Wednesday, December 31, 2008

Nirek withdraws purported takeover bid

BLAINE, WA, Dec. 31 /CNW/ - Century Mining Corporation (CMM: TSX-V) announced today that it has been advised that a purported takeover bid by Nirek Resources Inc. ("Nirek") has been withdrawn for technical reasons.

Margaret Kent, President and CEO of Century, said, "We are looking forward to a prosperous year in 2009. As previously announced, the due diligence process has been completed for a large banking facility that will allow the company to resume mining operations at the Lamaque Underground Mine."

Wednesday, December 24, 2008

A note from CMM's website w/ regards to Nirek

Who on earth would tender their shares for 1 cent? Here is the web site note:

Nirek Takeover Bid

Nirek's offer significantly undervalues shares of Century Mining.

Nirek is offering to pay C$0.01 per share of Century Mining, or the equivalent of only twenty five cents per ounce for Century's gold resources. (1)

The Board of Directors of Century believes this undervaluation is unfair to you, our shareholders.

The Board of Directors of Century advises shareholders not to tender their shares to this offer.

(1) Calculation based on NI 43-101 compliant gold resources and gold equivalent resources in measured and indicated, and inferred categories for Century's Lamaque (100% interest) and San Juan (82.6% interest) mines.

Friday, December 19, 2008

CMM Comments on Purported Takeover Bid

BLAINE, WA, Dec. 19 /CNW/ - Century Mining Corporation (CMM: TSX-V) announced today that the Company has reviewed a purported takeover bid filed on SEDAR by Nirek Resources Inc.

Upon thorough review, Century has determined that a bid has not been properly commenced under applicable securities legislation.

Shareholders are cautioned not to tender their shares to any bid that has not been properly made.

If a bid is properly commenced, the Board of Directors of Century will communicate its views to Century shareholders at such time through a Directors Circular, in compliance with applicable securities regulations.

Wednesday, December 17, 2008

OPEC ready for deepest oil cut to rescue prices

By William Maclean and Barbara Lewis William Maclean And Barbara Lewis – 39 mins ago

ORAN, Algeria (Reuters) – OPEC oil ministers meet on Wednesday to remove a record 2 million barrels per day from oil markets as they race to balance supply with the world's collapsing demand for fuel.

The 12 members of the Organization of the Petroleum Exporting Countries are also aiming to build a floor under prices that have dropped more than $100 from a July peak above $147 a barrel. They are due to meet at 3:30 a.m. EST.

Saudi Arabia, the world's biggest oil exporter, has led by example -- reducing supplies to customers even before a cut has been agreed to help push prices back toward the $75 level Saudi King Abdullah has identified as "fair."

Ali al-Naimi, the kingdom's oil minister, was first to publicly call for curbs of 2 million bpd ahead of the meeting.

That figure was swiftly endorsed by others in the group that pumps more than a third of the world's oil. An OPEC delegate told Reuters there was consensus for a cut of that magnitude starting from Jan 1.

"A minimum of two million we think needs to be cut so we can balance the market," Iraqi Oil Minister Hussain al-Shahristani told Reuters.

"It's in everyone's interest for supply and demand to be better aligned," Nigerian Minister of State for Oil Odein Ajumogobia told Reuters. "They are clearly not at the moment."

The expected cut, the third this year, would bring a total reduction in OPEC supply to four million bpd, nearly a five percent cut in world oil supplies.

Oil below $50 is uncomfortable for all in OPEC, but especially for Venezuela and Iran which are dependent on higher prices to fund ambitious domestic programs.

Oil on Wednesday was trading slightly firmer, just above $44 a barrel.

A limited recovery in prices would put a bit more strain on a recessionary global economy, it may help pull the world back from the brink of deflation -- a growing source of concern, analysts said.

"We are in harmony, we know the situation is difficult," OPEC Secretary-General Abdullah al-Badri said on Tuesday.

"We have to reach a difficult decision, but we're going to reach it. I think 2 million is the most likely cut."

Those outside OPEC are expected to cut up to 600,000 bpd in concert with the producer group. Russia, the biggest non-OPEC oil exporter, may contribute about half that volume.


Saudi Arabia's position was laid out by Naimi when he arrived in Algeria on Tuesday.

"Let me tell you this -- this is Saudi Arabia -- since August to November we reduced 1.2 million barrels per day from 9.7 to 8.5," he said.

Reuters reported last week that Saudi Arabia's biggest customers would receive less oil in January -- implying the kingdom had already factored in another OPEC reduction.

The Saudi oil minister confirmed that.

Gulf neighbor Kuwait said it, too, was wasting no time in cutting January supplies ahead of an expected cut.

To have a lasting price impact, any OPEC deal must to be strictly observed.

According to independent observers cited in OPEC's monthly report on Tuesday, the group's compliance in November to existing cuts was only just over 50 percent.

Analysts said deeper cuts would further test discipline in the group. That restraint would be needed to slim down growing world oil stocks.

A slump in consumption has lifted oil inventories in OECD industrialized nations to the equivalent of nearly 57 days of forward demand, a measure OPEC closely monitors. The industry norm for this time of year is about 52.

Russia, the biggest non-OPEC exporter, sent a high level delegation to observe the Oran meeting.

Azerbaijan said it could also contribute to any OPEC decision but Mexico in a statement on production plans made no offer to cut output.

Mexico, Russia and Norway worked with OPEC in 1999 to revive prices that had fallen below $10 a barrel and again in late 2001 to pull prices back above $20 a barrel.

Output from non-OPEC producers is declining and proclamations of cuts served to mask the effect of aging fields and a lack of investment, analysts said.

Sunday, December 14, 2008

Belgium vows to press on with Fortis sale

By Michael Steen in Amsterdam

Published: December 14 2008 18:10 | Last updated: December 14 2008 18:10

The Belgian government said on Sunday it was “determined” to press ahead with the 14.5bn ($19.4bn) sale of Fortis to BNP Paribas, in spite of a surprise court ruling that freezes the transfer of a majority stake to the French bank.

In a decision late on Friday, that shocked political and business circles, the Brussels Court of Appeal found in favour of a group of shareholders seeking to block the carve-up of Fortis.

It said shareholders should be consulted on management decisions in October that led to the nationalisation of Fortis in the Netherlands and the sale of its Belgian operations to BNP Paribas.

The decision is a blow to BNP Paribas, which had hoped to complete the transaction this month. BNP, which stands to become the eurozone’s biggest bank by deposits, said it wanted to close the deal “efficiently and quickly”.

The Belgian government, which has taken Fortis Bank in Belgium into public ownership as an interim step, will review its legal options, including a possible Supreme Court appeal and other procedural challenges.

It is still free to transfer a 49.9 per cent stake to the French bank.

“We shall continue,” Didier Reynders, finance minister, told reporters on Saturday.

“The government has the same aim as before – to protect deposits but also a real will to press ahead with an industrial solution for Fortis Bank.”

A spokesman added that the government was “determined to complete the sale” to BNP.

Although the period between October 3 and 6 that is covered by the ruling includes the nationalisation of Fortis north of the Dutch-Belgian border, that transaction is complete. The Dutch finance ministry said the ruling had “no consequences” for the nationalisation.

The case is among several brought by angry retail shareholders, principally in Belgium, who have seen the value of their shares plummet to below €1 from €34 early last year and have ended up owning a radically diminished company.

The court of appeal ordered a block for 65 days on the transfer of government-held shares equivalent to 50.1 per cent of Fortis Bank, preventing the completion of a deal that foresees BNP holding 75 per cent of the stock.

The court also appointed five experts to write a report on the terms of the deal.

The carve-up of Fortis followed an attempted €11.2bn bail-out of the group by the Belgian, Dutch and Luxembourg governments at the end of September. The Dutch government cited a liquidity crisis when it stepped in a week later to buy Fortis in the Netherlands.

Fortis Group, which will consist of an international insurance arm and a stake in a pool of “toxic” structured credits after the sale to BNP, said it had been surprised by the court ruling but believed the break-up would be successful.

Wednesday, December 10, 2008

Take Over Bid?????

I just noticed a filing on Sedar December 4th, 2008, regarding a takeover bid for Century by a company named Nirek Resources. I believe it is a German company (trading on Frankfort). At .01 cent a share!!! Anybody seen it??


A bit more CMM share purchases by PK and RB

Subsequent to the 578,222 and 381,000 purchases announced on the NR, the following 2 purchases were made by PK and RB (per SEDI):

*Dec 5th - 171,000 @ $.02

*Dec 8th - 50,000 $ $.03

Tuesday, December 9, 2008

CMM Appoints New Vice President Of South American Operations And General Manager Of Century Mining Peru

This person is to replace the previous person that got promoted to CEO of Module. This new person seems to have a wealth of experience with prominent international companies. Let's hope he is a difference maker. Here is the NR:

BLAINE, WA, Dec. 9 /CNW/ - Century Mining Corporation (CMM: TSX-V) is pleased to announce the appointment of Jaime Cortez Febres to the position of Vice President, South American Operations and General Manager, Century Mining Peru, S.A.C. effective immediately.

Mr. Cortez received his Bachelor of Mining Engineering from Pontificia Universidad Catolica del Peru and his Masters of Business Administration (MBA) from the Australian Graduate School of Management. Mr. Cortez has over 24 years of experience in the Australian and Peruvian mining industries. His career includes employment with such mining companies as Minera Yanococha, S.R.L. (Newmont Mining Co); Rio Tinto Minera Peru - La Granja Project; Rio Tinto Coal, Australia (RTCA) and most recently, Candente Resource Corp (Canariaco Norte Copper Project).

Margaret Kent, President and CEO of Century, said, "Mr. Cortez comes to Century with a wealth of knowledge and experience in the Peruvian mining industry. He will play a major role in maximizing the gold production at the Company's San Juan Gold Mine, as well as facilitating the exploitation of the four other known deposits at San Juan. In the future, after the Lamaque Underground Mine in Quebec is up and running, Mr. Cortez and I will work closely on South American acquisitions and a potential listing on the Lima Stock Exchange."

