Charts of Interest HUI / KGC / NXG

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

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

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

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

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

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

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

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

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

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)

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

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)

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"?

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

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

• 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"

"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

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

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

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.