Tug Of War

Wednesday January

Imagine a game of tug of war but with four opposing forces, four ropes and an indecisive referee. That sums up what we experienced today.
On one rope, we have another stunning private jobs creation month in December. According to independent monitoring service ADP, 240,000 private sector jobs were added in the last month of 2014. This presages Friday’s Labor Department count, which includes all jobs, not just privately created ones. This news boosts the dollar and U.S. equities and puts pressure on gold.
On rope #2, we have the chaos surrounding the possible exit of Greece from the euro, which will throw Europe into turmoil economically. What the German masters of the European Central Bank haven’t figured out, and which has been good gospel for 80 years, is this: you can’t budget cut your way out of a steep recession or Depression. The Greek muddle is good for gold.

One rope #3 we have slightly less anemic oil prices, despite today’s dollar rise. Gold and crude are almost entirely disengaged from one another now. However, it should be noted that the rise in oil helped stock prices, which had been worried about the steep, fast fall in energy. Of course, higher stocks usually mean lower oil prices.
On rope #4, we have warnings and more warnings about how the rest of the world will drag down the U.S. economy sooner or later. That should be good for higher gold prices, but… it wasn’t. Vive la liberté.
The referee in question is the Fed, or more directly, the FOMC. On one hand, they said in the minutes of the December meeting released today that they are casually unhooking from the connection between higher rates and higher inflation. On the other hand, essentially the FOMC said that a rate hike will not happen till at least April. Somehow, the markets were not convinced there is a steady hand on the tiller, thus all the conflicting movements.
Silver has been fighting to remain even on the day. Gold is down around $8.50.
Wishing you as always, good trading,
Gary Wagner

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Indian Gov’t Not Planning To Impose New Gold Import Restrictions

By Neils Christensen of Gold will continue to flow into India unobstructed as a government minister said on Wednesday there are no plans to impose any new curbs to imports. The comment was made by Indian Trade Secretary Rajee Kher, during a meeting with industry representatives, according to a report by Reuters.
Markets have been waiting for some clarity on the future of gold imports since Nov. 28 when the Indian government and the central bank surprised the sector by removing the 80:20 rule, which said that 20% of all imports had to be exported before companies brought in more gold.
Howard Wen, commodity strategist at HSBC, said that the government’s comments clarify what was a confusing situation, leading to volatility in the country’s gold imports. 
According to government numbers, 151.8 tonnes of gold was import into India in November. Imports fell in December to 39 tonnes, and are around 7 tonnes so far in January. Wen explained that imports were high in November because companies were preparing for tighter restrictions.
Although he is not expecting to see massive growth in Indian imports following the minister’s comments, Wen said that the market should stabilize.
Although the government has removed import restriction for gold, they have maintained increased duty costs, which in 2013 were raised 10%. In an interview with Reuters, Bachhraj Bamalwa, director of industry body the All-India Gem and Jewellery Trade Federation and who also attended the meeting, said the federation will continue to lobby the government to reduce the tariffs on the yellow metal.
The government first imposed the gold restrictions last year in an effort to lower its massive current account deficit; however, the drop in oil prices, which is the country’s largest import, has given the government more flexibility for its gold imports. By Neils Christensen

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Gold Weaker on Corrective Pullback, Strong U.S. Dollar

P.M. Kitco Metals Roundup: Gold Weaker on Corrective Pullback, Strong U.S. Dollar

