Gold Investor

The prospect of inflation getting out of control in a zero interest rate, money printing, Central Bank heavy environment has long been a given amongst many commentators and experts. This has translated into increased values of bonds, the stock markets, real estate and art (as a Picaso fetched $160 million at auction yesterday).

Yesterday Greg Hunter interviewed John Williams of Shadowstats.com and Williams, is still of the view that all the economic numbers released by the US government are much worse than stated as the methodologies have been changed over the years to make them appear better. He is a big inflation / hyperinflation guy so in his view, hyperinflation is (again) just around the corner.

Over a century ago, the "American West" was flooded by gold prospectors and small mining companies as the prospect of striking it rich drove a boom in the search for gold, silver and other metals. As mining became a substantial industry and started applying large scale industrial technology, the prospectors continued their craft though with slowing popularity. Who wouldn't be enamored with the possibility of panning at their local mountain stream and coming across a nice nugget of gold? The increase in gold and silver prices in the 2000s may have re-ignited this American love affair and it still continues, as seen at this year's Gold and Treasure show held in Portland, Oregon. The outdoor aspect of panning for gold or running metal detectors over tracks of land are being used as an indirect benefit to get young people and families into the outdoors. The Oregonian reports:

"Prospectors young and old, new and seasoned, said they were enticed by the appeal of a wholesome activity that gets them into the great outdoors, even if just to get away from the routine of a sedentary life. "It's an opportunity to get off the couch and enjoy the beauty of the outdoors," said Gary Upton, 73, of Portland, "None of us is interested in doing anything destructive in nature. We just want to get away from doing nothing."

Barrick gold has been through an interesting few decades. Mergers and acquisitions aside, it has been the darling of the gold stock investor with its old hedging program; accused to manipulating the gold price through said hedges; and a loser when the price of gold started a long sustained move up from 2002-2012. And now it finds itself in another lower gold price environment with high debt, likely declining gold output, dividend cut and lower stock price. While most gold miners have suffered from this lower and stagnated price of the precious metal, Barrick seems to have been hit especially hard. Barrick believes that it can maintain a run rate of six million ounces a year for the next couple of years but some analysts see gold mining production falling to the 4 million ounces per year handle. The Toronto Star reports that the company is now shedding non-core mines and drastically cutting corporate staff in order to trim on its high debt load and start increasing margins.

"Barrick Gold Corp. chairman John Thornton’s message to Bay Street came through loud and clear: he wants to take the world’s largest gold producer back to its roots as a smaller company with fewer mines and micro-managers and hopefully return it to profitability."

The properties that make gold a much sought after investment are also to blame for the heights people will go through to get gold out of the ground by whatever means necessary. This ignores the human and environmental plight that is often caused by such illegal gold mining. Last year we looked at the environmental disaster in Peru and today we learn about similar problems compounded by huge human suffering that is occurring in another Latin American country - Colombia. The many Colombian rebel groups and gangs are giving up on drugs as a funding source for their causes and are switching to mining for precious metals like gold. The country is rich in natural resources and now old abandoned mines, small production mines and areas surrounding them are attracting droves of these criminal elements. Bloomberg reports that:

"Long known for the cocaine trade and kidnappings, Colombian rebel groups and criminal gangs have turned from drug sales to illegal gold mines to fund their activities. Those mines are increasingly responsible for driving people out of their homes. Colombia has the second-largest number of displaced persons worldwide, just behind Syria, according to the United Nations."

A man who was herding his flock of animals in the far flung, gold rich and also restive region of Xinjiang in north-western China, came across quite a golden fine. He found a 17 pound nugget of gold, shaped like the map of China. This is not a pure gold nugget but a natural gold ore mixed with quartz and other minerals. Still worth a pretty penny.

