Monday, January 31, 2011

Gold Stays Above 1330s As Egypt-Related Safe-Haven Demand Fades

The Egypt-induced chills have faded from the marketplace, and the allure of gold has faded along with those chills. As is often the case in the gold market, spills follow chills. Today's pullback, though, wasn't that bad as conditions returned to a normal that takes Egypt's turmoil in stride. Despite a morning spill that took the metal briefly below $1,225, that support level ended up holding; so did $1,330. Gold's loss at the end of regular trading was only a little more than five dollars below Friday's elevated close.

The regular day didn't start off all that well. $1,330 was broken through on the downside before the pit session started, which was explained by a better-than-expected consumer-spending number for December. The 0.7% increase beat expectations for +0.6%, even though the 0.4% rise in personal income matched expectations. The American consumer is evidently getting ready to spend again, with a drop in the savings rate going along with such desire. Gold stayed flat after the release, but continued downwards until bottoming just before 9:30 AM ET at $1,322.20.

Then, the climate changed. Gold first ramped up then trundled upwards until $1,330 was definitely surmounted. A late-morning bob down to $1,228 was preceded by a noontime run up to $1,336. Staying at that level for an hour, gold gave up and sunk back below $1,330 again just after the pit session ended. Bobbing around $1,330 in mid-afternoon, the metal mounted a slighter but steadier climb after 3:30. As of the end of regular trading, the spot price was $1,333.00 for a loss of $5.40 on the day. The Kitco Gold Index attributed -$12.50 to predominant selling and +$7.10 to a weakening greenback. Interestingly, the close at the end was only thirty cents below the price at the end of the pit session, despite the metal's post-pit gyrations.

Its six-month chart, from, shows its down day as being slight, and part of its candlestick protruding above Friday's body:

The slump actually looks good when the gloomy spin of an afternoon Wall Street Journal article is factored in.
Gold market participants have been "a little disappointed that the fear factor didn't come into play more," said Stephen Platt, an analyst with Archer Financial Services in Chicago.

During the previous session, the metal rose 1.7%, amid fears surrounding civil unrest in Egypt, the Arab world's most populous country and home to the Suez Canal, a key artery of global trade.

But the gains are proving short-lived during the metal's broader correction.

Gold has lost 6.3% this year as cautious optimism about the global economy and strength in equities markets erodes the appeal of the precious metal as a refuge asset. Gold is bought by some investors because it isn't as tied to economic cycles as other investments like industrial metals or stocks.

"As long as the oil supply doesn't get cut off, the Egypt situation isn't going to greatly impact the world's economy," said Ira Epstein, director of the Ira Epstein division of the Linn Group.
Shrugging off gold's snap-back as a one-off wonder is understandable given gold's recent woes, but the technical picture shows a recovery from plummet levels that have repaired a major support level. I'll grant that the economic-optimism headwind is still there for gold, and there may be an early-February letdown still ahead, but the spin shows that a technical repair job was basically ignored. Sentiment-watchers, take note.

The U.S. Dollar Index went through a greater letdown, relatively speaking. After slumping below 78 in pre-regular trading, it continued slumping through the early-morning part of the regular shift. Not bottoming until it reached just above 77.5, it recovered subsequently but couldn't get above 77.87 even at its best of the afternoon. The recovery thwarted, it settled into a range centered around 77.75. As of 5:30, it was at 77.735.

Its own six-month chart, also from, shows it back at its pre-turmoil levels of last week:

In a way, it's fitting that virtually all of the Index's gains from the Egypt turmoil would be wiped out while gold's weren't. Gold was the major beneficiary from the turmoil; the greenback wasn't. Also, gold suffered a plummet that the U.S. dollar didn't. Like gold's the Index's chart shows a leveling off from recent declines. Its indicators at the top and bottom of its chart are still bearish, but less so than before.

With sentiment stll gloomy, with little cry of gold coming into its own as a result of Egypt's near-revolution, the gold market isn't in that bad of a state right now. There's little overoptimism. There is a good chance that the recovery trade will go back to whittling away at gold, but Asian physical demand is still steady-to-strong. Without a nasty surprise, the metal looks like the worst of its drops are over.

Of course, we've yet to hear from the People's Bank of China. If another tightening move is taken in stride by the gold market, that would be the sign of a seasonal bottom forming.

Majestic Gold Illustrates Reward, Risk Of Advanced-Stage Exploration Stocks

Some penny stocks sell for pennies because of a large number of shares outstanding. This phenonemon appears less frequently on the Canadian exchanges than on the American, but there are some doozies on the TSX Venture exchange. One of them is Majestic Gold Corp., which has almost 500 million shares outstanding.

It also has a recently-released preliminary economic assessment for its Songjiagou gold project located in Shandong province, People's Republic of China. That project now has a resource of 1.24 million indicated ounces of gold and 1.83 million ounces of gold inferred, capped. Uncapped, the indicated number is 1.5 million and the inferred category is slightly higher than the capped figure. Based upon that resource, and after a preliminary assessment done by Wardrop, it also has a plan to make a strip mine out of that project whose net present value, at a 10% discount and $973/oz gold price, is approximately $525 million. That's about four times the market cap of Majestic now.

A sensitivity analysis shows that the project is highly levered to the gold price, as well as to gold feed grade. (Needless to say, leverage cuts both ways.) With a gold price of 30% above $973, a little below where gold is now, the NPV is $774 million or more than $1.50 per share assuming base conditions for all other categories. Majestic closed today at 25 cents, with 25 cents bid and 26 cents asked.

A company at this stage of development makes for a certain kind of speculation. Unlike a company with good drill results, this company has an assessment of the whole project which says "profitable mine" with a value is well above its market cap. Seeing that disparity isn't that uncommon, because there are some barriers each company has to face before becoming a producer. In Majestic's case, the first barrier is known as a "pre-feasibility study" which allows the resources to be converted to economic reserves. Then comes the full-scale mine plan, or "bankable feasibility study." Both of these steps take time.

Once done, Majestic will face the big barrier that keeps many development-stage companies selling well below the net present values of their projects: financing. According to the preliminary assessment, the initial capital costs for Songjiagou will be $62 million. That means the company will have to raise at least that amount, and likely around $70 million. Financing is still hard to get; if a company can't find it, then the value won't be realized.

Majestic actually has a leg up if its stock stays up. At today's closing figure, it has a market cap of about $123.95 million. A private placement for $62 million - the bare minimum - would add 50% to the total shares outstanding, making them about 750 million. 525 million in value divided by 750 million shares outstanding leaves 70 cents per share, or 280% above where the stock closed today. If the capital costs remain unchanged by go time, once the full feasibility study is done, then the stock is nearly a triple at $973 gold. At $1265 gold, or 30% above the $973, the fundamental value would be more than a dollar a share or quadruple today's closing price.

The exploration world is full of paradoxes from the regular shareholder's perpective. Reasonable dilution is good, because it means money can be had to advance a project towards squeezing a dollar out of it, and a (reasonably) high market cap is good too because it minimizes the impact of dilution needed to get the capital needed to open a mine. Had Majestic's market cap been half of what it is, it would have faced much greater dilution - and thus had been more vulnerable to high-cost sources of capital like gold streamers.

As it stands, the always-available option of a private placement is do-able; that makes the financing risk a lot lessened. The chief risks are in the time it'll take to turn the project into a mine. If the bottom falls out of gold in the next two years, this project will be worth a lot less; even a private placement would be difficult due to adverse market conditions. There may be hidden traps making the mine unminable, such as much lower gold (feed) grades, which occasionally surface.

On the other hand, if the gold bull market is going into the mania stage and those hidden snafus don't surface, Majestic would be an attractive speculation. Its leverage factor would amplify the discounting of what would likely be a mine. Also, a mania would get the banks out of their reluctance rut - which would mean less onerous financing than a private placement would afford. Moreover, a rising stock price due to gold's rise would make the dilution of a capital-rising private placment less dilutive.

Of course, to return to the risk, a nasty surprise mine-wise would make the stock implode, and a major correction in gold would leave the compay floundering finance-wise. A repeat of the crisis of '08 would leave it frozen, as capital at any price was very hard to acquire even for solid juniors.

Here's Majestic's one-year chart, from

The Moral Of The Story: Initial finds, great drill-core results and blue sky are exciting, but an advanced-stage project with a preliminary assessment flesh out the potential as well as the risk, making for a cleaner decision process. Strangely, many formerly hot explorers tend to descend at this stage, as the excitement is replaced by sobriety. Case in point: the formerly white-hot Ring of Fire base metal play Noront Resources, which itself has a very good preliminary assessment for its Eagle's Nest project.

Disclosure: None.

Japan Outflow Of Gold Reaches Record

There was some hope expressed about the recent downgrade of Japanese government debt leading to newfound buying in gold there, but such hopes seem to be optimistic if the outflow numbers for last year are any guide. Reuters reports that the net outflow from Japan rose to a record high of 78 tonnes last year. There is a subtle indication of increasing interest in the declining momentum of gold sales, but that's all.
The net outflow of 78 tonnes in 2010 amounts to about a quarter of output at top miner China, or more than 2.5 percent of global mine supply, making resource-poor Japan a rare supplier to a key global commodity market....

