New South African Miner To Use Bacteria

It's a technique that's been around for a couple of decades, but it hasn't been used thta much because of the high royalties the patenters have demanded for its use. Now that gold prices have shot up, though, the technique has become profitable in larger-scale operations. At least, that's the bet of the founders of new South African company Galaxy Gold. They plan to use bacteria to triple the production of the currently small-scale Agnes mine in South Africa.

The sharp increase in production would be enabled by the Biox treatment process, which was developed by Gencor (now BHP Billiton) two decades ago but has been relatively little used to date in SA, though it has been used on a smaller scale at Agnes.

Biox enables the extraction of gold from sulphide-rich ores through bacterial action. Previously, the difficulty of processing the sulphides meant mining in the Barberton area was limited to relatively small-scale operations. But Mr Skeat saw the potential to produce large volumes, achieving economies of scale while saving on operating costs due to the shallow mines' low energy requirements.

"The biggest difference is in hoisting - we can bring up the ore for a fraction of the cost faced by a typical gold mine in SA. Our cash costs will be equal to or less than 500/oz - they should fall as our tonnage goes up."

It's a neat idea, especially if the bacteria can cut down on pollutants. Because its reach was so limited, Biox has enjoyed a de-facto monopoly. (So does a grocer eking out a living in a hamlet if (s)he's the only one around, by the way.) If its use spreads, there may be competitive bacterial products coming into the market.

Long live bacteria.

Indian Gold Demand Tails Off, Bar Premiums Shrink

Concurrent with the monsoon season, India gold demand has slowed to a trickle. The reason given, though, is high prices combined with a weakening of the rupee.

India has taken a rain-check on gold. Premiums for gold bars slipped in Asia on Tuesday after bullion raced towards a lifetime high, while purchases from Indian jewellers slowed to a trickle as the monsoon progressed in the world's largest consumer....

Demand for gold in India hinges on a good monsoon, which boosts farm output and rural incomes. July is usually a lean month in India because farmers, who make up 65 percent of the country's gold demand, spend their money on sowing crops.

No one is buying, however there are a few sellers, said Harshad Ajmera, proprietor, JJ Gold House, a wholesaler in the eastern city of Kolkata.

Although dealers in India offered gold at a discount of up to 1 percent below international prices, demand remained slow. Premiums for gold bars slipped to 50 cents to the spot London prices in Singapore from as high as 80 cents last week....

GFMS Predicts $1,300 Gold

GFMS' CEO, Paul Walker, said that he expects gold to trade as high as $1,300 this year and there's potential for it to go to $2,000.

“What’s happening in Europe at the moment increases the probability that we will see a double dip,” Walker, who joined the independent, London-based research company in 1995, said yesterday. “The investment case for gold is going to remain robust for the rest of this year.”

The kicker that would push gold up that high would be a spread of the Eurocontagion to other regions. Given that platinum demand is more tied to economic strength, a reneweed spell of trouble could push gold above platinum.


If gold does ascend to those levels, then a full-fledged mania will be underway. Already, at current prices, the metal's sporting a double-digit gain.

A note: GFMS is the same firm that, earlier, was predicting that gold would go to $1,300 and then collapse. They've changed their tune quite a bit.

After Sagging, Gold Makes New Record High Overnight

The jitters continue as the Eurocrisis continues to weigh. Fitch has warned the U.K. government about getting down its deficit, noting that the deficit has increased faster than any other AAA-credit government. Fitch is the same rating agency that recently downgraded the debt of the Portugese government. In response, CDSs for U.K. sovereign debt crept up from 94 basis points to 98. Since the new government has started to put deficit-reduction measures in place, Fitch's warning comes off more as an encourager than a stop sign. The agency is concerned that the planned cuts only affect the short term deficit, not the medium term.

With that news as the backdrop, and with the greenback also moving up, gold reversed a late-night slump to spike above $1,250 and make a new record high. The earlier sag carried the price down to $1,236.50, reached around 2 AM ET. $1,240 was climbed above an hour later; a two-stage rally followed. It was the second stage, climaxing just before 6:00, that put gold at its new record high of $1,253.30. After its higher low made on May 21st, gold has now made a higher high. Subsequent to making that record, the metal slumped back but stayed above $1,245. As of 8:02, the spot price was $1,246.50 for a gain of $6.20 on the day. The Kitco Gold Index split the gain into +$4.20 due to predominant buying and +$2.00 due to weakening of the greenback.

The U.S. Dollar Index spent the night slumping, getting down close to 88.1 before halting and fluctuating between that level and 88.3. An early-morning rally, beginning a little before 4 AM, carried the Index up to 88.58 before it ended at 5:25. The subsequent slump dragged it down to just above 88.3. As of 8:13, it was at 88.33.

