FINANCIAL MATRIX

Precious Metals Market Roundup

2007-12-05T03:06:00.000-08:00

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?

2007-12-04T08:13:00.000-08:00

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

2007-12-01T21:36:00.000-08:00

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.

Charts of the Year?

2007-08-27T09:16:00.000-07:00

The below two charts could be the charts of the year.

1. the 3 Month Treasury Yield and
2. the Shanghai Composite Index.

Comments: No comments. The chart says it all.

Comments: Can you say "Parabolic..."?

HUI back at Resistance

2007-08-24T23:57:00.000-07:00

Comments: HUI now back at first resistance after the recent collapse. With a 40 point gain since the recent low, it might not be a bad idea to take some "profits" off the down move at this point, but I wouldn't recommend selling too much, because at 324 the HUI and gold stocks continue to be a buy, especially with these new USD liquidity infusions coming almost daily from the Fed. COT numbers have been very volatile lately (just like everything else), and this past Tuesday, the showed a very large reduction in Commercial Trader net short positions, which was a promising sign.

Comments: USDX sliced through its 20 and 50 day SMAs recently. Again, 80.00 to 80.50 is MAJOR support.

Bloodbath in Gold Miners

2007-08-21T13:51:00.000-07:00

Comments: The high level consolidation in the HUI, which started at the beginning of 2007, appears to have ended in a complete bloodbath recently, with the HUI, breaking down totally from its slightly uptrending trading range--despite Gold not doing anything interesting. It seems that the panic contagion that has hit financial markets recently is also now spreading, irrationally, in my opinion, to the volatile miners as well. Gold to XAU ratio went through the roof, and is still at almost 5.00. The two support lines in the chart above, are critical. With the credit crisis looming large, it seems that market participants are selling volatility, and unfortunately, the miners have traditionally been one of the most volatile of investments.

Actually, the current complete dumping of gold stocks (don't even get me started on silver), seems quite irrational considering the actions of the U.S. Fed recently. The Fed has added $100 billion in liquidity in recent weeks, through repo transactions, among others, as well lowering the interbank lending rate by 0.5%. In fact, it added $3.75 billion even today.

And the political pressure is mounting on the Fed. Treasury Secretary Paulson, mentioned today "We're really focused on the subprime market, and we're really focused on the homeowners -- mortgage holders -- who are in danger of losing their homes."

The ever glib Bush, insisted that "The fundamental question, 'Is there enough liquidity in our system?' And the answer is `Yes, there is,'" the president declared. Don't worry Mr. Bush, I have a hunch that when it comes to liquidity, there will soon be more than enough...

USD - Get Ready to Stick a Fork in It

2007-08-04T20:57:00.000-07:00

Comments: First of all, my apologies for not posting for 6 weeks, I was recently very busy with certain matters. Hopefully, I'll be back to soon to making entries here on a more regular basis.

The USDX looks wonderful for Gold investors. As in wonderfully crappy. The USDX couldn't even make it past the first lateral resistance point at just over 81. Sure, it is still a bit oversold, trading somewhat below its 50 day SMA, but that chart looks very weak right now (i.e., very promising from the perspective of Gold investors). 80.00 to 80.50 is MAJOR support for the USDX, the significance of which cannot be overstated!

With the U.S. churning out horrible economic reports on an almost daily basis, I wonder if this coming week's FOMC rate announcement may result in investors finally sticking a fork in the USDX for good.

But then, who knows, the Gold consolidation has now lasted almost 1.5 years, so it could last a little bit longer yet. It's been so frustrating...

Gold to XAU Ratio

2007-06-15T23:27:00.000-07:00

Comments: XAU approaching resistance.

Comments: This chart bears watching. It's very close to a (bullish) breakdown in favor of Gold miners. It's hard to judge right now whether such breakdown would be for real because the general market was up big this past week, taking everything, including gold miners with it. But the RSI has shown a major breakdown (bullish for Gold). I've been reducing my positions into the strength this past week, but I'll be keeping an eye on this ratio.

Turning Point?

2007-05-31T11:22:00.000-07:00

I hate to say it because there have been so many disappointments and false hopes along the way, but today is the first day that miners are positively diverging from Gold in a very significant way. Silver is back out of the danger zone and the HUI should be above its broken trendline, at least as of midday, though that is something I will have to double check. The end of day action will really be the key here. Let's keep our fingers crossed.

HUI absolutely needs to get past 334-335, otherwise it could be a triple top on the 10 day chart.

GDP revision down to 0.6% growth (barely positive growth) is what seems to be feeding this move now along with some other pretty hairy economic numbers recently. Also, sentiment recently was just getting extremely bearish, probably too bearish.

A $1 million value bathtub made from 18 karat gold was stolen from a posh Tokyo hotel yesterday.

Metals Market Wrap-Up

2007-05-30T09:09:00.000-07:00

1. What the hell is going on with gold stocks? Yesterday gold was up big and the HUI finished in the red. Today, Gold is barely holding on to the lows of the recent move, and gold stocks look like they are positively diverging. C'mon!

2. Jimmy Rogers has turned bearish on Gold for the intermediate term, citing too high COT open interest and general excessive speculation. Jimmy has always argued that there is more money to be made in other commodities, and recently, in particular, the agricultural commodities. But nevertheless, he's an important voice on commodities in general, including Gold.

3. It's not easy to argue that NEM is still the bellwether for the industry, since it is no longer the largest cap stock and since now ABX is a lot less hedged, but, for whatever it is worth, NEM looks like it has been positively diverging in the last few days.

4. Looks like the Chinese regulators are taking the right approach: trying to prick the stock bubble before it gets completely out of hand. I think that is the right move and it will ensure that there is no real "crash". Still, a correction of 20 to 25% is definitely possible. Unlike some analysts who believe now that the Chinese market is the be all and end all, the critical linchpin that, when gone, will cause massive sell offs in other markets, including world stock and commodities markets, I think the Chinese market is just one big irrelevant red herring.

(i). The Chinese market had nothing to do with anything until about 1 year ago. The current bull market in commodities and in other stock markets owed nothing to Chinese stock market, which was a phenomenon that arose barely in the last year. How did the Chinese market suddenly become so important for everything?

(ii). The Chinese market still has significant restrictions on foreign ownership. Sure, some foreigners are able to override that, but it's nothing like Tokyo or NYSE. Foreigners haven't penetrated that market enough for it to have any real collateral significance.

The Chinese market is one big red herring. I'm surprised that so many people believe it's now a linchpin for world markets and the world economy as a whole. It's right up there with the "unwinding of the yen carry trade" scare for the dumbest popular ideas floating around the markets these days.

Gold: The Bear Case...

2007-05-29T09:45:00.000-07:00

If I were to try to make the bear case for precious metals, I'd have to point to these two charts as presenting the strongest arguments.

Comments: A bullish wedge with the RSI not confirming the recent downward price action. It looks like it is setting up to rally to the $86 to $88 area--if it can break out of the wedge. There is resistance between $82.5 and $84.

Comments: Silver looks VERY weak right now. MACD looks like it wants to roll over.

Coming to think of it, the HUI chart isn't looking all that swell right now either.

Gold Stock Valuations

2007-05-24T10:23:00.000-07:00

I highly recommend the latest article by Adam Hamilton about Gold Stock Valuations.

It's been not much of a secret that gold mining companies have struggled to meet earnings estimates this quarter. In fact, I'm hard pressed to think of any XAU or HUI components which met let alone exceeded estimates.

This was something that really bothered me. But after reading Adam Hamilton's article, I have come to realize that this is really a non-issue.

Hamilton, arguably the most cerebral of the gold analysts, sets for the following arguments:

1. Gold mining stock P/Es have been falling drastically since the start of the gold bull market.

2. Today, gold mining stocks are the cheapest relative to earnings that they have ever been during the current bull market.

3. While the gold mining sector initially needed contrarians to buy into the sector at the gold bottoms around 2001, when P/E ratios were sky high, Hamilton makes the fascinating argument that the succeeding bull market waves in gold miners will ultimately come from mainstream value investors who will realize that gold stocks are finally competitive in value to main stream growth and technology stocks.

The argument is, as is typical of Hamilton, very strongly supported with historic evidence and facts.

I've been worried a lot about how miners have struggled to make money. But after reading that article, it was pretty easy to come to the conclusion that, for the most part, the failures to meet earnings estimates are a non-issue in the gold mining sector, considering the long term trend of falling P/E ratios.

Metals Sector Wrap Up

2007-05-24T07:38:00.000-07:00

1. AP reported that sales of new homes surged in April by the biggest amount in 14 years, but the median price of a new home dropped by the largest amount on record. Now if that was graphed on a candlestick graph with volume overlay, it would look like a big and long red candle on heavy volume. Ouch!

2. Novagold Resources (NG) announced yesterday a partnership with Tech Cominco (TCK) to build its $2 billion Galore Creek copper-gold mine in northwestern British Columbia. Although shares of NG surged up to 11% yesterday, they are still well off the highs during the period of the Barrick bid. Under the terms of the partnership, NG will cede 50% control of the project to Tech Cominco. I wonder if some NG investors have had second thoughts about rejecting the tie up with Barrick.

3. The surge in the price of uranium during the last months seems to have prompted some gold mining companies such as Harmony Gold Mining to consider ramping up uranium investments. Harmony is considering spinning of its uranium assets into a separate company.

4. Speaking of Harmony, it joined the list of recently miners to close out their gold hedge books when it announced last week it closed out its Australian hedge book for $75 million.

5. CUP has been on fire lately despite copper weakness. HL at trendline support right now.

Metals Market Wrap-Up

2007-05-22T10:06:00.000-07:00

1. It looks like OMR's recent underwater shipwreck treasure find is stirring up quite the controversy now, with Spain wanting a slice of the pie, if not the whole thing, if it turns out that the find was made in Spanish waters.

2. In company news, Hecla (HL), a primary silver company, announced yesterday a stoppage at its Mina Isidora gold mine near El Callao, Venezuela. According to Hecla's President of Venezuelan Operations, Mike Callahan, "We would expect about a 10% effect on gold production for the year. This would be reflected in second-quarter results, which could be negatively impacted by approximately 12,000 ounces of gold. We would anticipate a negligible impact on the company's gross profit." HL is trading down 3% today in contrast to the HUI which is down about 1%.

3. GBN up big today on a down day in Gold. I wonder if something is brewing there.

Gold Sentiment Gets Nasty!

2007-05-22T07:46:00.000-07:00

Sentiment has been turning very bearish in Gold recently. First the fears that IMF would unload 400 tons of Gold to help plug a funding deficit then the media attention on the sudden drop in GLD's gold holdings that "spooked" investors".

According to the report on the GLD outflows, "analysts cautioned that a continued outflow could be an indication that further liquidation in the gold market might be on its way."

And look at the analyses that are being bandied about these days among amateur investors:

"Gold and US Real Estate Quietly Breaking Down"
http://biz.yahoo.com/seekingalpha/070521/36092_id.html?.v=1

"Why I'm Selling My Gold and Silver"
http://biz.yahoo.com/seekingalpha/070517/35796_id.html?.v=1

"Are Gold Stocks Hanging in the Balance?"
http://gold.seekingalpha.com/article/35844?source=i_email&u=30946

Of course, not every analyst is bearish, but still, there does seem to be a fair amount of fear among gold investors these days which is being fueled by media reports. No doubt a part of it originates from memories of last year's painfully unpleasant May super selloff in Gold that continues to linger in the minds of Gold bulls.

Whatever the reason, fear usually means opportunity. The current horrible sentiment among gold investors is just making me all the more bullish.

Spotlight: Odyssey Marine Exploration (OMR)

2007-05-19T03:22:00.000-07:00

Do miners have the right business model for finding silver and gold?

Odyssey Marine Exploration, an AMEX-listed company (OMR) specializing in the archaeologically-sensitive exploration and recovery of deep water shipwrecks throughout the world announced on Friday what is believed to be the largest collection of coins ever excavated from a historical shipwreck!

The artifacts recovered from the site include over 500,000 silver coins weighing more than 17 tons, hundreds of gold coins, worked gold, and other artifacts. According to preliminary reports, the value of the find may be around half a billion dollars.

Considering that the company had a market cap of a little over $200 million, it's one day surge of over 80% on Friday is understandable in light of the massive potential value of its discovery.

Yamana to Sell Fool's Gold!

2007-05-17T10:22:00.000-07:00

1. Yamana Gold (AUY) is investigating the sale of pyrite and sulphuric acid from its gold and copper Chapada Mine. What is pyrite you may ask? Pyrite is that shiny metallic mineral popularly known as fool's gold.

2. Some encouraging news from the World Gold Council. Most recent statistics indicate that gold demand grew last quarter not just in value terms, but more importantly, in tonnage terms. While total demand in dollar terms rose 22 percent, volumes of gold sold edged up 4 percent at the same time to 831.7 metric tons.

"The absence of the extreme volatility of early 2006 increased gold's appeal, said council spokesman George Milling-Stanley. 'It's not the absolute price gold reaches,' he said. 'It's how it gets there. A volatile price makes consumers all over the world hang back.'"

I consider this to be a very important piece of news. Even though the next upleg in gold is likely to be primarily currency related, we must not forget that physical/jewelry demand has been the bread and butter of the Gold bull, accounting for 70 to 80% of the total demand. It's very good to know that physical buyers have adjusted themselves to the higher prices.

3. Dehedging is all the rage lately. First Barrick and now DROOY affiliate Emperor Mines has unwound its hedge book.

4. Miramar ("Arctic Gold") reported intriguing drilling results at its Hope Bay project in Canada, with several drill holes returning visible gold. MNG is up over 8% so far in the day.

5. Moody's revises Newmont's (NEM) credit outlook to negative from stable, citing costs and cap ex.

Volume Coming in Fast and Thick!

2007-05-17T08:11:00.000-07:00

Comments: Finally the volume is starting to fly. That's s good sign. GDX/HUI positively diverging from Gold as well.

Precious Metals Sector Wrap-Up

2007-05-15T12:31:00.000-07:00

1. Looks like the communist leaning New York Times is finally reaping what it has sown.

2. As predicted, AUY rolling over after its earnings miss. This action just confirms what the chart has been saying recently--which is that AUY is currently destined to perform at or under par with the HUI. The future remains bright however. Below $13, AUY becomes interesting. GSS also not behaving too well at the moment. Below $4.00 and $3.75 comes into play.

3. Hopefully TRE will finally roll over as it has been threatening to do for some time now. That will create a buying opportunity--though considerably lower than where it is now.

4. I wonder how low NEM will drop. Now that ABX is unhedged, it may eat NEM's lunch, at least in the near term.

5. A whole slew of earnings misses int he precious metals sector during the last couple of weeks. Hard to think of any companies that actually beat estimates. If you can think of any that beat estimates, let me know.

6. I'm still fretting about the COT dilemma.

Bottom in for Gold this Week

2007-05-14T09:21:00.000-07:00

I think we're almost at a bottom for gold and Gold miners. It's getting very close to the trendline on the HUI and we recently bounced down from 5.00 on the Gold to XAU ratio. The $82.50 to $83.00 area looks like a steel ceiling for the USDX.

The only negative factor is the net commercial short position in the COTs. I'm hoping that as a result of the recent sell off, the net short position will go down significantly.

Fundamentally, I've only been keeping a little attention recently to the numbers coming out on the U.S. economy, but generally speaking, 2 out of 3, if not 3 out of 4, economic reports are Gold positive these days. The USD is also taking hits on the geopolitical front.So fundamentals are in place for a rally, in my opinion.

I think a part of the selling right now is due to the bad memories of the Gold sell off last May which occurred around this time. Seasonality turns negative around this time, but I think that this time, it is less relevant because this time, the Gold surge will be driven by currency considerations, rather than women buying gold jewelry in China and India.

I think the next targets will be 360 HUI and then, not long afterwards, 400. It wouldn't surprise me to see HUI go to 325 first though.

Exploration Value

2007-05-14T09:03:00.000-07:00

I've come up with a new matric, called "exploration value", which is calculated by dividing the exploration budget for 2007 by the market cap (as of May 11). Here are the results for a few companies. According to this matric, GSS has the largest exploration budget to market cap ratio.