Japan turned a net gold exporter in 2006 for the first time since the ministry began compiling the data in 1988, and 2010 marked the fifth straight year of net exports.

Japanese households rushed to sell their gold holdings when domestic retail prices hit their highest in nearly 30 years in the spring of last year and late in the year, pulled higher by the record peaks hit in global gold prices.

But industry officials noted a subtle change in household behaviour in late in 2010, when household selling of gold lacked the momentum seen earlier in the year.

The slower pace of gold selling reflected expectations for a further rally in international and domestic gold markets and a bullish market outlook for 2011, making them want to hold out for greater profits.
A straw survey of trading houses and other industry sources indicates that there will be more interest in gold this year, but only to the extent of slowing down net selling. No flip-over to net buying is expected.

Laurence Roulston Says Now Is Good Time To Buy Gold Stocks

In a wide-ranging interview, covering several advanced-stage exploration companies, Lawrence Roulston says that now is a good time to buy gold stocks because of the recent correction.
There is tremendous upside in the gold market. If an investor is hoping to profit by day trading bullion or gold stocks I m not really the person to help in that regard. I believe there is enormous strength in the market for investors who are looking at the bigger long term picture. The paper currencies in the world are on a downward path. There has been evidence of that for a decade and there is evidence that it is most likely going to continue. For example investors in Europe are becoming nervous about the euro and they re turning to gold. I believe that trend was a major component in the increase of the gold price last year. I believe that trend will continue over the long term as concerns about the euro and other currencies spread to other parts of the world. Gold is becoming more important now as a hard asset to protect value in the long term.
As for exploration companies, he prefers what he calls "a new play in an old camp." He also has a fondness for prospect generators. An example of a new play would be Millrock Resources, which he says has a team with lots of experience in Alaska. Millrock is also a prospect generator, which has inked a deal with Brixton Minerals for its Cristo gold project in that same Alaska.

Roulston also highlights Sandspring Resources, which has a 6 million oz deposit in Guyana. He believes it's undervalued relative to its peers because of exaggerated perceptions of political risk. Although there were expropriation of the aluminum industry in the 1980s and '90s, Raulston believes that any further expropriations won't happen. The new Prime Minister, Sam Hinds, worked for a mining company at the start of his career.

Russia Buys Record Amount Of Gold For Reserves

Russia's now in eighth place for gold reserves, thanks to the central bank now holding 784 tonnes of gold. Purchases added a third to the country's gold reserve last year.
Russia’s Central Bank plans to buy more than one hundred tons of gold annually. Garegin Tosunyan, the President of the Association of Russian Banks, comments:

"Russia is diversifying its gold and currency reserves, which is a positive trend. There was a time when they consisted 80% of dollars, then euro. But gold has been the most stable currency at all times. For this reason, it would be preferable for Russia to accumulate its reserves in gold, particularly amid the highly volatile currency market. Dollar and euro fluctuations raise questions too."...

The recent forecasts that gold no longer guarantees protection and is a thing of the past fell through in the wake of the 2008 crisis. Gold standards are back. Experts say that the risks of rebuilding global economy stay in place because of sovereign debts in the euro zone which creates a favorable foundation for maintaining gold prices at a high level or setting them higher.

In 2010, the only country that bought more gold than Russia was Saudi Arabia. Since both countries are major oil exporters with no substantial foreign debts, they might continue to “compete” in gold buying this year. In any case, Russia is set to stock up on gold as a stabilizing asset and a reliable “security cushion”.
Since gold only accounts for 7% of Russia's reserves, while shares in some fully developed countries are 50% or more (the U.S. has 75% of its reserves in gold), there's still lots of room for expansion.

Indian Physical Gold Buying Tepid, Held Back By Supply Squeeze

According to a Reuters report webbed by the Economic Times, physical buyers pulled back in response to higher prices and scarce supplies.
"It's steady today, I covered for only 40-50 kgs at $1,332-1,337 (an ounce)," said a dealer with a state-run bullion importing bank in Mumbai....

Bank officials said supply remained tight, which could push premiums higher.

"We are not getting metal on time. We could have had a much better January in terms of sales, had it been not for supply issues," said the dealer.
Imports of gold are expected to rise for January, thanks to slumping gold prices
and higher prices for food; the latter gives farmers more disposable income. Harvest season is evidently bountiful, income-wise, which adds to the demand for the metal.

Premiums For Gold Bars In Asia Highest Since 2004

It's actually "at least 2004," since Reuters has only been tabulating data since that year. Premiums for 1 kg gold bars in Hong Kong are now at $4/oz, up from $3 last week.
Physical dealers have seen a pick up in demand in recent weeks ahead of the Lunar New Year later this week and the wedding season in India in February, although any increase in cash gold prices also triggered selling from speculators.

"There's a lot of interest from India, but it's just that we can't meet their demand. Everybody is snatching the available stocks," said a dealer in Singapore. "We are seeing some light selling from Thailand, but there's also buying at lower levels."

Premiums for gold bars in Singapore remained firm at $3 an ounce, also their highest since at least 2004, partly driven by demand from top consumer India ahead of the wedding season, when parents give gold jewellery to their daughters....

"My clients offered to buy gold bars at $5 premium, but I have no gold. Nowadays, gold is booked and sold even before they leave the refinery," said another dealer in Singapore.

"There's some selling back in the gold market, but the premiums are still high. I do see light selling by the Thais too, but one consumer just called to sell me back the gold in transit."
Although Chinese markets are closed for the New Year Festival, dealers still expect some stocking up in part of Asia where the markets aren't closed. The Indian wedding season is coming up.

This item makes for a notable contrast from shrinking investment demand. So far this year, investment has held the balance over physical buying - but the latter has provided a needed cushion to gold's falling price. Had the physical buying shrunk too, gold would have suffered an all-out correction.

Gold Sinks In Post-Crisis Hangover

The uprising in Egypt is still there, but it no longer carries the same shock that it did on Friday. Moody's has responded to the crisis by cutting Egyptian government debt a notch to Ba2 from Ba1 and added a "negative" outlook rating instead of the "stable" one that used to be there. Gold initially rallied a few dollars after the week's trading resumed last evening, but that jump was short-lived. After pulling back, the metal stayed stable until just before midnight when it dropped eight dollars before bouncing back to the early-morning high of $1,339.80. Made around 3 AM ET, that top gave way to a bottom of $1,324.40 reached four hours later. Again, gold went through an early-morning decline - but this one bounced off the new-restored $1,325 support level. After that bounce-off, $1,330 yielded to another advance that held until just before regular trading started. As of 8:03 AM, the spot price was $1,330.90 for a drop of $7.50 on the day. The Kitco Gold Index attributed -$13.25 to predominant selling and +$5.75 to a weakening greenback.

Gold lost some of its crisis premium, but the U.S. Dollar Index lost all of its. Starting at above 78.2, and fluctuating betwen that level and 78.3 in the early evening, it sunk for the rest of the overnight session. Despite an upwards reaction from 78.0 to 78.2 that started at 3 AM, the Index's sinking accelerated in early morning. As of 8:20, it was well below 78 again with a value of 77.78.

A Reuters report suggested that the morning fall shows that Friday's safe-haven buying was a temporary phenomenon.
Gold is set for its worst monthly performance since December 2009, driven down by the improving tone of some key U.S. economic data, growing investor confidence and a near-record decline in holdings of metal in exchange-traded funds.

Even a 2.6 percent fall in the dollar index .DXY has not lifted gold this month, as the traditional negative correlation between the two has reached its most positive since mid-September....

"What we've seen is (Egypt) has limited the downside morethan anything," said VTB Capital analyst Andrey Kryuchenkov.

"Technically, it's still weak, also I think the investment community realises Egypt is probably a temporary thing, something will come out of it, even if no one knows exactly what that will be, more compromise from the government for example."
The article also quotes Edel Tully as saying she favors industrial metals for now, but she still believes that gold will win the day later. In addition, it notes that holdings of the SPDR Gold Shares Trust (GLD) dropped to 1,224.118 tonnes on Friday. On the other hand, premiums for physical gold are still high in Asia.

An earlier Bloomberg report said Friday's rise shows that Thursday's "capitulation" is over.
“The capitulation is over,” said Tom Pawlicki, an analyst at MF Global Holdings Ltd. in Chicago, who correctly predicted in September that the metal would keep rallying to $1,350 an ounce after reaching a record. “The liquidation has washed out the weak trades and put gold at a point that looks attractive to new buyers.”...

Gold’s rebound from the 150-day moving average of about $1,306 is a sign that prices are poised to rally, said David Hightower, the president of the research firm based in Chicago. The metal may climb to $1,630 by the end of June, he said....

“People take these longer moving averages as a key measure of confidence,” said Hightower, who correctly forecast that gold would rally above $1,400 last year. “Gold has respected the 150-day average in the past. By repelling from that level, it suggests that gold has value, and that the bull camp was not scared and forced out of their positions.”
Despite Friday's rise, holdings in ten gold ETFs tracked by Bloomberg fell to 2,033.8 tonnes for the lowest total since last June.

