Both Gold and Dollar boosted by Fed rate rise but Equities diving

While a month is a pretty short time in terms of global finance, the fallout from the U.S. Fed’s December rate rise has seen, as expected, a stronger U.S. dollar.  But what virtually all the major bank analysts had forecast – a consequent decline in the gold price in U.S. dollar terms – just has not come about.  In the event the reverse has been true and gold has been rising along with the dollar, contrary to generally accepted gold price theory.  This is pointed out beautifully in the latest chart from Nick Laird’s www.sharelynx.com charting site and is shown below.

As can be seen from the chart, ever since around the time of the Fed increase of 25 basis points, small though that was, the dollar index has been on an overall upwards trend. Before the Fed increase gold and the dollar had been exhibiting their normal relationship – dollar up and gold down.  But since the rate rise – almost to the day – gold has also been rising overall.  Indeed it has even been rising far faster than the dollar.  Can this continue?

What the forecasters had not been taking into account has been the post Fed rate increase dive in general equities virtually across the board, as markets took the rate rise, together with Fed projections of three or four more similar increases this year, as a sign of continuing money tightening.  Indeed the stock market declines – perhaps further stimulated by something of a rout in Chinese equity markets, which are even more of a casino than their Western counterparts – look as though they could be in danger of turning into a true rout……..

The above is the lead into my latest article published on sharpspixley.com.  To read the full article click on:  Fed Rate Rise has Boosted the Dollar AND Gold

‘Upside in gold is both larger and closer than the downside in gold’ – Rick Rule

Source: Karen Roche of The Gold Report 

Rick Rule Reveals a Unique Arbitrage Opportunity

One of the hardest things for a mining executive to do may be nothing. But in a market that is not rewarding companies for pulling resources out of the ground, Sprott US Holdings Inc. CEO Rick Rule would prefer to see what he calls “optionality” rather than dilution from companies looking to justify salaries. In this interview with The Gold Report, he praises innovative precious metals streams on base metal projects.

The Gold Report: In November, you called the bottom for precious metals. Do you still believe that we’re in the bottom?

Rick Rule: Yes, as long as you can define a bottom gently. I said in that same interview that the most important factor in gold pricing was the fact that it was priced in U.S. dollars, and we see a topping in the U.S. dollar. In fairness, Karen, if you had asked me that same question two years ago, I would have responded in the affirmative and been quite wrong. But I do think the upside in gold is both larger and closer than the downside in gold.

TGR: Now that the Federal Reserve has increased the key interest rate slightly, the expectation is that the value of the dollar will increase relative to other currencies. How could that be the sign of a bottom for gold?

RR: I cut my teeth in the gold business in the 1970s when the prime interest rate in the U.S. increased from 4% to 15%, and the gold price went from $35/ounce ($35/oz) to $850/oz. I also remember that the gold price increased in 2002 in a climate of increasing U.S. interest rates.

The question is more about the reason that interest rates get raised than it is about the simple fact that interest rates go up. If interest rates go up because there is an anticipation of the deterioration in the price of the dollar and, as a consequence, savers deserve more compensation for lending credit, that sort of ethos is supportive to the gold price. If, by contrast, Janet Yellen can make not just the first 25 basis point interest rate rise succeed but subsequent interest rates rise, too, in other words if she can get a positive real interest rate on the U.S. 10-year treasury that exceeds the depreciation in the purchasing power of the currency, then I think we’ll see renewed dollar strength. I don’t believe she’s going to be able to do that, but the market will determine that.

TGR: Back in the 1970s, the international currency situation was different. Today, the euro and the yuan are part of a currency basket competing with the dollar. If gold is priced in U.S. dollars but now we have competitive currencies, is the logic used in the 1970s relevant anymore?

RR: Although we are in a multicurrency world, the dollar hegemony relative to other currencies has stayed intact. If you owned gold in almost any currency in the world in the last 18 months, gold performed its role as a store of value relative to the depreciation in currencies. It was only the strength of the U.S. dollar relative to all other media of exchange, including gold, that caused gold to perform poorly in U.S. dollar terms. To the extent that the U.S. dollar hegemony in world trade begins to be compromised in favor of other currencies, that weakening would be beneficial to the gold price.

