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Aurcana: IRR and NPV of Shafter
By Christopher Wood
Investment Revaluation Catalyst
at 13:38 Monday, 20 February 2012
Aurcana Corp. (TSX:AUN; OTC:AUNFF) published a feasibility study ( http://tiny.cc/fgg3l ) on their 100% owned Shafter mine in November 2010. The study predicted a net present value (NPV) of $34M at a discount rate of 5%, an internal rate of return (IRR) of 32%, and payback in 1.9 years. Quite robust economics. But this study used a silver price of US $15.53 and only included the measured & indicated resource. What would the economics look like using the current price of silver and including the inferred resource? Vastly better.
I have attempted to extrapolate the original feasibility study in the following ways, in each case using the current price of silver ($33.28 at the time of writing):
1) Original (M&I): Only measured/indicated resources
2) Original (M&I&Inf): Both measured/indicated and inferred resources
3) Start-up (M&I): Only measured/indicated resources at production start date (accounts for sunk costs)
4) Start-up (M&I&Inf): Both measured/indicated and inferred resources at production start data (accounts for sunk costs)
The first two include the original capital costs, however, since all the original capital costs have already been raised (and the majority spent), these are really sunk costs. So, a more accurate estimate is consider these sunk costs and eliminate them from the calculation. This is done in the second two calculations.
In all cases, the results are stunning:
1) Original (M&I): NPV = $273M, IRR = 144%, Payback = 6 months
2) Original (M&I&Inf): NPV = $480M, IRR = 146%, Payback = 6 months
3) Start-up (M&I): NPV = $332M
4) Start-up (M&I&Inf): NPV = $549M
Here is the overall improvement in the important metrics between the original and these new estimates:
NPV: $34M -> $549M (~15x increase)
IRR: 32% -> 146%
Payback: 1.9 years -> 0.5 years
The calculations to back-up these results can be found here http://tiny.cc/0x1ti . They use the same 5% discount rate as used in the original study. The grade used for the inferred resources was the average from the feasibility study after accounting for grade reduction due to dilution (10.52opt *.91 = 9.57opt). Capital costs and operating costs were extrapolated to be the average yearly costs from the original.
Now these results look phenomenal, but I expect actual results to be even better for the following reasons:
* Resource numbers used where from current 43-101 resources, which resulted from drilling programs conducted by previous owners in the mid-to late 1990s and earlier. Aurcana is currently engaged in an aggressive drilling program on the Shafter property with results expected later in the year. There is high probability for resource expansion as a result of this program. This would extend mine life and/or provide opportunities for increased throughput.
* Increased extraction rates. The current mine plan calls for a milling rate of 1500tpd, yet Lenic stated in the Christopher Barker interview ( http://tiny.cc/oa8wb ) that Aurcana is considering upgrading to a rate of 2500tpd. This could cause cash costs to decrease. Additionally it would cause cash flows to be recognised sooner (reducing the impact of the 5% discount rate). The net result is higher NPV.
* Potential for recovery of gold, lead, and zinc from the ore. Current projections assume no metal by-products, however, historic drilling results hint that gold, lead and zinc are all present. Future drilling results could report economic quantities of metal by-products which could result in mill upgrades to extract the by products. This would further reduce cash costs.
* Potential for silver price increases. These estimates assume current silver prices, which I expect to be significantly higher in the future.
http://investmentrevaluationcatalyst.blogspot.com/2012/02/aurcana-irr-and-npv-of-shafter.html
Take it real easy coming off of Prednisone, as it's apt to leave you weaker than usual, so you need peaceful time without over-activity until you gain your own normal strength back at a moderate pace.
I was given it years back for an inflammation problem and it was fine while using it to dispel my problem, but it wasn't fun afterwards, as it left me feeling drained.
I trust you got printed information to study on side effects, ect.
http://en.wikipedia.org/wiki/Prednisone
Ah, no worries tocotuga! Take care of yourself, a nasty bug going around! My German Shepard is on prednisone right now for allergies, makes a lot of his hair fall out, indeed nasty stuff!
Take it easy there bud.
Hey Tocotuga,
Prednisone ~ Nasty stuff, hope you're feelin better soon..
My apology, I misunderstood. Chalk it up to the Prednisone I've had to take for pneumonia-like symptoms...that stuff makes me feel weird. One final dose in the morning and then I should be back to normal soon enough. Seems like the second wave of a different antibiotic kicked in today as it wasn't as bad breathing.
Caledonia signs Memorandum of Understanding with the Government
of Zimbabwe relating to the Indigenisation of
the Blanket Mine -
TORONTO, Feb. 20, 2012 /CNW Telbec/ -
Caledonia Mining Corporation -
("Caledonia") (TSX: CAL) (NASDAQ-OTCQX: CALVF) (AIM: CMCL)
announces it has signed a Memorandum of Understanding ("MoU")
with the Minister of Youth, Development, Indigenisation and
Empowerment of the Government of Zimbabwe (the "Government
of Zimbabwe") pursuant to which Caledonia has agreed to sell
51% of the Blanket Mine in Zimbabwe ("Blanket") to Indigenous
Zimbabweans for a paid transactional value of
US$30.09 million on the following basis:
16% will be sold to the National Indigenisation and Economic
Empowerment Fund;
10% will be sold to a Management and Employee Trust for the
benefit of the present and future managers and employees of
Blanket;
15% will be sold to identified Indigenous Zimbabweans;
and
10% will be donated to the Blanket Gwanda Community Trust.
Caledonia will also make a non-refundable donation of US$1.0
million to the Trust as soon as it has been established.
Caledonia will facilitate the vendor funding of these
transactions which will be repaid by way of future dividends
from Blanket.
Caledonia expects to redeploy the sale consideration in its
projects.
Caledonia has undertaken to complete the implementation of all
the components of the indigenisation transaction as soon
as possible.
The Government of Zimbabwe has agreed that implementation of
the terms of the MoU will constitute full compliance by
Blanket and Caledonia with the requirements of
the Indigenisation Act.
Further details of the MoU are subject to a confidentiality
agreement, and further announcements will be made when
appropriate.
Blanket's unaudited revenues and profit after tax for the year
to December 31, 2011 were US$56.6 million and US$19.2 million
respectively.
Mr Stefan Hayden, Caledonia's President and Chief Executive
officer said:
"I am pleased we have signed a MoU which, when fully
implemented, will represent the conclusion of the
indigenisation requirements for Blanket.
The transaction will be concluded for a value which is close
to Caledonia's current market capitalisation.
( Note
CALVF Total Current Market Cap: $55,060,421.--
[A subsidiary company;
Blanket Gold Mine 51% = US$30.09 million on the above
following basis:]
http://tmx.quotemedia.com/quote.php?qm_symbol=CAL ?)
This is a significant achievement in the current environment
and the transaction is neither an expropriation nor a partial
nationalisation.
Excellent progress has been made at Blanket in recent years:
gold production has increased by over 300% from 3,148oz in
the first quarter of 2010 to 10,533oz in the fourth quarter
of 2011 and cash operating costs fell by 27% from $804/oz
in the first quarter of 2010 to $583/oz in the third quarter
of 2011.
I hope that Blanket and Caledonia can now build on this track
record of success.
The indigenisation agreement, when fully implemented, will
introduce new shareholders to Blanket and I am confident
that their participation will enhance Blanket's further
growth and development.
We look forward to working with our new shareholders in
further progressing operations at Blanket for the benefit
of all stakeholders."
Caledonia Mining Corporation
Mark Learmonth
Tel: + 27 11 447 2499
marklearmonth@caledoniamining.com
Renmark Financial Communications Inc.
John Boidman: jboidman@renmarkfinancial.com
Nadia Marks: nmarks@renmarkfinancial.com
Tel.: (514) 939-3989 or (416) 644-2020
www.renmarkfinancial.com
Newgate Threadneedle Communications
Laurence Read, tel +44 207 653 9855
Beth Harris, tel +44 207 653 9853
Terry Garrett, tel +44 207 653 9845
Collins Stewart Europe Limited
John Prior / Sebastian Jones
Tel: + 44 20 7523 8350
Collins Stewart LLC
Dan Mintz
Tel: +1 212 389 8022
DMintz@collinsstewartllc.com
Further information regarding Caledonia's exploration activities
and operations along with its latest financials and Management
Discussion and Analysis may be found at
http://www.caledoniamining.com
http://tmx.quotemedia.com/article.php?newsid=48600192&qm_symbol=CAL
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=72213549
God Bless
An outstanding interview with SVBL's President/CEO, Tim Barry....