A Wall Street Journal article notes the hangover effect, but says that gold shouldn't be that volatile in part because of a shutdown in Chinese markets due to the New Year's Festival.
"Gold shouldn't come down that much in the next few days and weeks, as it is well supported by demand as a safe haven due to current tension in the Middle East," said Daniel Briesemann, an analyst at Commerzbank.

However, trading should be quieter than usual this week, because China shuts down for the Lunar New Year, noted analysts.

Moving back to more quotidian U.S. economic data, December consumer spending was up by an expectation-beating 0.7%, with personal incomes up 0.4%. The savings rate fell from 5.5% to 5.3%, and core personal-consumption inflation was reported as flat for December and up 0.7% for the entire year. [I know, but that's the reported figure.] Before the data were let out, gold fell to the high 1320s but stayed flat at the time of release. As of 8:44, the spot price was $1,327.70 for a drop of $10.70 on the day. The Kitco Gold Index assigned -$18.70's worth of change to predominant selling and +$8.00's worth to greenback weakening. The U.S. Dollar Index continued to sink, reaching 77.69 at 8:46.

The post-shock letdown continues, but gold is back to where it was before Thursday's plummet. $1,325 is again active as a support level even though investment demand is still whittling away. How far the whittle goes will be evident this week; there's still evidence showing physical demand in Asia is still strong.

Sunday, January 30, 2011

The Wild North Run

San Fyfe and Jay Mohr, two experienced security guards with Pender Security, are making a gold run for the Northeaster Mining Company. The van they're driving has special security-tight features, designed as a come-on highlighting Pender Security's top-notch devotion to keeping high-value items safe. Intended as a showcase run, it turns into a run gone wrong...

  1. Introduction
  2. First Run
  3. Second Run


“Yes, sir, it’s worth it.”

Ben Fyfe was talking about the new truck that the Pendler Security Company had commissioned. There being thefts reported from mines, albeit in Mexico, Pender saw an opportunity and was moving in. The “miner special” van was a loss leader, for now, but the losses could easily be budgeted to advertising expense. None of the big companies had even thought of it, even though its competitive edge was essentially peripheral improvements.

The vehicle looked like any other from the outside. The size of a small cube van, it was made of hard-to-penetrate steel. Large rivets bracketed the sides behind the cab. Steel doors at the back kept the outside world from pawing the inside contents. It was strong enough to be bullet-proof, of course, but it didn’t have quite the room that the others of its size had.

That was for two reasons, both of which Ben and his co-guard Jay Mohr were about to show their new client. The “sir” in question was Ed Cox, the mine manager.

He had been persuaded to hire Pender not only by Pender, but also by the police – albeit indirectly for the latter. Although Mexico was a far-away land, crime was international. There was no way of telling when a local band of criminals would get the same idea and implement their own local version. The Pender Double-Secure Van – the loss leader – was Pender’s showcase vehicle for the gold mining, and later the diamond, industry. The subtracted room didn’t matter all that much for goods with high value per weight.

Ben turned his head at “Shotgun Jay”’s direction, nodded, and turned back frontwards to Cox and a few others who had gathered. Pulling out a key and showing it to his audience, he said: “Now you’ll see how hard it is to get in.” As all of them knew, the same model of van sans improvements had been successfully jacked down in la familia land. Turning around to the door, he inserted the key upwards into a small protruding cube, about 5 cm a side. “Gather ‘round,” he continued as Jay stepped back to make room; his audience did so.

“Whoever designed this had a sense of humour,” he continued as he shifted aside to make room for Cox and the others to see the now-exposed scan plate. Ben, having placed the key back on his belt chain, now raised his middle finger in the traditional salute of disrespect. Turning it downwards to his right, he eased the exposed fingerprint onto the plate which stood just below hip height. A second passed, and a clearly audible click called attention to the doors.

He turned his torso and head back to the audience. “A thoughtless designer would have made it the thumbprint, but not our guy. Added security.” He then opened the door.

Cox, expecting to see the interior of the cargo bed, raised his eyebrows when he saw another door less than half a metre in. Looking past Ben, he discerned an electric latcher-delatcher. That was why the double set of doors weren’t beside each other; they couldn’t be.

“Now, it – yes?” Ben stopped for Cox.

“How do you guys get in if the electrical system shorts out?”

Shifting almost invisibly from foot to foot, Ben replied: “In extremis, we can torch it open at headquarters. The alloy we use requires a special torch. But,” he continued with a smile on and restlessness gone, “the system’s been thoroughly tested. We even discussed surrounding it in a Faraday cage to protect against an EMP.” That part about the special torch was a bit of blarney, needed because torching was how the ones in Mexico were jacked.

The next part wasn’t blarney. “There’s a heat sensor built into the alloy. If it detects a torch flame, it mounts an automatic call to 911. The system can’t be disabled without the van specs – I don’t even know where it is – so that’s another reason why it has to be cut at headquarters.”

It was an impressive pitch, and the people around him were impressed. Jay made his excuses, moved forward, and climbed up. “Just enough for knee room,” Ben supplied jocularly. His partner pulled out his own key, put it in the bottom of another cube that was at eye level for him, and exposed a clear glass surface at the top of the cube. Shifting slightly, he put his right eye to the glass. Nothing happened.

“Right eye, no workee,” Ben continued.

Jay shifted again, this time to the right, put his left eye to the glass plate and held still. Another second passed and he got a click. “Left eye does the trick,” Ben said for him. Having done his duty, Jay got back down from the ‘tween-doors vestibule and pulled the inner pair open. All eyes now saw the interior bed.

“Perfect for your gold,” Ben concluded after turning back to the audience. “You see,” he added as exegesis, “it takes both of us to open it up; both ways. Not only that, but the biometric data is counter-intuitive. Thumb and right eye is more intuitive.

“Mr. Cox mentioned the possibility of a breakdown. I gave the straight goods here, but I wouldn’t be averse to telling a whopper to any criminal who tried to jack us. ‘Sorry; it’s an experimental system. I tried my thumb and it doesn’t work. I guess it broke on us.’”

Jay now added his bit. “Same with me. ‘Sorry, I put my eye there but it must be broken. There’s no way to get it open except at headquarters.’”

“That’s if we’re surprised in the middle of an open,” Ben added. “If such a possibility could ever occur,” he added with the air of a fellow who had thought of everything.

This time, one of Cox’s subordinates asked a question. “What if both doors are open?”

Ben fielded it easily. “At that point, we’re at our destination. If push comes to shove, the refiner has a responsibility.”

Cox nodded, moving the words into his head by bobbing it. The pitch sounded good, and gibed with what Pender had told him. The mine was eight hours away from the refiner, though long stretches of mostly two-lane highway. The sun was barely coming up on a nice summer day; the pair of security guards had arrived last night and bunked over. The refiner didn’t keep convenience-store hours.

That had been good for the pair: an easy drive up, accommodations on someone else’s dime, and lots of overtime.

“Great,” he himself concluded. “I’ll show you where the two dore bars are.” About 90% gold, they looked it. Each weighed an unusually compact thirteen-plus kilograms, a little more than the standard 400 oz bar. Measurements had been carefully taken to ensure that each dore bar had almost exactly four hundred troy ounces of gold in it. Not only was this a convenience for the refiner, but it was also a check-safe for the mining company. Each dore bar would result in one good-delivery 400 oz 99.9% 24 karat gold bar. It had better.

The two bars represented about two weeks’ worth of production from Northeaster Gold's Mandalo Mine. It was small but profitable.

The bars were half- surrounded by custom-cut Styrofoam in which they fit snugly. Ben and Jay each got in front of one, laid out on a central table that commanded the loading bay. They were only eight centimetres wide, twenty long and five thick. A half a centimetre would be removed from the thickness in the final refining process to produces a NYMEX acceptable bar. After letting the two men gawk, one of Cox’s assistants deftly put Styrofoam caps on top of the bars and taped them up. Both guards, being new on the gold beat, were surprised at how heavy their bundles were.

They were strong enough to heft the packages into the open van and strap on a pair of added belts for each. The bars wouldn’t move at all during the entire journey – the entire Pender Company plus the suppliers had made sure of it.

First Run

More than ten kilometres of two-lane pressed-earth road was between the loading depot and the highway. Once on, and once traveling at speed, the two men would get to the refining company by 5 PM. It would be about twenty minutes back to headquarters in the same city, and then relaxation. Both settled in with hope for a long, steady, relaxing drive. Ben was at the wheel, and would be so for the whole trip.

It was two hours on the highway when the pair saw orange pylons on the centre of the asphalt, with a police car blocking their path. Stopping, Ben unlocked the door, undid his seat belt and stepped out. Jay stayed in, but tensed up.

“What’s wrong, officer?”

The police officer, like Ben, had a neatly-trimmed moustache; both were dark-haired and brown-eyed. Ben had several centimetres on him.