Thursday, December 4, 2008

CMM Reports Acquisition Of The Company's Shares

Century Mining Reports Acquisition Of The Company's Shares

BLAINE, WA, Dec. 4 /CNW/ - Century Mining Corporation (CMM: TSX-V) announced today that Karst Investments (the "Acquiror") has purchased 578,222 common shares of Century Mining Corporation (the "Company") in a private transaction at a price of C$0.015 per share. Subsequent to this transaction, the Acquiror purchased an additional 381,000 common shares of the Company on the Toronto Stock Exchange at a price of $0.02 per share. The purchased shares in these transactions represent approximately 0.57% of the outstanding common shares of the Company. Margaret Kent and Ross Burns have beneficial ownership of, and control and direction over, the Acquiror, which owned 2,162,192 common shares of the Company prior to today's purchase.

Today's purchase brings the combined holdings of the Acquiror to 3,121,414 common shares of the Company, representing approximately 1.85% of the outstanding common shares. The purchases were made for investment purposes and to provide the Acquiror with greater influence as shareholders of the Company. The Acquiror, Margaret Kent and/or Ross Burns or entities controlled by them may acquire more common shares of the Company, and they may in the future make further purchases or sales of common shares of the Company or take other actions with respect to the purchased shares as circumstances may warrant.

About Century Mining Corporation

Century Mining Corporation is a junior gold producer. The Company owns and is working towards the restart of the Lamaque mine in Québec that historically has produced over 9.4 million ounces of gold. In Peru, Century wholly-owned subsidiaries own an 82.6% interest in the San Juan Mine where the Company accounts for 100% of gold production.

"Margaret M. Kent"

Chairman, President & CEO

Interesting side note, PK and Ross purchased some shares of Tamerlane

There must be some financing coming down or something.

Tamerlane Reports Acquisition Of The Company's Shares

BLAINE, WA, Dec. 4 /CNW/ - Tamerlane Ventures Inc. (TAM: TSX-V) announced today that Karst Investments (the "Acquiror") has purchased 1,590,000 common shares of Tamerlane Ventures Inc. (the "Company") in a private transaction at a price of C$0.06 per share. The purchased shares represent approximately 3.21% of the outstanding common shares of the Company. Margaret Kent and Ross Burns have beneficial ownership of, and control and direction over, the Acquiror, which owned 1,456,000 common shares of the Company prior to today's purchase.

Today's purchase brings the combined holdings of the Acquiror to 3,046,000 common shares of the Company, representing approximately 6.15% of the outstanding common shares. The purchase was made for investment purposes and to provide the Acquiror with greater influence as shareholders of the Company. The Acquiror, Margaret Kent and/or Ross Burns or entities controlled by them may acquire more common shares of the Company, and they may in the future make further purchases or sales of common shares of the Company or take other actions with respect to the purchased shares as circumstances may warrant.

"Ross F. Burns"

President & CEO

Wednesday, December 3, 2008

EU clears BNP Paribas to buy most of Fortis bank, but must sell credit card unit

By AOIFE WHITE , Associated Press

Last update: December 3, 2008 - 12:28 PM

BRUSSELS, Belgium - BNP Paribas won European Union approval to buy the Belgian and Luxembourg banking arms of troubled lender Fortis on Wednesday — but has agreed to sell off a credit card unit to eliminate antitrust problems.

EU regulators also cleared government bailouts for Fortis given by Belgium, the Netherlands and Luxembourg in September and October.

French bank BNP Paribas became the largest holder of private savings in the 15-nation euro area when it snapped up most of Fortis at a knockdown price in October, a week after a state rescue failed to keep the bank afloat.

The European Commission said the purchase could go through as long as BNP Paribas sells off BNP Paribas Personal Finance Belgium and avoids becoming by far the largest issuer or credit cards in Belgium and the Luxembourg.

Regulators said customers would otherwise have a limited choice of credit card providers.

The Commission has also waved through two state rescues for Fortis.

It cleared the first capital injection on Sept. 29 from Belgium, the Netherlands and Luxembourg. The bailout was a failure and did not assure investors about the bank's stability, causing the Dutch government to take over Fortis' operations in the Netherlands.

The second rescue on Oct. 5 saw Belgium and Luxembourg take over most of the business and sell the majority off to BNP Paribas.

EU officials said the bailouts were state subsidies but could be allowed because they were needed to save the bank and "remedy a threat to the financial system."

The Commission said it had not cleared the Dutch government's purchase of Fortis' banking operations and would make a separate decision later. It did approve the related takeover of Fortis' insurance business in the Netherlands.

EU regulatory clearance may not be the final hurdle for the BNP Paribas deal, which Fortis shareholders claim is unfair because they were never consulted. A Belgian court has ordered a legal expert to examine if the price paid was justified. Some shareholders also want to re-negotiate the deal.

The European Commission, however, said that BNP Paribas had paid a market price for the business and had not got a special deal from the Belgian and Luxembourg governments.

BNP Paribas paid euro14.5 billion (US$18.3 billion) for the package, which gives it three-quarters of Belgium's largest bank, all of Fortis' Belgian insurance business and two-thirds of the Fortis' Luxembourg operations. The Belgian and Luxembourg governments each keep a stake in local units.

The French bank avoided taking on most of Fortis' "toxic assets" — credit derivatives and collateral debt obligations now valued at euro10.4 billion (US$13 billion). It has a 10 percent stake in them with 24 percent held by the Belgian state and the rest by what remains of Fortis.

Without its core banking business, Fortis is now a small international insurer with a share price of just under euro1 — well below the euro30 it was trading at before it launched an ambitious takeover for part of Dutch rival ABN Amro.

It ran into trouble in September when credit markets froze over worries that it could not raise the money to pay the euro24 billion (US$30 billion) price tag and rumors over the worth of its investments.

Tuesday, December 2, 2008

CMM Reports Third Quarter 2008 Financial Results

Century Mining Reports Third Quarter 2008 Financial Results

BLAINE, WA, Dec. 2 /CNW/ - Century Mining Corporation (CMM: TSX-V) is pleased to announce its financial and operating results for the third quarter ended September 30, 2008.

In the third quarter ended September 30, 2008 the company reported an operating profit from mining operations, before depreciation, amortization and accretion, of $1,735,994 (2007 - $110,749) from revenues of $4,300,640 (2007 - $15,774,184). Expenses incurred in the mining operations were $2,564,646 (2007 - $15,663,435).

For the quarter ended September 30, 2008 the Company reported net income of $607,382 or $Nil per share, compared to a net loss of $27,214,549, or $0.20 per share in the prior period.

As at September 30, 2008 the Company had a working capital deficiency of $14,049,624 compared to a working capital deficiency of $12,910,084 at December 31, 2007, an increase of 9%. The September 30 working capital deficiency was down 28% from $19,401,640 at June 30, 2008.

Century's financial statements and Management's Discussion and Analysis have been filed, and are available for viewing on the SEDAR website at

Friday, November 28, 2008

NR: New auditors, DD completed and documented

Century Appoints New Corporate Auditors

BLAINE, WA, Nov. 28 /CNW/ - Century Mining Corporation (CMM: TSX-V) announced today that it has appointed BDO Dunwoody LLP as the new auditors for the Company, subsequent to the resignation of Century's previous auditors, Deloitte and Touche LLP.

The Company also announced that Mr. Mark Lettes has resigned from the Board of Directors of Century, effective immediately.

Regarding financing initiatives, Century announced today that a bridge financing deal with Trafalgar Capital did not close. Century announced receipt of a term sheet from Trafalgar on September 17, 2008. Although no specific reasons were given by Trafalgar, management believes that the current global economic crisis and severe conditions in equity and credit markets caused Trafalgar to reevaluate the proposed transaction.

The Company is in the process of completing a significant project financing for its Lamaque Mine. The due diligence process has just been completed and documented, and the proposed debt facility will next be subject to review by the banking institution's internal Credit Committee. The proposed transaction is a project loan facility of up to $70 million (for further details see Century press release dated May 12, 2008).

Margaret Kent, President and CEO of Century, said, "We are pleased with the findings of the extensive due diligence that was carried out in connection with our senior secured financing, which confirms the excellent potential of the Lamaque Mine. While we seek other alternatives for short-term financing, the Company is meeting its immediate capital requirements through internal cash flow, the sale of redundant open pit mining equipment, salary deferrals of executive management and other streamlining efforts. Given the extremely difficult credit environment, we appreciate the patience of all Century stakeholders, and we are working diligently in the midst of very poor credit markets to complete the project financing."

Thursday, November 27, 2008

Citigroup says gold could rise above $2,000 next year as world unravels

Citigroup says gold could rise above $2,000 next year as world unravels

Gold is poised for a dramatic surge and could blast through $2,000 an ounce by the end of next year as central banks flood the world's monetary system with liquidity, according to an internal client note from the US bank Citigroup.

By Ambrose Evans-Pritchard
Last Updated: 7:29AM GMT 27 Nov 2008

The bank said the damage caused by the financial excesses of the last quarter century was forcing the world's authorities to take steps that had never been tried before.

This gamble was likely to end in one of two extreme ways: with either a resurgence of inflation; or a downward spiral into depression, civil disorder, and possibly wars. Both outcomes will cause a rush for gold.

"They are throwing the kitchen sink at this," said Tom Fitzpatrick, the bank's chief technical strategist.

"The world is not going back to normal after the magnitude of what they have done. When the dust settles this will either work, and the money they have pushed into the system will feed though into an inflation shock.

"Or it will not work because too much damage has already been done, and we will see continued financial deterioration, causing further economic deterioration, with the risk of a feedback loop. We don't think this is the more likely outcome, but as each week and month passes, there is a growing danger of vicious circle as confidence erodes," he said.

"This will lead to political instability. We are already seeing countries on the periphery of Europe under severe stress. Some leaders are now at record levels of unpopularity. There is a risk of domestic unrest, starting with strikes because people are feeling disenfranchised."

"What happens if there is a meltdown in a country like Pakistan, which is a nuclear power. People react when they have their backs to the wall. We're already seeing doubts emerge about the sovereign debts of developed AAA-rated countries, which is not something you can ignore," he said.

