Bullion Rallies Despite “Losing US Fed Prop” as Stock Markets Sink on Weak China Data

BOTH gold and silver rose in Asian and London trade Thursday morning, defying a sharp slide in global stock markets to gain 3.0% rally from yesterday’s sharp sell-off.

Commodity prices fell as major government bonds rose but weaker Eurozone debt slipped, pushing interest rates higher.

Tokyo’s Nikkei index – up by 85% from November – dumped more than 7% after new data showed a surprise contraction in China’s manufacturing sector.

Private “retail” investors have “abducted” the Japanese stock market, accounting for more than a third of recent volume, according to brokers quoted by the Financial Times.

“[Gold's] inability to hold the highs is bearish,” says the latest technical chart analysis from Scotia Mocatta.

“[Wednesday's] intra-day rally is indicative of bargain hunting in gold rather than a change in trend,” the bullion bank adds, pegging support at the April 2013 low of $1323.

Like Barclays Capital’s analysts, Scotia now puts short-term resistance at yesterday’s sudden spike of $1412.

Gold prices rose Thursday morning to breach $1390 per ounce once again, recovering two-thirds of Wednesday’s plunge from that 1-week high – made as US Federal Reserve chairman Ben Bernanke was testifying to the Senate on the likely direction of Dollar interest rates and quantitative easing.

Having warned against “a premature tightening of monetary policy” however, Bernanke was then asked if the Fed might start reducing its $85 billion in monthly QE purchases of government debt and mortgage bonds before Labor Day on Sept. 1st.

“I don’t know,” Bernanke replied.

Minutes from the US central bank’s latest policy meeting also showed one participant wanting to reduce the level of QE “immediately”.

“Not having the future support of the Fed,” says Edward Meir’s note for INTL FC Stone, “will remove a major prop for gold.”

“It seems the market is now squarely focusing on the September 17-18 [policy] meeting for the Fed to make its move,” reckons ING bank’s analysts.

“Together with expectations of tightening quantitative easing,” says Mitsubishi analyst Jonathan Butler – also quoted by Reuters – “the general trend for a modest economic recovery in the developed markets is going to fuel growth in the equity markets and the Dollar.

“That should see gold coming under pressure.”

“The momentum is strongly negative,” says Edward Lashinski, global strategist at RBC Capital Markets in Chicago.

“The market understands that gold is no longer a safe haven.”

On the supply side meantime, “Being more profitable is better than being bigger,” said Jamie Sokalsky, CEO of the world’s largest gold miner, Barrick, at Bloomberg’s Canada Economic Summit in Toronto on Tuesday.

Also forecasting new record highs for the gold price thanks to central-bank demand and the state of the global economy, Sokalsky mooted “divesting” some smaller, higher-cost mines to focus on more efficient projects.

In particular, the giant Pascua-Lama project in Chile – valued at some $8.5 billion, and already eating some $5bn in costs – has been delayed by environmental concerns, says Canada’s Financial Post.

“Barrick is considering all its options at Pascua-Lama,” says the paper, “including outright suspension.”

At current gold prices around 10% of gold mines globally will be making losses, according to Thomson Reuters GFMS data.

“We would initially expect the oldest mines closing,” says a special report from Japanese trading house Mitsui’s metals strategist David Jollie in London, “as they are in many cases coming to the end of their operating life.”

Gold mining companies are likely to avoid closing newer projects “as long as possible,” Jollie says. But if the gold price stays low enough long enough, “closures will happen.”

Adrian Ash

BullionVault

Gold price chart, no delay | Buy gold online

Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can buy gold and silver in Zurich, Switzerland for just 0.5% commission.

(c) BullionVault 2013

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

In January of this year I published a piece on the “fair gold price” in order to demonstrate that, if one was to simply treat the gold of all international central banks as the world’s true, reserve currency – as history has held it as for over hundreds, if not thousands, of years – then a logical calculation would place the value of gold at an astonishing $10,617 an ounce. Compared to gold’s price of $1,675 back then, this was a significant revaluation.

The fair gold price can be calculated by the use of James Turk’s Gold Money Index formula:

Fair Price of Gold (per ounce) = Total Central Bank Foreign Exchange Reserves / Total Central Bank Gold Reserves

As I attempted to explain in my January piece, there is nothing surprising about the formula: it compares the gold bullion reserves of the central banks with their foreign currency reserves.

I concluded by asking what would happen to the market/spot price of gold if central banks around the world started to slowly, or quickly, divert their foreign currency reserves – over $10 trillion’s worth – into gold.

Defining foreign currency reserves

Foreign currency reserves are accounts, mainly held by central banks, composed of foreign currency, foreign government securities, and other foreign currency assets. Under the Bretton Woods Agreement (1944-1971), foreign currency reserves were especially important because the entire agreement hinged on the fact that participating countries would not only commit to a fixed exchange rate for their currencies, but more importantly, that they would “lend” their currencies (or gold) to the International Monetary Fund (IMF) so that the IMF could use said currencies (or gold) to intervene in the foreign currency markets in order to artificially maintain that pre-agreed upon, fixed exchange rate.

