Monday, February 25, 2013

Why is the gold price down?

10 year gold price

Right now the gold should be rising so why is the gold price down?  Against all logic the price of gold has remained in a 1600 to 1700 range and, even, just recently dropping below the 1600 mark.  It seems as soon as it starts to reach up, wham! It gets knocked back.
Perhaps the answer lies in this interesting comment by noted Analyst Chris Martenson.
“As I noted in the run up to the QE4 announcement and then in the days right after, some entity has been selling literally thousands and thousands of gold contracts into the thinly traded overnight markets so rapidly that we have to use millisecond charting to see it for what it is.  Again, there is no other legitimate explanation for this activity of which I am aware besides having an intent of pushing the price down.
“Whether there is some motivation for this activity besides 'making money, I remain convinced that the gold market, like many others, is no longer sending useful price signals. Instead it is telling us that some entity has found it useful to sell thousands of gold contracts all at once.
“The interesting part of this story is that this has been the most sustained, intensive, and yet ineffective gold-selling that I have yet seen.  In the past, such bear raids, as they are called, would have resulted in a sharply lower gold price.  Right now, that has not yet really happened.”
The main effect this seems to be having is to push out the weak willed and hesitant.  Certainly the central banks and major Asian countries are not dissuaded from accumulating gold.  
The gold price we are seeing every day in the media is not the gold price right now but the paper gold futures price. This gets glossed over and the mind set is that it is the gold price that is weak.  Whereas it is simply the paper gold price being pushed down so they can buy at lower levels before allowing it to rise again and then repeat the cycle over and over again. 
China, for example, is buying up when the price drops and pauses when it rises. China is fast becoming one of the major holders of gold in the market place and is supplanting their holdings by buying up gold mines in order to get gold at a even cheaper price.
The GOOD news is that looking at the gold price chart above, it can be easily seen that this is a similar scenario to 2008 when the gold price was pushed down heavily and yet later the following year continued its climb to the, what was then considered rarefied heights of over a thousand dollars an ounce.  Apart from a peak of 900 and a low of 1550 it has steadily remained in the realm of 1600 to 1800 for close on three years so a break out is certainly inevitable and all the signs are there for a resumption in the climb towards the next level. It is just a matter of when. 
As Chris Martenson remarked.
I am wondering if a big up move is not right around the corner for gold.  I can tell you that if even one fourth of the recent QE effort was announced five years ago, markets would have exploded and gold would have absolutely launched...”
This could be part and parcel of why the price of is gold down, relatively speaking and maybe now is time to do as the banks and governments are energetically doing.  Buying gold while it is still cheap.

Sunday, February 17, 2013

Gold Exploration & Mining

Gold Exploration & Mining
Gold exploration and mining is something that every gold investor should be familiar with.  Some of the terms and information can be rather technical and daunting for some making it difficult to assess if they should be investing in a particular gold exploration and mining company or not so here we hope to make the subject clearer.

