Gold and silver prices surged in January having an even more spectacular month in foreign gold price terms. With the gold price rallying alongside the US Dollar, gold prices in currencies such as Canadian Dollars surged by 20%, rallying from C$1,375 an ounce to as high as C$1,650 at month’s end.
1-Year Gold Prices: Canadian Dollar | Euro | Japanese Yen | US Dollar
The big news last month was the overnight surprise by the Swiss National Bank (SNB), removing the Swiss Franc/Euro currency peg. This was done just prior to the latest round of ECB money printing, which would have forced the Swiss to devalue the Swiss Franc even further. SNB holds nearly $1/2 trillion in foreign reserves – mostly from their Euro purchases since 2009.
The overnight shock quickly shot the Swiss Franc higher by 30% vs the Euro. In almost a step function move higher, instant losses have cost funds many billions. The recent COT report on the Swiss Franc showed a surge in short interest just before the SNB announcement. Speculators felt safe with their short bets on the Franc after the failed Swiss Gold initiative late last year, which rejected the idea of a strong Swiss Franc. So it was certainly a timely surprise to most and the lesson to learn from this is that when things happen, they happen very quickly… usually overnight. Expect the unexpected!
The monetary shot heard around the world!
That is what I believe the move by the Swiss last month amounts to. It was such an aggressive manner, surprising the market, that the Franc devaluation was halted despite the expense and fears of exporters to the tourism industry. No doubt they will suffer. But what is more important in the end? To jeopardize the value of your national currency or preserve it?
We will see how the SNB reacts in the next while. Will they return to weakening the currency if the relative strength of the Swiss Franc gets too high? Are they already back slowly weakening the Franc, maybe to help limit the huge losses incurred by banks, funds, investors?
But more importantly, what morning will you wake up finding gold having its own (magnified) Swiss Franc moment?
The cheap credit, easy money printing game is turning into a global currency war. It has been developing for some years but to my amazement, I did a rare check into mainstream financial media outlets and heard over and over that we are seeing currency wars (thank you Jim Rickards)! Will mainstream media and investors’ memories fade in the coming weeks or will Wall Street wake up and realize the global debt scenario that is only getting worse and potentially at a tipping point - and the fact that paper money is backed by nothing but collective trust.
For years I have said the next big move into gold will be when Wall Street has its “aha” moment. When they realize that the narrative they have been repeating in an effort to make it reality is simply not the case. I believe that the Swiss move, along with other actions in the past weeks (Canada, Australia, Denmark and more cutting their rates, China doing a “small” round of QE and cutting bank capital ratios, Europe announcing QE, etc.) the Wall Street crowd may finally be waking up.
Global debt since 2007 has surged by over $57 TRILLION to around $200 TRILLION*, the debt-credit bubbles have evolved into global ticking time bombs. Debt, which is inherently deflationary, is met with inherently inflationary forces: Central Banks. Their objective is to monetize debt and at all costs avoid deflation, which is a more uncontrollable threat to their global fractional reserve paper Ponzi schemes.
The debt game for years has been expanding global money supplies, but as we can see in 2015, this has not been effective in resolving any economic malaise. It has been a total disaster and a threat to the global financial, monetary and political systems. I have mentioned for years that this easy credit, money printing is not a solution to the debt problem, but it just buys more time. Delay the inevitable problem while making it even worse. How much more time is left? Rates are already at virtually 0% and most governments are insolvent.
Part of the issue with all the money printing and easy monetary policies is the inability to get all of that magically created money flowing into the system and expanding it via fractional banking. The velocity of money has collapsed to historic lows.
Also at historic lows since the Black Plague and beyond, are bond yields. There are trillions of dollars stuck, unwilling to take risks and sitting in bank accounts yielding next to nothing or in places like Switzerland, up to a negative ¾% on short-term deposit rates.
Negative rates are becoming more widespread and increasingly more likely the next policy move by central bankers. Their vast powers of influence are now focusing on pushing trillions in Federal Reserve Notes (US Dollars), Euros, etc. sitting in bank accounts to be spent by forcing savers to become spenders. Nothing could be more sordid at this point in the debt game than to make capital seeking conservative shelters into speculative capital.