Company Exploration Budget Market Cap Exploration Value

GSS 15m 0.965b 0.015544
NEM 175m 18.54b 0.009439
AEM 40m 4.35b 0.009195
GG* 120m 17.07b 0.007029
AUY 32m 4.95b 0.006464

(*GG expressly stated in its annual report that it will focus on development rather than greenfields exploration or "wildcatting" as it calls it).

If you happen to know the exploration budget for 2007 of any metal company, let me know, and I will compare it in the table above, and send you an updated link.

Update - Kimber Resources (KBX)

2007-05-13T07:09:00.000-07:00

Not much has happened at Kimber and the company has been eerily quiet on the news front. No news on the CEO search--maybe because potential CEOs are wary of an activist shareholder looking over their backs. The latest news has been a joke. For instance, Kimber recently announced that it drilled one hole for a possible extension to the Carman deposit. Total fluff.

Just how far things have fallen at Kimber is indicated by the new description of "About Kimber" which is included in KBX news releases. Previous releases stated to the effect that Kimber is hoping to prove up a resource of 3 million gold ounces at Carmen and nearby structures. Now, at the end of the description, we instead get to read about Carman's most promising "grab sample" results from a completely unrelated property.

The Carmen prefeasibility study, originally scheduled for February last year, rescheduled for November last year and then indefinitely put on hold, remains a major question mark.

The potential upside is that some of the drill results at Carman have not been reflected yet on their resource updates, the prefeasibility study may come through one day and many of Kimber's properties still remain unexplored. Also, KBX is close to major support now. But don't hold your breath. This company has made many mistakes.

I have a feeling that once the CEO is appointed, Kimber will shortly thereafter come out with the prefeasibility results. I'm guessing that the largely completed but unannounced prefeasibility results are being currently withheld to help attract the new CEO, since that will give the newcomer some momentum, starting off. But who knows what is really going on there.

Charts of Interest Gold / HUI / GSS / BVN

2007-05-13T05:09:00.000-07:00

Comments: Gold looks like it may be getting close to support, if it hasn't reached it yet. COT numbers are still bearish though.

Comments: HUI close to support and may be bouncing from 200 day MA.

Comments: BVN looks like it's trying to go parabolic, but RSI looks like it's making a lower high. Non-confirmation...

Comments: Chart a little scary. Let's hope old channel line holds as support, though any rallies might be capped by broken trendline at around $4.40. Weakness is Gold could easily see GSS go to $3.87... maybe even $3.75. GSS has a lot of intriguing prospectss, but it just can't completely get its act together. Last quarter was another loss with one of their two mines having spectacularly horrible cash costs, and there's likely more to come in Q2.

They've already missed their guidance for the year in terms of production and cash costs, since their previous estimates assumed that BIOX would be commissioned by April 1. On the other hand, the future looks much brighter if the BIOX plant can be commissioned and if the energy problems can be solved, the HBB feasibility study was fantastic (though analysts had expected lower capex), and there are plenty of exploration efforts in the works--results from Sierra Leonne (of all places...) are due in this quarter.

Precious Metals Sector Recap

2007-05-03T06:22:00.000-07:00

1. There was only one analyst who had an estimate, but RGLD missed it by 33%, making 14 cents per share earnings vs. estimate of 21 cents per share. With a P/E ratio of 45, it's hard to imagine how it is possible that RGLD could be trading up today with such a miss, though admittedly, I didn't read through the whole report or listened to the CC yet. By the way, it seems strange that the analyst keeps missing the earnings numbers for RGLD. I'm hardly an expert in this but it seems that royalty streams shouldn't be too difficult to estimate once you have an idea of the approximate production from the relevant mines.

2. CDE announces a merger with 2 companies that are affiliated with each other for a deal value of $1.1 billion. CDE only down about 2% so far however and it's trading right at that support which is just below $4.

3. PAAS has bounced back nicely since their miss of a few days ago. It seems that this PAAS has stockpiles of concentrate that had not been sold yet so that mined ore should create revenues this coming quarter.

4. As for gold, I don't think the bottom is in place yet. Still need lower Gold to work off some of that bearish COT commercial net shorts. In fact, I don't see how we can get a sustainable rally without lower Gold prices, unless the Commercials pull back on the net shorts at the end of the week.

HUI to Bottom Soon

2007-05-02T13:39:00.000-07:00

I think we'll see a HUI bottom between 325 to 330.

Is it time to give the gold miners another look. As with every investment idea, there are pros and cons and in the end, an element of luck and chance is involved, but I think there are some interesting fundamental factors that argue in favor of the miners getting their groove back soon.

Let's review some of the Pros and Cons for investing in the miners at around here or a bit lower.

PROS:

The miners have been selling off yet again and as the sell off has progressed, valuations are becoming more attractive.

As a significant contrarian indicator, there is very little interest in investing in gold miners these days. Traditionally, gold miners give 2 to 3 times leverage in the movement of gold, but during the last 12 months, returns from the main gold mining index are below that of Gold itself, which is a significant anomaly and gives a good idea about how little interest there is in this sector right now. The miners are considered by at least one important indicator, the Gold to XAU ratio, to be extremely undervalued relative to the price of the metal.
The fundamental picture remains sound and has probably improved since 6 months ago. Briefly reviewing the fundamental picture: (1) US trade and domestic debt continue to be high, (2) inflation continues to be an issue, it's not spiralling, but it's not going away completely either... inflation has not had a super spike as some people feared, but on the other hand, the Fed hasn't totally dealt with this issue either so that it has continued to act like a gnawing cancer, rather than a heart attack, (3) U.S. economic growth has slowed, creating pressure on the Fed to lower interest rates, and high interest rates (or should I say interest rates that are higher than in Europe and in Japan, since 5.25% is not "high" by historic standards) are one of the few remaining pegs keeping the USD afloat (though I recently read an interesting argument that lower interest rates will decrease the debt load owed to foreigners in the future, so that we can't say for sure that lower interest rates would be USD negative), (4) geopolitical factors continue to argue for a risk premium in Gold, Iraq, Iran are the main issues obviously, but there continues to be trouble in important oil producers in Africa and South America, among other issues Generally speaking, although it could be debated, I think we continue to live in a world where there is a greater chance of some horrible disaster or war breaking out, than for some incredible peace to break out, if you know what I mean.

Chart factors are quite favorable--though technical analysis is a bit like astrology. Sometimes it works well, sometimes it doesn't. Adam Hamilton recently posted an interesting piece at www.zealllc.com in which he argued that the HUI has already started its inexorable climb to 550 or higher!

CONS (or should I rather call them risks)

May to August are seasonally the weakest months for physical Gold demand. In fact, last May was simply a total catastrophe and people still have painful memories of that. Traditionally, physical gold demand (most of it jewelry demand) accounts for 70% to 80% of total gold demand so weakness in this type of demand is significant. However, there are two counter arguments to that (1) I believe that the next wave up in Gold will be driven primarily by USD currency hedging concerns rather than women buying jewelry in India, and (2) I think last year's painful May dropoff and the specter of weak physical demand during the summer, creates a kind of psychological wall of worry that markets like to climb.

A gold rally would depend in large part on the USD breaching levels against competing currencies that have never been seen before. I think this is possible, and in fact inevitable, in light of what I have learned about the economic outlook and current status, however, betting on it happening in any particular time period is "risky" in the sense that it's difficult to predict when exactly it will happen and betting at the wrong time, could end up costing.
The USD is very oversold. You've probably heard of the Euro making new all time highs against the USD recently. A relief in the USD is possible, which could potentially be Gold negative. My counter to that is that there is a pretty good chance that any relief rally would fizzle, as neither the fundamentals nor the chart of the USD index are very encouraging going forward. I'll be looking for the 82.5 to 83.0 level on the USDX to stop any USD rally.

Precious Metals Sector Summary

2007-05-02T13:04:00.000-07:00

Recent highlights from the Precious Metals sector:

1. Vista Gold (VGZ) announced on Monday that its delayed arrangement whereby it will spin off shares of a new entity named Allied Nevada Gold Corp. will finally close on May 10. VGZ had a breakout recently, so it will be interesting what happens to the shares of the two entities. I have a feeling that the Allied Nevada Gold Corp. spin off will be a success, since this entity will own VGZ's Nevada properties, which could be in high demand.

2. Barrick (ABX) announced the closure of its corporate hedging program, reporting a one time charge of $557 million in connection therewith. ABX will now be selling all its gold at spot prices. Barrick also raised its dividend by 36%. ABX's chairman and founder Peter Monk recently mulled the possibility of ABX's diversifying further into base metals in light of ABX's underperformance relative to other miners. It's hard to understand that logic however, considering that base metal miners actually have much lower P/E ratios than Gold miners. Though, it is true that they tend to be significantly more profitable. Maybe in the long run, the market will recognize and fully value that profitability. Obviously, when the biggest player in the industry closes out its hedges, that is a sign that industry insiders definitely expect higher Gold prices going forward. In that sense, this news is bullish. On the other hand, it also eliminates a further source of future buying so in that practical sense, it is also not bullish.

3. Mine workers launched a nationwide strike in Peru on Monday to demand better job benefits, but it was unclear to what extent the country's silver, copper, zinc and gold producers would be affected. This is potentially bullish for metals prices as Peru is an important metal mining country, though for now, the strike is not that significant and has only just started. Companies with mines in Peru include ABX, BVN, NEM, PCU, Swiss-based Xstrata, and local miners Volcan and Cerro Verde.

4. My buddy Dean sent me the following interesting article about Gold and other precious metals and gem stones becoming an

E-Gold Indicated for Money Laundering

2007-04-30T13:21:00.000-07:00

A federal grand jury returned the following indictments on April 24 with respect to E-Gold and its owner: each with one count of conspiracy to launder monetary instruments, one count of conspiracy to operate an unlicensed money transmitting business, one count of operating an unlicensed money transmitting business under federal law and one count of money transmission without a license under D.C. law. Subsequent to the indictment, the Department of Justice also obtained a restraining order on the defendants to prevent the dissipation of assets by the defendants, and 24 seizure warrants on over 58 accounts believed to be property involved in money laundering and operation of an unlicensed money transmitting business.

The indictment alleges that E‑Gold has been a highly favored method of payment by operators of investment scams, credit card and identity fraud, and sellers of online child pornography. The indictment alleges that the defendants conducted funds transfers on behalf of their customers, knowing that the funds involved were the proceeds of unlawful activity; namely child exploitation, credit card fraud, and wire (investment) fraud; and thereby violated federal money laundering statutes.

According to this, it appears that gold is passing the ultimate litmus test for validity as a currency: acceptance by organized crime. An anecdotal factor that is definitely gold bullish.

Charts of Interest

2007-04-28T23:28:00.000-07:00

Some interesting charts.

Comments: SLW looks like it's getting ready to break out. SLW recently announced the acquisition of two new silver streams, including all of the silver produced from the Stratoni mine in northern Greece operated by Hellas Gold S.A. a majority owned subsidiary of European Goldfields for $57.5 million and, more importantly, 25% of the life of mine silver production from Goldcorp’s Peñasquito Project, located in Zacatecas, Mexico, for $485 million.

Comments: This company continues to issue press releases that are little more than fluff, at an alarming rate. Nevertheless, it is at around support at $5. Further support appears at around $4.50. Jim Sinclair wants a partnership with the Chinese regarding the Kigosi nickel exploration project. But the recent terrorist strike on a Chinese oil exploration base in nearby Ethiopia, which resulted in the killing of 65 Ethiopians, 9 Chinese and the kidnapping of 7 other Chinese, is hardly wonderful PR for Chinese resource projects in the Horn of Africa. Needless, to say, the attack didn't get any airtime whatsoever on JS's Mineset.com since JS's Mineset.com policy seems to be not to comment whatsoever on what is happening in the Horn of Africa region.

Comments: I predicted in late February, that the price target for GSS's breakout would be $4.90. I was only 5 cents off as GSS skied to $4.95 before selling off. After GSS's great run up, it appears that GSS is trying to find a bottom on its consolidation. I think around $4.25 and just below $4.00 are two areas where GSS could see support, assuming that Gold continues to sell off.

Tom recently gave the following, fairly exciting, update about GSS.

"Between now and May 10th I expect to see the following news released in either PR's or on the Q1 CC:

1) Commissioning of Biox.

2) A full month of Biox recovery rates and production numbers from Module #1.

3) The feasibility study from Hwini-Butre / Benso.

4) BoD approval of the above mentioned project. This is extremely important to the Wassa mill, as the blending of the new ore with the existing feedstock will increase production from 110,000 ounces to 200,000 per annum.

5) Possibly an increase in reserves as a result of the drilling programs there. If they do include the reserves, it should be very substantial."

Tom also provides the following update regarding the energy crisis in Ghana:

"The power problem is still there, but it is improving IMO. I monitor 14 sites in Ghana and Burkina Faso that feed the Akosombo Reservoir. The drought is over and the rains are increasing. Every week a handfull of the areas have between 1" and 5" of rain. In the meantime, the government is installing emergency generating units as fast as they can. The bottom line as I see it, is that for the remainder of Q2 GSS will be operating at a 75% power allocation, plus whatever they choose to produce themselves from their own diesel units. These units can potentially supply them with 30% of their total power, but are extremely expensive and difficult to keep running. Q2 should be profitable, but only by $.03-.04 as best I can tell at this point."

Tom predicted the imminent breakout of GSS in early November, commenting at that time on a press release ""Game winning home run in the bottom of the 9th!" At first, GSS didn't do anything particularly interesting, but within a few weeks after Tom's comments, GSS started to skyrocket on its way to a 66% gain.

In light of the foregoing, I think it would be a good idea to buy up GSS on this pullback. I already made a couple of buys.

Comments: AEM is close to support. A breakout of the slightly declining (bullish) wedge would lead to a rally of about +$8.

Trading Yamana Gold (AUY)

2007-04-28T23:23:00.000-07:00

Comments: AUY has periods of in line performance with the HUI, followed by periods during which AUY strongly outperforms the HUI. I believe that AUY recently completed a period of outperformance of the HUI, as you can see in the chart above. Accordingly, even if the HUI rockets up, I think AUY will only follow in-line with the HUI, at least for a while. The period of in-line performance seems to last about 6 to 8 months.

Royalty Companies set to Underperform?

2007-04-21T04:28:00.000-07:00

The COT numbers showed the all time second biggest net short gold position by commercial traders, which should be bearish in the short term.

If there is any pull back or consolidation, and I think there is a pretty decent chance of one occurring, two companies to be wary of are RGLD and TRE, both of which employ a royalty model.

Neither company really participated in the recent gold and HUI rally. The only caveat to that comment is that these two companies tend to be less correlated (for some reason) than the average gold mining company to the Gold indices, so it's possible that they may hang tough on any pullback. Still, I wouldn't bet on it.

Comments: TRE went nowhere fast during the recent upswing. With no significant royalty payments on the horizon and with press releases that would be best described as "fluff", it's probably not a big surprise.

Comments: RGLD, a fully developed company whose royalty revenues TRE could only wish for, also did not respond very positively during the recent gold rally. The surprising thing was that there was little bounce back after the recent share offering was completed. RGLD has solid royalty revenues from various properties, but with a P/E ratio of 44.7, it may be vulnerable.

Update: Compania de Minas Buenaventura SA (BVN)

2007-04-19T10:26:00.000-07:00

Comments: BVN has broken out of a 1.5 year trading range on nice accumulation. I'd be a buyer on any pullback, such as the one that we are getting right now. BVN is an equity partner at the Yanacocha mine in Peru and operates 4 other smaller mines as well. Yanacocha, operated by Newmont, is one of the two biggest gold mines in the world. The main complaint against BVN has generally been that it has been a partial gold hedger. However, on March 9, BVN announced that it had bought back 25% of its hedge book, which apparently helped to spark the current rally.

Update on Kimber Resources (KBX)

2007-04-18T11:24:00.000-07:00

Comments: After failing to get back up above resistance, looks like Kimber is falling away and will likely retest at least recent lows, especially if the gold price turns south for a change. The company recently announced, among other things, that Darren Klinck, Kimber's Vice President of Corporate and Investor Relations, who put up an excellent IR front on behalf of the company, will be departing the company. Despite my anger with the company because of their shenanigans, I really wish Darren all the best. He took his job very seriously and, in my opinion, he did a great job. He timely responded at length to all of my questions about Kimber. Too bad the company has performed so poorly.

