By Kevin Michael Grace
Gold was down (at press time) $27.50 (-1.6%) for the week to $1,742.10, and silver was down $1.30 (-4.2%) to $32.78. According to Jordan Roy-Byrne at Minyanville October 18, “We expected a correction after the gold and silver shares ran into predictable resistance that coincided with October seasonal resistance.”
At King World News, Egon von Greyerz, managing partner of Matterhorn Asset Management, declares, “Every time COMEX opens, it’s the same thing—you see selling. So there is clearly short-term manipulation, but it makes no difference whatsoever. If you look at the gold price, in combination with world liquidity, you see that gold is going up hand-in-hand with increased liquidity.”
As he points out, there is no end in sight to quantitative easing, notwithstanding the ever-diminishing returns. Since Bernancus Magnus “became chairman of the Fed in 2006…the debt has gone from $8 trillion to $16 trillion, while GDP has gone from $12 trillion to $16 trillion. So debt has increased by $8 trillion, while GDP has only increased $4 trillion.”
Younger readers of this space might be surprised to learn there was a time when the term Gross Domestic Product was confined largely to the financial pages. Now we are all slaves to the great god Numericus, and other measures of prosperity as dismissed as “anecdotal,” with the result that governments live and die by GDP expansion.
The subject of official manipulation of economic data was touched on here last week, but Martin Mittelstaedt’s Globe and Mail column of October 14 gives us the opportunity to consider it in greater depth.
Mittelstaedt states boldly, “Government statisticians don’t fudge economic numbers secretly in the back room under the watchful eyes of political operatives. Far from it. They do it quite openly.” He explains that this is “about the only logical conclusion” one can draw from the work of John Williams of ShadowStats.com.
Williams has “found that practically all the government’s changes to the way it crunches data confer a rosier hue to economic conditions. He contends current statistics are understating inflation, overstating real GDP growth and playing down a broad measure of just how much unemployment exists in the United States.”
How is this achieved? Inflation is lowered by the use of “hedonics.” For instance, “Today’s $1,000 computer has far more capabilities than the $1,000 model of yesteryear, so even though consumers are shelling out the same dollar amount, they’re getting a better product and therefore conceptually are paying less. The CPI [Consumer Price Index] is consequently adjusted downward.”
An even more risible example: “One of Williams’ favourite hedonic fudges is the decision to lower the adjusted price that is used in inflation calculations for college textbooks with colour illustrations, based on the supposed higher quality.”
A broader and more sinister example, taken from Williams’ website: “The CPI was [once] measured using the costs of a fixed basket of goods, a fairly simple and straightforward concept…. The Boskin/Greenspan argument was that when steak got too expensive, the consumer would substitute hamburger for the steak and that the inflation measure should reflect the costs tied to buying hamburger versus steak, instead of steak versus steak… Cost of living was being replaced by the cost of survival. The old system told you how much you had to increase your income in order to keep buying steak. The new system promised you hamburger and then dog food, perhaps, after that.”
In other words, if oranges become too expensive, the government won’t count them anymore; it will count apples instead. This relates directly to GDP manipulation. Real GDP growth must by definition by greater than the level of inflation, so keeping inflation low keeps real GDP rising.
Unemployment is lowered by defining millions of unemployed as non-persons. Mittelstaedt: “During the Clinton years, the United States stopped counting as jobless those who had been looking for work for more than a year. Williams estimates that the broadest measure of US unemployment should be around 22%. The government says it is only about 15%.” And the “headline” unemployment rate is only 7.8%.
Williams suggests a means by which we can test the falsifiability of his hypothesis. “He’s following the trend in precious metal prices, assuming they reflect the market’s inflation expectations, something that should be watched as the Federal Reserve is printing money again.” Mr Williams, meet Herr Greyerz.
A rising tide may lift all boats, but rising gold and silver prices will not lift all precious-metals miners. In an October 17 Gold Report interview, Brent Cook, editor of Exploration Insights, and Quinton “Gold Whisperer” Hennigh, geologist and EI contributor, contribute a useful list of “red flags” in mining-company press releases.