I see risks in pushing this capital into the system too quickly can be many. Banks could see bank runs with their fractional banking system holding just a portion of capital needed. Quickly banks could have serious capital reserve requirements as depositors seek shelter from negative rates and risks of bail-outs or bail-ins. The risk to holding money in banks is increasing.
Gold ends up becoming a huge benefactor to the currency crises. The Euro, global #2 paper currency held by central banks at roughly a 25% level, has lost significant value in past months. Such instability combined with deflationary threats and easy monetary policies turn gold back into global King Money. If banks pay no or negative rates, holding gold becomes even more attractive.
Once the US Dollar bubble pops, where will money flow? At the point where trust in the US Dollar is lost, there will be a quick scramble into other assets, with monetary metals benefiting the most. There will literally be an auction for the remaining gold supplies. Such a point may be closing in faster than previously thought.
The massive physical gold purchases by India, China, Russia and other areas have not been reflected in the gold price yet. Part of reason has been the Western investors’ liquidation, the transfer of wealth from West to East. Last month the main gold ETF on the NYSE (GLD) saw a new record low, a drop of nearly 20M ounces from the peak holdings.
After the Swiss move early January, we saw a huge reversal and within weeks over 2 million ounces of gold has been purchased. From net seller to net buyer, Wall Street is the tipping point in this gold market. There will be a physical and paper price squeeze should they continue to keep this buying interest up.
Do not forget that 2 million gold ounces equates to “just” $2.5 billion dollars. Paltry sum of money from Wall Street’s perspective. Apple Inc. alone has a market cap that is 23+ times the entire value of the 24.7M ounces held in the main gold etf (GLD). So any small fraction of all those trillions in hot money dollars flying around and into gold will set the price on fire. Expect the unexpected.
The coming quarter for gold and silver miners will look quite positive as non-US dollar operators see huge gains in their foreign gold and silver prices. Miners in dollar-dominated countries will also do well showing healthy cash-flow pick-up from last quarters. As long as the gold price holds the $1,200-$1,250 area, gold and silver stocks are poised to make some big gains this year.
Like most producers TIMMINS GOLD released 2014 numbers, achieving a new production record of 121,573 AuEq ounces. Of that total, gold production was up by 368 oz. to 120,023, while silver production increased by 16,750 oz. to 85,262 ounces.
The record production was achieved despite record rainfall in Sonora state in September. Gold production in the fourth quarter dropped 26.8% to 25,007 oz. compared with the same quarter in 2013, and silver production dropped 25.3% in the same period.
For 2015 the company is projecting similar numbers to 2014 of between 115,000 and 125,000 AuEq ounces, at cash costs of roughly $800-850 per ounce.
SILVERCREST MINES also achieved record production last year, with 2.81 million AgEq ounces produced. The numbers showed a 6% increase over 2013, while pure silver production of 1.16 million oz. had a 49% increase and gold production of 27,609 oz. marked an 11% decrease.
Production was 7% shy of the company’s guidance, with early closure of the open pit and delays related to opening the first underground stope for mining. The company has actually re-opened the pit for 6 months of low-cost mining, while it works to improve underground operations. The company also continues to work on mill throughput and metallurgy as it transitions to a full milling operation.
For 2015 the company has issued a guidance of 4 to 4.4 million oz. AgEq, with silver production between 1.6 and 1.8 million oz. and gold production between 36,000 and 39,000 ounces. SilverCrest is targeting all-in sustaining cash costs of $14-$15 per AqEq ounce.
FORTUNA SILVER MINES produced 6.6 million oz. silver and 35,300 oz. gold for 8.7 million AgEq ounces in 2014, roughly 10% higher than guidance levels. Silver production saw a 42% increase and gold a 66% increase over 2013. Zinc saw a 9% increase while lead had a 9% decrease.
For the year ahead Fortuna plans to spend US$56.5 million on increasing production capacity at San Jose to 3,000 tpd, with commissioning in mid-2016. The increase will put San Jose among the 14 largest primary silver producers in the world.
The company also announced the latest drill results from its San Jose mine where it has been conducting step-out drilling of the Trinidad North zone. Results included 4.6 meters grading 1,282 g/t Ag and 8.1 g/t Au and 327 g/t Ag and 1.42 g/t Au over 1.6 meters.