Gold traders are playing close attention to reports from Beijing that the China is thinking of boosting its gold reserves from 600 tonnes to nearer 4,000 tonnes to diversify away from paper currencies. "If true, this is a very material change," he said.

Mr Fitzpatrick said Britain had made a mistake selling off half its gold at the bottom of the market between 1999 to 2002. "People have started to question the value of government debt," he said.

Citigroup said the blast-off was likely to occur within two years, and possibly as soon as 2009. Gold was trading yesterday at $812 an ounce. It is well off its all-time peak of $1,030 in February but has held up much better than other commodities over the last few months – reverting to is historical role as a safe-haven store of value and a de facto currency.

Gold has tripled in value over the last seven years, vastly outperforming Wall Street and European bourses.

Wednesday, November 26, 2008

A quick thought on syndicated vs non-syndicated deals

I think Q3 financials are be due at the end of this week. Hopefully the NR or the MD&A will provide some sorta update on things. It has been a while for any type of official update from the company (on anything at all). As such, it is completely unclear what the status is with the Fortis/BNP Paribas financing situation.

I was listening to an investment manager on tv today, and he was briefly describing synidcated financing deals. Basically, he was saying that a syndicated deal is when the primary bank raises the funds by getting several other banks to subscribe to the deal. This helped in confirming my own (limited) understanding of syndicated deals. He also said that syndicated deals became very difficult to put together post the recent credit crisis blow up.

That kinda reminded me of a note Century included in their September 2'08 NR (in explaining the Fortis deal), as follows:

"The drawdown is not conditional upon syndication;"

I'm not sure if other people noticed it as well. That note would suggest that Fortis/PNP Paribas was/is planning to fund all of the debt directly (through their own funds), without seeking out other banks.

If such is still the case then it makes a major difference in this environment. Actually, it's a huge difference.

I guess we can only hope that things are still progressing forward alright.

Friday, November 21, 2008

FWIW, we officially tapped the $1,000 Cdn gold price mark again

$778 US gold price / .7784 exchange rate = $1,000 Cdn

Who knows how long it will last, especially if they decide to hammer the price down on the COMEX (as they have done over the past couple of months, be it due to heavy deleveraging or people with agendas). Regardless, it's just good to see $1,000 Cdn gold again, especially with the oil price taking such a massive hit.

Tuesday, November 18, 2008

Belgian court rejects bid to suspend BNP Paribas buyout of Fortis

Tue Nov 18, 1:44 pm ET

BRUSSELS (AFP) – A Belgian court on Tuesday rejected a bid by Fortis shareholders to suspend the sale of the bank's Belgian activities to BNP Paribas, while ordering an enquiry into whether the sale price was high enough.

Ahead of the court ruling, trading in shares in Fortis bank was suspended on the Belgian and Dutch stock markets after the shares in the former Belgian-Dutch banking group plunged to 0.66 cents.

The company's shares were trading at about 30 euros in July 2007 before it became embroiled in the US-born bad loan crisis.

Small shareholders groups had brought the case to the Brussels trade court questioning the validity of last month's buyout, which was part of a broader deal organised to rescue the ailing bank.

Head judge Francine De Tandt ruled that the shareholders' complaint was admissible but solely based on price, hence the decision to set up an expert panel to look into that aspect of the deal.

She said that a suspension of the sale or asking a shareholders' meeting to validate it could jeopardise the whole deal and thus the survival of Fortis in any form.

The judge added that the company's 'code of conduct,' which foresees a general shareholders meeting for major decisions, did not have legal force under the firm's statutes.

Mischael Modrikanem, a lawyer for the plaintiffs, swiftly announced their intention to appeal the ruling.

"Obviously we are very disappointed by the fact that the court has validated all the operations," he said, while welcoming the establishment of the three-strong expert panel which will begin work next week on assessing the fairness of the sale price.

The judge did not explain the procedure if the panel decides the price paid was inadequate.

Earlier the Belgian regulator CBFA announced that "at Fortis's request" trading was being suspended in the afternoon for the rest of the day.

The Dutch markets authority AFM later confirmed its own suspension of Fortis trading following the Belgian move.

Under the deal announced last month, France's biggest bank agreed to take up to 75 percent of Fortis's Belgian banking operation leaving the other 25 percent, a blocking minority on strategic decisions, in the hands of the Belgian government.

BNP bosses announced last month that the deal would be financed by BNP Paribas shares, with the Belgian state taking a stake of "around 11.7 percent" in the French bank, making it the largest shareholder.

BNP Paribas put the value of the operation at 14.7 million euros (18.6 billion dollars).

The French bank also agreed to take over Fortis insurance activities for 5.7 billion euros.

The BNP Paribas deal in early October followed an original, hastily arranged rescue deal a week earlier, when Belgium, the Netherlands and Luxembourg announced a 11.2-billion-euro (15.5 billion-dollar) part-nationalisation of Fortis to prevent the US-driven financial crisis from claiming another victim in Europe.

Belgian Prime Minister Yves Leterme said last month his government was doing everything possible and was keen to reassure Fortis savers, clients and staff.

However, the Belgian leader had no such words of comfort for the bank's shareholders.

"A shareholder in a company takes risks," he said at the time.

Saturday, November 15, 2008

General info

Pakistan will receive a $7.6 billion bailout from the IMF. Pakistan’s inflation rate hit a 30 year high in October. It could become dangerous for everyone in the world, if Pakistan’s economic situation continues to destabilize. Pakistan is a nuclear armed nation, with terrorists infested within the country and region, including the group that didn’t have any issues with taking down the World Trade Center (twin) towers. An economically unstable Pakistan increases the chances of nuclear weapons moving into the hands of terrorists.

To make ends meet, Iran needs to see the oil price in the range of $70 – 100. They will be pushing for another 1 – 1.5 million barrel per day cut in OPEC oil production, at the upcoming emergency OPEC meeting later this month. OPEC nations continue to have discussions with non-OPEC nations, to have non-OPEC nations cut production also. Russia is one of the non-OPEC (major) oil producers they are in discussions with. In total, 50 million barrels are produced on a daily basis by non-OPEC members.

Over the last few months, Iran converted their financial reserves into gold.

There is talk that China is seriously considering a plan to diversify more of its foreign-exchange reserves into gold.

1) Pakistan agrees on $7.6 bln IMF loan

Sat Nov 15, 2008 10:05am EST

By Sahar Ahmed

KARACHI (Reuters) - Pakistan has agreed with the International Monetary Fund (IMF) on a $7.6 billion emergency loan to stave off a balance of payments crisis and pave the way for a broader economic rescue plan.

The IMF said on Saturday its executive board was expected to meet shortly on the 23-month standby credit, after IMF staff and Pakistan agreed on a reform program.
"This support is part of a broader package that includes financing from other multilateral institutions and regional development banks," IMF Managing Director Dominique Strauss-Kahn said in a statement.

The international community is concerned that an economic meltdown in the nuclear-armed state could play into the hands of al Qaeda and allied Islamist militant groups seeking to destabilize the Muslim nation of 170 million.

The eight-month-old civilian government is banking on good will toward Pakistan during its transition to democracy after more than eight years under former army chief Pervez Musharraf, who quit as president in August to avoid impeachment.
World leaders were meeting in Washington at the weekend to discuss the worst global economic turmoil since the 1930s and consider reforms to world financial institutions such as the IMF.

Shaukat Tarin, the recently appointed adviser to the prime minister, said the formalities should be concluded next week.

"We are expecting it this month," he told a news conference in Karachi when asked when the first tranche might arrive.

"We have requested IMF to give as much as they can."

The interest rate on the credit facility would vary between 3.51 and 4.51 percent with changes according to market conditions, and would be payable between fiscal 2011/12 and 2015/16, Tarin said.

The IMF did not disclose details. But it said the credit under its emergency funding facility would be tied to Pakistani economic reforms, including higher official interest rates and tighter fiscal policies, plus a well-funded social safety net to protect the poor.

Pakistan expects the World Bank and other lenders to step forward with several billion dollars of additional loans, and steadfast ally China to pitch in with $500 million. But other multilateral lenders and friendly governments were waiting for the IMF accord before acting, in order to bring some discipline to Pakistan's economic management, analysts said.

Other potential donors are gathering in Abu Dhabi on Monday for a "Friends of Pakistan" conference.

State Bank of Pakistan Governor Shamshad Akhtar said the IMF money would be used to build up the central bank's foreign currency reserves, which Tarin said should be equivalent to more than three months import cover.

The central bank's reserves stood at $3.5 billion on November 8, equivalent to just nine weeks worth of imports, and Pakistan faced defaulting on international debt obligations in February next year unless it received a multi-billion dollar infusion.

2) Iran wants new oil output cut, price of $70-100

Sat Nov 15, 2008 8:40pm IST

By Zahra Hosseinian

TEHRAN (Reuters) - Iran wants OPEC to cut oil output by a further 1 to 1.5 million barrels per day (bpd) when it meets in Cairo later this month, the Islamic Republic's representative to the cartel was quoted as saying on Saturday.

Iran's OPEC governor Mohammad Ali Khatibi also said talks were underway on cooperation with crude producers outside OPEC to reduce output, after the oil price fell by more than 60 percent from a peak of around $147 per barrel in July.

He told state television that members of the Organisation of the Petroleum Exporting Countries (OPEC), supplier of more than a third of the world's oil, needed a price of at least $70-100.

The market remained oversupplied, despite a move by OPEC to reduce production by 1.5 million bpd last month, he said.

"This is the minimum price that we believe should exist," he said in a live interview. "If prices are lower we believe the global oil industry chain will be faced with problems."

The oil price has tumbled in recent months as the global economic crisis hit demand in big consumer nations, with U.S. crude falling $1.20 to $57.04 on Friday.
OPEC countries, expected to meet in the Egyptian capital on Nov. 29, are calling for action to halt oil's slide as they face reduced revenues and a struggle to finance domestic projects.

The website of state broadcaster IRIB said Iran, the world's fourth-largest oil producer and seen as a price hawk, would propose that OPEC reduce its output again at the meeting in two weeks' time.