For example, whenever one country experienced a balance-of-payments deficit – a situation where it was importing more goods than exporting and, as a result, the supply of its currency was increasing and therefore depreciating in value – the central bank (or even the IMF) would intervene in the foreign exchange markets and use “stronger” currencies from its foreign reserves in order to purchase the “weaker” currency at a fixed rate (usually above market value) in order to try and stabilise the exchange rate and increase the value of its currency.

For proponents of the Bretton Woods system, this type of arrangement was ingenious. For those with more commonsense, economic literacy, and foresight – like the New York Times’ reporter, Henry Hazlitt – this policy was illogical and unsustainable:

“It is obvious that such a plan could maintain even the outward appearance of success only for a short time. It is possible, of course, to keep a valueless currency at any arbitrarily chosen     level by a commitment to pay that price for it, just as it is possible to keep a worthless stock at $100 a share by buying at that price all of the stock that is offered for sale. But when the allotted resources of the buyer run out, the currency or the stock will immediately drop to its natural level, and the buyer will find himself holding just that much worthless paper. The plan becomes particularly unrealistic when each nation can turn out unlimited amounts of its own currency on its own printing presses-with the incentive, which it does not ordinarily have, of a buyer at a fixed price. It seems probable that the plan could only lead to a huge waste of funds and to a temporary world inflation with a subsequent collapse.”

Mr Hazlitt was right: It did collapse and, in 1971, the United States reneged on Bretton Woods and ceased redeeming dollars for gold. But this was not the end of central bank intervention in the foreign currency markets. In fact, it was just the beginning.

Is there an exit strategy for central banks and their foreign currency reserves?

In an article titled, “Do Industrialized Countries Hold the Right Foreign Exchange Reserves?”, published by The Federal Reserve Bank of New York in its Current Issues in Economics and Finance newsletter, the authors focus on primarily two things: 1) the recent and unprecedented amount of foreign currency reserves that central banks have accumulated and 2) how central banks are going to handle – possibly unwind – said reserves from their accounts without disrupting monetary policy and/or economic stability.

In regard to the first point, see the chart below. It clearly shows that central banks across the world are flush with trillions in foreign currency reserves.

In regard to the second and most important point of the article, about how central banks can try and unwind their foreign currency reserves without disrupting the market, the article only has this to say:

“Central banks that acquire a large stock of reserves through foreign exchange interventions . . . face another, longer-term issue. Once reserve balances become high, the central bank may need to identify an exit strategy.”

Forgive me for spoiling the ending, but an “exit strategy” was never fully articulated in the article. But that should be of no real surprise; when it comes to the Federal Reserve’s “exit strategy” for its current $85 billion-a-month diet of mortgage-backed securities (MBS) and US Treasuries, not to mention its previous $2.7 trillion-worth of US Treasury purchases, there can be no exit strategy. And it will be the same with the foreign currency interventions: there will be no exit.

From paper reserves to gold reserves

The only real exit strategy for any central bank is to switch its foreign currency reserves – which are fiat paper dollars – into real reserves: gold. (Let us see what this would do to the price of gold).

According to recent data in/from the Currency Composition of Official Foreign Exchange Reserves (COFER), central banks across the world (excluding China) have accumulated almost $11 trillion in foreign reserves. Additionally, these same central banks – excluding China once again – have just 28,764 tonnes of gold reserves. Therefore, using the Gold Money Index’s formula (shown above), the fair gold price should be $10,783/oz.

Conclusion

Market intervention (otherwise known as manipulation) is the prerogative of central banks. Whether it be intervention that aims at intentionally weakening a currency or intervention that supports a currency above market value, “the true forces of supply and demand be damned” is the philosophy and practice of central banking. But such a philosophy cannot last. The market is stronger than any group that attempts to control it. Why? Because the market is not a single entity but a society of individual actors, working together peacefully, in order to achieve his or her ends by scarce but intentionally means.

Thus, acting individuals will at some point discern the intervention – that is, the manipulation of the supply and demand of the market – and react to protect him or herself.

If central banks are not careful, they too will lose the confidence of the market – that is, the people. And when that happens, not even all the foreign currency reserves in the world will save them. Only gold will.

That should be our exit strategy.

Buy precious metals with us It only takes a few steps to create your Holding

Wait a minute… that’s exactly the same scenario in Israel.

This week the Bank of Israel stepped up its efforts to curb the appreciation of the shekel surprising the markets by unexpectedly cutting its interest rate and announcing a program to purchase foreign currency. A weaker currency boosts exports, driven by cheaper prices. The smaller economies are reacting to all the quantitative easing by the world’s large economies.

Israel’s central bank, headed by Stanley Fischer, one of the most accomplished central bankers in the world, cut the key interest rate by a quarter of a percentage point to 1.5% to a three-year low.

Fischer told Bloomberg that the move came “in light of the continued appreciation of the shekel, taking into account the start of natural gas production from the Tamar gas field, interest rate reductions by many central banks – notably the European Central Bank, the quantitative easing in major economies worldwide and the downward revision in global growth forecasts.”

