A tale of two commodities

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Gold is not really a commodity, it has other merits – it is a precious metal and is increasingly seen again as real money, a reserve asset suitable for institutions and individuals.

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Therefore, if we want to see what is moving the commodity index (as measured by CRB) we easily find that Oil is the heavy weighted commodity that leads the market. In fact, when we observe the charts the conclusion appears clear as water.

Only one significant doubt remains: Where do we find a short term bottom for Oil?

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Breaking 590 is hard work!

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Have we seen the bottom for now as Gold spot is under 590? I wouldn´t bet on that yet. Nevertheless, we can see some good signs – strong demand, price strength when other commodities are weakening (CRB chart). But only when Gold breaks 590 and then 600 we will be more enthusiastic.

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Our stocks

Dear Gold Portfolio

It is an excellent time to buy junior miners.

Cumberland Resources (CLG) is firmly above 4.80 support all the way during gold sell off. The company is on the final stage of the development of a major gold mine (Meadowbank), Canada’s Largest Pure Gold Open Pit.

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ECU Silver Mining (ECU.V) is continuing exploration program of the Santa Juana mine in Mexico with encouraging results so far.

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Buy 500 Cumberland Resources (CLG) at 5.70
Buy 500 ECU Silver Mining (ECU.V) at 3.10

Sellers beware

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Following September 5th false breakout we had a devastating sell off that is likely not done yet. Nevertheless, we are already in a very extending stance for Gold. While not trying to guess bottoms, we must watch carefully any future buy signal.

As Gold continues to show weakness the setup on the daily chart may point to a near bottom. I think downside risk stays around 570/572 level. Though RSI(12) is already under 30 we may see some consolidation followed by a test to the 542 level. If this is to happen and Gold bounce back up then I believe a rally will follow.

Silver has a similar story and though it has a more substantial downside risk, at this juncture it is likely to go along with Gold.

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Long term is not so far away!

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We are comfortably in a long term bull market for Gold. The weekly chart helps us clarify any doubts. Look at the EMA(60), a real and very strong support the whole time, and the RSI(28) that never tumbled under 50.

There is another issue I´d like to emphasize: very powerful hands are surely trying to push down Gold and supporting the US Dollar until November elections. But Gold market strength is keeping up and it will do much better afterwards.

Our stocks

Dear Gold Portfolio

Buying weakness...

Buy 1.000 Canarc Resource (CRCUF) at 0.68

Junior Gold companies (CANARC RESOURCE)

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Canarc Resource Corp. (CRCUF: OTC-BB) is a gold exploration and mining company focused on the discovery and development of large gold deposits in North, Central and South America. Its principal assets include the high-grade New Polaris gold mine project in Canada, the large Benzdorp gold exploration property in Suriname and a production royalty on the new Bellavista gold mine in Costa Rica.

New Polaris has a major pre-feasibility program now underway and recent exploration on the Benzdorp property has identified several attractive gold prospect areas for drilling.

Canarc has no financially problems and major shareholders include Barrick Gold and Kinross Gold Corp.

CRCUF price movement make us believe it has great upside potential tough its shares are naturally speculative.

“Falling knife”

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Softening world problems lead oil prices to tumble. Gold and gold stocks sell off (as Silver and other metals). It seems the ongoing deep correction was in the cards. But the field is clearing and some buying opportunities are arriving. It is advisable to pay good attention.

As the larger and better companies were the most affected it is interesting to observe Newmont Mining chart. The near future is promising…

Our stocks

Dear Gold Portfolio

Gold is dropping and it is not so bad to buy weakness when it is likely to be short-lived.

Buy 300 Ivanhoe Mines (IVN) at 7.05
Buy 1.500 Pacific Rim Mining (PMU) at 0.85

Dollar at risk

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The US Dollar (USD) is a sort of enigma nowadays. It´s like the USA debt currency but still is a kind of world cash. Anyway, I think a monumental Head and Shoulders top pattern is developing (H - 92.63; S1 – 85.44; S2 – 87.33). Breakdown of potential neckline at 84 targets 72 level. On this outcome, Gold will be climbing fast in parallel. But we have to wait and see if the pattern stands and is really activated.

As a matter of fact if Gold could manage to go up during 2005 with a climbing USD I am curious to see the real upside potential for Gold on the context of a descending USD. On the short term USD is holding and even showing good strength but in my opinion this is not sustainable.

On a possible world crisis, USD is everything but a good option as it surely will fall behind due to recession, lower interest rates and several imbalances.

