Uncategorized – The Daily Gold

Gold royalty firms Franco Nevada, Sandstorm Gold team up for first time as business evolves

Financial Post — Tue, 12 Aug 2014 23:23:11 +0000

Why Canada’s Junior Mining Sector is going to pot – literally

Financial Post — Sun, 01 Jun 2014 02:16:01 +0000

Stagflation and the credit cycle

GoldMoney — Sat, 03 May 2014 19:53:42 +0000

An article by Alasdair Macleod, Head of Research, GoldMoney

Stagflation: When the general level of prices rises due to the purchasing power of currency-money falling, instead of price inflation due to a general increase in demand.

The credit cycle that normally drives advanced economies through boom and bust is turning out to be different this time round. The boom between the Lehman bust and the one yet to come never got going, because of very high levels of existing debt. This condition will almost certainly lead to stagflation.

Normally a prolonged period of low interest rates stimulates demand for bank credit to finance consumer demand. This time the signs are that a prolonged period of extremely low interest rates has failed to stimulate much more than asset prices. There are now signs that the global economy is stalling and there will be no boom, because consumers are already maxed out.

Therefore, it is hard to see how US interest rate policy can ever leave the zero bound. Unless something can be done to get the credit cycle back on track again, today’s high asset values may not be sustainable, and falling asset values at times of exceptionally high debt can lead to widespread bankruptcies and a self-feeding slump. If the income earned by productive assets is not growing, something else will have to supplement it. At the very least this will involve an indefinite extension of very low interest rates beyond 2015. And every time asset values show signs of flagging, monetary intervention will be required.

In the US, asset inflation has been the Fed’s objective since the Lehman crisis in 2008. However the exit plan was always to stimulate economic growth, allowing fiscal imbalances to reduce and interest rates to return to more normal levels. So signs that the US and global economies are now stalling raises the possibility that zero interest rate policy is going to be with us for many years yet. As long, that is, as price inflation remains subdued.

This is where monetary policy will come unstuck. The purchasing power of a currency can vary independently from economic demand, giving rise to stagflation. Technically this is inflation in a stagnant economy reflecting a change in preference against money in favour of goods. If the currency in question is the dollar, the reserve currency against which all others are benchmarked, the purchasing power of the whole currency complex can fall without any improvement in economic conditions.

Ultra-low interest rates, with no realistic possibility of rising to a proper market rate, will eventually undermine any currency’s purchasing power. The authorities will be helpless, because to raise interest rates sufficiently to restore monetary confidence will almost certainly bring about the bankruptcies deferred since the Lehman crisis, potentially collapsing the west’s entire financial system. The Volker response in 1980 of sharply higher interest rates to similar conditions then is not a policy option today.

In a nutshell, the conditions now exist for a decline in the purchasing power of all major currencies. If this happens it will result in prices of everything inexplicably rising; and if it becomes apparent to the general public that interest rates cannot be permitted to rise, stagflation will rapidly become impossible to control.

Ends

NOTES TO EDITOR

For more information, and to arrange interviews, please call Gwyn Garfield-Bennett on 01534 715411, or email gwyn@directinput.je<mailto:gwyn@directinput.je>

GoldMoney is one of the world’s leading providers of physical gold, silver, platinum and palladium for retail and corporate customers. Customers can trade and store precious metal online easily and securely, 24 hours a day.

GoldMoney has offices in London, Jersey and Hong Kong. It offers its customers storage facilities in Canada, Hong Kong, Singapore, Switzerland and the UK provided by the leading non-bank vault operators Brink’s, Via Mat, Malca-Amit, G4S and Rhenus Logistics.

Historically gold has been an excellent way to preserve purchasing power over long periods of time. For example, today it takes almost the same amount of gold to buy a barrel of crude oil as it did 60 years ago which is in stark contrast to the price of oil in terms of national currencies such as the US dollar.

GoldMoney is regulated by the Jersey Financial Services Commission and complies with Jersey’s anti-money laundering laws and regulations. GoldMoney has established industry-leading governance policies and procedures to protect customers’ assets with independent audit reporting every 3 months by two leading audit firms.

Visit www.goldmoney.com. <http://www.goldmoney.com/index.html>

Gold’s Historical Performance

Tiho Brkan — Mon, 07 Apr 2014 04:07:56 +0000

Chart 1: Gold’s annualised performance worst since 1982 bear market!

Source: Short Side of Long

After looking into Silver’s performance last week, I’ve been asked to do the same with Gold. Today’s chart focuses on Gold’s annualised (12 month rolling) performance. As we can see in the chart above, relative to the 1970s bull market, recent decade long gains have not occurred too fast, in a bubble type manner (think Silver late 70s, Nikkei late 80s, Nasdaq late 90s).

The chart also shows that Gold did not rise with parabolic (vertical) velocity usually linked to manias and public frenzy buying like we saw in 1970s. Therefore, if I am correct in predicting the continuation of the Gold’s bull market towards its climax late in the decade, then we can assume the current under-performance (worst since 1982) is a great buying opportunity.

As stated many times on this blog (despite various rallies), I remain of an opinion that Gold will break below $1190, and closer towards testing $1000 per ounce, before the final low is in. Nevertheless, I continue to add towards my PMs positions on every major sell off.