We are talking here mostly about companies listed on the various stock exchanges (although the information here can apply to private gold mining companies also). These are public companies and, although there are variations from country to country, the essentials are the same. All are public listed companies. All have a share price that varies from day to day depending on various factors, such their management style, production, future prospects and so forth, and all are involved either in exploration, mining or both.
It is a good idea to establish which a company is.  Some are exploration only. Some are mining only and some; many in fact, are a combination of the two.  Mining companies can also invest in each other and have shares in another mining company or exploration company.  Some mining companies are even offshoots of others.
It is also a good idea, before one buys gold investments or shares in any public company in the gold mining sector, to really understand all the aspects of a company, who is running it, what style of management is used, what they actually do, what are their prospects, what are their assets, the balance sheet, etc.   As in any type of financial arrangement, one should consult with ones financial advisors before embarking on any investment adventure.
Having said that, let’s find out what sort of activities we can expect from a gold exploration and mining company.
Prospecting and Exploration
It all starts with the prospecting.
Initial prospecting is done to determine if a full exploration is warranted.  A full exploration can cost many thousands, even millions so before such expense is undertaken, initial prospecting including sampling of the surface and possibly some distance down from the surface is done. It is commonly thought that any gold underground will show some traces on the surface and this is what mining prospectors look for to start with.
These days, for serious gold mining, one is not looking for gold nuggets on the surface say in streams for example.   That is panning for gold and is too small for a full gold mining operation.
For serious gold mining one is looking for a concentration of gold within minerals, usually of a type of rock.  The concentration is measured in grams of gold per tone of ore.  The more grams of gold per tonne the more economical and therefore profitable it is to mine the gold.  
How much gold is estimated to be in a particular mine or project?  What is the expected gold ounce per tone of ore?  The less gold extracted per tone of ore the higher the cost to extract it. This is usually measured in reports as g/mt or grams of gold extracted per tonne of ore, so 10 g/t would be ten ounces of gold produced from one metric tonne of ore. What are the production costs is another question to ask. Also how much gold is expected to be produced over the entire project? This can tell you the viability of setting up operations for that project, capital and running costs, maintenance etc.  10 g/t with an expectancy of 50,000 ounces of gold or more might be considered good all things being equal. 1 g/t with an expectancy of 100 ounces would be considered very bad.  Of course these are extremes but they do indicate the necessity of getting all the relevant data and checking through it thoroughly.
A MEG (Metal Economic Group) study has come up with a set of averages or guide for gold mining and exploration.
No of Projects:  5
Budget per project: $US1.8 million
Size of each project: 570sq km
Drilling on each project: 6,800m
Budget per planned metre: $288.40
No of Geoscientists:  8
Budget per geoscientist: $1.4 million
In short, it is not just a matter of how many grams or ounces in each tonne of ore one can recover, it is also how big the lode or lodes are and how many thousands of ounces of gold an organisation can recover.
Mining of gold is usually either open cut or underground.  Most gold on the surface these days has been already located and mined although some pockets do get found on occasion.  Most gold is mined from under the earth and this can be either a few feet down or even up to many hundreds of feet or even kilometres.  Of course underground mining is generally more expensive than open cut as more energy and equipment has to be expended to shore up the mines and bring the ore to the surface.  Not only that but more safety measures are required and more equipment is needed.   This all has to be taken into account when assessing the cost of extracting the gold and there needs to be sufficient gold available to be extracted to make it worth while for the mining company to go forth and continue with the mining.  It can be noted here that, the higher the value of gold in the market place, the more viable it becomes to mine gold that is more difficultly and costly to mine and the lower grams per tone of ore can be mined.  With the price of gold 10 years ago, lower grams of gold ore would not have been viable due to the cost of mining and processing. These days, as the price of gold continues to rise, mines containing a lower amount of gold per tone of ore become more viable to mine.

More on Gold Mining
Generally when a mining or exploration company discovers a viable and worth while lode they will apply for a licence.  How this is done various from country to country and even state to state in some cases and is not really of much interest to investors of mining companies other than the fact that all mining companies do need to have all the relevant licenses and lease agreements required by law.  This is something that should be listed in any mining company’s prospectus and should be looked for to establish the authenticity of the company.  A company with no licence and or leasing agreements would not be able to mine and is probably not a bona fide mining company at all.
Mining companies lease tenements or blocks.  These have been established to contain lodes, mineral rock in which the metal is contained.  Sometimes you see mentioned Mother Lode. A mother load is an ore deposit from which a placer is derived; the mother rock of a placer (Placer: A deposit of sand or gravel that contains particles of gold, gemstones, or other heavy minerals of value. They are commonly stream gravels and beach sands).
Mining Company Structure
Important to consider also the mining company itself. Is it a public company already floated on the stock exchange? Is it a private company looking to initiate an IPO (Initial Public Offering) and list on the exchange? Who runs the company?  Are they experienced in management, geology and, importantly finance? What are the governance policies of the company? What is the offer to shareholders?  The history of the company.  All these factors should be taken into consideration.  Just finding a large deposit of gold is not enough.  It has to be managed well, correctly assessed and the finances should be in place to extract the gold satisfactory and at a profit otherwise the company could go bust, regardless of how much gold they have. They could lose their license to mine or the lease hold and the gold could well end up in someone else’s hands.
Future Gold Mining Prospects
Of course the future of the company is dependent on how much gold they expect to dig up over a period of time.  If they expect to dig up, say 20,000 ounces a year for twenty years then that sounds quite viable.  But if the gold they have discovered runs out after two years then the share price is going to drop and the company go bust.  So how long the gold will last is an important question. The gold price has a bearing also as that can determine the viability of extracting the gold.