Gold consolidation is not done

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Today we saw the expected downside follow-through from 617 on Gold. Yes, I think that Tuesday strength was only a tentative breakout and seems like the consolidation pattern remains. Gold may yet drop a bit with a downside risk not lower than 580. But I don´t really think it is going there as this time of the year is usually good for Gold.

Junior Gold companies (IVANHOE MINES)

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Ivanhoe Mines (IVN) key asset is the Oyu Tolgoi Project, the world's largest copper-gold development project located in the south Gobi region of Mongolia, 80 km north of the China border. Ivanhoe also controls exploration rights in Mongolia, where additional discoveries of coal, copper and gold are being delineated, and is exploring for gold and copper in Inner Mongolia, China, and Queensland, Australia.

Ivanhoe Mines is a 50%-owner of the Monywa Copper Mine in Myanmar, and has a 70% interest in the Bakyrchik Gold Mine in Kazakhstan.

The Mongolian Government is negotiating with Ivanhoe Mines on a formal agreement that will set a tax, financial and legal 30-year framework for the Oyu Tolgoi copper-gold mining project in the country. Mine life is projected at 40 years with an annual production of 1 billion pounds of copper and 330,000 ounces of gold. Ivanhoe’s negotiation process is also expected to cover whether the Mongolian Government or a future state-owned mining company would exercise an option of up to 34% ownership of the Oyu Tolgoi project. Currently, Ivanhoe owns 100% of the project.

After a huge fall in May with a tremendous gap down (after the approval of a new tax measure, currently under renegotiation), IVN was trading on a deep downtrend with prices under EMA50 and EMA200. But on the beginning of September, despite a weakening Gold, the price is breaking up (closed today at 6.87 on strength) and if it manages to exceed 7.00 and 8.00 resistances, the gap will be certainly closed and price may be headed to revisit 10.57.

Topics worthy of note

(Mineweb.com)

Highland Gold blamed by Russian official for mine fire

The exact cause of the fire has yet to be established but according to first reports it was caused by welding works being undertaken in the shaft. An estimated 64 miners were trapped underground at the time. Thirty-one were quickly evacuated to the surface, 12 bodies have been recovered and 21 miners are missing and still being sought by rescue workers at the site. Highland Gold operates both an open pit at the site and an underground mine, but due to inadequate stope development and a shortage of experienced development miners only 11,761 ounces were reported as recovered at the mine in the six months to June 30 (one-third of the company's production target). With a current market capitalization of GB£260 million, Highland's share price hit peak in February of this year at 330 pence and it has been falling since then (started Friday trading in London 8% down approaching 159).

World diamond prices are softening

The International Diamond Exchange (IDEX) reported this week that world diamond prices are softening due to high jewelry industry debt, combined with slowing diamond demand. For the first time in recent history, the price of 1.5 carat and 2-carat polished diamond “fell below the same period a year ago,” according to IDEX. “In short, the diamond price weakness which first affected the smaller stones has now begun to affect larger stone sizes.” Nevertheless, prices of larger solid diamonds - 4 carats and 5 carats in size, which represents an aggregate of about 1% of the market - continue to show solid gains.

Market determination

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Among other important aspects, geopolitical problems (which have calmed for now) are a critical factor for gold. And it is a key issue for oil that has been dropping heavily for more than a month in parallel with world troubles softening. This situation sooner or later would hit Gold as it did today (and other markets as well).

In the charts we see oil stretching to the downside, even under EMA200, and Gold back to the 616 zone.

Let´s see what kind of weakness we may still observe on the near future.

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NORTHGATE MINERALS in brief

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Virtually a case study...

Northgate Minerals Corporation (changed the name from Northgate Exploration) is a gold and copper mining company, whose principal assets are the 300,000 ounce per year Kemess South mine in British Columbia, the adjacent Kemess North deposit of 4.1 million ounces of gold and the Young-Davidson property in northern Ontario with a total resource base of 1.5 million ounces of gold. Northgate is listed on the Toronto Stock Exchange and on the AMEX (NXG).

In 2005, Northgate had a net profit of $32,9 million, 5% more than in the previous year.

In the first half of 2006 recorded a net profit of $77,9 million and sales of $199,8 million compared with a loss of $13,8 million and sales of $97 million during the corresponding half of 2005.

Northgate has small and decreasing gold and copper forward sales commitments and its financial structure is sound. The ratio of debt to equity is .276, which is excellent.

Even deducting a $17 million non-cash future income tax recovery included in the net earnings for the second quarter of 2006, we arrive to net earnings per diluted share of $0.173 in that quarter. Assuming that the company performance and the price of gold remain the same (which is very modest) we get a PER of 5,8 for the next twelve months (with the present share price). This is extremely favourable and probably unique for the mining sector.

