Gold and Silver Blog

This weekend's Barron's features an interview with James Turk, the founder of Goldmoney.com (see Midas Touch). For those without access to Barrons, here's a summary of Mr. Turk's points:

(1) Gold will reach $400/oz by the end of the year.

(2) People will buy gold and sell national currencies when financial uncertainty increases.

(3) The Federal Reserve is increasing the money supply in order to stimulate the economy, and this will lead to devaluation of the dollar which is already happening.

(4) New laws in China allowing gold ownership could significantly increase demand.

(5) Adjusted for inflation, gold's peak of $850/oz in 1980 is equivalent to $2050/oz today.

(6) James Turk recommends Durban Roodepoort Deep (NASDAQ: DROOY, JSE: DUR). In response to DRD's recent poor stock price performance, he says "It is down. Durban Deep got hurt when the rand strengthened against the U.S. dollar. Though the dollar price of gold was going up, the rand price was going down and they had a significant cost squeeze and their earnings were hit because of the impact of declining margins on their cash flow." But he still recommends DRD: "[DRD has] good management and good mines. Durban has rationalized part of its South African operations to reduce its costs."

There's more to the article than I summarized here, so go check out Barron's.

Wage increases and the higher Rand lead analysts to conclude that South African mining companies are going to report poor results for this quarter (see Mineweb: SA gold facing crunch in Q3).

Yesterday, Harmony Gold and De Beers both warned that the high rand price would force them to cut jobs, and the South African Chamber of Mines warned that 70,000 jobs could be lost (see Business Report: Crisis threatens 70 000 mine jobs).

A companion article at Business Report expresses doubt that attempting the devalue the Rand would be a good thing (see Finding fair value for the rand is a fool's errand). Maybe the author of this article is right, but as a mining investor, I hope that it's ignored, and that the South African central bank tries to do something to bring the rand back down.

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AngoGold says that Randgold's offer for Ashanti doesn't create real value for Ashanti shareholders, even though based on the current Randgold share price, it's priced at $1.7 billion vs. AngloGold's offer of $1.3 billion (see AngloGold press release). AngloGold CEO Bobby Godsell says "Under the terms of the Randgold offer, Ashanti will actually constitute 70% of the enlarged group - therefore, this is essentially a repackaging of Ashanti's assets and it is hard to see where value is being created to allow the shares of the combined group to trade any higher than the current market value." I have to agree with Bobby on this one.

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There's a new link on my sidebar to The Calico Cat, my new blog which will house my non-gold related posts. Please excuse how ugly it looks, it's still under construction, but if you go there now you can read why I need to have another blog. Don't worry, the Gold and Silver Blog will still be here.

Another article at Mineweb about how the strong rand is hurting mining companies (see Rand driving SA to the wall). The rand is up 26% against the dollar so far this year. For the sake of investors in S.A. mining companies, let's hope that the Rand starts going down instead of up.

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The U.S. Treasury is introducing a new $20 bill today (Fox News: Changing the color of money). The bill has additional security features which make it harder to counterfeit.

Cliff Droke writes an article posted at Gold Eagle where he claims that the new twenty is part of some kind of conspiracy to eventually outlaw the ownershp of gold (see The coming currency devaluation). I think that someone has been watching too many X-Files reruns.

Kinross Gold (NYSE: KGC, TSX: K) announces that it will be buying out Crown Resources (OTCBB: CRCE) for 13.1 million shares of stock, which is worth $100 million USD at today's closing price of $7.61 USD (see press release). This is not a huge deal for Kinross which has 315.1 million shares already outstanding according to MSN Money.

What Kinross is getting for its money is a gold deposit in Washington state with proven and probable reserves of 918,000 oz (the press release says 1.94 million tonnes grading 13.44 grams per tonne gold). So Kinross is paying more than $109/oz for a gold deposit that has yet to see any actual mining operations.

It was reported here a few days ago how Mark Wellesley-Wood, CEO of Durban Roodepoort Deep (NASDAQ: DROOY, JSE: DUR) has the highest pay of all South African mining CEOS, even those of much bigger companies such as AngloGold. Wellesley Wood says that his salary is justified (see Mineweb: Wellesley-Wood says pay is justified).

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The South African Government is considering imposing a 3% royalty on gold mining which would go into effect in 2008 (see Mineweb: Royalty pilloried, wipes out 20m oz gold). Final determination on the bill will happen in February. Given that, even if it happens, it's more than four years away, it has a very neglible impact on valuatations of South African gold mining stocks today.

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According to Business Report, South African gold production declined 8.8% from August 2002 to August 2003 (see Gold sales plummet by 12% in July. That's a pretty big drop, and sounds quite bullish for gold (unless the production has been made up by an increase elsewhere in the world).

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Mining companies raised $1.5 billion US on the TSX and TSX Venture in the first six months of 2003, a 36-per- cent increase over the same six months in 2002 (see The Vancouver Sun: Cash chasing gold explorers).

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Finally, a quick comment on American politics again: The blogger at Boots and Sabers says that "conservatives" lose with Arnold Schwarzenegger winning the California recall election because "a liberal Republican always serves to push the Republican Party to the left. " I disagree with this take; Arnold is a libertarian, not a liberal. The little I know about Arnold's thoughts on free enterprise is that he might push the Republican party further to the right on these matters. U.S. President George W. Bush may be a big opponent of abortion, but when it comes to economic matters, it's hard to tell him apart from former U.S. President Clinton.

This post is about the California recall election, so please ignore it if you are here just to read about gold and silver. Look for more gold and silver posts tomorrow morning.

