Gold has traded between $1,270 and $1,291 so far today as U.S. lawmakers continue to attempt to strike a deal on the debt ceiling impasse…there’s renewed optimism in the Senate this morning but the House, so far at least, is the fly in the ointment…markets will remain volatile…as of 7:25 am Pacific, bullion is down $7 an ounce at $1,274…Silver is off 6 cents at $21.24…Copper is flat at $3.26…Crude Oil is up 44 cents at $101.65 while the U.S. Dollar Index is relatively unchanged around 80.50…
For the 2nd time in just over 2 years, the U.S. government is nearing the point of default if Congress fails to raise the debt ceiling in time…the brinkmanship in 2011 brought the U.S. a credit downgrade from rating agency Standard & Poor’s…others have cautioned they could follow this time around…in our view this is largely a problem of the President’s making as Obama has stated he will not negotiate over the debt ceiling or a re-opening of the U.S. government which is in partial shutdown…Republicans in the House may call his bluff, if that’s what it is…there is a strong contingent in the House that was elected by the American people to curtail spending and stop the dangerous practice of automatically increasing the debt ceiling without a proper plan to start reigning in that debt…if it takes a crisis for the U.S. to start taking its debt problem seriously, and begin to shrink the size of government, then some House Republicans are obviously prepared to see that crisis begin to unfold…the House budget fight has amplified a long-standing rift between conservatives willing to upend traditional ways of doing business in Washington to slow the growth of federal spending and dismantle the 2010 health law, and other, more seasoned lawmakers who see these actions as damaging to the party…no one is exactly sure when the U.S. Treasury could actually default, but the general consensus is sometime between next week and month-end, so the political wrangling could continue for a while yet…it’s not inconceivable that the U.S. could default – even for just a short period – sparking a crisis that could finally clear the political logjam, or for now a majority may find a way to kick the can down the road…you can’t blame Republicans for wanting to keep the spending impulses of Obama and other Democrats in check…having said that, politicians on both sides of the aisle are responsible for the debt fiasco the U.S. has put itself into over the last 3 decades…
U.S. Debt As A Percentage Of GDP
Four consecutive $trillion+ federal deficits under Obama’s watch have helped bring the U.S. to its current debt ceiling limit of $16.7 trillion…that may seem like a manageable number as a percentage of GDP in the context of a low interest rate environment, but the irresponsibility of the accumulation of so much debt will manifest itself when interest rates inevitably begin to rise…House Republicans are right to take a stand now and say enough is enough, especially when the President wants the debt ceiling increased without conditions…
Fitch Ratings has warned it could strip the U.S. of its top credit rating, in the latest sign that the brinkmanship in Washington is eroding investors’ confidence in U.S. institutions…Fitch placed its triple-A rating on the U.S. on “rating watch negative” yesterday, saying a downgrade is possible by the end of the 1st quarter next year…even if Congress reaches a short-term deal to avoid defaulting on U.S. debt, Fitch said the budget impasse has undermined confidence in the effectiveness of the U.S. government and economic policy…
“The prolonged negotiations over raising the debt ceiling, following the episode in August 2011, risks undermining confidence in the role of the U.S. dollar as the pre-eminent global reserve currency, by casting doubt over the full faith and credit of the U.S.,” said Fitch.
The agency added: “Although Fitch continues to believe that the debt ceiling will be raised soon, the political brinkmanship and reduced financing flexibility could increase the risk of a U.S. default.”