“We’re cordoning off this part of the highway,” the officer explained. “There’s a gang of robbers on the loose, and we got word they’re between this roadblock and the other one. Until we find them, no-one gets in or out except local traffic.

“Just turn right, go down about one and a half kilometres to Halagon Avenue; it’s rural-residential. Follow it all the way – about eight kilometres – and you’ll get back on the highway. One you reach Halagon, turn left and keep going.”

Halagon – left, Ben noted. It would slice a bit off the time buffer, but public safety was public safety. Far better to have the police on the job than to run the risk of being “inconvenienced” in another, menacing way. The officer added:

“What are you guys doing here, anyway? Mine job?”

“Yes, that’s it. We’re ferrying gold for them,” Ben confirmed.

“Be careful,” the officer said with his eyes widened slightly to get the point through. “It’s only a matter of time before those banditos get copycats up here. It’s the kind of crime that everyone’s surprised no-one thought of earlier. That says someone’s going to try it.” Ben’s own eyes made the officer conclude that the point was made.

“Thanks,” Ben added, and got back in the van.

“We have to make a detour: crooks,” he explained to the still-tensed-up Jay. “Right here, left at Haligon, eight kilometres along ‘til we get to the highway again. It’s residential, so we’ll be a little slower, but it’s not much time out of the day.”

“Gotcha,” Jay agreed, now relaxed but alert. “Small inconvenience considering the risk.” So, Ben turned the van and headed west.

About half way down Haligon, they were stopped again. This time, the car was not a police car – but the fellow who stopped them was in a police uniform. Ben rolled down the window, but kept the car locked. Jay, out of the corner of his eye, noted the bridge under which a small river crossed. They were close to the near edge of it, which would explain why the cordon had stretched over to this street too. The river wouldn’t take a boat, but it would take a guy escaping while covering his tracks.

“Sir, could you please get out of the car and stand alongside it? Tell your partner to do so too.”

“Officer,” Ben replied, “we’re security personnel on a delivery for a mining company. I know you’re looking for a gang of thieves, but we’re not part of them.”

This fellow, a bit taller than the other man who stopped them, began to insist. “Sir, I have to ask you and your partner to step out of the van and stand alongside it.”

Something about the situation made Ben note the fellow’s appearance. Dark hair, cut short, clean-shaven, square face, medium build, a little less than 180 cm, a fighter. Looked like a cop, but the car didn’t. Something was off: why was a uniformed man in a plainclothes car? The whole situation said risk.

Still, the risk was slight. If need be, Ben or Jay could have several cruisers over right away simply by pushing the alarm button on the remote device that each of them had in their right pockets. About the same size as a wallet, they hooked into the same circuit as the heat detector. All it would take was a reach for the “wallet” with a defeated look and the device could be activated. Given the cruiser five-and-a-half kilometres away, both guards could go through their act and buy enough time for help to arrive. There was still a risk, but not much.

“Now, please. Both of you.”

“O-kay, we’ll co-ordinate for you.” Unlocking the door, Ben looked over at Jay who had unlocked his own and had undone his seat belt; his hand was on the door, and a smile was on his face.

“And a one – two – three.”

When Jay had debouched to the ground, he felt a sharp pain in his chest. Training and experience got his eyes jerking down to the miscreant with the dart gun, who had obviously snuck up from the under edge of the bridge. His last conscious gesture was a yank at the tranquilizer dart. It had been guaranteed to work swiftly.

As did the one on Ben. His own blend of training and experience got his belting out “Jay! Watch it!” before he keeled over.

Both came to just behind the back of the insanely opened doors of the cargo bed. Needless to say, it was now empty, as Jay found out when he had staggered to his feet.

That was the first thing he had thought of. The second thing was done when his right hand entered into his right pocket.

Ben was a little behind, and would have been more so had Jay not shaken him a bit. The two waited by the back of the van for the real police to get here. Neither said a word.

The senior man’s regretifier had working swiftly. Jeez – I could have pressed the alarm and seen if it was a real cop. It would have taken only seconds: the call made, he would have gotten summoned by the dispatcher had he been legit. Within seconds. If not, Ben and Jay could have stayed in the van and waited behind the bulletproof glass. If only he had thought of it…

He kept running and re-running the scenario through his head while waiting for help. Intermixed was his reinforcement of the description of the fake cop who jacked them. That was one thing he could do.

And that’s the first thing he said to his rescuers after explaining that he and Jay had gotten robbed. It was really the company, but that didn’t matter. Out here, Ben Fyfe and Jay Mohr were the company.

“Cripes,” the sergeant said while turning his face eastward to the highway, “we’ve got two gangs.” He turned to his partner, a constable. “We’ve got more running loose here.” He had no way of knowing that the impersonator had been the tip-off man who got the cordon running. It had been well and deliberately timed.

With those words, now that there was someone to tell, Ben consciously realized what the robbers must have done. He told the two policemen about the safety features built into the van, concluding that the biometric data much have been fetched from their unconscious bodies by manhandling both of them to the scanners. The two keys were gone, which was perfectly all right. After the jack, the locks to the sensor cubes would have had to have been changed anyway.

“Hell of a break,” the sergeant responded. Whoever designed that truck had been really clever. There was no way that such a heist could have been undertaken without it being an inside job.

“Do you remember telling anyone how those gizmos worked?”

Ben understood with the question. “Only the mine manager and a few of his boys. Ed Cox, over at the Manaldo Mine. About two hundred kilometres north of here.”

The junior police officer pulled out what was evidently a smart phone and began clicking. “Got it.”

Sam Pender had known something was wrong right when the alarm signal was pressed. Most of him was concerned, but a small part of him sighed when he realized it was the new flagship van. It had been the perfect moment for Murphy’s Law to intrude. He had suspected that it was an inside job – not involving his men, but someone at the mine – but he didn’t allow himself the luxury of believing it

Having reassured himself that his two men were okay, he still insisted that they got checked out at the hospital. Tranquilizer guns were for animals, not people; even if the formula had been adjusted for criminal use, there were no guarantees against any lasting damage.

Next was the insurance. They would pay – he had made sure of it – but the premiums would likely be adjusted unless he could show that it was a matter truly beyond his company’s control. Even then, he might get charged more simply for being in the wrong place at the wrong time. He had known Matt for a long time, though, so he wouldn’t have to threaten to walk; Matt could fix it for him.

As for the scanners, there had to be a way to distinguish the iris of an unconscious man from that of a conscious one. There were ways to detect stress in voice…now, I think of it, he added bitterly. In retrospect, a voice recognizer would have been less impressive but more serviceable…

His duties kept him at his office until the evening, in part because he dragged them out to allay the shock. So he was at his post when the call came from Ed Cox.

“Hello? Is this Ed?... You’re using a different number…. Right; I don’t know who it was either…. So you want to make another run… The last ride was conspicuous, eh?...” Stifling the momentary urge to defend himself, he shrewdly let Cox continue. “So conspicuous worked… I see…

“Now that’s an idea!... Yes, I’ll be glad to get my men prepped for it… Yes, I will be sure to tell them that.”

Second Run

This time, more people were gathered in the loading bay; the recent jacking had brought them, which Ed Cox didn't mind. Neither Ben not Jay could believe what they were hearing from him. “A truck?”

Pender had told his men that they would be going in a “different vehicle,” but he had left it to Cox to specify. Despite his love of security, that kind of subterfuge had bothered him because it left his men in the dark. In order for the plan to succeed, however, they had to be.

“Yep, a company truck. Someone else is picking up your own vehicle and taking it to the shop,” Cox replied firmly.

“Here’s what you need to know,” he added: “that gizmo of yours is conspicuous around here. Since it was found last time, we’ve decided to go with camouflage.”

Yes, but… Ben’s voice failed him when he saw Cox had very much made up his mind. The question about how it would help foil an inside job died in his head. It was replaced by a thought, which calmed him. They were part of a track-and-detect.

The truck they were to drive, both had already noticed; they thought it was there for a more quotidian pickup. It had a cap on its bed; Ben and Jay walked over to the back to see how to put the new box inside. What they saw, after Ben lifted the window, was some camping equipment that probably was from the exploration department. No box was visible, but the bed wasn’t empty.

“Already loaded, isn’t it.”

“That’s right,” Cox confirmed from just behind them. “I loaded it myself.

“As it turns out, we had enough to make another bar and we need the money.”

“Sounds like a plan,” Ben said, his tone reflecting a bit of admiration. It was pretty slick. Old Ed was probably here last night making it look like he was assembling another bar from production backup. There was no rule saying that the gold’s gotta go the day after it was smelted, so there probably was enough backup to make it look like there were a real bar there. Ben was sure they were carrying nothing except the camp gear.

“Okay, Jay, we might as well get going. Mr. Cox here has everything looked after.”

Jay had figured it out too, but both were too tempted to not stop and check. So, just before the highway exit, they pulled over and riffled through the bed. Both were surprised to see a Styrofoam package that concealed the same amount of heaviness.

It was Jay who was the first to speak this time. “Son of a gun…he’s really going for it.”