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Arnold Schwarzenegger won the recall election and will be the next governor of California. It looks like the astrologer and prophet Mahendra Sharma called this one right again. Some may say that Mahendra is just an astute observer of American politics, but you have to give him some credit here because a lot of so-called experts in the United States thought Gray Davis would retain his office or Cruz Bustamante would defeat Arnold, but a guy in Kenya who can’t write a sentence using proper English grammar was able to correctly predict that Arnold would win.

My take on the election is that it’s a victory for democracy and a victory for the people. The U.S. news media has gone out of its way to portray the recall election as a “circus�, and I believe that this portrayal is politically motivated due to the fact that a majority of people who work in the news media are staunch Democrats. I strongly disagree with the notion that the only kind of non-circus election involves one Democrat running against one Republican, both of whom are career politicians. The U.S. needs more elections like this recall election, where non-traditional candidates have an opportunity to run for office and the two political parties don’t control everything.

It is not a circus when an election is held according to the rules set forth in a state’s constitution. It’s democracy.

I also don’t have a problem with an actor being the governor of California. Movies and TV represent one of California’s most important industries. It’s entirely appropriate for someone who works in an industry that brings billions of dollars into California to be its governor.

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I can't help but note the huge margin by which Arnold won the election. I notice some anti-Arnold bloggers from California whining about the complicated ballot, such as Chris Mooney, but apparently a big majority figured out how to vote properly.

Over at CBS Marketwatch, Thom Calandra writes about Ashanti Goldfields (NYSE: ASL, LSE: AGLS) and includes a transcript of an interview he conducted with Sam Jonah, Ashanti's CEO (see Jonah sees Ashanti as African passport ). Interesting reading for those following the takeover battle between Randgold Resources (NASDAQ: GOLD, LSE: RRS, JSE: RNG) and AngloGold (NYSE: AU, ASX: AGG, JSE: ANG).

China, which is already the world's fourth largest gold consumer, could become the biggest in two years once gold trading is made available to all of its population (see FT: Global jitters give gold new glitter). This Chinese angle is sounding more and more bullish for gold prices.

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There's an excellent article at Mineweb comparing valuations of various gold stocks (see The crowded intermediate gold space). I suppose I'm a day late in linking to it.

Northgate Exploration (AMEX: NGX, TSX: NGX) looks like it might be worth a look given its lower valuation compared to its peers. Northgate's production comes entirely from its Kemess South mine in British Columbia, Canada, so Northgate has less political risk than companies doing business in places like South Africa and Russia.

An article appearing today at Mineweb informs us that with respect to gold prices, the "bloodletting" may not yet be over. "[T]he worst may still be to come." (See Gold not out of the woods.)

Of course, one should not put too much stock in so-called "expert" opinions.

In his weekly Contrarian Chronicles column, Bill Fleckenstein brags that he sold gold last week. Hmm, I didn't get that out of his last week's column. But he still holds his Newmont Mining (NYSE: NEM) position. Apparently he just sold bullion or futures (not clear which). He says "I am now watching closely for where I want to re-establish my position."

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An article at the BBC hypothesizes that gold futures trading in India will increase demand for gold (see Indian villagers to trade gold futures).

Mahendra Sharma, the astrolger and prophet, has issued another news flash (see Fall in gold? Supreme is wearing golden crown...). Mahendra says that he was surprised by the sharp drop in gold prices on Friday, but he still insists that gold will cross $400 soon.

Mahendra says that the drop in prices will help clear out the weak hands (sometimes he sounds more like a technical analyst than a prophet). "Gold is not stock market, currency or technology, it is from the nature and beloved of supreme." Supreme what, I wonder?

Mahenra also predicts that next week will be bad for the stock market. He writes "next week look very scary, means sudden fall any time in during the week."

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Israel bombed an Islamic Jihad training base in Syria, in response to a suicide bombing on Saturday which killed nineteen people and wounded fifty-five (see AP: Israel bombs alleged terror base in Syria).

On September 15, Mahendra wrote "For Israel and Palestine bad period until 12 December, Major conflict is coming." It looks like Mahendra was right on target with this one! Maybe he does have some kind of prophetic ability.

There are some who say that war in the Middle East would be good for gold prices, and this might be true, although there is no evidence of this from our invasion of Iraq. I say that war in the Middle East is more likely to benefit oil prices, and this is why I own several oil and gas stocks in addition to gold stocks. I prefer smallcap oil and gas stocks based in the United States and Canada. My favorites are Abraxas Petroleum (AMEX: ABP), Denbury Resources (NYSE: DNR), Vintage Petroleum (NYSE: VPI) and Aspen Group Resources (Pink Sheets: ASPGF, TSX: ASR). Trading on the Pink Sheets, Aspen is difficult for U.S. investors to buy, but hopefully Aspen will be relisted on the OTCBB soon.

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This seems to be the day to keep track of Mahendra's past predictions. He predicted that hurricane Isabel wouldn't cause much damage. I say that this is another solid success for Mahendra. According to the Baltimore Business Journal, "A national insurance group has estimated Isabel will cost private insurers $1 billion, a total that won't come close to the highest-priced storm on record -- the $15.5 billion paid out for Hurricane Andrew in 1992. Isabel appeared to be even less damaging than Hurricane Floyd, which struck in 1999 at a cost of $2 billion to insurers. " (See Experts: Insurers will not suffer from Isabel.)

Mahendra also predicted that Arnold Schwarzenegger would be the next governor of California. Polls showed that Arnold had a commanding lead, but that was before half the women in the state of California publicly claimed that Arnold groped them. This didn't stop Clinton from getting elected, so there's no reason to assume that it will stop Arnold from being elected.