HUI Approaches Sell Zone

2007-04-05T10:47:00.000-07:00

Comments: I sold down as the HUI has been up four days in a row and is now approaching significant lines of resistance along the channel line and lateral resistance. I expect the area HUI 358 to 362 to provide significant resistance for reasons that should be obvious when looking at the chart above. The surprising thing is that Gold and the HUI isn't down more after the news of the release of the British serviceman by Iran. That potentially bodes well going forward as I was sure that Gold would come at least temporarily under pressure following the revelation that they aren't going to get the Abu Ghraib treatment in Tehran. GSS and CUP did best for me during the recent run, TRE did the worst.

The Spin Starts Here

2007-04-02T09:51:00.000-07:00

I guess you sometimes have to excuse Jim Sinclair for some of his more over the top comments at his website www.jsmineset.com . After all, Jim is a gold fan and enthusiast.

When you see statements like "the man in charge in Iran now was the man in charge of taking US hostages in the Carter Administration" you just have to grin and bear it, even though you know that nothing has ever been found to support the statement and believe me, if there was the slightest piece of evidence to support it, the current U.S. government would have jumped at it, not to mention the fact that the current President of Iran appears to look younger than the hostage taker in the pictures that have been circulated in media reports, which seems a bit inexplicable, considering that 27 years have passed since the incident.

And then, there are grave warnings on Jim's site about the recent protectionist measures imposed against China, with grim references to the protectionist Hawlet-Smoot Tariff Act of 1930, while a free trade agreement with South Korea that is the largest of its kind since NAFTA is dismissed by Jim as irrelevant.

That's all fine, since, like I said, Jim is an enthusiast so a little bit of spin is expected (even though his website purportedly claims that "The Spin really does stop here."

However, when it comes to company related information, that is an area where the Spin really does need to stop and, judging by Tanzanian Royalty Exploration Corporation's (TRE) news release last Friday, unfortunately it didn't. Apparently, the British Columbia Securities Commission caught on that TRE had made several misstatements as a result of which investors may have been misinformed causing TRE to make a news release (tactfully titled "News Release") to correct certain misperceptions that may have arisen as a result of previous releases, repeatedly pointing out that certain pieces of information released by the company relating to mineral deposits were not compliant with Canadian regulations and therefor "should not be relied upon".

Also, I personally wasn't all that impressed with TRE's previous news release about the startup of work on its purported nickel bearing properties. The first three paragraphs of the release seem primarily to tout the nickel project in the Kabanga region which is being conducted by Xstrata and Barrick and have little to do with TRE.

When it comes to opinions about Gold, a bit of over the top spin is fine from time to time, but when it comes to company news releases, the Spin really does need to stop there.

Gold Chart

2007-03-26T09:23:00.000-07:00

Comments: I just returned from an unexpected business trip to Nigeria, hence the lack of updates recently. The above chart shows that Gold has been creating a channel with some obvious buy and sell points. The HUI seems overbought in the short term, but it is now consolidating for a couple of days. My exposure remains 31% and I think I sold a bit too early. Hopefully I'll be able to get back on board with at somewhat lower prices, though it's unclear where we are going next in Gold. The COT report remains bearish in my opinion.

On a side note, an interesting article about a company (Nautilus Minerals Inc.) listed on the Vancouver exchange that will be trying to prospect for metals below the ocean.

Gold to XAU Ratio

2007-03-13T10:51:00.000-07:00

Comments: The Gold to XAU ratio is at it again, testing 5.00. Usually values at around 5.00 have resulted in relative buying of the mining shares, but I have a bad feeling about it this time. As I mentioned before, it is possible that the Gold/XAU ratio may have had a "bullish" breakout with a price target of 5.8 to 6.00, which would be very bad for the mining shares--though eventually it would mean a great buying opportunity. All this suggests that GLD and SLV may be better than the miners for now. Let's keep in mind that during the year and a half period of consolidation in 2004 and 2005, the Gold/XAU was well north of 5.00 for 6 weeks. That is quite possible again here because, obviously, we are again currently in a period of major consolidation.

Among the miners, I'm currently looking at CUP (copper not gold, but that's the whole point) and UXG. UXG has been poor but I think that is partly because of the bad experience investors had after their previous merger attempt with their Nevada neighbors collapsed. If they can pull of the merger this time, UXG could potentially enjoy a nice markup, but it is a speculative play. The offer expires March 23, so pretty soon. I also like it because it's correlation to the HUI is relatively low.

My buddy Dean recently sent me an article from the left-leaning NY Times titled "China to Open Fund to Invest Currency Reserves". According to the article, "China will create an agency to invest its immense reserves of foreign currency, now totaling more than $1 trillion, the country’s finance minister announced on Friday."

"They’re not going to be looking for financial assets, but energy assets and natural resources, minerals, things China desperately needs,” said Jing Ulrich, an analyst at JPMorgan.

Although no mention is made of Gold, the mere act of diversifying away from US Dollar-denominated reserves could potentially have positive spill-over effects on Gold.

Following the Commercials

2007-03-06T07:24:00.000-08:00

Comments: Last week's Commitment of Traders report showed the largest net short interest in Gold contracts during the last year, which definitely helps explain the action of the last week during which gold gave up around $45. Major tops in Gold have frequently been marked by peaks in the net short interest of commercial traders.

Unfortunately, it typically takes about 8 weeks for this kind of situation to reverse itself so I'm not expecting any huge comeback rallies anytyime soon, though a bounce here seems quite plausible. Hopefully this week's report will show commercial net short interest falling precipitously again.

The COT report is not perfect as a timing device and commercials are not always right. For instance in April to May of 2006, it seemed that the trade went against them as Gold soared higher while net short interest stayed about constant. More often than not, however, commercials have been in control and it has paid to follow them.

Gold to XAU Ratio

2007-03-02T06:10:00.000-08:00

Comments: The Gold to XAU ratio flashed an ominous sign on Tuesday by appearing to break out of a long symmetric triangle consolidation. If that is the case, the "price" objective for the ratio would be around 5.7 to 5.8, which would mean continued massive underperformance of the mining shares to Gold for at least several months.

However, it's unclear that it's going to necessarily go that way just yet. The USD has done basically nothing during the last few days and Oil is still well over $60 per barrel so the current action in Gold is a bit strange. However if the Gold to XAU ratio continues to climb above 5.00, the writing will be on the wall for the miners even if Gold maintains itself above $600--which I think would be quite likely.

Comments: Upon a further measurement, it appears that the price target would be 6.00 not 5.80. That is suspiciously close to a potential channel line.

Accumulate GSS on Pullbacks

2007-02-25T06:00:00.000-08:00

Looking for a Gold stock that is really on a roll? Look no further than Golden Star Resources. After frustrating investors for so long during a long period when everything seemed to just go wrong for GSS, it looks like GSS management is finally putting the pieces together.

Even after getting slammed down after the announcement of a secondary offering earlier last week, GSS just roared right back and is trading right around the same price as it had when the offering was first announced 3 days ago. Hard to imagine more bullish action than that. I believe that the current price level (i.e., around $3.90) should be short term resistance, but I would be a buyer on any dip here. My price target for GSS is about $4.90 for the current move.

Here is Tom's latest about the upcoming schedule and prospects for GSS:

"GSS has a steady stream of news and events scheduled between now and June. They aren't planning on giving the manipulators time to put on a raid again. Every one to two weeks something positive is planned to happen:

Biox #1 commissioned

Successful offering

Q4 earnings CC

St. Jude feasibility study and BOD approval

Biox #2 commissioned

Biox in service

Q1 earnings CC and

first Biox production numbers

Power plant in service

Add in a couple more PRs covering exploration, JVs, upgrades, or whatever, and it averages 1 every 10 days.

At this point my only regret is not taking advantage of the pullback to add to my positions. Afraid I was waiting for a lower price like everyone else.

As far as I can tell, the long awaited upmove has already begun, and is rapidly gathering speed and momentum. By Q3 we should have proof that Biox works. If the production and recovery rate meets expectations, Golden Star's stock price may surpass AUY in a year or so."

Very few investors put in as much time and effort into researching a company as much as Tom does and he's been really on the ball about GSS a number of times now.

Tom also subsequently adds the following notes of caution to balance out his positive comments which I posted above:

* We are talking about Ghana...a third world country. They are a democracy, and are making great strides in developing the country and bringing it into the 21st century. Although they are making progress, much work remains to be done.

* I am not an expert on arbitrage. I would think that the arbs would have shorted the stock and planned to buy shares to cover out of the new issuance for a quick profit. For all I know, this may still happen over the next 3 days. It is also possible that some selling may occur after the issuance due to profit taking...I just don't know.

* The size of the offering surprised me, as I saw no need for that much additional cash with Biox on the verge of adding a flood of cash to their coffers. My gut tells me they want to expedite development of a number of projects to add to production and lower costs, but I don't know that for a fact.

HUI 400

2007-02-23T19:32:00.000-08:00

Comments: I'm guessing the initial target for this move will be HUI 400 or so. That would mean a double top in the HUI. Hopefully it won't stop there however. Still, the gold miners for the most part are not maintaining that much leverage during this move, which makes me wonder whether this move will be all that great. The Gold chart suggests that the measured move will be to about $750 however. Maybe it will be better to be in SLV or CEF than in miners. Or maybe a mix of SLV/CEF and miners.

Comments: Although we've been in a uptrend recently, the XAU to Gold ratio has not yet tipped its hand. In fact, the leverage, with the exception of the occasional upburst, has not been that great so far into this move. Once the formation is broken, it will be a very big move in one direction or the other. About 1.00 up or down. So up to 5.7 or down to 3.4.

From the low in January to the close in Friday, the percentage gains for precious metals investments have been:

SLV: 18.66%

HUI: 16.75%

GDX: 15.58%

CEF: 14.68%

GLD: 13.50%

XAU: 13.00%

The fact that the XAU is the worst performer of the 6, i.e., that Gold and Silver stocks as measured by the main index have underperformed Gold and Silver, definitely raises some issues about the destiny of this move.

Inflation Confusion

2007-02-22T10:02:00.000-08:00

1. It appears that we're back in the land of inflation confusion. Yesterday's surprising CPI print which showed higher than exected inflation both in the headline and core level, led to a surprising result. Gold was up AND the U.S. dollar was up. Chuck Butler, the President of Everbank World Markets, had the following comment today on this continuing confusion about inflation and what it really entails:

"Yes, this goes back to the Pfennig I wrote a couple of weeks ago about how things have changed over the years, and that low inflation doesn't warrant a strong currency any longer... The markets crave high interest rates... And you don't get high interest rates without inflation! This thought process is demented... Unfortunately, that's the thought process in the markets these days, so we have to play the game."

2. It appears the insurgents in Iraq are using new tactics, blowing up a couple of tankers filled with Chlorine gas recently in so called "dirty" chemical attacks. Meanwhile, another helicopter was brought down by small arms fire. "Army Lt. Gen. Ray Odierno said the military has noted similarities in some of the eight helicopter incidents in the past month in which aircraft were either shot down or landed under fire. A few of them might have been ambushed, he said." 8 choppers have been downed recently.

3. Another surprise was the Yen trading at 10 year lows against some currencies following the BOJ's 0.25% interest rate hike to 0.5%. Not many things are going the way one would think they should. Though, frankly, I'm not that surprised that the Yen has been weak. In fact, I fully expect it to be weaker if the BOJ continues to manage it the way it has. The Yen is basically a third world currency with plenty of inflation in the pipeline already. They're a "mere" 19 rate hikes behind the U.S., and the U.S.'s 5.25% isn't exactly ultra restrictive in any case.

4. A ">$2 million coin anyone?

5. NEM and ABX announced earnings today. Looks like cash costs are rising all around.

6. Keep your eyes on this stock: Gold Resource Corporation.

HUI Retreats from Resistance

2007-02-20T07:34:00.000-08:00

1. Looks like the HUI is retreating from resistance. That makes sense to me. As I mentioned, the fundamentals are not optimal at the moment for a great Gold advance and the mining shares have been underperforming Gold, which is often not a good sign. Sentiment has been getting pretty bullish recently as well, perhaps too bullish. 340 is first support on the HUI, but if it can't hold that, then I think we will see a more pronounced correction, with Gold retreating back to $640 or so. That might provide a good buying opportunity. I'll be watching the Gold/XAU ratio closely as well. It's at 4.74 at the moment, which is fairly high. Above 5.00 and I believe it's just a question of time before we get a reversal--though ideally, I'd love to buy back in between 5.10 and 5.30. actually, I'm hoping for a nasty sell of now that I've been out of the miners for a few days. Looks like Andy and my patience may have paid off after all.

2. In company specific news, the usually snake-bitten GSS, which was actually one of the few gold miners companies that really shone recently, is getting killed today after announcing a secondary offering. It's down almost 8% today. After the chart repairs the damage, I think GSS should be a good bet. They've been coming out with fairly good news recently and seem to be generally turning things around. I'll have to get Tom's comment on the latest announcement. EGO, another strong performer recently, is also slammed today after announicng that its merger talks with Centerra are over. down 6%.

3. SA and IAG on the other hand, are trading up because of positive announcements. SA announced that a study of its Mitchell gold-copper discovery has confirmed a major new resource which may have significant expansion potential. At the moment, they estimate that Mitchell, which is one of their two main properties (Courageous Lake being the other) has an inferred resource of 13.1 million ounces of gold. SA's CEO, Rudy Fronk states in SA's press release today that "We could not be more encouraged by our prospects for value creation in 2007." Of course every CEO is likely to say that, however, I think SA's optimism may be justified. IAG is up on the announcement over the weekend of a a substantial increase in gold reserves and resources at its Rosebel Gold Mine in Suriname. KBX has also been strong into the general selling.

4. Volume is now coming in fast and furious on GDX during the last 30 minutes of trading and that's not a good sign.

5. Goldcorp (GG) announced the sale of two mines today to raise $300 million in a cash and stock deal. One of the two to go was the underperforming Amapari mine in Brazil. The Amapari mine was a money loser for GG, operating as of September 30 at a cash cost of $538 per ounce. Looks like GG is continuing to raise cash for the development of the Penasquito mine in Mexico. UBS lowered its target price on the news for GG, noting that the consideration for the mines, which also included $100 million in the shares of the acquirer, was below their valuation for the assets. GG is underperforming the HUI today, down 3.23% right now.

6. Lots of company specific news today, however, on the geopolitical front, it's worth noting that the troubles in Somalia are not yet over, with attacks increasing recently. I still think that area may develop into an Iraq-type of situation and it is, after all, adjacent to a major oil shipping route. so this is a development that bears watching.

Gold Shares at an Important Juncture

2007-02-16T04:39:00.000-08:00

1. As is apparent from the chart above, we're at an important juncture for Gold Mining shares. It could go either way, but I think we aren't yet ready to break out of the huge triangle pattern that has been developing since May.

2. The helicopter shootdown theme first identified here at the end of January is getting a lot of attention in the media recently.

3. Looks like the U.S. Mint is taking a step in the right direction with the rollout of the $1 coin. At least it will have some intrinsic value due to the metal content. If you know the exact content and melt value of the new coin, let me know.

3. In company specific news, UXG relaunched its tender offers for White Knight Resources, Nevada Pacific Gold & Tone Resources, each at a 25% premium to the price of each company's shares at a day prior to UXG's previous take over announcement. The offer will expire on March 23.

4. Copper Update: CUP is back in an uptrend. I'd accumulate on any pullback, especially if it pulls back below $4. NTO has also been strong during the recent mini surge in copper prices but it has major resistance at around $4.10. TGB is another copper play. But CUP has the best chart out of the three in my opinion.

Divergence of Opinions

2007-02-13T06:20:00.000-08:00

An interesting divergence of opinion from two of the more notable Gold analysts. Clive Maud is very strongly bullish at the moment (though his opinion is a bit qualified) and believes that the breakout has already started. In his February 12 piece, provocatively titled "HUI Set to Advance To 700 - 900..." Maud writes that "gold’s next uptrend isn’t a matter of conjecture or about to begin - it has already begun."

