Gold and Silver Blog

At the G7 meeting in Dubai, gold was discussed briefly (see Central bankers briefly discuss new gold sales deal). After all the hype leading up to this meeting, it seems that nothing was resolved.

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The astrologer and prophet Mahendra Sharma released another prophecy today. Nothing about gold, but he says that Arnold Schwarzenegger will be the next governor of California. "Arnold Shwarzenegger’s [sic] chart is very strong" writes Mahendra. Maybe it's strong from all the bodybuilding?

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Last weekend I wrote about Eagle Bay Resources (ASX: EBR), the company that allegedly discovered $3 billion of gold. I was rightly skeptical about the story. It turns out the the $3 billion figure is completely bogus. The truth of the matter is that the discovery is "not economic in its current form" (see Eagle soars on a wave of publicity). The stock tripled the day after the story, but then sunk again after the truth was exposed.

In a recent editorial on his 321gold website, Bob Moriarty puts in a plug for Endeavor Mining Capital (OTCBB: EDVMF, TSX: EDV) (see Stocks worth owning in a gold correction). He bases the recommendation on Endeavor's impressively low PE ratio of approximately 2.

I took a look at this company to see what it's about, but unfortunately I encountered a company I just don't understand. It seems that Endeavor makes its money by investing in other gold mining companies. All of Endeavor's income comes from "net realized gain on investments" and "change in net unrealized appreciation of investments and foreign currencies".

When a company actually mines gold, and reports ounces mined each year, and costs per ounce, one can get a reasonably accurate picture of how much money the company will make in successive years at a given gold price. But if a company just had some good luck investing, only God (and maybe Mahendra Sharma) knows if it will keep up the good luck in the future.

Endeavour Mining Capital therefore should be valued based on its balance sheet and not on its income statement. Because I have no clue what Endeavour's reported $26.6 million CAD of investments are really worth, but given that Endeavour is currently trading at 1.9 x book value (the current share price is $3.62 CAD), my hunch is that it's overpriced and I'd stay away.

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I'd like to give a special thanks to Nick, aka Sharefin. He placed a link to my blog in a prominent position on his Gold'n Sharemarkets page, and this has helped a large number of readers find my blog.

It is reported that the G7 ministers will definitely talk about renewing the Washington Agreement this weekend (see Forbes.com: COMEX gold jumps as new cen bank deal anticipated). This has caused the price of gold to go up today, even though the news stories indicate that they might raise the limits on the amount of gold that can be sold.

If you have been following my blog, you will know that last weekend I posted links to commentary by a so-called expert who said that gold prices would go down because the renewal of the Washington Agreement was already factored into the gold price. I guess he was wrong about that.

Mahendra said that gold would go up today, based on his astrology (at least that's what I think he meant), but he also said something about $400/oz, and gold is only at $380/oz, so I don't think his prophecy was on target. At least he got the direction right.

Beginning Friday, September 19th (that's today), you can buy and sell options on Kinross Gold (KGC) and Hecla Mining (HL) (see Amex to Trade Options on Five Securities). I personally haven't done well with options, but theoretically there's the potential to make a real killing if you time things right.

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The Financial Times offers an article about renewal of the Washington Agreement (see Central banks' gold deal up for renewal). According to the article, the Bundesbank holds 3,440 tons of gold and would like to sell some of it.

Let's hope for the Bundesbank's sake that they don't make the same mistake as the Bank of England, which sold off large amounts of gold during the last four years when gold prices were at their lowest. With gold now above $370/oz, they are probably feeling that they got ripped off.

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It seems to me that hurricane Isabel was overhyped, at least with respect to the Washington, DC area. The storm didn't seem so bad from my perspective. I don't know why they had to shut down the federal government again today. The storm's gone!

We'll have to wait for the damage assessments to come in before we determine how much damage the storm did. It looks like the populated Virginia Beach area may have taken quite a bit of damage, even though they didn't receive a direct hit.

Barrick Gold has filed a motion for reconsideration in the lawsuit filed by Blanchard against Barrick and JP Morgan. The motion will be heard October 15th (see Barrick asks court to reconsider gold trial ruling). Barrick says the lawsuit is "utterly ridiculous." What's significant here is that the story has been picked up by Reuters. GATA and Bill Murphy both got a plug in the story. I'm sure he'll be happy about that.