Ben turned his torso and head around, gazing at the empty road. Based upon Cox’ lacunae, he had assumed the mine manager had been dissimulating to the crowd. That assumption, he revised.

“We’re being tailed.” This time, the action was starting sooner. Ben deliberately slowed down the truck once they had hit a long stretch of straight road that allowed for passing in the opposite lane. If the fellow in the SUV was innocent, he or she would be motoring past them and moving ahead.

Sure enough, the vehicle did pass. A he was behind the wheel; he took as close a look at Ben as Ben did at him. Sandy hair, light eyes, look about average height based upon sitting height and position of the driving chair. It passed, but slowed down to his speed soon afterwards.

That got the men looking at each other. First Ben, then Jay: each pulled out their hand cannons. Both had fourth-generation Glocks with ample magazines filled with twenty-two .40 ammunition cartridges. The Internal Locking Systems were still on, but both men flicked theirs off when a car began tailing them. They also took off their seat belts.

It wasn’t long in coming. The SUV – a recent-model, gray “Trailplower” built by Michigan Motors – hit the brakes on a sharp curve; so did Ben. As soon as the car stopped, Ben jumped out; his feet managed to hit the asphalt a split second before the robber’s did. But the robber had beat him with the gun manoeuvring.

The next thing Jay knew, his partner was belting out the howl of the wounded and limping in a pain-stupor to the other side of the road. Automatically, Jay’s gun hand came up and fired right through the safety glass. The armed assailant went down.

That made him realize how vulnerable he was; Jay ducked down before a shot came though the back window. But only one, which exited through a different part of the windshield. Instead, the unseen gang were rifling through the contents of the truck bed while Jay lost his shock. Had he looked, he would have seen the cop-impersonator.

He had managed to ease open his door when the largely unseen car belted away without a parting shot. Rather than being reassured, Jay was worried. For thugs, they had been in an awful hurry.…

Having gotten the door fully open, he slipped out when he heard the highway horn. Panicked, he ran headlong into the field in front of him as a fully-loaded transport truck – unable to stop in the tight cornered turn that hid the two remaining vehicles from sight – knocked them into a lethal agglomeration of ceramic, metal and glass. Jay had gotten out just in time.

The truck driver got to Ben first. Although the accident was not his fault, he was still stricken as the man was a pro. After losing his much deeper shock, Jay went over to see if his partner was still breathing. He explained in short bursts to the trucker that they had been jacked.

This time, Pender had shown up in person after seeing to what needed to be seen to at the office. It was the first time in his business life that one of his boys had been wounded. Had Ben been wounded to unconsciousness, Pender would have been up right away. Each man's family had beaten him to it.

Thankfully, the now-dead assailant – the pile-up had seen to it if Jay’s bullet hadn’t – had missed Ben’s knee. He needed surgery, but chances were good that he’d walk again. They were both in the same hospital room, as Jay was held for observation.

As their worried-up boss got into the four-bed room, seeing the two men beside each other with thankfully empty beds on the other side, he smiled with the best cheer-up for the situation. He had received the news on the way up to the local hospital.

“I’ve got some great news for you. The others were caught and the gang’s been busted!”

Jay’s eyes lit up. Ben’s didn’t because they were blurry with morphine-induced disconnect. He needed every drop, which made him feel dopey and passively edgy.

“Great, boss!” Jay replied for both of them. “So who was it?”

It had been two people, both with the same pressing need. Cox’s assistant and a secretary had both bought Northeaster stock on margin just before the price of gold had taken a tumble. Anticipating a huge gain at the start of production, they had not realized production had already been discounted – in fact, overly discounted. Their life savings plus more had been put in that one company, one whose top management encouraged share ownership by employees like them. They had come to the conclusion that the company “owed” them when their accounts were liquidated to meet margin calls. Their cut was going towards buying back in to make up for their losses once the bad news faded.

“So I guess we were being tailed by friendlies too,” Ben added leadenly as he shifted around. The narcotics weren’t bringing him any joy; that was for sure.

Pender shook a nugatory Ben's way as his grin widened. Walking over between their beds, he sprung the surprise:

“No, it wasn’t that. The bar Ed Cox used was from his home.”

Jay’s eyebrows arced. “You mean, he had a tracker in it?” Not very feasible, maybe, but who knew these days?

Still grinning, Pender supplied the answer. “Nope; it was made special for a party he threw a year ago. It’s gold-plated tungsten.”

Friday, January 28, 2011

Gold Roars Back, Erases Yesterday's Plummet

Egypt, of all places, provided the turmoil needed to boost both gold and the U.S. dollar. Widespread protests have taken place in the Middle Eastern country, in an attempt to unseat President Hosni Mubarak. The resultant "excitement" added fuel to a rally in gold that was already underway, suggesting that yesterday's panic was no more than the metal falling out of bed. By the time the trading day was over, it was as if yesterday's plummet never happened. Gold came to rest in the upper 1330s with a more than twenty dollar gain on the day, turning what would have been a seriously large weekly loss into a mild one: down $4.00, or 0.298%

Given where it had closed at yesterday, any upward turn in the overnight session would have been little more than a relief rally - but it would also be a sign that yesterday's rout would not continue today. Both happened, with gold reaching close to $1,320 by the time regular trading opened. The 4th quarter U.S. GDP number of 3.2% annualized was both an improvement on the third quarter's and below expectation for 3.5%, but the strength of the consumer-spending component ended up being taken as a negative by the gold market. By 9:25 AM ET, the metal had sunk back down to $1,310.

Then, its run started - one that would not stop until the daily high of $1,348.30 was reached shortly after noon. That's almost a forty-dollar gain in two and a half hours. After the peak, the metal slowly setted into a range between $1,335 and $1,340. Just before the close, spot gold moved from the lower end of the range to the upper to close at $1,338.40. The Kitco Gold Index attributed +$30.60 to predominant buying and -$7.10 to a strengthening greenback.

As that attribution indicated, it wasn't just gold that benefitted from the Egyptian turmoil. As a Wall Street Journal article explains, both the greenback and the Swiss franc benefitted as well today. [Perhaps the gains in the latter have something to do with coming conversions of funds into Swiss-franc bank accounts from a certain region of the world.] Oil did, too. Interestingly, silver benefitted alongside gold to the tune of 3.3% in the pit session - but platinum and palladium barely budged. Thoughts in the metals markets were not occupied by recovery today.

As for gold's six-month chart (from, it shows yesterday's drop mostly but not completely erased:

Yesterday's breach of the $1,325 support level is now history; gold is now slightly above where it was on Tuesday. Granted that it took a regional uproar to put the metal back in its old range, but what was done yesterday is now undone. It is possible that today's conflict-driven upswing was anomalous too, in which case gold will drift back lower once the region calms down. Even if so, today's action still demonstrates the latent fear out there that just needs to be triggered by a disaster. Although other safe havens benefitted, gold did so in spades. Anyone who bought on the heels of the panic at $1,310-20 has good reason for an enjoyable weekend.

As noted above, the U.S. Dollar Index also benefitted. After attempting for more than a day to break the 78 level, the Index succeeded: the Egyptian turmoil amplified a rally that was already in place before regular trading opened. Its run lasted longer than gold's, peaking at 78.28 as of 1:45 PM. Then, like gold, it tailed off into a range: 78.1 to 78.2. At the end of the week, it halted in the middle of the range at 78.15.

Its own six-month chart, also from, shows today's gain as an overdue respite from five days of declines:

Since there hadn't been any wash-out on this market, today's jump put the Index above where it had closed on Monday. Still, it looks like a short-term reversal in an already-established downturn. The turmoil may continue, but such crises in and of themselves do not make for a sustained basis for rallying. The Index may squeeze a run up to 79 in the aftershock, but the overall trend is still downwards.

The Egyptian mess, I must confess, was a surprise to me. I don't like to compound that by being a party-pooper, but the same underlying conditions still dog gold. A change in perspective may result from today's uproar, and a reversal of gold's downtrend would gibe with seasonal weakness ending in early February. Still, recovery hopes that were shelved today may end up eating away at the metal's gains once again. There may be other buying opportunities in the near future.

In closing, I'd like to thank you again for stopping by and reading what I've posted. Today's action is the perfect cure for the winter-weekend blues.

University Of Michigan Consumer Sentiment Falls

The University of Michigan's Index of Consumer Sentiment fell to 74.2 for January from 74.5 in December. Although above expectations, its fall does put the question mark on the sustainability of the ramp-up in consumer spending that helped put the fourth-quarter GDP number at 3.2%.

A Real Gold Rush In The Amazon Region

This one fits the Hollywood stereotype of the lawless rough-and-tumble gold rush - only it's in Peru. Thousands of illegal miners are pulling up gold in the the Amazon’s Madre de Dios (Mother of God) region in the southwest part of the country. In all of Peru, illegal mining employs about 100,000 people.
As we crossed endless sand dunes, groups of men became visible among the filthy swamps. They were busily keeping diesel generators going, powering pumps that suck up mud, then spew it down carpeted ramps where gold particles are trapped. They work round the clock, only pausing at dawn to wash out the carpets and extract the gold that ends up in the markets of London or Zurich....