A fast track to production: Silver Bull reports Mexico silver assays up to 144 g/t over 31m
Resource Clips Feb 17, 2012 – 2:24 PM ET
By Ted Niles
Silver Bull Resources, Inc (TSX:SVB; NYSE-AMEX:SVBL) announced assays from the Shallow Silver zone of its Sierra Mojada project in Coahuila State, Mexico. Results include:
* 19.9% zinc over 10.9 metres
* 10.06% zinc over 1.2 metres
* 109.39 g/t silver over 12.6 metres
* 64.93 g/t silver and 1.64% zinc over 48.3 metres
* 27.99 g/t silver and 4.57% zinc over 15 metres
* 144.04 g/t silver over 31 metres
* 67 g/t silver and 3.41% zinc over 20.6 metres
* 57.8 g/t silver over 14.8 metres
* 30.86 g/t silver and 3.14% zinc over 57.7 metres
* 61.7 g/t silver and 1.83% zinc over 12.4 metres
* 35.66 g/t silver over 20.9 metres
* 77.04 g/t silver over 31.9 metres
* 92.5 g/t silver over 8.3 metres
* 89.4 g/t silver over 36.3 metres
* 66.54 g/t silver over 16 metres
President/CEO Tim Barry tells ResourceClips.com, “Sierra Mojada has been a historical mining district for the last 100 years. Silver Bull emerged from a merger between Metalline Mining and Dome Ventures. When Metalline had the property, they had it for over 16 years and focused almost exclusively on the zinc resource there. When the merger was done, and we got to the project, we noted there was significant at-surface silver mineralization kicking around that had never been tested. Zinc at the time was living in the 50-cent range, so we changed direction for the company and started focusing on the silver mineralization. To date, we’ve put out two resource updates. The resource right now is sitting at 47.8 million ounces indicated and 13.8 million ounces inferred, and that’s out of a global resource of 84 million ounces.
“The model we’re using is similar to what Red Back Mining did, which was putting out regular resource updates every six months or so. We’ve got a very aggressive drill program underway on the property right now. There are three drills turning. The drill plan to the end of the year will probably finish up something in the order of about 50,000 metres of drilling. We have another resource update that we expect to have out 2Q of this year, which in addition to increasing the silver resource, will also, we hope, reintroduce the zinc to the story.
“We’re pleased [with these assays],” Barry continues. “What we were doing with this drill program was just testing the margins of the known mineralization. As the results show, we’ve still got some real thickness in grade. Interestingly, we’re hitting some really exciting zinc intercepts, particularly down the eastern end of the property. At the western end of the ore body, we were pleasantly surprised [to find] we had a significant increase in the grade of the mineralization as well as the thickness that we intercepted. Why we’re excited about that is because on that same trend there is a bunch of historical mine shafts that extend for another 1.5 kilometres that have never been drilled. So part of 2012 will be to focus on drilling on the western end of the known ore body.
“This year is going to be devoted entirely to continuing to expand the resource. We simply have too many near-resource drill targets that we’ve got to put some holes into. So I think we’ll start to consider a preliminary economic assessment in 2013. At the same time that the drill program is going on for 2012, we’ve also got a metallurgical program looking at both the silver and the zinc. The goal is that we’re going to keep drilling it out and defining the resource, to keep pushing this as fast as we can towards production. We’re going to keep rolling over 43-101 updates until the end of this year, thinking about PEAs and feasibilities in 2013 and where they fit into the picture.
“You’ll be able to put this into production very quickly for two reasons,” Barry relates. “One, a good portion of the mineralization sits at surface. Two, it sits at a slightly elevated position, which means you could gravity feed a lot of the ore to where you want to go. So the build-out costs, at least initially, should be pretty modest and easy to do.
“We’ve had no security issues whatsoever. Sierra Mojada actually sits at a dead-end road, which is an advantage for the simple reason that you don’t get any through traffic going into the place. The other key thing is that there is no surface water, so you don’t get any entrepreneurial horticulturalists growing anything there. We’ve had no problems at this point, and we’re probably in one of the few parts of Mexico where we haven’t had to organize a security company to come on board.“In terms of infrastructure it couldn’t be better. We have a paved road right to the site. We’re three hours north of the city of Torreon, which is where you fly into. We have a working railway right to the site — 600 metres away from where our office is. And we have high tension power lines that are 30 kilometres from the site.Regarding how the company is funded, Barry says, “We’re in really good shape. We’ve got $12.5 million in the bank right now. It will be close to $140 million shares out fully diluted.”
Barry explains why Silver Bull is undervalued, “Number one, we’re actually in this drill program, and we actually know we’re going to hit more mineralization. We’re starting the drills off in mineralization, and there is no better drill target that you can put a drill onto. So in terms of that, [the project] is incredibly low risk. Number two, we’ve got a huge zinc resource — that we’re going to get in the next 43-101 — that we get no value for in the stock whatsoever. The story between the silver and zinc are going to be quite intimately tied, because the way the ore body is set the silver actually sits over the top of where the zinc is. So you mine out the silver and finish with the zinc as the final paragraph. And simply in terms of ounces in the ground. As it stands right now, three quarters of the known silver deposit is in the indicated category. And we’re trading below peers. When you put all that together, coupled with a 50,000-metre drill program that is going ahead this year, I can see nothing but good news and good results coming forward.
“Our progress has been fantastic,” he concludes. “We had a lot of work to clean up the company when the merger happened. That is how I got involved with it. That work has been done. We’ve put together a fantastic team, led by guys with some solid proven track records, and they’ve put together a really aggressive program. We’re simply getting better and better at identifying the zones to drill and [output] from the drill rigs has been probably too fast. It’s kind of hard to keep up at times. I think 2012 will be a really exciting year.”
View Company profile: http://tiny.cc/x3rwp
Contact:
Tim Barry
President/CEO
604.895.7430
Read more articles like this at resourceclips.com.
http://business.financialpost.com/2012/02/17/a-fast-track-to-production-silver-bull-reports-mexico-silver-assays-up-to-144-gt-over-31m/
Everybody gonna turn to Ron Paul when the crash hits!
17.feb.2012
$8,890 Gold, $517 Silver & Hyperinflation Update -
Overseas PM action is rolling to the upside.
High's have been $1736 gold and $33.67 silver.
msnbc.msn.com US headline:
"The Japanese yen fell to six-month lows on the greenback on Monday, while commodity currencies jumped after China's central bank joined other major counterparts globally in stimulating growth."
Oil,currently at 104.25, will take a lot of gelt out of our pocketbooks over time at the gas pumps. I hate they're already suggesting five dollars a gallon for summer. I drive a hundred miles a day minimum at work.
From Jesse's Café Américain....
Free Kindle Edition of 'The New Robber Barons' By Janet Tavakoli
19 February 2012
As long as that space is down there, it certainly could work that way. So we shall see. Rarely does a bar that long not get retraced.
Actually I never stated I was looking to buy gold back $40 lower, no doubt ridiculous. I did however mention I planned on being overweight silver for the time being and that I had simply sold gold and was positioning to gain on my silver holdings. To be clear I was stating gold could go to $1680, not that I sold on Saturday and was looking to buy @ $1680, I'm sorry if you thought that is what I meant....edit I said I was going to stay underweight in gold
Excellent move, Nice going!
2009 Ultra High Relief Double Eagle Gold Coin Original Box & COA
Hmm, my purchase price was $1200 back then (April 09) and tonight Provident's paying $2784. Better return than some bank will give ya.
http://www.providentmetals.com/2009-ultra-high-relief-double-eagle-gold-coin-us-mint-box-and-coa.html
Take out $1739 and you can kiss that pullback goodbye....everyone's waiting for $1682 and it doesn't work that way.
I think it's hilarious for one to sell gold looking for a $40 pullback when the buy-sell spread (take Provident for instance) is $40.
Seems stupid actually.
I don't really see anything funny about it. When you deal with hundreds of ounces at a time, it is really not so "funny" when you can save a buck or 2.....If you are using the bigger online bullion dealers as an example of the spread, you would think it's funny. I don't use them when dealing in larger quantities of metals. Again, I still don't see what is funny about it!
Precious Metals: The Only Alternative
Jeff Nielson
13 February 2012
http://www.gold-eagle.com/editorials_12/nielson021312.html
No Other Choices
From a personal standpoint it was never my intention to become as heavily focused in the precious metals sector as I am presently (between 80% and 90%). As with many other precious metals bulls I am a big believer in the overall "commodities" story (from a long term perspective). This is based on the obvious big-picture fundamental that much of the global population (the so-called "emerging markets") are still in the early stages of what will prove to be the longest/largest economic growth boom in the history of our species.
At the same time, the collection of corrupt buffoons presently running (ruining) Western economies have betrayed their own peoples and so grossly mismanaged their economies that they have maneuvered themselves into the worst economic catastrophe in the history of our species. And we can "thank" the Banker Oligarchs who have steered these stooges every step of the way along that road to economic suicide. "Zig" one way today and Western economies will be consumed in a hyperinflation conflagration which is literally beyond the comprehension of any of us. "Zag" the other way, and these debt-saturated economic Ponzi-schemes will implode into domino-like debt defaults.
Literally only one investment can protect investors from both of those nightmares: precious metals. While the virtues of gold and silver in shielding people from the ravages of high inflation are generally well understood, conversely very few investors (or commentators) understand that gold and silver are equally necessary/effective in protecting people from the opposite economic Hell.