Northgate shares have been climbing since a minimum of 0.92 (May 2005) and could manage to reach 4.82 just one year later. Then a huge correction followed and after a consistent consolidation the share price is now tying to break the 4.00 level. If it succeeds the price may be headed to new all time highs.

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Carteira do Blog

With no cash left I must sell half of my Agnico position in order to buy what I think is a hot stock (at least on the medium term).

Sell 250 Agnico Eagle (AEM) at 38.50
Buy 2.000 Northgate Minerals (NXG) at 4.03

Dear Gold Portfolio

Today I´m going to buy shares of two junior gold miners that are presently on different stages of project development. Shortly, I will publish here a brief analysis of both.

Buy 700 Miramar Mining (MNG) at 4.65
Buy 3.000 Abcourt Mines (ABI.V) at 0.76

Oil price fall

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Three big oil companies (Chevron, Devon and Statoil) said yesterday that a new well in the Gulf of Mexico, 175 miles off Louisiana's coast, could boost U.S. oil and gas reserves by up to 50%. Though energy stocks rose, oil price fall reflects the end of the summer driving season and the oil find in the Gulf.

Oil is aproaching support at 66/67 after a very weak month.

Gold and HUI

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Gold chart looks good and I believe we are going to see a new intermediate uptrend that could challenge May highs, not a wider range of the consolidation pattern.

And HUI chart looks even better as Gold stocks always take the lead. MACD is giving a fine signal.

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Signs of action

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At last we could see some real action on precious metals. Today Gold showed strength when tried to breakout 640 level, which also meant a break to the upside of the triangle formation. But Gold couldn´t have complete success though it was trading above EMA50. All this happened in parallel with a climbing USD which is more signifying.

Silver continues to move well above the 12.60 level broken last week. We have to be patient with Silver because its enormous potential lives side by side with tremendous volatility, which may give some discomfort. But as sentiment remains positive we have to understand that breaking 13.20 today would be surely an almost impossible task.

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Dear Gold Portfolio

Following my analysis it´s time to hold some stocks of this junior gold miner. So, today at the open:

Buy 2.500 StrataGold Corp (SGV.TO) at 1.26

Junior Gold companies (StrataGold Corp)

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StrataGold Corporation (SGV.TO), listed in the Toronto Stock Exchange, is a gold development company focused on advancing two gold projects to production. In 2004, StrataGold acquired two advanced stage gold project, the 1,425 hectare Tassawini property located in Guyana, South America, and the Dublin Gulch and Clear Creek properties in Yukon, Canada.

StrataGold has strong institutional shareholder base, including institutional funds in both North America and Europe, and Newmont Canada (which owns13,4% of the company).

StrataGold has become a public mineral exploration company on November 7, 2003 following an IPO at C$0.40 per share.

Since an intermediate minimum in May of 2005 (C$0.31), its share price climbed to make a top in May at 1.70. Then a huge and healthy correction took prices to just 0.96 (end of August) in what appeared to be a real bottom. Now price action is very strong and have breakout both EMA200 and EMA50 heading to exceed resistance at 1.30.

Gold waiting, Silver running

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On a very calm day, Gold is just above 625, a magnet and a safe harbour until real action may return tomorrow.

Silver is feeling free to climb, celebrating Thursday break of an important obstacle. Let´s see if it holds above this level over the coming days.

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Topics worthy of note

» Escondida copper mine in Chile is expected to return to normal output levels in a week as workers have returned after 25-day strike. Last year Escondida produced 1.27 million metric tons, around 8% of global copper production. BHP Billiton controls Escondida with a 57.5% stake and Rio Tinto holds 30%.

» Mining company Gold Fields has reaffirmed the company's interest in the platinum sector although the company's core business will remain gold. Stating that the pgm sector could make up as much as 25 per cent of the company's business in the future, Gold Fields has so far centred its pgm interests on Finland and the Bushveld region of South Africa. Despite plans to increase platinum use in the automotive and industrial sectors, sales of platinum jewellery will be the key player in supporting prices over the coming years.

The worst month for stocks (S&P500)

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What now? As usual we have confident bulls and hopeful bears. But the truth is that only one side will be right. I was thinking to myself that the market is at a critical juncture and where we go from here may well be a surprise.

One thing is sure: September has proven to be the most difficult month for stocks.