Despite the global financial threats, the Israeli economy is still in the black and healthier than the economies of many European countries. The shekel has risen by nearly 9% over the past six months, making it one of the best-performing currencies in the world, after the Mexican peso. Israel’s central bank also plans to buy around $2.1 billion in foreign currencies.

Israel’s economy is heavily dependent on exports, and a strong shekel weakens the competitiveness of Israel’s products abroad.

It was Japan this year that shot off the latest round in the currency war after announcing monetary stimulus of historic proportions. Recent steps by the world’s third-largest economy have become a central concern. The impact of the country’s aggressive new monetary policy has been making central bankers around the world lose sleep. Is the Bank of Japan trying to influence exchange rates to give its exporters an advantage? Other countries might react in kind, which is exactly what happens in currency wars.

Actually, this is not surprising to us. The global increase in the money supply and lowering of interest rates is not surprising because countries will have to keep doing that in order to keep their exports competitive. It is a currency war and those who inflate first, get the most benefits. They are short-lived because other countries will follow and the ultimate result will eventually be huge inflation on a global scale, but, again, on a short-term basis, the monetary authorities are pressed not to stay behind others. The comments about the lack of currency war are not surprising either. Speaking publicly about it would simply encourage other countries to join it sooner, and those that are already printing more money don’t want that to happen as it means that the above-mentioned advantage that they gained would disappear.

Implications for gold? Bullish in the long run, nonexistent in the short run.

As we can see, the great fundamental outlook for precious metals is intact. Let’s move on to the chart section of today’s essay to see how gold’s current technical situation looks like and therefore how gold can trade in the following weeks. Before we proceed to the yellow metal itself, let us begin with the Euro Index long-term chart (charts courtesy by http://stockcharts.com.)

The index has declined for the past two weeks and it seems now that we should consider the possibility that the head-and-shoulders pattern will be completed here. Such a completion would take the Euro Index much lower.

The size of the projected decline after the breakdown and completion of the pattern is roughly the same size as the height of the head in the pattern. If this decline is attached to where the breakdown occurred, the projected downside target level will be about equal to the 2012 low (in the 121 – 122 area). Such a move would likely contribute to a USD Index rally. All of this could also be bearish for gold in the medium term if it all does indeed materialize.

Let’s move on to gold’s very long-term chart now.

In this chart, we see a situation quite similar to the declines to 2008, where a sharp pullback was followed by a continuation of the severe decline. The most bearish factor here is the shape of the decline, which is a reverse parabola. This formation results in accelerated declines and makes it difficult to tell how low prices will go. Although the declines will likely end shortly, the increased volatility could result in prices moving very low quickly while still being in tune with the trading pattern. This reverse parabola has been in place since last October.

The very long-term cyclical turning point suggests that a local bottom will be seen soon – within the next month, probably about 2 weeks from now. Keeping both of these factors in mind, we should prepare for even bigger declines.

Let us have a look at the Dow to gold ratio chart, as an important technical development took place there.

Here, we saw an important breakout above the declining long-term resistance line. This has bearish implications for gold. Please note that the breakout above the previous – much less significant – resistance line (the red declining line on the above chart) was followed by major declines in gold.

The next resistance level for this ratio is at 12.5 and with it currently at 11, declines in gold will surely be needed in addition to higher stock prices in order for the ratio to move this much higher (it seems that a move higher in the general stock market will not be enough for the ratio to move that high soon). The implications are, of course, bearish.

Summing up, the situation remains bullish for the USD Index. The recent declines in the Euro Index along with the breakout in the USD Index will likely keep the current bullish outlook in place for the coming weeks. The implications of the bullish situation here, especially for the medium term, are bearish for the precious metals. Gold prices declined last week and pulled back on Thursday but it still does not seem that this period of decline is completely over.

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Przemyslaw Radomski, CFA

Founder, Editor-in-chief

Silver Investment & Gold Investment Website – SunshineProfits.com

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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.

The PRICE of both silver and gold slipped back in London on Tuesday morning, cutting into yesterday’s rapid gains from 4-year and 1-month lows respectively.

World stock markets stalled after hitting a series of near and new all-time highs so far this month.

The British Pound fell hard – supporting the gold price in Sterling above £910 per ounce – after new data showed a slowdown in consumer price inflation.

“These stunning upside reversals off fresh lows [in gold and silver] were somewhat justified,” says a note from brokers INTL FC Stone, “given that both were quite oversold.”

Monday’s sudden leap in the silver and gold price, which took only a few minutes, was sparked by a “classic short squeeze” according to several analysts today.

Bearish bets in gold futures rose last week to a record holding for speculative traders, breaking 100,000 short contracts – which profit if prices fall – for the first time on record, according to US regulatory data.

Monday’s dramatic $30 jump in the gold price equaled a 2.2% rise, but saw silver jump faster – up 3.9% in a matter of minutes.