You see, any time the denominator declines, the numerator becomes less important. That means if the dollar buys less of everything, it buys less gold, ergo, the gold price goes up at least nominally. Probably more importantly, however, the response that we’ve seen in the last 10 years to financial uncertainty has been an attraction for international investors into U.S. Treasuries as a store of value. If the purchasing power obtained from the real interest rate on U.S. Treasuries comes to be seen globally as negative, the attractiveness of U.S. Treasuries generally, relative to gold, will decline.

What traditionally has happened in periods of uncertainty is that investors have chosen to store some portion of their wealth in gold. The U.S. Treasuries have replaced gold to some degree over the last 10 or 15 years. My suspicion is that gold will regain some of the market share it has lost to the U.S. Treasuries as a consequence of a reduction in confidence in the U.S. dollar and U.S. Treasuries. At current interest rates, with the ongoing deterioration in the purchasing power of the dollar, U.S. Treasuries are a very flawed instrument despite their popularity.

TGR: Why are they popular?

RR: I think they are popular because people have an intrinsic sense that losing 1 or 2% a year in purchasing power beats losing 30% a year in the equities markets. People are genuinely afraid of the direction in the economy. They’re afraid of a replay of 2008.

Super investor George Soros once said that you make large amounts of money by finding a popularly held public precept that’s wrong and betting against it. I just last night watched the movie The Big Short, and I was reminded that it’s not uncommon to have the financial services industry, the government and the populace believe something to be true that is categorically false. I’m not suggesting that the U.S. 10-year Treasuries are as stupidly overpriced as the U.S. housing market and mortgage-related securities were in the last part of the last decade, but I do suspect that we are in a bond bubble, in particular a sovereign bond bubble. I suspect that a 30-year bull market in bonds is fairly close to being over. Raising rates is very difficult for the principal value of bonds. I think we’re closer to the end of the bond bull market than we are to the beginning and that’s very good for gold.

TGR: In terms of resources, are there some widely held popular beliefs that you believe are not true?

RR: I do. Sadly, as an American, I think the hegemony of the U.S. economy relative to the rest of the world economy is a widely held precept that’s untrue. Remember in 2011, the pro-gold narrative revolved around on-balance sheet liabilities of the U.S. government—just the federal government, not the state and local governments—of $16 trillion ($16T). That was considered unserviceable in an economy that generated new private savings of $500 billion a year. If $16T was unserviceable in 2011, how can $19T be serviceable today? Was $55T in off-balance sheet liabilities—Medicare, Medicaid and Social Security—in 2011 less serviceable than $90T in off-balance sheet liabilities today?

My suspicion is that the change in the interpretation of the narrative has to do with the fact that in 2011, the lessons of 2008–2009 were much closer. My observation, having been in financial services for 40 years, is that people’s anticipation of the future is set by their experience in the immediate past. And the experience that we’ve had in the 2011–2015 time frame is that the big thinkers of the world—the Yellens, the Merkels, the Obamas—have somehow muddled through. But the liquidity they have added to the equation is not a substitute for solvency. That is the great, popularly held precept that’s wrong. What I don’t know is when the reckoning occurs.

TGR: Going back to Soros and a widely held popular belief and you bet against it, what’s the bet against this?

RR: Gold for one thing. I think you also need to have U.S. dollars because cash gives you the courage and the means to take advantage of circumstances like 2008. But I think that if you had a set of circumstances where faith in the U.S. dollar and U.S. dollar-denominated sovereign instruments began to falter, gold would be an enormous beneficiary. History tells us that if you’re using gold as an insurance policy that a very small premium—a fairly small amount of gold held in a portfolio—gives you an enormous amount of insurance. In other words, the upside volatility in the gold price is such that you can protect your portfolio against losses in other parts of your portfolio by having fairly moderate gold holdings.

TGR: Are you talking about physical gold?

RR: This would apply to physical gold or proxies like the Sprott Physical Gold Trust, the Sprott Physical Silver Trust and the Sprott Physical Platinum and Palladium Trust.

TGR: Soros has said that sometimes it takes two or three years before a bet actually comes in to the money. If we are expecting the gold price to increase as the faith in the dollar falters, what is the role of mining equities in betting against the status quo?