Gold prices ended the U.S. day session moderately lower Wednesday, on a profit-taking and technical pullback following gains that took prices to a three-week high on Tuesday. A sharply higher U.S. dollar index was also a negative outside market force working against the precious metals Wednesday. February Comex gold was last down $5.80 at $1,213.50 an ounce. Spot gold was last down $6.00 at $1,214.25. March Comex silver last traded down $0.037 at $16.605 an ounce. The afternoon release of the minutes from the latest meeting of the Federal Reserve’s Open Market Committee showed the members are considering an interest rate hike, but are worried about elements that could thwart the modest U.S. economic recovery. The market place deemed the FOMC minutes as a non-event, and gold and silver prices showed little reaction.
News that three masked gunmen entered the newsroom of a publication in Paris and murdered 12 people had a minimal markets impact Wednesday. Still, the event was a reminder of how geopolitics can quickly change the landscape of the market place.
The U.S. dollar index continues on its bullish rampage, hitting another 10-year high overnight as prices traded sharply higher on the day. The Euro currency slumped to a nine-year low versus the greenback Wednesday.
Crude oil prices fell to another 5.5-year low of $46.83 a barrel overnight, basis nearby Nymex futures. Crude prices recovered a bit and were near steady as of this writing.
It appears Nymex crude prices will at least dip into the lower $40 in the not-too-distant future. However, it’s now my bias there is not strong downside price pressure left in the crude oil market. The main reason for my thinking is that now too many are calling for oil to bottom out in the mid-30s a barrel. Markets have a history of proving the majority of prognosticators wrong.
In overnight news, consumer price inflation in the European Union fell by 0.2% in December, on an annual basis, which is the first decline on an annual basis since 2009. This news further advances notion the European Central Bank will implement quantitative easing of its monetary policy sooner rather than later. The ECB holds its next regular meeting on January 22.
Germany held a note auction (Schatz) Wednesday that fetched a record low and average yield of negative .011%. Demand was termed strong. This news is another clue of the keener anxiety in the market place at present, regarding the overall financial and economic health of the European Union.
The London P.M. gold fix is $1,210.50 versus the previous A.M. fixing of $1,213.75.
Technically,  February gold futures prices closed near mid-range on a corrective pullback from this week’s good gains that saw prices hit a three-week high Tuesday. Recent price action in gold suggests a market bottom is in place. The gold bears do still have the overall near-term technical advantage. Their next upside near-term price breakout objective is to produce a close above solid technical resistance at the December high of $1,239.00. Bears' next near-term downside price breakout objective is closing prices below solid technical support at $1,184.80. First resistance is seen at today’s high of $1,219.40 and then at this week’s high of $1,223.30. First support is seen at today’s low of $1,209.10 and then at Tuesday’s low of $1,201.60. Wyckoff’s Market Rating: 3.5
March silver futures prices closed nearer the session high today. Recent price action suggests a market bottom is in place for silver. Silver bears do still have the overall near-term technical advantage. Bulls’ next upside price breakout objective is closing prices above solid technical resistance at the December high of $17.355 an ounce. The next downside price breakout objective for the bears is closing prices below solid support at $15.00. First resistance is seen at this week’s high of $16.74 and then at $17.00. Next support is seen at today’s low of $16.30 and then at Tuesday’s low of $16.115. Wyckoff's Market Rating: 3.5.
March N.Y. copper closed down 60 points at 276.10 cents today. Prices closed near mid-range today and closed at another contract low close. The strong U.S. dollar index today limited buying interest in copper. The copper bears have the strong overall near-term technical advantage. Copper bulls' next upside breakout objective is pushing and closing prices above solid technical resistance at 290.00 cents. The next downside price breakout objective for the bears is closing prices below solid technical support at 270.00 cents. First resistance is seen at 278.20 cents and then at 280.00 cents. First support is seen at this week’s contract low of 274.40 cents and then at 272.50 cents. Wyckoff's Market Rating: 1.0.
By Jim Wyckoff

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Jan 07 Panic in the Oil Patch Bob Moriarty

