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Commodities, and Economic & Political Trends Impacting
The Resource Sector & Equity Markets
 

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November 16, 2012

BMR Morning Market Musings…

Gold has traded in a range between $1,705 and $1,717 so far today…as of 7:15 am Pacific, bullion is down $4 an ounce at $1,712…Silver is off 27 cents to $32.37…Copper continues to trade at support, down a penny at $3.44…Crude Oil is up 74 cents a barrel to $86.19 as tensions escalate between Israel and Hamas, while the U.S. Dollar Index has soared nearly half a point to 81.41…

A day after a World Gold Council report showed an increase in India’s Gold demand in the third quarter, the government has raised the import tariff value of the yellow metal (and Silver as well)…

Today’s Markets

A wild week on the markets come to a close today…stocks have sold off more than 5% since election day on concerns that President Obama and a divided Congress will not be able to strike a deal on taxes and spending that allow the U.S. economy to avoid hitting the $600 billion “fiscal cliff”, the combination of taxes and automatic spending cuts that start to take effect January 1 if Congress does not act…the mainstream media, which loves to focus on such a story, has helped to create a sense of panic in the markets which have clearly become technically oversold as John’s charts showed yesterday…while there has been talk from each side about a commitment to compromise, the first face-to-face meeting on the topic since the election takes place today when Congressional leaders meet with Obama at the White House…rest assured, the media will be watching intensely as this soap opera continues…

The oversold state of the markets is clearly reflected in one individual stock in particular – Apple Inc. (AAPL, Nasdaq)…Apple is a favorite stock in many portfolios and funds, and as a result it has been an obvious target for capital gains avoidance in future years…Apple has tumbled 25% since its all-time high of just over $700 a share in September….while of course this site is about precious metals and the junior resource sector, we thought it would be useful nonetheless to demonstrate just how oversold Apple has become in order to put the overall current market picture in clear perspective…

Apple, which is off another $6 per share in early trading this morning, has fallen significantly below its rising 200-day moving average (SMA) for the first time since the 2008 market meltdown…it has dipped very slightly below its 300-day moving average…this is a major oversold situation and additional evidence that the markets are poised for a turnaround…

“Unlimited Easing” Coming To Japan?

The Nikkei Index rallied 2.2% overnight to regain the key 9,000 mark as investors bet that Japan’s main opposition party, whose leader has vowed to put more pressure on the central bank to ease monetary policy, will win next month’s election…Shinzo Abe, a former prime minister whose Liberal Democratic Party has a firm lead in the opinion polls, says the Bank of Japan should employ “unlimited easing” (including bringing interest rates down to zero or even below zero) to stimulate lending, achieve a 2% to 3% inflation target, and reverse the strong yen…this is another example of the “race to the bottom” in the currency wars…Japan wants a weaker currency in order to give its exporters an edge in the global market…whoever wins Japan’s election will have to pick a new Governor of the Bank of Japan in April…when incumbent Masaaki Shirakawa’s term finishes…since starting in 2008, Shirakawa has continued the policy of monetary easing, but failed to solve Japan’s long-term issues with deflation…the yen, by the way, is one of six currencies that makes up the U.S. Dollar Index – its weighted value is 13.6%…

Today’s Markets

China’s Shanghai Composite sank another 16 points overnight to 2014…the struggling Index could be putting in a double bottom after briefly falling below 2000 in late September…European shares are down slightly in late trading while North American markets will try to finish the week on a positive note…as of 7:15 am Pacific, the Dow is down nearly 50 points at 12495…the TSX is off 46 points while the Venture Exchange is up a point at 1223…if the Venture can’t hold the 1215 to 1253 support band on a closing basis, the risk of a re-test of the 1154 low in late June becomes more likely…

Greencastle Resources (VGN, TSX-V)

There are many examples of common sense value on the Venture at the moment, and Greencastle Resources (VGN, TSX-V) is certainly one of them…historically, Greencastle has made a significant run every couple of years and then trades down to cash value or even slightly below…Greencastle touched 8 cents this week – almost its low for the last decade – and closed yesterday at 9.5 cents, meaning its current market cap (4.4 million) is 30% below its working capital position of $6.3 million (as of June 30)…Greencastle’s burn rate is about $125,000 per month…traditionally, the company has funded itself internally through its oil royalties but those have been drying up…an interesting new situation, however, is that Greencastle holds nearly 8 million shares of Deveron Resources and rumor has it the Deveron IPO will be successfully launched later this month at 25 cents…Greencastle put its Blackwater property into Deveron and also took a sizeable position in the company…post-IPO, Greencastle will hold approximately 70% of Deveron

From a chart perspective, what’s interesting about Greencastle is that there has been a notable divergence between price and RSI recently…this is usually a bullish sign…below is a VGN 5-year weekly chart from John…as always, perform your own due diligence…

TSX Gold Index Updated Chart

The TSX Gold Index broke important technical support Tuesday when it fell below the 328 level…it looks like it could be ready to bounce higher but a test of the 300 support area seems likely during the last half of the month…below is a 2.5-year weekly chart…


If Alberta Can’t Balance Its Budget, Who Can?

