Australian 1Q Gold Production Drops 2%

Peak gold wasn't mentioned; a more immediate reason was cited for the 2% drop.

Total gold production in Australia fell by around 2% in the first quarter of the year, according to the latest data of mining consultants Surbiton Associates. Surbiton blamed the latest resource super profits tax for the declined gold output in the quarter.

The gold industry also warned that the super profit tax could encourage many junior gold explorers to look overseas rather than remain in Australia. Surbiton report showed that total gold production in Australia was reported of 1.96 million ounces in the quarter ended March this year, decreasing by 2% while it was reported of 1.92 million ounces in the previous quarter ended December 2009. However, the gold production was reported up by 13% comparing to the same quarter last year....

Gold At 1600?

A trader at Deutche Bank, which was bearish on gold, has said on CNBC that gold will go to $1,600 by 2012:

Michael Blumenroth, a precious metal trader at Deutsche Bank, said on CNBC that the price of gold will continue its bullish trend, and it will eventually peak at $1,600 in 2012.

He explained that Deutsche Bank's research team was at first bearish on gold, because they thought that this bull market in gold will be over soon, but after the problems in the euro-zone they changed their opinion. Now, Deutsche Bank believes that gold will continue to be a safe heaven.

He also made it clear that Deutsche Bank does not recommend any higher holding than the standard 5-10% of portfolio for insurance purposes.


On the wilder side, a guest on CNBC last Wednesday said that it's conceivable that gold could go to $36,000/oz.

Gold has reached record highs in recent weeks, but it will continue to rise, Ben Davies, CEO of Hinde Capital told CNBC Wednesday....

I could be really obtuse and say $36,000,” he said. “But actually it’s not as ridiculous as it might sound.”

If all the reported Fort Knox gold was re-valued at $36,000 per ounce, it would pay off all the debt in the US, he said....

Gold Makes New Record High In Rupees

According to an NDTV report, the price of gold jumped above 19,000 rupees per 10g; that makes for a new all-time high in that currency.


Also from India, a brief interview with Ajay Mitra in which he explains that Indian gold demand is likely to drop during this quarter.

What is the impact of monsoon on gold demand?

The biggest risk at this point of time as we see in India would be the monsoon. If we are able to get a good monsoon i.e. a normal monsoon, demand would continue to be upbeat. However, the contrary view is if monsoons were to taper off and the levels of last year is what were to be seen, demand would slow down. Anywhere between 15-20% drop in demand would be seen.

Mitra also pointed out that second quarter demand is normally soft. He expects there won't be an unusually large drop in demand, given current trends.

Gold Starts Week On The Uptrack

After a truncated day which saw gold drift upwards, last night's overnight session saw gold climb some more. Manufacturing in mainland China slowed in May, and the Euro continues to tumble. Gold shot up more than five dollars an ounce to $1,220 between 8:00 PM ET and 9:00. Pulling back below $1,220 after midnight, the metal then advanced in a stop-and-go fashion to reach $1,124 before stalling. As of 8:00 AM ET, the spot price was $1,223.70 for a gain of $7.50 on the day. The Kitco Gold Index attributed +$16.60 to predominant buying and -$9.10 to a strengthening greenback.

The U.S. Dollar Index spent most of yesterday drifting, but it lifted off from the 86.5 level last night and stayed above 86.7. After an early-morning pullback to 86.55, which ended at 2 AM, it took off in a strong rally to almost 87.5 before hovering just below that level for more than an hour. Later, starting at 6:45, it pulled back but still stayed well above 87. As of 8:10, it was 87.14.

A Wall Street Journal report ascribed gold's latest gain to worries about loan losses in European banks and the dip in mainland Chinese manufacturing.

The European Central Bank Tuesday said euro-zone banks may have to write off loans totaling €195 billion this year and next, raising concerns that tighter credit markets may hamper the region's growth....

The ECB's comments triggered a flurry of safe-haven demand for gold, said Afshin Nabavi, head of trading and physical sales at Swiss trading house MKS Finance. "We continue to see some investment type of buying in gold."

Data showing that China's manufacturing sector slowed in May also strengthened demand for gold, as the data added to worries that the global economy's recovery is slowing, said Swedish bank SEB.

The article also mentions that scrap gold sales are likely to increase along with increasing prices, which could dampen further gains.

An earlier Reuters article mentions worries over the mainland Chinese economy, despite it still being in growth mode, and concerns about Europe. Also noted was warnings from the PRC economic authorities about Europe, which added to the pressure on the Euro.

"Since the start of the problems in Greece and Spain, gold's become ultra-sensitive to unfavourable economic news," a metals dealer in Sydney said."This should keep up the support today."...

The European Central Bank warned Monday that euro zone banks face potential loan losses of up to 195 billion euros over the next 18 months due to the financial crisis, and disclosed it had increased purchases of euro zone government
bonds.

The warnings came after China had cautioned that the global economy remained vulnerable to sovereign debt risks.

Also, despite Monday's market holidays in the United States and Britain, bullion found some added support as it became evident that global market turbulence over the euro zone debt crisis had hit Argentine bond prices, which fell 5.4 percent on
average in May.