Panic in the Oil Patch

Bob Moriarty
Archives

I’m not sure if the recent drop in the price of oil is due to the Saudis screwing with the US because our shale oil production pushed us to become the #1 oil producer in the world. Or it could be because of the US and Saudis trying to force Putin into World War III. It could be something as mundane as demand in China falling off a cliff as Economics 101 takes effect there.
Who knows? Better yet, who cares?
Since topping last year at just over $100 in late June, NYMEX oil has dropped 52% since June and an incredible 10% in the past three trading days. We have panic in the oil patch and this may be the straw that pops the $691 trillion dollar derivatives bubble. For those who understand contrarian investing, it spells opportunity.
All is not lost, there are some incredible companies selling for peanuts in the oil spectrum. I follow one, Pan Orient Energy (POE-V) where you can buy $100 bills for about $70. On December 1st they announced their last quarter financials. As of September 30, 2014, the company had $44.6 million in working capital. They have a deal pending where they are selling half of a major property in production in Thailand. They are selling 50% of the project for $46.5 million.
So as of the closing on January 12th, 2015, the company will have $91 million in cash and still own 50% of the Thai project that is worth $46.5 million to them. That’s $137 million in assets selling for $96.6 million as of January 6th. Dollar bills are going for $.70 as oil prices tumble. That’s a really good time to be in the oil business and be cashed up.
In the December 1st press release referred to above, Pan Orient talked about drilling what they term the L53-A North Central exploration well soon after closing the sale of the 50% of the concession with drilling to start in February of 2015. That well has an unusually high potential for impact on the company. L53-A is 4.5 km south of the Thai Nation Oil Company PTTEP oil field called the U-Thong Oil field and on trend. This PTTEP field is 1.5 square km in extent and has produced 4.5 million barrels of oil. The L53-A North Central project is 9 square km in area extent. It has the potential to increase the reserves of the L53 project by 600%. The well will cost $1.8 million gross or $900,000 to POE and could be brought on stream at once.
I don’t know what the “Right” price for oil is. No one knows, all we can do is see what it trades for on a daily basis. The market is always right, opinions often wrong. But a lot of countries have spending plans based on a lot higher price for oil. Sub $40 oil could mean a shooting war; we already have a currency war going on. The rising dollar isn’t a sign of health; it’s a sign of increasing instability in the financial system. One day the $697 trillion in derivatives will blow sky high. That day soon approaches.
The world is awash in debt that will never be repaid. The banks sold shit for our shoes and called it Shinola. The whole shale oil revolution was based on a scam. If you borrowed what appeared to be cheap money from the banks, you could produce an endless supply of oil. But oil companies were spending $110 a barrel on oil that they were only getting $100 for.
The banks didn’t care. The Fed was dumping money on them. They believed they have transferred all the risk to taxpayers. Well, the music stopped. There were no chairs and now we get to pay the price. The Piper will be paid, either by the borrower or by the lender.
When any market bottoms and oil will one day, anyone sitting on a lot of cash is in the catbird’s seat. POE has assets in Indonesia and Canada; they aren’t a one trick pony. Buying cash and hard assets for $.70 on the dollar makes a lot of sense to me.
Pan Orient is an advertiser and I am biased. Do your own due diligence.

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Jan 07 January Barometer Forecasting Strong Year for Junior Gold Miners in 2015 Jeb Handwerger

January Barometer Forecasting Strong Year for Junior Gold Miners in 2015

Jeb Handwerger
Posted Jan 7, 2015
There is an old market saying, “As January Goes so too the Year”. Tensions between Russia and the West continue to push precious metals higher, while the equity markets such as the Dow and S&P500 are crashing. Gold climbed back above the critical $1200 mark. Once again the Greek debacle is coming back to haunt markets as investors fear another decline in the Euro. The Dow was down over 300 points yesterday as investors are beginning to brace for uncertainty from a declining oil price pushed down to punish Putin and his friends.
As expected the end of tax loss selling should support a rally in the beaten down junior miners. We could witness a powerful January Effect where the small caps outperform. A break above $1240 in gold could really ignite renewed buying across the sector.