RR: I think it’s important to segregate between the gold bet and the gold equities bet. I would say if you think that gold is going to go up, buy gold. Don’t buy the gold stocks for that reason. This is particularly the case with the juniors. People ask me, “Rick, if the price of gold goes up, what will it do to the share price of my Canadian junior, Amalgamated Moose Pasture Mines?” The truth is that Amalgamated Moose Pasture doesn’t have any gold. It’s looking for gold.

If the price of something that you don’t have goes up, it doesn’t have much impact on the intrinsic value. I will say that the leverage that’s inherent in the best 10% of gold stocks is superb, but you need to buy those stocks because the management team is adding relative value. You can’t buy the shares hoping for a magnification of the gold price increase. That won’t compensate for the risks. There have to be other ways the company is advancing.

The truth is that the gold mining industry has been an enormously efficient destroyer of capital in the last 40 years despite real increases in the gold price. You need to be an excellent stock picker to overcome drag brought on by corporate inefficiency relative to the inherent leverage that you should theoretically enjoy in equities relative to the gold price. The equities have made me an enormous amount of money in the last 40 years. It’s just that as a consequence of understanding the equities for what they are, I’ve done a better job of picking them.

TGR: The Silver Summit was the first time I heard you explain the concept of “optionality.” What is your advice in this climate for mining investors?

RR: For the right class of reader who is speculative and willing to do the work, there is a class of junior company that offers extraordinary leverage to the changing perceptions in favor of gold and gold equities. It is inherently illogical to put a mine in production because you think the price of a commodity is going to go up in the future. Let’s say that there’s a five-year lag between the time that you put the mine in production and the time that the commodity price goes up. What happens is that you’ve mined the better half of your ore body and sold that gold during periods of low gold prices in anticipation of higher gold prices. So the gold price goes up, and you have a hole in the ground where your gold used to be. Fairly silly.

A much better strategy is to buy deposits cheaply when gold prices are low. Then hold them in the ground, spending almost no money on beneficiation. Spending money at that point only causes you to issue equity, which reduces your percentage ownership in the deposit.

TGR: How does someone who is not a geologist know what the relative cost of getting that gold is if the company hasn’t done some work like drilling and publishing a preliminary economic assessment to educate me?

RR: One thing investors can do is subscribe to publications like Brent Cook‘s newsletter or visit the free educational material at www.sprottglobal.com. The truth is that nobody, even the best investor in the world, is going to get it right all the time. All you have to do is get closer than your competition. Given the fact that most of your competition isn’t doing any work whatsoever, the bar isn’t very high.

TGR: Another investment strategy that you have been a fan of is streaming companies. How would you compare their optionality given where the gold price is now?

RR: I love the streaming business. It’s regarded as an extremely conservative strategy, and maybe that’s why I like it. In the streaming business, the contracting company buys the rights to a certain amount of gold or silver from a mine for a fixed price over a given period of time. The company receives the gold in return for a pre-negotiated payment irrespective of the gold price at the time that the gold is received. The company that contracts for the gold isn’t responsible for the capital cost required to build the mine, so any cost overrun associated with the mine is irrelevant to the streamer. Similarly, it is not responsible for the operating cost of the mine. It has already locked in its costs. Commonly, those are about $400/oz. The margin between $400/oz and $1,000/oz—$700/oz—is substantially greater than the margins enjoyed by the mining industry in general, which are, in fact, negative.

What I really like about the streamers right now is the arbitrage in cash flow valuation between the streaming companies and the base metals mining companies. Precious metals-derived revenues in a streaming company, because of the success of streamers in the last 20 years, have been capitalized at about 15 times cash flow. That same precious metals revenue as a byproduct revenue in a base metals mine is capitalized at about six times cash flow. That means that a streaming company could buy that cash flow from a base metals mining company at $10M, and it would be wildly accretive to the streaming company at the same time as it would materially decrease the cost of capital for the base metals mining companies.

