I've seen a few companies announce very good drill results before market open today, but their stocks didn't pop up all that much intially. The one I looked at more closely in the above post didn't pop up much at all: as of 1:24, it was unchanged on the day.
That news is better than it sounds. Either traders are becoming more cagey with respect to putting in hurried market bids before the open, or else excitement is fading. Granted that this news isn't good for someone waiting to sell on a great result, but it does give buyers a chance to look more closely at a company with a great showing. It means more time to think.
Unfortunately, given the previous hotness of the market, it may mean that previously hot exploration stocks may sink even if there's no fundamental reason for them to do so. The market goes in ebbs and flows; when excitement turns into disappointment, or to boredom in the face of other exciting opportunites elsewhere, bids tend to dry up and asks tend to come on the market. From what I've seen, some microcap tech stocks are capturing attention on the Venture Stock Exchange.
In a sense, it's a good time to get into an exploration stock that already satisfies one's due dilgence criteria. In another sense, it's not so good a time because demand for the stock may deflate further. The lucky person who gets in near the bottom is often treated to long spells of boredom. The not-so-lucky person who gets in the middle of a drop - in marlet parlance, "catches the falling knife" - is treated to long spells of frustration. The latter person's often tempted to just sell out and limit the loss.
As always, such a decision should hinge on the fundamentals. Granted that exploration-stock fundamentals are pretty thin in comparison with regular companies, but they provide solid ground to stand on if the market hits a cold spell or goes weird. The headline-chaser's more at risk of throwing the stock out the window at a loss - sometimes a serious loss. Headline-chasing's the exploration answer to drawign to an inside straight. It looks so easy in retrospect, but...
Someone who's done the due diligence and is satisfied with the company is more likely to hold on, even while riding a serious loss. Fundamental analysis in this sector is admittedly a grab bag of amateur geology, rudimentary finance and amaterurish mine engineering. With earlier stage companies, it's "outguess the geologist." As with all stocks, the ones that shoot up are hidden and need to be found out through combing through lots of news releases and company Websites. As with all markets, the reaction to future news items is unpredictable. Once the good news comes, it only makes sense to jump in if sure that there'll be more unexpectedly good headlines coming.
Now is actually a good time to start digging, without the pressure of a hot market making for haste. If you're interested, clicking the tag "goldexploration" will pull up several names I've featured in the recent past. Each example has a contemporaneous chart, alonng with a link to a current one, so you can see how each has done since the post. The capsule descriptions are intended as a springboard for your own due diligence, not as a substitute for your own checking. I may be wrong, and I have omitted features of the companies that others will find significant. A capsule is no substitute for a thorough examination.
Wednesday, March 2, 2011
Ben Bernanke Fences Questions About Gold Standard In Yesterday's Testimony
It wasn't Ron Paul that was asking about the viability of the gold standard, but Sen. Jim de Mint.
It's been fashionable lately to say that money and credit are the same because both are liabilities of the U.S. Treasury. The trouble with this contention is that there's no way to get the Treasury to redeem that liability except through other liabilities. What do you receive if you're the holder of a $20 Federal Reserve note and want the U.S. government to redeem its liability? You get more Federal Reserve notes, or coins, which means the government exchanges a liability on itself for another liability. With one minor exception, there's no way to get an asset from the Treasury that extinguishes that liability.
So, the "liability" represented by a Federal Reserve note is economically equivalent to a perpetual bond with 0% interest rate, since Fed notes never pay interest. The present value of such a perpetual liability, using the standard formula for perpetuals [Present Value = Interest Payment / Interest Rate], is 0/0...a non-answer.
Therefore, using basic financial math, treating Federal Reserve Notes - or any similar currency - as a financial asset is nonsensical. Although 0/0 can stand for a finite number, it can stand for any number. There's no way to get any definite value at all for an FRN by treating it as an asset that's also a liability of the U.S. Treasury. The fact that the liability cannot be extinguished makes its value as a financial asset uncomputable.
And that's the only way it can be treated, if its subjective value as a medium of exchange is ignored. As I said above, FRNs can only be exchanged for other FRNs and coins. Thus, the liability is never extinguished. Gold is in a better position: it can be made into jewelry or another luxury consumer good. What can be done with rag paper?
Those who say that gold has "no value" because it doesn't have a return seem quite unaware that the situation is worse for paper. Gold has uses, such as jewelry, that form a significant part of its market value. Rag paper has next to none. The only time when paper money approaches intrinsic value is during hyperinflation.
I did mention a minor exception, and that's coins. Even here, though, the government has made it illegal to realize the value of coin assets by smelting them.