Jim Sinclair, on the other hand, has expressed a rare note of caution due to the divergence between the price of Gold and the Gold mining shares, noting also on February 12 that "Gold breaks above a key level, but not gold shares in general. I find that disquieting. There are always exceptions, we both know that. I am speaking of market phases, not of trends. Within a major bullish gold price uptrend there are bear phases. If a short can cover at a profit it is a bear phase within a bull market."

Frankly, that's about as bearish as I have ever heard big Jim. Good to know that he at least still calls it the other way occasionally.

The thing that I will be looking for over the next few days is whether we see some leverage reappearing in the mining shares relative to Gold. That's been a long time coming and without it, I don't see this move going all that much further (though it could potentially go as high as $680). So far, I'm not seeing that. Gold is about as high as it was on Friday, but we're still 4 HUI points below the Friday HUI peak. But we'll see, the day is still young.

2. In the meantime, the trade deficit for 2006 set a new record of $763.6 billion. This was the fifth consecutive annual record, and a 6.5 percent increase from the previous record of $716.7 billion set in 2005.

3. Coming back to Kimber Resources, that snake-bitten company, since Kimber's AMEX IPO occurred fairly recently, it's difficult to determine what would be an appropriate level of support for the current down trend and offer a pretty decent entry point (or reentry point). We have to look to the chart the Kimber shares trading on the Toronto Stock Exchange to see how low it might fall. Looking at that chart, I think a price of about US$1.20 (Canadian $1.40) seems like it should be support eventually. Then the long road back up. [I will have to post the chart of KBX.TO later, as there seems to be a technical difficulty in doing so at the moment.]

4. My friend Sandra forwarded to me a piece from the WSJ about the rising popularity of palladium in jewelry. The article notes that palladium is starting to look attractive not only as a platinum substitute but also as a substitute for white gold (which is gold alloyed with another metal, like nickel), because it is now much less expensive and because it weighs relatively little compared to the dense platinum. Interestingly, the article noted that "about 80% of sales of palladium jewelry come from China". I guess the newly rich over there aren't quite rich enough to afford Gold and Platinum. Interestingly, as far as I am aware, the obsession with using platinum in bridal jewelry is fairly unique to the U.S. In most other countries I have been to, the preferred metal setting for bridal ornaments is gold. If you know of a country other than the U.S. in which a metal other than Gold is preferred for bridal jewelry, let me know.

5. In a development that is bearish for Gold, North Korea agreed to terms in the 6 party talks relating to the nuclear issue. North Korea has been nothing short of a disaster for gold investors in the last year. Empty threats and blather and malfunctioning missiles and now this. [Edit: I was subsequently reminded by my friend Christine that I should probably be looking at the bigger picture as far as this issue is concerned, rather than just from the point of view of an investor. After all, I live in Seoul and I can't make any profit if I am dead. Food for thought...]

No New Tactics in Helicopter Attacks

2007-02-10T07:58:00.000-08:00

In keeping with the helicopter theme, another article has now appeared to weigh in on whether the recent helicopter shoot downs in Iraq constitute a new trend. According to the AP, the U.S. Army's vice chief of staff, reported today that there is no basis for believing that insurgents' recent success in shooting down U.S. helicopters in Iraq means they have developed new attack methods or discovered new U.S. vulnerabilities.

I agree that it's too early to tell whether this is actually a new trend or simply a statistical anomaly. But I think the losses highlight the determination and ability of the enemy that the U.S. forces face in Iraq. After all, the U.S. has the best trained and best equipped armed forces in the world and you have to be exceedingly tough and determined to engage them successfully. Whether or not this is a new trend, the recent losses point to the fact that the U.S. is not fighting a static enemy, but an enemy that is cunning and adaptive.

Looking ahead in time, what would be the effect on Gold if the U.S. would be forced to withdraw from Iraq? It's unclear, but obviously it would depend on the terms on which the U.S. withdrew and what would happen afterwards in Iraq. Obviously, two scenarios that would be fairly Gold bullish in the long term would be if Iraq fell under the sway of militant Islam or if it became a state closely aligned with Iran, allowing Iran to control both sides of the Hommuz Strait, which is a major oil shipping route. In the short term, this might be offset somewhat by the fact that the withdrawal would obviate the immense dollar dilutive expenditures that are required to keep the War going as well as putting a stop to the steady material and personnel losses.

Attacks on Copters in Iraq Seen as Growing Risk

2007-02-09T11:23:00.000-08:00

Whenever I read about the helicopter downings, I always can't help but think of my good friend and investing partner Andy, who is a captain stationed in the U.S. military base in Korea and whose proficiency includes being a Blackhawk pilot. I'm glad that he's safe and warm in Seoul rather than risking his life over in Iraq whenever I read about a new helicopter that was downed over there recently.

As I mentioned yesterday, there seemed to be a nascent trend of increased helicopter downings. A Bloomberg article that appeared on the front page of Yahoo News today seems to have picked up on this trend which I first started tracking here at the beginning of February. The article gives credence to my analysis, including the alarming parallel to the war in Afghanistan. It also includes an interesting speculation about the possibility of Iran's involvement in arming the insurgents in Iraq and the implications that such a development would have. On a related note, an Al-Queda group in Iraq released a video today of what it said was the downing of a U.S. helicopter.

I cite in relevant part from the Bloomberg article:

"The spike in successful attacks on U.S. helicopters in Iraq creates a growing risk for a major component of American military operations just as a new campaign to quell insurgent violence in Baghdad is beginning.

The downing of five helicopters in the past three weeks shows that Iraqi insurgents are becoming more adept at attacking these aircraft, which the military relies on for a variety of critical functions.

U.S. military officials are studying the downings to determine whether they reflect a statistical anomaly, or ``some new kind of tactics and techniques that we need to adjust to,'' said General Peter Pace, chairman of the Joint Chiefs of Staff. One thing that is clear, Pace said at a Feb. 2 news conference, is that ground fire ``has been more effective against our helicopters in the past couple of weeks.''

Four other helicopters went down between Jan. 20 and Feb. 2, killing a total of 21 people. All were shot down, Pace said. The five downings in less than three weeks were the most in a concentrated period since January 2004, when five helicopters went down, according to a survey by Washington's Brookings Institution.

Helicopters will loom large as U.S. forces increase their pace of operations in a new campaign to suppress insurgents and sectarian militias, said Anthony Cordesman, a military analyst at Washington's Center for Strategic and International Studies. The vulnerability of ground vehicles to roadside bombs makes helicopters especially useful as an alternative means of transporting troops, he said.

The U.S. is likely to be providing air support for Iraqi forces even after most American ground troops leave, because the Iraqis have little air capability of their own.

The importance of maintaining that supremacy through helicopters is illustrated by the experience of Soviet military forces that fought throughout the 1980s to suppress an insurgency in Afghanistan.

The turning point in that war was the U.S. decision to arm the insurgents with shoulder-fired, anti-helicopter Stinger missiles in 1986, said Milt Bearden, who as CIA station chief in Pakistan coordinated aid to the rebels.

``The mood in the resistance turned on a dime,'' he said. ``You felt that if you had a guy with a Stinger with you, you had a talisman.'' As helicopter losses mounted, Soviet morale plummeted, and by early 1989 all forces had been withdrawn.

If Iraqi insurgents have obtained weaponry such as the Russian-made, heat-seeking SA-18 missile, it would increase the risk to American forces, McCaffrey said. It would also raise tensions between the U.S. and Iran, the most likely source of such equipment, he said.

According to the Brookings survey, 57 U.S. helicopters had been downed in Iraq through Feb. 4, resulting in 172 deaths, or about 5.5 percent of total American deaths since the conflict began in March 2003.

Cordesman noted in a paper released yesterday that this loss rate was far lower than the U.S. suffered in the Vietnam War, during which about 5,000 helicopters went down. Still, he said, the recent downings indicate that U.S. forces face an adaptable enemy that has learned to ``swarm'' around targets such as helicopters with concentrated ground fire.

And Cordesman said the ultimate target of the helicopter attacks may be much farther afield.
``The more media attention the insurgents can get through such attacks, the more likely it is that U.S. domestic politics will increase pressure for withdrawal from Iraq or place limits on the use of U.S. forces,'' he wrote."

$666 - the Number of the Beast?

2007-02-09T10:59:00.000-08:00

1. I have been of the opinion for a while now that Gold is in a very wide and broad consolidation after the huge run up in late 2005 / early 2006. This means that I do not believe that we are going to significantly surpass the most recent relative high of $725 and in fact we may not even reach $700. The action today is illustrative of my point. Gold has broken out to $666 (nice number eh?) on a day when the IAEA suspended half the aid that it provides to Iran, and the HUI is up a measly 1.2% right now. This kind of underperfromance has been endemic throughout the recent move in Gold and I think it is a very strong indicator that this move isn't going to go anywhere particularly significant and that we're likely to retest lows at some point, before the broad consolidation can be termed finished. Very significant negative divergence with the miners. This is what happened during large portions of 2004 and 2005 when gold stocks failed to go anywhere.

In any case, I believe that $680 should cap the current move in the short term, and I expect that the underperformance of the miners will continue until then.

2. Looking at the miners, one that has recently really stood out has been GSS, though it now appears to be going quite vertical. KBX is dead in the water at under $1.70, which was around the Amex IPO price which has now become a major point of resistance. Once Gold takes a dip, I would fully expect KBX to resume its slide and retest possibly the $1.40 that was the low of the recent crash.

3. Interesting announcement: from today, GLD will begin trading at 8:20am EST, rather than at 9:30am as other stocks. "The earlier opening will allow investors to start trading streetTRACKS Gold Shares (GLD Shares) at the same time that trading in COMEX® gold futures and gold options commences at the New York Mercantile Exchange Inc."

U.S. Loses 5 Choppers in Iraq in 2 Weeks!

2007-02-08T10:09:00.000-08:00

1. Seriously, I think I'm onto something here tracking these chopper downings. The U.S. has now lost 5 choppers in Iraq in just over 2 weeks. I genuinely believe that today's surge in gold is closely linked to this. Keep in mind my comments about chopper shootdowns and what they entailed during the Soviet invasion of Afghanistan. This is potentially an important marker in the war.

"'The helicopter was flying and passed over us, then we heard the firing of a missile,' said Mohammad al-Janabi, a farmer who was speaking less than a half-mile from the wreckage. "The helicopter, then, turned into a ball of fire. It flew in a circle twice, then it went down.'"

2. Looks like not everyone in Bolivia is hot for Evo Morales' proposed steep mining tax increase. Interesting to read that the local miners were protesting, throwing around sticks of dynamine in La Paz.

3. I e-mailed TRE on February 2 regarding the the amount of the cash payments the comapny will be entitled to for optioning the Luhala and Itetemia Gold projects:

The January 30 recent press release regarding the: optioning of the Luhala and Itetemia Gold Projects: mentions that "The earn-in portion of the agreement: includes prescribed annual cash payments...."

What is the amount of the prescribed annual cash payments?: This seems to be an material piece of info that was: omitted from the press release.

Best regards,

Within a day I was copied on the following message from big Jim himself (though I have not yet received the answer to my question).

" Dear Helen:

I do not immediately recall if there is a confidentially clause in the Sloane contract, but assuming there is not would you send the pages relevant to rental, scheduled payment and work requirement to this inquiring stockholder. Please inform me of the determination.

RY, Jim"

Disaster at Kimber Resources

2007-02-08T09:27:00.000-08:00

Kimber came out with its newsletter for January yesterday, and unfortunately for Kimber shareholders it was a disaster. I've been out of Kimber for some time, but it still hurts because this is one I recommended to some friends. This is a company which has a good land package and has one proven deposit so it still has the potential to become a Minefinders or Gammon Lake type of investment, however, the recent news confirms that Kimber is still a very long way away from that.

Certainly, there were some warning signs along the road, like the continuous delays with respect to the prefeasibility feasibility study for the Carmen deposit, the lack of any significant drill results for the El Orito Norte and Carotare targets, and the attention that the Company had recently been giving to other "promising" targets when the Company had previously stated that drilling up El Orito Norte and Carotare were their next top priorities after Carmen.

I'm not even going to get into the shenanigans at the front office.

Here is the newsletter in all its gory detail, with my appended comments:

VANCOUVER, Feb. 7 /PRNewswire-FirstCall/ - Kimber Resources Inc. (AMEX:KBX, TSX:KBR)

January brings a fresh start to a new year for Kimber Resources. [A refreshing introduction right before the disasster is spelled out in the next paragraph.] We are over the corporate distractions of the last half of 2006. [With a lame duck for CEO, I think it's a little too early for this statement.] We have strengthened our team in Mexico. At the AGM in December we welcomed some very experienced new directors to our board. The next key event will be the selection and appointment of the new CEO which we expect to happen soon. [I'll give Kimber credit for one thing. At least they've learned to dispense with deadlines, rather than setting deadlines and then ignoring them.]

In the field, access roads to all identified drill sites at El Orito Norte have been completed. ["...We're on a road to nowhere..."] As mentioned in the last newsletter (for November), results from Carotare at that time had not been encouraging. Since then we have completed Carotare West, a visually impressive structure with alteration, gold, and silver but our intersections have not demonstrated enough gold and silver to be economic. [But at least it's visually impressive.] The same can be said for the south structure at Carotare East. [Meaning, that it's visually impressive as well? Or meaning that it also hasn't demonstrated enough gold and silver to be economic? Or both?] After the excellent start when the first 28 holes in 2005 generated a resource of 240,000 gold-equivalent ounces this has been disappointing. Similarly, although we have intersected mineralized structures, early drilling at El Orito Norte has not provided much excitement yet. Drilling on the main structure continues and we will evaluate progress with each batch of results. [Read: Carotare, one of the company's top three targets is now officially a failure. El Orito, another one of the top three is looking increasingly like a failure.]

In order to achieve our objective of three million gold-equivalent resource ounces, rather than relying solely on Carotare and El Orito Norte, we initiated a reconnaissance exploration program in December to expand the search beyond the 3% of the property already mapped and sampled.[Read: the company is basically back to square one. With the exception of the Carmen deposit, which has stalled for over a year, this is no longer primarily a development company. It's now back to being a risky explorer.] This will be a key priority for 2007. [That's quite a change of priorities. Kimber went from a development company to primarily an explorer.] One new occurrence of epithermal alteration ("Arimo") only two kilometres southwest of Carmen has already been identified. The Monterde property is 28,000 hectares in area and 37 kilometres in length. [Wow. Big. Ah, the great wild wilderness. Lots of places to play hide and seek.]

More holes have been drilled on the Veta Minitas, a mineralized structure 200 metres to the west of the Carmen, which provided the excellent intersection (in LMR-47, reported November 29th). While we await results on the follow-up holes, we are optimistic that Veta Minitas will generate resources which could be mined from underground. [One good drill hole and the company is optimistic that it's going to be a mine. Considering that this place is right next to Carmen but wasn't previously considered as important as Carotare and El Orito Norte, but is now suddenly, after the failures at Carotare and El Orito Norte, getting hyped for its potential, I would be pretty suspicious about expecting too much from Veta Minitas.]

We have completed core drilling on our identified targets and accordingly, we are relinquishing the core drill for return when we have sufficient new targets. [Does that mean there are still reverse circulation drills at Carotare and El Orito Norte? Or are these targets being abandoned altogether?] This will come as a disappointment to some, but exploration is not solely drilling. [Yes, when a project fails, you're back to square one of conducting surveys, sending people out into the field to examine visually impressive outcroppings etc. As I mentioned, until yesterday, Kimber was primarily a project development company, not an exploration company.] The reconnaissance program will be integral to identifying additional drill targets, a key step to growing resources at Monterde. [A key step and a FIRST step, that, with luck, will lead back to drilling.]

Metallurgical studies on the Carmen deposit continue. Silver recoveries are the key. Not only does the recovery of silver range from high to low, but it also varies with location within the deposit and with the fineness of grind. We are currently considering alternative mining operations and processing methods as we continue to work towards optimizing the rate of return from the Carmen deposit. Open pit only, open pit combined with underground, underground only are all being looked at alongside heap leach only, heap leach and mill, and mill only. Combined feed from both open-pit and underground is already being used by Gammon Lake (Ocampo) and is being considered by Palmarejo (Palmarejo Trogan), Agnico-Eagle (Pinos Altos), and now Minefinders (Dolores). The possibility that the Carmen deposit includes resources which can be mined from underground is now a focus of attention. [This may all sound like Kimber has been confronted with a truly unique problem. But unfortunately, the point of the pre-feasibility study is to come up with answers to the questions raised in this paragraph. That's exactly what prefeasibility studies are about. There's no unique issue here at Kimber.] The pre-feasibility study will take place when enough is known about resources, metal recoveries, and mining methods. [Read: Kimber has no meaningful update or schedule for the pre-feasibility study since postponing it twice and the Carmen deposit which has been pretty much drilled to death, continues to languish indefinitely.]