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In other JP Morgan news, it is reported that JP Morgan says that gold prices could fall if the central banks agree to sell more of it (see Big rise in bank sales would hurt gold price-JP Morgan). Those who believe in the conspiracy will probably say that JP Morgan is trying to talk down the price.

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Canada's National Post reports that GFMS says that gold prices will dip (see Gold price will dip, but not for long. Just a few days ago, it was reported here that GFMS said that gold prices were going to go up. Those guys need to get their story straight.

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According to Kitco, U.S. gold closed up $0.60 and silver down $0.01. Normally I don't post daily changes in commodity prices in the blog, because if you wanted the daily price quotes, you'd just go to Kitco. There's not much I can add. And I usually have no clue why gold goes up or down on any particular day.

But it's worthwhile to comment today, because on Monday the astrologer and prophet Mahendra predicted that Thursday and Friday would be good days for gold and silver. And this is a pretty unexceptional day.

It's possible I interpreted the prophecy wrong. He said "Thursday and Friday is buying time in metal and its stocks". I assumed it meant people would be buying and the price would go up. Maybe he meant that his followers should buy because the price would be stable and this will be the last opportunity before the big price increase? If anyone has any ideas on what the prophecy really meant, please Email me.

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Isabel is coming! So far I still have electricty and DSL service. At the moment, it just looks like a bad rainstorm and not a catastrophic hurricane. Mahendra said that it wouldn't do much damage. It remains to be seen if he was right or not.

It is reported that when the European central bank people meet in Dubai this weekend, the Washington Agreement isn't on the official agenda, but they might discuss it on the sidelines (see COMEX gold rebounds as steady Fed knocks dollar).

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That crook Dick Grasso resigned. But that's not enough. He should give back the $139.5 million, and every other crook on the board of directors of the NYSE who approved his salary should resign also.

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On a personal note, I received 10 rolls of Kodak Tri-X 400 film today. Doing my part to use up silver and boost prices. Remember, girly men use digital cameras, real men use film.

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Hurricane Isabel is possibly headed towards Washington DC. So if the lights go out, or the DSL goes out, I won't be able to update the blog. But don't worry, I have plenty of batteries and bottled water and canned food so I won't die of thirst or starvation. I'll just be munching on some tasty tuna fish while listening to the hurricane news on the radio, having a swell time. And Mahendra predicts that the hurricane won't cause much damage, so probably the worst case scenario, eating tuna fish in the dark, won't even come to pass.

Mineweb reports that metals consultancy Gold Fields Minerals Services says that gold will hit $400 before the end of the year (see ‘Gold heading for $400/oz’ – GFMS). Maybe GFMS has been following Mahendra's prophecies?

Found this article at Business Day, Unpaid overtime may save DRD jobs , which has a better analysis of the Durban Roodepoort Deep union situation than the previous article I linked to from Mineweb.

The prophet Mahendra Sharma has released another prophecy today. He says hurricane Isabel will pass without doing much damage. Indeed, the news from the weather forecasters is that Isabel has now weakened to a Category 2 hurricane.

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The Federal Reserve Open Market Committee met today (see Fed Leaves Rates Unchanged) and decided that target overnight interest rates targets would remain unchanged at 1%. The number of payroll jobs declined every since January, and almost 100,000 jobs were lost last month. Allegedly, inflation is at only a 1% annual rate (excluding food and energy).

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Check out the Silver Institute's third quarter Silver News which you can download here.

Mineweb reports that Durban Roodepoort Deep (DRD) is closer towards getting the agreements with the unions necessary to keep its North West mines, Hartbeesfontein and Buffelsfontein, open (see DRD awaits NUM nod on North West). Let's hope that DRD get's some kind of agreement with NUM. DRD's relations with the unions haven't been so great, and it's been a great source of worry for DRD investors.

***PROPHECY ALERT***

Mahendra Sharma, the prophet, predicts a big rally in precious metals on Thursday and Friday of this week. He says gold will go above $400/oz. I sure hope he is right.

He also predicts that there will be conflict between the Israelis and the Palestinians during the next two months. A pretty bold prediction.

I suspect that at least one of the above predictions will come true.

Mahendra also comments that "Nature will play a negative role for world." He must be referring to Hurricane Isabel which is currently headed directly towards Washington, DC. I'd better go out and buy some bottled water.

You can read Mahendra's latest prophecy at this link.