3) Iran switches reserves to gold - report

Sat Nov 15, 2008 1:29pm IST

TEHRAN, Nov 15 (Reuters) - Iran has converted financial reserves into gold to avoid future problems, an adviser to President Mahmoud Ahmadinejad said in comments published on Saturday, after the price of oil fell more than 60 percent from a peak in July.

Iran, the world's fourth-largest oil producer, is under U.N. and U.S. sanctions over its disputed nuclear programme and is now also facing declining revenue from its oil exports after crude prices tumbled.

"With the plans of the presidency...the country's money reserves were changed into gold so that we wouldn't be faced with many problems in the future," presidential adviser Mojtaba Samareh-Hashemi was quoted as saying by business daily Poul.
He gave no figures or other details.

Before oil prices plunged by more than 60 percent from a peak of $147 per barrel in July, Iran made windfall gains from its crude exports and in April estimated its foreign exchange reserves at about $80 billion.

4) Gold Rush

Benjamin Scent

Friday, November 14, 2008

The mainland is seriously considering a plan to diversify more of its massive foreign-exchange reserves into gold, a person familiar with the situation told The Standard.

Beijing is considering changing its asset allocations during the financial tsunami in order to build up gold reserves "in a big way," the source said.

China's fears about the long-term viability of parking most of its reserves in US government bonds were triggered by Treasury Secretary Henry Paulson's US$700 billion (HK$5.46 trillion) bailout plan, which may make the US budget deficit balloon to well over US$1 trillion this fiscal year.

The US government will fund the bailout by printing new money or issuing huge amounts of new debt, either of which will put severe pressure on the value of the greenback and on government bond yields.

The United States holds 8,133.5 tonnes of gold reserves valued at US$188.23 billion. China holds gold reserves of just 600 tonnes, worth only US$13.89 billion.
Beijing's reserves could easily go up to 3,000 to 4,000 tonnes, Tanrich Futures senior vice president Colleen Chow Yin-shan said.

Until now, the United States has had little choice but to issue massive amounts of debt to fund its deficits, and China has had little choice but to purchase it, as there are not many markets deep enough to absorb the mainland's US$30 billion to US$40 billion in monthly capital inflows.

Government officials involved in the management of China's reserves are beginning to see gold as an attractive place to park some of these funds. They see it as a real, tangible asset that will not lose its value over time - in stark contrast to the greenback, which is becoming more disconnected from economic realities as more bills are printed.

"It's the right time to increase the gold reserves, as the price is about US$710 to US$720 per ounce," said Wan Guoli, vice secretary general of the China Gold Association.

The International Monetary Fund has made reducing global payment imbalances one of its priorities in the aftermath of the financial tsunami.

"I think China probably will expand its strategic reserves into commodities during this downturn," said a Hong Kong-based strategist.

"China will continue to buy treasuries ... otherwise the system would get distorted," he said.

"But I think China will diversify its reserves."

Friday, November 14, 2008

$917 Cdn gold price - Reflation occuring

It's interesting, gold stocks have been punished mercilessly, yet the Canadian gold price is probably higher now than at points earlier in the year. With the Cdn $ previously trading at par, a $900 US gold price only gave us $900 Cdn per oz. Now we still get $917 Cdn even though the US gold price has fallen to $742.30 US, due to the exchange rate now being .8095. In addition, some key components at the cash cost per oz level have moved in our favour:

1) 9 - 10% decrease in the Peruvian currency
2) much lower cost of consumables
3) much lower fuel prices

It's just unfortunate that share prices of gold miners haven't held up better. Clearly, it's an extemely emotional market evironment - all across the broard.

I think the market from time to time is catching on that reflation is happening. I think they are starting to realize that the only way that governments are going to get the world out of this mess is to inject massive amounts of paper currency into the system. The only thing they care about right now is to avoid major deflation, which could lead to a severe depression. The governments will never let another great depression happen again. The governments fear deflation much more than they fear inflation. The window is very limited to subdue deflationary pressures, before it becomes out of control - it's a ticking time bomb. The governments will throw everything, including the kitchen sink, to inflate the world out of this situation. As we know, this will eventually lead to massive inflation, and potentially even hyperinflation. However, governments can't worry about inflation for now. They need to save the world first, and injecting massive paper liquidity is the only way to accomplish this. It will need to be a global effort, which we have already seen the early stages of: US ($3.5T, and counting), China ($600B), Russia (billions), France, UK, Canada, Australia, etc. Believe it or not, what we have seen thus far is just the first phase. The governments are saying they will do whatever it takes.

Today's gold rally is the first realization by the market of the above I just explained. This rally might not necessarily be sustainable, but we should see a lot more of these rallies over time, as the general public and money managers realize and accept the inevitable. Likely, today's rally was triggered from statements made by Bernanke.

Here is an article:

Gold, Silver Rally on Inflation Expectations; Platinum Advances

By Pham-Duy Nguyen

Nov. 14 (Bloomberg) -- Gold rose the most in eight weeks on speculation that central banks will add more liquidity to unfreeze credit markets, spurring inflation and boosting the appeal of the precious metal. Silver and platinum also gained.

Federal Reserve Chairman Ben S. Bernanke said the U.S. and other countries are ready to take more action to boost lending. The dollar declined against a basket of six major currencies after dropping 0.6 percent yesterday. More liquidity will devalue currencies and stoke inflation, said Frank McGhee, the head dealer of Integrated Brokerage Services LLC in Chicago.

``Basically, the government needs and wants an inflationary spurt to turn this economy around,'' McGhee said. ``Gold is probably $100 to $150 too cheap, based on the amount of liquidity that's already been pumped into the system.''

Thursday, November 13, 2008

Bernanke being pressed to disclose details on the $2 trillion loan

This $2T loan is a large part of the $3.5T US bailout that was identified in the article I posted yesterday. The bailout is not just the $700B, but is far beyond what the general public thinks. This is massive amounts of new money being dumped into the system. We could see substantial devalution in the US dollar starting within the next 12 months - gold has amazing upside potential (in the not too distant future) especially for gold mining companies that are able to navigate through the short-term challenges. The Fed had to gain Congress approval for the $700B, but did not need to go to Congress for the $2T loan, hence the disclosure disconnect. Subsequently, the Fed has refused to provide details on $2T loan. You know, $2T is not exactly petty cash. One has to wonder what they are hiding. Bloomberg has filed a Federal lawsuit seeking to force disclosure.

Here is a part of the Bloomberg article:

Lawmakers, Investors Ask Fed for Lending Disclosure (Update2)

By Alison Fitzgerald

Nov. 13 (Bloomberg) -- Members of Congress, taxpayers and investors urged the Federal Reserve to provide details of almost $2 trillion in emergency loans and the collateral it has accepted to protect against losses.

At least five Republican members of Congress yesterday called for the Fed to disclose which financial institutions are borrowing taxpayer money and what troubled assets the central bank is accepting as collateral. More than 300 more investors and taxpayers also pressed for more disclosure in e-mails and interviews with Bloomberg News.

``There cannot be accountability in government and in our financial institutions without transparency,'' Texas Senator John Cornyn said in a statement. ``Many of the financial problems we are facing today are the direct result of too much secrecy and too little accountability.''

House Republican leader John Boehner and Republican Representatives Jeb Hensarling of Texas, Scott Garrett of New Jersey and Walter Jones of North Carolina also are pressing Fed Chairman Ben S. Bernanke to elaborate on the Fed's emergency lending. Bernanke and Treasury Secretary Henry Paulson said in September they would comply with congressional demands for transparency in the separate $700 billion bailout of the banking system that was approved by Congress last month.

Bloomberg News has sought records of the Fed lending under the U.S. Freedom of Information Act and filed a federal lawsuit Nov. 7 seeking to force disclosure.

Comments from a $790 billion money manager about the US $

Pimco, Co-CEO Mohamed El-Erian - Pimco is a leading global investment management firm with more than $790.3 billion in assets under management as of September 30, 2008 – El-Erian is highly respected and extremely visible on CNBC and Bloomberg in the US. This was what El-Erian had to say on CNBC Europe, on Wed, Nov. 12’08. It’s good to see a major US money manager (non-gold person) see the US dollar for what it is:

"We're seeing a cyclical rebound in the dollar that has more to do with other countries than with the US. It has to do with the re-pricing of European prospects. It has to do with the unwinding of the carry trade. For now, the dollar is the beneficiary of things happening elsewhere. Once that is over, which it will be, we expect the dollar to resume on a secular decline. Part of that is because the system has to absorb about 2 trillion dollars of issuance by the US government over the next 12 months, and that is a lot of issuance – about 4 times of the maximum that’s been done previously.”

Wednesday, November 12, 2008

Bailout Price Tag: $3.5T and counting

The US dollar gold price should remain at a decent level during the current deflationary period, due to the store of value aspect and the continued existence of geopolitical issues. Apparently, gold (and/or gold mining stocks) held up even during the great depression, but I haven't looked it up myself (to verify) - "The stock price of this gold mining company soared relentlessly upward during the entire bear market. Homestake Mining stock rose continuously from $80 in October 1929 to $495 per share in December 1935 - which represents a total return of 519% (excluding cash dividends) during the devastating bear market period." Who knows, maybe it's a bit more complex this time around, with hedge funds, severe credit crisis, post World War II economy (which is now focused on the US dollar as the world reserve currency), etc. Nevertheless, we are still doing well in regards to the Canadian gold price, at $883 Cdn per oz. At the rate of US bailout spending alone, if gold mining companies stay strong over the longer term they should benefit eventually from pending inflation or hyperinflation and debasement of the US dollar. Unfortunately, gold's US dollar performance has been extremely disappointing during this current period, due to the large sums of money flowing into the US dollar. The US dollar strength is killing everything right now.

Here is the article:

Bailout Price Tag: $3.5T So Far, But 'Real' Cost May Be Much Higher

Posted Nov 12, 2008 10:16am EST by Aaron Task in Newsmakers, Recession, Banking
Related: AIG, FNM, FRE, XLF, ^DJI, ^GSPC, C

While the government is clearly spending a lot of taxpayers' money to bail out financial firms, the tally is even bigger than most Americans (economists and pundits included) are probably aware or willing to admit.