Across in Asia, “Physical support for the price is currently huge,” says another analyst in a note, “but will not last forever in our view.

Two weeks after both India’s gold-buying festival of Akshaya Tritiya and tight restrictions on Indian gold imports, “There is no action in the market,” said one Mumbai bank dealer to Reuters earlier.

“Everybody has stopped consignment imports. [So] premiums are still on the higher side in the domestic market” at up to $20 per ounce above the world’s benchmark gold price for London settlement.

On the production side today, London-listed gold miner Petropavlovsk Plc – whose shares have lost two-thirds of their value since New Year, and whose executives have waived 2013 bonuses to help slash costs – extended the gold hedging program it began in February.

With output forecast around 21 tonnes for the next 12 months, Petropavlovsk has now hedged 15 tonnes of that gold, locking in a price of first $1663 and then $1408 per ounce.

Forward sales by larger gold producers grew throughout the 1990s bear market. The industry’s total “hedge book” reached more than 2,900 tonnes in 2001. Leading analysts GFMS said earlier this month they don’t foresee a big move back towards gold hedging by miners any time soon.

As a sector, North America’s major listed gold mining stocks have dropped half their value since the price of bullion peaked in September 2011.

The gold price today stood 28% lower from then, trading at $1375 per ounce by lunchtime in London.

“We have been tempted [by gold mining stocks] for a long time,” says Robin McDonald of Cazenove’s $1.6 billion Multi-Manager Diversity fund, speaking to TrustNet, and “we saw the fall of 22% back in April as the right time.”

Now adding Blackrock’s Gold & General fund to his holdings, “People have become wholly disillusioned with the asset class,” McDonald says.

“In my experience, when nobody has anything nice to say about an asset class,from a contrarian standpoint, it’s time to buy.”

Looking at silver bullion on Monday, Bank of America Corp’s Michael Widmer in London told Bloomberg that “A lot of the investors who bought silver on a view of Dollar debasement or inflation picking up massively I think are now disappointed.

“The other point,” Widmer added, “is that silver industrial demand in [this global] mood of subdued economic growth is not doing particularly well either.”

Meantime in the stock market, investment bank Goldman Sachs has raised its target price for the S&P 500 index – currently at 1665 – to 1750 by year’s end, with further advances to 2,100 in 2015.

“We forecast dividends will rise by 30% during the next two years,” says Goldmans. “Further expansion [in the price/earnings ratio, with stocks rising faster than revenues] is possible if interest rates stay low, growth improves.”

After holding US interest rates unchanged between zero and 0.25% for the 53rd month running at the Federal Reserve’s last policy meeting, central bank chief Ben Bernanke is due to testify Wednesday to the Joint Economic Committee of the Senate.

“Bernanke is unlikely to hint at a tapering of [quantitative easing] bond purchases,” says today’s Commodity Daily from the analysis team at Standard Bank in London, “which would be a positive for gold.

“Below $1360 the metal represents a reasonable buying opportunity.”

Adrian Ash

BullionVault

Gold price chart, no delay | Buy gold online

Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can buy gold and silver in Zurich, Switzerland for just 0.5% commission.

(c) BullionVault 2013

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

I wrote nearly a month ago that “The Worse Things Were For The Mining Sector, The Better They Will Get”. This was after the first downward plunge in gold (GLD) and silver (SLV) in April due to the Goldman short.

(click to enlarge)

Now four weeks later, gold, silver and the miners (GDX) tested that April low and even fell below it only to reverse higher than the previous day’s selling. Across the precious metals board, we witnessed bullish engulfing patterns. We witnessed a similar reversal back in October of 2011 in the S&P500 (SPY) when we called for a bullish upturn in equities. See the video update from back then.

We saw today (Monday) gold, silver and both the large and junior miners (GDXJ) dip lower at the open and close above Friday’s high on more than triple average volume. This is a significant technical development as it means the gold bulls have regained control at a key technical low.

(click to enlarge)

Silver hit a five year trailing average in the low 20′s and gold hit a three year trailing average below $1350. Multi-year support should hold after this downturn for close to two years.

This is one of the first major bullish engulfing’s since the decline and may suggest that a low is in place and the end of the decline may be near.  It at least cautions a short term reprieve of the recent downturn.

(click to enlarge)

This technical occurrence happened at the same time as Moody’s threatens a credit downgrade for the United States. According to them not enough is being done in the U.S. to bring down soaring deficits. Don’t forget the downgrade from the S&P in August of 2011 sent gold soaring to $1900.

Do not be surprised to see a reemergence of sovereign debt issues in the United States. The U.S. dollar (UUP) and long-term Treasury bonds (TLT) have been direct beneficiaries of the recent Japanese yen (FXY) devaluation and may soon see topping action. This could spark a rally into the commodities (DBC), energy (XLE), precious metals and the miners which historically has a negative correlation with bonds and dollar strength.

Disclosure: Author does not own securities in article.