Looking at the S&P500 daily chart we find two options for the near future. If we believe in tricky setups we may accept the inverted Head & Shoulders of May/July (Head at 1219.29 and Shoulders at 1245.34 and 1224.54). Even if it proves to be valid it is no big deal. On the other way, we have a signal given by MACD Histogram which tells us that a bearish divergence is in place as S&P 500 higher highs collide with Histogram lower highs.

I know exactly what you are thinking: things are clear if we keep it simple and just notice that a fine trend line is heading north and on the way of breaking 1311. There is only one problem: markets are everything but simple!...

A CRB warning

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Let´s pay some attention to the CRB (Reuters/Jefferies CRB Index) which includes the most important commodities. Precious Metals (as Gold) represent 17,6 % of the indice composition. The weekly CRB chart shows a strong bull market that matches with a similar ascending trendline for Gold. But we are seeing a certain weakness in the CRB and its RSI and MACD are not looking good. Since April 2001 it is the first time that the index broke under the EMA50. Maybe it is not very serious, as long as it doesn´t remain for too long and too deeply under 335/340 to do not invalidate the multi-year weekly trendline.

So, it is not a bad idea to monitor this situation in the weeks ahead.

Strong HUI, flat Gold

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The AMEX’s Gold BUGS Index (HUI), made up of the most important gold mining stocks that do not hedge their production, is trying do break a significant level. In fact, though Gold was flat today, HUI has managed to test for the third time 353.50 and if that resistance is broken more substantial gains will follow. Note that RSI is reversing its recent downtrend.

Our stocks

Carteira do Blog

It is time to diversify and get some stocks of a good uranium company I mentioned some days ago. I think Cameco is doing fine and has plenty of potential.

Buy 200 Cameco (CCJ) at 41.30

Dear Gold Portfolio

No action for now

S&P500 PE Ratio

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Today’s chart illustrates that the recent growth in earnings has led to a significantly lower PE ratio (now near 17). In fact, the PE ratio is currently within the confines of a tight and very steep downtrend. So while the significant earnings growth of late is a plus, the market does not appear willing to pay more for each dollar of earnings.

Very soon the markets will tell the real story...

Gold up and Silver bullish

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Gold continues a healthy consolidation which brought again an importante number I mentioned two weeks ago – 625. We are back to this level and Gold is sitting there waiting for more action after the 4th September…

At the same time, Silver did what I´ve posted earlier today – got the breakout of the last high on a closing basis. It may be very important and I´m lookimg forward to see tomorrow´s trading.

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World´s number one in Gold mining

Goldcorp Inc. (GG) and Glamis Gold Ltd. (GLG) announced today that they have agreed to combine in a US$21.3 billion transaction to create one of the world's largest gold mining companies. The new company will continue under the name Goldcorp Inc.

The acquisition of Glamis by Goldcorp is expected to be completed by way of a court approved Plan of Arrangement whereby each Glamis common share will be exchanged for 1.69 Goldcorp common shares representing a value of US$51.49 per share based upon the closing price of Goldcorp on August 30, 2006. After completion of the transaction, current Goldcorp shareholders will own approximately 60% of Goldcorp and current Glamis shareholders will own approximately 40%. It is expected that the transaction will close in November.

The combination has been approved by the boards of directors of Goldcorp and Glamis and will be subject, among other things, to the favourable vote of 66 2/3% of the Glamis common shares voted at a special meeting of shareholders called to approve the transaction.

The new Goldcorp will continue to be based in Vancouver and will have the best production growth profile among major gold companies, proven and probable reserves of approximately 41.1 million gold ounces, strong balance sheet and robust cash flow to finance growth and all gold reserves and production unhedged.

Silver – Short term Outlook

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Silver has higher highs and higher lows since June and a good consolidation is in place for the last 20 sessions. Last high at 12.68 has been touched twice during this period and as Silver is showing strength it needs to breakout that level to stay on a really bullish situation. If not we may see some weakness before going up as I think it will.

Gold and Silver

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The consumer confidence index dropped a bit but FED minutes manage to build some optimism for stocks. As interest rate increases are less probable, the USD went down and Gold reversed since 607 but couldn´t break 614 (that was the number for today!). Silver, which was also falling hard, had an amazing recovery and is now resting just above 12.20 support, showing again more strength. We have to pay good attention to it.

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Dear Gold Portfolio

My first virtual trade, at the opening today, will be:

Buy 1,000 Western Goldfields (WGDF) at 2.50

Junior Gold companies

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Trying to identify junior miners with exciting gold projects, I return to Western Goldfields (mentioned on this blog the August 2nd) whose stocks have commenced trading yesterday on the Toronto Stock Exchange under the symbol WGI. They are already listed on the Nasdaq OTB BB (symbol WGDF.OB).

