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Auguries — The Great And Powerful Oz

March 1, 2012

By Kevin Michael Grace

Gold was down (at press time) $59.10 (-3.3%) for the week to $1,722, and silver was up $0.14 (+0.4%) to $35.62. Gold made a modest (and silver a more robust) recovery Thursday, but on Wednesday gold fell almost $100 at one point, with silver falling over $2.50.

The Globe and Mail noted, “Gold’s plunge to less than $1,700 an ounce marked the biggest one-day percentage drop for the metal in more than three years.” It attributed the Leap Day Massacre to the Ben Bernanke having “delivered three hours of testimony without once indicating he felt the need to create more money.” This was the majority view. The Globe quoted Jon Nadler of Kitco, who “said some investors had been expecting that Mr Bernanke, in Congressional testimony, would indicate the Fed was open to another round of so-called quantitative easing—a policy that creates new money and causes people to flock to the perceived safety of gold to protect themselves from inflation.”

March 1, 2012

With all due respect, the majority view is rubbish. If it’s quantitative easing goldbugs were looking for, they just got plenty of it from Europe. Ambrose Evans-Pritchard reports in the Telegraph, “Some 800 banks took up €529.5bn of loans at [European Central Bank President Mario] Draghi’s second long-term refinancing operation (LTRO) on Wednesday, borrowing at 1% for three years with almost any form of collateral. Citigroup said this amounts to €316bn of fresh liquidity, stripping out renewal of old loans. This compares with €200bn in extra stimulus at the first LTRO in December.”

US$421 billion of fresh liquidity at 1% with notional collateral to prop up a doomed monetary union. That’s a good day’s easing and the stuff goldbugs’ dreams are made of. So what’s the real explanation for Wednesday’s gold collapse? GATA says it’s a heavy hand on the scale, and it has evidence to back up its claim. CIBC reported, “Looks like a large seller of gold in the market, as a 10,000 contract traded, down-ticked the price by $40 per ounce and represents 1 million ounces of gold sold. Roughly 200,000 contracts trade per day, but unusual to see such a large single trade. Not likely due to contract expiry either. Bernanke isn’t really helping either, but we haven’t seen any either-size transactions post the one big trade, so hopefully will see the price decline settle down. Shortly after the 10,000 order, which was closer to 11,000 contracts, looks like one size seller out there. Sold 1.8 million ounces of gold on the day. Smells like a liquidity squeeze.”

GATA’s Chris Powell observed, “Another gold fund manager, Gabelli’s Caesar Bryan, today tells King World News that yesterday’s bombing of gold was done by a not-for-profit seller, the strange sort of selling that keeps turning up at strategic moments in the market, and he’s starting to wonder if it has something to do with central bank intervention. Welcome to Planet Earth, Mr Bryan!”

Powell noted that GATA President Bill Murphy’s “frequent observations about this sort of selling led to GATA’s formation in January 1999, and GATA has been screaming about it for the 13 years since then.”

Gold’s biggest one-day percentage drop in three years blamed on a lack of QE on a day when the ECB declared “QE or Bust!” is such an obvious sleight of hand that one might expect the entire financial world to start screaming. But the mainstream media knows its job—when the great and powerful Wizard of Oz speaks, they paraphrase his remarks and publish them as “informed sources.”

Thankfully, there are some willing to look behind the curtain. Jim Sinclair told King World News, “If, in fact, what Bernanke attempted to tell the investment world today, that QE may not be necessary because of a modest improvement in the statistics of unemployment, if that was truly to be believed, then the stock market should have been off 800 points while gold was down $100. Because the same thing moving the stock market is what’s moving the metals, and that is pure liquidity.”

Sinclair said of the latest European bailout, “We know the money that’s been coming into the ECB has been coming in from two places. It’s been coming in from the IMF and from swaps done by the US Federal Reserve. (This money flows, in order, through these entities) Federal Reserve (to the) IMF, IMF (to the) ECB, ECB (to the) member banks. (This is) pure QE on a global scale. [Wednesday] does qualify as one of the biggest injections of liquidity into the system in the history of the system. Today was a cover-up by the US Federal Reserve and by the mainstream media of one of the largest injections of liquidity into the system that has ever occurred.”

And even before Draghi’s latest injection, Donald Coxe of the Bank of Montreal knew the score. He told Martin Mittelstaedt of the Globe, “What we’re seeing now is something that an earlier generation of gold enthusiasts would have said: ‘If that happens, the price of gold will be infinite.’ In the last four months the club of the unlimited printers of money has trebled, so we’ve gone from the Fed being the only one, with some help from the Bank of England, to the European Central Bank and the Bank of Japan. What we’re having is an unbelievable amount of paper money being created.”

Echoing what this column has long asserted, Coxe says that ever stronger gold is a counterweight to an ever weaker global economy. Specifically, “If we’re talking about $3,000 gold or something, I’m telling you that’s going to be a very bitter world to be in.”

Any chance gold miners might cash in before the apocalypse? At the Globe, noted goldbear David Berman declares, “If gold keeps rising, small is beautiful.” He means junior miners.

And now to cases. Berman notes that “Detour Gold Corp TSX:DGC is a great example. The share price has surged a total of 680% over the past five years, more than four times the gain in gold and more than 12 times the gain of big-cap producers such as Barrick Gold Corp TSX:ABX and Goldcorp Inc TSX:G over the same period.” Similarly, Premier Gold Mines Ltd TSX:PG, Semafo Inc TSX:SMF and Rubicon Minerals Corp TSX:RMX have produced stellar five-year returns, ranging between 167% and 347%, that have beaten gold.” Caveat: “This is a backward-looking analysis, of course. But it demonstrates why these smaller companies can be so alluring when gold is shining.”

Here are some analyst price targets as reported by Reuters. February 24: NBF has Golden Star TSX:GSC up from $1.85 to $2.10 (currently $1.92) and has Virginia Mines TSX:VGQ at $12.70 (currently $9.35), while Canaccord Genuity has Prodigy Gold TSXV:PDG down from $1.90 to $1.75 (currently $0.77). February 27: Canaccord has Alamos Gold TSX:AGI up from $23.50 to $26.50 (currently $18.37). February 28: CIBC has Rainy River TSX:RR up from $10 to $11 (currently $7.46) and Trelawney TSXV:TRR down from $6.50 to $4.25 (currently $2.36). February 29: RBC has Lake Shore Gold TSX:LSG down from $3 to $2.70 (currently $1.54), and CIBC has Thompson Creek TSX:TCM down from $14 to $13 (currently $7.20).

At the Gold Report, Resource Opportunities Publisher Lawrence Roulston asserts, “If I were to describe the ideal company for the present market, it would be in gold. It would have near-term production potential with longer term, large-scale discovery potential. One company, Lion One Metals TSXV:LIO, fits that description well.”

And Simon Lack of SL Advisors is sweet on Coeur d’Alene Mines TSX:CDM, projecting an “upside case” of a $50 share price (currently $27.72).

Finally, the Vancouver Sun has announced the cast of the breathlessly awaited The Real Housewives of Vancouver. Auguries’ favourite is “free-spirited jet-setter Christina Kiesel,” who is unmarried and has no children. A rum sort of housewife, that. Christina, who boasts, “My primary source of income is two divorces,” is described as “a modern-day Brigitte Bardot.” Passing strange, for Bardot is a legendary model, actress and singer, while Christina has no known accomplishments. Perhaps, like the iconic Frenchwoman, Christina holds controversial opinions on Islam, immigration and the ritual slaughter of livestock. Surely there must be more to her than sacrificial mutton dressed as lamb.


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