Preliminary (i) assay results have been received for the first five holes of the underground drill program. Highlights include:

• 825.5 grams per tonne silver, 6.74 per cent lead and 9.43 per cent zinc over 1.12 metres true width in hole TMUD13-1;
• 202 grams per tonne silver, 0.41 per cent lead and 13.07 per cent zinc over 1.02 metres true width in hole TMUD13-2;
• 593.2 grams per tonne silver, 5.21 per cent lead and 1.23 per cent zinc over one metre true width in hole TMUD13-4;
• 356 grams per tonne silver, 4.64 per cent lead and 21 per cent zinc over 0.61 metre true width in hole TMUD13-5.

A table summarizing the significant results of the first five holes is attached.

                                          
Hole ID    Sample No.     From        To    Length      Ag      Pb      Zn 
                            (m)       (m)       (m)   (g/t)     (%)     (%)

TMUD13-1     1980295     59.37     59.55      0.18    3070   23.96    7.99
TMUD13-1     1980297     59.55     60.16      0.61   10.25    0.10    0.84
TMUD13-1     1980299     60.16      60.5      0.34    1100    9.53   25.60
TMUD13-1                 True width           1.12   825.5    6.74    9.43
TMUD13-2     1980362     49.39     49.98      0.59     343    0.63   22.10
TMUD13-2     1980364     49.98     50.41      0.43    8.58    0.10    0.67
TMUD13-2                 True width           1.02     202    0.41   13.07
TMUD13-3     1980402     37.45     37.58      0.13     138   1.255    2.67
TMUD13-3                 True width           0.12     138   1.255    2.67
TMUD13-4     P912016     66.21     66.57      0.36     291    3.58    3.15
TMUD13-4     P912018     66.57     66.92      0.35    5.82    0.10    0.51
TMUD13-4     P912019     66.92     67.08      0.16    3780   25.57    0.74
TMUD13-4     P912020     67.08     67.38       0.3     145    1.85    0.46
TMUD13-4     P912022     67.38      67.8      0.42     448    5.50    0.92
TMUD13-4                 True width              1   593.2    5.21    1.23
TMUD13-5     P912056      40.6     41.22      0.62     356    4.64      21
TMUD13-5                 True width           0.61     356    4.64      21

Samples were analyzed by ALS Chemex at its Vancouver laboratory. ALS Chemex Vancouver is an ISO 9001:2000-certified lab. Samples were prepared by crushing to 70 per cent less than two millimetres, riffle splitting off up to 250 grams and then pulverizing the split to better than 85 per cent passing 75 microns. A 0.25-gram sample was then digested using a four-acid digest, and the solution was analyzed by multielement ICP-AES. Silver, lead and zinc overlimits were analyzed using the ME-OG62 method. Silver overlimits greater than 1,500 grams per tonne silver were analyzed by 30-gram fire assay with gravimetric finish.

(i) The results are preliminary in nature as all reference materials and blanks submitted with the drill core have passed quality assurance/quality control verification. However, some duplicate tests did not fall within tolerance. Affected certificates have been returned to ALS Chemex for investigation, and the results published here provide only an indication of the probable grade for the intercepts.

Since the underground drill program began in late March, 2013, a total of 1,923 metres of HQ-sized diamond drill core from 21 drill holes have been completed. The total length of the drill program is expected to be 4,700 metres spread over 54 holes. The preliminary results from the first five holes are located approximately 60 to 80 metres west of stope 1 and 120 to 140 metres west of the area currently being mined between level 1 and the surface. Drill holes TMUD13-1 and TMUD13-2 have identified mineralization between level 1 and level 2, whereas hole TMUD13-4 has identified mineralization 20 metres below level 2 at the western edge of the target area. Drill hole TMUD13-8, which tests for mineralization 40 metres below level 2, was extended and intercepted vein material that lies into the hangingwall of the level 3 main haulage drift. The 0.44-metre intercept (not converted to true width) is a mix of siderite and massive galena. Assays are pending. A diagram of the underground drill program is available on the company’s website.

Mining continues, with stope 2 currently in production. To date, the company has mined the stope over 65 metres in length, with a vertical height of 12 metres and a width of 1.7 metres. Stope 2 is the third stope to be mined from the uppermost level of the mine. Preliminary (i) composite assay results have been received for the first four lifts of the stope and are presented in the attached table.

Sample ID          Width        Ag        Pb        Zn 
                      (m)     (g/t)       (%)       (%)