Bernanke, appearing before the Senate Banking Committee, was pressed by Sen. Jim DeMint (R., S.C.) on the viability of a return to a gold-backed economy or the idea of the Treasury Department issuing bonds payable in gold. Bernanke, who has studied the issue, said a return to the gold standard wouldn't work.He also fenced Mark Kirk on the question of currency not being backed by federal debt.
"It did deliver price stability over very long periods of time, but over shorter periods of time it caused wide swings in prices related to changes in demand or supply of gold. So I don't think it's a panacea," Bernanke told DeMint.
Additionally, Bernanke said there were a number of practical issues that would prevent the return of gold as the world standard. Namely, there's not enough gold in the world to effectively support the U.S. money supply.
"I don't think that a full-fledged gold standard would be practical at this point," Bernanke said, declining to opine on the gold-backed bond issue because he was not familiar with the idea.
It's been fashionable lately to say that money and credit are the same because both are liabilities of the U.S. Treasury. The trouble with this contention is that there's no way to get the Treasury to redeem that liability except through other liabilities. What do you receive if you're the holder of a $20 Federal Reserve note and want the U.S. government to redeem its liability? You get more Federal Reserve notes, or coins, which means the government exchanges a liability on itself for another liability. With one minor exception, there's no way to get an asset from the Treasury that extinguishes that liability.
So, the "liability" represented by a Federal Reserve note is economically equivalent to a perpetual bond with 0% interest rate, since Fed notes never pay interest. The present value of such a perpetual liability, using the standard formula for perpetuals [Present Value = Interest Payment / Interest Rate], is 0/0...a non-answer.
Therefore, using basic financial math, treating Federal Reserve Notes - or any similar currency - as a financial asset is nonsensical. Although 0/0 can stand for a finite number, it can stand for any number. There's no way to get any definite value at all for an FRN by treating it as an asset that's also a liability of the U.S. Treasury. The fact that the liability cannot be extinguished makes its value as a financial asset uncomputable.
And that's the only way it can be treated, if its subjective value as a medium of exchange is ignored. As I said above, FRNs can only be exchanged for other FRNs and coins. Thus, the liability is never extinguished. Gold is in a better position: it can be made into jewelry or another luxury consumer good. What can be done with rag paper?
Those who say that gold has "no value" because it doesn't have a return seem quite unaware that the situation is worse for paper. Gold has uses, such as jewelry, that form a significant part of its market value. Rag paper has next to none. The only time when paper money approaches intrinsic value is during hyperinflation.
I did mention a minor exception, and that's coins. Even here, though, the government has made it illegal to realize the value of coin assets by smelting them.
As Gold Makes New Record, Optimistic Forecasts Proliferate
That's the subject of a Wall Street Journal blog post, which uses gold's latest record as a springboard to introduce forecasts for $1,450, $1,500 and $1,600. One of the gold bulls is none other than Jacob Rothschild.
[He] has stood by Old Yeller of late, upping RIT’s investment in “real assets” like gold in a bid to protect against economic instability.Although global recovery may put gold off its feed, tensions in Libya and continued worry over Portugese and Grecian government debt are still putting some spring in the metal's step.
“These areas provide some protection from inflation and have performed well for our shareholders,” Mr. Rothschild said in RIT’s most recent report.
RIT also backed a £12.5 million joint equity investment in online gold dealer, BullionVault, by the World Gold Council and growth capital fund, Augmentum Capital, in June, a sign of confidence in the gold market.
Thirteen Billion-Dollar Explorers
A producer with a market cap of over a billion isn't that unusual, although some small producers have caps well below that figure. Thanks to some huge finds and takeover thirst, there are thirteen explorers with market caps over that figure. None of them have any significant revenue yet from gold production.
**: Current takeover target.
There's no shortage of senior gold producers moving to buy juniors, and the price tags are getting bigger and bigger.
It's an interesting trend, given that bankers say that acquirers are moving to grab promising gold exploration companies at earlier stages in their development. That means more risk, but potentially more upside as the juniors drill out their targets further in the senior's portfolio. There's serious thirst for growth at the senior level, as markets have started to value upside with a higher multiple than size, a turnabout from past years.
But moving earlier isn't making acquisitions any cheaper now that this has become the era of the billion-dollar gold explorer....
The list comes from Canaccord Genuity:
- Ivanhoe Mines Ltd.
- Osisko Mining Corporation*
- NovaGold Resources Inc.
- Gabriel Resources, Ltd.
- Detour Gold Corporation
- Tahoe Resources Inc.
- Fronteer Gold Inc.**
- Northern Dynasty Minerals Ltd.