Investors should specifically watch out for breaks of critical moving averages such as the fifty day moving average (50 DMA). A break above the line indicates a potential change in trend. The junior gold miners (GDXJ) have broken above the 50 DMA for the first time in four months. This is happening in January which is usually a sign for a positive year. This means the probability of a change of trend has increased. Confirmation of a major bottom would be a break of November highs at $30.
Now until at least March when PDAC begins in Toronto is a very favorable season to watch the junior mining stocks. Make sure to sign up for my free 30 day trial by clicking here.
P.S. I will be speaking at the 20th Annual Vancouver Resource Conference on January 19th, 2015 at 1PM. The topic will be “Picking The Winners in the Junior Mining Sector Despite The Worst Bear Market in History”.
Learn more about the event and register here.
P.P.S. I was recently interviewed by Palisade Radio which can be seen here.
Takeaways from the interview were:

• Overall thoughts on the mining and natural resource sectors moving into 2015
• Understanding how to measure value as an investor, why it’s crucial to not chase high valuations in the stock market
• The junior mining sector, and why it’s Jeb’s favorite investment
• Jeb’s thoughts on the uranium sector, and why smart money is investing in the “other yellow metal”
• How the republican win in congress can make way for growth in the uranium sector

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Jan 07 How Oil’s Fall Affects Gold

How Oil’s Fall Affects Gold

CATEGORY 

In case you were under a rock, oil just got crushed. It has dropped close to 50% and most of that was in just the last three months.

Oil Price – Last Three Years

Let’s pause there.
Consider if this happened with another resource, say if the gold price suddenly dropped 50% from the current price of $1,200/oz to $600/oz in three months… That would get people thinking. Same for base metals such as copper or even your home / house.
Imagine before you left for vacation, a three month Mediterranean cruise, which you had been planning for years, your house was worth $1.5 Million, and when you returned it was now worth $750,000. What’s up?
As an investor and speculator and entrepreneur I have found these last several months fascinating and exciting.
Toward the end of the recent oil equities plunge I was speaking with a friend of mine in Toronto, who is involved with the day to day swings in the market in a trader type role. He had positioned himself for a bounce in the oil equities, but with the drastic drop in prices, I could hear the abject unaltered fear in his voice.
That was my sign. There must be opportunity here. It was the same fear I had seen several weeks earlier in the senior gold space, and remembered from 2008 with regard to GM, Ford, Teck, and banks (insert your own memories here).
While there certainly is, and was opportunity in the oil/energy space, depending on time-frames and risk tolerances, what is important to recognize is that because of oil’s impact over most industries in the world, this change in price will have significant ripple effects to be aware of and take advantage of.
Having a bent towards the mining industry, my mind immediately went to what impact this significant move could have on the mining companies, or specifically the gold miners, and the gold price.
The chart below was taken from an Oceanagold Corp. presentation and shows the current gold price with the red line and industry all-in sustaining costs. You could add your favourite gold stock or project into the same chart. You should.

Gold’s performance was actually pretty boring last year, basically staying flat, even though the equity prices and investor’s emotional states may have suggested otherwise.
With gold flat, and oil down 50% in three months that should make a lot of happy miners, especially the bulky, low grade, energy/oil sucking operations, where oil is a major input cost.
One of the fallacies many gold investors have been under over the last several years was the belief that say for example if the spot price and all in cost of producing gold for a company were both $1,000/oz, and the price of gold moved up +$500/oz that would mean an extra $500 per ounce of gold produced for the company and shareholders would rejoice, making money hand over fist.
That may have happened, but instead of rejoicing, most shareholders saw industry costs inflate along with the gold price, eating gains. Combine that with some wacky M&A, the normal political, environmental, community and commodity price risks, a proliferation of alternative investment products for gold investors such as ETFs and royalty companies, exploding G&A costs and payrolls and bonus structures, and you can see why many gold investors are feeling shorted.
But gold staying mute, and oil falling should be a net positive.
That is unless gold follows historic trends and shadows dropping oil prices.

Figure: The movement in gold and oil prices since 1974. Series are adjusted for CPI inflation.

The fall in oil should be noticed and action should be taken to respond to new opportunities created and move away from opportunities now closed.
The upcoming year as fellow market observer Mr. Chris Ecclestone has stated will be the “Year of the Manager.” Those companies and teams that show they can make a buck when all about them are blaming “weak” commodity prices will be standouts. And the investors that can identify them from the crowd will be rewarded.

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