S2L1-1              1.72    1095.7       7.7       9.1
S2L1-2              1.63     661.2       5.5       3.5
S2L1-3              1.82    1140.3      19.1       3.3
S2L1-4              1.32     233.5       2.0       6.4
S2L1-5              1.12     171.2       2.1       0.7
S2L1-6              1.48      97.4       1.1       0.1
S2L1-7              0.92       1.2       0.0       0.0
S2L1-8              0.87     537.4       4.2       1.0
S2L1-9              1.44     850.5       6.9       3.6
S2L2-4              1.57     155.2       0.9       1.0
S2L2-5              2.17     597.9       6.6       7.7
S2L2-6              1.32    1080.6       5.7       9.8
S2L2-7              2.03      20.8       0.1       0.3
S2L2-8              1.94     143.9       1.7       1.1
S2L2-9              1.02     106.1       0.2       0.9
S2L2-10              1.1    2216.2      19.4       6.2
S2L2-11             1.05      10.6       0.1       0.4
S2L2-12             1.13     363.6       2.4       1.5
S2L2-13              1.2      54.9       0.3       0.6
S2L2-14              1.5     133.9       0.8       0.3
S2L2-15             1.21     556.8       0.8       0.3
S2L2-16             0.77      23.6       0.3       0.1
S2L2-17             1.35      85.8       2.6       0.1
S2L3-1              1.83     115.7       0.2       1.3
S2L3-2              1.96     174.5       0.7       0.5
S2L3-3              1.97     302.4       1.0       1.2
S2L3-4              1.56    1473.0      16.8       7.5
S2L3-5              1.67     850.3      11.3       5.0
S2L3-6              1.79     766.6       9.4       2.9
S2L3-7              1.38    2170.3      20.6       3.1
S2L3-8              1.12     276.9       0.6       4.1
S2L3-9              1.01     148.4       0.8       2.1
S2L3-10             1.17     185.5       1.5       0.7
S2L3-11             1.23     235.6       2.1       0.2
S2L3-12             1.36     115.0       1.5       0.2
S2L3-13             1.24       6.2       0.1       0.1
S2L3-14             1.17       1.0       0.0       0.0
S2L3-15             1.51       3.1       0.0       0.0
S2L3-16             1.22      89.4       0.1       0.1
S2L3-17             1.56      35.8       0.4       0.1
S2L3-18             0.71    1179.4       9.4       2.7
S2L4-1              1.31      14.6       0.0       0.0
S2L4-2              1.83      56.2       0.5       0.4
S2L4-3               1.6      10.9       0.5       0.1
S2L4-4               1.6      44.4       0.1       0.0
S2L4-5              1.26       3.8       0.0       0.0
S2L4-6              1.21      10.4       0.1       0.2
S2L4-7              1.25      26.6       0.6       0.2
S2L4-8              1.79       6.4       0.1       0.2
S2L4-9               1.4     141.0       0.7       1.2
S2L4-10             1.22     175.5       1.3       1.2
S2L4-11             1.32     834.4       4.2       2.5
S2L4-12             1.22     603.9       4.4       3.9
S2L4-13              1.4      14.2       0.1       0.1
S2L4-14             1.55      22.7       0.1       1.1
S2L4-15             1.58      37.3       0.2       2.2
S2L4-16                2     158.2       2.1       0.8
S2L4-17              2.6     813.4       5.8       2.5
S2L4-18             1.53    3163.3       3.4       3.6
S2L4-19             1.75      29.9       0.1       0.3
S2L4-20             1.38      16.9       0.2       0.3
S2L4-21              1.3     660.5       2.7       6.0

Samples were analyzed by ALS Chemex at its Vancouver laboratory. ALS Chemex Vancouver is an ISO 9001:2000 certified lab. Samples were prepared by crushing to 70 per cent less than two millimetres, riffle splitting off up to 250 grams and then pulverizing the split to better than 85 per cent passing 75 microns. A 0.25-gram sample was then digested using a four-acid digest and the solution was analyzed by multielement ICP-AES. Silver, lead and zinc overlimits were analyzed using the ME-OG62 method. Silver overlimits greater than 1,500 grams per tonne silver were further analyzed by 30-gram fire assay with gravimetric finish. The sample notation is to be read as: S2-L(i)-A, where: S2 refers to stope 2, L(i) refers to the lift being sampled and A refers to the particular chip line within the lift. Sampling occurred on three-metre spacings where possible; however, not all areas of the lifts could be sampled at three-metre intervals.

(i) The results are preliminary in nature as all reference materials and blanks submitted with the chip samples have passed quality assurance/quality control verification. However, some duplicate tests did not fall within tolerance. Affected certificates have been returned to ALS Chemex for investigation, and the results published here provide only an indication of the probable grade for the samples.

The rehabilitation of the historical raises on level 4 is complete with assays of up to 1,680 grams per tonne silver over 0.28 metre true width identified in raise 14. The mineralization is associated with a dike and is potentially a separate structure from the C vein. Mineralization is of the same style exhibited elsewhere within the Treasure Mountain mine — being a narrow vein, steeply dipping structure with the main sulphide minerals being argentiferous galena and sphalerite. The mineralization identified during the sampling lies on the hangingwall side of the dike contact.

The results presented in the attached table are preliminary in nature as all reference materials and blanks submitted with the chip samples have passed quality assurance/quality control verification. However, some duplicate tests did not fall within tolerance. Affected certificates have been returned to ALS Chemex for investigation and the results published here provide only an indication of the probable grade for the samples.

