate between gold on hand and gold that has been leased or swapped out. GATA also has established that at least the central banks of China and Saudi Arabia lately have held far more gold than they have reported officially.

Barton’s commentary addresses both official-sector and privately held gold, including the immense amount of gold said to have been looted from Asia by Japan during World War II, stored in the occupied Philippines under Gen. Tomoyuki Yamashita, and eventually recovered by the United States.

Given the secrecy imposed on gold by both its government and private holders, hardly any assertion about the metal’s possession can be proven to be impossible. But it seems unlikely that Western central banks generally and the U.S. government particularly had access to any fantastic hoard of gold at least as of March 1968, when enormous offtake forced the urgent and awkward closing of the London Gold Pool, the mechanism by which the United States and its Western European allies held the gold price to $35 per ounce. Given all the documentation from that era of the desire of the U.S. government and its allies to keep the gold price down to support the U.S. dollar, the United States could have kept the London Gold Pool going a lot longer if it had access to “Yamashita’s gold.”

But whatever the truth of the supposed Yamashita hoard, Barton rightly disputes those who claim that there isn’t enough gold in the world to underwrite a return to a gold standard in currencies, “a common refrain from those whose self-interest it serves.” A huge amount of gold would not be needed to support a modern gold standard, just a huge gold price.

Barton’s commentary is headlined “How Much Gold Stock Is There Really?” and you can find it at the Gold Standard Institute’s Internet site here:


CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

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Haynes, Norcini enthusiastic about immediate prospects for gold and silver

October 31, 2011 by · Leave a Comment 


12:22p ET Saturday, October 29, 2011

Dear Friend of GATA and Gold (and Silver):

In the weekly precious metals review at King World News, CMI Gold and Silver’s Bill Haynes and futures market analyst Dan Norcini sound enthusiastic about the immediate prospects for the precious metals as well as the long-term prospects. You can listen to their comments at King World News here:


CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

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Duh, ya think? Canadian central banker says QE weakens the currency

October 31, 2011 by · Leave a Comment 


And he says central banks should be more forthcoming. Does that include subjects like gold?

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Carney: QE’s Stealth Effect Is a Weaker Currency

By Kevin Carmichael
The Globe and Mail, Toronto
Thursday, October 27, 2011


Bank of Canada Governor Mark Carney said central banks have been less than forthcoming in admitting that one of the primary aims of quantitative easing is to weaken their foreign-exchange rates, remarks that will fuel a tense debate over the effect the Federal Reserve’s policies have had in stoking the currency war.

“The unspoken issue with quantitative easing writ large is the exchange rate channel,” Mr. Carney said Wednesday evening in New York at a conference organized by the Economist magazine.

“The one area where central banks maybe haven’t been quite as up front is (that) the fact is that when you quantitative ease, the portfolio-balance effect, which is the main transmission mechanism, operates through the exchange-rate channel, just as it does when you lower interest rates,” Mr. Carney continued. “That is part of the stimulus you get.”

With its benchmark interest rate near zero, the Fed has created dollars to buy financial assets worth about US$2 trillion to keep downward pressure on borrowing costs. That policy also has contributed to a weaker dollar, which has been a boon for U.S. exporters — and an irritant for some U.S. trading partners, such as Brazil and South Korea, that have had to cope with rising currencies.

But Mr. Carney’s objective was not to criticize quantitative easing. He said Fed chairman Ben Bernanke “has delivered” and the heavy criticism he has received “appears unwarranted.” Mr. Carney said the Fed’s two asset purchase programs — commonly referred to as quantitative easing, or QE — have been a “net positive for Canada,” even though the loonie surged above parity with the U.S. dollar.

Rather, Mr. Carney was trying to make a finer point. He suggested that much of the rancor over QE could have been avoided if central bankers were clearer in their communication of policy.

“The issue goes back to a calm understanding of why an institution is doing it, what the end objective is,” he said. A good place to begin would be avoiding describing QE as business as usual, Mr. Carney said. QE should be clearly defined as an exceptional policy that will be deployed only when absolutely necessary. “It’s important to be up front,” he said.

