Precious Metals Market Roundup

Some recent news items that caught my eye:

1. NovaGold (NG)'s stock price was cut in half in one day after NG announced that estimated mine construction costs at its Galore Creek project would be around $5 billion, up from the $2 billion previous estimated at the time of the feasibility study. I bet some NG shareholders must be regretting not tendering their shares to Barrick. Although NG's joint venture partner in the project, Teck Cominco (TCK) agreed to spend more money to investigate the viability of the project, apparently, Clive Maund recently warned that NG may possibly end up being delisted. I bet Barrick execs must be snickering in delight... but probably not too loudly because NG and Barrick recently agreed to put their differences in the past regarding the development of their joint Donlin Creek project, which reportedly contains around 30 million ounces of gold reserves.

Actually, the Galore Creek news is generally bullish for Gold prices, because it raises the specter that not as many gold mining projects may be coming on line as previously expected and highlights again the tremendous cost pressures faced by the industry which should help to keep a floor for the gold price.

2. It appears that OPEC won't raise oil output until at least January. That may help to keep a floor for oil prices. This may be partly offset, at least in the short term, by the fact that a U.S. intelligence report was recently released stating that Iran has had no weapons of mass destruction program since 2003. Another embarrassing blow for the Bush administration and for U.S. foreing policy. Iran will probably be emboldened by this development, already saying that it amounted to a "declaration of victory" for Iran. As a result, I would not expect oil prices to slide too low on this news as it will probably put the U.S. on an even firmer collision course with Iran. Condi Rice was quoted as saying "that frankly is good news", in a laughably glib response to the intelligence release.

3. Rob McEwen, Chairman and CEO of US Gold Corp (UXG) exercised warrants to increase his shareholding in UXG to 21.5% in a likely effort to shore up UXG's falling share price. Some shareholders have likely been concerned by what appears to be a management shakeup recently at UXG. I would not bet against Mr. McEwen however. In a sector where good management is quite hard to find, I believe that Mr. McEwen is one of the best. UXG may be enjoying a washout bottom on huge volume the last couple of days.

4. This was announced on November 6, but only recently caught my eye: GSS's total cash costs were an awe-inspiring $707 for Q3, accoridng to GSS's Q3 report in which they announced another loss to the tune of $12.7 million. $707! Unbelievable...

Chart of Interest (PAL) - Washout Bottom?

Comments: PAL approaching significant support as it becomes increasingly oversold. Unfortunately, although this company is a producer that is increasing its production profile, this coming is not making money, which raises a question mark in this environment of high metal prices. In all fairness, metal byproduct prices have fallen a fair amount recently, which must also be weighing on the stock. PAL investors are currently also awaiting the pricing of a US$100 million secondary offering.

Nevertheless, there is strong lateral support between $4 and $5, and with daily volume reaching over 460% of average 90-day volume on Tuesday, a washout bottom may be getting very near (keep in mind the above chart is the weekly chart, so volume will not be fully reflected until the end of the week).

Gold / HUI Update

Comments: Sorry for the long pause. I've had a lot on my mind lately so it was difficult to post for a while. Anyway, coming back to the matter at hand, the HUI looks like it is consolidating nicely since running up big until the beginning of November. The consolidation has sliced almost 12% off the HUI from its early November high of just over 460. It has also lasted for over a week now. I think, at this point, time is on the side of gold investors.

There is a danger however of a Head & Shoulders pattern as indicated in the above chart, which, if activated, would point to a drop to the 200 day SMA at around 360-370 HUI. I think such drop require gold to dropping down to 750 or so and the S&P500 taking another dive. Hmm, the more I think aobut it, the more I think that both are possible. Nevertheless, any such drops should not be feared, as I think Gold would have a great chance to bounce back.

Some things I've been paying attention to recently:

1. The COTs are still somewhat bearish, but they have shown some improvement during the last 2 weeks. Still, this situation may need 2 to 3 more weeks, at least, to get to a "bottom" range.

2. Gold:XAU ratio continues to be fairly positive, being closer to a buy than a sell, for gold stocks, staying above 4.50, and even getting as high as 4.90 recently.

3. I'm watchinhg closely what Treasury Secretary Henry Paulson will cook up to stave off the tide of foreclosures. Apparently, the plan will be to freeze teaser rates on certain troubled subprime mortgages. The big question is who will take the hit? The administration has sworn that taxpayer money will not be used in any "bailout". According to the linked article, it may be the investors in the mortgage backed securities who may take the loss, in the form of lower interest rates. I wonder who those investors are and whether they will sue. Anyway, the idea is that lower interest payments will stave off foreclosure which is in nobody's interest. But, such a bailout, if successful, may create some moral hazard. Government to the rescue whenever people screw up. My friend, Andy, put it best that capitalism and free markets take a hit if things are not allowed to fail.

Oh, if you have a chance, check out Jim Sinclair's Mineset. Jim, a die hard gold bug, has predicted 29 of the last 3 financial crises that the U.S. has had, and he has some interesting thoughts about the proposed bailout.

4. Oil has sold off recently, by nearly 10%. But with a cold winter on the horizon and a new set of Iran sanctions getting close to final approval, I wonder if we'll yet see $100 oil on this upleg after all.

5. Turmoil in Venezuela (don't take the "oil" out of "turmoil"...). Talk of nationalization of foreign companies and huge protests over a referendum about a constitutional amendment. I wonder how that will all end up.

6. U.S. market was up this past week after Citigroup got $7.5bil financing from the Abu Dhabi sovereign fund. I guess they needed it, but with an interest rate of 11%--just imagine, a huge commercial bank like Citi borrowing at 11%!--they must be getting desperate.

7. Finally... this is funny. The US Dollar may displace the Yen as the favorite currency for carry trades.