A Lender Carry Trade; an Old Theme Revisited

Gary Tanashian — Mon, 17 Mar 2014 00:48:55 +0000

March 16, 2014Inflationbanks, business lending, carry trade, inflation
Excerpted from this week’s premium report, NFTRH 282:

Last June when tidbits about a would-be future ‘taper’ of T bond purchases (QE) were popping up in the media NFTRH 241 (June 2, 2013) put forward a theory that a tapering of bond monetization could begin to act as a delivery mechanism for inflation, with banks and lenders the key:

A ‘Carry Trade’ Returns? (6.3.13)

QE ‘Taper’ to T Bond Carry Trade – More Thoughts (6.11.13)

‘Taper to Carry’ is Still Loaded (6.19.13)

‘Taper to Carry’… a Logical Chain (7.8.13)

Gold: “Taper This” (9.17.13)

Characteristics of the ‘carry’:

An incentive for the banks to finally start lending funds out into the economy due to the ‘carry’ spread (a profit mark up for lenders) between rising long-term yields and the officially held ZIRP on the Fed Funds.
It could be a positive for gold and commodities as ‘price’ signals in the economy finally start to gain traction (ex. Last 2 ISM ‘prices’ data were quite elevated) as a long-bemoaned lack of ‘velocity of money’* (i.e. deflationary drag) transforms, at least temporarily into a phase where inflation drives up costs.
It’s an inflationary fix and is part of the reason we have followed the bank sector’s leadership. They would benefit. Precious metals and commodities could benefit as people chase price signals and think “uh oh, INFLATION!” [although is should be noted that a period of ‘cost chasing’ and inflationary hysterics is not the preferred long-term fundamental underpinning for gold; ongoing economic contraction is]

In short it all plays into the current theme that while things may remain positive for the economy and the stock market for a while yet, it is no longer a Goldilocks style bullishness with US stocks sucking up all of the [inflationary] benefit.

I’ll plan to do a public article on this since there are articles showing up in the blogosphere talking about the recent rise in lending, yet without illustrating what I think is the proper path of bread crumbs that were laid to get us to this point.

New (Public) Content

The primary reason I dug this old subject back up in NFTRH is this post by Sober Look (with contributing views from Barron’s and ISI Research), a blog you will find linked on the right side bar of our site. That means I respect what I have seen of this author, FWIW. Here is the post in question…

What’s behind the sudden improvement in US loan growth?

The subject matter caught my eye after an NFTRH subscriber sent me a link to it. Finally, the funds are getting out there into the economy! Well, who’s surprised? With due respect to the author, there is nothing sudden about this situation. Per the first link above from June 3, 2013 and NFTRH 241 dated June 2:

“The Bank Index ratio to the S&P 500 (BKX-SPX) is breaking out to the upside in defiance of a bear case in stocks. The BKX has modestly led the SPX since 2011. We have noted that this is a necessary bullish factor for the financialized economy, which is quite different from a real or organic economy.

Remember the ‘carry trade’ of the Greenspan era? That would be the same carry trade that helped bloat the banking sector, putting its big, fat too big to fail hands in just about every cookie jar in America.

The banks love rising long-term yields because they basically receive free money from the Federal Reserve as the first users of newly created funds on the short end, which is being held down by ZIRP. They then roll these funds into loan products, mark them up per long-term yields and voila, instant profits courtesy of a ‘borrow short, lend long’ gimmick.

Let’s see how this develops, but we should note that Bernanke has not created anything new under the sun. The great carry trade of last decade was just another unnatural systemic stress that led to the 2008 resolution.

Do you suppose that Fed officials are ready to let the banks do the heavy lifting, now with the incentive (carry) to get the funds ‘out there’ to the public? This condition came hand in hand with an inflation problem last decade and now that everybody seems to know there is no inflation, would not a new phase of rising inflation expectations go well right about now?”

Per Sober Look:

“It’s worth mentioning that the bottom in loan growth just happened to correspond to the start of Fed’s taper. Coincidence?”

No.

“The key to this change in trend is that improvements in loan growth have been primarily driven by a sudden jump in corporate lending. Why is corporate America increasing its borrowing all of a sudden? The most likely answer is the improvement in capital expenditures (capex), which is evidenced by firmer capital goods spending by US companies.”

In my opinion that is the tail wagging the dog. A frustrating aspect of the entire recovery out of 2009 has been lenders’ refusal to lend sufficiently for the economy to gain traction. It was not so much a demand (for credit) problem as creditor reluctance or even outright fear.

It is not corporate CapEx that is the driver but very simply, the ability for corporations to gain access to plentiful funding with a now incentivized banking sector.

“Thus the similarities in timing of the bottoming of loan growth in the US and the start of Fed’s taper may not be a coincidence after all.”

No not at all. The trail of bread crumbs was visible over 9 months ago as the Fed started to leak a coming QE taper, which would be the ultimate kick start to the activation phase of the inflation, where the banks are now incentivized to get the inflation ‘out there’, right down Main Street, USA.

* A review of the current Velocity of Money graphs shows an indicator still burrowing lower. This is a measure of the number of times one dollar is turned over in economic transactions. In other words, it is probably a laggard to the front line credit and lending just starting to get going. Since an inflationary economic recovery is not expected to be a lasting economic recovery, it is highly debatable as to whether the Velocity of Money will ever get untracked and into an uptrend.