Xinjiang herdsman finds 17-pound gold nugget that was "practically lying on bare ground" http://t.co/lr7c8bFUnt pic.twitter.com/IJLrmKa5co

— China Xinhua News (@XHNews) February 5, 2015

The 95 year old daily "gold fix" went through some major changes last year. The LBMA (London Bullion Market Association) members Barclays, ScotiaMocatta, HSBC and Société Générale were setting the price of gold at 10:30 am and 3:00 pm, London time. Now further changes are coming up in March as Chinese banks are looking to exert their influence as one of the several additional institutions, who have expressed interest in setting this important price. The daily gold fix is used by central banks, ETFs and mining companies. As per Bloomberg:

"No Chinese companies have ever directly participated in the 95-year old price-setting ritual that takes place twice daily by phone between four banks. ICE Benchmark Administration was chosen in November to run the replacement, after silver, platinum and palladium ditched daily fixings last year. Chinese gold demand has more than doubled since 2009. “We are encouraged by the number of firms who have shown interest in being participants in the new, electronic auction,” Finbarr Hutcheson, president of IBA, said in the statement. “Expanding the number of participants in the auction will increase the transparency and robustness of the data” and better represent the market price, he said."

Silver has many industrial uses and recent research from several departments within the Engineering faculty at Stanford University may have added one more - insulation. The researchers showed that combining silver with nanotechnology could help us conserve energy by retaining more of the body's own heat. Clothing with embedded metallic silver nanowire was shown to reflect back nearly nearly 90% wearer’s body heat thus creating a very efficient form of insulated clothing. Optionally, the silver nanowire can also help generate heat by converting energy (electricity) from a battery. The nanowire is able to bring these benefits by only using one gram of silver per clothing, an amount that adds minimal cost and isn't likely to have a material impact on the overall price of silver. From the study's abstract;

"The metallic nanowires form a conductive network that not only is highly thermal insulating because it reflects human body infrared radiation but also allows Joule heating to complement the passive insulation. The breathability and durability of the original cloth is not sacrificed because of the nanowires’ porous structure. This nanowire cloth can efficiently warm human bodies and save hundreds of watts per person as compared to traditional indoor heaters."

Ukraine had sadly been on a road leading to nowhere for the last few years, and they really seem to have switched to high gear over the last year. A few months ago, there were a lot of "stories" about Ukrainian gold being loaded into unmarked trucks and flown out of the country in the middle of the night. The most recent head-scratcher comes from their Central Bank branch in the southern port city of Odessa. It seems that we have some more gold swaps happening and for once we are referring to a literal swap and not a financial instrument. RT reports that 11 kilograms of the Ukrainian Central Bank's gold is missing or more accurately, it has been swapped with 11 kilograms of painted lead.

"Cunning fraudsters have conned the Ukraine Central Bank branch in Odessa into buying $300,000 worth of gold which turned out to be lead daubed with gold paint. “A criminal case has been opened and we are now carrying out an investigation to identify those involved in the crime,” a spokesman for the Odessa police force is quoted by Vesti. The news was first reported by Odessa’s State Ministry of Internal Affairs. A preliminary investigation suggests the gang had someone working for them inside the bank that forged the necessary paperwork to allow the sale of the fake gold bullion. It’s also been discovered that bank staff were not regularly checked when entering or exiting the premises."

Those keeping up with various gold commentary would have noted that the last couple of months have seen a lot of bearish calls on the price of gold. Some are short term while a few do call for gold (and silver) being stuck in a longer term downward or sideways trend. Harry Dent is one of them. His main argument and investment thesis in general is based on demographics and he has outlined his views in the book The Demographic Cliff. Mr. Dent believes that the demographics for the developed world have peaked and we will see drops in consumer demand across the board and general deflation for the next 5 to 10 years with gold going along for that downward ride - hitting $700/oz or lower. The upside being in the much maligned US dollar.

Anyone who has been trying to buy (2014) Silver Eagle coins over the last month or two knows that they have been hard to come by as many coin dealers have sold out their inventory. It's not that there is a real run on these silver coins, but just that at some point the US Mint stops production before moving to minting coins for the following year. So it is with bated breath that silver coin buyers have been waiting for the Mint to finish up their dealer allocations for remaining 2014 stock and also start putting out the 2015 coins so that they can be purchased.



The US Mint has announced that it will begin sales of its 2015 dated American Silver Eagle bullion coins to authorized purchasers on January 12, 2015. Some of these dealers are already taking pre-orders with delivery dates usually in the third or fourth week of January 2015.