- Ventana Gold Corp.**
- Seabridge Gold, Inc.
- Perseus Mining Ltd.
- Romarco Minerals Inc.
- Great Basin Gold Ltd.
- Nevsun Resources Ltd.
- Mirabela Nickel Ltd.
- Rubicon Minerals Corporation
**: Current takeover target.
Mainland Chinese Gold Buying Keeps Increasing
Boosted by inflation, demand for gold in mainland China jumped up to 200 tonnes in the first two months of this year. The figure comes from UBS, which has a $1,500 target for the next six months.
No wonder why other forecasters are calling for $1,600 gold this year.
“China is the big buyer,” Peter Hickson, global commodities strategist at Switzerland’s largest bank, said by phone yesterday, without giving a comparable figure for 2010. The estimate for the two-month period compares with full-year consumer demand from China of 579.5 tons for last year, according to the World Gold Council, a producer-funded group....Another commentator, the World Gold Council's China representative Wang Lixin, says Chinese demand might increase 40-50% this year because there aren't many alternatives to the metal for inflation protection. Minalnad Chinese depositors currently lose 1.2% after inflation is factored in.
“Chinese interest is huge,” said Peter Tse, Hong Kong- based head of precious metals at Bank of Nova Scotia. “Demand for physical gold and imports has increased substantially” due to the Lunar New Year holiday, Tse said today, referring to the week-long break that began Feb. 2.
No wonder why other forecasters are calling for $1,600 gold this year.
Gold Stays Near Record, Holds Gains
The inflation meme is spreading, and policymakers are beginning to talk hawkish - although little is expected in the developed economies, such as Euroland, other than tough talk. Ben Bernanke's testimony continues today, and the Fed's Beige Book is being released this afternoon. Near the end of overnight trading, gold was virtually unchanged from yesterday's close.
Experiencing a letdown after yesterday afternoon's record run, the metal fell back last night. Double bottoming at about $1,427 a little before midnight, it turned up and hugged $1,430 before sinking back a little. It then climbed above $1,430 when London opened, encouraged by a drop in the U.S. dollar. Briefly touching $1,335 just after 6:00, it sunk back and stayed in the low 1330s. As of 8:03, the spot price was $1,433.50 for a gain of $0.30 on the day. The Kitco Gold Index attributed -$3.10 to predominant selling and +$3.40 to a weakening greenback.
The U.S. Dollar Index was affected by the tough talk; it slumped below 77 again. After another muddle-along in early evening, it climbed up to 77.15 around midnight and stayed there. Becoming more volatile as Europe woke up, it dropped to below 76.8 between 3:25 and 5:50. After fumbling around for a while, it began climbing back up but the boost to the Euro from the tough talk still had a lingering effect. As of 8:14, the Index was at 76.88.
A Reuters report said gold was held up because of its continued appeal as a haven asset.
The morning Wall Street Journal report said bullishness is increasing now that gold made its new record and the Mideast tensions are still evident.
The ADP private-payroll report released at 8:15 shows an overall gain of 217,000 private sector jobs; most of the growth came in the service sector. Gold didn't react that much to the data, dropping about a dollar an ounce after the release. Later, once the pit session got rolling, the metal shook off its decline and slightly bettered yesterday's record by touching $1,437.60; it then dropped back. As of 8:37, the spot price was $1,433.60 for a gain of $0.40 on the day. The Kitco Gold Index assigned -$3.50's worth of change to predominant selling and +$3.90's worth to greenback weakening. The U.S. Dollar Index gave up on its run-up and slid below 76.8. As of 8:40, it was at 76.78.
A new record was attained by gold, but it was made with little conviction and was only slightly above the previous one. It may get a further boost if the greenback keeps caving, but the market looks quiet now. A pause seems to be in order for today.
Experiencing a letdown after yesterday afternoon's record run, the metal fell back last night. Double bottoming at about $1,427 a little before midnight, it turned up and hugged $1,430 before sinking back a little. It then climbed above $1,430 when London opened, encouraged by a drop in the U.S. dollar. Briefly touching $1,335 just after 6:00, it sunk back and stayed in the low 1330s. As of 8:03, the spot price was $1,433.50 for a gain of $0.30 on the day. The Kitco Gold Index attributed -$3.10 to predominant selling and +$3.40 to a weakening greenback.
The U.S. Dollar Index was affected by the tough talk; it slumped below 77 again. After another muddle-along in early evening, it climbed up to 77.15 around midnight and stayed there. Becoming more volatile as Europe woke up, it dropped to below 76.8 between 3:25 and 5:50. After fumbling around for a while, it began climbing back up but the boost to the Euro from the tough talk still had a lingering effect. As of 8:14, the Index was at 76.88.