If Alberta, one of the most prosperous and conservative jurisdictions in North America, can’t balance its books, is there any hope that any government can – provincial, state or federal?…Alberta Premier Alison Redford has backed away from her pledge to balance the books, saying she won’t delay spending as revenues sink because of lower-than-expected Oil prices…she is defending this approach with creative language, saying Alberta will run an “operational balance” (provincial revenues will cover everything except billions in infrastructure spending, which the province will pay for by taking on debt)…Alberta is currently debt-free but is running its fifth consecutive deficit budget despite low unemployment and a relatively strong price for Oil…until now, deficits have been covered by the province’s rainy day Sustainability Fund, and Alberta expected a surplus by next year…using debt to pay for infrastructure, however, marks a change of tune in a province where former premier Ralph Klein held back on spending to balance the books… Opposition Leader Danielle Smith says the government is mismanaging its money…“Ralph Klein was able to balance the budget when oil was $30,” the Wildrose Leader said…”If there is one jurisdiction on the planet that should be able to balance its books, it should be Alberta”…

18 Comments

  1. RBW – People want out. It is obvious.
    It is sad to see. Smaller volumes, but still. As someone pointed out the other day. It only takes a few days to destroy something that has taken months to build. I want to see what will happen. I sincerely hope that this particular rainbow appears.

    Comment by Kalkan - Sweden — November 16, 2012 @ 8:05 am

  2. Apple is a bubble – bubbles burst.

    Comment by Hugh — November 16, 2012 @ 8:50 am

  3. For every seller, there’s a buyer, Kalkan. What RBW needs is a discovery in the Kootenays and solid results from Nevada, and I personally believe the prospects of that combination are still very good. Patience is critical and when the herd is leaning one way, as it has in the last week or 10 days, often the opposite occurs.

    Comment by Jon - BMR — November 16, 2012 @ 9:06 am

  4. Jon,

    I don’t see the rainbow. I want to see the rainbow. I am goign to act like theodore and make a prediction.

    My prediction is international assays suck…and they come up with nothing. Stock hits 11-12 cents, more horrible assays come out, goes to 5 cents.

    THEN, a merger happens, RBW and CUI, claiming they have the world’s largest gold deposit, stock hits $30, and i become rich, because naturally, i would be holding shares…lol

    Comment by Avo — November 16, 2012 @ 9:55 am

  5. wow, the venture went up today!

    Comment by steven — November 16, 2012 @ 8:47 pm

  6. RBW is a lottery ticket, nothing else. I don’t think BMR should push so hard for that stock. There are juniors out there with much lower risk and still great potential. All you people with shares in RBW should understand that the risk is SUPER HIGH in RBW. I have seen this hype so many times before. 1 out off 100 delivers, the rest is forgotten.

    Comment by Don — November 17, 2012 @ 10:56 am

  7. Now you tell us. Why didn’t you tell us that before we sunk all our money in the lottery? Do any of those lower risk juniors have names?

    Comment by Rick — November 17, 2012 @ 11:23 am

  8. Don, you could say the same about almost every junior resource stock. In a way they’re all lottery tickets, but some offer better opportunities than others. The junior market has always been, and always will continue to be, high risk. If you can’t accept that, don’t invest. But you can’t beat the leverage it provides. That’s why it’s important to have a basket of opportunities in order to spread out the risk, because all you need is one big winner out of 10 to make a lot of money in this market. Now, having said that, there’s risk in every market. If you bought Apple a couple of months ago at $700 per share, with your broker telling you it’s a safe play, you’re down 25%. If you bought the IPO on Facebook, you’ve taken a huge hit. If you bought Barrick at $50 earlier this year because it’s the world’s largest gold producer, you’re down 40%. A lot of investors in the U.S. have also seen their “safe” dividend paying stocks take a big hit in the past couple of weeks. So there’s risk everywhere. Managing risk and learning how to handle and profit from volatility are two of the key things investors have to learn in order to be successful. One of the great things about the junior resource market, all it takes is one sweet drill hole to send a company’s stock soaring even in a rough market. In the specific case of RBW, a lot of holes have been drilled in the last few months, there are some positive visuals, and we also know they’re twinning a hole in Nevada that returned a stellar 2.1 g/t Au over 40 metres. To me those are “lottery tickets” that have the potential of paying off big-time.