We met Marco Suarez, a miner from Moquegua in southern Peru, who arrived here two years ago hoping to make a quick buck and return to his village to buy a plot of land.

'This is hell,’ he said. 'We’ve been in this spot a week and work sometimes 24 hours a day depending on how it goes. We find five, six, seven grams of gold a day, and I make up to 100 soles a day [£25]. We’re simply trying to survive. I wish there were other jobs.’

As he spoke, a couple of goldminers approached suspiciously, asking the motorcycle driver what I was doing there.

'People here don’t like to speak,’ Suarez resumed, wiping the sweat from his brow with his shirt, and pouring out the brownish water that had accumulated inside his green rubber boots. 'I know we’re destroying the forest, there were only trees here before, but what are we supposed to do?’
Interestingly, it was an infrastructure project - the 1,600 mile Trans-Oceanic Highway - that opened up the opportunity for the gold rush. Not only people but equipment can be trucked into the formerly remote region. Among the 'services' that have sprung up in the boom-town atmosphere is prostitution, some of which is at least apparently forced; underage girls are involved.

But, the article also features an environmentalist complaining about the damage the Trans-Oceanic Highway has done to the environment and deploring its construction. For those who think that infrastructure programs in more developed countries will be the cure for what ails 'em, that protest points to an unseen barrier that may become visible should the shovels actually hit the ground.

Gold Rush Developing In B.C.

And it ain't always pretty. The combination of gold's rise, a slow economy and the popularity of the show Gold Rush: Alaska have combined to make gold panning in the backwoods an increasingly popular money hunt. Nostalgia and old lore still hold out the promise of striking it rich by landing a big nugget with only a pan.

With that new rush, though, has come a problem steeped in legend and lore: claim-jumping.
These days,... the [two] miners [featured in the article] are seeing more competition - sometimes on their own claim. Independent miners are heading into the mountains looking for their share of gold and are not always mindful of government-sanctioned claims or private property.

Jensen said each summer he is seeing more wild-eyed, gold-lusting men searching the creeks near Mount Washington for extra cash....

"I see men living out of their vans or in camps in the bush for weeks looking for some nuggets. One fella I came across said he was heading into the mountains for a month," Jensen said.

Jensen's company Gold & Fish Adventure takes people to his claim in Nugget Gulch, so it's well known for yielding minerals. As a result, he's chasing more people off his 1000 metre stretch of river than ever.

"They are essentially stealing out of my pocket," he said.
A government official quoted also said that they tend to leave a mess behind. Ain't their problem, to put it one way.

If claim-jumping's in vogue, then Canada is a' changin'. The adventurers in Canada's gold rushes were known for being respectful of other people's property. It's been said that, back in the Yukon of 1898, a gold panner could leave a satchel of gold on his land for a trip to town and come back without the gold being touched. The North-West Mounted Police (now the RCMP) are generally credited for this frontier law-and-order, but the shooting of claim-jumpers may have had something to do with it too.

Indian Physical Gold Buying Picks Up Due To Price Shock

There is a perception in India that yesterday's plummet put gold on sale. According to a Reuters report webbed by the Economic Times, gold buying did pick up as a result of the drop.
"We are having good deals from morning, I priced in for 100 kgs at $1,312.50-1,314.80 (an ounce) today," said a dealer with a state-run bullion importing bank in Mumbai....

"I am clearing my old stocks and therefore charging lower premiums, otherwise the premiums elsewhere are at $2," said the state-run bank dealer.

Harvesting season is still in play, so retail demand is expected to be strong in the coming weeks.

Recent S&P Downgrade Of Japanese Government Debt May Spur Gold Sales In Japan

Although the current gold-buying clime isn't very sunny, at least ostensibly, there is some hope that the S&P downgrade of Japanese government debt from AA to AA- will prompt Japanese investors to add some gold to their holdings.
Analysts and bullion house officials said the ratings cut will not cause an immediate, visible shift in the behaviour of Japanese households, which typically view gold as a tool to make profits from, rather than as a currency alternative or a safe-haven asset.

"It's not realistic to think the S&P move will prompt a change in Japanese perception of gold, namely as a way to earn interest, and not a risk management tool," said Naohiro Niimura, a partner at Tokyo-based research and consulting firm Market Risk Advisory Co.

With Japanese household assets at some $17 trillion, there is low risk of Japan defaulting as the government has a huge pool of domestic deposits to fund its debt issuance. This prevents a sense of urgency growing among investors, analysts said.

But as the country's investor base diversifies and as fiscal reform is not expected to yield anything effective in the near-term, Japanese household selling of gold could slow this year, reducing Japan's net exports of the yellow metal, even if prices rise.

And some retail investors could be tempted to buy.
Like in America, gold investment in Japan is far from the mainstream. So, the penetration of gold into retail hands is likely to be limited by the news. Already, though, the rate of selling gold has slowed - suggesting that holders increasingly expect prices to rise further.

Mystery Of Huge Drop In Open Interest Explained

Surprisingly, for such a large drop, it's a small player that was responsible. Daniel Shak had a $10 million hedge fund, and he put the proceeds into a gold spread trade that went bad as prices fell.
Thanks to the nature of futures trading, Daniel Shak's $10 million hedge fund held gold contracts valued at more than $850 million, more than 10% of the main U.S. futures market, and the equivalent of South Africa's annual gold production.

But as gold prices started falling this year, the trade, which was a combination of being long and short gold contracts—bets that prices will both rise and fall—started going bad. Monday, he liquidated his position, and is returning money to clients.

As a result, the number of gold contracts on CME Group Inc.'s Comex division plunged more than 81,000, to about 500,000, the biggest single reduction ever. While his trade didn't account for all of the contracts, an average daily move is about 3,000 to 5,000 contracts.

That Mr. Shak and his firm, SHK Asset Management, could control one of the largest positions in the gold market underscores how leverage can enable investors to control huge positions in many commodity markets.
He ended the trade because his fund was down 70% on it, so he salvaged what he could by liquidating. The reason given by him was the commodity exchange bumping up margin requirements by 25%.

Mr. Shak is a champion poker player as well as a spread trader. He claims that his spread trades usually make money, but in this adventure he had to fold a big hand.

Amazing what paper gold can do. Paper cancels out paper...

Gold Edges Up After Yesterday's Plummet

$1,325 may be gone, but $1,310 has held up. After dipping below that level late last night, gold recovered and slowly crept upwards for the rest of the overnight session. The early-morning part didn't see a repeat of yesterday's decline, just a slow advance. After yesterday's panic, that calmness comes as something of a relief. As of 8:01 AM ET, the spot price was $1,315.30 for a gain of $0.40. The Kitco Gold Index split the small gain into +$0.30 for predominant buying and +$0.10 for a weakening greenback.

The U.S. Dollar Index made another try for 78, but only got up to 77.95 like it did late yesterday morning. Beforehand, it climbed to 77.85 in early night but fell back before making that final advance from 2:00 to 3:30 AM. Afterwards, it turned downwards for a two-stage ride to just above 77.6. That decline completed, it then recovered somewhat. As of 8:16, the Index was at 77.72.

A Bloomberg report said yesterday's wipeout called forth enough buyers to support the metal. Counterpointing gold's woes to the gains of the MSCI World Index of shares, the article said the latter is at its highest point in more than two years.
“The positive argument [for gold] will rest on the possible capitulation sell-off” this week, Tom Pawlicki, an analyst at MF Global Holdings Ltd. in Chicago, said today in a report. “Such massive liquidations are typical of washouts and usually signal that a bottom is near.”....

Higher equities are “reducing investor appetite for safe- haven gold,” Mark Pervan, head of commodity research at Australia & New Zealand Banking Group Ltd., said in a report today. Appetite for gold has “waned as other markets looked more attractive.”
Holdings of ten gold ETFs tracked by Bloomberg continued to decline yesterday, to 2,037.48 tonnes.

An earlier Reuters report was more gloomy, with an analyst quoted as saying the chart doesn't look all that good and the decline may not be over. But, some physical buying stepped in.
A buying spree in China and Hong Kong before the Lunar New Year has slowed down as the holiday looms next week, but some buyers were still buying betting on future price gains.

"There's a lot of physical buying from Thailand, Indonesia, China and Hong Kong, for delivery after the Lunar New Year," said a Singapore-based dealer.

"Gold should be able to hold the $1,300 level for now. Physical demand is still there. People are bullish for the long term, and they will take the opportunity to enter the market."

Inflation pressure has been rising in emerging economies, and now is spreading to developed countries. South Korea's government said the inflation situation is continuing to deteriorate due to rising farm products prices and other

After India raised interest rates earlier this week, for the seventh time since March, market players are also eyeing further possible tightening from Beijing.
The article also notes that holdings of the SPDR Gold Shares Trust declined yesterday to 1,226.546 tonnes.