I think this best sums it up:

About Kimber from January 17:

Kimber Resources Inc., which holds a 100% interest in the Monterde property in the Sierra Madre of northern Mexico. On the Monterde property, The Company is advancing the Carmen gold-silver deposit towards production. The Carmen deposit, an underground mine in the 1930's, is a typical low sulphidation epithermal system, oxidized, and believed to be suitable for open pit mining. Two adjacent epithermal systems first identified in 2005, the Carotare deposit and El Orito Norte exploration target, appear to be similar to the Carmen. The goal of the Company is to demonstrate at least three million resource ounces from the two deposits and exploration target identified. For further information on the company, visit SEDAR or the company website at.

About Kimber February 7:

"Kimber Resources Inc. holds a 100% interest in the Monterde property in the Sierra Madre of northern Mexico. On the Monterde property, The Company is advancing the Carmen gold-silver deposit towards production. The Carmen deposit, an underground mine in the 1930's, is a typical low sulphidation epithermal system, oxidized, and believed to be suitable for open pit mining. Two adjacent epithermal systems first identified in 2005, the Carotare deposit and El Orito Norte exploration target appear to be similar to the Carmen. The Company recently acquired a second project, the "Pericones" in Estado de Mexico. This prospective silver system is undergoing a mapping and sampling program with drilling expected in 2007. For further information on the company visit SEDAR or the company website at ."
___________________________________________________________________

Get it? The two adjacent epithermal systems appear to be similar. Period. But who cares? The important thing is that the company no longer expects 3 million ounces from their top three projects.

The funny thing is that the above description of "About Kimber" in which the reference to the company's goal of getting 3 million ounces from their top three targets was removed also appeared in the January 17 announcement which was titled "Kimber announces drill results from Monterde & sampling at Pericones project". You just had to look very carefully to see that little "detail" or rather omission at the bottom of the announcement.

$660 is Resistance

2007-02-02T07:42:00.000-08:00

1. Looks like $660 is resistance. I think that is the last resistance before Gold can have a significant surge. But I don't really like what I am seeing from Gold today.

2. Another U.S. chopper down in Iraq? It seems another chopper was downed today, but it's unclear because the report refers to 3 helicopters being down in the last 2 weeks. But as you recall, I noted that a report a couple of days ago, mentioned that 3 choppers had been lost in the last ten days. [Edit: Yes, it was a 4th helicopter that was shotdown in the past couple of weeks. The first article wasn't very accurate. The U.S. command said two crew members were killed, and the top U.S. general conceded that insurgent ground fire has become more effective. I usually don't quote al-Queda sources, but I thought it was interesting that the article mentioned that n"n al-Qaida-affiliated group claimed responsibility and said its fighters had 'new ways' to attack American planes."]

3. TRE has been slammed, down over 10% in the last few days. It looks like a breakdown on heavy volume after a few weeks of narrow range consolidation, but hopefully a bottom may soon be near.

4. RGLD beat earnings estimates by 3 cents yesterday (24 cents vs. 21), but, with gold down by $10 today, RGLd is off by almost 1% since its earnings announcement.

5. It's 11am EST (1.5 hours into the trading day) and KBX has 700 shares traded. Lost and forgotten stock.

6. Still looking for that breakout on GOLD. Major resistance is between $23.75 and $24. Above $24 and GOLD should go over $30.

7. Bad news for Oil bulls. Ground hog Punxsutawney Phil failed to see his shadow today.

U.S. Loses 3 Choppers in Iraq

2007-01-31T09:58:00.000-08:00

I thought this article about the recent sharp rise in helicopter losses in Iraq was kind of interesting. According to AP, since May 2003, the U.S. military has lost 54 helicopters in Iraq, about half of them to hostile fire but 3 were lost since January 20. It's probably a statistical anomaly, but I thought it was interesting because of the comparison with the the 1979-1980 Afghanistan war. [Edit: Yes, it was a 4th helicopter that was shotdown in the past couple of weeks. The first article wasn't very accurate.]

Although the Soviets initially had free reign over the skies over Afghanistan, it is acknowledged that the use of American-supplied Stinger anti-aircraft missiles by Afghan fighters was a major factor in the Soviet defeat in Afghanistan. With respect to Iraq, the article notes that "the recent spate of losses raises questions about whether Sunni insurgents and Shiite militias may have stepped up attacks on helicopters or may have received new supplies of shoulder-fired anti-aircraft weapons. Sunni insurgents are already known to have SA-7 anti-aircraft weapons in their arsenal as well as rocket-propelled grenades and heavy machine guns, all of which pose a threat to aircraft."

Rebasing the Penny (Metals Market Wrap-Up)

2007-01-31T09:22:00.000-08:00

1. Although the Bema shareholders approved the merger with KGC on Tuesday by 91% of the votes cast representing 59% of Bema's outstanding shares apparently the KGC - BGO merger is still subject to certain conditions such that it will take place "within the next few weeks" and not shortly after the shareholder approval as I had previously expected. My apologies for the misinformation. Still, KGC remains in a breakout of a descending triangle with a price target of $15.50. My other pick, GOLD, looks like it's getting ready to have that massive breakout. If it can clear the $23.75 to $24.00, it could enjoy a very large move. I'd watch it carefully if I were you. CUP also looks good on this pullback, though Copper has been kind of horrible.

2. I've been looking for a site that is for Oil, what Kitco is for Gold and I think I found one recently. RIGZONE.com has plenty of energy commodity-related infomercial in a format similar to Kitco's. They have commodity prices, industry and company news as well as the Rig Count which can be an issue during the hurricane season.

3. In case you were wondering how much of South African top gold producer's gold is produced locally in South Africa: AngloGold produces about half its gold from local mines, Gold Fields produces almost three-quarters of its gold in South Africa after buying South Deep, the world's largest deposit, and Harmony produces 90 percent of its metal here.

4. You probably already know that certain U.S. coins are worth more for their melt commodity value than for their face value. Though, there is some controversy about whether this is actually true. Recently, I found an article about this issue in Reuters. "Sharply rising prices of metals such as copper and nickel have meant the face value of pennies and nickels are worth less than the material that they are made of, increasing the risk that speculators could melt the coins and sell them for a profit." The timing of this article, considering that base metals seem to have topped out and have considerably depreciated recently, seems a bit odd. Interestingly, the article mentions that a senior economist at the Chicago Fed has suggested rebasing the penny at 5 cents, to fight penny hoarding by people who are hoping to sell pennies for their melt value. "Rebasing the penny would ... debase the five-cent piece and put it safely away from its melting point," he added. I wonder how rebasing the penny would actually work. Ofcourse, if the penny is actually rebased, then that might be all the more reason to load up on pennies right now.

5. Today is the FOMC interest rate decision. I will post the FOMC's latest statement showing revisions vis-a-vis the previous statement. Things feel somewhat bullish now in Gold, after a bit of a technical downtrend break and consolidation recently.

Gold's Suspicious Fundamentals

2007-01-29T08:36:00.000-08:00

A breakout to the upside is a possibility in the near future since Gold broke another downtrend recently. However, it seems that some fundamentals behind Gold's move are a bit suspicious.

Let's look at Jim sinclair's 5 Golden Pillars. I consider each of the Pillars below and rate them on the following scale:

Strongly Bullish +3
Moderately Bullish +2
Mildly Bullish +1
Neutral or Indeterminate +/- 0
Mildly Bearish -1
Moderately Bearish -2
Strongly Bearish -3

1. Recognized Top in U.S. Dollar: Yes, the USDX has definitely topped out a few years ago. That is a given. It is also currently trading below pretty major resistance between $85 to $86. However, it is also not that far away from the $80 level which is important support for the Buck. Some might also argue that, from the point of view of trading psychology, there are currently too many US Dollar bears. As Clyve Maud recently mentioned (though I think he was quoting someone else), there are enough Dollar bears to fill 20 football stadiums and almost no Dollar bulls, or something along those lines. So overall, I rate this factor as "moderately bullish" for Gold.

2. Trust in U.S.A. Paper Assets Declining: There's been some evidence of that. Some foreign central banks have made some moves to diversify away from huge US Dollar holdings. Also, the Euro has come on strong, more strongly than some people expected. However, there's been no stampede to the exits. Also, China continues to hold massive US Dollar reserves of well over $1 trillion. Again, I rate this factor as "moderately bullish".

3. Bullish General Commodity Markets: The central Pillar has definitely crumbled recently in a fairly spectacular way. Oil and Copper are in at least short to medium term bear markets unless and until proven otherwise. Many other metals are also in bears. Oil not only broke a 5 year uptrend recently, it also broke down from a 3 month long consolidation. With winter approaching its stretch run, the fundamentals for Oil look rather bleak in the near term, barring any eruptions from Iran. We may go back to a bullish posture, but it will probably take some time. I rate this as "moderately bearish".

4. Triple Deficits of U.S. Budget, Current Account & Trade, Firmly in Place: That is true, they are "firmly in place", but the trade deficit has been getting a bit smaller recently, in large part due to falling energy prices. I think we've had 3 straight monthly readings below $60 billion now. I rate this as "moderately bullish".

5. Recognized Top in U.S. Treasury Long Bonds: This one is a bit unclear upon further investigation. I generally agree that long bonds cannot really stay bullish much longer and that a top is likely to be in place in the not too distant future. However, let's keep in mind that it is unclear whether such top is Dollar positive or negative. Generally speaking, higher interest rates are supportive of the Dollar. Sinclair seems to recognize this dilemma and counters with "If the increase in interest rates comes from liquidation of Treasury instruments by other central banks and international investors the dollar will reflect it by not rising with rising interest rates." That is the key issue, but I think it is still unsettled which way this issue will cut. I rate this as "Indeterminate".

So there you have it:

3 Factors that are "Moderately Bullish" (+6)

1 Factor that is "Moderately Bearish" (-2)

1 Factor that is "Indeterminate" (0)

The net rating for Gold comes to +4 on a scale of +15 to -15. In other words, the current fundamentals are only somewhat bullish for Gold in my opinion. Not nearly as bullish as they were in 2006, but definitely still positive. But positive enough to get a breakout past $650? The technicals currently seem to suggest that is a possibility, but the technicals in the Gold stocks are still unclear.

What do you think? What ratings would you give to the 5 Golden Pillars?

Charts of Interest GOLD / KGC

2007-01-27T03:55:00.000-08:00

Comments: As I previously mentioned, BGO shareholders will vote on January 30 whether or not to approve the merger with KGC. I understand that the transaction will be consummated shortly thereafter. As in the case of IAG and GG, I believe the approval of the merger, which will create the 4th largest gold company as measured by gold reserves, will give a brief boost to the shareprice of KGC. In any case, KGC recently broke out of a descending triangle-like pattern that has a measured target price of $15.50.

Comments: The chart of Randgold Resources Ltd. (GOLD) is starting to look interesting as the trendlines are starting to narrow. A measured move would be to around $33 to $34 if it is an upside breakout or it would slice off $9 in case the break is to the downside. There's been a little accumulation in the last three weeks.

Metals Market Wrap-Up

2007-01-26T23:32:00.000-08:00

1. Royalty company Royal Gold Inc. (RGLD) closed the purchase of the Penasquito project royalty from Minera Kennecott S.A. De C.V., based in Guadalajara, Jalisco, Mexico, on Wednesday paying $80 million in cash and 577,434 shares of its common stock for a 2 percent net smelter return royalty on a gold, silver, zinc and lead mine in Zacatecas, Mexico. The Penasquito project, composed of two main deposits called Penasco and Chile Colorado, is under development by Goldcorp Inc., but the royalties won't start flowing for quite a while. Royal Gold also obtained the right to acquire additional royalties ranging from 1 percent to 2 percent on a number of properties in the region. I previously wrote that a 2% smelter royalty seems a bit modest considering that RGLD tapped its entire cash hoard and even took the uncommon step of issuing equity to acquire the royalty, but maybe the idea is that RGLD will exercise the rights on such other royalties. RGLD has been very active since December, closing the Gold Hill and Penasquito royalty transactions and announcing the acquisition of a royalty on the Pascua Lama Gold Project from Barrick.

2. Gradient Analytics, an independent research firm specializing in research in executive compensation, reported the results of a study that found that early exercise of deep in the money options by company insider's is often correlated with subsequent share underperformance. "What we found was that not only do these early, deep-in-the-money exercises result in share price declines over the period that follows, but they also are associated with earnings misses and future misses," Gradient founder Carr Bettis said. This is neither surprising nor gold related, but I just thought I'd post it here while I was on the topic of RGLD. Some RGLD investors believe that RGLD insiders have been using stock options to profit excessively at the expense of RGLD's shareholders.

3. Gold Fields Ltd. (GFI) was down nearly 8% during the last two days after it announced Thursday that it sold US$1.2 billion worth of new shares to repay debt. The company said it will use the proceeds of its share sale to pay off the debt incurred by its acquisition of Barrick Gold Corp.'s 50 percent stake in the South Deep mine and its rights under a joint venture agreement with Western Areas Ltd.

4. Keep in mind that the Bema (BGO) shareholders meeting regarding the approval of KGC's acquisition of Bema will soon be held on January 30, 2007. I'm expecting a brief shareprice boost to KGC following the announcement that shareholders have approved the merger.

Still Below the Neckline

2007-01-26T23:10:00.000-08:00

Comments: Although Gold has nullified its Head & Shoulders Top pattern, the HUI continues to struggle below its own Head & Shoulders pattern. Last Thursday saw a failed attempt to break back above the neckline. That has bearish implications in the short term. Having said that, Gold has been positively diverging from the rest of the commodities complex which has positive implications overall.

I think the next question is where is the rest of the commodity complex going? If Oil and Base Metals are going to new lows next, then I think Gold could continue to stay range bound. If they have bottomed or will now enter into a trading range, Gold has a greater chance of breaking out to the upside.

Obviously the biggest question mark is the US Dollar. In that regard, Gold has been also positively diverging from the USDX recently and that is also a positive. It also looks like the USDX is struggling to get above a zone of resistance. in the 85 to 86 area.

Important Resistance Zone

2007-01-24T11:02:00.000-08:00

Comments: on three separate occasions in the near past, the $640 to $650 area stopped Gold cold and led to bad sell offs. Now that we're back at this area, caution is advisable. I think it helps somewhat that sentiment is quite bearish, but that may be for a reason. After all, many commodities are currently in medium term bear slides. In his recent commentary, gold analyst Clyve Maud has suggested that we should not trust this move unless it breaks $660 convincingly, to avoid getting whipsawed again. I think there is wisdom in that approach. I closed out my USO bet today at a modest profit and I'm just going to wait and see what develops next.

I think geopolitical factors should be downplayed when investing in Gold, but I thought that China's recent use of a defunct satellite for target practice has some potentially bullish Gold implications. Not just the animosity that such a move raises, but also because of the possibility that it could help inspire a new arms race in the space sector--that would certainly be dollar dilutive. In fact, I generally consider geopolitical factors these days only to the extent that they are dollar dilutive and less from the perspective of whether they will lead to real crises or military conflicts. There's just too much scaremongering going on right now, the kind that caused Gold to get whipsawed in September so I don't really like that. If you read Jim Sinclair's MineSet these days, it's 75% filled with hack scaremongering about possible attacks and potential nuclear conflict and third world war scenarios. If this were any other sector, that stuff would be called "fluff".

