For Gold, The Stories Are Beginning To Add Up

For gold, the stories are beginning to add up. Things are heating up for the dollar and for gold.  A new run at $1000 per ounce is coming soon and this time it will most likely stick!  The key to this action are the stories that are beginning to surface about the dollar and the economy.  The whole mess is beginning to unravel, so for gold, the stories are beginning to add up.

Gold is biding it’s time while chaos is slowly unwinding around it.  It is clearly a tribute to those powerful pro fiat currency hands shorting gold that they have managed to keep the game afoot as long as they have, but time is running out and the $1,000 per ounce level will fade away no later than the fourth quarter ’09.  One of the main reasons that this manipulation is successful is the relatively small size of the gold market and the desperate position that the world’s central banks find themselves in due to the derivatives markets.

If you do your own research you will find the various pieces of the puzzle that are pointing to a second down turn in this recession.  The unprecedented infusion of capital brought about by the central bank’s policy of quantitative easing is creating a liquidity bubble that will only end with massive inflation.  All the Fed has done so far is move the derivatives time bomb to a side shelf and delay the inevitable unwinding that has to come once the derivatives reach their true value which will be way less than what the taxpayers have gone on the hook for.

It is a shame that the government run press will not get off their socialist butts and do the job that the fourth estate was intended to do:  i.e. go  out and follow the story no matter where it leads and report the truth. Because we don’t have that kind of press, we just have to go from source to source and ferret out the truth on our own.  As a rule, one report does not tell the whole story, but we are seeing more and more reports that are pointing in the same direction and that direction is down for the U.S. dollar.  As the dollar goes down, gold will rise to reflect the loss of purchasing power that will come with the declining dollar.

Monthly unemployment continuing in the mid 500 thousand range will keep retail sales down and despite all the hype about new housing starts, housing is still in deep trouble with most of the sales being from the  “short” variety.  The government is nationalizing everything that it can and is printing funny money to pay for it.  At some point this downward spiral will accelerate. This Rockefeller Institute report highlights the the next step down.

State Tax Revenues Across U.S. Experience Largest Decline on Record, New Rockefeller Institute Report Shows

“Taxes collected by the 50 states dropped by 11.7 percent overall during the first quarter of 2009, compared to the same period a year earlier the largest such decline in the 46 years for which quarterly data are available, according to the latest report on state finances from the Rockefeller Institute of Government.”

Full First-Quarter 2009 Report on All 50 States Reveals Sharpest Revenue Drop in the 46 Years for Which Quarterly Data Are Available

The bold print is mine.  I not really sure that it is needed, but it looks cool and makes the point.  Even if the Fed wants to slow down the printing presses, which I doubt that they do, the situation is taking control of them, not the other way around as they profess.

Speaking of the Fed, take a look at some of the recent testimony by Ben Bernanke.  He is the Fed Chairman and he doesn’t know to whom the money went. This video is absolutely incredible.  Representative Alan Grayson, Dem. Florida, openly laughs at Ben Bernanke’s statements regarding loans to foreign banks that were part of the attempt to stem the financial crisis.  You can literally see  Bernanke squirm as he searches for answers to Rep. Grayson’s questions.  Both the Fed and the current administration have absolutely no idea how to stop this financial meltdown.  Mark my words, actions like this and the the unwinding of the derivatives markets are going to make the first phase of the financial crisis look like kindergarten!

I’ve watched this three or four times and every time I have the same stunned reaction.  This should be front page news and the lead on all the network news and I have to stumble upon it on youtube.  The same people who had no clue that the problem was brewing have been put in charge of solving it!  Only in America!

24 Trillion Reasons To Buy Gold

July 21, 2009,  Jason Hamlin

It is a worst case scenario, but Neil Barofsky, the inspector general for the Troubled Asset Relief Program, has said the bailouts, bank rescues and other economic lifelines could end up costing the federal government as much as $23.7 Trillion. To put this number into perspective, it is nearly double the nation’s entire economic output for a year, more than the cost of all the wars the United States has ever fought combined and the most the federal government has spent on any single effort in American history. It is about $80,000 for every U.S. citizen.

Printing and borrowing $800 billion to hand over to the banks with no strings attached never seemed like a good idea. We wrote about it back in October of 2008. And despite some 80% of Americans being against the bailouts, our elected officials decided to hand over taxpayer money to their banker buddies anyway.