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Gold challenges $1350

Gold Money — Sat, 08 Mar 2014 03:30:15 +0000

Precious metals Market report by Alasdair Macleod, GoldMoney, Head of Research
7th March, 2014
___________________________________________________________________

From last Friday’s close at $1322, gold opened strongly on Monday trading, as high as $1355 before losing two thirds of the rise on Tuesday. On Thursday afternoon (GMT) gold rallied back to challenge the $1350 level. This morning (Friday) it is in the balance as to whether or not gold will need more consolidation before moving on towards $1400, with everyone watching out for US employment numbers.
The change in sentiment over the last eight weeks has encouraged small traders to go long on gold. Normally, market-makers would be able to mark prices down aggressively to shake out these short-term speculators, but it has not recently happened. This suggests that the underlying market is robust.
Admittedly political developments in the Ukraine are acting as a positive factor, potentially stimulating regional gold demand from countries such as Turkey. There are signs that investor liquidity may also be building in China, driven by bond market concerns. China suffered a minor corporate bond default this morning, notable because it is the first that has been allowed to happen, and it has led to other planned issues being put on hold. Gold is likely to benefit, driven by a new source of Chinese investor anxiety.
In theory at these levels there are stale gold bulls from last October/November to take out before the price can regain the $1400-1420 level, which halted the July/August run-up last year. This can be seen in the chart of the gold price below.

Neither of these supply hurdles should be significant, because of the significant change in underlying sentiment. Furthermore, the ephemeral nature of futures contracts makes past supply levels progressively less important with time.
Silver which is normally twice as volatile as gold, underperformed in January before catching up somewhat last month as shown in the second chart. If gold gets above the $1350s, silver will still have some catching up to do.
The futures markets for precious metals are now at a crossroad. The short positions of the hedge funds, which have driven gold and silver prices higher have now been significantly reduced and are no longer extreme. In gold the bullion banks appear to have taken these positions onto their books and also as swaps. In silver, the shorts have been crossed out against matching longs with open interest falling by 18,000 contracts since mid-February. So instead of precious metals being driven by a bear squeeze, the market will need to either continue to lose physical metal to Asia or find growing support from new bulls attracted by the reversal in trend.
Both are quite likely, and probably explain why gold is bid, despite some obvious profit-taking.
Next week’s calendar
Monday. Eurozone: Sentix Indicator. Japan: M2 Money Supply, Economy Watchers Survey.
Tuesday. UK: BRC Retail Sales Monitor, Industrial Production, Manufacturing Production, NEISR GDP Estimate. US: Wholesale Inventories. Japan: BoJ MPC Overnight Rate.
Wednesday. Japan: Consumer Confidence, Key Machinery Orders. UK: Trade Balance. Eurozone: Industrial Production. US: Budget Deficit.
Thursday. US: Import Price Index, Initial Claims, Retail Sales, Business Inventories.
Friday. Japan: Capacity Utilisation, Industrial Production. Eurozone: Employment. US: PPI.

ends
NOTES TO EDITOR
For more information, and to arrange interviews, please call Gwyn Garfield-Bennett on 01534 715411, or email gwyn@directinput.je
GoldMoney is one of the world’s leading providers of physical gold, silver, platinum and palladium for retail and corporate customers. Customers can trade and store precious metal online easily and securely, 24 hours a day.
GoldMoney stores around $1.5billion of precious metals worldwide for over 22,000 customers.
GoldMoney has offices in London, Jersey and Hong Kong. It offers its customers storage facilities in Canada, Hong Kong, Singapore, Switzerland and the UK provided by the leading non-bank vault operators Brink’s, Via Mat, Malca-Amit, G4S and Rhenus Logistics.
Historically gold has been an excellent way to preserve purchasing power over long periods of time. For example, today it takes almost the same amount of gold to buy a barrel of crude oil as it did 60 years ago which is in stark contrast to the price of oil in terms of national currencies such as the US dollar.
GoldMoney is regulated by the Jersey Financial Services Commission and complies with Jersey’s anti-money laundering laws and regulations. GoldMoney has established industry-leading governance policies and procedures to protect customers’ assets with independent audit reporting every 3 months by two leading audit firms.
Visit www.goldmoney.com.
Follow the GoldMoney Dealing desk team on Twitter: @goldmoneyupdate

USD & Euro Indices Correct – What About Gold?

Sunshine Profits — Sun, 17 Nov 2013 04:58:42 +0000

Based on the November 15th, 2013 Premium Update. Visit our archives for more gold & silver articles.

In our most recent article on gold, USD and Euro Indices we wrote that the outlook for the yellow metal was bearish just as the outlook for the Euro Index and just as it was bullish for the USD Index. At this time – since all of the above-mentioned markets moved in the opposite way – you might be wondering if we are sticking to the above analysis. In the medium-term, we do, but not in the short run. In fact, earlier this week we told our subscribers to cash in the profits from the short positions as the bullish correction was quite likely to be seen.

So, have metals bottomed? Not necessarily. Let’s take a look at the following charts and discuss them. After we describe them, you’ll see, why it’s not a sure bet (charts courtesy of http://stockcharts.com.) We’ll start with the USD Index.

The situation in the long-term chart hasn’t changed much recently and what we wrote in our last article is still up-to-date today.

(…) the long-term breakout above the declining long-term support line was not invalidated. Additionally, the USD Index reversed right in the middle of our target area. Therefore, from this perspective, it seems that the downward move – if it’s not already over – will be quite limited because the long-term support line will likely stop any further declines.

Now, let’s examine the weekly chart.

Looking at the above chart we see that after a sharp rally, which invalidated the move below the lower support line and the breakdown below the medium-term support line (a bold black line), the USD Index almost reached the previously-broken rising medium-term support line created by the August 2011 and January 2013 lows.

The invalidation of the breakdown is itself a bullish signal and it seems that we will still see more of its impact in the coming weeks.

Although we saw a correction in recent days, it is still shallow, which is a bullish signal for the short term – every now and then markets need to take a break from rallying – none of them can move in one direction all the time.

Let’s check the short-term outlook.

Quoting our previous article:

(…) the USD Index rallied in the previous week and moved above the previously-broken resistance line based on the June low. Additionally, (…) the U.S. dollar broke above the short-term resistance line based on the July and September highs. Looking at the above chart we see that both breakouts were confirmed.