Updated Gold Charts
Gold had a volatile day as expected yesterday, dropping as low as nearly $1,250 an ounce before rebounding sharply late in the day to close above critical support around $1,270…so far, we’ve seen a normal Fibonacci retracement (38.2%) based on the move between the June low of $1,179 and the August high of $1,434…below is a 3-month chart from John…yesterday’s Doji candle on higher volume was bullish…no one has a crystal ball with Gold at the moment given the very uncertain political dynamics in Washington, but a near-term explosive move to the upside in bullion would be consistent with the pattern we’ve seen since late June…
3-Month Daily Chart Chart
20-Year Monthly Gold Chart
One could also make the argument that there is still more downside risk in Gold…while the secular trend chart shows support in the $1,270’s, a normal Fib. 50% retracement of the move from $253 in 1999 to $1,924 in 2011 would take Gold down to $1,088…even that, however, would not kill the long-term bull market which would remain firmly intact…note how RSI(14) on this chart in late June nearly hit the same level it did in 1999 when bullion touched $253…
Today’s Markets
Asian markets were generally under pressure overnight with China’s Shanghai Composite losing 40 points or nearly 2% to close at 2193…Japan’s Nikkei average bucked the trend with a slight gain…European shares turned higher late in today’s trading session…
In New York, the Dow has climbed 173 points as of 7:25 am Pacific…the TSX is up 20 points while the Venture is off 2 points at 927…
Contact Exploration Inc. (CEX, TSX-V), which we have been mentioning recently, has successfully completed its 4th horizontal Montney well in Alberta which extends the scope and magnitude of the company’s East Kakwa Project…CEX is up 3 cents at 27 cents as of 7:25 am Pacific on total volume (all exchanges) of nearly 700,000 shares…
Cornerstone Capital (CGP, TSX-V) was halted prior to the open this morning, pending news…the company recently reported impressive preliminary assay results from the 1st hole of a drill program at its Cascabel Cu-Au Porphyry Project – unfortunately, it’s in northern Ecuador which is not one of our favorite jurisdictions…the company was on the 3rd hole of its program according to its update last Thursday, and news just crossed the wire regarding final results for the 1st hole which marginally upgraded some of the Copper intersections…CGP closed yesterday at 7.5 cents and could open higher following the halt…
Keep an eye on Walker River Resources (WRR, TSX-V) which is looking a lot more attractive now after falling from a high of 17.5 cents about a month ago…the company is working on an interesting high-grade Gold project in Nevada, and some drilling could occur before year-end as long the as the U.S. government shutdown ends soon (this has affected the permitting process)…WRR closed at 8.5 cents yesterday…
Zenyatta Ventures (ZEN, TSX-V) has tumbled from an intra-day high of $3.28 last Thursday…the stock has broken below its 100 and 200-day moving averages (SMA’s) with critical support around the $2 level as John’s most recent chart has shown…that’s also in the immediate vicinity of the rising 300-day SMA…ZEN fell as low as $2.06 in early trading today but is now up 12 cents at $2.40…
Declan Resources (LAN, TSX-V) has rebounded nicely from a 2.5-cent low the end of August…the company has completed a $750,000 private placement after recently acquiring 2 Saskatchewan uranium properties…LAN is unchanged at 10 cents through the first hour of trading today…
A reader brought this one up yesterday – Starcore International (SAM, TSX-V) which actually made $1.5 million in fiscal Q3 ending April 30…the company has eliminated all the debt it accumulated over the last 7 years or so from developing its St. Martin mine in Mexico, and now they are starting to put some of the earnings from the operation into exploring the large land package around the mine with the intent of increasing reserves and resources…in Q4 (May through July), St. Martin produced 6,315 Gold equivalent ounces and July featured the highest monthly production from the mine since 2007…even at current Gold prices, St. Martin is generating positive cash flow for SAM…the stock closed yesterday at 21 cents…technically, SAM is looking healthier these days than it has in quite some time…there is important resistance at 24 cents…as always, perform your own due diligence…
Tinka Resources Ltd. (TK, TSX-V) Updated Chart
Tinka Resources‘ (TK, TSX-V) stock price is still higher than it was at the end of 2010 and 2011 – most Venture companies wish they could say the same…Tinka hasn’t been without its struggles in 2013, however, with its share price tumbling from an all-time high of $1.25 to a recent low of 40 cents…however, a recovery appears to be underway and the company recently announced the re-starting of drilling at one of its Silver projects in central Peru…below is a 2.5-year weekly chart from John…TK is down 2 pennies at 50 cents as of 7:25 am Pacific…it seems reasonable the stock could test previous strong support (now resistance) around 70 cents in Q4, so at the very least this could be a short-term trading opportunity…
Arianne Phosphate Inc. (DAN, TSX-V)
Patient investors looking for a high-quality play outside of the precious metals sector may wish to consider Arianne Phosphate Inc. (DAN, TSX-V) which is developing its advanced-stage Lac a Paul Project in Quebec, a potential open-pit phosphate mine that may make Arianne an attractive takeover target in the not-too-distant future depending on the economics…a feasibility is expected to be completed this quarter…technically, DAN has traded in a horizontal channel over the last 2 years in a range between about 80 cents and $1.45…the rising 200-day SMA at $1.20 has been providing very strong support, and there is also strong Fib. support between $1.15 and $1.24 as shown in John’s 6-month daily chart…as of 7:30 am Pacific, DAN is unchanged at $1.26…
Note: John, Jon and Terry do not currently hold share positions in CEX, CGP, WRR, ZEN, LAN, SAM, TK or DAN…
GREAT COVERAGE BY BMR TODAY!
