Yesterday’s FOMC

Interesting news from the Fed yesterday. If you didn’t catch it, it was the Bernanke and friends’ promise to do something. 

” The Committee will closely monitor incoming information on economic and financial developments and will (my emphasis) provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability”

In the June release, they just used the term “is prepared.” Now we all know that they got together and said “let’s change up the words.”

As for gold’s reaction, I’m not really sure. I guess it was waiting for Draghi to do something and we also have the monthly jobs report that always makes gold very volatile. So we’ll see. Gold miners, however, are showing signs of strength. 

Stick with the winners for the quarters to come: Agnico Eagle Mines (AEM), Pretium (PVG), Randgold (GOLD), New Gold (NGD). 

remember, email us with any questions.


Thoughts on yesterday’s FOMC Statement

I think the Fed’s move to extend the twist until the end of the year was probably the worst thing that could have happened for gold bulls and today’s gold price is confirming it. Even though they left in the part where “the committee is prepared to take further action as appropriate to promote a stronger economic recovery…,” I doubt the Fed will make any moves any time soon.

When Operation Twist was first announced September last year, gold crashed and for the next two quarters, gold bulls were hoping for bad jobs numbers in anticipation of QE3. But one of my smart colleagues told me, the Fed won’t do anything for a while. They have to allow monetary policy to take place. Otherwise they’d lose a lot of credibility.

It made sense but I was still skeptical at the time.  Nonetheless, gold bulls would go through the two most disastrous quarters of everyone’s career (Obviously not all due to US monetary policy). In regards to QE3, I’m worried Bernanke will try to hold off as long as possible, and in doing so, all risky assets are likely to take a beating. Including gold. Including oil (which by the way is already at $80). Including stocks. I hope I’m wrong.


Chubut to Change Mining Laws? Get some PAAS!

Word is that the Chubut province in Argentina is about to change their mining laws to allow Pan American Silver (PAAS) develop their Navidad project.

Here’s a note from BMO:

According to a number of Argentinean media reports, Martin Buzzi, the governor of the Chubut province in Argentina, presented a potential new regulatory framework for mining in Chubut. Pan American Silver has been waiting for the Chubut government to amend the current law so it could move ahead with the development of its Navidad project, which is located in Chubut.

Here are a few stats on Navidad from the 2011 Preliminary Assessment

–          $759 mln Initial capex

–          17 yr Life of mine

–          LOM strip ratio: 4.8 to 1

–          15 ktpd operation

–          Production of 19.8 mln oz at $$6.03/oz per year

–          At $35 silver, cash flow from Navidad would be ~$5/share

The truth is that even without Navidad, PAAS is a resounding “buy!” as they were going to double silver production by 2014. It’s a deeply discounted value play that should be in your portfolio if you truly call yourself a value investor.

Source: BMO


In case you didn’t know AEM’s turnaround was complete

Good news out of Agnico Eagle Mines (AEM). Kittila in Finland is back to full capacity. It accounts for about 13% of 2012 production and was supposed to be down for 40 days as part of a scheduled maintenance plan, but AEM finished the job after only 18 days. 

The total number of days down remains unchanged for the year at 44 but they’ll likely see a better than expected second quarter. And don’t forget that any bit of credibility is a good thing in this beaten up sector. 

AEM’s 2012 1Q performance was the biggest sign the company had righted the ship after the company produced more gold compared to 1Q 2011 (when they had Goldex operating). All 5 mines produced record quarterly results. Things are going well for this company and you’ll see the stock break new highs and outperform its peers once more love returns to this sector. Image