A Reuters report said gold was held up because of its continued appeal as a haven asset.
"Ever since things started to happen in the Middle East, you have seen this recovery from the mid-$1,300s back to record highs... driven by safe-haven flows," said RBS Global Banking & Markets analyst Daniel Major....The article also mentions risk appetite waning as shown by gains in other safe havens like U.S. Treasuries. A sustained and serious rise in oil will impact economic growth. As a result, gold will avoid a knockdown like the ones recently suffered by industrial metals like copper. Holdings of the SPDR Gold Shares Turst were unchanged yesterday at 1,210.96 tonnes.
"What will decide that will be how things pan out in the Middle East," he said. "Should we see a calming of the political situation there, there is a risk to the downside, but should we see things escalate and we break above the level we are at the moment, there is the potential for more to come."
The morning Wall Street Journal report said bullishness is increasing now that gold made its new record and the Mideast tensions are still evident.
"The safe-haven bid is a powerful factor in the gold market right now," said Credit Agricole analyst Robin Bhar. "For every dollar that oil gains, it provides further support for gold."...The article also mentions silver's more spectacular rise, which dovetails with gold's own action. Unlike gold, silver has not made a new nominal record high (yet.)
Gold also is also attracting "hot money," or short-term speculators looking to profit from the yellow metal's success, he noted.
"Gold's rally yesterday was like a red flag to a bull," he said.
The ADP private-payroll report released at 8:15 shows an overall gain of 217,000 private sector jobs; most of the growth came in the service sector. Gold didn't react that much to the data, dropping about a dollar an ounce after the release. Later, once the pit session got rolling, the metal shook off its decline and slightly bettered yesterday's record by touching $1,437.60; it then dropped back. As of 8:37, the spot price was $1,433.60 for a gain of $0.40 on the day. The Kitco Gold Index assigned -$3.50's worth of change to predominant selling and +$3.90's worth to greenback weakening. The U.S. Dollar Index gave up on its run-up and slid below 76.8. As of 8:40, it was at 76.78.
A new record was attained by gold, but it was made with little conviction and was only slightly above the previous one. It may get a further boost if the greenback keeps caving, but the market looks quiet now. A pause seems to be in order for today.
Tuesday, March 1, 2011
Gold Makes New All-Time High
Gold has a new interday all-time high: $1,436.20, made at 4 PM (ET) today. Momentum buying was cited as the cause, prompted by the hope that gold will be less affected than industrial metals by an economic drag-down caused by the oil spike. Gold's rise came with a steadily declining stock market. After breaking through $1,420, and dragging its feet in the morning, the metal rose steadily. No unpleasant surprises came from Fed chair Bernanke's testimony today, so there was no hamper on an increase in demand for the metal.
It started off breaking through $1,420, a resistance level which it's been stuck below for a week. Although breaking through just before 8:00, it didn't rally with any conviction afterwards. Instead, it dawdled around $1,420 as traders waited to hear what Bernanke had to say. Stepping backwards just before regular trading began, the metal touched $1,418 before moving forward to $1,420 again. A subsequent rally ended with another retest of $1,420, followed by shuffling up to the low 1420s in mid-morning.
Then, a combination of the stagflation story, no threatening words from Ben Bernanke and the falling stock market got gold marching upwards. By early afternoon, the metal took a break and dawdled between $1,428 and $1,430. The subsequent advance was more irregular, with more frequent steps backwards, but it did make that new record before taking another break and stepping back a little. At the close, the spot price was $1,433.20 for a gain of $22.00 on the day. The Kitco Gold Index attributed +$24.70 to predominant buying and -$2.70 to a strengthening greenback.
Gold's six-month chart, from Stockcharts.com, shows a definite breakout from its short-term range up to its new record:
Since there hasn't been any meaningful pullback, today's record counts as a continuation of the uptrend that began with January 27th's low. In the last month and a bit, gold has run the gamut from a low not seen since the beginning of October to a high not seen at all until today. Happily, the rally has run a gamut of skepticism (including mine) so there's no mania associated with it. I have to say, its run is close to unprecedented in this ten-year bull market in terms of comsolidation length. Normally, when the metal's made a run of last summer and fall's magnitude, it pulls back a fair bit and then gets stuck for several months. This time, the pullback was minor and the consolidation period was little more than a few months. Gold's bull market seems to be accelerating. The inflation story is already making the rounds. Should this new record precede a string of gains, should gold keep advancing up to (say) $1,500, we may well be at the cusp of the blow-off topping process. If so, the metal could advance to seldomly dreamed of heights before imploding.