    Comment by Jon - BMR — November 17, 2012 @ 11:52 am

  9. Rick, with regard to ALL THE SITUATIONS we cover here at BMR (non-producers and producers) as we have stated in our disclaimer for the past 2+ years, “investors must understand that these are still highly speculative situations and entail considerable risk, volatility and unpredictability”…having said that, there are still many stocks we have mentioned here, including RBW, that possess what I would call “special characteristics” that may limit risk or greatly enhance their chances of success and separate them from the rest of the pack. Those special characteristics could encompass a number of different things, including of course properties and management and the ability to raise capital. Those are the situations we obviously try to identify and put fwd to our readers for their own due diligence.

    Comment by Jon - BMR — November 17, 2012 @ 12:19 pm

  10. I agree with you. I think RBW has more going for it than usual for a jr and I think Mr Johnston very much wants to make this a winner and is doing all he can to make that come true but I’m curious as to what Don thinks is better

    Comment by Rick — November 17, 2012 @ 1:49 pm

  11. hum,ya ok don,go and buy a 100 lottery tickets once a week or a month or a year,and you let us know how many times you win.of course its risky,but maybe,just maybe rbw will pay off befour your ticket does..either here or there my friend thats the chance we take .enjoy your wknd..

    Comment by tom — November 17, 2012 @ 2:20 pm

  12. Jon I think people are too quick to blames you guys for what is essentially a bad market for mining shares right now. the big hedges are long gold, short miners. time will resolve this situation. patience is key.

    Comment by Hugh — November 17, 2012 @ 2:24 pm

  13. agree with Hugh

    Comment by Stephan — November 17, 2012 @ 4:16 pm

  14. Hi Jon.
    As per the press relese dated 29 March, “Rainbow can earn a 60% interest in the Jewel Ridge Property by paying Greencastle
    $250,000 cash, issuing 1,500,000 shares of Rainbow and spending $4.5 million over 4
    years. On earning a 60% interest in the property, Rainbow can elect to increase its
    interest to 75% by advancing the property to the stage of a bankable feasibility study,” do you have any information on how RBW will get the $4.5M required to hold onto the 60% interest in the property. The concern is that if the PPS does not jump up substantially, RBW investors are looking at a major dilution of their share of RBW. What do you think? TIA.

    Comment by Alexandre — November 17, 2012 @ 7:58 pm

  15. GoldQuest took on a fair bit of dilution with its Goldfields JV in the DR, and even bought their interest out, and it didn’t hurt them. Jewel Ridge is a big project with major potential at one of the hottest gold addresses on the planet, so the deal they got I believe was on excellent terms. And it looks like they have a database of hundreds of holes, which means if they wanted to they could probably already put out an initial 43-101 resource estimate. If there are a million or more gold ounces at Jewel Ridge, then Rainbow could easily support significantly more dilution. Dilution is never really a problem if it’s for the right reasons and the project is strong enough. Given where they’re drilling initially, I’m expecting good results right off the bat and that should help build interest and demonstrate the potential that exists there. Contiguous to the north is an operating mine, and another one is in the works immediately to the south. They couldn’t be in a better spot.

    Comment by Jon - BMR — November 17, 2012 @ 8:28 pm

  16. Agree Jon. Just look at NGM. Fair amount of dilution, but look at their CEO, very well respected and knows how to get it done. They just announced the purchase of mining equipment and are going into production; hence the dilution will stop at some point when they start to mine the high grade Jon Pol deposit 8g/t………..very profitable.

    Comment by Dan — November 18, 2012 @ 5:39 am

  17. Looks like international assays will be brushed to the corner. Be surprised if we see them at all. At very least they will wait and hope to get a good hole from other property and release it first

    Comment by Heath stockford — November 18, 2012 @ 11:21 am

  18. With all due respect, Heath, I disagree. My take is that they’ve got a lot going on and the ammunition is building. Let’s just wait and see what unfolds. They’ve already had success at the International in the sense they’ve proven the existence of the vein structure through drilling. I’m looking for a lot of reasons for encouragement out of the International, then there’s Gold Viking and Jewel Ridge. So a very interesting scenario is shaping up IMHO.

    Comment by Jon - BMR — November 18, 2012 @ 11:51 am

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