Commentator after commentator fail miserably in their analysis of gold and silver in any "economic crash" scenario. The mistake they make is in comparing what will be a totally unprecedented event in human history with past economic episodes which bear no similarity to our present circumstances.
Never before in history has the majority of the global economy (according to GDP) all been simultaneously poised to default on its debts. Thus when commentators talk about recessionary conditions or even depressionary conditions (of the past) they are totally missing the boat. They are talking about (mere) "deflation" when what we are facing are (serial) debt-defaults. There is no comparison at all between the two scenarios.
The enormous difference between the two scenarios could not be simpler: in the debt-default Hell looming before us "cash is trash" (implying the same thing for bonds). Our (unbacked) fiat currencies are nothing but the IOU's of the government issuing them. What is the value of an IOU from a bankrupt debtor? Zero.
Similarly, the debt-default scenario looming before most Western economies implies bonds going to zero. How much are Greek bonds worth today? About 30% of what they were worth one week ago (and fading fast). And as I have reminded readers frequently, in fundamental terms the U.S. economy is obviously more insolvent than that of Greece.
Any economic crash scenario also implies a sickening plunge for the broader economy, meaning that most categories of equities can be expected to crash as well, along with most of the commodities - except where severe shortages exist. The question then becomes: as $trillions in various forms of banker-paper plunge to zero, where will the paper-refugees flee with what remains of their wealth? For nearly 5,000 years, the answer to that question has been gold and silver.
That's pretty funny considering the spread between spot and dealer pricing.
I sold some gold and some silver yesterday myself. Looking for $1680 in gold this week and possibly $31-32 for silver. I think it will happen mid week and be short lived and if the 'hunch' is correct, I will gain a nice additional stack of silver. I'm gonna stay underweight gold for the time being as I see greater returns on silver percentage wise....
SILVER RIPE FOR TRADING AGAIN By Richard Rhodes
* Sunday, February 19, 2012
With all the press centering in upon Gold gains recently +10%, Silver has risen by +19% - thereby outperforming the yellow metal by +9%. Silver - the poor man's good; now looks rather ripe for trading once again. This is as it should be in a metals bull market - silver should always outperform gold. And the manner in which the technicals are shaping up in both absolute and relative terms - we should see both gold and silver move to new highs and not return to the lows forged on 12/30/11 at $1567 and $27.88 respectively.
In our opinion, we shall be playing silver form the long side, for the techncials are rather compelling. First, the weekly Silver chart shows a series of continuation patterns or bullish consolidations that have all lead to new highs. And, each one began with the 20-week stock at oversold levels. In fact, the first two times this occurred, silver rallied for 2-years plus and gained in the multiple of 100%s. Next, let's note the current price has held the 110-week moving average. which it has done on a number of occasions, and then rallied rather strongly. We expect this current test amid the bullish consolidation to take silver price upwards of $50/oz or more - a minimum gain of +34%, which is really rather paltry by past rallies, but one that has the potential to go much much higher.
Therefore, we are left to wonder what shall trigger such buying in the metals and silver in particular. Will be be turmoil in the Middle East? The Euro falling apart? Faster-than-expected economic activity around the world? New rounds of QE? They are all good questions, and perhaps an amalgamation would probably be the most likely scenario.
http://blogs.stockcharts.com/
George.
Click on "In reply to", for Authors past commentaries.
Keep an eye on that 163 area though. There's still some uncovered space there.
I would be one of the few.
THE BULLISH MOVE IN GOLD ISN'T OVER By Tom Bowley
* Saturday, February 18, 2012
It takes time and patience for continuation patterns to play out. Many traders grow frustrated, especially after the stealth move higher ends because of the time involved for continuation patterns to form. The current bull market in gold has lasted more than a decade and there are few technical signs of it ending now. First, let's take a look at a 12 year weekly chart to step back and grasp the overall picture:
You can see from the blue circles above that every "stealth" move higher has been followed by a longer than usual consolidation period. And that makes sense. There needs to be a cleansing period where a whole new group of longs participate as weaker hands let go of their positions. The other technical observation is that the current consolidation phase has allowed a VERY stretched MACD to move back down to test its centerline. This means that gold's 12 week EMA essentially equaled its 26 week EMA. A lot of the overbought conditions have been relieved. Another observation is that every time gold has seen its weekly RSI dip beneath 50 and its weekly stochastic fall to 20 or below, that combination has resulted in a very strong buy signal.
Now let's take a look at the current pattern on a daily chart:
There are a couple of different interpretations which would lead to differing methods of accumulation and risk management. Obviously, we have a bullish wedge breakout, but also have the prospects of an inverse head & shoulders pattern that would measure to 2075 in time. Perhaps an inverse right shoulder will form on a back test of the wedge breakout? Either way, this pattern looks bullish and I'd be a buyer of gold.
I've provided a few technical reasons why I believe gold is going higher. Fundamentally, I believe gold will be higher because Fed Chairman Bernanke wants to inflate our way out of the financial crisis and the resulting economic weakness. The next big issue is going to be inflation, I have no doubt. If you've listened to Bernanke, you know the Fed will do EVERYTHING it can to avoid a deflationary environment. They will continue to expand the Fed's balance sheet. QE 3 is coming so get ready. Ultimately, there will be a price to pay and it's going to come in the form of inflation. What do you think is going to happen to gold prices as inflation is sparked? Inflation may stay historically low for the next couple years, but it is NOT going to remain low. I rest my case.
http://blogs.stockcharts.com/
George.
Click on "In reply to", for Authors past commentaries.
Good points made on the "war machine". What really gets my attention is how China and Russia are siding with Iran. And why wouldn't they? I firmly believe that China is prepared to take over the world reserve currency status and when you look at their exports vs. imports, the writing is on the wall! Russia knows this and has no beef with China. The Chinese have been net importers of gold and silver over the past few years when they are typically huge exporters. Then you have Chavez taking delivery of his countries gold, the new breaking story of the "counter-fit" $6 trillion in US Treasuries just seized, which has U.S. Government theft and deception written all over it, and here our Gubmit clowns are worried about a Nuke that doesn't exist, yet? Hmm, smells like a currency war to me and little to do with Iran and the "possibilities" of developing a nuke.....Makes a guy really think hard when watching the precious metals trade. I'm not a conspiracy theorist or a believer in the "end of the world" but I am starting to think the U.S. is trying their damnedest to hold the precious metals in a certain price range! Makes logical sense to me.....
Swift system...he explains it in the first sentence. It's a world wide use of a number assigned to each bank which the banks must have to wire $ to each other. Probably won't mean much because smaller banks can pay a fee to larger banks to use their Swift #. I just used the system yesterday. That's how I know. My guess is a bank in a sympathetic country, uh, like China or Russia will transport the $ for them. This Iran stuff is all BS anyway. Just substitute "Iran" for "Iraq." The war machine is beating the drums. Iran does not have a nuke. They do not have a missile that can reach the US. They know it's suicide to attack Israel much less the US. They would be obliterated without the use of any ground troops. They are already boxed in by US Aircraft carriers. The real battle is not between Iran and the US it's between the US, China and Russia. It's a chess game where the general population is played as a fool.
Me, I'm just enjoying my coffee.
Gold and Silver COT Reports - Futures By Harvey Organ
* Saturday, February 18, 2012
Greece updates/Iran/High amounts of physical silver standing in February/
Let us now head over to see how positions changed with our players with Friday's COT report:
first gold.
Our large speculators:
Those speculators that have been long in gold lightened up a bit on their longs to the tune of 7,288 contracts as the weaker longs succumbed to the wishes of the crooked bankers.
Those speculators that have been short in gold, increased those shorts to the tune of 2,799 contracts.
The commercials;
Those commercials who have been long in gold and close to the physical scene, added 3733 contracts to their long side.
Those commercials who have been perennially short in gold e.(JPMorgan and friends) covered 7933 contracts from their short side. The raid allowed them to cover these contracts.
Our small specs:
Those small specs that have been long in gold pitched a rather large 2519 contracts and these guys were also victims to the criminal collusive action of the bankers.
Those small specs that have been short in gold covered 942 contracts from their short side.
Conclusion: now more bullish for gold as the bankers are covering their short positions and they went net long this reporting week.
Remember that the report is from Tuesday Feb 7 through to the 14th of February. We had interesting days on Wednesday, Thursday and Friday.
Now for our Silver COT:
Our large specs:
Those large specs that have been long in silver continued by slowly adding another 621 contracts to their long side. (Note the difference in the large specs with silver in contrast to the large gold specs)
Those large specs that have been short in silver,did not like the lay of the land and covered a rather large 1460 contracts from their short side.
Our commercials;
Those commercials who are long in silver covered a very tiny 368 contracts.
Those commercials who have been perennially short in silver and subject to the criminal probe on manipulation reluctantly supplied 2292 contracts
Our small specs:
those small specs that have been long in silver pitched 741 contracts from their long side;
those small specs that have been short in silver covered a rather large 1,320 contracts.