Base metals mining companies are in truly dire circumstance right now, with the price that they’re being paid for their base metals commodities being substantially lower than their all-in sustaining capital costs for producing it. This means that the base metals mining companies need to do whatever they can do to lower their cost of capital. My suspicion is that you will see many billions of dollars of precious metals byproduct streams from base metals mines being sold from the major base metals mining companies around the world to the streaming companies. My suspicion is that these transactions will simultaneously save the base metals mining company billions of dollars in capital while being accretive to the precious metals streamers by billions, too. I think this is a transformative event for the streamers.

TGR: If a base metals company is essentially losing money for every pound pulled out of the ground, why wouldn’t the management leave the commodity in the ground until prices increase? Why don’t they practice optionality?

RR: One of the challenges with the optionality strategy is it is very tough to get a management team to do nothing. It’s tougher yet to get them to be paid appropriately for doing nothing. Not mining is an awful lot cheaper and an awful lot easier than mining, but the truth is that there’s a bias to produce, and there may be a need to produce. Your all-in cost to produce 1 pound of copper may be $2.75, but your cash cost to produce that pound may be $1.70, and if you sell it for $2/lb, you are generating $0.25 to service debt and cover the all-important CEO salary.

TGR: Frank Holmes agreed with you when he said that while the price of gold seems to have languished in the U.S. dollar terms, in other currencies it has been doing quite well. Particularly, he pointed to Australian mining companies as standing out. Do you agree?

RR: Australian gold stocks have performed incredibly well this year, so part of that thesis has been used up by the share price escalation of those companies. Given that Australian gold mining companies sell their product in U.S. dollars but pay their costs in Australian dollars, they had a de facto 40% decrease in their operating costs, which is extraordinary. In fact, the decrease was deeper than that because a major component of their variable costs is the price of energy, and the price of energy fell 50% in U.S. dollar terms at the same time that the Australian dollar fell further. That means that the operating performance of gold mining companies in Australia relative to gold mining companies whose costs are denominated in U.S. dollars with U.S. operations has been extraordinarily good.

We don’t see any near- or immediate-term strength in the Australian dollar so this cost competitiveness could continue. Additionally, the iron and the coal industry, which compete for workers and inputs directly with the gold industry, have experienced continued distress, which means that the cost push even in Australian dollar terms will diminish.

Plus, we see the Australian market as more honest than the Canadian or the London market in the sense that the mining industry in North America and Europe became increasingly securities-oriented where the value proposition became rocks to stocks and stocks to money. In Australia, the ethos is more a direct drive, more a sense that you want to make money mining and that the stock ought to take care of itself. We see that as a competitive advantage that will continue for five or six years while the North American and European industries reform their expectations.

TGR: The value of the Canadian stocks has been decimated over the last three years. If the management teams are not focusing now on making money now, what’s going to make them change?

RR: Hopefully, bankruptcy. There are 500 or 600 listings on the TSX Venture Exchange that are zombie companies with negative working capital. They’re in a capital-intensive business, but they have no capital, so they aren’t really in businesses. These companies need to be extinct. It’s an ugly thing to say to the people who own stock in these cockroaches and uglier still to the people who work for the cockroaches, but it has to happen.

TGR: You’ll be speaking at the Vancouver Resource Investment Conference at the end of January. What are you hoping that investors take away from that conference?

RR: This conference is in Vancouver, so it’s easy and cheap for companies to exhibit there. The first thing that I hope that people do is understand that if the narrative that existed with regard to resources and precious metals in 2011 was true then, it’s more true now. Only the price has changed. Investors need to recognize that a market that’s fallen by 88% in nominal terms and 90% in real terms is precisely 90% more attractive now than it was then. The mistakes that people made then were mistakes of overvaluation. The mistakes that people make now are mistakes of undervaluation.

It’s important, however, not to make the mistakes that we made in the past. The truth is that you need to temper your expectation of wonderful stories with hard core reality, with securities analysis, which people are unwilling to do. At that conference, you will have the ability to learn lessons in equity market valuations if you are willing to work and absorb them. And you have the ability, with 200 exhibitors present, to practice the lessons that you’ve learned in real time, 20 or 30 meters away from where you learned the lesson itself. So it’s a wonderful opportunity for people who come to work rather than people who come to be entertained.

TGR: Thank you, Rick, for your insights.