A soon-to-be released report by special inspector general Neil Barofsky finds:

“Many of the banks that got federal aid to support increased lending have instead used some of the money to make investments, repay debts or buy other banks. It is not clear whether the report will also disclose the banks use of the bailout money to pay executives fat bonuses which they used to buy gold toilets and prostitutes, and to lobby Congress to stop meaningful reform.”

It is infuriating and does not bode well for the U.S. dollar or our economic future. There is a point on the horizon when foreign governments and banks are going to stop buying our debt and holding our dollars. First we had news that the 2009 deficit had already topped $1 Trillion for the first time in history.  As if that wasn’t bad enough, the sticker shock from this latest estimate is really going to upset some of our Eastern trading partners.

A figure like $24 Trillion just might be the breaking point for an already furious Chinese administration that has thus far been willing to support the dollar and our government’s spending binge for fear of losing American consumer demand. The tipping point comes when it is no longer worthwhile for China, Japan and others to continue financing America and propping up our sick economy. While I used to believe that point was still a few years away, it now seems to be rushing upon us full throttle.

This of course is going to lead to a massive sell off in the dollar and fireworks for precious metals. If you aren’t already invested in gold and silver, this is likely your last chance to buy gold for under $1,000 and trade in those paper promises for something of real tangible value that cannot be printed out of thin air. When the dollar collapse begins, I expect the drop to be fast and furious. Savvy investors will want to be positioned well before the bottom falls out.

The cost of the government’s financial-crisis-related bailouts and guarantees currently exceeds $13,500,000,000,000.00, which is 200 times larger than the Madoff scandal. And the nation’s unfunded contingent liabilities, for programs such as Social Security, Medicare, Medicaid, government pensions and the like stand at $75,000,000,000,000.00, 1,150 times larger than Madoff’s fraud. They should let Madoff out of jail and put him in charge of the Treasury. Maybe America could get some relief.

Of course, these numbers make laughable the government’s righteous indignation and shocked disbelief that a “Ponzi scheme!” as “large” as Madoff’s could have operated in the United States. The government’s response is a textbook example of the intelligence industry’s attention-diverting technique known as misdirection.

In June, 2009, the Congressional Budget Office, a government entity, issued its “Long Term Budget Outlook” for the period 2010 through 2080. The executive summary begins with these words: “Under current law, the federal budget is on an unsustainable path — meaning that federal debt will continue to grow much faster than the economy over the long run.”

While that statement might seem stark, it is the verbal equivalent of morphine compared with the actual numbers in the CBO’s long term budget projection, which are nothing short of terrifying.

According to the CBO, over the next SEVENTY fiscal years, the federal government will NEVER have a surplus. Rather, the United States will continue to suffer massive, escalating, multi-hundred billion dollar losses (“deficits”) each and every year for the next SEVEN DECADES, which is when the budget projection stops. Under both CBO budget scenarios (catastrophic and worse-than-catastrophic), losses in fiscal year 2080 will be the largest of the entire 70 year series, meaning that the budget crisis will continue well beyond 2080. In the best case, the 2080 loss will be 17.8% of GDP; in the worst case, it will be 42.8% of GDP. To put this in context, the 2009 federal budget loss is projected to be 11.9%, in this, the worst financial crisis in American history. So 2080 will be 50 -- 300% worse than now. Who the CBO thinks will fund these trillions of dollars’ worth of forever losses, they do not say. Apparently, America is headed back to the Stone Age, thanks to our profligate politicians and corrupt financial elite.

Every week there are more and more signs that the U.S. Government’s Ponzi scheme is getting closer to unraveling.  I see very little downside for gold and gold stocks at this time.  It’s possible that the per ounce price of gold may get forced down to $850 or even $820 for a short time, but looking at the big picture, it won’t be there for long.  Now is the time to accumulate both gold coins/bullion and gold stocks.  I am convinced that gold will move past the $1000 per ounce mark and stay above it no later than the end of 2009.  It is vital to accumulate gold and silver coins before the end of the year because this will be the last time to get gold for under $1,000 per ounce for many years.

Speaking of Gold Stocks!

Kinross Gold has been on the move and it looks like this is only the beginning. The last two weeks KGC has been performing well in a market where gold has been stuck in a trading range. Once gold moves through $960, institutional buyers should propel Kinross higher.