Hennigh provides three. “Let’s say…a news release…mentions a killer hole—a long interval for a potentially good grade. But the company doesn’t list a cross section, making it very difficult to interpret. That’s always a little suspect… Grade smearing…is where a company takes a high-grade interval or two and transposes that into a much longer interval of lower grades in order to make it look like a bulk intercept. Then there is drilling where there was a previous campaign. Maybe a major had a property and did some drilling. It got some results. Now a junior is coming back in and drilling basically on top of that and reporting results as if it’s a new discovery.”
And here’s a fourth. “True width is the width of an intersection or a vein that gives us one of the three dimensions we need to determine the tons of a deposit or a system. We need true width versus apparent width or drill width, which can give us an exaggerated width.”
And now to cases. Hennigh has kind words for Gold Standard Ventures V.GSV, Pilot Gold T.PLG, Miranda Gold V.MAD and NuLegacy Gold V.NUG. Cook is keen on the prospect-generator model and cites Almaden Minerals T.AMM in this regard.
The companies with which Hennigh is professionally associated are Gold Canyon Resources V.GCU (Director, Technical Advisor), Nova Resources CNSX:NVO (President/CEO), Euromax Resources V.EOX (Chief Geologist), Prosperity Goldfields V.PPG (Director, Technical Advisor) and Evolving Gold T.EVG (Technical Advisor).
Reuters reports October 18 that National Bank Financial has raised the target price of AuRico Gold T.AUQ from US$8 to US$8.50 (currently C$8), October 17 that CIBC has lowered Keegan Resources T.KGN from $6 to $5 (currently $3.93) and lowered North American Palladium T.PDL from $2.50 to $2.40 (currently $1.61), October 15 that RBC has lowered Keegan T.KGN from $5 to $4.40 (again currently $3.93) and October 12 that NBF has lowered Volta Resources T.VTR from $4 to $2.25 (currently $0.54).
On October 16, Canaccord maintained its price target for Argonaut Gold T.AR at $15.50 (currently $9.87), noting its “record Q3/12 production results that were materially ahead of guidance and our estimates” and arguing that its “growth profile [is] enhanced with [its] proposed acquisition of Prodigy Gold” V.PDG; on October 15, it raised the price target of Primero Mining T.P from US$6.25 to US$13 (currently C$7.12), citing “a positive advance tax ruling from the Mexican tax authorities” and set a price target for Belo Sun T.BSX at $2.50 (currently $1.36), citing “high grades, exploration upside potential, potentially robust economics and location in a politically stable jurisdiction” (Brazil); and on October 12, it maintained Capstone Mining T.CS at $3.40 (currently $2.53), citing its “attractive relative valuation, strong balance sheet and the long-term growth profile offered by the Santo Domingo project.”
Bloomberg reports October 16 that Michael Siperco of Macquarie Group has set a price target for Argonaut Gold T.AR at $12 (again, currently $9.87).
At the Financial Post October 11, Jonathan Ratner reports that NewGen Asset Management is “shying away from large-cap gold miners since emerging producers and developers have the assets big names want to acquire.” They like Lydian International T.LYD (“The company’s Amulsar gold project in Armenia fits the…criteria of being a low-operating cost and low-capital-intensity asset”), Rio Alto Mining T.RIO (“[its] successful development project at its La Arena gold-copper mine in Peru”), Lumina Copper V.LCC (“Lumina, whose massive Taca Taca copper[-gold-moly] deposit in Argentina is a high-quality asset with adequate access to water, power and rail transport, is currently in the process of pursuing a sale”). They don’t like NovaGold T.NG (“[Its] Donlin Creek gold project in Alaska… will take at least eight to 10 years…to get started”).
And in the Globe October 16, Darcy Keith reports that Alex Terentiew of Raymond James has lowered his price target for North American Palladium T.PDL from $3.25 to $2.75 (again, currently $1.16), citing “renewed concern about its future balance-sheet strength.”
Finally, the Canadian Press reports October 18 on Project Vapour, a supposed attempt by Ontario’s Liberal government “to hide the cost of cancelling a generating station in Oakville from the public.” This is not the true purpose of Project Vapour. As Auguries can reveal exclusively, it is instead an effort by the League of Guardians, a legendary and sempiternal gathering of grandees sworn to uphold Ontario’s honour, to erase the memory of Dalton McGuinty, that dim and ferret-faced man, from the provincial consciousness. Their ultimate goal is to transmute him into myth, so that in the future, parents will threaten their children with Premier Dud, whose ghostly spectre shall haunt their dreams lest they fail to behave as all good little boys and girls should.
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