Conclusion: the large specs are taking on the bankers. The large specs will win if they seek the physical from the bankers in the delivery process and remove that metal from all registered comex vaults.
http://harveyorgan.blogspot.com/2012/02/greece-updatesiranhigh-amounts-of.html
George.
Click on "In reply to", for Authors past commentaries.
I don't know what the swift system in Belgium is but this has got to be good for PMs. From an email from Jim Sinclair:
Dear Friends,
Iran is to be dropped out of the Swift system in Belgium. That means Iran could neither send or receive bank money wires.
That would slam Iran's economy.
This is economic war at the highest level of conflict. This could start a greater move of central banks with fears of the West to increase and retrieve their gold positions. It certainly puts cash reserves held by central banks (which are computer entries anyway) into serious question as to security.
This is as serious as it gets in nuclear and economic terms. The only weapon that can be effective against Iran's nuclear industry is Western nuclear deep penetration bunker busters.
Hold tight to your insurance investment positions.
Regards,
Jim
Aurcana: Possible resource increases
Posted by Christopher Wood
at 20:41 Thursday, 16 February 2012
In Aurcana's December 2011 corporate presentation ( http://tiny.cc/evhhk ), the following reserve numbers are reported (43-101 compliant):
La Negra:
Measured & Indicated: 1.248Mt @ 105 Ag g/t (3.4oz/t) for 4.2Moz Ag and 7.5 Moz AgEq
Inferred: 0.262Mt @ 78.6 Ag g/t for 0.7 Moz Ag and 1.4 Moz AgEq
Shafter:
Measured & Indicated 2.795Mt @ 8.6 oz/t (267 g/t) for 24.0Moz Ag
Inferred: 2.167 Mt @ 10.5 oz/t (326 g/t) for 22.8 Moz Ag
For La Negra, running the mill at 1500tpd would exhaust the M&I resource in 832 days; once the 2000tpd expansion it complete (Q1-2012) the resource would be exhausted in 624 days. So finding more resources is critical. The good news is that we know the ore is there; from their Q4-2011 production numbers we know that only 14% of production was from M&I resources and 86% was from "new discoveries or non-compliant resources). If er use these numbers to estimate the amount of resources that could be there, unaccounted for in the 43-101, resources size increases by a factor of 7 (100/14) and the M&I resource number potential jumps to 30Moz Ag and 54Moz AgEq.
But how realistic is this estimate? Well, in the recent Christopher Barker interview Lenic gave up another data point:
"We're expecting a resource update at La Negra by mid-February. We are going to add about 1 million tons, which will be a substantial increase from what we now have, and these will come from the 1950 level ... the first time we have gone so deep into the mine. The haulage level is at the 2000 level. So all of the orebodies -- these 28 orebodies -- are above the haul level; all of them are gravity fed. And all of them are open. So we're down in the 1950 level now, and we have about 1 million tons here, (with more copper than silver).
Meanwhile, at the 2400 level in the Northwest Trend, we have two orebodies that seem to connect; bridging an 800-meter gap. We're already drilling 400 meters into it, and we need to drill the other 400 meters. And if they do connect, we have the potential for about 4 million tons there, and the grades are around 100 to 200 grams per ton of silver."
Lets look at the 1Mt first. Assuming a grade 100 g/t (the weighted average of their current M&I and Inferred resources) we get another 3.2Moz Ag of resources. Now what about AgEq? Well, in their current resource numbers, the AgEq number is roughly double the Ag number. Additionally, Lenic indicates there is more copper than silver in this ore, which seems to support the doubling for AgEq. Thus, we get an AgEq number of 6.4Moz. And as Lenic indicates, we can expect a resource update in mid February (now) that will hopefully validate these estimates.
* 1Mt @ 100g/t: 3.2Moz Ag and 6.4Moz AgEq
Now, what about the 4Mt? Lenic indicates a potential for and additional 4Mt of or grading between 100g/t and 200g/t. He indicates that they think they have two connecting ore bodies, but that they have to prove it by drilling. Drilling is already halfway complete, which would seem to indicate at least a 50% probability of 4Mt of ore. Using the an average grade of 150g/t, how much silver is this?
* 50% of 4Mt @ 150g/t: 9.6 M/oz
* 100% of 4Mt @ 150g/t: 19.3 M/oz
If we again assume a doubling when considering AgEq we get:
* 50% of 4Mt @ 150g/t: 19.3 M/oz
* 100% of 4Mt @ 150g/t: 38.6 M/oz
If the 4Mt resource is there, adding this to the 1Mt resource that is expected in February we have 22.5Moz Ag and 45.0Moz AgEq. This is remarkably close to the numbers we estimated based sources of the ore currently being mined.
If this all comes to fruition, Aurcana will increase at La Negra by 560% for Ag and AgEq by 600%:
* LN Current: 4.9Moz Ag and 8.9Moz AgEq
* LN Projected: 27.4Moz Ag and 53.9Moz AgEq
Factoring in the current cash costs at LN (~10/oz Ag) and the current price of silver ($33), and an 85% recovery, this 22.5Moz Ag resource converts to $440M in cash flow. But, if you think prices of silver are going to rise (which I do) this number goes up too.
Finally, Aurcana is currently engaged in an "aggressive drill program" at Shafter. So expect further resource increases there as well. Estimating these numbers will be more difficult though since we have less data points.
http://investmentrevaluationcatalyst.blogspot.com/2012/02/aurcana-possible-resource-increases.html
Chart of a penny gold mining stock
just wanted to pass on the good word...
1+ billion gold in the ground in Brazil
a .14 cent penny stock
6.5 million trading float
http://investorshub.advfn.com/boards/board.aspx?board_id=19433
SEE CHART
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=72151950
Gold Miners ETF Forms Big Bad Bullish Engulfing By Arthur Hill
* Friday, February 17, 2012
The Gold Miners ETF (GDX) opened weak with a print below 53, but then recovered with a high volume rally and close near 55. Overall, Thursday's long white candlestick engulfed the prior four candlesticks. At the very least, this establishes support with Thursday's low. Follow through would confirm the pattern and argue for a move above the early February high.
http://blogs.stockcharts.com/
George.
Click on "In reply to", for Authors past commentaries.
There are a bunch of these machines in Dubai, the middle eastern oil countries, and in Europe with Germany and England. Banks wouldn't lose out and wall street wouldn't lose money, on the contrary would possibly make more getting behind the machines due to gold being the popular bullion around the world. China is buying more and more of it and they are introducing the machines in China with other companies in the mix producing these machines.
Like you I agree the idea is great. The money is there it is just how they market the machine and concept here in the states and to the "big pockets" investors. They are supposed to be releasing some more news about them working with a big name in the ATM world and with the Wincor Nixdorf International. They are already in the process of the private placement so I guess it is a waiting game now.
What!? lol I would think legos can make anything out of them pretty much why not gold bars?
They have already used the machine as a test at a mall in Boca Raton, FL. It is actually a pretty neat machine, I was able to pass by and check it out on a trip down to Miami, Fl.
OPEN LETTER TO THE CFTC
February 16, 2012
Commodities Futures Trading Commission
3 Lafayette Center
1155 21st St. NW Washington, DC 50581
Re: Flawed Investigations and Breaking The Law
Dear Commissioners:
For over 2 decades a large group of silver investors have been yelling and screaming at the CFTC to stop the rampant downward manipulation of the COMEX silver market. On May 14, 2004 the CFTC released the results of their 1st investigation by Michael Gorham, Director of Market Oversight, saying they have not found any evidence of silver market manipulation.
http://www.cpmgroup.com/free_library1/COUNTER-ARGUMENTS_TO_SILVER_CONSPIRACY_THEORIES/CFTC_Silver_Letter_May_2004.pdf
Dr. Gorham, who once worked at the Federal Reserve Bank, resigned only 3 weeks after releasing this report:
http://www.cftc.gov/opa/press04/opa4935-04.htm
As a truly REMARKABLE twist of fate, or not, Mr. Gorham now serves on the Probable Cause and Business Conduct Committees of the CME who were supposed to be overseeing MF Global before it imploded:
http://www.marketswiki.com/mwiki/Michael_Gorham
Then in May 2008 the CFTC released another report on the same topic again stating again that the silver market was not being manipulated. This time the CFTC decided NOT to put anyone's name on the report:
http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/silverfuturesmarketreport0508.pdf
This report piggy backed off the 2004 report in reinforcing the main argument why there was no manipulation in the silver market...
"Staff in 2004 also examined the relationship between NYMEX silver futures prices and cash market silver prices to determine whether NYMEX prices appeared to be unusually or significantly out of line with cash prices."