Rick Rule, CEO of Sprott US Holdings Inc., began his career in the securities business in 1974. He is a leading American retail broker specializing in mining, energy, water utilities, forest products and agriculture. His company has built a national reputation on taking advantage of global opportunities in the oil and gas, mining, alternative energy, agriculture, forestry and water industries. Rule writes a free, thrice-weekly e-letter, Sprott’s Thoughts.

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DISCLOSURE:
1) Karen Roche conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report and The Life Sciences Report, and provides services to Streetwise Reports as an employee. She owns, or her family owns, shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of Streetwise Reports: Fission Uranium. The companies mentioned in this interview were not involved in any aspect of the interview preparation or post-interview editing so the expert could speak independently about the sector. Streetwise Reports does not accept stock in exchange for its services.
3) Rick Rule: I own, or my family owns, shares of the following companies mentioned in this interview: Fission Uranium Corp. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over which companies would be included in the interview based on my research, understanding of the sector and interview theme. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
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Frank Holmes on Resource Commodities and Currencies: Reaching an Inflection point?

Have Commodities Reached an Inflection Point?

By Frank Holmes – CEO and Chief investment Officer US Global Investors

Iceberg, Nominal Interest Rates and Real Interest Rates

Last week the Federal Reserve announced it would delay the interest rate liftoff yet again, but while everyone seems concerned about nominal rates—the federal funds rate, in this case—real rates have already risen about 5 percent since August 2011. This “invisible” rate hike is much more impactful to commodity prices and emerging markets than a nominal rate hike, which is simply the “tip of the iceberg.”

Since July 2014, the U.S. dollar has appreciated more than 20 percent. This has had huge implications for net commodity exporter countries, both developing and emerging, which typically see their currency rates fluctuate when prices turn volatile.

But why does this happen?

The main reason is that most commodities, including crude oil, metals and grains, are priced in U.S. dollars. They therefore share an inverse relationship. When the dollar weakens, prices tend to rise. And when it strengthens, prices fall, among other past ramifications, as you can see in the chart below courtesy of investment research firm Cornerstone Macro.

Dollar-Appreciation Spikes Almost Always Lead to International Currency Crises
click to enlarge

Indeed, commodities have collectively depreciated close to 40 percent since this time a year ago and are at their lowest point since March 2009. We might very well have reached an inflection point for commodities, which opens up investment opportunities.

Net Commodity Exporters under Pressure

The number of developing and emerging markets that are dependent on commodity exports has risen in recent years, from 88 five years ago to 94 today, according to the United Nations Conference on Trade and Development (UNCTAD). Many of these countries—located mostly in Latin America, Africa, the Middle East and Asia—have a dangerously high dependency on a small number of not only commodity exports but also trading partners.

For many suppliers, China is the leading buyer. But the Asian giant’s imports have been slowing as its economy transitions from manufacturing to services and housing, forcing many net commodity export countries to rethink their dependency on China.

China's Services Industry Surpasses 50 Percent GDP
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This is the position Indonesia finds itself in right now. As much as 50 percent of its total exports consists of crude oil, palm oil, copper, coal and rubber, for all of which China has historically been a vital importer. A stunning 95 percent of Mongolia’s exports flow into its southern neighbor, according to the World Factbook. And for Chile, commodities represent close to 90 percent of total exports, about 25 percent of which goes to China.

But countries needn’t have such a high dependency on commodities for their currencies to be affected. The Australian dollar, for instance, has a positive correlation with iron ore prices.

Australian Dollar Tracks Iron Ore Prices
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About 98 percent of the world’s iron ore supply is used to make steel. So important is the metal to the state of Western Australia, where most of the continent’s deposits can be found, that every $1 decline in prices results in an estimated $49 million budget loss.

The same relationship exists between the Peruvian sol and copper. Peru is the fourth-largest copper producer in the world, preceded by Chile, China and the U.S.

The Peruvian Sol Tracks Copper Prices
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The Russian ruble, Canadian dollar and Colombian peso all follow crude oil prices. (Russia is the third-largest oil producer in the world; Canada, the fifth-largest; Colombia, the 19th-largest.)

Russian Ruble Tracks Oil Prices
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Canadian Dollar Tracks Oil Prices
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Colombian Peso tracks Oil Prices
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It’s important that we see stability in emerging market currencies, which would help support resources demand. We’ve seen some stabilization in the Chinese renminbi after it was depreciated in August, but a few others are down pretty significantly.