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Royal Canadian Mint offers its own convertible gold ETF

October 31, 2011 by · Leave a Comment 


Royal Canadian Mint Announces Offering of New Gold Investment Product

Royal Canadian Mint Press Release
Friday, October 28, 2011


OTTAWA, Ontario — The Royal Canadian Mint is pleased to announce its initial public offering of exchange-traded receipts (ETRs) under the mint’s new Canadian Gold Reserves program. Each ETR provides evidence of ownership in physical gold bullion held in the custody of the mint at its facilities in Ottawa, Ontario. The Canadian Gold Reserves program marks the expansion of the mint’s successful core bullion and refinery business.

“We believe that this new program will build on our reputation and continued success as a world-class custodian of precious metals,” said Ian E. Bennett, president and CEO of the Royal Canadian Mint. “With the introduction of the Canadian Gold Reserves ETR program we hope that investors will see this as a convenient, efficient, and secure method for investing in and owning physical gold.”

Unlike other gold investment products, the purchaser of an ETR owns the actual gold rather than a unit or share in an entity that owns the gold. The net proceeds of the offering will be used to purchase gold on behalf of the initial purchasers of ETRs at the London p.m. fix price on the closing date of the offering (closing date). Subject to certain restrictions, ETR holders will be entitled to redeem their ETRs for physical gold products in the form of 99.99 per cent pure gold bars or coins, or for cash based on the future gold price or market price of the ETRs.

Subject to market conditions, the initial offering of ETRs is targeting an issue size of approximately C$250 million. The issue price per ETR will be C$20 or the U.S. dollar equivalent and the Per ETR Entitlement to Gold will be determined on the closing date and will be reduced daily by an annual service fee of 0.35 per cent.

Subject to the satisfaction of certain conditions, the ETRs will be listed on the Toronto Stock Exchange and commence trading on the closing date. ETRs will be listed in both Canadian and U.S. dollars and may be traded in either currency.

Through a competitive process, the Mint has selected a syndicate of investment dealers led by TD Securities Inc. and National Bank Financial Inc., and including BMO Nesbitt Burns Inc., CIBC World Markets Inc., RBC Dominion Securities Inc., Canaccord Genuity Corp., Cormark Securities Inc., MGI Securities Inc., and Raymond James Ltd. to distribute the ETRs on a best efforts agency basis.

Closing is expected to occur in late November 2011. The offering is being made on a prospectus-exempt basis pursuant to the terms of an order of the Ontario Securities Commission dated August 30, 2011.

The ETRs have not been and will not be registered under the U.S. Securities Act of 1933, as amended, and may not be offered or sold in the United States. This media release shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any offer, solicitation or sale of the securities in any jurisdiction in which such offer, solicitation or sale would be unlawful.

Note: An investment in the ETRs involves a degree of risk. These risks result primarily from fluctuations in the price of gold. A detailed description of these risks and other important information about the ETRs and the Canadian Gold Reserves ETR program is contained in the Information Statement. A prospective investor in ETRs should review and carefully consider the risks described in the Information Statement, a copy of which may be obtained in reasonable quantities by contacting TD Securities Inc., Attn: Symcor, NPM (Email: [email protected], Tel: (289) 360-2009). ETR holders will have no recourse to the Mint or the Government of Canada for any loss on their investment.

… About the Royal Canadian Mint

The Royal Canadian Mint is the Crown Corporation responsible for the minting and distribution of Canada’s circulation coins. An ISO 9001-2008 certified company, the mint is recognized as one of the largest and most versatile mints in the world, offering a wide range of specialized, high quality coinage products and related services on an international scale. For more information on the Mint and its products and services, visit www.mint.ca.

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European bailout inadequacy, seasonality to support metals, Davies tells King

October 31, 2011 by · Leave a Comment 


4:26p CT Friday, October 28, 2011

Dear Friend of GATA and Gold:

Hinde Capital CEO Ben Davies tells King World News today that gold and silver will be strongly supported by the inadequacy of the latest European bailout plan and by seasonal strength in metal demand. An excerpt from the interview is posted at the King World News blog here:


CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

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