"NYMEX silver futures prices tend to track closely the price of physical silver...This analysis shows that there is not a downward bias in the NYMEX futures price vis-a-vis the LBMA price, which, as noted, is widely regarded as the benchmark value in the marketplace."In BOTH reports the CFTC cites the "cash prices" as the prices for silver on the London Bullion Market(LBMA). It is absolutely important that the NYMEX (COMEX) prices stay in line with the "cash prices" of silver otherwise it would prove that the futures and options trading was SETTING the price for physical silver which is illegal. The PROBLEM with the CFTC's analysis is that they are comparing the NYMEX prices to a massively flawed proxy for the price of physical silver.
I'd like to direct your attention to the CFTC hearing on the silver market manipulation issue. Jeffery Christian of the CPM Group points out clearly that the LBMA really has NOTHING TO DO WITH THE "PHYSICAL MARKET" IN SILVER.
http://www.bullionbullscanada.com/index.php?option=com_community&view=videos&task=video&userid=330&videoid=43&Itemid=114
As a matter of fact Mr. Christian points out that the physical silver related to LBMA contracts amounts to only 1/100th of the silver market. This is supported (and even vastly understated) by the MASSIVE volumes traded daily and annually on the London Bullion Market in excess of 50B ounces per year (NET!) when annual global mine production is only 550M oz. The TOTAL VOLUME of yearly trades on a gross level is likely 5x this number or 250B oz.
The argument used twice by the CFTC that silver cannot be manipulated because this price matches the "physical price" as determined at the LBMA is patently absurd.
Now we come to the 3rd investigation into the manipulation of silver that began over 3 years ago that still has no resolution. We have supplied a whistle blower (Andrew McGuire), new regulatory authorities (Dodd-Frank Law), an admission by a CFTC Commissioner that manipulation has transpired (Bart Chilton) and a silver price that relentlessly continues to rise without any significant decrease in the concentrated short position held by a small handful of single bank.
WHAT MORE DO YOU NEED?
On January 17, 2010 the CFTC was required BY LAW to implement position limits in the COMEX silver market. This date was not a suggestion by Congress but a hard fact of law. On January 18, 2010 the CFTC was in full violation of this law. I submit that the current CFTC Commissioners, Summers and O'Malia, who have blocked the implementation of position limits at every turn should be removed from their post immediately. The actions of the CFTC have baffled the "free market" and leaves market participants standing dumbfounded with a very simple question...
Under what legal authority does the CFTC have the ability to disobey the laws of the US Congress?Our patience with the CFTC has long gone. We have endured 2 botched silver investigations, one NEVER ENDING silver investigation that should have been a slam dunk and now the blatant violation of Federal Law all the while silver market participants are being ROBBED DAILY BY CRIMINALS ON THE COMEX after making the very sound decision to invest in silver.
If you are unaware of the facts behind silver please review the following article: Melt The Witch
http://www.roadtoroota.com/public/136.cfm
This travesty of justice must end immediately.
Do your job or stand down and let someone more capable take over.
Bix Weir
www.RoadtoRoota.com
VIA EMAIL TO: ggensler@cftc.gov; bchilton@cftc.gov; mwetjen@cftc.gov; somalia@cftc.gov; jsommers@cftc.gov; jriley@cftc.gov; dberkovitz@cftc.gov; hhardman@cftc.gov; rshilts@cftc.gov; vmcgonagle@cftc.gov; pcela@cftc.gov; ssherrod@cftc.gov
http://www.lemetropolecafe.com/james_joyce_table.cfm?pid=9794
I wonder how the engineers tested the ATM machine -- with little lead blocks? lol
Haven't they just announced an offering? It's just mathematically impossible to implement all those huge plans without further significant dilution... or having someone with deep pockets behind their back. As I said, I like the idea and went through the company's website and latest SEC documents. If they had a support (JV) from a major bank (like Citi or HSBC, for example) this would look more real. But bankers will never support ATMs that would drive money from their accounts and compete with banks investment products. So, the ATM will be located in malls, hotels, etc. I think one of the big retailers (like Walmart) could be interested... I'm going to watch for now and suspect that the share price will drop on the current stock offering.
IMO.
Hey Eik this is pretty much how it is going to work in their updated machine there are three different transactions you can perform
1. Conventional ATM transactions with their current financial institution.
2. Gold bullion vending transaction using cash or debit/credit cards.
3. PMX Gold account transactions
From those there are fees of course just like a regular ATM machine like Bank of America or Chase. Here is their break down of the whole thing.
http://www.pmxgold.com/gold-atm-network/pmx-gold-atm-network/
Plus a great thing is since they have been incorporated they haven't diluted the stock like most penny stocks where they pay for promotions to hike up their stock price to make it look attractive then to dump it on the shareholders.
PMXO[color=red][/color] The company has not diluted share holders since their incorporation which is a benefit. The float is low, the revenues are going to be brought in by the fees charged using the regular ATM function plus the precious metals such as gold and silver.
http://investorshub.advfn.com/boards/board.aspx?board_id=19583
Lars Schall Interview of John Embry, of Sprott Asset Management.
By Lars Schall
An industry expert in precious metals, his experience as a portfolio management specialist spans more than 45 years: John Embry, the chief investment strategist at Sprott Asset Management. He began his investment career as a Stock Selection Analyst and Portfolio Manager at Great West Life. Mr. Embry then became a Vice President of Pension Investments for the entire firm. After 23 years with the firm, he became a Partner at United Bond and Share, the investment counseling firm acquired by Royal Bank in 1987. Afterwards he was named Vice-President, Equities and Portfolio Manager at RBC Global Investment Management, a $33 billion organization where he oversaw $5 billion in assets, including the Royal Canadian Equity Fund and the Royal Precious Metals Fund. In March 2003 Mr. Embry joined Sprott Asset Managementwith focus on the Sprott Gold and Precious Minerals Fund and the Sprott Strategic Offshore Gold Fund Ltd. He plays an instrumental role in the corporate and investment policy of the firm.
Mr. Embry, the perhaps best report I have ever read on the gold market was “Not Free, Not Fair: The Long-Term Manipulation of the Gold Price,” written by Andrew Hepburn and you. (1) I would like to talk with you at the beginning about the findings of that report. First of all, why do you think it is relevant whether the gold price is free or not?
John Embry: Thank you for the very generous compliment. It is essential that the gold market be free. It functions as the so called “canary in the coal mine” and its price should be allowed to reflect excesses in a pure fiat monetary system. The continued suppression of the gold price was a key factor in the many financial bubbles which have essentially wrecked the monetary system as we know it.
What has the evidence been that the gold market isn’t a free market?
John Embry: Our report which was written 7 ½ years ago revealed all sorts of chicanery in the gold market and we only used evidence which could be corroborated. Considerable additional evidence has piled up subsequently but two smoking guns are the repetitive counter intuitive price action and evidence of widespread clandestine leasing of western central bank gold.
Who are the ones that don’t like a free gold market and which objectives do they have in mind by preventing a free gold market?
John Embry: The western governments, their central banks and the allied bullion banks are the culprits. They view gold as a mortal enemy of the fiat currency system. Gold has been real money for centuries and every paper money system in history has ultimately collapsed. This drives them to continuously denigrate and manipulate gold.
Through which tools is the gold price “managed“?
John Embry: The worst damage occurs in the so-called paper gold market where derivatives, naked shorting, vicious margin hikes, etc. are employed to fleece the long side who don’t have as deep pockets. In addition, the western central banks have supplied the physical gold necessary to effect the plan through their leasing.
Recently, I was told by a former chairman of the Federal Reserve, Paul A. Volcker, that to his best knowledge “the U.S. has not intervened in the gold market for more than 40 years.“ (2) Do you think Mr. Volcker has the truth on his side?
John Embry: Mr. Volcker admitted that the U.S. had made a mistake by not intervening at one point in the gold market some 40 years, so to think that nothing has happened subsequently is extremely naïve. Technically he might be correct in the sense that swaps could have been employed and the intervention using U.S. gold could have been conducted by another party. Recently retired Fed Governor Kevin Warsh acknowledged U.S. gold swaps in correspondence with GATA just last year. (3)
Furthermore, Mr. Volcker seemed to suggest that central banks have some interest in the price of gold because of its effect on the currency markets. (4)
What kind of relationship does exist between gold and the currency markets which are much bigger than the gold market?
John Embry: Very simple. Gold is a currency. Arguably it is the ultimate currency and the central bankers are acutely aware of this fact. Gold’s role as currency is once again coming to the fore and the central bankers hate that fact.
Are gold swap arrangements between central banks a) important for the “management“ of the gold price, and b) do they represent a means of intervention in the gold market?
John Embry: They are most certainly important because it allows central bankers to technically tell the truth because it is always another central bank that is utilizing the swapped gold to intervene in the market. It is a subterfuge.
Do you think the Western central banks have as much gold as they claim they have?
John Embry: I strongly suspect that they have materially less than they try to represent. The IMF permits a one line entry on their balance sheets which aggregates physical gold with gold receivables. That’s ridiculous and it is done to deceive analysts. For example, if the Americans had the 8,161 tonnes that they say they have, they would be delighted to submit to an outside audit and shut their detractors up. However, they stonewall all requests.
