CS. Gold is building a very strong reversal pattern after resent correction. The only problem is that we are not the only one watching this chart closely and manipulators are trying to paint the breakdown on the chart above. In the normal market this picture will indicate very strong Bull market, building the base after The Golden Cross to make its Second Bull Leg Up. We have the close right above the MA200 at $1,300 and Bollinger Bands suggest that volatility will increase dramatically. Will "They" be able to break Gold down again? This is the question which will separate boys from the men again. The most important for us that this technical picture reflects the fundamentals Eric Sprott is talking about in his article.
Should Gold confirm this reversal by breaking Up above the MA50 at $1,317 Gold Junior Miners with the strong stories will finally start to move. This very illiquid and speculative type of investments in Gold equities normally start to participate in the stage two of the Gold Rally, when liquidity from professional players is searching for the new "ten-baggers" after booking the profits from the initial Gold Breakout. Every market is the function of the supply and demand, with Equities hitting all-times-highs and moving into the weak "Sell In May" season Gold Junior Miners have all chances to remind why they are considered to be so volatile. The way up normally is a very dramatic move in magnitude after such an obliteration as you can see on the chart below. The most important indicator here is the Volume - money is coming into the sector.
Eric Sprott has made his billions in the markets like this one - when nobody wanted the Gold Equities, he is calling it again the opportunity of the lifetime. Will he be right again? Nobody knows. Can we succeed following our stories here - we will find out. But we like the good company for our journey and Eric is one of the best and we like strong companies like McEwen Mining with a few catalyses waiting to happen. Whether TNR Gold with Insiders holding more than 65% of the company will join the party will be known very soon as well. This group has stricken the major deals with top Lithium producer in China for its International Lithium and is waiting for Rob McEwen to make his magic with McEwen Mining projects and working on Los Azules Copper particularly. Nobody knows how soon Chinese will call here as well.
Argentina slowly comes to its senses and welcomes mining business back these days. Argentinian government is negotiating with Chile the ways to bring development of Pascua Lama back on track and China is already waiting for it, according to some rumours. Captains of the mining industry are allocating new investments in mining projects in Argentina and Yamana Gold has announced that it will focus on its Cerro Moro Gold and Silver project in Argentina along with Canada Assets.
Los Azules Copper is waiting for its hour to come into the industry spotlight and Pascua Lama development will do the trick. Both projects are located in the same San Juan province in Argentina. Shareholders of TNR Gold and McEwen Mining finally will be rewarded for their patience one day. And now this day is coming closer with every positive development in Argentina.
"TNR Gold has published its new Shotgun Gold presentation. After the news about Barrick Gold and Newmont Mining talks about the merger we are looking for the major bottom in the mining cycle. The best projects will find its way now to the investors' radar screens."
"As you remember, we were looking for M&A activity in Gold and Commodities to pick up in order to confirm the major Bottom built up last year. Now we have the very important confirmation about that bottom from the industry insiders. Announced deals with Las Bambas - being bought by Chinese companies and these talks about the merger between Barrick Gold and Newmont Mining signify the very important point in the cycle. It is cheaper "to dig" for Gold and Copper on the Exchange than in the ground. Depressed market valuations of the resources represented by the discounted share prices of miners provide the best entry points in the decades for the commodity markets. It is not only our talk any more - it is the flash news from the top boardrooms in the mining business. It is the money talk by the Insiders. "Don't discount this merger talks in the future!"
After a long and agonizing winter which was attributed to the so-called “Polar Vortex”, we thought it would be appropriate to highlight for precious metal investors the implications of what we call the “Chinese Gold Vortex”. Over the past year, we have been very vocal about what we consider an aberration: the complete disconnect between gold supply and demand fundamentals and the actual price of the metal.
We have shown in February Markets at a Glance (MAAG) that, for all of 2013, demand from emerging markets, particularly China, was extremely strong, outstripping world mine supply by a fair amount. But this extreme tightness in the physical market was not reflected in gold prices. We have since then discussed many signs of manipulation in both the paper and physical gold markets (ETF flows, Indian intervention, LBMA fixings, to name a few).