A Wall Street Journal article isn't that cheerful either, noting that a positive GDP number for the U.S. economy may provide further aggravation for gold holders.
"The yellow metal does not have many friends at the moment and in its current position—more than $100 off the highs from Jan. 3—is certainly hurting those that have the option of holding much higher yielding equities, or even the industrial metals which have provided a much better return to date," Mitsui Global Precious Metals said....

Mitsui [also] said that "outside of another stumble from Europe," the metal looks likely to continue to struggle attracting fresh bids.
The article also mentions precious-metal money looks like it's flowing into more recovery-oriented platinum and palladium.

The U.S. GDP number came in, and showed a less-than-forecast 3.2% expansion for 4Q '10, but the number was still better than 3Q's 2.6%. It was boosted by an unexpected increase in consumer spending, which had a dark side in that it was financed in part by net disinvestment. Expecting a worse number, gold rallied to $1,318 before the release. Disappointed, the metal turned downwards and moved slightly into the loss column. As of 8:48, the spot price was $1,313.90 for a loss of $1.00. The Kitco Gold Index divided the loss into -$0.20 to predominant buying and -$0.80 to greenback strengthening. The U.S. Dollar Index sunk at first and then leapt upwards, settling down somewhat higher from where it was. As of 8:49, it was at 77.76.

The much-anticipated GDP number seems to have been a non-event all told. Gold is still licking its wounds from yesterday, and that process may continue today. At the least, no further plummet is looming. Today may not feature a relief rally, but it should bring some end-of-the-week relief.

Thursday, January 27, 2011

Bottom Falls Out As $1,325 Is Penetrated Decisively

I have to admit I didn't see this coming. After surging up yesterday afternoon, and giving back the surge early this morning, gold marked time until 11 AM ET when it plunged down. The damage done was added to after the pit session ended, leaving gold with a more than thirty dollar loss on the day. $1,325, the support level that the metal used to bounce off, was breached; technical selling added to the damage once that former support level was penetrated.

The jump in the initial weekly jobless claims number added some heft to gold when it was released at 8:30, but the jump from it was short-lived. A more durable lift came after 9:00, which saw gold hug $1,335. After 10:00, the metal eased down for the first hour in a roller-coaster decline that turned into the plunge at 11:00. Within a half an hour, it was below $1,320. A pause that saw it hover around that level began to break down before the pit session was over. At the end, or 1:30 PM, the spot price was $1,319.20 for a drop of $26.90 on the day. The Kitco Gold Index split the loss into -$25.95 for predominant selling and -$0.95 for a strengthening U.S. dollar.

The breakdown continued during the electronic-trading hitch. Although slow, it was steady; gold didn't stop falling until just after 3:30 when it bottomed at $1,309.60. After licking its wounds, it rose slightly to end the day with a five-dollar subtraction from its loss at 3:30. At the end, the spot price was $1,314.90 for a drop of $31.20 on the day. The Kitco Gold Index attributed -$31.70 to predominant selling and +$0.50 to a weakening greenback.

Today's decline was severe, as gold's 6-month chart (from shows:

Not only was yesterday's gain obliterated, but the $1,325 support level was also vapourized. Gold is now at levels not seen since the beginning of last October. Needless to say, the chart is now bearish.

The question the chart can't answer is: did gold have a climax selloff, or is the near-term bottom still a long way away? Really, no-one can answer that question; it's only evident in retrospect. Unless $1,325 is recovered, the next stop down is $1,300.

The U.S. Dollar Index ended up down also, but by only a smidgen compared to gold. For a lot of the regular trading day, it had been up. An early morning bounce-around was followed by a late-morning jump that failed to get the Index up above 78. It faded in early afternoon and sailed down into a ragged range between 77.7 and 77.75. As of 5:30, it was at 77.715.

Its own six-month chart, also from, shows its fifth decline day in a row:

Today's drop was larger than yesterday's, but the last three until today were mild. Like gold, the Index is suffering from diminished safe-haven demand as equities capture the wallet. It can't keep falling forever, of course, but the chart still looks bearish.

As the lustre comes off gold, bargain hunters are no longer stepping up to cushion any decline as they used to. This day is ripe for further downward price acclimatization to set in, as it already had last night. Depite the gloom, though, gold's long-term bull market is still intact. This phase is one of many corrections and consolidations; at some point, bargain hunting will prevail for sure and gold will wait for the next upward roll. As noted above, there's no way to determine when the bottom will be reached - but reached it will be. Veteran gold bulls have seen this before, most recently at about this time last year. This too shall pass.

Gold-MIne Scam In Alaska

The exchanges have done a lot to clean up the exploration industry after the Bre-X scandal tore it, but scams still lurk in the dark side of the industry. Many of these scams are pump and dumps, or other kinds of market manipulation, but every now and then a more direct fraud surfaces.

In this case, two men have been arrested for raising money for an Alaskan gold mine that doesn't exist:
Two Lower 48 businessmen who committed to raise millions of dollars to develop an Alaska gold mine on an island just south of Kodiak were arrested Wednesday on counts of securities and wire fraud.

The men are accused of bilking millions of dollars from unwary investors in the Sitkinak Island gold mine and an unrelated real-estate scheme in the Lower 48....

Alaska mining officials said they were aware of the federal probe and had been contacted by the FBI. They also had received calls from potential investors in the gold mine.

Anchorage miner Yoram Palkovitch, 59, said Lange and Pascua, through their business called Black Sand Mine Inc., had so far invested $50,000 in his Sitkinak mining project, which involves placer mining on beach sand.

Palkovitch said [he] has been trying to develop the project -- located on state land -- for decades.

Palkovitch said he did not know about the indictment and the arrests until he was contacted by a reporter.

"I thought (the men) were legit. I still think they are unless I am told otherwise," Palkovitch said.
Evidently, the poor fellow had trusted the wrong pair. Try as they might, the authorities can't get rid of scamsters; it's still investor beware out there. Not to mention prospector beware.

Gold Ingredient In New Solar-Power Gatherer

Attempting to parallel the process by which plants gather solar energy using chlorophyll, Richard Watt and a team of students put together a mixture of citric acid (from oranges) and a protein to see if said protein would help gather energy from sunlight. They then added some gold to see if it would turn purple, indicating that energy had been stored:
Success was theirs: within 20 minutes, Watt held in his mortal hands a flask of purest ... purple.

The team believe that the purple sunlight-storing protein can be incorporated into a battery or fuel cell and so output its solar harvest in the form of electricity.

Full boffinry detail is available here courtesy of the Journal of Nanoparticle Research. Readers may be interested to note that Professor Watt is apparently a descendant of James Watt, the 18th-century Scottish engineer who famously improved the Newcomen steam engine and in the process kick-started the Industrial Revolution (though there are those who'd argue that his rigorously enforced patents thereafter held it back somewhat)

As is usual in the case of wonders from the lab, commercialization is a long way off (if at all.)

McClellan Cycle Suggests Gold Now Near Cyclical Bottom has reprinted an excerpt from Richard Russell, also linked to by, which focuses on a 12 1/2 month cycle earthed up by the MacLellan Market Report.
McClellan has discovered that there's a cycle low appears for gold roughly every 12.5 months. The cycle lows have run as follows: Jan 6, '06, Jan 8, '07, Jan 7, '08, Jan 5, '09, Jan. 4, '10, Dec. 31, '10. McClellan puts the next cycle bottom for gold at February 8, 2011. Which means that the cycle low for gold should arrive at any time between now and February 8, give or take a few weeks before or after that date.

Interestingly, the McClellan cycle bottom for gold is due to arrive amid a good deal of professional bearishness regarding gold ("gold overdue for a major correction"). Thus, many traders have traded out of their gold positions, just as we near the date for the McClellan cycle bottom.
Here's the accompanying chart which marks the cycle lows:

Russell ends with his usual caveat about the market wanting to take as few people up with it as possible. A climactic sell-off after buyers are lulled into thinking the downtrend's over would do that trick - especially if it hits stop-loss orders along the way.

Yesterday's Jump In Gold Stocks May Be Good Portent For Gold Itself

Peter Brimelow's latest MarketWatch column focuses on the good showing made by the Amex Gold BUGS index of 15 stocks yesterday: even before gold's afternoon rise it had been up a little. Although the BUGS index (HUI) had been oversold the day before, there's another interpretation: its jump-up yesterday is a foreshadowing of a turnaround in gold itself.
JSMineset’s Dan Norcini sees a chance: He remarked this evening that “bulls have to be encouraged by the day’s action, as the technical indicators are so deeply oversold on the... HUI that any signs of stability will turn them to issuing buy signals rather quickly. If nothing else, it will force the bears, who have made some pretty good profits on the way down, to snatch them before they disappear.”

So too does the proprietor of the website Jesse’s Café Americain. On Tuesday evening, he noted: “This intermediate gold top and correction bears a striking resemblance to the May-August 2010 top and correction just prior to gold’s amazing break-out rally.”

And, acidly, he added on Wednesday evening: “Nice bounce off a deeply oversold condition, as we noted yesterday.”