With its “QE to infinity“ program: would you say the Fed has exposed itself in a way as a hardcore goldbug entity?
John Embry: I believe they are fully aware of the extent to which they are debasing their money. We, the public, have to be the hardcore gold bugs to protect our wealth from their depredations.
It seems as if more and more gold is moving towards certain central banks and not away from them. Is this a solid assurance that the gold price will remain high?
John Embry: I believe so. The eastern central banks (China, Russia, et al) have accumulated a lot of dollars and realize they are at risk. Ergo, they buy gold. At the same time, I think the western central banks have run their inventories down to levels beyond which they won’t go. Thus, I think central banks collective gold buying will have a salutary impact on the price going forward.
In the event of another market meltdown, which seems rather likely, do you expect a sell-off in gold?
John Embry: There could be a minor sell-off just because there are so many algorhythyms influencing the market. It would be short lived because big money in the world now knows they need gold for protection.
Gold is in a bull market for ten years now. So an increasing number of people say it is in a bubble. Why would you say, in Gershwin’s words, “it ain’t necessarily so“?
John Embry: Gold’s price is directly related to the constant debasement of the currencies in which it is denominated. The creation of new paper money is dwarfing the amount of gold available. Gold is about the furthest thing from a bubble that I can think of.
What do you think in particular about Warren Buffett’s constant “Gold is in a bubble, I go for stocks“ talk? Does he serve here as an influential opinion maker in a specific role because he gets a lot of public attention? In other words: is he a fool or does he only act like a fool? (5)
John Embry: Warren Buffet sold out a long time ago. It’s too bad because he was a great stock picker once. Now he owns insurance companies, Wells Fargo and was a buyer of Goldman Sachs and G.E. in the global financial crisis. He is a member of the American establishment and has a lot to lose. He should have listened to his father Howard Buffett who was a U.S. Congressman and a true “hard money” advocate.
In your view, gold will gain in importance as a monetary asset in the years ahead, likely regaining an official role in the world’s financial system. Why do you think so?
John Embry: I think that the current financial system, as we know it, will be totally destroyed, probably sooner rather than later. The next system will require gold backing to have any legitimacy. This has happened many times in history.
The mining stocks both in gold and silver seem to me extremely undervalued. Do you agree?
John Embry: They are indeed, and they are being heavily manipulated by the same entities active in suppressing the gold price. In addition, many nefarious hedge funds now are active on the short side. The U.S. financial scene has become a total cesspool.
Are there key levels in the XAU and HUI that one should pay attention to as starting points of a mining stock rally?
John Embry: I tend to pay more attention to the HUI because it is the pure gold index. When the HUI takes out the 555 level with gusto, I think we are away to the races. However, this level is being aggressively defended by the bad guys. A higher gold price (through $2000 per oz.) will rectify this issue.
Why are you at Sprott Asset MGMT so very bullish related to silver?
John Embry: We think the supply-demand equation is ultimately better than even that of gold. New industrial and medical uses are exploding and because silver is “poor man’s gold,” investment demand for silver will go crazy when gold gets priced out of the average citizen’s capacity to buy. Given the small size of the market and very limited inventory, the price should go ballistic.
For your physical silver ETF you want to re-acquire physical silver in a big way. Do you think you could be pioneers (for other fund managers) in direct engagement with mines through direct and forward transactions, instead of going to the Comex? You certainly don’t want to “whoop” the silver price by your own buying, correct?
John Embry: I think that is a potential avenue particularly when the supply-demand equation gets progressively tighter in the future.
Is the silver market also subject of surreptitious interventions?
John Embry: Without question. In many ways it may be worse because it is a smaller market and J.P. Morgan Chase’s activities have been egregious. The fact that the CFTC has been investigating this for nearly four years without resolution is one of the great jokes of all time.
What is your information: to which extent the US silver ETFs are short and how many stocks of those have been used for covering future short contracts?
John Embry: I believe that they are but I can’t provide any information on the extent. When the very same organizations that have manipulated the market for years act as custodians for the ETF’s, it would be wise to be wary.
One highly interesting issue for me personally is the point in time when the Middle East countries will no longer sell their oil and natural gas for paper money. When do you think they will be paid for it with precious metals?
John Embry: I suspect this whole phenomenon could occur very quickly. When confidence in paper money is lost and I think we are rapidly approaching that moment, something like that would undoubtedly come to pass.
How do you think about the conflict around Iran viewed from a perspective of the petrodollar?
John Embry: The whole Iranian issue is very disturbing and I think the U.S ‘s motives might have more to do with the petrodollar than Iran’s nuclear ambitions.
One final question. IF the financial system goes under, one can expect massive supply shortfalls and disruptions in goods and services, particularly in the energy sector. Would you recommend to our readers to take precautions for such a scenario instead of hoping for the best outcome of the global financial crisis?
John Embry: Unfortunately yes. I am a great believer in cognitive dissonance. Most individuals don’t want to face the truth, particularly if it is very unpleasant. Those that do not suffer from this condition should take precautions because the world situation is presently very dangerous.
Thank you very much for taking your time, Mr. Embry!
SOURCES:
(1) John Embry / Andrew Hepburn: “Not Free, Not Fair: The Long-Term Manipulation of the Gold Price”, published by Sprott Asset Management in August 2004 under:
http://www.sprott.com/Docs/SpecialReports/08_2004_NotFreeNotFair.pdf.
(2) See Rob Kirby: “Manifest Destiny Derailed: Treason from Within“, published at Goldseek on January 31, 2012 under:
http://news.goldseek.com/GoldSeek/1328037291.php.
(3) Compare http://www.gata.org/files/GATAFedResponse-09-17-2009.pdf.
The relevant passage of Mr. Warsh’s letter to GATA said:
“In connection with your appeal, I have confirmed that the information withheld under Exemption 4? — that’s Exemption 4 of the Freedom of Information Act — “consists of confidential commercial or financial information relating to the operations of the Federal Reserve Banks that was obtained within the meaning of Exemption 4. This includes information relating to swap arrangements with foreign banks on behalf of the Federal Reserve System and is not the type of information that is customarily disclosed to the public. This information was properly withheld from you.”
(4) See Rob Kirby: “Manifest Destiny Derailed: Treason from Within,“ Footnote 2.
(5) Compare for example in this context what Marshall Auerback has said in an interview about the supression of the silver price:
“It’s in contrast to the gold suppression, which is a central-bank orchestrated scheme. You’ve got a situation now where it seems to be being done amongst the banking community, but I have no doubt that it has being done with official encouragement, explicit or implicit. To give you an example, 10 years ago Warren Buffet bought a silver position, and he liquidated it a few months later. The story I heard from one of his dealers was that he basically told them, “Boys, it’s not politically correct to speculate in silver.” Now who told him that I don’t actually know; I suspect it came from government sources. More interesting to me is that he had had a significant position, and it was liquidated with a great degree of ease with a loss at time when it wasn’t easy to do. This suggests that there was an external agency involved. I have no doubt that there is some degree of government involvement as well, but the primary agents are the investment banks, the commercial banks here.”
See: http://resourceclips.com/2011/04/05/marshall-auerback-on-silver/.
2-16-12 http://harveyorgan.blogspot.com/
John Embry: Debt saturation ensures much higher gold and silver
Submitted by cpowell on Wed, 2012-02-15
http://www.gata.org/node/10996
(special thanks to investor15)
It is once again a great pleasure to address the attendees at this conference following the GATA Workshop I participated in this morning. I'd like to thank Bill Murphy for his kind introduction. As many of you may know, Bill and I have become great friends as the result of our mutual struggles in the gold and silver markets over the past 13 years. That struggle has simultaneously represented the most exhilarating and the most frustrating experience in my nearly 49 years in the investment business.
After acknowledging my longevity in the business, I'd love to say that I started when I was 12 years old but that unfortunately is not true. I'm just getting old, which, at least so far, beats the alternative.
The main subject I want to address today is the staggering debt situation throughout the industrialized world and the impact it will have on the value of paper money and by extension, gold and silver. However, before I get to that topic, I would like to make a few comments about the price action of gold and silver in the last four months of 2011, price action that incidentally set the stage for the explosive price rises we've seen in the first six weeks of this year.
Up until Labor Day last year, gold was enjoying an excellent year, rising by comfortably over 30 percent in price in eight months. This strong advance reflected the turmoil in Europe, the U.S. debt rating downgrade, excessive money creation worldwide, and widespread economic and financial deterioration generally. Ergo, gold was acting exactly as it should in these circumstances.
However, this also represented the worst nightmare for the powers that be, essentially revealing to the public that all was not well.
Thus, in response, the Western world governments, their central banks, and their bullion bank allies sprung into action. Gold plummeted nearly $300 in a month and silver dropped by a third despite not an iota of visible improvement in the world economic and financial backdrop. It was just the same tired old criminal drill that we have seen throughout the more than decade long powerful bull market in gold and silver. These muggings took place primarily in the paper markets of the LBMA and the COMEX while the regulators, most particularly the Commodity Futures Trading Commission here in the U.S., blissfully slept on. (charts not withstanding LMFAO!)
