Gold and Silver Blog

The world's third largest gold nugget, weighing 500 ounces, was found in Dunolly, Australia's sewerage system (see Herald Sun: Nugget rumours spark gold fever).

I guess it's a slow day for gold news if that's all I could come up with...

An article at Mineweb explains how gold mining companies have many new projects underway, which are profitable at current gold prices, so declining gold production isn't going to cotinue (see Don't count on declining gold production).

"If you’re betting on a prolonged or permanent downshift in new gold mine production, the odds are against you. The miners know where years and years of gold supply exists and they can extract it fairly quickly at the right prices. The price looks as right as it can for many of those projects."

It's well worth reading the whole article. It includes a chart of near-term and long-term gold projects.

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Mineweb also has another gloomy article about the profitability of the South African gold mining industry (see SA gold industry underwater).

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Newmont gold's Pierre Lassonde explains why his company doesn't want to invest in Russia, despite all the great gold deposits over there: "We are very circumspect in terms of Russia. Security of title is the absolute single most important issue in our industry. You need to have the assurance that you can go to court to defend that title" (see Reuters: Gold-miner Newmont says has no Russian ambitions).

A warning worth pondering for those considering investing in companies with a promise of making big money in Russian resources.

At my Calico Cat blog, I posted an article entitled Why voters support tax cuts.

Today's Wall Street Journal reports that George W. Bush will push for free-floating Asian currencies on his seven day trip to the region which begins on Friday.

The Democrats say that Bush has abandoned American Factory owners and workers (who can't compete with the dollar being strong).

The article says that Chinese officlas have made it clear that they won'd budge on the currency issue, and the other Asian nations such as Japan and South Korea are reluctant to let their currencies weaken. (See Bush Expected to Renew Push For Free-Floating Currencies - link won't work without subscription.)

I don't think that a weak dollar would help the United States out. The U.S. makes money by providing capital to the rest of the world. No matter how much the dollar weakens, there will still be workers in China willing to work for a fraction of what U.S. workers get paid. The U.S. dollar is the world's reserve currency (a position that gold used to have). If a falling dollar causes the rest of the world to lose faith in the dollar, the effect could be a frightening devaluation that would be financially painful for the U.S.

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Gold is no longer the prestigious color for credit cards that it used to be. Now, the credit card companies are making their highest end credit cards black (see TheStraitsTimes: Gold loses its allure as black becomes the colour of money).

Prime Minister of Malaysia, Datuk Seri Dr Matahir Mohmad, urges a rapid adoption of the gold Dinar. "Dr Mahathir said it was immaterial if not all [Organisation of the Islamic Conference] members could work with one another. 'So long as two countries can work together, let's work. Eventually we'll expand and eventually, we'll be able to involve all ... countries,' he added" (see Daily Edge: Dr M: Only 2 countries needed to trade with gold Dinar).

Adoption of the gold Dinar by Islamic countries would likely be bullish for gold prices.

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It's amazing that people are taking seriously that Cliff Drokes article about how the new $20 bill is some kind of sinister conspiracy. Someone at Gold Eagle determined it was worthy of being published, people have talked about it on the internet (including me, I suppose), and there's another article at Gold Eagle, written by Bill Haynes, which basically says how stupid Cliff Drokes' hypothesis is (see Cliff Droke Rebutted).

Mineweb reports that "[t]he momentum is building for a troika of business, unions and the Minerals and Energy minister, Phumzile Mlambo-Ngcuka, to meet to discuss job losses, as tens of thousands of jobs are threatened by the strong currency" (see Job losses spark summit calls). Hopefully this "troika" will happen and they will agree on something that will increase mining company profitability.

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Mark Wellesley-Wood of Durban Roodepoort Deep says that, following the Porgera deal, DRD will produce around 260,000 ounces in the Australasian region. (see Dow Jones Business News: South Africa's DRD Says Placer Deal Will Help M&A Plans ). Given the instability in S.A., it sounds good that DRD is diversifying geographically.

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It looks more likely that AngloGold is going to wind up with Ashanti. AngloGold added $150 million to its offer, and Lonmin, Ashanti's largest shareholder, supports the AngloGold offer (see AngloGold adds $150m seal to Ashanti). If I wanted to be a longterm shareholder in the new company, I'd vote for AngloGold also; I just don't trust Roger Kebble.