The U.S. Dollar Index managed to eke out a gain on the day. and even advance a little above 77.0, but its advance was confined to late morning and early afternoon; it petered out at 77.1. It managed to pick up some safe-haven demand itself, but its advance was minor compared to gold. After being blocked at 77.1, it still stayed above 77.0 as a slightly downward drift replaced the rally. As of 5:30, it was at 77.02.
Its own six-month chart, also from Stockcharts.com, shows today's gain not making up for yesterday's loss:
Not following through with a steady decline after breaking down at 77.0, the Index has muddied along instead. Perhaps some safe-haven demand explains why, but its fall below 77 didn't have much conviction. Although still in a bear trend, the Index looks like it's going to continue to sag and not speed downhill.
Given the fright that was going viral at the end of January, a new record on the first day of March is a pleasant surprise. Bullishness is coming back, which is to be expected given gold's nearly 10% gain in a little more than a month. There's a slow but definite change in the story, though. The market is latching onto what's always been the big story for gold: inflation. So far, there's little sign of inflation in the U.S. official statistics, although there's a lot of anecdotal evidence shwoing the beast waking up. Should inflation ramp up in the official measures, it may well be off to the races for gold. Silver's outperforming it, which is typical for the gray metal in third stages of gold bull markets. The pathway for an all-out blowoff top is being set...
It started off breaking through $1,420, a resistance level which it's been stuck below for a week. Although breaking through just before 8:00, it didn't rally with any conviction afterwards. Instead, it dawdled around $1,420 as traders waited to hear what Bernanke had to say. Stepping backwards just before regular trading began, the metal touched $1,418 before moving forward to $1,420 again. A subsequent rally ended with another retest of $1,420, followed by shuffling up to the low 1420s in mid-morning.
Then, a combination of the stagflation story, no threatening words from Ben Bernanke and the falling stock market got gold marching upwards. By early afternoon, the metal took a break and dawdled between $1,428 and $1,430. The subsequent advance was more irregular, with more frequent steps backwards, but it did make that new record before taking another break and stepping back a little. At the close, the spot price was $1,433.20 for a gain of $22.00 on the day. The Kitco Gold Index attributed +$24.70 to predominant buying and -$2.70 to a strengthening greenback.
Gold's six-month chart, from Stockcharts.com, shows a definite breakout from its short-term range up to its new record:
Since there hasn't been any meaningful pullback, today's record counts as a continuation of the uptrend that began with January 27th's low. In the last month and a bit, gold has run the gamut from a low not seen since the beginning of October to a high not seen at all until today. Happily, the rally has run a gamut of skepticism (including mine) so there's no mania associated with it. I have to say, its run is close to unprecedented in this ten-year bull market in terms of comsolidation length. Normally, when the metal's made a run of last summer and fall's magnitude, it pulls back a fair bit and then gets stuck for several months. This time, the pullback was minor and the consolidation period was little more than a few months. Gold's bull market seems to be accelerating. The inflation story is already making the rounds. Should this new record precede a string of gains, should gold keep advancing up to (say) $1,500, we may well be at the cusp of the blow-off topping process. If so, the metal could advance to seldomly dreamed of heights before imploding.
The U.S. Dollar Index managed to eke out a gain on the day. and even advance a little above 77.0, but its advance was confined to late morning and early afternoon; it petered out at 77.1. It managed to pick up some safe-haven demand itself, but its advance was minor compared to gold. After being blocked at 77.1, it still stayed above 77.0 as a slightly downward drift replaced the rally. As of 5:30, it was at 77.02.
Its own six-month chart, also from Stockcharts.com, shows today's gain not making up for yesterday's loss:
Not following through with a steady decline after breaking down at 77.0, the Index has muddied along instead. Perhaps some safe-haven demand explains why, but its fall below 77 didn't have much conviction. Although still in a bear trend, the Index looks like it's going to continue to sag and not speed downhill.
Given the fright that was going viral at the end of January, a new record on the first day of March is a pleasant surprise. Bullishness is coming back, which is to be expected given gold's nearly 10% gain in a little more than a month. There's a slow but definite change in the story, though. The market is latching onto what's always been the big story for gold: inflation. So far, there's little sign of inflation in the U.S. official statistics, although there's a lot of anecdotal evidence shwoing the beast waking up. Should inflation ramp up in the official measures, it may well be off to the races for gold. Silver's outperforming it, which is typical for the gray metal in third stages of gold bull markets. The pathway for an all-out blowoff top is being set...
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