On the above chart we clearly see that after the sharp late-October-November rally, the USD Index gave up some of the gains and corrected earlier growth in recent days. Despite this drop, the U.S. dollar still remains above the previously-broken resistance lines. Please note that as long as it stays above the short-term resistance line (marked with red), the situation will remain bullish.

Let’s now take a look at the Euro Index.

Looking at the above chart we see that the October – November decline pushed the European currency to its lowest level since mid-September. At the beginning of the week the Euro Index bounced off the last week’s low and continued its upward move in the following days. In this way, the European currency almost reached the previously-broken 135 level. In spite of this fact, this week’s upswing didn’t change anything, because it didn’t even erase half of the recent decline. Taking this fact into account, it seems that further deterioration is quite likely in the coming week.

To see the current situation more clearly, let’s zoom in on our picture and move on to the medium-term chart.

From the medium-term point of view, the situation is a mirror image of what we saw on the short-term USD Index chart. After the Euro Index dropped below its rising support line and erased 50% of its entire July – October rally, we saw a relatively small move back up, which took the European currency to the 38.2% Fibonacci retracement level based on the October – November decline.

As mentioned earlier, although we’ve seen some improvement in the recent days, the Euro Index still remains below the level of 135. Additionally, the breakdown below the rising support line hasn’t been invalidated.

Please note that the current correction is still shallow, which means that the decline can continue. Even, if we see a move higher, to the 61.8% retracement level, the euro will still remain in a downtrend. From this point of view, the situation is bearish. But if we see a move below 131.56 the bearish implications will be even stronger. On a very short-term basis, though, we can’t rule out more strength in the European currency.

All in all, we could see further improvement in the Euro Index and weakness in the USD Index on a short-term basis. However, it seems that the bearish trend will remain in place as long as the euro remains below its short-term resistance line and the dollar stays above its short-term support line. Therefore, currently, the implications for the precious metal market are bullish but are likely to become bearish shortly. Please take a look at our Correlation Matrix for the confirmation of the above.

Correlations seem to have moved back to their default values in the case of the USD Index and the precious metals sector. This means that it’s no wonder that metals and miners are correcting – the reason could simply be the correction in the USD Index. The latter had quite a volatile run up in the recent weeks and – as mentioned earlier in today’s update – was something that one could have expected. Just as the trend remains up in case of the USD Index, the trend remains down in case of the precious metals sector.

Meanwhile, the correlation coefficients between PMs and the general stock market are rather insignificant on a short-term basis (with the exception of the mining stocks sector, which seems to be waiting for a decline in stocks in order to decline itself), so we can’t tell much about the possible impact of the current outlook for stocks for the prices of gold and silver.

Overall, with bullish implications from the currency sector (despite a very short-term correction that was likely triggered by the correction in currencies) and the unclear impact of the stock market, the precious metals sector seems to be set to decline once again after a quick move up.

What about gold itself? Let’s take a look.

Quoting our previous Premium Update:

Looking at the above chart we see that the situation hasn’t changed much from the long-term perspective. The medium-term outlook was bearish as gold had already broken below the long-term rising support line and the recent decline naturally hasn’t made the situation look bullish.

The medium-term trend remains down and from this perspective it seems that another local top has formed. Therefore, further deterioration is quite likely, if not immediately, then at least soon.

Gold is trading very close to the 38.2% Fibonacci retracement level ($1,285) based on the entire bull market, and just a bit more weakness might trigger a significant sell-off if the breakdown is confirmed.

Summing up, while gold could move higher in the following days – triggered by strength in the Euro Index and weakness in the USD Index – it will likely be just a counter trend move that will be followed by further declines.

To make sure that you are notified once the new features are implemented, and get immediate access to our free thoughts on the market, including information not available publicly, we urge you to sign up for our free gold newsletter. Sign up today and you’ll also get free, 7-day access to the Premium Sections on our website, including valuable tools and charts dedicated to serious Precious Metals Investors and Traders along with our 14 best gold investment practices. It’s free and you may unsubscribe at any time.

Thank you for reading. Have a great and profitable week!

Przemyslaw Radomski, CFA

Founder, Editor-in-chief

Gold Price Prediction Website – SunshineProfits.com

* * * * *

About Sunshine Profits

Sunshine Profits enables anyone to forecast market changes with a level of accuracy that was once only available to closed-door institutions. It provides free trial access to its best investment tools (including lists of best gold stocks and silver stocks), proprietary gold & silver indicators, buy & sell signals, weekly newsletter, and more. Seeing is believing.

Disclaimer

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

GoldMoney Market Report : Starting at $1,286 on Monday gold continued with the momentum of last Friday’s fall, bottoming out on Tuesday at $1,261 in US trading.

GoldMoney — Sun, 17 Nov 2013 04:55:54 +0000

___________________________________________________________________

Starting at $1,286 on Monday gold continued with the momentum of last Friday’s fall, bottoming out on Tuesday at $1,261 in US trading. From then on the price rallied to end slightly higher for the week at $1,290. In contrast, silver fell by 2.8% over the week closing at $20.77 on Friday.

GoldMoney customers, who hold almost 21 tons of gold in secure vault storage worldwide, increased their trading activity by 53% in USD terms compared with last week. This continues a trend of steadily increasing trading levels over the last 3 weeks.

The relative share of trading between the metals remained similar to last week with gold accounting for almost two thirds of the total. Both gold and silver suffered another net sell this week and once again gold was the larger net sell in total USD terms. Trading in palladium remained subdued despite the price falling by 4.1% over the week.