Sample No.      Length        Ag        Pb        Zn        Cu 
                    (m)     (g/t)       (%)       (%)       (%)

1979808           0.27       308      3.00      6.51      0.08
1979809           1.13      57.3      0.59      1.06      0.02
1979834           0.15       579      5.97      9.23      0.14
1979810           0.41      40.6      0.51      1.55      0.01
1979811           0.73      78.9      0.67      1.89      0.03
1979812           0.22      23.5      0.19      0.39      0.01
1979814           0.55      1280     19.85     19.25      0.39
1979815           0.85      20.1      0.18      0.51      0.01
1979816            0.3       345      2.50     11.45      0.34
1979818            0.9      8.66      0.07      0.22      0.00
1979820           0.42       379      3.76     19.60      0.14
1979821            0.8     10.65      0.16      0.37      0.00
1979822           0.32       123      0.96      3.13      0.06
1979823           1.06      12.3      0.14      0.42      0.01
1979824            0.2       118      0.76      2.65      0.04
1979826           1.24      7.95      0.07      0.16      0.01
1979827           0.16       598      3.85     16.65      0.18
1979829            1.4      8.13      0.09      0.21      0.00
1979830            0.2       249      2.47      8.41      0.51
1979831            1.3      6.48      0.10      0.47      0.00
1979832           0.25       948      2.85     11.50      0.11
1979833            1.5      7.02      0.08      0.21      0.00
1979836           0.28      1680      4.43      7.04      0.30
1979837           1.26      35.5      0.62      3.49      0.03
1979838           0.41       159      1.15      6.13      0.07
1979839           0.97      1.56      0.02      0.04      0.00
1979840           0.33      4.09      0.05      0.04      0.00
1979841            0.8      0.62      0.00      0.01      0.00

Samples were analyzed by ALS Chemex at its Vancouver laboratory. ALS Chemex Vancouver is an ISO 9001:2000-certified lab. Samples were prepared by crushing to 70 per cent less than two millimetres, riffle splitting off up to 250 grams and then pulverizing the split to better than 85 per cent passing 75 microns. A 0.25-gram sample was then digested using a four-acid digest, and the solution was analyzed by multielement ICP-AES. Silver, lead and zinc overlimits were analyzed using the ME-OG62 method. Silver overlimits greater than 1,500 grams per tonne silver were further analyzed by 30-gram fire assay with gravimetric finish.

Information in this news release related to the underground diamond drill program has been approved by Mark Williams, PGeo. Information in this news release related to mining activities has been approved by Al Beaton, PEng, mine manager. For more information about the company’s Treasure Mountain property, see the technical report entitled, “Technical Report, Project Update, Treasure Mountain Property,” dated June 7, 2012, available under Huldra’s profile on SEDAR.

Below is the NYSE Gold Miners Index which is tracked by the GDX ETF. Look at the RSI. Not only did it reach a multi-decade low but it has remained oversold far longer than during the comparable periods. In the four previous periods, the market rebounded suddenly and strongly in percentage terms. Meanwhile, the bullish percent index, a breath indicator is more oversold than in 2008. We plot the indicator with a 10-week moving average that shows it as far more oversold than in 2008. While this indicator does not go back that far, odds are it is likely at a 13-year low.

2. Springtime is usually a turning point for gold stocks.

According to seasonal analysis, precious metals usually peak in the late spring. However, a study of the past 12 years shows that its more apt to say that spring is a turning point. In the above chart we mark the tops or bottoms that occurred in April or May. Assuming we are presently at a bottom then spring will have marked a turning point in gold stocks during 11 of the past 13 years.

3. A selling climax already occurred and the recent low is a false breakdown.

The selling climax occurred in April when GDX declined 24% in only six days. The 20-day volume average peaked days later at 30 million shares. The previous high was 21.5 million shares in June 2012. GDX has also formed a bullish RSI divergence and Monday reversed on record up volume. Prior to Monday, recent weakness was on average volume which was substantially less than during the selling climax. This is a subjective thought but this potential bear trap and false breakdown could be the retest. When you get a failed retest that is a trap or false move it can result in a V bottom. Look for a potential head and shoulders bottom or a V bottom. Finally, if the RSI pushes above 50 then that is a good sign.

4. History suggests the cyclical bear is just about over

Each secular bull market in gold shares has endured two major cyclical bear markets. The chart below, which uses weekly data shows the four corrections. It is possible this correction could last a bit longer and move a bit deeper but in the big picture, the next big move is higher, not lower.

5. There is potential for a huge short squeeze.

Gross short positions are at all-time highs. Some short positions were covered as Gold rebounded from its crash low at $1320. After the rebound fizzled short positions reached an all time high. Gold has formed a short-term double bottom. Without a doubt, short covering contributed to Monday’s huge reversal. If Monday’s rebound is sustained, look for a torrent of short covering to follow.

6. Cyclical rebounds usually are huge in percentage terms

The chart below shows the first five months of performance of the cyclical bull markets within secular bull markets. The advances that began from the least oversold conditions were the least powerful. If the next rebound is similar to 2000 or 2008 then it will achieve more than 50% in the first five months.