A Wall Street Journal report characterizes the record high as being generated by refuge buying. The metal hit another record high in Euros.

"The persistence of EU sovereign risk, which appears to be spreading to non-EU nations, combined with heightened investor risk aversion and a steadily sinking euro, makes gold attractive," said HSBC analyst James Steel.

Investor demand is the driving force right now, traders and investors said, noting a quiet physical market from jewelry buyers in India, the Middle East and China....

"Given the momentum this morning in Europe, gold just wants to follow one path and that path leads north," said UBS analyst Edel Tully.

As the article also suggests, Hungary's troubles, turmoil in Spain, expected difficulties in Germany as the German government prepares cuts of its own, and double-dip fears for the U.S. economy all contributed to a positive climate for the metal.

The above-noted Fitch warning serves as the focal point of this morning's Reuters article, which ascribes the new record high to worries over the Eurocrisis.

The precious metal is benefiting from fears the euro zone's sovereign debt crisis may spread, weighing on global economic recovery, analysts said.

"It is mainly the fear of another slide into recession which is seeing demand for gold as a safe haven," said Commerzbank analyst Daniel Briesemann.

"Gold is currently rising in dollars and in euros," he added. "There is a lack of confidence, given the uncoordinated measures against the sovereign debt crisis, which is obviously (affecting) both currencies."

Core euro zone debt futures hit a contract high and the premium investors demand to hold 10-year French, Italian and Spanish government bonds rather than German benchmarks rose on Tuesday in risk-averse trading.

With the fear factor still dominating the financial markets, gold is set for further gains, analysts said. "Right now it's too difficult to stand in front of a moving train," said UBS analyst Edel Tully in a note.

The article also notes that holdings in the SPDR Gold Shares Trust were unchanged yesterday, but physical demand in India slowed to dormancy.

Essentially the same reason was at the head of the morning Bloomberg report, as webbed by Business Week.

“It shows low confidence in the euro zone,” said Bernard Sin, head of currency and metals trading at bullion refiner MKS Finance SA in Geneva. “There’s no confidence in euros, dollars and no confidence in other currencies. The only solution is to be on the safer side, which is gold.”...

The euro steadied against the dollar as Federal Reserve Chairman Ben S. Bernanke said Europe’s leaders are committed to avoiding a default and their bailout plan covers the obligations of Greece, Portugal and Spain “for a number of years.” The U.S. recovery is moving at a “moderate” pace, Bernanke said....

“The gold price continues to be supported by safe-haven inflows, linked to Europe’s debt crisis and uncertainty about returns from alternative investment assets,” David Moore, a commodity strategist at Commonwealth Bank of Australia, wrote in an e-mail today.

The metal may trade at $1,050 to $1,300 an ounce for the rest of this year and may climb as high as $2,000 if the debt crisis spreads beyond Europe, possibly to the U.S., GFMS Chief Executive Officer Paul Walker said in an interview.

Ms. Tully was also quoted as noting that scrap sales have likely picked up given the rise.

With regular trading open, the metal continued its slump by sinking below $1,245. The decline started at 8:00, halting at $1,243 when the pit shift opened. A further slump below $1,242 was reversed. As of 8:50 AM, the spot price was $1,242.80 for a gain of $2.50 on the day. The Kitco Gold Index divided the gain into +$0.70 for predominant buying and +$1.80 for greenback weakness. The U.S. Dollar Index, after sinking below 88.3 on the way to 88.25, reversed course and began climbing at 8:20. As of 8:54, it was at 88.43.

Forging a new record did call forth some selling and a consequent downturn, but the record was still made. So far, gold is still sporting a gain on the day. There isn't any sign that the metal is going to break through the $1,250 level and surge higher, but it also hasn't fallen below $1,240. Today's action, if it parallels yesterday's, would see another record made.

Gold, After Drifting Down Overnight, Explodes Upwards In Morning

Gold spent most of last night drifting down from its close at $1,220. Losing close to ten dollars an ounce, the drift-down was both slow and fairly smooth in the early morning session. By the time regular trading had opened, the metal was drifting between $1,211 and $1,215. Poking its nose above the latter level as of 9:45 AM ET, the metal sunk back into the top part of the range before taking off at 10:15.

Within thirty minutes, the metal had touched $1,235. Its run-up coincided with a drop in U.S. equities, which started on a downwards slide a little before gold took off. The Dow is well below 10,000 now, and the S&P is only a few lousy days away from 1,000. An AP report pegs stocks as falling to their lowest level in seven months.