Commenting on customer activity, GoldMoney’s Head of Business Development Andrew McGowan said: ‘The ratio of buyers to sellers increased from 1.10 last week to 1.53 this week which indicates a significant improvement in sentiment despite the overall net sell in terms of USD trading value.’

Commenting on market mood, GoldMoney’s Head of Research Alasdair Macleod said: ‘Sentiment for gold and silver in Western capital markets is now extremely bearish, and this has been reflected in an increase in open interest on Comex as prices fell, illustrated in the charts below. It is unusual to see open interest increase substantially on falling prices. In gold, it represents additional short sales amounting to 72.4 tonnes since 6th November, and in silver nearly 2,600 tonnes. So far it has failed to drive the gold price below $1,200, but if last week was anything to go by then a bear-raid later today cannot be ruled out, when Far Eastern buyers are absent from the market. However, if the recent low at $1,261holds this action will be judged with hindsight as a selling climax, which is ultimately bullish.’

Ends

NOTES TO EDITOR

For more information, and to arrange interviews, please call Gwyn Garfield-Bennett on 01534 715411, or email gwyn@directinput.je

GoldMoney customers hold almost 21 tons of gold in storage worldwide, and own a combined total of US$1.5 billion in precious metals.

Historically gold has been an excellent way to preserve purchasing power over long periods of time. For example, today it takes almost the same amount of gold to buy a barrel of crude oil as it did 60 years ago which is in stark contrast to the price of oil in terms of national currencies such as the US dollar.

GoldMoney is regulated by the Jersey Financial Services Commission and complies with Jersey’s anti-money laundering laws and regulations. GoldMoney has established industry-leading governance policies and procedures to protect customers’ assets with independent audit reporting every 3 months by two leading audit firms.

GoldMoney has its headquarters in Jersey and also has offices in London and Hong Kong. It offers its customers storage facilities in Canada, Hong Kong, Singapore, Switzerland and the UK provided by the leading non-bank vault operators Brink’s, Via Mat, Malca-Amit, G4S and Rhenus Logistics.

Visit www.goldmoney.com.

Follow the Beta Plays with Junior Silver Miners: PureFunds’ Andrew Chanin

The Gold Report — Wed, 28 Aug 2013 19:56:53 +0000

TICKERS: EXN; EXLLF, PEM, SVB; SVBL, TV; TREVF

Source: Brian Sylvester of The Gold Report (8/28/13)

PureFunds has a simple strategy: Be first in the market with innovative exchange-traded funds. Andrew Chanin, PureFunds’ co-founder and COO, describes the firm’s ISE Junior Silver ETF and the factors that make a “leveraged play to the actual spot price of the metal.” In this interview with The Gold Report, Chanin goes on to list some of the names included in the fund and explains how they contribute to its success.

COMPANIES MENTIONED: BEAR CREEK MINING CORP. : COLOSSUS MINERALS INC. : COPPER FOX METALS INC. : ENDEAVOUR SILVER CORP. :EXCELLON RESOURCES INC. : FORTUNA SILVER MINES INC. : MAG SILVER CORP. : MANDALAY RESOURCES CORP. : PERILYA LTD. : SILVER BULL RESOURCES INC. : SILVERCORP METALS INC. :SILVERCREST MINES INC. : TREVALI MINING CORP.

RELATED COMPANIES

The Gold Report: In August, the most active contract in the silver futures market had its best week in five years, and your PureFunds ISE Junior Silver Exchange-Traded Fund (SILJ) traded higher. What should silver investors expect through the end of 2013?

Andrew Chanin: In one word: volatility. However, I think the long-term trend for silver is an upward pattern. The fundamentals for silver and other precious metals look very bullish for stock prices in the coming months.

TGR: You started this silver junior exchange-traded fund (ETF) in late November 2012. Why then? Why silver?

AC: My partner Paul Zimnisky and I have wanted to launch a junior silver ETF for a long time. We see silver as an essential commodity for many purposes. It has incredible industrial uses as a conductor of heat and electricity. It has many medical and surgical applications, as well. On top of that, we’ve seen an undeniable increase in investment demand for silver.

“The fundamentals for silver and other precious metals look very bullish for stock prices in the coming months.”

I like to look at the demand for silver as a pie chart, in which many of the wedges of the pie—industrial investment, jewelry, monetary—are fighting to take up more of the total supply representing the whole pie chart. However, it’s very difficult to meet increasing demand when you don’t have increasing supply.

For example, production in Mexico in H1/13 looks to be down 10%, and Mexico is as essential to the silver production and supply equation as any region.

In addition, many producers were operating at a loss when their cost of getting an ounce of silver out of the ground was higher than the prevailing spot price of silver.

These issues paint a very ominous supply-side picture, while we continue to see record demand for U.S. silver eagle coins. In India, demand increased massively between April and July. This shift in the supply-demand curve makes it appear that demand may sharply outpace supply in the near term and beyond.

TGR: Do those two demand drivers—investment and industrial—make silver the trade right now?

AC: I believe strongly in silver. Precious metals tend to correlate with each other, so it’s important to look at the sector as a whole. Historically, silver has tended to be a beta play on gold. We are seeing that as gold prices move up, silver tends to move up more. It’s the same on the way down.

“We’ve seen an undeniable increase in investment demand for silver.”

In addition, the miners tend to be a beta trade on the underlying metal. Typically, the miners will move even more drastically than the metal price. Then, within the mining space, the junior names tend to have a higher beta play than the more senior producers.

Although the gold-silver ratio had been at near-term highs, I believe we are starting to see that spread collapse a little bit and silver will continue to gain serious ground.