Thursday, February 14, 2013

Is Gold, is Good

is Gold is Good
Is Gold is Good

Is gold, is good, is not just mis-quoted from the Dons brand of meats (Is Don, is good) but is also the theme of the Deutschebank who calls gold "goodmoney" and paper "bad money". Now is a good time to buy gold it. 

In fact the President of the German central bank paid tribute to gold as a “timeless classic.”  Not only that, a leading member of the policy committee of the Peoples Bank of China has called the gold standard, “an excellent monetary system…”

 And recently, in The China Post, CNN’s Kevin Voigt wrote, “One platform of the recent U.S. Republican National Convention that, ultimately, could reverberate around the world is a plan to study a possible return of the U.S. to the gold standard. While it was perceived as a move to appease the party’s extreme right wing, economists like Mundell think the world needs a limited return to the gold standard.”

 To substantiate that, it has been reported by Reuters that Hong Kong's net gold flow to mainland China has jumped 47 percent in 2012 to a record high of 557.478 tonnes, showing the continued determination by China to be the world’s largest holder of gold bullion.
In December, Hong Kong shipped 114.372 tonnes of gold to China another record high for monthly exports and according to the Hong Kong Census and Statistics Dept, the total gold shipments to China last year  jumped 94 percent from the 2011 total to over 832 tonnes while imports were six times higher at 274.684 tonnes.

"It is not a surprise," said Dan Smith, head of metals research at Standard Chartered. "Consumer and investment appetite was quite strong and no one knows how much the central bank is buying." 
"This is a very strong number," said Nick Trevethan, senior commodity strategist at ANZ in Singapore. "China's implied gold demand looks set to approach or exceed 1,000 tonnes based on Hong Kong trade data and the annualised gold production number. The implied demand could reach 1,050 tonnes if gold inflow from other channels is factored in.” he said. 

China produced 322.8 tonnes of gold in the first 10 months of 2012, up 11 percent from a year earlier, said the Ministry of Industry and Information Technology recently.   Physical buying at the start of 2013 was strong as seasonal demand picked up before the Lunar New Year, which falls on Feb. 10. But buying has since ebbed as prices moved higher and settled in a range bound mode.

Meanwhile, back at the ranch, the Virginia House of Delegates Rules Committee recently passed a bill to establish “a joint subcommittee to study the feasibility of a United States monetary unit based on a metallic standard, in keeping with the constitutional precepts and our nation’s founding principles….”   This legislation authorizing the study widely is expected to sail through the House of Delegates and may well be embraced by the Virginia Senate with a signature by the governor.

The financial and political media have also taken to calling the gold standard “mainstream.”  The London FT for example, published  on August 23, 2012, “The gold standard has returned to mainstream U.S. politics for the first time in 30 years….”;. The New York Sun editor Seth Lipsky in The Wall Street Journal , ‘The Gold Standard Goes Mainstream.’ And in the New York Times, ‘A Gold Standard is Unthinkable No More’.

The wheels are slowly turning in favor of a gold standard or at least a return to gold as an important stored value for banks.  This might explain why gold has been quietly elevated to a tier one of the capital adequacy ratio and why banks are so keen to bolster their gold holdings. Such an action places a higher value on gold as it is now deemed with a 100 percent weighing instead of the former 50 percent.  It seems that ‘is gold is good’ is becoming a popular theme for 2013.

This interest by the heavy players looks like the beginning of a new gold rally and could signal a steady rise in the gold price.  Perhaps how the time to buy gold before the rally begins.