The bailout bonanza has gotten so big and happened so fast it's the true cost often gets lost in the discussion. Maybe Hank Paulson and Ben Bernanke prefer it that way because the tally so far is nearly $3.5 trillion, and that's before a likely handout for the auto industry.

Yes, $3.45 trillion has already been spent, as details:

$2T Emergency Fed Loans (the ones the Fed won't discuss, as detailed here)

("The Fed refusing to reveal who received almost $2 trillion in non-TARP loans, or what collateral it has accepted from 'emergency' loans made to struggling firms, as Bloomberg reports.")

$700B TARP (designed to buy bad debt, the fund is rapidly transforming as we'll discuss in an upcoming segment)

$300B Hope Now (the government's year-old attempt at mortgage workouts)

$200B Fannie/Freddie

$140B Tax Breaks for Banks (WaPo has the details)

$110B: AIG (with it's new deal this week, the big insurer got $40B of TARP money, plus $110B in other relief)

Tallying up the "true" cost of the bailout is difficult, and won't be known for months if not years. But considering $3.5 trillion is about 25% of the U.S. economy ($13.8 trillion in 2007) and the U.S. deficit may hit $1 trillion in fiscal 2009, hyperinflation and/or sharply higher interest rates seem likely outcomes down the road.

At the very least, the possibility of the U.S. losing its vaunted Aaa credit rating -- which determines the Treasury's borrowing costs -- cannot be discounted.

Moody's has already said it's not in jeopardy of being lowered. But we really can't put much stock in what Moody's -- or S&P or Fitch -- say after the subprime debacle, can we? More importantly, the price of credit default swaps on U.S. government debt has been on the rise since the bailout train got rolling, as Barron's reports.

Sunday, November 9, 2008

China launches $600 billion stimulus plan

China moves to boost economy, G20 sees more action

By Kirby Chien and Anna Willard Kirby Chien And Anna Willard – 1 hr 34 mins ago

BEIJING/SAO PAULO (Reuters) – China launched a huge stimulus plan on Sunday worth nearly $600 billion, kicking off what could be a round of big spending or interest rate cuts by leading economies to stave off a recession in many countries.

In Brazil, finance ministers and central bank governors representing 90 percent of the world's economy said they would take "all necessary measures" to get financial markets back to normal and counter the backlash of the credit crisis.

Many developed economies are now facing a contraction next year after lending from banks suddenly dried up, and newer powers such as China have been caught up in the domino effect.

World leaders meet next weekend to discuss precisely what measures they need to work out in coming months, and how much more say emerging economies will have over global finance.

China's official Xinhua news agency said the world's fourth-largest economy approved 4 trillion yuan ($586 billion) in new government spending between now and 2010, focused largely on infrastructure and social projects.

The move was hailed by the head of the International Monetary Fund, Dominique Strauss-Kahn, who said it would have a positive effect on the world economy.

China's cabinet also announced a shift to a "moderately easy" monetary policy, suggesting more rate cuts.

"'Easy' monetary policy could mean, quantitively speaking, more money supply and a looser market liquidity," the head of China's central bank, Zhou Xiaochuan, told reporters in Brazil. "It can also be reflected in prices, for example the bank lending interest rate could become lower."

China has cut rate cuts three times since mid-September.

"This is pretty major," said Arthur Kroeber, head of Dragonomics, a Beijing economic consultant. "It reflects the official view of how serious this problem is and shows that this is a government that can mobilize enormous resources to stimulate the economy when they put their minds to it."

By comparison, the United States sent out about $100 billion in tax rebate checks this summer, while Germany last week agreed to a 50 billion euro pump-priming plan.

China's Zhou, attending the meetings in Brazil, said on Saturday the Asian export powerhouse, which is one of the few remaining engines of global growth, expected growth of between 8 percent and 9 percent in 2009.

Some economists have predicted growth in China could slow to less than 8 percent in 2009, down from double-digit levels in the past five years until this year.

Thursday, November 6, 2008

Latest libor

3 mth libor = 2.39%
TED Spread = 2.05%

The 2.39% libor is even better than the 2.8% level (which was where it was at prior to the escalation in the crisis crisis, and the subsequent move up to the 4.8% level). The 2.39% clearly means that interbank lending has picked up significantly. The governments now need to forced their banks to increase lending to small businesses and the general public. France's government has threatened its banks to immediately increase lending to the public or the government will nationalize the banks (further nationalize in some cases, I guess) then fire bank top executives - BNP Paribas is headquartered in France.

The T-bill rate component of the TED Spread is way too low. It means foreign money managers are still moving large amounts of money into T-bills (as a safe haven), thus leading to the continued US dollar strength. They are only getting a .34%, which is basically nothing. Eventually (once things stabilize a bit) these money managers will feel the pressure to achieve bonus targets and to make money for their clients. That is the stage where we should see a substantial US dollar reversal, and protentially a stronger gold price. Also, the continuing forced redeptions is not helping the gold price either. Gold gets knocked down $30 - 40 at a time when these large paper contracts are sold on the COMEX. There has been some talk that these parties might have difficulties finding the physical gold to settle the December contracts.

Wednesday, November 5, 2008

Votorantim buys 68.1% of Atacocha

Hopefully this will allow our Poderosa legal case to be settled quicker, and with a more reasonable dollar settlement. I believe Votorantim if primarily focused on base metals. If they want to do anything with Atacocha's gold holding (Poderosa) then they will need to settle with Century in order to unfreeze the 50.1% Poderosa shares. We will see if Atacocha's new management takes a more fruitful approach for all parties involved. Here is the article:

Mining/Energy | 5 November, 2008 [ 09:36 ]

Brazil's Votorantim buys control of Peru's Atacocha zinc/lead miner

Brazilian metals manufacturer Votorantim Metais closed a deal with Peruvian zinc-lead miner Atacocha to acquire 68.1 percent of the latter's Class A shares for about US$117 million, the Peruvian miner announced.

Atacocha, one of Peru's leading zinc and lead miners, runs the Atacocha and Santa Bárbara mining units in Peru's central Pasco region.

In the first nine months of 2008 Atacocha sold 77,172t zinc, 12,155t lead and 3,688t copper for respective increases of 4%, 23% and 44% year-on-year. The company took a net loss of US$5.75mn in Q3 compared to a net profit of US$18.3mn in 3Q07.

In April, Votorantim, which is the world's third-largest zinc producer, tried, but failed to take control of Peruvian miner Milpo, in which it owns a minority stake.

Votorantim has steel, zinc and nickel operations in Brazil, in addition to a zinc refinery in Peru and a controlling stake in Colombian steelmaker Acerías Paz del Río.


3 mth libor = 2.51%
TED Spread = 2.06%

Tuesday, November 4, 2008

Latest Libor and TED Spread

3 mth libor = 2.71%
TED Spread = 2.22%

Monday, November 3, 2008

While we wait

As bad as the global credit market is right now, there still doesn't appear to be any visible signs that BNP Paribas/Fortis has abandoned us at this time. In addition, (although us little guys could never know 100% as to what is happening) chances might be decent that Century is still progressing through the process. It is likely that the technical report was submitted a while ago.

From the Sept. 2'08 NR:

"The Fortis facility due diligence is scheduled to be completed by the second week of September, at which time the bank will need three to four weeks to finalize submissions for credit approval. Upon credit approval the Company will need approximately six weeks to complete legal documentation."

My guess is that there would need to be a period for fine tuning the technical report, and perhaps to address recommendations that either the independent technical person and/or Fortis may come back with. This is actually a good thing, as it helps to make a stronger case prior to presenting it to the credit committee. I had previously heard that Century had been working on an underground mine plan for a while now, and they had been making really good progress with it. My guess is that the Fortis rep would want to see this in the package prior to meeting with the credit committee.

Also, there might have been a hint in the Sept 2'08 NR that Century was expecting a bit of additional technical info MIGHT be required:

"no assurance can be made at this time that other conditions precedent will not be requirements of drawdown. These conditions precedent could include the need to raise additional equity, permitting or additional technical information."

Perhaps the "additional technical information" is to dot the i(s) and cross the t(s), again, to make a better presentation to the credit committee.

With regards to the "raise additional equity" note, it sounds like this may not be the case of raising substantial equity. I vaguely remember there being a note in the last MD&A that stated something to the effect that they may be asked to raise capital to reduce a substantial portion of the outstanding accounts payable balance, prior to the Fortis drawdown. However, I believe that note might have been superseded by the following note included in the Sept 17'08 NR:

'The combination of these two financings will provide the immediate and near-term financing necessary to take Century to a position to draw the senior secured financing Century is arranging for its Lamaque Project from Fortis Bank.'

As a side note, Tamerlane (our sister company, with the same management team) issued a project update today. It included this note: "Tamerlane’s management is considering other avenues for project financing, including private equity firms."

We should probably keep an eye on how that develops. Maybe PK could try to secure a million or two for Century also, as part of a package deal. They obviously used the package deal approach previously with MRI, even though the deal didn't end up closing for either Century or Tamerlane. Looking back now, (IMO) it is clear that MRI kept delaying everything due to the rapidly falling zinc price, and were also waiting for Tamerlane's updated project economics profile to come out. The zinc production cost wasn't very favourable (relative to zinc spot price at the time) so MRI bolted. Century was a toss in for MRI, (so although Century is a gold miner, with gold holding up far better compared to zinc) they no longer had any use for us (especially with them being primarily a base metals trader). All in my view of course. By the way, Tamerlane managed to get their production cost down within the study, thus their project if more favourable now.

Libor update

* 3 mth libor is now 2.86% (almost fully back to where it was)

As a result, it appears as if interbank lending is flowing well again. The governments around the world need to now find a way of convincing the banks to lend to small businesses and to the general public, and not hoard the cash.

* the TED Spread is now down to 2.48%, but still has a ways to go to get back to the previous 1%

It means that a lot of money is still flowing into the US T-bills, thus allowing the US dollar to continue to show strength. It's just a matter of time before it pulls back significantly though. It has recently pulled back from an index level of almost 88, to now being 85.10. The gold price should have taken better advantage of this US dollar drop. It is disappointing to see gold not make a much stronger recovery move during this short pulli back in the US dollar.