Kinross In Demand

Author: Barry Sergeant
Posted:  Friday , 24 Jul 2009

JOHANNESBURG -

Kinross Gold has recently assumed stock price leadership of the loosely-defined Tier 1 global gold stocks sector, which includes 12 names with an aggregate market value of just under $200bn. Kinross’s NYSE stock price displays 12-month lows and highs of $6.85 and $20.98 a share, with current trades around the $20.28 mark, and with indications of a higher opening on Friday.

Barrick, the world’s biggest gold miner by value and production, is trading nearly a quarter below its 12-month high. Kinross was one gold stock chosen for investment this year by US hedge fund Paulson & Co. Inc., which famously scored gains of $3.7bn betting against (mainly US) banks in 2007 and 2008. On the latest available information, Paulson & Co. holds around 10% of the SPDR Gold Shares ETF,  equal to about 109 tonnes of the physical metal. At the latest count also, Paulson & Co. held 2.6% of  Gold Fields,  4.4% of  Kinross,  11.2% of just-in-production  Centamin Egypt,  and 11% of  AngloGold Ashanti.

Anglo American, AngloGold Ashanti’s erstwhile parent company, sold down  $434m in AngloGold Ashanti earlier this year, followed by a final exit sale on 17 March in which $1.28bn was realized for Anglo American; the stock in that deal was bought by Paulson & Co., and from that time, AngloGold Ashanti pretty much since stayed at the top of the global Tier 1 gold stocks price-demand roost.

This is by no means the first time that Kinross, which mines across the Americas and also in Russia, has re assumed its leadership. In the past number of years, Kinross has transformed itself from a stodgy, higher cost gold producer to one that increasingly reports lower costs, along with a highly convincing longer term growth profile. (I added the bold because it’s important!)

For first quarter 2009, Kinross  reported gold equivalent production (which includes silver, but no other metals) of 526,888 gold equivalent ounces, 59% above the year-ago period’s 331,784 ounces. Cost of sales per gold equivalent ounce was $419 in the first quarter, a decrease of 11% compared with the number for the year-ago period. The attributable margin per ounce sold was a record $478 in the first quarter of 2009, an increase of 5% over the year-ago quarter.

The cost of sales margin for Kinross increased from $105 an ounce in 2002 to $279 in 2006, and continued further rapid expansion to $436 an ounce in 2009, and $478 during the first quarter of 2009. During 2008, Kinross moved into the bottom quartile of the global gold industry cost curve, against the trend of rising costs and declining production.

Looking at assets acquired during the Kinross transformation, the Paracatu  open pit mine in Brazil moved partially into the Kinross stable in January 2003, on completion of the combination with TVX; in December 2004, Kinross completed the purchase of the remaining 51% of Paracatu from Rio Tinto. Paracatu, a huge deposit and now mine, started up production this year; phase III is scheduled to start up in 2011.

In Chile, Kinross acquired its original 50% interest and became operator of the Maricunga  mine through the Kinam merger in June 1998. In February 2007, the balance of 50% for Kinross to become 100% owner arose through the acquisition of Bema Gold. Production is scheduled to start up during 2011.

The TVX transaction in January 2003 saw Kinross acquire 50% of the  La Coipa  open pit mine; in December 2007, the remaining 50% was acquired from Goldcorp. Kinross acquired 49% in Cerro Casale  in the Atacama region, Chile in February 2007, through acquisition of Bema Gold;  Barrick holds the remaining 51% interest. Production at the huge project is scheduled to start up in 2012 through 2013.

Kinross: selected gold resources
M ounces	Proven	Indicated	Inferred	Total
Kettle River	1.019			1.019
Cerro Casale	10.405	2.208		12.613
La Coipa	0.604	0.825		1.429
Maricunga	6.541	2.290		8.831
Paracatu	18.162	4.267		22.429
Kupol	3.107	0.009		3.116
Fruta del Norte			13.690	13.690
Total				63.127
Source: Kinross

Kinross is a very interesting stock that I feel I have been involved with for over fifteen years because I owned Bema, TVX and I currently own Goldcorp and Kinross.  Sometime you just have to follow good properties and management.  As always, due your own due diligence before purchasing or selling any stocks.  I list the stocks I like here and it is up to you to figure out whether they are right for you.  In my opinion, when gold goes and stays through $1,00o per ounce,  Kinross will really shine.

Keep looking for the stories that are reporting what is really happening in the world’s financial markets because things are really accelerating now and for gold, the stories are beginning to add up.

Till next time, good luck and good trading!

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