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Rates Stuck at 0%, Negative Rates Growing Globally, Gold and Silver Updates

Gold and silver surged on news that the FOMC ruled that they will not raise rates, not just yet. Low inflation and growth rates are keeping historic 0% rates for longer. This should not be a surprise to gold and silver investors who know that the massive amount of US debt levels will never allow rates to rise significantly as the biggest fear for central bankers is deflation.


With over $4 trillion in corporate debt coming for renewal over the next 5 years, it is not just the US Government's debt that is sensitive to higher rates. If rates did rise it would implode the tens of trillions of dollars of debt. Rising rates would also encourage savings and less speculative capital.

The system is leveraged with debt but it is also struggling with the trillions of dollars just sitting on the sidelines. So introducing negative rates would encourage some of this idle cash to be pushed into the system. Such a scenario becomes increasingly more likely as growth stalls and liquidity becomes more constrained.


The game is not over because the tens of trillions in debt obligations are not fulfilled. Debt continues to grow globally so what has been fixed since the last crisis? Nothing. Just a bigger debt problem. By rising rates significantly the debt scheme will become unmanageable. Servicing the debt will cause defaults along with deflationary pressure. Instead we are dealing with an environment of negative rates which are spreading globally:


Switzerland is not the only one printing local currency to devalue their relatively strong currency. Recently the Czech Republic entered the negative rates game for the first time by selling 3-year bonds at -0.001%. The Czech Central Bank printed nearly $4B worth of Czech currency in August alone to maintain a 27Kc to 1 Euro floor. Such  imbalances caused by fixed rates is allowing the Czech CB to load up their reserves with ~$62B worth of Euros. The strength comes from the Czech Republic having the highest GDP growth rate in Europe which is supported by their most industrialized EU country, at 47.3% of the economy.


The recent easy monetary statements and policies from China to EU to USA continue to support the reality of massive debt loads now conditioned to live in a low-rate environment. How does this get unwound if consistently strong growth rates do not return?


In a world of manipulated rates and money supplies, the choice for individuals becomes increasingly more difficult. Where does one seek capital safety? The day will again come when the Wall Street crowd realizes the reality of the situation with an “aha moment” and those seeking gold and silver will find themselves in a very crowded marketplace trying to source limited supplies.


Now is an excellent time to accumulate precious metals as prices have fallen heavily, below production costs of many miners. The period may last longer than most wish for, but it is an opportunity to take action and hold some financial and monetary insurance from the inevitable day of debt reckoning!


SilverCrest Mines struck a deal in late July to be taken over by First Majestic Silver in a largely share-based deal that gave a 37% premium to SilverCrest’s 30-day average and valued the company at roughly C$154 million. In the deal SilverCrest shareholders will get 0.2769 of a First Majestic share and C$0.0001 in cash for each of their SilverCrest shares.


The deal will give First Majestic control of SilverCrest’s Santa Elena mine for its sixth producing silver mine in Mexico. The deal also adds C$30 million in cash to First Majestic’s balance sheet.


SilverCrest shareholders will gain access to First Majestic’s silver mine portfolio, and will also get 0.1667 common shares of a new exploration company that will hold SilverCrest’s Las Chispas, Cruz de Mayo, Angel de Plata, Huasabas and Estacion Llano exploration properties in northern Mexico and C$5.25 million. First Majestic will transfer its Guadalupe exploration property, and will own just under 10% of the new company. N. Eric Fier, SilverCrest’s COO, will become CEO of the new company and will be joined by other SilverCrest management and board members, who intend to list the company on the TSX Venture.


After announcing the deal SilverCrest released second quarter financial results, showing operating cash flow of C$8.1 million or C$0.07 a share earnings of C$3.86 million or C$0.03 a share. The company also reduced its operating cash cost range by a dollar to between C$9 and C$10 per AgEq ounce.


SilverCrest and First Majestic shareholders will vote on the takeover on September 25.


In late August Gold Standard Ventures launched the second phase of its 2015 drilling program at the Railroad-Pinion project in Nevada’s Carlin Trend. The program includes 10 reverse circulation holes for about 4,000 meters of drilling on the Pinion target, following up on the 24.4-meter hole running 1.38 g/t Au of oxidized material drilled in the first phase, as well as testing other targets in the South Fault zone.


The company will also drill up to 3 holes for about 500 meters at the Sentiel target, sitting west of the established Pinion gold resource. And it plans to drill up to 11 RC holes for about 3,000 meters of drilling to extend known gold areas at the northern end of the Dark Star resource, and two holes for about 700 meters of drilling south of the resource.


The drilling follows on the first phase of drilling this year, where the 24.4 meters of 1.38 g/t Au in hole PIN15-02 on the South Fault zone was the most significant hit.


The company says that all but one of the 14 holes drilled in phase 1 returned gold grades above the 0.14 g/t Au cutoff.


In August Gold Standard Ventures also reported favorable results on cyanide testing, showing recoveries of 82.4% in oxidized multilithic dissolution collapse breccia, the main gold host at Pinion. The company will use the results in an upcoming Pinion resource estimate.


Uranium Resources continued to pursue its merger with Turkey-focused Anatolia Energy Ltd. and added Resource Capital Fund as a supporter of the deal. The Fund holds 24% of Uranium Resources’ shares and announced at the end of August that after its due diligence it was in favor of the merger.