Charts of Interest USO

2007-01-19T05:18:00.000-08:00

Comments: This is the dilemma: on one hand, the precious metal company shares are negatively diverging from Gold, getting slammed down on any weakness in the precious metal. On the other hand, Gold is strongly positively diverging with respect to the other commodities, like Oil and Copper. What's the best way to play this situation, especially now that Oil appears to be having or is close to having a washout bottom? Check out the chart of USO, the oil derivative, above. Massive volume during the last few days which means a bottom of some sort is near. On the other hand, I think oil will eventually touch $45 so at best only a temporary bounce is in order. One issue with USO is that it seems to be trading at a discount to the actual oil price, probably partly because, unlike GLD, the underlying is only derivative contracts, i.e., paper. So that's a bit of an issue as far as potential investments are concerned. Unfortunately, I'm not really crazy about the XLE or OIH charts either.

Metals Market Wrap-Up

2007-01-17T09:48:00.000-08:00

1. The action right now is encouraging, but I do not think it is particularly bullish. I'm surprised that Gold has remained above $600 while Oil and Copper have been slammed so hard and I think this bodes well for the future. However, I do not think that we are about to bust through the $640-$650 barrier at this point either. The miners don't really seem all that excited right now and, as I previouosly mentioned, a Head & Shoulders pattern is still in effect on the HUI, XAU and GDX. I think I might be a seller if Gold approaches $640.

2. ROYAL GOLD, INC. (Nasdaq: RGLD - News) today announced that it has entered into a definitive and binding agreement to purchase another net smelter return ("NSR") sliding-scale royalty for $20.5 million on the controvertial Pascua Lama project which is situated partly in Chile and partly in Argentina. RGLD is up over 2% today, but frankly, I'm not sure how good a deal this is. The NSR royalty only gives a fairly tiny %, ranging from 0.16% to 1.08% depending on the average price of gold during the quarter. It will be applicable to all gold production from an area of interest in Chile. The transaction also includes a 0.216% fixed-rate copper royalty, again that seems pretty low. The copper royalty applies to 100% of the copper reserves but does not take effect until after January 1, 2017. 2017! That's half a generation away. The acquisition is subject to customary due diligence and is expected to close in early March 2007. The property has about 18 million ounces of Gold in reserve, with about 80% of that on the Chile side. Interestingly, the sliding scale contemplates prices up to $800 or more--seems like they are considering the possibility that Gold prices could still go considerably higher.

3. New Jersey Mining Company (OTC BB:NJMC.OB - News), which was up big yesterday, announced that it had increased its silver resources to approximately nine million ounces with the recent addition of the Niagara copper-silver deposit located near Murray, Idaho. If this is the news that caused it to surge higher yesterday, you have to wonder whether there aren't any insider trading issues here.

Metals Market Wrap-Up

2007-01-16T08:30:00.000-08:00

1. Eldorado Gold Corporation (AMEX:EGO - News), announcd the results of a pre-feasibility study and preliminary economic analysis of the Vila Nova Iron Ore Project in Amapa State, Brazil, in which EGO has the right to earn a 50% interest. To my knowledge, EGO is the only Gold company with an interest in an iron project.

2. Penny stock Golden Phoenix Minerals, Inc. (OTC Bulletin Board: GPXM - News) announced that the Company has finalized a Settlement Agreement and Mutual Release with F.W. Lewis, Inc., The Frank Lewis Revocable Living Trust, and The Sharon F. Lewis Trust, resolving a contract dispute concerning a former lease at its Contact Mine located in Elko County, Nevada and resulting in the elimination of approximately $3.25 million in current liabilities on the Golden Phoenix Balance Sheet. GPXM is a Nevada-based mining company with interests in Gold, Silver and Molybdenum properties.

3. Gammon Lake Resources Inc., (GRS) a Canada-based miner with properties in Mexico, on Tuesday said a sampling of its Ocampo underground mine in northern Mexico shows new evidence of high grade gold and silver. GRS has been hot recently, announcing last Thursday that its Ocampo Gold-Silver Mine has reached commercial production. Following such announcement, GRS is now producing at an annualized production run rate of 400,000 gold equivalent ounces (208,000 ounces of gold and 8.9-million ounces of silver) based on combined production from Gammon Lake's Ocampo and El Cubo Mines in Mexico.

4. Royal Dutch Shell evacuated staff from two oil installations in southern Nigeria and the military boosted troop levels in the volatile area Tuesday after a dozen village elders were killed in a riverboat attack, officials said. Production had not been affected by the clashes however. A few days ago, 9 South Koreans had also been kidnapped in Nigeria. Oil has been little aided by the recent incidents and seems to want to test $50 before any meaningful bounce. I think a $45 entry for oil would be reasonable, considering that we've had a breakdown from a 3 month-long consolidation. However, we'll definitely get a bounce before $45.

Charts of Interest HUI / KGC / NXG

2007-01-16T06:36:00.000-08:00

Comments: The HUI is in a more bullish posture now that Gold appears to have nullified its H&S top. However, I believe that upside will be limited. HUI 333 appears to be an area of strong resistance and it is important to note that the HUI, unlike Gold, has not nullified its Head & Shoulders pattern--to nullify it would require a climb above the neckline which is at around 333 now. The target for this pattern, unfortunately remains 285 or so. Despite Gold's positive divergence relative to Oil and Copper, I believe that a retest of triangle at 285 may be likely.

Comments: NXG's breakout from its descending triangle remains valid after a successful retest of the breakout.

Comments: KGC has had a breakdown reversal and now is trying to breakout of the symmetric triangle pattern. Put this one on your radar screen as the month rolls on. On January 30, BGO, with which KGC has proposed a business combination, will put forward the merger to the vote of its shareholders. The merger should take effect shortly after that and, in my opinion, will lead to a brief boost in the shareprice of KGC which has been depressed since the merger announcement. The deal, which was slightly adjusted on December 22 to add back one asset that was originally intended to be spun off as part of the transaction, will result in an increase in Kinross reserves by 68 percent to create the world's No. 4 gold company in terms of reserves.

Metals Market Wrap-Up

2007-01-15T08:07:00.000-08:00

1. A fire broke out in Chevron's Richmond Refinery, the largest oil refinery in the Bay Area.

2. DRD Gold (DROOY) issued 18.3 million new shares to help repay a loan. Equity dilution to pay off debt. Ouch.

3. Gold Fields (GFI) reported that it had completed repairs to the South Deep mine and preoduction there should be back at full capacity by February. Output at South Deep was 107,946 ounces during the three months to end March 2006, the last full quarter before the accident which led to the repairs. Gold Fields has completed the purchase of Barrick Gold's 50 percent stake in South Deep and another deal to buy a 34.7 percent stake in Western Areas owned by JCI Ltd. Western Areas owns the other half of South Deep.

Metals Market Wrap-Up

2007-01-14T02:17:00.000-08:00

1. Bird flu has recently reared its ugly head in Indonesia where 2 more deaths were reported yesterday, Vietnam, and possibly Japan. Although this is unlikely to have much influence on Gold, some experts still fear the possibility of an epedemic or pandemic which would undoubtedly be Gold bullish.

2. Considering that Oil recently broken down from a 3 month-long consolidation, I find it surprising that Gold has not been weaker. On Friday, oil prices rebounded by more than $1, however, I think that the $57.50 to $58 level would now provide very strong resistance and I think that Oil is medium term bearish, although a bounce is now probably quite likely. The energy market has had a hard time maintaining rebounds lately, despite several factors that have given prices a boost in the past: the possibility of another OPEC cut, tensions in the Middle East, still somewhat strong global energy demand, and escalating violence in Nigeria.

3. Over the weekend, I spent some time with a friend who works at Merrill's commodity desk who told me he believes that energy prices may be range bound in the near future, but he was bullish going into next year. His top base metal picks were currently nickel and zinc. He does not cover precious metals.

4. On Friday, Yamana Gold Inc. (NYSE:AUY - News), transferred its listing from the American Stock Exchange to the more prestigious (and more selective) New York stock Exchange. I think this may be a positive move for Yamana as it may lead to increased overall trading volume and liquidity. Other major Gold companies listed on the NYSE include: Barrick Gold Corporation (NYSE: ABX - News), Goldcorp Inc. (NYSE: GG - News), AngloGold Ashanti Limited (NYSE: AU - News), Gold Fields Limited (NYSE: GFI - News) and Harmony Gold Mining Company Limited (NYSE: HMY - News). Silver Wheaton's (SLW) trading volume arguably increased after it transferred from the AMEX to the NYSE on May 9, 2006, though a part of that increase was also likely due to the continuing success of this company. The NYSE has a total market cap of about $25 trillion and a daily trading volume value of about $86 billion.

5. Yama had provided its 2007 and 2008 operating guidance following the closing bell the previous trading day. Gold production is expected to exceed 620,000 ounces in 2007 increasing to more than 800,000 ounces in 2008 from mines currently in production and mines under construction. Total cash costs will be a stellar -$114/oz in 2007 and -$185 in 2008 (i.e., Yama will be making additional money for each ounce of Gold sold as a result of copper credits).

H&S Nullified

2007-01-12T19:13:00.000-08:00

Comments: Bullish! It looked bad on Thursday, but a nice surge on Friday put Gold above the neckline of the H&S pattern. Looks like $645 may be the next price target.

HUI Chart & Commentary

2007-01-11T09:38:00.000-08:00

Comments: Sorry for not updating in a few days. If you've been checking in here, I really appreciate it. I've had some computer problems (comp restarting by itself). It was probably hacked by the Gold cartel. Anyway, to make a long story short, we're kind of in trouble here in Gold at the moment. After a breakdown on fairly heavy volume below the neckline of a Head & Shoulders top in Gold, we are now consolidating right below the neckline. The same H&S patterns are in effect in the HUI, XAU and GDX. The price target is about $575 and it would take a move above $615 to $620 to nullify it.

With Copper and Oil now in medium term bear markets (we'll see about Oil soon), I would be surprised if gold manages to bottom here above $600. I think we may need to see a retest of the Gold bull, which would mean $570 to $580. That's just my thought.

Good vs. Evil

2007-01-04T08:02:00.000-08:00

Jim Sinclair is an important gold industry insider and his site, MineSet is a must read for serious gold investors. However, at times I feel he gets a little shrill, playing the blame game when Gold doesn't appreciate as hoped.

It seems that in Jim's World, there are only two forces at work affecting Gold:

1. Honest investors who buy Gold and believe that Gold is the only means to wealth--and the companies that explore and mine for it.

2. Boiler room Gold shorting operations run by the "spin doctors" who are members of the Gold cartel.

If you get too carried away reading Jim, it's easy to begin believing that every day the action in Goldconsists of Biblical struggle between these sides, pitting GOOD against EVIL.

Metals Market Wrap-Up

2007-01-04T07:39:00.000-08:00

1. Gold stocks as measured by the HUI and XAU are now in a short term downtrend. However, I believe that downside may be somewhat limited as long as the USDX stays below 0.845. The USDX is currently running up against some resistance. Unfortunately, the failure again at $640 spot gold was a bearish indication for now. It's possible we could see some choppy action, in which it will be good to buy weakness and sell strength.

2. Northern Dynasty Minerals Ltd. (NAK) is continuing to get flak about the development of its Pebble Mine gold project in Alaska. AP reported earlier today that Earthworks, a Washington D.C.-based environmental group, is paying between $10,000 and $20,000 to place ads in the January, February and March issues of National Jeweler, an industry newspaper, designed to "educate" jewelers about the Pebble Mine project in the Bristol Bay watershed, home to the largest sockeye salmon fishery in the world. The ads will ask jewelers to make a pledge at the Web site http://www.protectbristolbay.org. The pledge is as follows:

"1. We pledge not to source gold from the proposed Pebble Mine or any other major mines proposed in the Bristol Bay Watershed; and

2. In recognition of the importance of conserving this region, we support permanent protection from large-scale hardrock mining on public lands in the Bristol Bay Watershed."

I checked on the pledge web site but could not find whether any companies had signed the pledge. One link that was kind of interesting, at least from the environmental standpoint, leads to an interesting article arguing that junior exploration companies are less environmentally responsible than the majors because they have less of a history and less money. It's an interesting argument.

Best Wishes in the New Year

2006-12-31T04:57:00.000-08:00

Comments: I would like to take this opportunity to wish the gentle reader all the best in the coming year. I hope that the new year brings you much luck, gold and most of all, happiness.

Downtrend Break

2006-12-28T08:41:00.000-08:00

Comments: The action has been weird in the miners. After the mining indexes regained their uptrend line, they have no managed to also break the downtrend today-assuming the current action sticks. I suspect that there will be some back down in order to fill the small gap left today down to 140.09 in the XAU. The action is very tricky now because it's around the end of the year when trading volume isn't all there.

Last Week's Gain/Loss: -2.76%. Third straight weekly loss. Although the losses haven't been large, they have been a bit disappointing.

Metals Sector Wrap-Up

2006-12-26T09:33:00.000-08:00

1. Vista Gold Corp. (Amex: VGZ) announced on December 22 that the closing of the proposed arrangement which will cause the spin-off of certain of Vista's Nevada Gold properties, is now expected to occur in the first quarter of 2007. Looks like there will be more delays for this transaction, which was originally scheduled for the end of this year. I'd expect VGZ's shareprice to continue to lag until this complicated spin-off is completed.

2. Pele Mountain Resources Inc. announced on December 22 that Goldcorp Inc. (NYSE:GG - News) has informed Pele that it has elected under its option agreement with Pele to form a 50-50 joint venture at the Festival Diamond Project in northern Ontario. According to Pele's press release last Friday, a 500-tonne bulk sampling program was completed at Festival earlier this year, with results reaffirming the presence of commercial size, gem quality diamonds within a suite of ultramafic rocks exposed in intermittent outcrop along a stratigraphic horizon that extends for more than five kilometres. Interesting that GG is now adding exposure to diamonds on top of the Silver and Copper exposure it already has. Despite the name "Goldcorp", Goldcorp seems to be steadily becoming less and less of a pure play in Gold.

The Trouble in Somalia (2)

2006-12-26T09:03:00.000-08:00

Is it possible that militant Islam is establishing a 3rd front in the global conflict, in the Horn of Africa, to go along with the fronts in Iraq and Afghanistan? Increasing evidence suggests so.

1. The U.S. government says four al-Qaida leaders, believed to be behind the 1998 bombing of the U.S. embassies in Kenya and Tanzania, are now leaders in the Islamic militia.

2. "'Hundreds' of foreign-born fighters are fighting alongside Islamic courts' forces in battles around Idale and Deynunay villages, with more foreign fighters being deployed to the frontlines," news sources from within Somalia are reporting.

3. A handful of Islamist prisoners taken on the battlefield by Ethiopian forces were reportedly holding British passports.

4. The Horn of Africa is adjacent to an important oil shipping route, making it a strategically important enough location for a chapter of the U.S. Operation Enduring Freedom to be stationed in neighboring Djibouti to monitor and intervene, as appropriate.

If this conflict continues to escalate such that people do perceive that a "third front" has been opened, that will have bullish implications for Gold. Nevertheless, investors in the likes of TRE or NSU which operate in the samer general neighborhood, may wish to tread carefully.

MarketWatch mentioned the Somalia conflict as a factor in the rise in gold prices today, citing the Gartman Letter and Jon Nadler of Kitco.com fame.

The Making of a Quagmire

2006-12-22T11:18:00.000-08:00

The situation in Iraq has generally been supportive of Gold prices, not only because of the geopolitical instability that it has caused, to which Gold has reacted positively, but also because the financing of the war has been dollar dilutive.

1. The Pentagon is requesting the Whtie House to seek $99.7 billion more for the Iraq and Afganistan conflicts. An interersting (albeit unoriginal) comparison emerges to the Veitnam War, as the amounts for the Iraq conflict is approaching the costs of the Vietnam War. The Vietnam War cost an inflation-adjusted $121 billion at its height in 1968, according to the Congressional Research Service. Interestingly, the war financing is done on the basis of off-balance sheet accounting, "Democrats such as incoming Senate Budget Committee Chairman Kent Conrad of North Dakota have grown increasingly critical of the fact that Iraq spending is kept on a set of books separate from the rest of government operations."

2. Bush is mulling a troop increase in Iraq, in the amount of 15,000 to 30,000 additional troops.

3. In another Vietnam parallel, the U.S. is also intensifying its efforts to "Iraqize" the conflict, that is, to increase the training of Iraqi troops and police so that the responsibility for the conflict can be increasingly handed over to Iraqis. The "Vietnamization" of the Vietnam War was generally considered a failure. Nevertheless, I think that one difference with Iraq is that the insurgents have not yet enunciated a viable alternative regime which I think has been an important factor in allowing the almost-failing government supported by the U.S. to limp along.