TGR: Why did you choose to build an ETF around junior silver companies instead of large-cap silver miners or midtier producers?

AC: First off, ETFs are like that line in the movie “Talladega Nights”: “If you’re not first, you’re last.”

We did not want to be second to market with any of our fund ideas; every element in our suite of products is the first of its kind. When we looked at the precious metals mining space, we saw several gold equity plays. We wanted to create the first junior silver mining fund.

People who are fans of the junior mining space are there because they get that higher beta play. If investors believe silver prices are on the rise, we thought the best vehicle would be giving them access to a basket of junior silver stocks. But the movement, the volatility and the risk-reward profiles weren’t the only reasons that we were interested in the junior space.

People who invest in mining companies have a higher risk-reward profile than others. They, and the companies they invest in, run different types of risk. There is company risk where management might not perform or a crisis hits the company, reducing its market cap. There also is nationalization risk, where a country takes over a producing mine.

We wanted to provide a way for investors to get a basket of these companies to diversify or mitigate some of that risk. You can’t eliminate company risk, but you can try to protect against the amount of risk any one company contributes to the risk profile of your entire investment by diversifying. By trading a basket of junior mining companies, you don’t need to pick that one superstar company; instead, you have a group of companies that should track the industry as a whole.

TGR: Tell us about the index that your junior silver ETF tracks.

AC: The index was created by the International Securities Exchange (ISE) and contains between 20 and 40 junior silver companies. When the index was created, the ISE looked at certain volumes and dollar values traded on a daily basis by the companies to ensure ample liquidity for the fund. On top of that, ISE wanted to see market caps between $50 million ($50M) and $2 billion ($2B). The $2B ceiling made sense, being that junior companies are typically explorers or if they are in production it’s on a low scale. We wanted junior companies so investors would be able to take advantage of the many different aspects that they offer. For example, juniors could be takeover candidates, they could have the next great discovery or they could partner with senior producers to put the mines into production or grow organically.

TGR: You and Paul helped determine the companies in this index, correct?

AC: We wanted to because it’s an area that we track very closely, but due to compliance rules, there had to be a separation, so we did not pick the stocks.

TGR: Which silver companies carry the heaviest weighting in the ISE Junior Silver ETF?

AC: Currently, the top four are Silvercorp Metals Inc. (SVM:TSX; SVM:NYSE), Fortuna Silver Mines Inc. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE), Endeavour Silver Corp. (EDR:TSX; EXK:NYSE; EJD:FSE) andMAG Silver Corp. (MAG:TSX; MVG:NYSE). They are the larger companies, the larger weightings, but they also are closer to becoming midtier producers, as well.

“We think that exposure to silver is just as important as exposure to gold, not only for protection, but also through the junior miners as leverage to that investment.”

They are followed by Bear Creek Mining Corp. (BCM:TSX.V), Aurcana Corporation (AUN:TSX.V; AUNFF:OTCQX), Mandalay Resources Corp. (MND:TSX) and SilverCrest Mines Inc. (SVL:TSX.V; SVLC:NYSE.MKT).

TGR: Which have been the best performers since inception?

AC: Since inception, these eight names have tracked the general junior silver space, which means they have been adversely affected by declining silver prices. Unfortunately, none of them has had great performance since inception.

TGR: How about over the last month?

AC: Since the turnaround that started at the end of June, many of these names have come off their near-term lows. We have seen some great increases in price, some upward of 50%, which may be because they had been so severely oversold to the downside.

Also, many of these companies have been using this downturn as an opportunity to examine their cost structures and expenses and to reallocate capital or to look for new properties or low-cost projects.

Just as some of the great contrarian or deep-value investors of our times say, the best opportunity to buy is when everyone hates the space. Over the past couple of months, the precious metals mining space was one of the most hated areas for investing. That meant some names not only saw quick increases to their investment value, they also have been able to look around and make acquisitions while others were selling off assets at fire sale prices.

TGR: In comparison to other ETFs, the ISE Junior Silver ETF has done well.

AC: Yes. In July 2013, for all U.S.-listed ETFs, excluding leveraged ETFs and inverse ETFs, the ISE Junior Silver ETF was the second-best performing ETF. More people have been picking up on it due to that performance, and those gains didn’t just sell off at the end of the month. There has been follow-through.

TGR: Which companies do you believe have catalysts that will help the ETF continue its run?

AC: Some of these catalysts apply to all the companies because their prices have been so abused. Across the board, these companies have been oversold, so many will benefit from an increased price in silver going forward.

Excellon Resources Inc. (EXN:TSX) is an example. Its operating cost to extract an ounce of silver is in the low $20s/ounce ($20/oz), which puts it among the lower-cost producers, especially in the junior space. If the silver price increases, it could bounce back very quickly. Excellon is looking for potential properties for acquisition at low valuations.

TGR: Could that result in a merger of two companies in the index?

AC: I’m not apprised of the targets Excellon is looking at, but that could happen.

It is interesting that many companies in the silver space will sit on cash, especially when the spot price of the metal has gone down. Some miners sit on their inventory of produced silver instead of selling it into the markets. Excellon is doing it a different way by investing in the Sprott Physical Silver ETF (PSLV) to get that kind of price movement to silver. This gives Excellon some investment correlation based on the performance of silver associated to its cash position.

TGR: One of the main reasons Excellon is such a low-cost producer is that it has the highest-grade silver mine, the La Platosa mine in Mexico. Are there other companies where grade is such a significant factor?

AC: Aurcana has some interesting high-grade deposits. Mexico has some very impressive ore grades. Through our underlying index, the fund holds some companies that are sitting on impressive-looking reserves.