Comment by STEVEN1 — October 16, 2013 @ 6:37 am
Great recommendation on Starcore (SHVLF). I will position myself long knowing that gold prices and miners can’t stay this low for long. Major profits ahead!
Comment by Mike C — October 16, 2013 @ 6:53 am
BMR nice coverage on SAM…from what the CEO said they are looking to be a shareholder friendly mining compay. CEO said in an interview with Jay Taylor they want to push 50% of mine income to shareholders once they establish their dividend program. I think they just need gold to get back up a little higher to get their margins back up to get the dividends flowing.
It’s amazing SAM is so much better structured now than it was a few years ago yet since people are SO PESSIMISTIC on gold the shares are still beaten down. In 2011-2012 SAM still had debt, hedged gold production, and no exploration program yet the shares managed to go up from 10 cents to 45 cents. Now we have no debt, fully unhedged production, actually their best production quarter in a long time, and an exploration program. And a dividend on the way with higher gold prices.
Comment by Justin — October 16, 2013 @ 6:54 am
I guess the same could be said of other mining companies. Improved fundamentals for individual companies but they are hidden from the price of the shares because the bear market in gold still isn’t over. The market simply doesn’t care about any of these improved fundamentals in these stocks which is pretty absurd considering bear markets never last forever.
Comment by Justin — October 16, 2013 @ 7:09 am
As per the top chart, the debt relative to GDP started climbing in 2000. Let us not forget that the current administration assumed control in January 2009.
Comment by Alexandre — October 16, 2013 @ 8:39 am
And let us also not forget that the Great Recession was at its maximum in 2009, and that the current administration had two choices: stimulus or austerity. We know the rest.
Comment by Alexandre — October 16, 2013 @ 8:43 am
Not sure if anyone ever posted this…interesting commentary from Bob Moriarty from 321Gold on GGI:
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=47372921
Does GGI still have its Paramount shares?
Comment by Justin — October 16, 2013 @ 9:04 am
Justin, those comments by Bob were back in 2010 – Three years ago. But, it would be interesting to get his take now with the added Grizzly activity and the Sheslay drilling. I must say it is like watching paint dry the past few weeks with no SP movement by either GGI or PGX.
Comment by Dan — October 16, 2013 @ 3:56 pm
Dan, correct….but I think it’s interesting that Bob said it was one of his largest positions, given the amount of companies he visits. Who knows if it still is but my guess is he didn’t sell into this quagmire given his outlook for the gold bull.
Comment by Justin — October 16, 2013 @ 6:35 pm
PGX web site down since 12 eastern last night
Comment by Martin — October 17, 2013 @ 3:49 am
Martin, looks like a temporary server issue…I’m sure Pete can afford the monthly bills…nice move by Gold today and Gold stocks should benefit…Dollar is getting trampled as it should after last night’s Congressional deal on the debt ceiling…politicians kicking the can down the road yet again…don’t expect Fed tapering until at least mid-2014 now…
Comment by Jon - BMR — October 17, 2013 @ 3:54 am
Yes, could they release this morning you think?
Comment by Martin — October 17, 2013 @ 4:04 am
They are probably doing update on their web platform, hope they hit big!
Comment by Martin — October 17, 2013 @ 4:06 am
TSXV UP 18 PTS AT OPEN! WOW!
Comment by STEVEN1 — October 17, 2013 @ 5:32 am
DBV has announced drilling starts at the Hat Monday. That timing is interesting. I think they, too, are anticipating stellar results imminently from PGX. There’s a chance Sheslay could explode as early as next week if PGX delivers a whopper of a hole, which is very possible, and we all know that GGI has numbers of its own coming out. Next week could very interesting.
Comment by Jon - BMR — October 17, 2013 @ 6:00 am