The merger will give Uranium Resources control of the high-grade Temrezli uranium project in Turkey with near-term production potential. Uranium Resources plans to ship its existing ISR uranium processing plants and related infrastructure from Texas to the project to cut capital costs.


Uranium Resources also closed a deal to take in $2.5 million in cash plus $375,000 in shares through the sale of its Roca Honda project assets to Energy Fuels Inc.


Gold Resource Corp. released second quarter results, showing $23.3 million in net sales, $9.4 million in cash flow from site operations, and net income of $0.8 million. The company produced 6,788 oz. gold and 580,326 oz. silver for 14,858 gold equivalent ounces at a cash cost of $533 per ounce net of by-product credits.


The company paid out $1.6 million to shareholders in dividends, or $0.03 per share and ended the quarter with $21 million in cash and equivalents.


Production in the quarter was weaker than expected due to challenges including water inflow management, slower than expected mine development and an illegal mine protest and work stoppage, said company CEO Jason Reid. Despite the challenges the company said it can achieve the lower end of its 2015 guidance of 80,000 to 90,000 gold equivalent ounces.


Gold Resource also announced high-grade drill results at the end of July from its Alta Gracia property sitting roughly 16 km northwest of its producing Arista Mine. Drilling on the Mirador vein returned 4 meters grading 2.52 g/t gold and 595 g/t silver, a second vein intercept in the hanging wall hit 2.1 meters carrying 1.74 g/t gold and 493 g/t silver.


The Mirador vein so far has shown no base metals, so the company plans to process the material at its already-built agitated leach circuit at the Aguila mill. Mine agreements with the local community and permitting are underway with a target of 2016 to begin mining at Alta Gracia.


GoldSource Mines said construction is progressing well at its Eagle Mountain gold project in Guyana, South America and it is on-track to start Phase I production during the fourth quarter this year.


Part of the 100 tonne per hour gold processing plant is already on the ground in Guyana and is awaiting final site prep, while the second part of the plant is scheduled to arrive this month. The company is also largely done rehabilitating the 10km access road, acquiring major equipment including dozers and generators, and pre-production auger drilling.


The company also continues to progress on key personnel recruitment, camp preparation, and is working on preliminary testing on whether it can process existing tailings for construction aggregate and residual gold recovery.


The Phase I operation is planned as a 1,000 tpd open pit gravity plant with pre-production capital costs of $4 - $5 million, and post-commissioning cash operating costs of $500 to $600 per oz. gold.


Montan Mining announced it had secured base load mill feed for the Mollehuaca processing plant in Peru that it is in the midst of acquiring. The company has secured 60 tonnes per day of stockpiled material from Intigold Mining, a Peruvian-owned private mining company, with provisions to increase that to 90 tonnes per day.


The deal will have Montan acquiring mineral feed on net-30 day payment terms, eliminating the need for an advanced purchase financing facility. The company says revenue from the mineral feed, estimated at $220,000 net monthly revenue, will cover operating costs of Montan’s Peruvian operations and will allow commercial production to start at the processing plant.


Montan has a binding agreement to purchase Goldsmith Resources, the Peruvian parent company of CPM, which currently owns the Mollehuaca mill, for C$3.3 million. As part of the deal Montan has been operating the mill since June, and expects the acquisition to close early this fall.


Fortuna Silver Mines reported second quarter results, showing sales of C$38.9 million and net income of C$0.2 million. The company produced 1.67 million oz. silver and 9,032 oz. gold on the quarter at a cash cost of C$4.08 per oz. silver net of by-product credits.


The company also reported exploration results for the San Jose mine area, showing a continuation of high-grade gold and silver mineralization along strike of the Trinidad vein to the north. The results included 0.4 meters grading 1,070 g/t Ag and 3.25 g/t Au and 0.3 meters averaging 1,740 g/t Ag and 6.72 g/t Au. The company said that while the veins narrowed it remains prospective for the discovery of additional ore shoots.


New Jersey Mining Company reported second quarter results for the Golden Chest Mine and New Jersey Mill in Idaho, showing 18,171 tonnes of ore was processed in two months of full production, with an average of 87.7% gold recovery.


The mill produced 214 dry metric tonnes of concentrate at a grade of 408.3 g/dmt Au. The company reports that early in the third quarter the mill continues to ramp up well, showing head grades 38% higher than the second quarter and recoveries averaging over 90% through July.


New Jersey Mining has leased the Golden Chest Mine to Gold Hill Reclamation and Mining Inc, and is generating cash through milling fees at its New Jersey Mill and a 2% net smelter return royalty on gold.


GoldMoney, parent company of BitGold, announced user numbers at the end of August, showing 242,264 users had signed up for the gold-based savings and payment system, an increase of 74,262 over July. Transaction volume was up to 243,427 grams of gold for a value of C$11.8 million, up C$4.73 million.


The company also rolled out its iphone and android App, announced the Aurum gold-settlement technology was linked to nine major US financial institutions to make the service more accessible to Americans, and in July completed the $59.4 million acquisition of the GoldMoney precious metal storage business and business restructuring.


In the company’s first quarter of operations, which spanned the first 56 days of business after going public in May, it spent roughly C$25 all-in per customer for the first 62,629 signups, while gross sales per customer were approximately C$45 per customer. The company saw total gold sales and transaction revenue of C$2.86 million and a net loss of $2.84 million.


Look forward to my next monthly update in October which you can find on and or delivered directly into your inbox,


Peter Spina

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