Friday, October 31, 2008


Canadian gold price = $900

Thursday, October 30, 2008

Nice move in 3 mth libor

3 mth libor down to 3.19%

Tuesday, October 28, 2008

(some) macro indicators

1) The 3 month libor rate is now down to 3.465% - it doesn't mean that lending is back to normal levels, but it is a indication that there are some baby steps with interbank lending (the recent crisis had spiked it to 4.8% from 2.8%)

2) TED Spread - this is the difference between the 3 mth libor and the 3 mth T-bill. We want the rate difference to be as narrow as possible. The lower the 3 mth libor rate then the more banks are lending to one another. The higher the 3 mth T-bill rate then less cash flowing into T-bills. What happens is the more demand for T-bills then attractive the government need to make the interest rate. The demand was so strong recently that the rates were actually negative temporarily - basically people were paying the US government for holding on to their money during this crisis period (I guess the thinking might have been that people were assuming that the US government could never go under, or would be the last in the world to go under).

Anyway, as we know, foreign money managers have been piling into the US T-bills during this crisis. However, they have to buy US dollar first (before buying T-bills), hence the gigantic spike in the US dollar and the subsequent kill off of everything else in the world (including gold and all other currencies except the Japanese Yen - more about the Japanese Yen carry trade in a second). This is why a high T-bill rate is important to us. It is currently still well below 1%, hence we are still seeing that strong US dollar.

Prior to the recent crisis, the TED Spread was around 1%. Currently, it is 2.62%. At the peak of the recent crisis the TED Spread was around 4.5%. As such, it has come down quite a bit, but that's primarily due to the improvements in the 3 mth libor rate. The T-bill rate has naturally improved also, but not nearly at the same rate. We need to see the global money managers slow down quite a bit more in moving their money into T-bills.

The Asian and European markets were relatively calm overnight. Hopefully that's a step in the right direction. The US dollar seems to have slowed down just a tiny bit this morning. Right now, it's all about stopping the bleeding being done by the US dollar (even if the US dollar doesn't pull back immediately).

3) Yen carry trade - it may have become obvious that the hedge funds and other players used the weak Japanese Yen over the past few years to fund their massive commodities purchases. With the recent market crash, and the massive commodities price decreases, it appears as if these players have had to sell equities, gold and everything else (including the kitchen sink) to cover Yen positions.

Every currency in the world have gotten slaughtered recently by the strength of the US dollar, with the exception of the Japanese Yen (which actually has killed the US dollar in terms of performance). On the surface, it makes absolutely no sense that the US and Japanese currencies are so strong, especially given that these have been the 2 lead countries in monetary injections into their respective economies (the Japanese economy and investment markets have been completely slaughtered recently). However, we already know what's driving the US dollar strength. Now it is obvious what has drive the Yen strength - carry trade.

There seems to be a bit of easing over night. Prior to the recent crisis, the Yen (per US dollar) was around 106. Remember, the lower the ratio then the stronger the Yen. It went fell all the way down to about 92 recently. Right now it is 95.265. We need to see this continue to increase. The more it increases then it likely means the less hedge funds and other players will be selling gold.

Saturday, October 25, 2008

The U.S. dollar spike (essential reading)

In my view, there have been a number of factors behind the severe gold price correction. I believe one of those factors has to do with the problems of the Indian economy, thus resulting in the fall off of jewelry demand over the past month (or so). However, the demand appears to have picked back up over the past couple of days, due to the low gold price. Nevertheless, I think the single largest impact on the gold price during this sharp correction has been the US dollar spike.

I think the writer did a good job of explaining the situation in this article. I think it's just a matter of time before money managers move their large sums of money back away from U.S. treasury bills, thus resulting in huge sell off of the U.S. dollar - longer term, money managers are paid to make money for their clients, and a 1% (or lower) return from T-bills is not going to cut it longer term. I personally think that Europe is the key. I believe that things have to calm down in Europe first though - severe instability with European banking system, coupled with the inability of the European governments to act more co-ordinated, made the flight into the U.S. even more massive over the past couple of weeks, IMO.

I wasn't able to print the graphs so I have posted the link to the article. Perhaps Carib can enable the link.

U.S. Dollar Driven Gold Price Crash

During this unprecedented month where the flagship S&P 500 has plummeted 23.0%, it isn't surprising this brutal stock-market selloff is monopolizing investors' attention. Thus gold's poor performance is largely flying under the radars. Month to date, this metal is down a massive 15.6%! This combined with the intense stock fears have led to an unthinkable 46.4% October decline in the HUI gold-stock index.

Shell-shocked gold and gold-stock investors are morosely trying to comprehend this incredible carnage. Traditionally a financial crisis of this magnitude would have led to a frenzy of gold buying, and we are indeed seeing this in the physical-gold world where bullion coin shortages remain acute. But despite the soaring physical demand, futures traders have sold gold aggressively driving down its price.

Many gold investors want to blame the usual gold villains, the central banks. I have no doubt they were selling, but this is nothing new. Since the Washington Agreement (now called CBGA) was signed in 1999, European CBs alone agreed to sell up to 400 tonnes of gold annually until 2004 and up to 500 tonnes a year since. Big CB gold sales are a constant, always there, and certainly weren't unique to October 2008.

After riding gold from the $250s to over $1000 between April 2001 and March 2008 despite heavy sustained CB selling over this period, it is very clear that CBs aren't running the gold market. They are a persistent headwind, but not a primary driver. Investors and speculators run this show. Though investment and speculation demand can fluctuate wildly, it is what has driven this secular gold bull. Just as gold couldn't have quadrupled without investors and speculators buying, it can't lose nearly a sixth of its value in three weeks without them selling.

So why were traders selling gold so aggressively in the face of the worst financial panic in decades? Forced selling is certainly a major factor. If you own gold and get a totally unrelated margin call from your broker or redemption request from your investors, you still have to sell whatever you can. And gold remains one of the most liquid assets in the world. Individuals and hedge funds getting into margin and leverage trouble were forced to unwind gold long positions (futures and ETFs) to raise cash fast.

But traders not in trouble were selling gold too, especially futures. This largely speculative selling is probably the single biggest reason for gold's extreme weakness of the past month. I suspect this selling was largely driven by the extraordinary surge in the US dollar. To most mainstream traders today, gold is still viewed as the anti-dollar rather than a unique asset with its own strong fundamental merits .

So when the dollar surges, especially if its move is a big, fast, high-profile one, gold futures are sold aggressively. I don't think this is rational anymore in Stage Two of this gold bull, but this Stage-One thinking is still pretty popular among futures traders. Regardless of futures traders' motivations to sell, logical or not, their sales still add supply which drives down prices over the near term.

And boy, if you think gold's whole story is merely that of a dollar-inverse proxy, there was no better time to sell it than the last few months. The US dollar, as measured by the venerable US Dollar Index (USDX), rocketed higher in one of its biggest bear-market rallies in history. The sheer ferocity of the dollar's run since mid-July defies belief. The USDX is rendered in blue on these charts with gold drawn in red.

If you are a student of the currency markets or a currency trader, you know that major currencies usually move with all the sound and fury of a glacier. The currency markets are the world's largest, they are hugely important and affect everything else, but they just don't move very rapidly most of the time. So the massive and fast spike in the USDX seen here is extraordinarily rare, maybe even totally unprecedented.

While I suspect it is unprecedented, I haven't carefully looked at every 3-month period in the USDX's long history since its early-1970s origin. But as the next chart will show, this massive USDX surge was easily the biggest and fastest of this entire dollar secular bear that stealthily began in the summer of 2001 . To see this world reserve currency rocket 19.2% higher between July 15th and today is mind-boggling!

Not only does this massive USDX bear rally look impressive on this chart, a nearly vertical surge, but it is impressive mathematically too. If you divide the dollar's huge total-rally gains by this rally's short duration, the USDX has been climbing 0.274% per day on average since mid-July. Such a sustained rate of ascent defies belief, it is unheard of in the major currencies. Only an extreme crisis could drive such intense dollar demand.

As late as July 15th, the USDX was grinding along near all-time lows. It bottomed in mid-April about 7 months after sliding decisively below 80 for the first time in its entire 37-year history. The last chart in US Dollar Bear 5 shows this entire history if you want some valuable long-term perspective. By mid-July the dollar was still bottom feeding just 0.5% above its all-time closing low. Global demand for dollars was weak as foreign investors continued to diversify out of their dollar-heavy holdings.

During normal times, the USDX probably would have continued grinding sideways or maybe rallied modestly to its 200-day moving average (black above) simply due to being technically oversold. But around this mid-July time frame as the GSEs' (Fannie and Freddie) stocks plummeted, fears for the whole global mortgage-backed bond trade really intensified. Flight capital began to pour into the very highest-quality bonds.

Globally, short-term US Treasury bonds are considered the safest debt investment. The US has long had the largest, strongest economy in the world. And because Washington can use the Fed to create endless US dollars out of thin air, the US Treasury can never default (unless Washington is overthrown in rebellion or conquered in an invasion, neither likely). Sure, bondholders will get paid back in dollars worth less, but over the short term (a few months) this inflationary impact to investors is trivial.

Since the US is a single sovereign nation, as opposed to the often-fragile federation of competing sovereignties that is the European Union, foreign investors still have more confidence in US Treasuries than other government bonds. So as toxic US mortgage debt started to bludgeon European banks and markets, European bond investors rushed to exit this hazardous realm. They parked their capital in short-term US Treasury bills.

This surge in T-bill demand was so immense it forced T-bill yields to unprecedented lows. The higher a bond's price is bid up, the lower its effective yield for a new purchaser becomes since its coupon payment is fixed on issuance. At one point a month ago, T-bill prices were driven so high that yields actually briefly went negative! Investors were effectively paying the US Treasury for the privilege of lending to it!

The more intense the financial panic grew, the greater the deluge of flight capital desperately seeking the safety of short-term US Treasuries. For American investors, this was easy. But foreign investors selling their local bonds for local currencies couldn't buy T-bills directly. After selling their bonds, they first had to convert the proceeds into US dollars to enter the Treasury market. This drove the unbelievable US dollar demand responsible for its huge spike.

