Intermarket Perfecta

If anyone was anticipating a change in the intermarket that might have a positive exogenous effect on the GBN.V share price, along with downtrodden issues on the Venture Exchange, then no better picture could have formulated on Friday.

The 30-year Treasury Bond sold off as long rates were the only rates to rise that day. The ETF presumably pricing in moves in the bond price continuous composite, TLT, actually defended the price level in spectacular fashion with high volumes during the week, as if to stand in the way of any devation from Operation Twist.

The way this works is that you first sell millions of shares that you do not own across the board in struggling small cap players, especially in the mining stocks, then you take the proceeds and you parry it against a rising price trend. Later, you buy back the devastated small cap stock at a much lower price and keep the gains.

I have serious doubt whether somebody would go long gold and short the mining stocks, they have to be long TLT and short the mining stocks. The correlation is very sharply defined since 2009, but this trade could have been in vogue since at least 2002, when TLT was ipo'd.

When there are literally NO buyers for the stock, the sellers are in control.

source: http://www.bloomberg.com/markets/rates-bonds/government-bonds/us/

GBN Weekly

One thing I had gotten totally wrong in the past while is the assumption that GBN.V shares would rise on declines in the discount rate. With declines in the discount rate, you saw the robust rise in gold prices, which would have theoretically benfitted the Net Present Value of just about any gold mining project, thus leading to higher share prices.

But instead, we saw a relentless decline in the share price accompanied with a higher gold price. No news that was released, nor did any insider buying happen to influence the direction of the market.

The weekly chart presents a good summation of intermarket factors however, including the discount rate, the gold price, the share price, and below, the TLT price for comparison purposes. The TLT is high when the share price is low, and vice versa.

~Costs~

One salient detail about the financials for GBN.V are that in the fiscal 2011 year end report, they reported a loss, but there was the amount of ~$4m. that was recorded at the time. This amount applied to the costs of operations and development for the following quarter. (If I read that correctly)

For Q1, 2012 the cost of $901/oz. was considered for the quarter, which covered the costs for operations and development for the first quarter, and an additional ~$5m. This $5m. will be applied to the operations and development for the next quarter. Thus the company can meet with their obligations, and continue to grow the company for the next quarter.

The cost of ~$901/oz. should not be seen as an egregious restriction, but rather a sort of mathematical constant, that would compound with each quarter, to cover all of the costs for the next quarter. The company is very likely to meet with its expected plans for growth in this fashion.

Q2 should see a profit, or overwhelming cash flow since there are no encumbrances. Should the gold price average ~$2000+, then this is a good reason to be optimistic that growth plans will be met, and we are perilously close to this price level.

supersize: http://www.flickr.com/photos/11747277@N07/6337999240/sizes/l/in/photostream/

stockcharts.com

Eric Sprott's Bank

Sprott is starting a bank, a chartered bank that is not exposed to leverage. One thing not mentioned in the article is the possibility that a rapid currency devaluation is in the making should negative nominal interest rates see the light of day.

The kind of currency price swings we saw with the intervention of the Swiss Franc or the drop of the Euro are not priced into agreements, and can catch the whole financial sector by surprise.

Investors in GBN.V shares should know that Sprott has the right of first refusal to buy all of the gold production out of the La Ronge gold project.

http://www.canadianbusiness.com/article/54869--an-ancient-idea-for-a-brand-new-bank

BNN.CA

A discussion of junior mining shares:

http://watch.bnn.ca/#clip564993

FT

Financial Times speculates on the gold price:

http://video.ft.com/v/1262968031001/Could-gold-hit-2-500-

Now And Futures

Now and futures website has a very good, strong argument that gold prices advance on negative real interest rates:

http://www.NowAndFutures.com/forecast.html#predict_gold

-F6