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There are some who believe that the Bundesbank announcement from Monday represents not a genuine desire to sell gold, but only a desire to talk down the price.

Durban Roodepoort Deep (NASDAQ: DROOY, ASX: DRD, JSE: DUR) expands further into Australasia with the acquisition of a 20% interest in the Porgera Gold Mine in Papua New Guinea for $73.8 million USD. This breaks down to $52.7 million in cash and $21.1 million of new shares that DRD will issue (see press release).

75% of this mine is owned by Placer Dome. The press releases says that this mine produced over 10 million ounces of gold since 1990. I presume this means 769,000 oz per year, which gives DRD an extra 153,000 oz per year.

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Barrick Gold (NYSE: ABX) has acquired 10% of Russian company Highland Gold, which is part of the 31.7% sold by Harmony Gold (NYSE: HMY). Barrick will also buy an additional stake directly from Highland, so will ultimately wind up with a 29% stake in the company (see press release).

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Errata: a reader pointed out to me an error in my explanation of the Bundesbank article related to the amount of gold that would be sold; the Bundesbank would sell 400 to 600 tons over the life of a new five year agreement. I corrected my earlier post.

The Bundesbank is considering selling 400 to 600 tons of gold between 2004 and 2009. But this depends upon a change of current German laws, as well as what limits on gold sales will be agreed upon when the central banks meet in the Spring to discuss renewal of the Washington Agreement. Boersen Zeitung reports that the new agreement will likely increase gold sales by 10 to 15% over the current agreement. (See Reuters: Buba eyes 400-600 tonne gold sale in new pact-paper).

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Thom Calandra writes about global economist and fund manager, Marc Faber, who is also known as Doctor Doom. Mr. Faber believes that Chinese demand is the key to predicting that certain commodities will be good investments for the future. "Faber says most of the world isn't paying attention to a looming boom in hard goods, fueled by a manic China that's famished for copper, platinum, nickel, timber and gold." (See The doctor of doom is in.)

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At my Calico Cat blog, I posted an article entitled The "jobless recovery" and foreign competition.

*** Prophecy alert! ***

The astrologer and prophet Mahendra Sharma predicts that there may be a stock market crash on Friday October 17th or Monday October 20th. (See Major crash is coming in USA stock market on 17th or 20th Oct?? ). An unusually specific prediction from Mahendra: I wonder if I should buy put options?

Mahendra also predicts that Ariel Sharon, the prime minister of Israel, will be removed from office in six months.

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President Thabo Mbeki of South Africa says that the problem with South African mining companies is not the strong rand, but bad management. Mineweb issued a harsh editorial disagreeing with Mbeki. Included is a chart which shows that profitability/kg for South African gold mining companies is the same as it was back in 2000 when gold was $283/oz. The rising rand, plus increased costs (I presume due to costs of black empowerment), have eaten up all the expected profits from the US dollar increase in the price of gold. (See Mbeki's rand attack).

I should add that even though profitability is back to 2000 levels, Durban Roodepoort Deep (NASDAQ: DROOY, JSE: DUR) , my favorite gold stock, is worth far more than in 2000 because DRD has used the profits during the good years to pay off debt and eliminate bad hedges. DRD is not on the edge of bankruptcy like it was three years ago.

At my other blog, The Calico Cat, I wrote about the possibility that the 34% rise in the U.S. stock market since last October may be indicative of an echo bubble. Click here to read that post.

South Africa's National Union of Mineworkers (NUM) says that South Africa's mining companies are using the strong rand as an "excuse" to cut jobs (see NUM lambastes rand 'excuse'). If you have been following this blog, you know about the job cuts at Durban Roodepoort Deep, and announced job cuts at Harmony Gold and De Beers.

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In an interview with Michael Cuggino, the president and portfolio manager of Permanent Portfolio Family of Funds, he reveals that his secret to high performance has been his investements in gold mining stocks (see Newsday: After Some Uncertainty, Gold Has Become Solid). Perhaps more stories like this will help push the new bold bull market forward.

Another New York City newspaper also offers some positive comments about gold, with a few quotes from New York financial commentator James Grant (see NY Post: Now gold bus finally get a win).

Finally, and most importantly, the New York Times has a bullish article on gold in its Sunday business section (see New Glamour for an Old-Fashioned Asset ).