The US Dollar Index is traders' favorite proxy for the US dollar's relative price among major world currencies. And it is dominated by Europe. The euro alone accounts for 57.6% of this index's total weight, and the UK, Sweden, and Switzerland add another 19.7% on top of this. So a whopping 77.3% of the dollar's behavior, as reckoned by the USDX, is driven by Europe.

European financial stocks, and hence stock markets, were hit hard in recent months by the growing problems with mortgage-backed debt. Many analysts believe that European banks' exposure to bad mortgage debt (both US and European) is much worse systemically than US banks' exposure, which is rather ironic since the sub-prime mess originated in the States. So European investors aggressively liquidated European bonds and stocks and sought a temporary safe haven to weather this storm.

That safe haven was US Treasury bills. Before buying them, most European investors converted their local currencies into US dollars. Thus this financial panic drove incredible levels of euro selling, so the euro-heavy USDX soared. This giant flight-capital trade out of euros (and pounds, kronor, and francs) led to incredibly intense dollar demand. And the result of this unprecedented event is evident in this chart.

On July 15th just before this dollar rally ignited, gold was trading at $976 an ounce, not far from its bull high of $1005 from mid-March. And gold in euros was running near €614. While disappointing to contrarians expecting some flight capital to seek gold's unparalleled safety, perhaps we shouldn't be surprised that such a violently fast 19.2% USDX rally would drive futures traders to sell gold aggressively.

Over this same span of time, gold was down 25.4% in US dollar terms. Such a fast gold decline, coupled with indiscriminate panic selling across all stock-market sectors , drove the horrific losses in gold stocks. Like many prices we've seen in recent weeks, I certainly believe gold and gold stocks were driven to absolutely unsustainable levels and will quickly surge once rationality starts returning to the markets.

While this gold plunge feels terrible, American gold investors need to understand that our perception of what happened in gold in recent months was really distorted by the panic flight into dollars to buy US Treasuries. Over this same span of time where USD gold fell 25.4%, euro gold only fell 7.8%. In fact, in early October euro gold carved new all-time highs near €673 that were actually 3.9% above its previous March highs!

So independent of the crazy dollar surge, gold actually did pretty well around the world. Some of the flight capital out of international stocks and bonds indeed fled into gold, as expected. And if gold was easier to trade, I suspect many times more capital than entered gold would have joined in. Even you or me, in a similar dire situation as these big money managers, would probably also have chosen US Treasuries over gold in the heat of the moment. Here's why.

Imagine you are running billions of dollars of Other People's Money in your fund, and you are taking a big hit like everyone else on the planet. You love gold personally, but you have to get your clients' capital out of harm's way fast . You can sell your stocks and bonds and get cash as fast as you want, so liquidating is easy. But how do you put billions of dollars into gold fast?

Physical gold would be best, but it would take weeks to arrange such a big buy, not even considering taking delivery and securing your gold bullion. And the coin market is far too small for big funds to enter without a radical price impact. And if you aren't a futures trading house, you can't buy futures since you have no infrastructure in place to do it. And even if you think ETFs are fine in normal times, they are ultimately just paper gold so you are probably wondering what will happen to gold ETFs if their issuing entities succumb to the growing financial panic.

So sadly, even if you want to buy gold in a financial panic, it isn't easy for a big fund manager. But in the time it takes for you to read this sentence, you could deploy billions into US Treasuries. They sure aren't gold, but they aren't going to lose value like everything else and there is a near-zero chance that Washington will fall before these 3-month instruments are redeemed. So despite loving gold myself, I don't fault big fund managers for choosing the ease of T-bills over gold during such a time-sensitive panic.

Now realize I am not arguing that Treasury debt is better than gold, far from it. Gold has preserved wealth for millennia before Washington and will keep preserving wealth long after Washington fades. But I can still understand why fund managers can't easily move billions into gold as fast as they can into effectively safe short-term Treasuries. I don't like it either, but the flight out of the world stock and bond markets and into US dollars and T-bills in the face of unprecedented levels of fear and uncertainty is definitely logical.

The resulting hyper-fast and massive rally in the USDX was amazing, and I wanted to understand it within the context of the US dollar's secular bear. This next chart shows all the major bear rallies witnessed in the USDX since its bear began in July 2001. Our current is actually the 10th, and technically it started in mid-April 2008 at the USDX all-time low although the dollar was still effectively flat until mid-July.

For each USDX bear rally, the top blue number describing it is its absolute percentage gain. The next white number is its duration in months. The second blue number below that is its average gain per day, a measure of velocity and intensity. Finally the red number is what happened to the US dollar price of gold over an identical span of time. As you can see, today's dollar rally has been unbelievably big and fast.

At 19.9% in 6.3 months, nothing else even comes close to our current massive USDX bear rally. The next biggest dollar bear rally is the 6th above, ending in November 2005. Yet it was only 14.6% absolute and it occurred over a much longer 10.6 months. This translates into a velocity of just 0.066% per day compared to our current specimen's crazy 0.151% per day. And if you reckon our current rally starting 0.5% higher at July 15th instead, its velocity was an amazing 0.274% per day. This is mind-blowing for a major currency!

There are a few other dollar bear rallies with higher velocities above, but they were all extremely short-lived and only lasted a matter of weeks. To see the USDX power higher so aggressively for a matter of months is absolutely unprecedented in this bear. And considering how extreme this USDX rally was, gold really did do a decent job of holding its own. The gold carnage certainly could have been worse.

Over this 10th rally's total span since mid-April, gold fell 23.0% while the USDX rallied 19.9%. As a ratio this 1.16x inverse relationship isn't bad compared to bear precedent. For example in the dollar's 3rd major bear rally the gold price fell 8.1% on a 4.3% dollar rally, a 1.88x inverse. During the 7th dollar bear rally in mid-2006, gold plunged 19.4% while the USDX only rallied 3.8%. Of course that particular episode, like today, was after a very sharp gold upleg so gold had technical reasons of its own to correct.

Gold's absolute levels compared to the dollar's in this rally's aftermath are also interesting. The USDX rocketed up to November 2006 levels, gaining back two years' worth of losses. Meanwhile gold only retreated to September 2007 levels, temporarily erasing one year's worth of gains. This might not be much consolation when considering the impact of today's irrational gold price on your portfolio, but gold really did weather this extreme dollar rally fairly well.

Since panic drove this sharp dollar surge, what happens when this panic abates? I bet the dollar collapses almost as fast as it rose. Of course gold would probably soar in such a scenario. This case can be made in both sentiment and fundamental terms, and both are very compelling. Market anomalies driven by extreme emotions typically unwind once the driving emotions finally peter out.

All over the world, money managers are hunkered down in short-term Treasuries. Yet T-bill yields are now running around 1%. This is pathetic. How many money managers are going to be comfortable reporting to their clients that they are only earning 1% before fees? So the moment the markets turn in the inevitable V-bounce , money managers are going to want out of Treasuries and back into assets that are either rallying or actually yielding something.

These money managers will sell Treasuries, sell dollars (if they are foreign), buy their local currencies, and start aggressively redeploying capital. 2008 has been a bad year in the markets for everyone, yet professionals still fear nothing more than underperforming their peers. So if they perceive rallies anywhere in stocks or bonds, they are going to dump Treasuries fast and rush to participate to mitigate some of their 2008 losses before year-end results are reported to their clients.

There are also fundamental reasons to unwind this anomalous dollar-long surge. Over the long term, relative yields drive currencies. While target rates are running 1.5% in the States, over in Europe the ECB's benchmark rate is still 3.75%. Why would European bond investors want to hang out one day longer than necessary in terribly-yielding US Treasuries when they could buy high-quality bonds in their own countries yielding 2x to 3x as much? European yields are very favorable for euro currency buying.

In addition, real rates of return (inflation-adjusted bond returns) are now massively negative in the US. The low-balled CPI has surged by an absolute 4.9% in the past year yet 1-year Treasuries are now only yielding 1.7%. Thus investors in short-term Treasuries are effectively guaranteed a 3.2% loss in real purchasing power annually by owning them thanks to the Fed. So while short-term Treasuries are attractive in a panic, the moment fear fades they return to being terrible investments.

For these reasons among many, I maintain the contrarian stance that this sharp dollar surge will rapidly unwind as soon as the intense systemic fear passes and money managers get comfortable enough to return to their usual stock and bond markets. The USDX spike is not the beginning of a new bull, as new bulls are driven by positive fundamentals that definitely don't exist for the dollar. Instead this was just an emotional anomaly that drove a spectacular bear rally that simply isn't sustainable.

And when this dollar panic buying reverses itself, so will the gold panic selling. The metal is just way too cheap today relative to its bullish fundamentals and the incessant fiat-currency growth all over the world. This anomaly is a heck of an opportunity for new long-side capital to deploy into gold and gold stocks. Virtually everything gold-related is available at such a discount today that it may be the best buying-op of this bull.

I am going to discuss all this, including specific trading strategies and trades, in our upcoming Zeal Intelligence monthly newsletter. October 2008 was very frightening and painful, but it has led to some of the most amazing prices we will ever see in awesome investments and speculations. Buying into this fear is tough, but fortunes will be made when the recovery arrives. Join us today and don't squander this once-in-a-generation opportunity!

The bottom line is extreme circumstances, a rare global financial panic, drove the sharp rally in the US dollar. And this massive and fast dollar rally hammered gold. But once the panic abates and money managers all over the world start chasing good returns again, the dollar-long T-bill buying frenzy will reverse hard. And as the USDX sinks again to reflect its dismal fundamentals, gold will really shine.

By Adam Hamilton, CPA

Thursday, October 23, 2008

Canadian gold price unchanged

With the exchange rate no longer at par, this has become relevant.

Earlier in the year a $900 US gold price would only give us $900 Cdn, at par. Although the US gold price has fallen to $718 US, we still have the same Cdn gold price. With the exchange rate now at .79, it means that the $718 US gold price gives us $909 Cdn per oz, which is actually slightly better (believe it or not).

