Bad News Bears

Its a little too early to make a weekly report, since its Thursday. But we were told that the GBN.V Q1 fiscal 2012 financials and MD&A would appear mid-month. Well, we're overdue as it stands, so another overdue report, not necessarily needing to be tabled by law will probably take until the due date, after the close, as is the style. Thus the huge imposition on the shareholders continues.

What's happening in the markets that should make gold suddenly look doubtful? Nothing.

We have the theory that gold is just the same as any other commodity, and we have the actual test of that theory now in real time. I would suggest that the decline of gold came as a result of 5 - 10% fluctuations in currencies against one another. More specifically, gold futures contracts taken out in one currency, but paid in another is the problem.

You had the decline of the Swiss Franc, much noted in the press, but also the sudden adjustment of the $CDN vs. the $U.S. This would explain why the price adjustment was larger in perhaps say, Euro terms vs. Swiss Francs, or $U.S. terms vs. $CDN.

We have also had a new policy with the Fed, consisting of operation twist, which was meant to direct the emphasis on short term money away from shorter-term money market bias, to longer term treasuries. This has, for the moment, kept short term nominal interest rates from obtaining a negative rate. This has also kept the gold market in the penalty box, but directly penalizes the commodities trade.

We are also on options expiry for the precious metals next week, so today, we see before outsanding contracts are required to be settled, a decline in price just a few days prior. Nothing new there.

So in actual matter of fact, instead of proving that gold is just another commodity, we see that yes it can react to markets as does a commodity, but that it has one foot firmly planted in the forex, and trades like a currency. The subtle irony the nobody seems to want to face is that if copper prices suddenly collapse, which seems much more likely, then this will directly affect the credit markets which were meant to be propped up in some way by operation twist in the first place. Gold, however will be seen as a store of value. Ta Daaa!

We are at the end of Q2 fiscal 2012, trading at just below the average price over the quarter in $CDN terms. The RSI is also near 30, as it was in July.

supersize: http://www.flickr.com/photos/11747277@N07/6264030235/sizes/l/in/photostream/

stockcharts.com

Just To Make Sure

In order just to make sure that gold is still in a bull market, we could check the futures chain. Here we see a nice smooth contango this morning, though I would say ruminations about gold going to $10k+ are just plain old wrong. The recent adjustment in gold prices accordingly with currencies are a very stong 'tell' that the total collapse of the currencies and the space rocket ride in gold aren't going to happen.

Today, in the April 12 contract, its up $176/oz. U.S. over its previous price. If the kind of post Dodd-Frank gold pricing that we have seen in the last few months is to resume, then shorter dated futures will follow suit.

http://finance.yahoo.com/q/fc?s=GCV11.CMX

One More Aspect Ignored

One more aspect of the relationship of interest rates to gold that routinely gets ignored is the discount rate in the U.S. Negative nominal interest rates signal a decline in the markets as well as the U.S. dollar, but will likely strongly support higher gold prices.

We should be seeing negative nominal interest rates should there be another breakdown in the financial sector, which by seems imminent. Operation Twist was meant to be a short term solution to a very long term problem, so I expect that the return to financial difficulties in the bond markets will just be another starter pistol for the gold markets.

supersize: http://www.flickr.com/photos/11747277@N07/6264078167/sizes/l/in/photostream/

stockcharts.com

GBN.V Vs. ER.TO

GBN.V is still trading like an exploration stock with no hope of getting into production, unless there's a massive dilution of the shares. imo, the best thing to do for GBN.V would be to sell its Tower Lake properties, because this has been their focus forever, and the reason why they say they can't pay out any dividends because they want to build a 2000tpd mill and mine that prospect.

I say that they can get ~$50m. if they sold the Tower Lake prospect to the likes of Agnico Eagle, who won't have any perceived developmental deficit in developing the property and might be looking for something like this style of deposit. GBN.V would then be able to write down its accumulated deficit immediately. Of course, you would obtain tailings permits for Yew and Long lake first, because they would have to impound their tailings there.

The scary idea is that GBN.V should pay dividends. They can pay 1/2¢ per share per month, or 1.5¢ per share per quarter at present rates of production. @$1600/oz. and 700tpd, and 10g/t, they can easily pay out 1¢ per share per month, or 3¢ per share per quarter. (and keep it that way through the next year.)

This is based on a 1/3 - 1/3 - 1/3 formula that was used to pay out shareholders in gold mining projects during the depression. I would say that the exact same economic holds true for this project. (1/3 operation & development, 1/3 gub'mint taxes & stockpiling, 1/3 dividends.)

stockchart.com

Comparison

Compare production rates, grades, prices and dilution with LSG.TO. Once 700tpd is initiated at the La Ronge Gold Project, then you will get these kinds of numbers, with 1/3 the processing rate.

Stockwatch

How ETFs Affect The Markets

The following interview and article on ETFs and their activity in the market place suggests that smaller cap companies will take the brunt of naked short selling activity, as they are less likely to anticipate gains than their larger peers.

I would also say that anyone trading in the banking sector would have first hand knowledge of the level of leverage used in buying shares in the resource sector, and are betting that retail investors won't able to pay for their bets at long last and forced to sell. (These are the guys who drive the beemers who are first selling millions upon millions of shares without owning any, betting that your gold company will fail, and use other people's money to make their gains.)

BNN.CA

What Do Gold Price Pessimists Say About Gold?

You can get some insight on what gold price pessimists say about gold on any given day by watching mainstream media. They are still hammering away that gold is not money. Gold was, at one time a depreciated asset on the way to demonetization, but those days are long gone.

Gold is backed by its weight and purity, but also its inert properties. BUT it also trades as a currency, as well as having a foot in the commodities. Sounds pretty solid to me.

Maybe Netolitzky aught to have a really good listen to what this person has to say about it.

http://www.youtube.com/watch?v=XL8vGbhpbEs

source: ZeroHedge