Currency Depreciations Against the U.S. Dollar for the 12-Month Period
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Global Manufacturing Could Reverse Course Sooner Than You Think

I’ve shown a number of times that commodity demand depends on manufacturing strength, as measured by the J.P. Morgan Global Purchasing Manager’s Index (PMI). This indicator has steadily been trending lower. Although the reading is still above the neutral 50.0 line, commodity prices have reacted negatively.

Commodities are Highly Correlated to Global PMIs
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Cornerstone Macro believes both the Chinese and global PMI are “likely” to rise in October, leading to a full year of upside potential. If true, this is indeed welcome news, but it’s worth remembering that the PMI looks ahead six months, meaning it’ll take approximately that long for commodities to recover.

In any case, now might be a good time for investors to consider getting back into commodities and natural resources since we could be in the early innings of an upturn.

“You want to buy commodity stocks when they’re out of favor, because they are cyclical,” Brian Hicks, portfolio manager of our Global Resources Fund (PSPFX), told The Energy Report last week. “If you look out 12, 18, 24 months from now, those equity values should reflect equilibrium commodity prices and move significantly higher from here.”

Strong dollar, weak oil a lifeline for struggling gold miners

A good number of gold miners are on the brink at $1200 gold or lower, but the weak dollar and the massive drop in the oil price will be providing many with a little more hope of surviving.  Article published on Mineweb.com.  Click here to read this article on Mineweb

With the quarterly reporting season for Q4 2014 now with us we should be seeing the beginnings of a serious uplift in margins for gold miners around the world, an uplift which will have been accelerating further since the year end.  While the gold price itself may have weakened during Q4, although not materially so, two factors will have been impacting very positively on the results of many marginal miners.

One important factor during Q4 will have been the ever increasing gains of the US dollar against most local currencies which, on its own will have led to an increase in revenue to operating costs margins in non-US dollar related parts of the world – in some cases, however,  rather more than others.  Australia, with its plethora of large, mid-sized and small gold miners will perhaps have benefited most in this respect with its currency falling around 14% against the US dollar over the period.  They sell their product in US dollars, but incur most of their costs in local currencies thus improving margins by the percentage fall in local currency parity against the greenback

The other major factor positively affecting the revenue/costs balance will be the oil price fall and this will have been particularly beneficial to virtually all the mining operations in remote areas without access to grid power, or without their own hydro-electric plants.  This will apply to most West African gold mining operations for example.  Further, open pit gold miners with oil guzzling truck fleets will also see some big benefits.  With the oil price falling throughout the quarter, and even more since the year end, the cost improvement as a result will be continuing to improve.  However it should perhaps be noted that these mines in remote areas do tend to carry large fuel  stocks on site against possible supply interruptions, and some will also have been hedging oil prices on the way down, which means the full impact of the dive in the oil price may only now be being felt as we move into Q1 2015, but many will already have been seeing the benefits in the earlier quarter although perhaps not yet to the full extent.

As we pointed out in an earlier article looking at all types of mining operations, the cost of power represents a very large proportion of overall operating costs, particularly for those having to rely on diesel generators, due to their locations.  Power for crushing and grinding alone, for example, may account for up to 40% of a mine’s energy costs, while total energy costs may account for a similar percentage of total operating costs for some mines relying on diesel generators and diesel powered loading and hauling equipment.

See: Expect some big mining cost falls in Q1

It is probably the gold mining sector which may well benefit most, and the smaller miners most of all.  Many gold mining operations are much smaller in tonnage terms than the big open pit iron ore or base metal mines so don’t have the wherewithal to invest in long power lines to connect them to the electrical grid system where this might be feasible for a bigger operation.  There are also probably more remotely located marginal gold mines out there than there are of mines in most other sectors.  The huge runup in the gold price up to 2012 prompted a good number of development decisions predicated on $1,000 gold and higher which have been coming on stream over the past year or so, and most of these have to be considered marginal operations at today’s gold price sitting at nearly 40% below its peak.

