• Gold: 1,243.55 -0.79
  • Silver: 16.56 -0.01
  • Euro: 1.118 0.000
  • USDX: 97.426 0.184
  • Oil: 43.45 -0.02

March Update: ECB Starts Printing, Fed Ponders Rates

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March 19, 2015 - 12:10am

Plus: Timmins, SilverCrest, Inca One, Gold Resource, Exeter, New Jersey Mining

 

The US Dollar mounted a huge rally breaking through the 100 index level last month as the Euro sank closer to parity with the US Dollar.

 

 

Last week the ECB began its quantitative easing program and this week the FOMC met and signaled a delay in raising rates in the coming meetings. This quickly halted the ascent of the US Dollar index which is a growing concern for Fed rate fixers.

 

I cannot see how the Fed will be inclined to raise rates significantly considering the strength of the US Dollar. The vast amount of debt from consumers to government is only sustained at these historically low-rates. The leveraged system cannot function if rates rise too high.

 

The gold price in Dollar terms fell quickly from the early 2015 rally. Foreigners using their local perspective see the gold price doing very well in their currencies. It’s mostly the US Dollar gold price lagging near multi-year lows.

 

 

The Dollar gold price is back at a critical technical juncture, near its prior $1,130 lows, there remains a good chance that an even stronger US Dollar will knock the price closer to $1,000 before this nearly 5-year correction ends. That is possible if the US Dollar rallies a further 5-10%.

 

One of the main gold market features last month was India’s surprise news. They did not reduce their 10% duties on imported gold. Demand will continue to be rerouted through the thriving black market as India’s gold appetite remains high.

 

Looking at the gold futures market, it again tracked the activities of the commercial banks. These infamous traders, whose positions are reported every Friday in the COT reports, show a strong performance predicting the short to midterm moves in gold.

 

The good news for gold from the most recent COT update is that the banks have covered significant paper gold short positions and adding to their long holdings. Meanwhile the hedge funds and speculators have piled into the short side. This week’s report should start showing an overall bullish posture.

 

Gold and silver stocks held up relatively well versus the metal prices until the last few weeks. The fear of significantly lower prices returned and sellers are meeting jittery buyers. Once the US Dollar gold price establishes a floor, that will be trigger a big relief rally. The downside risk remains for another 10-20% downside but upside rewards again become increasingly enticing as we retest recent lows.

 

For now the sector looks well supported from foreign producing miners who are going to report falling lower costs after end of quarter. The quality companies, lower risk miners and cashed-up developers are less likely to fall much further.

 

TIMMINS GOLD made a big move in February, striking a deal to merge with Newstrike Capital. The deal has Newstrike shareholders receiving 0.9 of a Timmins Gold share and C$0.0001 in cash for each Newstrike share, representing C$1.15 per Newtrike share for a C$140 million valuation, or a 20% premium over its closing price on the day of the deal.

 

The merging of the companies brings together Timmins Gold’s producing San Francisco mine and its Caballo Blanco gold project with Newstrike’s Ana Paula gold project, all in Mexico.

 

In announcing the deal Timmins Gold also launched a C$10 million financing at C$1.25 a share. Earlier the company had also refinanced its $13 million credit facility with Sprott Resource Lending Partnership and Morgan Stanley Capital Group.

 

Prior to announcing the merger Timmins Gold announced it had identified high grade mineralization next to its San Francisco mine, with at least three high-grade, sub-parallel, gold bearing structures. Results include a 14-metre interval grading 8 g/t Au and 29 meters carrying 3.5 g/t Au.

 

And drilling a little further afield from San Francisco yielded more discoveries, including a 33.9-metre hit grading 1.29 g/t Au and 13.7 meters averaging 2.54 g/t Au on the North Trend, which lies a few km away from San Francisco.

 

SILVERCREST MINES discovered a new mineralized zone near its Santa Elena mine in Mexico’s Sonora State. The initial drilling on its wholly owned Ermitaño I concession returned numerous shallow, low-grade oxide gold intervals that could indicate a deposit suitable for low-cost heap leach mining at the company’s already built leach pad at Santa Elena. Results included 25 meters grading 0.59 g/t Au from 65 meters depth and 4.6 meters grading 2.1 g/t Au from 193 meters depth.

 

The company also announced some management changes. President and chief operating officer N. Eric Fier is taking a partial leave of absence because of a health issue, with company director Dunham L. Craig stepping in to temporarily fill the role, while Michael Rapsch has been promoted to VP of corporate communications.

 

INCA ONE GOLD kept up its rapid pace of expansion, signing on more ore supply and processing more gold. The latest deal has Inca One agreeing to buy 400 tonnes a month of ore with an expected grade of 30 grams per tonne. The deal brings the company’s total supply to 1,350 tonnes a month, close to its goal of 1,500 tonnes.

 

The company’s Chala One plant recovered 1,188 oz. gold and 943 oz. silver between January 8 and February 18 through both test milling and start-up of the new milling circuit. As of late February the company was processing 60 tonnes per day as it ramps up production on the new circuit to its full 100 tonnes per day capacity.

 

The company has also received US$1.5 million in commitments for a financing with Swiss-based SC Strategy Consult, after initially seeking US$500,000. The debt financing involves up to 60 units at US$25,000 each, with the debenture paying 14% interest and each unit also contains 25,000 full warrants at C$0.25.

 

GOLD RESOURCE CORP saw annual gold production increase by 4.7% and annual silver production increase by 8.7% at its operation in Oaxaca, Mexico. Gold production was 35,552 oz. and silver production was 3,297,000 oz. for a gold equivalent production of 83,902 AuEq oz., just off of the company’s target of 85,000 AuEq oz. Base metal production also saw increases, with copper up 35%, lead production up 66%, and zinc production up 77%.

 

The company also continued with its monthly dividend of $0.01.

 

EXETER RESOURCES continued to reinforce the importance of its water discovery in Chile’s Atacama desert. Five large diameter exploration wells have confirmed strong constant water flows and recharge rates, with an aggregate flow rate of over 300 liters per second. The flow rates vary from 45 to 85 L/s between wells, while the overall rate is markedly better than the 200 L/s the company had previously targeted.

 

The company is now working to complete the water exploration program by May and apply for water rights for the discovery. The company plans to drill two more large-diameter exploration holes to better define the extent of the aquifer.

 

NEW JERSEY MINING COMPANY announced at the beginning of March that it had entered into a strategic partnership with the Juniper Group, which NJMC has been working with at the Golden Chest mine. The partnership deal has the two companies agreeing to collaborate when evaluating future mining projects and business opportunities.

 

News of the deal comes after the successfully commissioning of the New Golden Chest Mine. In mid-February NJMC announced the first shipments of roughly 100 tonnes of gold concentrate from its New Jersey Mill in Kellogg, Idaho. The initial shipment was estimated to contain 540 oz. gold with 94% recoveries.

 

Proceeds from the sale of concentrates go to Gold Hill Reclamation and Mining, the lessee of the mine, while NJMC generates cash from milling fees and its share of a 2% NSR royalty on production.

 

Peter Spina

President, GoldSeek.com & SilverSeek.com

 

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About Peter Spina / President, CEO - SilverSeek.com, Silver Seek LLC

Peter Spina is President, CEO of GoldSeek.com & SilverSeek.com. His experience with the precious metals markets started back in the mid-1990s, which led to the creation of GoldSeek.com in 1995.

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