This month’s Markets at a Glance presents an update on the demand dynamics in China, discussion around new evidence of manipulation and concludes with an illustrative example of the opportunity in gold equities.
Supply and Demand
While the year is still young, we have been able to gather a few data points from China and they are truly impressive. The table below shows Chinese net imports of gold for the first two months of 2014.1 So on average, each month this year, China has imported about 204 tonnes of gold, up from about 143 tonnes last year.2
Chinese data is taken from the Hong Kong Census and Statistics Department. Swiss data is taken from the Swiss Customs Administration, which started reporting gold exports to specific countries in 2014.
To put these numbers in perspective, for the full year 2013, total mine supply excluding China and Russia averaged 192 tonnes per month (see the February 2014 MAAG for details on the methodology).3 Basically, China is currently vacuuming, on a monthly basis, all of the world’s mine production plus an additional 10 tonnes. But that is only China; anecdotal evidence from other countries suggests that demand remains strong in other Emerging Markets, where Central Banks keep adding to their gold reserves. Moreover, whereas last year’s ETFs contributed (unsustainably) to supply, this year has so far seen net inflows into gold bullion ETFs.
What immediately comes to mind is: where does all this gold come from? As we have long argued, gold to Emerging Markets has been supplied by Western Central Banks for many years.4Recent data substantiates this claim. A closer look at Swiss import and export data shows that it imports most of its gold from the US and the UK and exports most of it to China and Hong Kong. For example, in the first two months of 2014, the UK has exported over 233 tonnes of gold to Switzerland; this is more than half of the Chinese net imports over the same period (remember the UK doesn’t produce any gold). Similarly, the US, which has a monthly gold production of about 19 tonnes, has exported, in the month of January alone 56 tonnes, most of which went either to Switzerland or to Hong Kong directly.5 So where does all this gold come from? It is supplied by Western Central Banks, which according to our analysis have very little gold left.
While it is still early, the Chinese Gold Vortex is firing on all cylinders and data so far this year suggests that demand will far outstrip supply.
The topic of gold price manipulation seems to be making its way into the mainstream. Regulators in Germany made the first foray into gold manipulation with their investigations of the London Bullion Market Association (LBMA) now infamous Gold Fixing.6 Now, we hear that the CME Group (which owns the COMEX, where paper gold trades) has been sued by three traders for allegedly selling order information to HFTs ahead of the broader market.7
Simultaneously, academic studies have found evidence of manipulation in the gold market and a consultancy (Fideres) even claims that “global gold prices may have been manipulated 50% of the time between January 2010 and December 2013”.8
We have long suspected manipulation, but it is now clear to us that both the physical and paper bullion markets have been tampered with for quite some time, to the advantage of those that are naturally short gold (i.e. the bullion banks and other gold dealers). With the increasing amount of scrutiny from the public, academia, regulators and now lawyers, manipulators should have a progressively more difficult time preventing gold from reaching fair value.
The stars are aligned in 2014 for a significant re-rating of the gold price. In our opinion, the best way to participate in a return of the gold price to fundamentals is to invest in junior gold miners. The tables below show EPS estimates under various gold price scenarios and the associated stock price targets, assuming a price-to-earnings ratio of 10x, for both a major (Barrick) and a junior (Crocodile) miner. From the table, it is obvious that junior gold miners have much more leverage to the price of gold.
Estimates are for FY2014. Price returns assume a P/E ratio of 10x. All figures in USD.
Source: Sprott Estimates and RBC Capital Markets
For illustrative purposes only, Eric Sprott and Sprott Asset Management Funds beneficially (directly or indirectly) may own in excess of 1% of one or more classes of the issued and outstanding securities of the above securities.
In summary, the tailwinds are twofold for gold: the Chinese Gold Vortex is putting an undeniable pressure on the physical market, while focus on price manipulation makes it progressively harder for price manipulators to operate. The reversal of this anomalous, yet explicable market dysfunction could provide astute investors with multi-hundred per cent returns.
Do not miss this Golden Opportunity!"
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