TGR: There are not many pure silver plays in the junior mining space. How important to the performance of your fund are the other commodities these companies are producing?

AC: Primary silver companies are very rare because there aren’t many primary silver deposits. Typically, zinc, copper, gold and lead tend to be byproducts of silver mining. Some of the companies in the ISE Junior Silver ETF have offtake agreements, and the sale of these other commodities can help their cash situation.

The index is constructed to remove or decrease the weighting of companies as their operations become less silver-reliant and to increase the weighting for companies that acquire more silver-heavy assets or begin to produce higher quantities and percentages of silver.

The companies in the ISE Junior Silver ETF aren’t completely insulated from the costs of some of those byproducts, however the index attempts to give higher weighting to those companies that are more focused on silver.

TGR: Tell us about a couple of the companies in the index that are producing silver along with significant quantities of other commodities.

AC: Trevali Mining Corp. (TV:TSX; TREVF:OTCQX) has some heavy zinc deposits in production and in reserve. They could buoy the stock in times when zinc does well.

Perilya Ltd. (PEM:ASX) in Australia is mining a wide range of metals. In addition to silver, it has exposure to copper, gold, lead and zinc.

TGR: Trevali recently started producing zinc and lead-silver concentrate at its Santander mine in Peru. Do you expect that to translate to the share price?

AC: I certainly do. It would be impossible for the production of those metals not to have an effect on the share price because they are such impressive quantities, zinc particularly.

TGR: You talked about grade earlier. What other miners have high-grades?

AC: Silver Bull Resources Inc. (SVB:TSX; SVBL:NYSE.MKT) was added to the index in June and we are very excited about it. Its Sierra Mojada project in northern Mexico is in a very shallow silver zone. Anytime you don’t have to move tons of earth to get to the shiny stuff, it’s a very good situation. Its property is in historically mining-friendly jurisdictions.

Silver Bull’s management has been judicious. Unlike other companies acquiring projects when prices were running up, Silver Bull was not buying whatever it could just because the property contained metal. Management was wise and value-oriented in looking at ore grades when figuring out production costs to find a balance between good jurisdictions and high-grade projects.

TGR: Some of the better names in the junior mining space have seen dramatic share price increases this month. Colossus Minerals Inc. (CSI:TSX; COLUF:OTCQX), Copper Fox Metals Inc. (CUU:TSX.V) and a couple of the names you mentioned have seen increases greater than 50%. Has the “brand-name” section of the junior mining space turned the corner?

AC: I believe that we have seen a turnaround. It was due, in part, to the fact that some of these names had been so badly punished, but even more to the fact that the spot price had dropped so low. Only a handful of companies can produce profitably with silver prices below $20/oz. At that point, you have to cut costs. You have to shut down mines, and when you shut down mines, you remove silver supply. Removing supply affects the whole supply-demand chart.

We were seeing an artificially low price for silver, by which I mean a price lower than what the supply-demand structure would suggest. These artificially low silver prices caused the sharp decline in silver miners, leading to names trading to all-time or multiyear lows; silver’s rally back over $20 helped these oversold names come back with such vengeance in recent weeks.

If spot silver prices can recover to where they were at the start of 2013, these names should benefit.

TGR: What other mining-related ETFs are in the PureFunds stable?

AC: We launched the first Diamond/Gemstone ETF (GEMS), a global equity basket. It contains roughly 60% diamond and gemstone explorers and producers; the remaining 40% of the companies are on the retail side. Diamonds go through a lot on the way to becoming an end product, so it made sense to have a global, diversified basket of companies mining for diamonds, as well as being positioned to take advantage of the growing demand in India and China, where the idea of giving diamonds as an engagement gift is spreading for the first time. We thought that having a mix of retailers in the fund would deliver the best picture of what diamonds are doing as a commodity.

Our third ETF is the Mining Service ETF (MSSX). It is a basket of global companies that provide services or equipment to mining companies. We are very proud of this fund. Again, it is the first of its kind.

There are five or so oil service/oil equipment ETFs, but guess how many mining service ETFs there were? Zero. We wanted to give the same type of exposure available in the oil industry to companies operating in the mining sector.

These companies have some correlation to the metals that their equipment or their services are geared to, but they don’t have the same volatility and correlation as a miner, producer or explorer would have. These companies typically get cash up front, whereas a mine might take 5 to 10 years to produce a revenue stream. They get paid on as-you-go payment plans, so their balance sheets and revenue streams are vastly different from mining companies.

They do, however, benefit when spot prices go up because when that happens, companies tend to use their services more as they explore, examine more drill results and look for new properties to expand their reserves and asset bases.

The other thing that makes mining services and equipment so interesting is that these companies are usually under the radar. There aren’t many pure play companies in the U.S, and they also tend to keep their heads down and make money. They haven’t had to go out and raise money like the mining companies. They haven’t had to hire investment banks to do research reports and talk the story up. As a result, they’ve been able to maintain interesting cash positions, and many have paid dividends. This is a way to get exposure to the mining industry and get a dividend.

TGR: You recently declared the first quarterly distributions from the Diamond/Gemstone and the Mining Service ETFs. Were they above or below estimates?

AC: They were in line with our estimates.

TGR: Are you planning any more mining ETFs?

AC: Right now, our passion is the funds that we have launched. We would like to get more follow through on them before bringing any more to market.

TGR: Do you have any parting thoughts on silver?

AC: The last time the financial minds met in Washington, D.C., we saw a drastic selloff in metal prices. We expect that again in the short term, but there are so many different fundamentals in play.

In brief, we believe the silver price, especially in relation to gold, will be incredible. We think that exposure to silver is just as important as exposure to gold, not only for protection, but also through the junior miners as leverage to that investment.