“And of course, today was the anticipated option expiration on the Comex. How unusual,” he said.
It could be...although a chart of the HUI suggests a head-and-shoulders reversal pattern is in the making:

Note that the latest bottom before the turnaround is at the same level as the mid-late October low. Should it top well below 600, I'd watch 490 for a breakdown.

Indian Gold Buying Diminishes Due To Earlier Price Rise

According to a Reuters report webbed by Moneycontrol, Indian physical gold buying has diminished due to last night's higher prices.
"There is not much business today as prices have gone up," said a dealer with a state-run bullion importing bank in Mumbai.

Gold traders have been stocking up on the yellow metal taking advantage of the two-month trough since November, anticipating an improvement in demand during the wedding season next month.

"There are advanced orders at USD 1,320 (an ounce)," said the dealer.
So, the recovery did not lead to any enthusiasm in the Indian markets. Downward price acclimatization has set in, which prefaced the morning drop in gold.

Physical Buying Slows Down In Asia

According to a Reuters report webbed by the Economic Times, gold buying in Asia pulled back.
"Physical buying has started to slow down, after prices have gone up a bit," said a Singapore-based dealer, adding there were also some profit-taking trades.

"There is not much fresh buying, as people are not keen for delivery after the Lunar New Year."
So, yesterday's exitement did not translate into strengthened buying. The second paragraph of the excerpt indicates that some of the recent buying strength was due to seasonal factors - specifically, stocking up for sales in the Chinese New Year festival.

Gold Falls Back As Morning Letdown Resumes

Gold held on to yesterday afternoon's Fed-induced rally's closing level of $1,345 until early in the morning. After fluctuating around $1,345 all night, the gold market settled around that level at midnight ET and remained there for an hour. An advance dip carried it down to the low $1,340s only to reverse. Then, starting at 2:00, the metal took a sustained dive. Interrupted by a secondary reaction after breaching $1,340, it continued to move down from 6:00 to 8:00. In so doing, it gave up the gains made after the unanimous Fed announcement supporting both near-zero interest rates and QE2. As of 8:03 AM, the spot price was $1,332.40 for a drop of $13.70 on the day. The Kitco Gold Index split the loss into -$12.90 due to predominant selling and -$0.80 due to strengthening of the greenback.

The U.S. Dollar Index didn't move all that much last night, slightly down if anything, but got active just after gold fell. After an initial dip just before 2:00, it sharply reversed course and shot up to 78.15 before pulling back to 77.85. Not being able to surmount 78 again, it plummeted back to below where it has been before the excitement started. That collapse a little overdone, it ralled back to about where it had been last night. The cause of the volatility was S&P's downgrade of Japanese government debt from AA to AA- on debt-level concerns; that downgrade didn't help gold. As of 8:19, the Index was at 77.77.

A Bloomberg report said gold was dragged down by the same force that kept it down before the Fed announcement: increasing risk appetite, including for other commodities.
“There’s more risk appetite gaining momentum at the moment,” Daniel Briesemann, an analyst at Commerzbank AG in Frankfurt, said today by phone. With some commodities gaining, and “higher stock prices, there’s less need for safety.”...

[Another analyst supplies a longer-term perspective.] “As long as the Fed keeps its loose monetary policy, it will be positive for gold,” Yingxi Yu, an analyst at Barclays Capital in Singapore, said by phone. “The Fed statement reflects uncertainty in the economic outlook, which has supported gold in the past couple of years. We view the price decline as a short-term correction.”
The article also notes that holdings in ten gold ETFs declined again yesterday, but by a much lesser amount than the day before: they dropped 1.85 tonnes to 2,041.24 tonnes. Although only down 3.5% from record highs, holdings are still at their lowest level since August.

A Wall Street Journal report ascribes the fall to lack of investor interest.
Prices were dragged down in early trade by a softer euro—which was down 0.4% at $1.3664—and kept to a range of less than $5.

While the U.S. Federal Reserve didn't make any changes to monetary policy Wednesday after its two-day meeting, which was in line with expectations, market players say the central bank's support of its continuing $600 billion bond-buying program should keep demand alive for the precious metal, which is often viewed as an investor safe haven.

Commerzbank analysts said that with interest rates to be kept at the current low level for an extended period of time, "the resulting low opportunity costs in turn suggest stronger demand for gold."
The article also notes that holdings in the SPDR Gold Shares Trust (GLD) dropped yesterday to 1,229.58 tonnes.

Today being Thursday, the weekly initial jobless claims number has been released. For last week, the number jumped by 51,000 to 454,000. The weekly numbers have been unusually volatile lately; the reason given in the report is poor weather in four states causing administrative backlogs. After a bounce-up as a preface to regular trading opening, and a give-back right afterwards, the gold market saw fit to rally a few dollars on the jobless-claims news. As of 8:41, the metal was at $1,334.30 for a drop of $11.80 on the day. The Kitco Gold Index attributed -$12.60 to predominant selling and +$0.80 to a weakening greenback. The U.S. Dollar Index sunk on the news; as of 8:46, it was at 77.67.

So far, it looks like the Fed announcement has not turned the tide. The bad news for the Japanese government did not help gold at all, and helped the greenback only temporarily. Again, the reason is waning interest in safe havens. Still, gold has managed to stay above $1,330; it's nowhere close to $1,325. After the ups and downs, the metal isn't threatening to plummet. It may hug the bottom of its range again today.

Wednesday, January 26, 2011

Boosted By Fed Unanimity, Gold Closes Up Strongly

There had been a premonition of gold's strong rally by it staying mostly above $1,330 in the regular trading session and entirely so in the pre-regular morning hitch, when it's been prone to sink lately. Until the Fed's announcement, though, that steadiness would have been little more than a respite. The FOMC is now unanimously behind the near-zero interest rate policy and Quantitative Easing II. No dissent this time, not even because of commodity prices rising. The FOMC had decided that underlying inflation is trending lower, and that's that. The gold market was loving the decision, leaping up from near-unchanged when the announcement hit the Net and continuing upwards to a double-digit gain with only one look back. Although still below $1,350, the metal had turned in the tide.

Despite a blip-up to $1,335 at the start of the pit session, the trend until just after 11 AM ET was downwards. From a range between $1,330 and $1,335, the metal ended up sinking below the floor and touching $1,325. The low of $1,324.20 put in, it then turned upwards and sailed fairly smoothly back up to $1,135. As of the end of the pit session, or 1:30 PM, the metal had fallen back a little; its spot price was $1,333.80 for a small gain of $1.00 on the day. The Kitco Gold Index attributed +$1.90 to predominant buying and -$0.90 to a strengthening U.S. dollar.

Putting ten dollars on the price in the latter half (or so) of the pit session made for a good run, but gold had more to show when the electronic-trading hitch began. Continuing to slide down to the lower 1330s, gold paused in its tracks at 2 PM as traders awaited the Fed announcement. Once gotten, the metal jumped up about five dollars only to pull back to where it was. The $1,335 ceiling being broached, the metal then climbed steadily until marking time at 4:30. At the end of the regular day, the spot price was $1,346.10 for a day's gain of $13.30. The Kitco Gold Index split the gain into +$10.40 for predominant buying and +$2.90 for greenback weakening.

The metal's six-month chart, from, shows the downtrend has indeed reversed:

But - the question almost asks itself - for how long? The day's gain was solid enough to reverse the last two days of losses, but the chart still presents a bearish picture for now. The only hope, ironically, comes from the Moving Average Convergence-Divergence lines at the bottom of its chart. Although the black line is well below the red line, showing a bearish configuration, the extent and length of both lines' slumps is reminiscent of late July, when gold shook off its consolidation and began rolling upwards. This time, it's different because the current consolidation hasn't lasted that long. As of July, the last consolidation was more than seven months old; this one's much younger. The Fed's unanimity has catalyzed the end of a drop, but I don't expect it to have catalyzed a true turn of the tide. Gold needs more of a breather.

As for the U.S. Dollar Index, it spent the day flailing between 77.75 and 78.05 until near the end, when it sunk below the lower level. The biggest flails came right after the Fed announcement, when it first dropped to the bottom of the range and then jumped up to almost 78.1 in the space of ten minutes. It then fell back into the range, where it remained until breaking down at 4:45. As of 5:30, the Index has recovered to the range bottom at exactly 77.75.

Its own six-month chart, also from, shows the Index's decline (unlike gold's) is still in place:

It's now racked up four trading days in a row of declines, and has settled below its former support level of 78. This decline has been more sedate than September's, but a decline it still is. The Index's 200-day moving average, drawn in red in the middle of the graph, is sinking and has been since late October. Nearer-term, the chart is still bearish as its RSI line (at the top of its graph) approaches the oversold level.

Today's march upwards broke the string of disappointments that gold has suffered recently. In so doing, the metal has cleared the $1,325 support level which has held firm. Unless there's a climactic sell for some reason, like more proactive tightening moves by the People's Bank of China, gold should stay in the lower part of its $1,325-$1,425 range. I wouldn't be surprised to learn of continued strength in Asian physical demand in the overnight session as a result of the metal bottoming at $1,325. Today was the kind of day that puts the question mark on hopes for a further decline.