There you have it. It’s been a tough road for precious metals but the path ahead has strong potential of being significantly profitable compared to these levels. If you’d be interested in our analysis on the companies poised to recover now and lead the next bull market, we invite you to learn more about our service.

Good Luck!

Jordan Roy-Byrne, CMT

Jordan@TheDailyGold.com

The following is excerpted from a commentary originally posted at www.speculative-investor.com on 16th May 2013.

The US government usually admits to “price inflation” of about 2%/year. As far as we can tell, the actual rate is probably at least 5%/year, but no more than 7%/year. Let’s say 5%/year for the sake of argument. Considering what the Fed has been doing on the monetary front, 5%/year still seems low. It’s certainly a long way from the hyperinflation that some gold and commodity bulls expected to happen by now due to the Fed’s profligacy. Why?

In previous commentaries we’ve discussed the apparent discrepancy between what has been happening to the money supply and what has been happening to “price inflation”. We don’t want to go back over this ground in today’s report, other than to note the following: First, there is plenty of “price inflation” if you know where to look for it. The new all-time nominal price high for the US stock market and the surging demand for junk bonds are two examples. Second, monetary inflation’s effects on prices are always non-uniform and can encompass large and variable time lags, making the exact price response impossible to predict and difficult to correctly interpret.

In today’s report we want to make the additional point that the central bank’s historical effect on the “general price level” is much greater than most people realise, for a reason that never occurs to most people: the natural tendency in a market economy is for prices to trend downward over time.

Most people have been conditioned to believe that rising prices are the natural way of things and that a strengthening economy leads to higher prices. The opposite is actually true. Real economic growth involves producing more via greater productivity and/or population. If more is produced within an economy and the money supply remains constant, then the so-called “general price level” will have a downward bias. In other words, if the supply of money is stable then the increasing production of goods and services will lead to lower prices for most goods and services. The purchasing power of money will increase over time.

An implication of the above is that to bring about a rising trend in consumer and producer prices the central bank must first engineer sufficient monetary inflation to counter the natural downward trend in prices. In the US, for example, increases in production due to productivity improvements and population growth would probably result in an average rate of decline in the “general price level” of about 3%/year, so if prices are rising at 5%/year it effectively means that monetary inflation is adding about 8%/year to the price of the average good/service. It actually isn’t that straightforward, but the general point is valid.

If you are having trouble imagining the combination of falling prices and strong growth, just take a look at the computer industry. In this industry the rate of real growth has been so rapid up until now that even the Bernankes of the world have been unable to prevent prices from falling.

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There has been a growing shift in favour of assets relative to bank deposits. This was initially encouraged by zero interest rates, but more recently there is little doubt that Cyprus’s bail-in has accelerated the trend. This explains the bull markets in bonds and equities, which conveniently underwrites the entire banking system. It is however too early to offer evidence of falling deposit balances held by non-banks and the general public because depositors as a whole have been remarkably complacent, but there is ample evidence that liquidity from monetary expansion is inflating financial assets faster than bank deposits.

This helps explain why, for example, Italian 10-year bonds are on a 4% yield. The reason, doubtless reaffirmed by the Cyprus bail-in, is that investors with cash balances think over-priced sovereign debt is less risky than adding to their euro deposits. However, the central banks are relaxed because weakness in deposits at any single bank is easily covered through the banking system, insulating individual banks from depositor-withdrawal systems. Presumably, banking counterparties are also complacent because they can be reasonably sure to be exempt from any bail-ins. They have the comfort of knowing the banking system is underwritten by all those complacent enough to leave money on deposit beyond the insured level.

However, some of depositors’ cash balances post-Cyprus will have gone into physical gold and silver, which explains why the bullion banks operating in the futures markets and the central banks behind them are so keen to dissuade us that gold and silver is a safe haven. I recently interviewed Ronnie Stoerferle, the Vienna-based analyst, who put his finger on it: since Cyprus, there has been a sharp rise in European demand for physical gold, with the pressure being felt by the bullion banks unable to deliver bullion.

At least one bank was recently reported to be only prepared to settle bullion liabilities in cash. Therefore the price knock-down in April was a logical response by the bullion banks, which had to defuse customer demand for physical delivery. But given that the driving factor was not speculation but a reluctance to add to deposits in the banking system, the jump in demand for bullion at lower prices was inevitable.

Where does this leave things? The crisis in bullion markets is worse than it was before. A good example of how little physical stock there is can be gained by tracking bullion deliveries on the Shanghai Gold Exchange. In the last few weeks they have dwindled to virtually nothing, having been a truncated 190 tonnes in April and 297 tonnes in March. Yet we know from reports that retail demand in China has taken off; so it is only a matter of time before prices are bid up on the Shanghai Gold Exchange enough to replace lost inventory.

It will be interesting to see how many more bullion banks are forced to admit the fiction behind their customer accounts in the coming weeks. For the moment the temporary solution amounts to rationing bullion supplies to the public.

Alasdair Macleod

Head of research, GoldMoney

Alasdair.Macleod@GoldMoney.com

Twitter @MacleodFinance