GOLD RESOURCE CORP announced drill results from its El Aguila project in Mexico’s Oaxaca state and its Alta Gracia property 16 km further north.
At El Aguila the company has been drilling the Switchback target, which it discovered in mid-2013. The new target sits only 500 meters northeast of the company’s producing La Arista gold-silver underground mine. The latest results from Switchback included hole 414067 that hit 6.1 meters grading 5.53 g/t Au, 76 g/t Ag, 0.15% Cu, 0.41% Pb, and 4.15% Zn; and hole 514057 that returned multiple veins including a 2 meter intercept grading 1.21 g/t Au, 133 g/t Ag, 0.41% Cu, 2.25% Pb, and 8.24% Zn.
At Alta Gracia the company hit a 5-metre interval grading 1.53 g/t Au and 1,383 g/t Ag and an 8.6-metre interval carrying 1.34 g/t Au and 700 g/t Ag. The company is exploring Alta Gracia as a potential feeder mine for its established Aguila mill.
EXCELLON RESOURCES also released its full 2014 production numbers in January, showing similar results to 2013. Silver equivalent production was 2.05 million oz. compared with 2.06 million oz. in 2013. Lead and zinc made up slightly more of the total than the year before, which is helping the company’s cash flow while silver prices remain low.
The production numbers were in line with the company’s third quarter revised outlook, but fell short of the original estimates. The company has faced challenges with water issues at the mine, which especially affected production in the latter half of the year. To tackle the water issue the company has hired a team of water management consultants including Multiurethanes Ltd., Hydro-Resources Inc., and Technosub Inc. The company also brought on Marty Dregischan as a technical consultant to coordinate efforts.
Excellon has also appointed Mr. Jose Gerardo Rovelo Saenz as senior operations manager, who will oversee the Platosa mine and Miguel Auza mill. Rovelo was most recently general manager of First Majestic’s La Guitarra mine.
INCA ONE GOLD announced it has achieved its goal of increasing production capacity to 100 tpd at its Chala One plant by the end of 2014. As part of the commissioning process the company has continued to process ore through the plant, producing 521 oz. gold and 558 oz. silver from 753 tonnes through test milling between early December and January.
It looks like the company will have more ore to process in the future, with a letter of agreements to purchase ore from two more mines signed. The company now has three agreements in place covering 950 tonnes a month. Inca One’s goal is to have 1,500 tonnes a month of steady supply in place, or at least 50% of the total 3,000 tonne per month capacity of the mill.
NEW JERSEY MINING announced it has started gold concentrate production at its New Jersey Mill in Idaho, processing roughly 3,500 tons of ore in the first month as it ramps up the mill to its 400 tpd capacity. So far recoveries have been in line with expectations of about 94% on the mill feed that has averaged 4.1 g/t gold.
Mill feed is coming from a portion of the recently commissioned Golden Chest mine, which NJMC and co-owner Marathon Gold have leased to Juniper Mining. Juniper is paying $125,000 a quarter as well as a 2% NSR royalty for the lease.
At the company’s McKinley gold project in central Idaho, NJMC recently completed a drill program of 388 meters from within the mine. Highlights included hole DDH-02 that hit 2.5 meters grading 43.7 g/t gold, and hole DDH-10 that cut 3.5 meters averaging 18.5 g/t gold.
TIMBERLINE RESOURCES announced that the Montana Dept. of Environmental Quality had given the ok for the Butte Highlands Joint Venture to build and operate its proposed underground gold mine. The company has already secured major permits required for the mine, but is still working to secure approval for use of the mine haul road and to agree on a reclamation bond.
The company also announced it had struck a new zone of gold mineralization at its Eureka project in Nevada with a 19.8-meter intercept grading 3.22 g/t gold, including 7.6 meters carrying 4.93 g/t gold. The intercept, hole 171, was a follow-up to hole 152 drilled in 2012 that first hit the new mineralization but wasn’t completed because of drilling complications. The company is planning to continue RC drilling in the Lookout Mountain area as well as more detailed core drilling.
Peter Spina
President, GoldSeek.com & SilverSeek.com
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* 200 trillion in debt as calculated by McKinsey & Co – FT.com
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