Then, after gold subsequently re-established its equilibrium above $1,700 and silver bounced back into the mid 30s, both collapsed again in the wake of a totally failed European summit in early December. In the absence of any palatable solutions to their many intractable problems, the Europeans undoubtedly knew the scope of the quantitative easing they were going to have to unleash to hold things together. Thus, they and their American counterparts deemed it essential that gold and silver not be seen as an attractive and essential alternative to their beloved pure fiat currency system, which was failing rapidly in plain view. Gold dropped well over $200 and silver fell by 20 percent in a three-week period, with much of the damage occurring in the traditionally very quiet week between Christmas and New Year's Day.
Desperate people tend to do very stupid things and I can assure you that the powers that be are getting increasingly desperate.
Despite these offensive raids, gold still posted an 11-percent year-over-year price gain in 2011, marking the 11th consecutive year the price had been up, a feat the venerable investment letter writer Richard Russell termed unprecedented in any significant asset class.
However, in spite of this exemplary performance over the past decade the vast proportion of society remains blithely unaware of what is unfolding in the gold and silver markets. This stems from many sources, the first being the relentlessly negative press from the mainstream media on the subject. How many times does the public have to be subjected to the views of the likes of Jon Nadler of Kitco and Jeff Christian of CPM Group, to name but two? They are not true analysts but purely and simply establishment propagandists whose sole purpose, in my opinion, is to provide disinformation to keep the unsuspecting public away from precious metals.
Then the anti-gold cartel, with its insidious paper raids, creates wild volatility and totally counterintuitive price action that further discourages all but the most knowledgeable and committed believers in the only real money, gold and silver.
In reality, to date, the public hasn't had a chance. Whenever they have stuck their toe in the water, almost without exception they have been burned as yet another raid knocked them out of the box. When that happens often enough, most people just give up and go away and that is exactly what has occurred.
However, there is more than enough very large, very smart and well informed money in the world that is relentlessly soaking up the rapidly shrinking quantities of gold and silver that are available and, as a result, the prices of both have risen and will continue to inexorably rise, albeit accompanied by stomach-churning corrections. The corrections don't bother the real serious buyers in the least. They see the irrational vertiginous price drops as just providing another wonderful inexpensive buying opportunity. At the end of the day, the big smart money to which I am referring, will own virtually all the gold and silver and the rest of the population will be stuck with rapidly depreciating, soon-to-be-worthless paper money. At that point the public will wake up, but it will be too late.
However, enough of that -- let's talk about why the well-informed big money is buying.
Unfortunately the subject is really disheartening, and that is the relentless growth in debt throughout the world. In the wake of Global Financial Crisis 1 in 2008 (and I can assure you that the next one is coming very soon) there has been much talk of debt deleveraging. To be fair, in the private sector, there has been some evidence of that in the U.S. and Europe, although most of it has related to outright default rather than the old-fashioned practice of saving current income to pay down existing debt.
This minor event, however, has been totally overwhelmed by an explosion in sovereign debt as governments worldwide have been forced to step in to save their essentially insolvent banking systems and prop up their foundering economies.
I regret to say that it doesn't take more than a cursory examination of the facts to conclude that the problem is endemic throughout the industrialized world and is even affecting some of the key emerging economies. More importantly, I am afraid it will be terminal for the financial system we have known since the end of World War 2.
The poster child for this development has been the good old U.S.A., and in case you think I am anti-American, I must hasten to tell you that I was born in the U.S.A. exactly nine months before Pearl Harbor and spent the first eight years of my life in the environs of Washington, D.C. Since then I have lived in Canada, always within 100 miles of the U.S. border, and I have always viewed the country at close quarters with great fondness. Having said that, the dramatic financial deterioration that I have witnessed in this country over the past several decades has been truly astonishing and most discouraging.
There is always some arcane statistic that really makes a point and I think the one that resonates with me is that when Ronald Reagan assumed the presidency 31 years ago, the gross federal funded debt was $907 billion. This amount had been accumulated in a little less than 200 years, a period that encompassed two major world wars, a civil war, numerous other skirmishes, several financial panics, and a horrific depression in the 1930s. Now, a mere 31 years later, the U.S. is chalking up more than that amount in a six-month period.
It was just mid-summer last year that the agonizing debt limit debate was resolved and the limit initially rose by $900 billion in two tranches. Well, that has already been exhausted and now the hope is that another $1.2 trillion increase will get us through the November election. I think that is unlikely.
What I find amazing is that remarkably few people seem to find this unusual, although I must admit that I think very few people even actually think about it. However, I believe in the immutable law of mathematics and when you reach the point of no return, there is obviously, by definition, no going back. In my estimation, the U.S. debt situation is so far beyond the point of no return that you can't even catch a glimpse of it in the rear-view mirror.
The actual funded federal debt of over $15 trillion is just a small part of the problem. The state and local governments are in various states of disarray. As an example we are currently in the epicenter of dysfunctional finance, the otherwise wonderful state of California. Then there are the off-balance sheet items of the federal government such as government-sponsored entities like Fannie and Freddy which have many trillions of debt supported by very dubious assets. But the true elephant in the room is the unfunded liabilities for social security, Medicare, etc., which, using the most conservative estimates, easily exceed $50 trillion.
Thus, without even stretching, the total federal government debt liabilities in the U.S. are, at a bare minimum, more than five times the current nominal GDP. One of the few reasons that this remarkable debt edifice is still standing is the Fed's Z.I.R.P. undertaking (I love that acronym), the zero interest rate policy, which Fed Chairman Ben Bernanke recently announced, would be extended until 2014, in conjunction with massive Fed monetization of Treasury debt, has kept the interest rates on government debt ridiculously low, and thus the charade has been allowed to continue.
Mark my words, if the interest rates on U.S. government debt truly reflected both the real level of inflation in this country and the rising risk of some form of default, rates would already by sky-high and the U.S. would resemble a massive Greece.
I do believe that this whole process has a very limited shelf life at this point, which is neatly encapsulated in the economist Herbert Stein's timeless comment in 1986: "If something can't go on forever, it will stop." I think that we are very close to that unhappy moment and the implications for the U.S. dollar and economy are simply horrific.
However, lest I be accused by being unkind to the U.S., let us move on to Europe, which is constantly in the headlines today, for very good reason. The subject of Greece and its impending debt default has been old news for a while, but there is one aspect of it which has had me scratching my head from the outset. When it was determined that a country of 11 million essentially indolent and corrupt individuals had run up hundreds of billions of euros in debt, it became immediately apparent that the chances of servicing it, let alone paying it back, were zero. Thus it was decided that a writedown of said debt, which began at 50 percent and has now reached 70 percent or more, would be necessary.
The fact that following the writedown, imbedded debt levels would still be well over 100 percent of GDP is laughable, but the Europeans will peddle anything to keep up appearances. No, the baffling part of this whole exercise to me was that it would be described as a voluntary default by private-sector creditors and, accordingly, would not trigger the credit default swaps written against the debt.
My initial reaction was that I thought that was the reason CDS's were created, to protect bond investors against default, and if 50 to 70 percent defaults don't qualify, what does? The inimitable Jim Sinclair shed some light on this when he stated unequivocally that 97 percent of the CDS's on Greek debt were in the hands of five major U.S. banks. It is these very same banks that control the International Swaps and Derivatives Association (the ISDA), the organization that rules on what constitutes a default that triggers a CDS activation. Amazing stuff, eh?
Ironically, Greece despite its travails, is really a rounding error in the European scene and, as we make our way up the food chain, we encounter larger and larger entities with ever-greater quantities of questionable sovereign debt accompanied by essentially insolvent banking systems. The great fear is contagion and the supposed antidote is to build firewalls around the smaller miscreants so the risk can be contained and not topple the larger entities.
So far most of the solutions advanced are ludicrous. The idea that austerity can solve anything in countries that are as far gone as Spain, Portugal, Italy, et al., is preposterous. As an example, Spain already has 22.5 percent unemployment with a staggering rate of more than 50 percent in the critical 16-25 age bracket for males. In addition, the real estate morass is imperiling the entire smaller and mid-cap bank sector that financed their outrageous real estate bubble, and the federal government is just discovering the extent to which the local governments have run amok financially.
I find what has unfolded in Spain to be mind-boggling but generally representative of the overwhelming financial irresponsibility of the peripheral European countries once they were under the umbrella of the euro, which facilitated cheap financing.
I could go on for hours about the position that the PIIGs now find themselves in, but it may be more instructive to consider Germany which is viewed by all and sundry as the model of financial rectitude on that continent. What, in fact, is the reality? I recently read an essay by an astute German economist, bemoaning the deterioration in German government finances. He pointed out that not a single German finance minister has balanced the budget since 1970. As a result, the Germans have now accumulated sufficient government debt that it comfortably exceeds 80 percent of nominal GDP -- not in Italy or America's league, but remarkably similar to France, which is currently being targeted for a debt downgrade by the ratings agencies. In addition, like most industrialized nations today, Germany has huge commitments to retirees and future medical requirements that apparently are not well documented anywhere.