TGR: Andrew, thank you for your time and insights.

Andrew Chanin is the co-founder and chief operating officer of PureFunds. Previously he worked in the prop trading unit of Cohen Capital Group specializing as an ETF Arbitrage trader. He began his career on the American Stock Exchange for Kellogg Capital Group. Chanin has made markets in over 100 ETFs, and this experience has provided him with a vast knowledge of all varieties of ETF products. Chanin holds a Bachelor of Science in Management degree in finance from Tulane University.

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DISCLOSURE:
1) Brian Sylvester conducted this interview for The Gold Report and provides services to The Gold Reportas an independent contractor. He or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Gold Report: Fortuna Silver Mines Inc., MAG Silver Corp., Mandalay Resources Corp., SilverCrest Mines Inc., Trevali Mining Corp., Excellon Resources Inc., Silver Bull Resources Inc. and Colossus Minerals Inc. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.
3) Andrew Chanin: I or my family own shares of the following companies mentioned in this interview: PureFunds Diamond/Gemstone ETF, PureFunds Mining Service ETF and PureFunds ISE Junior Silver ETF. 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 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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Will Gold Mining Stocks Drop Any Further?

Sunshine Profits — Wed, 26 Jun 2013 18:38:41 +0000

Based on the June 26th, 2013 Premium Update. Visit our archives for more gold & silver articles.

Last week was very disappointing for those who had previously been long precious metals and very profitable for precious metals bears. A lot happened after the FOMC meeting and the Federal Reserve Chairman’s statement on June 19, 2013.

As expected, the confirmation of the Fed’s intention to withdraw from QE3 clearly helped the American dollar. After about three weeks of the currency declines, last week brought the breakout and a start of a rally.

The strengthening of the U.S. dollar was a strong blow not only to the currencies, but also to commodity markets.

After Bernanke’s comments, pessimism transpired to the precious metals markets and we saw some of the biggest swings in this sector.

The sell-off in precious metals pushed gold and silver to lower levels and last week they hit new 2013 lows but haven’t found the bottom quite yet, as it seems. On Friday gold fell below its technical support around $1,285-1,308 per ounce. The decrease in the yellow metal triggered a plunge in silver. The white metal has been beaten in the recent months even worse than gold, and on Friday morning its price accordingly went down to the lowest level since September 2010.

Could these events trigger a more profound correction in mining stocks?

It’s said a picture is worth a thousand words. So let’s take a look at some charts below and try to come up with a thousand words to describe what we see (charts courtesy by http://stockcharts.com ).

At the begining, we think it would be interesting to revisit the silver-to-gold ratio to see how the two are valued relative to each other. Perhaps this will provide some clues.

When you take a look at this chart you can ask a simple question: is the bottom already in? Several weeks ago we mentioned the silver-gold ratio as one of the key things to look at when making the call.

We have previously discussed how the final bottom for the white metal is often preceded by a big underperformance of silver to gold. This is yet to be seen, so lower prices are likely still in the cards for the white metal, and the rest of the sector as well.

There’s been no sharp drop so far, so the bottom is likely still ahead of us. If that’s the case and the entire precious metals sector is about to move lower, how low can mining stocks go?

Let’s take a look at two of the most followed commodity stock indices – the Philadelphia Gold/Silver XAU Index and the AMEX Gold Bugs HUI Index.

The XAU Index is above our initial target (84) for this decline (or at least it was at the moment of creating the above chart). As you know this target level was created from the rising support line based on the late 2000 and 2008 lows.

However, it seems that we could see a move even below that level and a local bottom will probably form slightly above 80. This is the range that likely needs to be reached before the declines in the mining stocks and the precious metals sector come to a close.

This might be a great buying opportunity or – more likely – there beginning thereof.

Now, let’s have a look at the HUI Index. The chart below expresses a simplicity that betrays potential information on where this market may ultimately be heading.

Last week gold mining stocks have continued their decline. Although investors have been selling their shares fear remains in control. However, this may not last much longer. As we mentioned above it seems that miners might move even below the initial target of 84 for the XAU Index.

In this case, it is the HUI Index that enables us to create a better price target.

There is a major support zone drawn on the chart which is a worst case scenario. The red ellipse on the above chart includes both important support levels – the 61.8% Fibonacci retracement level and the 2008 low. There’s one more thing that we didn’t mark on the chart and that is the price gap close to the 300 level (the gap was formed in April). Such a price gap sometimes indicates that at the time when its formed, the market is halfway done rallying or (in this case) declining. Taking this analogy provides us with a target in the marked area as well.

Our final chart today is the gold-stocks-to-gold ratio which is one of the more interesting ratios there are on the precious market.

The above chart provides a very bearish picture. We see that the decline continues and that the ratio is quite far from its target – the 2000 low.

Please note that the trading channel and the next horizontal support intersect at a point much lower than where this ratio is today.

As we wrote over a month ago in our Premium Update on May 17, 2013:

The ratio has already broken below the previous late 2008 major low (…). This is a major breakdown and it was confirmed. The implication is that the trend is still down.

With the trend being down and accelerating and the recent breakdown being confirmed, there is a good possibility that the miners will decline significantly once again.

The ratio might move to its target level – the 2000 low – close to the 0.135 level, which is a quite clear forecast as far as direction of the next move is concerned.

Summing up, the outlook for mining stocks remains bearish and the correction is likely still not over. There may be many obvious, and not so obvious reasons for this recent underperformance of the precious metals sector, but the charts are quite clear. In our view it does not seem that the final bottom for mining stocks is already in at least not based on last week’s closing prices.

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