Argentinian government bonds sinking represents something new on the horizon.

A Bloomberg report, as webbed by Business Week, pointed to declining equity prices as well as the worries over the Eurozone.

“The fear factor is still in the marketplace and fleeing to gold is due to its safe-haven properties,” said Bayram Dincer, a commodity analyst at LGT Capital Management in Pfaeffikon, Switzerland. “Investors will likely reduce equity exposure which makes gold investment a reasonable alternative.”...

Europe’s “got some deep structural issues that aren’t going to be solved any time in the near-term,” said Toby Hassall, a commodity analyst at CWA Global Markets Pty in Sydney. “So you’ll have a camp of investors out there that believe that things might get worse and they’re continuing to put a bid under gold.”

Also mentioned in the story are two new records: gold made a new high in Swiss francs, and GoldMoney.com surpassed $1 billion in holdings.

Just before regular trading opened, gold surmounted $1,225 and almost made $1,230 at the peak before pulling back with regular trading's opening. That decline pushed it down about four dollars, but $1,225 held. As of 8:53 AM, the spot price was $1,225.50 for a gain of $9.30 on the day. The Kitco Gold Index assigned +$16.80's worth of change to predominant buying and -$7.50's worth to strength in the greenback. The U.S. Dollar Index, after an initial rise, slumped down to 87.0 before bouncing back a little; as of 8:57, it was at 87.03.

If gold stays up, it'll be on track for a seventh daily gain in a row. Quite a way, a fairly unusual way, to begin June.

Junior Mining Investing: A Daunting Task

I've finished going through a short anthology-format guide to junior exploration stocks, called Junior Mining Investor, and what was in there made the chore look pretty daunting. If there's any theme that was emphasized by several of the authors, it would be the "resume approach." The best junior exploration company to invest in is one where experienced geologists and mine developers are on board, with track records of bringing mines into production. As is made clear, very few projects become mines.

There was some discussion of what makes a great deposit, but just enough to indicate what's going on when encountering one that's claimed to be. The consensus advice in this area was to look for a huge deposit with the potential for several million ounces. Unfortunately, the market being what it is, the best deposits among exploration stocks have already been bid up to near-production values. Several have already been taken over. The best time to have used this approach - I say in hindsight, and with some regret - would have been in late 2008, when the credit crisis combined with the drop in gold to $700 drove down the price of juniors meeting this criterion to fractions of what they are today. Now that gold is flying, the cheap ones are also the ones without that assurance.

The above lament ties in with one of the minor considerations in the book: buying at the right time. One approach discussed is to swoop in when excitement over previous drill results has faded. The trouble is, the best deposits often don't have that extended drop working for them.

Unfortunately, this leaves the would-be speculator in a quandary. The best risks have already been bid up, and the ones that are cheap aren't likely to produce anything. Evaluating a property takes a pretty keen eye, and a knowledge of mining geology helps a lot. Given this barrier, most people either rely upon the scuttlebutt or a paid advisory service. As for the former, the most extensive Website for scuttlebutt is Stockhouse.ca, whose "Bullboards" are quite active when news arises. The boards are full of pumpers and bashers, but there are enough knowledgable and thoughtful posters to make up for the dross.

If you're interested in an example, I've gotten a name that does qualify on the resume front but not on the deposit-size front. It's called Eagle Hills Exploration Corp., V.EAG , and it just closed a C$3.75 million private placement to explore its Windfall property more thoroughly. A spin-off from Noront, it has two of the movers behind that company on its board of directors: Richard Nemis and John Harvey. Both, particularly the latter, have cut-above track records in mine development. In addition, after a spectacular drill result, the company's stock fell to close to where it was before the result after quadrupling on it. [Graph here.] This company makes a good one to sink the teeth into, for practice if anything.

Disclosure: None; I don't own a single share in Eagle Hills.

Happy Memorial Day

If you celebrate it, Happy Memorial Day; please take some time to remember the soldiers in harm's way now, as well as those who have died in the service of their country.

Just to let you know: this blog will not be returning to the usual schedule until Tuesday.

Gold At 5000?

The third segment of this week's Financial Sense Newshour podcast contained an interview with Brian Pretti [.mp3 file], in which he played around with some numbers that inclined him to think that gold could go much higher. One interesting fact he dug up related to total funded debt in the U.S. economy: its peak, in the 20th century, was at the depths of the Great Depression. The same level was broken, however, in 2001 - the same year that gold started on its bull market. He also disclosed that the real value of gold as adjusted by the (presumably core) CPI was the same as the value adjusted by the average wage. [The figure he got was around $1,800, which is a lot lower than the figure others have gotten. One interesting implication was the official CPI tracks the average wage. If the former is understated, then real wages have been eroding over the course of the last three decades.]

The $5,000 figure, he got using a calculation familiar to many veteran goldbugs: it's the value at which gold could completely cover M1.


If gold ever got that high, a restoration of the gold standard would be thinkable in the popular press. Stories of that sort make for a good addition to the cocktail-party indicator of a top.