However, the real Achilles' heel of the German situation is their banking system. While the citizens and the government maintained a considerable degree of financial restraint when the global credit bubble was inflating, the German banks went hog-wild. They financed Irish real estate, the bonds of peripheral European governments, U.S. sub-prime debt via CDOs, etc., while leveraging up their balance sheets to unconscionable levels.
Thus the Germans may currently be talking tough, but I suspect, in the end they will be forced to bend in the direction of the bankrupts in Europe and that means further massive quantities of money creation. The long-term
refinancing operation we have seen to date is just the tip of the iceberg.
The European elite, who crammed the euro down the throats of their somewhat reluctant citizens, have invested far too much time and effort in their dream to quit now. That simply means creating whatever amount of paper necessary to keep the sovereign debt afloat and to allow the crippled banking systems to function.
However, this is not just a crisis for the Western industrialized world. A close examination of the Japanese situation is sobering, to put it mildly. Japan has by far the largest embedded federal debt-to-GDP ratio in the
industrialized world (more than 200 percent and rising rapidly) but has always benefited from the Japanese public's thrift and their propensity to buy the government's bonds. However, in the face of the world slowdown, the continuing deflationary issue, and the ongoing impact of last March's terrible natural disaster, the fiscal picture continues to deteriorate.
The real short-term problem, though, is the remarkable strength in the yen. This is having an extremely adverse impact on many Japanese companies and exacerbating an already difficult financial situation.
Looming over all of this is a longer-term problem that, in reality, may be much more serious. This is the rapid aging of a shrinking population. This would suggest that the relentless bond buyer of the past, the Japanese baby boomer, will be cashing in his bonds shortly to support himself in his old age. In the absence of domestic buyers and with the existing massive debt overhang, Japanese interest rates are fated to rise and this could prove catastrophic.
At this juncture, it seems obvious to me that in a world of increasing competitive currency devaluation, the Japanese will have to get in gear very shortly and, as things continue to deteriorate, I fully expect they will. Thus they will represent just another major world economic entity turning the monetary spigot wide open.
This brings me to the key economic player on the planet at this point, which is obviously China. China is easily the most controversial because its fate doesn't seem sealed like the other three main economic engines on the planet, the United States, Europe, and Japan, where stagnation and unsustainable levels of debt ensure quantitative easing as far as the eye can see if a deflationary collapse is to be averted.
There are many opinions on China, but the one where I tend to agree with the consensus is that China will be the economic powerhouse of the 21st century, just as the U.S. was in the 20st century. But people sometimes forget that, despite the U.S.'s clear leadership in the 20th century, it wasn't a smooth ride, particularly in the first half of the century, when the country had to endure two world wars and a decade-long depression.
I think it is unrealistic to think that China won't experience considerable turmoil along the way as well and we may well be approaching a large bump in the road. It must be recognized that China has dined out on the West's profligacy in the past 20 years and became the world's de-facto manufacturer by maintaining an undervalued currency while rapidly ramping up its manufacturing capacity and using very cheap labor. That labor was arriving from the rural areas by the tens of millions through the 1990s and the first decade of this century. This whole process created a remarkably unbalanced economy with well over 50 percent of GDP being generated by net exports and capital spending on plant and equipment, housing and infrastructure, all of which tend to be very cyclical.
They avoided the worst of the 2008 global financial crisis by embarking on a historic bank lending spree, which resulted in mounting inflation, a dramatically weakened banking sector, and a truly historic housing bubble. Now, as they are attempting to maneuver a listing economic ship, commentators are predicting a "soft landing" for the Chinese economy in 2012. I don't know about you, but when I hear that expression invoked following a huge debt-fueled boom, I become very uncomfortable.
The idea that the Chinese can easily morph into a consumer-driven economy to offset a sharp decline in net exports and dramatic overcapacity in many areas of the economy seems to be a bit of a stretch, given that the consumer is the same individual whose services may not be needed in the export or capital spending sectors to the same extent as previously.
Compounding this whole conundrum is the fact that the ruling Communist government has been dependent for popular support on economic growth and job creation. In its absence, the fractious population may be hard to keep under control.
Thus my suspicion is that when push comes to shove, the Chinese authorities will provide whatever amount of fiscal and monetary stimulus that is required to keep the economy moving forward at an acceptable clip. This, I firmly believe, will ultimately be hugely inflationary.
To me, it all seems crystal clear at this point. To avert a near-term economic and financial implosion the authorities throughout the developed world will have to hold their noses and stimulate to whatever degree necessary. No politician today wants to see the system collapse on his watch, so the world will risk eventual hyperinflation and a collapse of the present currency regime rather than voluntarily accept a debt deflation.
Ironically this was all foretold many years ago by Ludwig Von Mises, the founder of the Austrian School of Economics, which, incidentally, is the only economics I have discovered in my lengthy search for reason that makes eminent sense to me.
Von Mises, in his epic book "Human Action," published in 1949, stated succinctly:
"There is no means of avoiding the final collapse brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency system."
Given that this credit cycle has dwarfed anything seen in the history of mankind, its resolution is going to be something to behold. Global Financial Crisis No. 1 in 2008 was merely the hors d'oeuvre and we are now awaiting the main course.
I envision something along the lines of a hyperinflationary depression accompanied by the final denouement of the latest experiment with pure fiat currency -- that is, the worst of all worlds.
In the event that I am right, I can assure you that the demand for physical gold and silver is going to overrun all possible sources of supply and even the most outrageously bullish price projections for gold and silver may be exceeded.
To conclude, I would like to quickly mention two other subjects.
The first is cognitive dissonance. When I try to convey the seriousness of this whole issue of monetary debasement and its disastrous impact on society, most people are resistant or, more often than not, seem indifferent to the whole subject.
I attribute this to a state of cognitive dissonance, which unfortunately appears to affect the vast majority of society. Basically, most individuals when confronted with an unpleasant issue that is at odds with what they choose to believe go to great pains and extreme lengths to deny it. They are hugely biased to think of their choices as correct, irrespective of any concrete contrary evidence which is provided. My younger brother, who it pains me to say is a whole lot smarter than I am, has done a fair amount of research on this subject and has concluded that there is essentially some sort of blocking mechanism in most human minds which permits people to stick their heads in the sand rather than confront a difficult issue before it is too late.
I think a fascinating example of this phenomenon appeared in Michael Lewis' latest book, "Boomerang," which I highly recommend. The hedge fund manager Kyle Bass, who is rapidly becoming legendary, had arrived some time ago at the same malign conclusions about sovereign debt that I have just described to you. He took his findings to the Harvard professor Kenneth Rogoff, who along with Carmen Reinhard, was just preparing to release a new book, "This Time It's Different," about national financial collapse. When Bass revealed his numbers on the subject to Rogoff, the professor responded, "I can hardly believe it is this bad." Bass' reaction was: If this guy is the world's foremost expert on sovereign balance sheets and he isn't prepared to deal with reality, what hope is there? Bass was astounded.
Finally, I can't make a speech about our terminal financial state without a couple of points on derivatives, which continue to proliferate. The justly reviled ex-Fed Chairman Alan Greenspan used to extol derivatives as vehicles for spreading risk and making the system more resilient while he strenuously opposed any attempts to regulate OTC derivatives. This was just one of his many damaging initiatives and history has completely refuted him. In fact, derivatives have tended to concentrate risk as a large majority of them has ended up in a few hands, creating too-big-to-fail financial entities that are imperiling the whole system.
The idea that they net out and thus it is really a zero-sum game is equally ridiculous. Since every derivative has a counterparty, to suggest that an investor is satisfactorily hedged because derivatives offset a long with a short is simply wrong. If the counterparty fails on either the long or the short, the entire notional value is at risk. Given that the notional value of all outstanding derivatives would easily exceed a quadrillion dollars had not the Bank of International Settlements changed definitions to intentionally understate the true amount, the toxicity of this garbage is obvious.
It wasn't without reason that Warren Buffett many years ago termed them "Financial Weapons of Mass Destruction." If sufficient liquidity is not continuously made available in the entire global system, a potential implosion of derivatives would be activated and rapidly annihilate the entire global banking system.
Just another reason why quantitative easing to infinity is virtually assured.
I believe that investors can't own enough gold and silver. Don't be concerned about daily fluctuations in price. Focus only on how many ounces of gold and silver you own and, above all, make sure it is in physical form or in a well-documented fully allocated paper vehicle. Avoid at all costs paper gold and silver, which isn't what it purports to be and is, in effect backed by gold and silver that has been hypothecated and rehypothecated so many times that there is almost no backing whatsoever.
Thank you very much. It has been a pleasure to speak to you.
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