Western Goldfields recently completed the Feasibility Study on the expansion of operations at the Mesquite Mine (located in Imperial County, California), which indicated proven and probable reserves of 2.36 million ounces of Gold.

The company estimates average annual production of 165,000 ounces, beginning in April 2008, with an initial project life of 9 ½ years. Nevertheless, there is excellent potential to increase the resources beyond the current estimates.

Gold at 614

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Like I said some days ago, Gold is now fighting with other important resistance at 614. Yesterday made a serious attempt to breakdown but couldn´t go far without the power needed to follow trough. Expect today another attempt to the downside.

A sleepy road?

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Gold began the day trying to flirt again with the 625 resistance. Last week, we had this story all the time, with that level playing first as a support and later as a resistance.

625 has been a real magnet in this short term battle. Gold is now well under that line and is loosing ground but trades within a narrow range, as little volatility is often typical of this time of the year until Labor Day.

But all the strength accumulated has to explode and it seems Gold is likely to go down. But make no mistake, if it is really falling to explore maybe the 600 zone, be prepared to a reversal shortly.

Don´t forget we are in a bull market in Gold…

Coeur d´Alene in brief

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Coeur d' Alene (CDE) is the world's largest primary silver producer and has a strong presence in gold.

CDE has mines in Nevada, Chile, Argentina, Australia and advanced development projects in Bolivia (San Bartolome Silver Mine, which is expecting reasonable governamental proposals to revise tax and royalty structures) and Alaska (Kensington Gold Mine has a temporary injunction that affects some construction).

For the first six months of 2006, the company reported record net income (excluding the sale of assets) of $33.9 million, or $0.12 per diluted share, compared to a net loss of $2.8 million for the same period of 2005. Metal sales increased 50 percent to $98.9 million from $65.7 million in the year-ago period.

CDE has a sound financial structure and a solid operating performance.

Shares of CDE after deep correction are consolidating and remain with a positive outlook. The company has a bullish chart pattern with an inverted Head (3.93) and Shoulders (4.41 and 4.32) confirmed with target to around 6.30.

Dear Gold Portfolio

I´ve decided to manage the Dear Gold Portfolio (USD 100,000), riskier than Carteira do Blog, for interesting start-ups based on chart analysis along with information about ongoing projects. A sizeable portion of the portfolio will be in gold stocks (around 60%) with the rest for mining companies exploring other metals.


Em paralelo com a Carteira do Blog, decidi criar uma carteira com uma tónica especulativa a que chamarei Dear Gold Portfolio, com vista a transacções relativas a acções de empresas com potencial e que estejam ainda na fase de estudo e preparação de projectos mineiros ou, no máximo, com as suas minas em início de produção.

Vou começar a preparar essa carteira que terá também um capital de 100.000 USD. As acções serão escolhidas com base na análise gráfica das respectivas cotações, mas sem nunca esquecer o acompanhamento da evolução dos seus projectos.

Esta carteira terá maioritariamente acções de empresas que explorem Ouro, com cerca de 60% do total, sendo a parte restante livremente destinada a empresas mineiras que produzam quaisquer outros metais.

A magia dos 50

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Só uma pequena nota a acompanhar a observação atenta do gráfico semanal do Ouro dos últimos três anos. Vejam como há aqui muito menos ruído, a tendência revela-se com toda a clareza e os indicadores dizem-nos coisas ainda mais perceptíveis.

E o Histograma é também aqui de verificação obrigatória. Nada de estranho a assinalar, por agora. E não se esqueçam que estamos nos domínios do médio prazo.

E aquela EMA50 tem sido um tratado de sutentação - parece mesmo o guarda do tesouro!...

Ouro & etc.

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Com o USD (DX) a subir lentamente durante toda a semana, o Ouro foi acompanhando o andamento do Petróleo, mas sem ter uma direcção própria bem vincada. Realmente, o Ouro não variou muito nos últimos cinco dias, não saindo de um range relativamente estreito.

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Hoje, o Ouro não tem conseguido acompanhar o Petróleo (ver último gráfico), e voltou a ter como resistência a linha de break de 625 (que durante a semana tanto serviu de resistência como de suporte). Foi a zona de atracção eleita da semana, um íman de que o Ouro não se conseguiu afastar muito.

Temos de concluir que não houve novidades com importância suficiente para fazer mexer o Ouro. O que faz supor que a energia agora contida vai ter que "explodir" mais tarde ou mais cedo.

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