Gold benefitted, but the gains came mostly in the mid-part of the pit shift. After drifting around $1,235 for an hour, the metal ramped up to the $1,240 level and stayed just below there until the pit shift ended. A slight blip upwards got the metal a little above $1,240, where it stayed until just before 3:15 when it spiked up to the day's high of $1,246.20. Barely missing a new record high, the metal descended down to the $1,240 level again. Stocks were dumped in the final hour, but gold did not benefit except for that spike. The only U.S. economic news came out at 3:00, which revealed that consumer borrowings rose slightly in April; for the previous month, it was revised downwards, which didn't help the markets. As already noted, any benefit for gold post-release was temporary.

When the stock markets had closed, gold spent the rest of the regular session drifting. At the close of regular trading, spot gold was at $1,240.30 for a gain of $20.30 since Friday's close. The Kitco Gold Index (KGX) attributed +$23.20 to predominant buying and -$2.90 to a strengthening greenback. Ex-greenback, the KGX had gold at another record high today. Fittingly, the metal made another record in Euro terms.

After an continued rally last night that took it up to 88.68, the U.S. Dollar Index floundered around, mostly downwards, in early morning and regular trading. Reaching a low of just below 88.15 as of 7:00 AM, the Index gyrated around with a slight upwards bias subsequently. The upwards tendency became less diffuse in the afternoon; by 4:05 PM, it managed to inch up to a little above 88.5. Pulling back down a little, it saucered back up by the time regular trading was over. As of 5:25 PM, it was at 88.49.

Its daily chart, from Stockcharts.com, shows Friday's gains continuing today in attenuated form:



Today's candlestick shows that today's flailing around took place in a much narrower range than yesterday's leap-up. The Index's RSI line remained in overbought territory, although to a lesser extent than two-to-three weeks ago. Perhaps more portentously, the MACD lines (found at the bottom of the chart) crossed over today from a bearish configuration to a bullish one. In so doing, they endorsed the ascending triangle formation that was completed last Friday.

There's still the matter of the Index's overboughtedness, but the other signs point to a continued rise in the greenback. So does the current fate of the Euro, which may end up going to parity with the U.S. buck. Add to that an all-out correction in the making which U.S. stocks are suffering through, and the macro backdrop makes for a continued rise. In a way, it's a blessing for exporters in the Eurozone like Germany. Given widespread disgruntlement at the Eurobailout, the effect on that country will be mollified somewhat by their exports becoming more competitive.

The Index benefitted hardly at all from today's turmoil, but gold benefitted quite a lot as its own daily chart shows:



After its sink late last week, and Friday's recovery from Thursday's drop, today's jump in gold came as a welcome relief. Despite today's gain, gold's RSI level is not in overbought territory. Like the Index's, its MACD lines crossed over today from a bearish configuration to a bullish one, at a lower RSI level than the other's.

The metal is now close to making a higher high. The dip which ended late last month made for a higher low, although one that wasn't much higher than the previous one. Consequently, gold's intermediate term uptrend is intact. In a month that's supposed to herald seasonal weakness, the metal's performance has been fairly good.

A post-pit Reuters report ascribes gold's rocket-up this morning to safe-haven buying prompted in large part by more fears about the Eurocrisis. Amongst other points therein, these were included:

* Gold's safe-haven appeal increased as U.S. stock markets dropped 1 percent on top of heavy losses on Friday due to disappointing payrolls data and lingering credit fears.

* Euro zone credit contagion fears and worries about a Hungarian debt crisis prompted investors to buy the metal as an insurance against economic turmoil - traders.

* Investors initially took profits on better economic sentiment as the euro recovered after it fell below $1.19 for the first time in four years earlier.

Earlier, Marketwatch's Peter Brimelow's Monday column explored the dichotomy between gold's encouraging performance and the less-encouraging performance of major gold stocks as measured by the HUI.

The yellow metal bounced off the ropes ferociously on Friday. After two weak days, the metal slipped below $1,200 spot as New York was opening. Then, as it became clear how ghastly the day was going to be in the financial markets generally, a powerful $20+ rally set in.

From a relative strength point of view, this was a spectacular performance. Everything else was down horrifically, except U.S. Treasurys, and the U.S. dollar -- usually gold's adversary.

Gold in other currencies did even better. In fact, gold in euros closed at a record high. This will greatly delight The Gartman Letter, which can claim to have pioneered trading gold in this way, and which was expanding its positions this week....