Granted, it's a bit tricky with the cash cost. Yes, the cash cost per oz would have to be adjusted for the difference in US vs Cdn $, however much of that adustment should be offset by the deflationary environment (lower costs of consumables, explosives, fuel, as well as the 8% weaker Peruvian currency vs the US dollar).

Also, some of our Corporate costs are paid in US dollars, due to the head office being in the US. However, a good portion should still be in Canadian dollars.

current 3m libor rate, and some thoughts

It looks like it stayed pretty much the same, perhaps a slight decrease to 3.535%.

With the recent dramatic fall in gold price, we are fortunate to have a semi-low cost producer in San Juan. With the previous (and current) fall in prices related to consumables, fuel, etc., coupled with the 8% (or so) decrease in value (vs US dollar) of the Peruvian currency vs Q2 timeframe, we might have a shot at seeing a cash cost per oz within the $350 - 425 US range effective Q4 and going forward (if the deflation environment remains). If Century moves to producing 25,000 - 35,000 ounces from San Juan down the road (instead of current production of around 16,000) then the possibility of a cash cost per ounce of $300 - 350 US may be possible within a deflationary environment. As you can see, production of 25,000 - 35,000 ounces with cash cost per oz of $300 - 350 US and any gold price between $500 US and $1,000 US can still be very favourable for a small cap company, especially one with currently a $.025 share price.

It is my belief that Century's management should start working on this plan (if they haven't already) in case the current (low) gold price discourages their potential lenders (Trafalgar and BNP Paribas/Fortis) from closing the current deals. Century can then put Lamaque on hold until the gold price and the credit environment picks up again. The key to this plan though is that management needs to aggressively reach out to the cashed up base metals and uranium companies out there that are looking to partner up with a company with a gold junior company with a producing asset and/or a very near producing asset. Century has both, plus semi-low production cost per oz at San Juan. There are uranium and base metal companies out there with $10 - 20M Cdn net cash in the bank. There are also junior (pure) gold exploration companies out there with $5 - 7M in net cash, and many many years away from producing anything.

Here are the 2 options Century should aggressively look into (even while simultaneously trying to close the deal for the loan and LT Debt):

1) Try to merge with 1 junior company with $10 - 20M in cash. If it's with a base metal or uranium company then the base metal or uranium properties can always be spun out to shareholders in a year or two once those prices have recovered - no one misses out on anything.

2) Try to merge with at least 2 of the juniors with $5 - 7M cash each.

The merged company can then renegotiate down (substantially) the $18M accounts payable amount within the balance sheet (this shouldn't be a problem as everyone is looking for immediate cash right now, and are willing to be creative) and then pay off the newly renegotiated balance. The merged company should then inject a few million of the remaining cash into bringing San Juan up to 25,000 to 35,000 ounces of production.

The new company should then eliminate almost 80% of the Corporate overhead until both the gold price and credit market picks up again.

These moves will allow Century Mining to become free trading again, as there would be no other roadblocks. They can still carry and service IQ's debt, as the principle payment is only $1M per year plus interest payments - 15 year payment plan is excellent. Also, the gold price would not be an issue, as the business would be solid on solid ground at any gold price over say $500 US. A $1,000 US gold price would just be a big fat bonus for shareholders, if these actions were taken.

I just hope that management is aggressively exploring this possibility. I think these simple moves can quickly turn this company around, and I think the economic conditions have created situations where companies with a bit of cash are desperate to hook up with undervalued (semi-low) cost gold companies with an already established revenue stream. We are fortunate to not only have that, but a company maker mine (Lamaque) that can go into production shortly after sufficient funding is gained down the raod (perhaps once the credit markets pick up again, if the BNP Paribas/Fortis situation doesn't work out short term).

Wednesday, October 22, 2008

today's 3 mth libor rate

down to 3.54%

Tuesday, October 21, 2008

3 month libor rate

The 3 month libor rate has now come back down to 3.83%. This is quite significant. It was previously around 2.8%, but it skyrocketed to around 4.8% during the past month (during the peak of the credit crisis). The 3 month rate is used as the benchmark for interbank lending. A 4.8% rate essentially stated that banks had completely stopped lending money to other banks - confidence issue. In a nutshell, global credit had completely frozen up. As everyone is aware, governments around the world (over the past couple of weeks) collectively injected trillions of dollars into the global banking system (and provided numerous banking loan guarantees, coupled with taking equity stakes in banks and guarantee of bank deposits) in order to unfreeze the credit system. At first there was hardly any improvements. However, there has been solid improvements over the past couple of days.

Of course, it will still take quite a while before the thawing makes it to the lower levels of the system, but nonetheless this is good for junior companies across the globe, and especially (capital intensive) junior resource companies. It might be more beneficial to junior gold companies (in the nearer term) than junior base metal companies, due to the fall off in demand for base metals.

Hopefully it is even more beneficial for junior companies like Century, with a bridge loan and LT Debt agreement already in place, that are working through the process to gain closure and subsequent drawdown. It is impossible to know if or how quickly the lower libor trend will work for junior companies, and specifically Century, but it's positive nonetheless. If the libor rate had stayed at 4.8% (even after the massive injection of funds by the governments) then it would have made everything even more challenging.

The other major challenge gold companies have right now is the lower drifting of the gold price. It's difficult to know how much of the gold price sell off is due to regular funds and hedge funds being in emergency mode in order to meet redemptions. There is probably some of that, but is probably also a tug of war between gold bulls and gold bears. A lot of people are expecting an asset deflation evironment for all assets. However, a lot of people also eventually expect monetary inflation to exist due to the massive injection of cash into the system. The US dollar is a superstar right now (due partly to being treated with "safe haven" appeal - people around the world have been piling into US treasury bills, but they have had to buy the US dollar first before buying the treasury bills), but the massive injection of liquidity most likely means that the dollar will come under pressure again at some point down the road.

The key problem long-term gold investors face right now though is that it might take a least few months or much longer before the massive cash injection works its way through the global system, and monetary inflation rises to the surface, along with US dollar devaluation. It's unclear how the gold price will hold up in the interim. Gold price confidence is one of the keys. A lot of investors (especially new mainstream gold investors) are very disappointed with the COMEX gold price. I think everyone expected gold to be stronger over the past month, during the crisis. Investment demand is essential right now so let's hope that the fringe gold investors understand the longer term potential of the gold price.

In the near-term, the gold price will need to navigate around a few other key factors also. Some people are predicting a $50 oil price, but it's really impossible for anyone to know. OPEC is meeting in a few days, and will be reducing production in order to give the price some support. I think there is a massive tug of war even within OPEC. Countries like Iran and Venezuela desparately need the cash from high oil prices. As a result, they need to see the price in the $80-90 range. Other countries, like Saudi Arabia, can live with $50-60 oil. The other problem with low oil prices is that a number of oil fields (both existing and planned for development) cannot make it (in this environment) with prices so low. As such, the short-term destruction from a low oil price could end up having a sling shot affect on the oil price longer term (in the opposite direction). I think some people recognizes this, and will push for a more stable price, but the oil price might end up being too forceful for anyone or anything to influence (other than hedge funds moving their massive dollars in and out of course, which is artificial, as we know). Anyway, it looks like OPEC might cut between 1 to 2 million (barrels per day) once they meet. However, there is talk that it could be as low as .5 million and as high as 3 million - I guess it depends who wins the tug of war within OPEC.

Gold might get a bit of support once the US Fed meets near the end of the month. The Fed is expected to lower the Fed rate by 50 basis points. Unfortunately, other key US trade partners around the world will likely cuts rates also, which will mostly negate the weakness that we would normally get from the US dollar index.

Globally, there still seems to be a number of money managers that understand the monetary inflation expectations. As such, they are planning to keep a portion of their portfolio in gold. Hopefully it will be enough to support the gold price in the short-term, but it remains to be seen. It would be good if the gold price stayed above $700 US. It would be good if the gold price stayed traded say in the range of $700 to $850, until it is ready to move higher. That would be a very healthy gold price range (although $600 US could still work also), especially since cash cost for most gold mining companies would come down quite a bit in that environment. It would be really nice to get back to $900 US and above again, once everything aligns again - it could happen at anytime or it take a few months (a lot of it depends on investor sentiments).

Sunday, October 12, 2008

The Got Gold Report from Resource Investor

This is an excerpt from this week's Got Gold Report:

There are no better hard assets than the two most popular precious metals, gold and silver. Both have been relied upon as a store of value for at least four millennia. Neither can be printed by fiat.

Unfortunately, at present there is not enough of the real metal to spread among all the individuals that want to own it. How do we know that? Because of all the “out of stock” notices on even the largest bullion outlets in the U.S., the U.K. and in Europe. We know it because of the historic, extremely high premiums over the current spot pricing which all bullion items command right now whenever a bullion dealer does manage to obtain some inventory.

While the margin masters, liquidating yesterday’s major traders in the paper-futures markets and opportunistic short sellers have temporarily managed to skew the benchmark spot prices for both gold and silver to unreasonably low levels (relative to the actual intense demand in physical bullion markets), large and small holders of precious metals apparently sense that the spot prices are artificially low. They aren’t selling. At least they aren’t selling in large enough volume to lower the currently sky-high premiums for gold and silver or to put real metal into the inventories of bullion dealers.

What spectacular irony. At the very time when investors want to buy physical gold and silver the most, the paper-contract markets (which affect the spot or cash market benchmarks) are being sold down to such ridiculously low levels that few want to sell any real physical metal unless they just have to or are forced to. Meanwhile, the divergence in pricing between the physical bullion markets and what is still called “spot” that this report mentioned last time grows even wider.

Physical gold is in great demand and the price to acquire it is surely going higher - a lot higher. Century is not some junior exploration company looking for gold, they already have proven deposits - 1.3 million ounces in reserves and almost 5 million ounces in total. It's a given that with higher prices and the ongoing modelling work that the 3 million ounces of inferred ounces will be converted into M&I resources and P&P reserves.

Selling shares for 2 cents will prove to be irrational IMO whether CMM acquires financing or not. There will be demand for those ounces.