4. The November "stats" for the Iraq War for 2003, 2004, 2005, 2006, according to the New York Times:

FOMC Statement (Dec. 12)

2006-12-22T10:36:00.000-08:00

Comments: I'm posting it a little late, but above is the December 12 statement of the Federal Open Market Committee following their decision to keep the federal funds rate steady. The revisions you see are the changes relative to the previous (October 25) statement. I felt that this statement was generally bullish for Gold relative to the October statement, because it leans more towards emphasizing economic weakness and the danger of the crumbling housing market than the October statement. In fact, we initially got a small bounce in Gold on this announcement, but it's been more or less down hill since then.

Have the Miners "Failed"?

2006-12-22T09:35:00.000-08:00

Comments: A trendline break in the HUI that's now been confirmed by the XAU and the GDX. Also, the HUI is now trading below its 200 day MA. Not great. I find it also interesting that the XAU, which contains some miners who still have hedges, has been outperforming the HUI. I hope it doesn't portend anything. Anyway, we are in the middle of the holiday season now, so it's probably better not to read too much into the action right now, but nevertheless the chart is what it is. and it's not wonderful. The good thing is that there's now some pretty solid lateral support down to about 310.

Comments: the Gold:XAU chart shows the recent outperformance of gold against the Miners. That RSI downtrend break may be significant. I'm guessing we may see a break of the downtrendline from October. Considering that Gold is down only a $1 or so from 3 days ago, the miners have really been taking it on the jaw the last few days!

When you have a moment, please check out Jan Allen's provocative December 21 entry in his Age of Tyranny Blog. Jan argues that mining stocks are set to decline as Gold rises. "The precious metal mining stocks, which has been the premier means of wealth accumulation and preservation and accumulation, have failed," he writes.

I don't necessarily agree with the analysis, although I am aware that the mining shares' leverage to gold has been decreasing over time in this bull market. We are now also in tax selling season which is another factor that helps to explain the mediocre action in the miners. But the action is what it is, and during the last few days, Jan's analysis has been correct so I don't think it can be ignored.

Charts of Interest HUI / NXG / CUP

2006-12-19T11:15:00.000-08:00

Comments: It looked bad for the HUI yesterday, but the XAU never confirmed the break by the HUI of its uptrend. But now we have some conjection that we need to clear. The RSI downtrend break and move back above 50 is a positive sign.

Comments: Big break out in the works at NXG.

Comments: Despite today's sell off which erased today's gains, CUP has now broken out and we can expect higher prices in the not too distand future.

Last Week Portfio Gain/Loss: -2.45%. A second week of losses, but it could have been worse considering the bad action in Gold.

Metals Wrap Up

2006-12-18T12:02:00.000-08:00

Peru Copper Inc. (AMEX: CUP) announced a new discovery. It's trading up around 5% at the moment.

Northgate Minerals Corporation (AMEX:NXG) is reported the results of a new mineral resource estimate at its Young-Davidson property near Matachewan, Ontario.

A recent Wall St. Journal report alleged that certain executives have been cheating on their taxes by manipulating the exercise date of their options, mentioning specifically Royal Gold Inc. (RGLD) Chairman and former CEO Stanley Dumpsey by name, among others. Here is a link to a related article that mentions the Wall St. Journal story. When I first read the news, I thought it was neutral to slightly negative for RGLD. However, considering that the amounts of executive compensation have been an issue at RGLD, I now believe that a report that draws scrutiny to the options compensation plan at RGLD is a positive for RGLD. It might be a bit of a stretch, but perhaps that is part of the reason why RGLD has been outperforming during the recent slide in Gold prices.

Last week, Nevsun Resources Ltd. (AMEX:NSU) was downgraded by downgraded from "buy" to "sell" by Salman and its price target slashed from $5 (Canadian) to $2.85. Today, NSU was started at "outperform" by Haywood, with a price target of $5 (Canadian). Kind of makes you wonder what the different securities houses are really seeing and whether they are looking at the same thing.

"U.S., China Agree on Steps to Reduce Trade Imbalances"

2006-12-18T08:12:00.000-08:00

"U.S., China Agree on Steps to Reduce Trade Imbalances"

With a headline like, you could easily be forgiven for thinking that last week's Paulson/Bernanke trip to China accomplished a significant breakthrough in the Chinese currency negotiations. But, as it turns out, I could say that "U.S., China Agree on Steps to Reduce Trade Imbalances" in the same way that I could say that "I will die". One day, both will happen. One day.

And so, while the USD enjoys some support in the short term as a result of a Paulson trip that looks today like it was largely symbolic, it looks like the ball may be back in the hands of the U.S. Congress.

The key quote from the meeting was the following: "We agreed on many principles even though we have differences in the timing of reforms,'' Paulson, who led the U.S. delegation, told reporters today [emphasis added].

Charts of Interest - HUI / GG / AEM

2006-12-17T02:05:00.000-08:00

Comments: As we appraoch the uptrendline in the HUI, it should be noted that the RSI uptrend has been broken. Not the most encouraging of signs. The HUI has also dipped below its broken uptrendline now. While a bounce form there is possible, more downside is definitely not out of the question and it wouldn't surprise me if the HUI eventually bottoms at 320 to 330, rather than at the uptrendline.

Comments: GG is still in a bullish (falling) wedge, which is a reasonably predictive pattern, but with the failure to break out to the upside on Friday, as well as several recent distribution days, it makes me wonder whether the breakout will be to the upside in the end. It appears that we are right at the RSI uptrendline.

Comments: One of the leaders during the recent run, although AEM has recently broken its uptrendline, it has returned to its breakout point, from which a bounce may be possible. A break below that, however, will herald more downside.

The Trouble in Somalia

2006-12-14T11:31:00.000-08:00

Thousands of Islamic militants have surrounded Baidoa, the only town Somalia's internationally recognized government controls. They promised to launch an offensive on December 19 if Ethiopia fails to withdraw its forces from Somalia. This conflict has been described as being potentially regional, as both Ethiopia and Eritrea are suspected of having troops on the ground in or near to, Somalia, though both have denied the rumors. The U.S. has recently been involved in the support of certain warlords who were recently defeated by the forces of the Islamic Courts. The U.S. has alleged that the Islamic Courts hide certain al Queda militants. [Related Article]

Two metal companies operate not all that far away from the conflict zone. Considering that the escalation of the conflict may have regional consequences, with possible spill over of refugees, and in fact may involve a regional war which coiuld attract Islamic radicals, it's perhaps not too surprising that these two companies, Tanzania Royalty Exploration Corp. and Nevsun Resources Ltd. have sold off hard recently as the tensions have mounted.

NSU is trading right at the bottom of a descenidng triangle pattern at the moment as trading volume has risen recently.

Anyone else think it's remarkable, but perhaps not surprising, that Jim Sinclair has made no real mention of this conflict on his generally excellent web site, Jin Sinclair's MineSet. It's remarkable because Jim is generally quick to point out each and every conflict and potential conflict going on in the wrold that could have any geopolitical spill over on Gold. I guess it's not great publicity for TRE if the conflict involves a potential regional war in TRE's neighborhood. Plus, it might be a bit impolitic of him to do that because of his ties to the Tanzanian government and his promotion of Tanzania as a stable country and good investment. Still, the fact that he's been silent about this kind of makes you wonder about his site's motto, that "the Spin really does stop here."

HUI Chart & Commentary

2006-12-14T11:00:00.000-08:00

Comments: Liquidity getting thinner as the Christmas holiday approaches. Unfortunately, there's still a danger of one more drop off in the price of Gold and we are still in sell mode until proven otherwise. Still, the uptrendline is slowly approaching and I think there's a good chance for a bounce from there if we go that low. However, I think the chance of a meaningful rally to end the year is getting smaller and smaller the longer it takes to develop.

Big Day

2006-12-12T08:09:00.000-08:00

Comments: Today (and tomorrow) will likely be big days for gold. The set up is definitely there for a rally. The sell off in Gold going into the FOMC meeting is, in my opinion, favorable. The HUI is tagging the broken major downtrendline. The RSI is back at the trendline. Seasonality is favorable until the end of the year. The only issue I see is the bearish MACD crossover.

Upcoming Schedule

2006-12-11T07:56:00.000-08:00

The next week and a half are going to be busy for Gold, with a lot of major events that will likely have a large impact on the direction of price movement. The following events are key:

1. December 12 (Tuesday) - the FOMC announces its decision on interest rates and issues the accompanying policy statement.

2. December 13 (Thursday) - OPEC will meet to decide whether or not to officially implement further production cuts.

3. Treasury Secretary Henry Paulson is in China this week to discuss Chinese currency policies, among other things. I'm not sure when exactly the meetings will be wrapped up or when we can expect any news.

4. December 19 (next Tuesday) - the Bank of Japan announces their decision on interest rates.

Those are 4 very major events so Gold could be very volatile in the coming days. Since we are currently back to the broken downtrendline in the HUI and beginning to dig into resistance on the USD Index, I'm hoping that we'll get a major bounce and powerful rally to end the year in Gold.

HUI Chart & Commentary

2006-12-10T01:50:00.000-08:00

Comments: A disappointing finish to the week in Gold. I think there is still a decent chance for the rally to continue however. Last Friday, the HUI tested the broken downtrendline from May. If the HUI can maintain itself above that downtrendline, there is a possibility of a rebound and a continuation of the rally. I'll be very interested to see what happenws when the USD Index approaches 83.50 to 83.60. Those were major points of support which were broken during the recent plunge and should now constitute formidable resistance. The result of the retest of this resistance should determine the direction of Gold in the short term.

Last Week Portfolio Gain/Loss: -0.56%. Considering the mediocre action in Gold recently, I actually did ok last week. I was up decently for the week until the horrible reversal on Friday. USGL, which announced that its shares will be traded on the American Stock Exchange starting from next week (as UXG), did well for me, and PAL, NSU and EP also did ok. The losers were RGLD, SLW and MDG, into which I bought in too early. The continuing weakness in SLW is causing me some consternation. CUP continued to go nowhere, but I sense that could change at any time.

Palladium Getting Ready to Breakout

2006-12-08T08:16:00.000-08:00

Comments: I have a feeling that Palladium is soon going to break out to the upside from the symmetric triangle pattern. It's definitely acting more bullishly than platinum ever since platinum's huge recent upspike.

Comments: A possible play on the palladium breakout would be PAL (North American Palladium Ltd.). This company is frequently featured on the list of most lowly rated companies and was just given an "underperform" reiteration by HSBX a couple of days ago. Also, PAL announced at the end of last month that its CFO will be leaving the company. So you know that the company has some issues. However, it can get very hot sometimes, such as when palladium surges, which I think it has a chance of doing quite soon.

HUI Chart & Commentary

2006-12-07T07:04:00.000-08:00

Comments: Although gold has sold off strongly, the HUI continues to diverge positively, being down only moderately. Today should bring the test of the first trendline. Whether or not that test succeeds, somehow I don't think the HUI will fall below the major broken downtrendline since May. That would mean a low of about 344 HUI. But that's just my speculation--hopefully I'll know the bottom when I see it. I exited most of my positions duirng the last 2 days so I'm ready for any sell off that occurs.

Some possible acquisitions: SA, AUY, SLW, RGLD, BVN, PAL, GSS, KBX and calls in GG, NEM and PAAS or SSRI.

HUI Chart & Commentary

2006-12-06T08:52:00.000-08:00

Comments: It's kind of a tough trading environment right now in Gold stocks, with neither bulls nor bears being able to push the action decisively in any direction. Since we seem to be bouncing down from the upper channel line, I'd say we are in a consolidation/correction period. But on the other hand, the way that the gold stocks are getting bought up like hot cakes on any drop, like today, makes me nervous that I will miss the chance to reload my portfolio. Although Gold is down a fair amount today and so are gold miners, the HUI is diverging bullishly. NSU, mentioned yesterday, is continuing to do well for me today.

One possibility is that we won't go down all the way to the bottom of the channel but will continue to rally after we hit the steeper uptrendline which is at around 345 today. I think it will be important to exercise patience over the next few days. Just holding a handful of miners now and some NEM calls.

Inflation Confusion (3)

2006-12-05T12:15:00.000-08:00

"Stocks Up on Easing Inflation Worries" reported AP today.

"Investors applauded Labor Department figures showing wages and benefits increased at a much slower pace in the third quarter than had been estimated. Recent concerns about inflation have eroded some hopes that the Federal Reserve would start lowering interest rates next year. The central bank has said inflation remains its primary concern."

As I have mentioned before under this thread, investors are obviously obsessing more about the Fed's response to the economy than about the direction of the economy itself. That says two things: (1) investors continue to believe that the Fed is still in control of the financial picture in the States, and (2) investors believe that evidence of low inflation is dollar bearish and gold bullish.

As I had previously mentioned, this is the opposite of what the picture should look like from the gold bug's perspective. It's an upside down world we live in these days where inflation is considered currency positive and lack of inflation a currency negative. During the rally late last year and early this year, increasing evidence of inflation (in the CPI and other inflation gauges) definitely fed the gold rally, which is the way it should be. These days, for several months now, evidence of inflation is being interpreted as gold bearish and lack of inflation, gold bullish. Today was case in point, as the lower than expected labor unit costs reading contributed to Gold initially spiking higher (though it did sell off during the rest of the day).

I believe that a reversal of the current market reaction towards inflation will be important for Gold to move into the next major phase of the bull market (the phase where it reaches past $887/oz). Certainly, the current distorted and confused perception of inflation and what it signifies, is fine for the rally we are currently in. But I doubt that Gold will really soar until this confusion is straightened out.

Related Article: [http://biz.yahoo.com/ap/061205/wall_street.html?.v=16]

Charts of Interest GDX / GSS / NSU / VGZ

2006-12-05T10:21:00.000-08:00

Comments: After flirting with a breakout from the upper channel for several days, looks like Gold Stocks are finally succumbing to some profit taking. I don't expect that continue for too long however, because I don't expect Gold to fall below $640 on a closing basis. I think the break of the upper channel will in fact occur, sooner or later, but not until the gold stocks have had a bit of a breather. Buying back in at around 350 HUI might be a decent bet.

Comments: I received today from VGZ the belated Notice of Special Meeting which was held on November 16 regarding the spin off transaction involving the creation of Allied Nevada Gold Corp as a spin-off company from VGZ. I can kind of understand after leafing through the Notice why shareholders weren't crazy about VGZ, selling it down, as the spin off approached, despite higher gold prices.

The Notice, which describes the proposed spin-off in considerable detail, including its tax consequences for shareholders, option holders and warrant holders, is well over 200 pages of fine print! Complexity is rarely a big crowd pleaser with investors. Incidentally, Minco Mining & Metals Corp. rallied sharply in early September after they announced the abortion of their proposed spin-off of subsidiary Minco Silver. Obviously spin-offs in the precious metal sector haven't been a big hit. One good thing of the VGZ spin-off, however, will be the creation of a new entity which is eventually intended to trade on the American Stock Exchange. This is good because, with the rate of consolidation in the sector leading to an increased narrowing of the number of tradeable names out there, sometimes I feel like I'm running low on trading options.

Comments: Failure to meet deadlines in a timely manner as well as continuing share dilution have been major complaints of shareholders of NSU, a gold and base metal miner operating in Eritrea and Mali. I wonder whether the increased tensions in neighboring Ethiopia in connection with the situation in Somali may have also exerted downward pressure on the price. However, this company is now trading at support and may be a speculative buy, though one should keep in mind that NSU tanked while the gold price rallied, which is generally not the most encouraging sign.

NSU recently completed their feasibility study for their contemplated mine in Eritrea, which normally leads to greater leverage to the metal price. NSU's Bish Property in Eritrea is somewhat unusual, as far as the mineralization is concerned. The feasibility study for the mine indicates that during its projected 10 years of mine life, the mine will be producing primarily gold from the ore layers most near to the surface, followed by primarily copper and some gold in years 3 to 5, followed finally by zinc, copper and gold in years 6 to 10, making it a Gold and Base Metals mine, at different stages of production.