[But, no-]one seems to understand gold shares' malaise. Unlike gold, they have yet to approach, let alone exceed, their last December highs. Some blame the rise of the gold ETFs like SPDR Gold Trust ETF (which expanded its bullion holdings to a record this week) and the closed end Gold Funds like Central Fund of Canada Limited and Sprott Physical Gold Trust. But these are not leveraged to gold, which has been the gold shares' traditional appeal.

Could gold shares just be the last train to leave the station?

It's a good question right now. I'm far from being the only one to point out the summer seasonal weakness that gold typically goes through; the expectation of same, plus the malaise the stock market as a whole is going through, explains why gold stocks aren't participating all that much. From what I've seen of the nether regions of the gold-stock universe, the junior exploration stocks as a whole have largely ignored gold's spring rally. If gold ends up bucking that weakness this coming summer, the major gold stocks should wake up. As of now, the exploration juniors are moving to their own beat.

To conclude with a blog note, this all-in-one report for the day is due to Blogger experiencing technical difficulties all this morning and some of this afternoon. The notice I posted two hours earlier, which is right before this entry, was all I could post earlier today. Apologies, and thanks for your patience.

NOTICE: Reason For Lack Of Posts Earlier

For whatever technical reason, access to posting was blocked this morning and earlier this afternoon. I didn't post the usual fare because I couldn't. Thanks for your patience; unless there's another bug, I'll be posting on schedule. This afternoon's wrap-up will be a special one covering the entire day.

Return To The Endgame

There wasn't much discussion about gold specifically in this week's Financial Sense Newshour podcast, but there was some discussion of Jim Puplava's deflation-to-hyperinflation scenario in the third segment [.mp3 file] right after the interview with Gerald Celente. Celente made the point that Americans tend to not believe that government officials are incompetent because they're awed or impressed by pomp.

Puplava believes that the U.S. dollar will go down substantially once the U.S. economy hits the shoals and another round of quantitative easing is put in place. That QE2 will tip the U.S. economy into an inflationary spiral.


I can see his point, but I'd like to disagree regarding the fate of the U.S. dollar.

The fact is, a rising U.S. dollar fits in well with the huge load of public debt that the U.S. has to refinance. If the greenback keeps going up over time, then foreign creditors will be more willing to buy U.S. Treasury securities at low rates. If I (a Canadian) buy a six-month U.S. Treasury bill at 0.19%, and the Canadian dollar drops 2% against the greenback over that period, I've made 2.19% over six months: 4.42% annualized. That's a better rate than I could get with a six-month Canadian T-bill. As long as the greenback has a tendency to rise, I'd be willing to do my part to keep U.S. T-bill rates lower than they otherwise would have been.

And people wonder why there hasn't been much bite in the renminbi-revaluation barks. If the PRC has to revalue the renminbi upwards, then the value of their Treasury security holdings will go down in their own currency's terms. That means losses. It also means the PRC government can scale back on their Treasury holdings for business reasons. In order to keep investing, they would have to peg the value loss as a loss leader.

I've written it before, and will likely write it again, but I think D.C. authorities have come to a decision to sacrifice export growth for the sake of the fisc. The larger the trade deficit, the more capital inflows there are. The more capital inflows, the more funds are available for U.S. Treasury purchases. The more funds available, and deployed, the lower U.S. interest rates will be despite the huge increase in funded Treasury debt. Rising demand for borrowed funds (the exploding deficits) meets rising supply (foreign capital.) As an extend-and-pretend strategy, there's a lot to recommend it. Japanese investors can be assuaged by pointing to the rise in the U.S. Dollar Index and saying their currency gains will come eventually.

In addition, thanks to the Eurocrisis, there's an "altruistic" reason for it. Poor Europe needs a lower Euro to gets its export-driven economy moving again. Why not let the Euro fall to give 'em a hand, while saying in the next breath that the currency losses suffered by foreign investors for most of '09 have been more than made up for in '10?

There's only one potential drawback to this plan. Since the renminbi is pegged to the greenback, a rising greenback pulls the renminbi up with it. PRC officials might complain that the greenback is going too high. If not, however, it can be said that a greenback rise amounts to an upvaluation anyway. It's an argument that misses the point, but could assuage those who think that mainland China has had it too good for too long.

Best of all: it allows for U.S. inflation, provided that the rate is less than that of other major currencies. All it takes is for the U.S. to 'lose' the competitive-devaluation race with other nations that want to inflate faster. All that's required is throwing exporters under the bus.

This aspect means that gold and the greenback will rise in tandem over time.

Given the pragmaticality of this option, I think the U.S. dollar will not collapse except by accident.


One final point I'd like to make: gold and the greenback rising together means that a rising gold price does not make the greenback look bad. Given the current crisis, it makes the Euro look bad.