In his weekly Contrarian Chronicles column, Bill Fleckenstein is bullish on gold and silver based on his belief that inflation is coming. Bill Fleckenstein's columns are always worth reading, even when he's not writing about gold and silver. But I have to ask, what's the deal with his long hair?

Leonard Kaplan's Gold Market Commentary offers commentary on the Washington Agreement. Mr. Kaplan says that it will be re-signed. He suggests that sales quotas might be raised, which would be bearish for gold prices given that belief that the accord will be re-signed is already factored into the current gold price.

Mr. Kaplan also writes about silver, on which is quite bearish. He says that speculators are long 519 million ounces of silver which is 5/6 of annual silver production. He says that that longs will become skittish and that prices will "cascade lower".

It seems to me that the opposite is just as likely. The shorts could become skittish and create a huge short squeeze that could send silver skyrocketing. During the past few years we've seen other commodities skyrocket, such as palladium and natural gas, so the same could happen to silver.

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Forbes also offers some bearish commentary, Gold: Not So Shiny Anymore, stating that gold equities are running ahead of the metal and will likely pull back. In the winter of 2000, analysts aid that gold was a bad investment and that NADSAQ stocks were good investments, so one shouldn't really read too much into these bearish prognostications. Probably, the time to sell your gold and silver is when all the mainstream analysts are telling you to buy it.

The article quotes Michael Burke as saying that there is a buying climax and that's very bearish. "A buying climax is when a stock reaches a 52-week high but closes lower for the week, and is interpreted as an exhaustion of buyers." I think this analysis makes no sense whatsoever. Stocks don't go up every single day. Sometimes they go up, sometimes they go down. If a stock hits a 52 week high on a Thursday, there's probably a 50% chance that it will go down on Friday. Big deal. I'm sure if you look at the stock chart for any of the new economy wonder stocks like Cisco, you will find that it had many "buying climaxes" during its meteoric rise.

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It is reported that a former lobbyist for JP Morgan, who lobbied against controls on derivatives, has been nominated by President Bush to be director of OFHEO, which is the agency that regulates Fannie Mae and Freddie Mac (see US OFHEO Pick Brickell Defends Remarks About Derivatives). These sorts of goings on should give fuel the conspiracy theorists who believe that JP Morgan is controlling everything behind the scenes.

I just noticed this article in today's Financial Times, Believe it or not, gold is not all that glisters. A somewhat humourous, somewhat condescending story about the recent New York Institutional Gold Conference, and comments of investor/commentator Jim Rogers.

The most interesting tidbit in this article is the mention of a rumor that a "leading gold mining company" will announce a "big de-hedging program" at the Denver mining conference which starts September 24th. The article hints that it might be Barrick Gold.

As many gold investors know, Barrick has been the biggest hedger in the gold mining world, and is often blamed for the low gold prices. If this de-hedging rumor is really true, it would be good news for gold investors.

If anyone has information about these rumors, please get in contact with me. My Email is auag_blog@yahoo.com.

According to articles in Australian newspapers, a company named Eagle Bay Resources (ASX: EBR) has discovered a “$3 billion� gold and copper deposit (see articles in The Advertiser and the Herald Sun). These articles don’t tell us how the $3 billion was calculated. The official company press release (pdf file) doesn’t give any indication with respect to the actual amount of reserves contained in this find, or how much money per ounce it would cost to extract it.

If we assume that 75% of the value of the deposit is gold, and given the exchange rate of $1 USD = $1.51 AUD, and assuming gold is $375/oz, we compute that this deposit contains 4.0 million ounces of gold. If it’s mined over 15 years, then Eagle Bay Resources will produce about 265,000 ounces per year from this mine. This is all based on a lot of assumptions. It could take several years to develop a mine. Apex Silver Mines (AMEX: SIL) still hasn’t mined a single ounce of silver from its huge silver deposit.

EBR has approximately 73 million shares outstanding according to the last annual report, and it closed today at 6 Australian cents per share (up from a low of approximately 3 cents a few months ago). This gives it a market cap in US Dollars of a mere $2.9 million. I should point out that for the first 9 months of this year, the company has negative operating cash flow of $877,000 AUD.

Is it a huge investment opportunity? Or a sucker’s bet? I have no idea. If anyone reading this has any ideas in this matter, or knows how to buy stocks on the ASX, please send me an Email.