In the mad rush to develop these new mines to take advantage of rising gold prices, too often some costs ramifications were glossed over.  They would be more than countered by the seemingly inexorable rise in gold, but the reality has been different.  The rapid expansion of the sector also led to a shortage of qualified and experienced managers who might have been through ups and downs in the mining cycle before and might have been more price risk aware.

But what’s done is done, leaving a host of struggling gold miners, already battling to stay, or become, profitable and the latest dollar strength/oil price weakness scenario is probably offering a lifeline which may keep rather more of them afloat.  They will be hoping against hope that this double benefit to their costs structure will continue until the gold price picks up again – if it does.

Gold breaks through Dollar and Euro resistance

Julian Phillips’ market commentary on gold and silver for Jan 6th.

New York closed yesterday at $1,205.50 up $18.00 as the gold price broke through key resistance in the dollar and in the euro. Gold continued to rise in Asia to $1,209.7 and in London to over $1,212 ahead of London’s Fix. The Fix saw the gold price set at $1,211 up $19.00 and in the euro, at €1,017.305 up €18.495 while the euro was another 0.3 of a cent weaker at $1.1904. Ahead of New York’s opening gold was trading in London at $1,211.80 and in the euro at €1,018.49.

The silver price closed at $16.20 in New York up 41 cents. Ahead of New York’s opening it was trading at $16.31.

There were purchases of 1.648 tonnes of gold into the SPDR gold ETF and sales of 0.03 tonnes from the Gold Trust yesterday. The holdings of the SPDR gold ETF are at 710.808 and at 161.15 tonnes in the Gold Trust.

Yesterday was an important day for gold as resistance was broken in the euro and strength is now indicated in the dollar price of gold. This makes today just as important as yesterday, as any price rises in either currency reflects the changing mood of markets globally and a positive indicator for gold.

With the year ending on a positive note for global financial markets, yesterday saw the mood turn down, as markets fell across the world alongside the oil price. The oil price is hitting new lows making the prospect of $35 a barrel of oil a distinct prospect, as oil producers raise production to compensate for lost revenue, exacerbating the situation in the oil market.

The euro is currently standing at $1.1904 and looks like falling lower. Emerging markets are showing the greatest signs of stress as prices fall there. While the oil price falls are direct stimuli to the global economy, these are part of the computations for economic growth measurement. In this case such statistics distort what is happening as they treat lower oil prices as deflationary, not as they really are, growth factors.

What is becoming clear to investors is the reality that central bank and government’s ability to promote true growth is very limited as we have seen in the last 8 years.  For precious metals what is important is the reality that any confidence in the future is tempered by the visibly high degree of uncertainty, volatility and a dash of prudence, that will prove positive for gold and silver.

The silver price is now back on track and moving up with gold. As on the fall it exaggerates the downside, so on the rise it will also exaggerate the upside.

Julian Phillips is founder and editor of www.goldforecaster.com and www.silverforecaster.com  

 

 

Farewell free TTMYGH – Grant moves on

Farewell free TTMYGH – Grant moves on

By Lawrence Williams

One of the most interesting commentators on the geopolitical and precious metals scenes is Grant Williams, and his free newsletter, Things that make you go hmmm.. (TTMYGH) has always been mandatory reading .  It is a quirky piece, but always hugely insightful and entertaining too.  One may not agree with all his opinions, but everything is presented well – and if you’ve ever had the privilege of hearing Grant speak at a conference you’ll also be both enlightened and entertained at the same time.

So it is sad news for TTMYGH readers that Grant has, after 5 years, decided to cease publishing it as a free to view letter in favour of setting up a commercial version – much improved he says –  where subscribers will have to pay to access his views rather than receive them for free.  Fair enough, one needs to make a living.  Here’s a link to the final TTMYGH newsletter which makes particular comment on both gold and its long term prospects (spectacular) and the unfolding latest Greek financial crisis which could bring the whole European economic can of worms crashing down.  He brings us his views on the US dollar strength and the ongoing ‘currency wars’ (disturbing), Japan (toast) amongst other things all linked via references to the first UB40 music album, plus a number of key articles and charts written/prepared by other very astute commentators.

The new TTMYGH is due to launch this month and those interested in reading more about it are invited to register by clicking on this link – www.ttmygh.com