Altogether, the metals that are expected to be produced over the life of the mine will be as follows:

- 1.06 million oz gold
- 747 million lb copper
- 1,092 million lb zinc
- 10 million oz silver

NSU is trading up on heavy volume today as I type this so it may indeed have a decent chance of bouncing from the support.

Comments: A breakdown from a bearish wedge should see GSS going to $3.10 or possibly lower. Still, I am generally more positive on GSS as their prospects next year, barring any more unforeseen catastrophes, are fairly encouraging, especially if the energy shortage situation improves in Ghana, which I understand it should.

Charts of Interest CUP / BVN / RGLD / USGL / SSRI

2006-12-03T07:00:00.000-08:00

Comments: Since the move occurred on fairly heavy accumulation, I think the break above the upper channel line by SSRI is legitimate and SSRI should continue to hold above it. Last week SSRI managed to suck in a lot of buying interest which would have otherwise been reserved for SLW, leading to the latter's so so performance.

Comments: Testing a trendline now. Looks like a good bet to challenge the gap between $5.70 and $5.92 sometime in the near future.

Comments: A Clean break of the downtrendline. RGLD is a buy on any pullback. With 19.6% of the float sold short (as of November 10; I imagine at least some of them have since covered), RGLD could see a potentially explosive rally on short covering in the coming weeks.

Comments: Testing a downtrendline now. Has been seeing very nice accumulation.

Comments: It appears that CUP is in a long and narrow bullish wedge with an upside target of +$1.5 folloiwng a breakout. It tested the downtrendline last week, but no breakout yet. Obviously, a lot depends on copper and how it holds up.

HUI Chart & Commentary

2006-12-01T22:53:00.000-08:00

Comments: I wondered if we might get a channel buster last week in the HUI, but I think the possibility of that happening has passed. Nevertheless, since Gold has broken past the $641 mark, I would expect a fairly tight consolidation now, leading to further gains soon. I don't see Gold falling below $640 anytime soon, so I don't see the HUi selling off too sharply either.

Weekly Portfolio Gain/Loss: +3.35%. Another winning week. USGL and a small positon in AUY did well for me. EP in energy, finally perked up a bit. SLW and GSS disappointed, but still had gains there. CUP has gone nowhere since I picked it up, but we'll see about that. I wonder if I'm going to regret letting go of RGLD on Friday. Considering the really high ratio of shorts to longs in that stock, it can be quite explosive when it makes its move due to short covering and I wonder if I sold it too early. I was also encouraged by some great gains in my options portfolio. Sold off my FCX and PAAS positions to deleverage a bit.

% of Silver Components in the HUI and XAU

2006-12-01T06:36:00.000-08:00

A few days ago, I asked whether anyone is aware of the relative proportion of silver companies among the components of the XAU and the HUI. In connection therewith, I received an e-mail from "Barry" who was kind enough to provide some handy links that enabled me to roughly calculate the relative weighings of Silver companies in the HUI and the XAU indices.

Based on my calculations, Silver companies comprise 10.54% of the HUI while only comprising 3.99% of the XAU. This is a surprise since the HUI is supposed to be unhedged gold stocks whereas the XAU is supposed to be the index of gold and silver stocks. Based on this calculation, it seems my suggestion a few days ago that the XAU broke its downtrend first partly because of the outperformance of the Silver stocks, doesn't seem to be correct.

My method of calculating that, was ofcourse, less than scientific since all of the silver companies in both indexes derive at least a portion of their revenues from other metals (for instance, in the case of PAAS, its revenues are about 50% from Silver; for HL, the percentage is even smaller), and some of the Gold companies in both indexes also have silver credits. In any case, I counted only those companies who bill themselves as primary silver producers as "silver companies" for purpose of this calculation.

As of: 11/30/06, the relative weighings were as follows:

HUI Components
GFI 13.69%
NEM 13.38%
FCX 10.13%
AEM 6.03%
HMY 5.81%
GG 5.70%
EGO 5.62%
HL 5.52%
AUY 5.39%
MDG 5.07%
GSS 5.04%
CDE 5.02%
GOLD 4.69%
IAG 4.51%
KGC 4.41%

XAU Components
ABX 20.05%
NEM 15.80%
GG 15.75%
AU 9.93%
FCX 9.31%
GFI 6.92%
HMY 5.16%
AEM 3.96%
KGC 3.22%
MDG 2.31%
BGO 1.86%
PAAS 1.46%
SSRI 1.42%
GOLD 1.18%
CDE 1.11%
RGLD 0.54%

Important Inflection Point

2006-11-30T06:48:00.000-08:00

As the HUI is set to test its downtrendline today, we face an important inflection point. The HUI needs to confirm the downtrend break already achieved by the XAU and the GDX. Although there are a couple of yellow flags, I believe that the HUI will shortly break its downtrend and follow the XAU and GDX higher.

The yellow flags are the following:

1. Non-confirmation by HUI of the downtrend break in XAU and GDX.
2. Low to moderate volume in the GDX following downtrend break and little follow through in XAU or GDX downtrend breaks.
3. Gold tentative having gained relatively little since the USD breakdown.
Although these flags are noteworthy, I think they will not preclude a downtrend break by the HUI in due course.
First of all, we need to understand why the HUI is showing a non-confirmation today; why is it still below its downtrend line? The main reason is because of its outperformance in September, which cratered a less steep downtrendline due to the September spike up which had not been confirmed by the XAU. In a sense, to attach major significance to the HUI's non confirmation thus far, would be like punishing the HUI for being extra strong in September. In this sense, you can sense the sometimes arbitrariness of the angles of trendlines.

I think it is significant that the traditionally weaker XAU broke out, rather than the stronger HUI. Usually it's the XAU that needs to confirm the break out in the HUI, rather than the other way around. I think it's a bit upside down to argue that the stronger index has to confirm the weaker one.

Second of all, the situation we face today is completely different than the one that we faced in September. In September, when the XAU didn't confirm the HUI, the HUI had surged on expectations of strong seasonal demand, which failed to materialize, and ion the face of a recent downtrend break in the USD. Today, we have strong seasonality AND a major breakdown in the USD, the type of breakdown from which we are unlikely to see a strong recovery since it sliced through major support. That is a significant difference and provides a reason for the HUI to go higher this time.

Finally, we have the action in the GDX. Although it hasn't shown a surge in volume, it has shown steady accumulation the last few days, accumulation which it hasn't seen in months. (I can't post the GDX chart at the moment due to a technical issue.)

HUI and XAU Charts & Commentary

2006-11-28T12:56:00.000-08:00

Comments: I think there's a clear channel line being formed in the Gold stocks. The buy and sell points are as outlined in the chart above. I think we're going to have another shot at $642 tomorrow. I'm kind of bullish on this right now even though it's closer to the sell channel line because (i) we had the downtrend break just recently, and (ii) MACD bullish crossover.

Comments: The HUI is the one that hasn't broken its downtrend yet and it needs to to confirm the the break in the XAU downtrend. It's ironic that the HUI appears to be lagging this time. After all, it's higher trendline is because its September high was relatively higher than the XAU--it was in September that the HUI started to break out but the XAU failed to confirm.

Maybe the XAU is more bullish because it weighs silver stocks more which have been on a roll? That's actually something that I need to check: whether the XAU is more weighed towards Silver than the HUI (it is after all, called the Gold & Silver Index). If you happen to know the answer to that question, please let me know by posting below or by e-mail.

Newmont Mining Corp. is Undervalued

2006-11-26T10:08:00.000-08:00

Comments: NEM is seriously undervalued here. It was valued higher in 2006 when Gold was $475 and even higher in 2004, when Gold priced at $425. I know they have reserve replacement issues, and declining production in some mines, and recently they've been bitten with the country risk issuen in Uzbekistan, but it's still a very solid company. Barron's was right to recently state that Newmont could still sail to $70+.

Why I'm More Bullish on Silver than Gold

2006-11-25T21:03:00.000-08:00

Silver is definitely looking more bullish than Gold these days. Whereas most Gold stocks are breaking downtrends, many silver stocks are looking like they are getting ready to break out to new highs, which portends greater potential for gains in the near future.

I'll definitely be overweight Silver in the coming couple of months. The only Gold plays that I really like right now are AUY, AEM and GSS, and the latter is always a bit of a question mark.

Anyway, check out the Silver Stock charts below:

Comments: After underachiving for so long, HL looks like it's getting ready to retest and probably break the April highs. Although it's not the most pure Silver play, HL nevertheless billed itself as the lowest-cost primary silver producer in North America in 2005.

Comments: The only publicly traded company with 100% of its revenues from Silver, SLW also looks like it's getting ready to retest its all time highs after getting temporarily beaten down on the news of GG's sale of a portion of its SLW holdings. Since GG continues to be a major SLW shareholder, there is some possibility that this news might create a perception that there is some share overhang from possible future share sales by GG. However, GG stated that it has no intention of selling more SLW shares in the near future and, in any case, the past sale was a private one to investors off the market, so I don't think this will be a major issue.

Comments: Although not quite yet ready to challenge the April highs, PAAS is breaking out of a 5 month consolidation base and has topped its September peak.

Comments: SSRI has been coming out with lots of good news recently and has overtaken SLW as the silver play of choice, at least for now. It made a breathtaking move soaring to all time highs above an ascending channel line on Friday following heavy accumulation.

Charts of Interest KGC / USGL / CUP / RGLD

2006-11-25T01:14:00.000-08:00

Comments: Update from a couple of days ago. I think CUP is getting ready to break its downtrend. I'm excited about the prospects for this stock. Keep in mind that they have 2 pieces of good news in the pipeline--the announcement of reaplcements to the departing CFO and CEOs. Any news that helps to clear up that uncertainty surrounding the leadership of the company will be beneficial for CUP and if it comes during a time of rising Copper prices which look like they may be ready to reverse their recent downtrend, would be tremendously benefial to CUP. I'm excited about the prospects for CUP.

Comments: USGL hasn't significantly come off its lows yet but I think it might be getting ready to make some kind of decent move soon. This stock has some catching up to do and there is still the issue of consolidating the Cortez trend in Nevada. There hasn't been much news about that recently, but if that whole thing gets started again, USGL could enjoy a decent pop--though there could definitely be some jittery trading prior to the completion of any merger, considering the first merger attempt had to be aborted which marked the top for USGL followed by an ugly reversal.

Comments: Most larger cap gold companies announcing mergers have initially sold down, traded sideways for a while, then rallied after the completion of the merger. GG and IAG are good examples of that kind of action. That's why I'm putting KGC on my Watch List. It's scheduled to close its $3.1 billion merger with Bema Gold (BGO) in late January. The deal requires approval by 2/3s of the shareholders of Bema, which vote will take place in early January. The deal will also involve the spin off of certain exploration assets. I'll be looking to build a position in KGC in mid to late January.

Side Note: KGC's investor relations didn't respond to my question about the merger. I guess they're busy working out the details fo the deal...

Terms of the Transaction: [http://kinross.com/news/1162006-1.pdf]

Comments: Royal Gold (RGLD) recently announced their first significant deal in ages. On October 26, 2006, RGLD announced an agreement to purchase a sliding scale net smelter return (NSR) royalty from Nevada Star Resources Corp., on the Gold Hill deposit, increasing RGLD's already substantial exposure to Nevada. The payment will be $3.3 million for a royalty with a maximum payout of $10 million. The Gold Hill deposit is controlled by a joint venture between Barrick and Kinross Gold.

Early in October, RGLD CEO spoke about his days as a miner, recounting that there is a "tremendous amount of romance being at a mine site" in an interview with the Denver Post... Hmmm... Related Article: [http://www.denverpost.com/ci_4494031?source=rss]

Side Note: RGLD's investor relations has never responded to any of my e-mailed queries. I guess that's the other side of only having 13 empoyees. Not enough people to answer e-mails from investors...

Happy Times?

2006-11-25T00:26:00.000-08:00

Comments: A forceful move down in the USD portends good things for Gold. There is still some lateral support but I think it's just a matter of time before that breaks--if it doesn't break early next week. The volatility bands were squeezing shut very tightly so there could well be quite a lot of volatility left in this move.

[Edit from Sunday 11/26: a senior Chinese F/X official was quoted over the weekend as saying that countries that are holding U.S. Dollar reserves find it difficult to diversify because no other asset has the same liquidity as the U.S. Dollar, making a big sell off in the USD unlikely. I think this news may result in some kind of bounce attempt in the U.S. Dollar. That's the problem with relying on these rumors that China is going to diversify out of the U.S. Dollar and into Gold. However, one alternative to the U.S. Dollar is the Euro, which offers plenty of liquidity. So, in my opinion, China doesn't need to diversify its reserves into Gold, for Gold to appreciate--they can indirectly cause Gold appreciation by buying the Euro instead, with which Gold has been strongly correlated.

Comments: The XAU was the index that failed to confirm the move up in the HUI in September, but this time it appears to be leading in breaking the downtrend, despite some weird-looking chandlestocks the last two days. Still need HUI to confirm the downtrend break (a move above 347 should do it).

Portfolio Gain/Loss for the Week: +4.75%. I made back last week's losses and then some. I bought back a bit on Friday, but I was careful not to go overboard just yet. Hopefully December will bring another nice long winning streak. In my options portfolio, I really lucked out on the FCX calls, which was a huge surge for me. I'm around half way to making back my depressing options losses now. Just going to take it one day and one week at a time.

USD Chart & Commentary

2006-11-23T09:27:00.000-08:00

Comments: Perhaps my caution was unwarranted yesterday. When I look at the size of the down move in the USD, I can't help but think that a Gold rally must be around the corner. Only thing left is the lateral support. It's strange that the gold stocks were so lukewarm on a move in the USD like this. Very strange. Anyway, like I said a couple of days ago, a big move is coming in the USD. Deep penetration of the lower Bollinger implies that this move will have some legs (down). But we'll see. I got out of most miners yesterday because they reacted against the downtrend line. Might as well be patient a little longer and see whether we can close above the trendline.

Precious Metals Sector Recap

2006-11-22T11:34:00.000-08:00

Barrick Dogs NovaGold: Barrick is not to be easily dissuaded from its bid to acquire NovaGold. It's been a while since I've seen one company dog another like this so publicly. If you haven't read the below, it's worth a read. I'm guess it will lead to a law suit or two being filed by NG.

Related News Release: [http://biz.yahoo.com/iw/061117/0186161.html]

Update on Platinum ETF: Looks like people are now getting sceptical about a platinum ETF coming out as no filings in connection therewith have so far beeen made. Platinum made what looks like a reversal spike up, going as high as $1400 per ounce before falling back now to $1145 per ounce, all during the last day and a half. Because people voiced the same scepticism about the Silver ETF (that there's not enough liquidity in silver to allow an ETF), it's hard to know what to make of the rumors. However, one statement did catch my eye in the article below: "The longer term prospects for platinum demand have been damaged by this move. It will accelerate substitution efforts from industrial users of the metal and with Chinese jewelers unable or unwillingto buy platinum ahead of Chinese New Year it will prompt a switch to other precious metals--white gold, yellow gold and palladium," according to UBS analyst John Reade. I have a feeling that this big spike in platinum prices may mean good things still to come for palladium, and so I haven't yet sold my PAL holdings.

HUI and USD Charts & Commentary

2006-11-22T11:26:00.000-08:00

Comments: Not crazy about the action today. Sold most of my precious metal holdings after the HUI couldn't break the downtrend line. It's too early to tell though whether we're going to get a swoon, or whether this is just a pause before the Thanksgiving holiday. I'm carefully watching the slope of the 200 day moving average. On the XAU, the slope has turned down, thus confirming the bearish crossover of the 50 below the 200 day moving average. Will the 200 day moving average do the same on the HUI? That would make me more bearish. Right now, I'm just stepping to the sidelines. One other thing to note, is that it looks like today may end on a shooting star candlestick, which can be a bearish reversal candlestick.

Comments: This is the chart that holds the key. We need to keep in mind that above $600, physical/jewelry demand has not proven itself. So it's all about which way the dollar goes now. There's a big move brewing in the USD judging by falling volatility as measured by the bollinger band width. The other indicators (the fact that it's trading below the 50 and 200 day moving averages and below 50 RSI) seem to point towards a drop. But we can't be sure, that's why I've decided to take the more cautious route of stepping to the side, especially after the mediocre action in the stocks today.