Mexico’s proposed higher mining royalties could block nearly $7bn in investments
The Mexican government proposed raising mining royalties under the argument that metal prices have risen in recent years.
The XEU (Euro) and gold charts presented on this page are a good reading of the short term track record of European and US central bankers. Since bottoming near $1.20 in July the Euro staged a 10% rally over less than two months. There are plenty of EU politicians that would be happy to take credit for that performance but it’s all about Draghi.
Most of the large upward moves in the Euro chart can be traced to pronouncements by Draghi and agreements to be a buyer of last resort for EU debtor countries. QE3 announcements by Fed chief Bernanke added extra lift. The recent pullback stems from the usual doubts creeping in when traders don’t see some
immediate action. Over the weekend member countries in the EU finally voted the European Stability Fund into existence. Traders have been waiting to see this completed on the assumption that it would pave the way for new rescues, or a least some sort of deal for Spain.
In typical European fashion the announcement of the ESF vote was immediately followed by the comment that Spain was not expected to be drawing on it anytime soon. Huh? The comment was probably intended to calm the bond market which simply proves, yet again, that European politicians don’t get markets at all. Bond traders decided weeks if not months ago that Spain would have to dip into one of the rescue funds.
The Spanish government has done a great job of trying to stabilize its budget deficit, far better than it gets credit for. Unfortunately, it has the same problem as all the debtor countries in Spain. Its overall economic situation has been deteriorating faster than its ability to cut its deficit. Every growth and employment projection has turned out to be optimistic. Even with its best efforts and a boost from a better than expected banking sector report card things are still getting worse.
Ironically, comments from other EU leaders seem to signal that they would rather see Spain go to the ECB rather than the new Stability Fund. The German finance minister recently commented that he did not expect there to be new conditions imposed for the ECB to get clearance to go into Spain’s bond market. Fear of more stringent conditions has held both Spain and Italy back from taking Draghi up on his offer of “unlimited” bond buying.
There have been persistent rumors in the press that Germany has already agreed to some form of Spanish bailout but wants Spain to hold off until the EU knows what the added costs for Greece will be. The Germans would prefer something omnibus that deals with the whole issue once and for all. The rumors have been denied by politicians but they do make sense. The Troika of lending officials still hasn’t reported from Athens and we know that can’t be good. It’s a safe bet the Greeks will need more money and probably another full on restructuring.
Until the EU makes decisions that stick this issue will weigh on the Euro and markets. There should be announcements soon though and we are betting they will involve more payments to Greece and bond buying, and perhaps a rescue package for Spain. Spanish yields have held under six percent but that won’t last much longer without a resolution.
On this side of the Atlantic, better employment news gave the US a short term boost. Earnings season starts today, with consensus estimates for an overall decrease in earnings of a couple of percent for the S&P 500. This has all the usual suspects wringing their hands but it’s mostly priced in. Given the skill the largest companies possess when it comes to guiding earnings estimates we assume the actual number will be a little bit better. That should provide some underpinning for stocks.
This is still a “bad news is good news” market where weak economic metrics generate buying from traders playing the central bank rescue card. Since most central banks have in fact promised rescue in one form or another it’s a sensible strategy in the short term. It also plays nicely into our sector since central banks will be doing the heavy lifting for the gold and silver markets.
The gold chart on the previous page is set at the same scale and duration as he Euro chart above it. It shows how the $US gold price has held nicely and made recent new highs even as the main currency the US traded against faltered. Traders are counting on Bernanke to inflate even if other central banks are not keeping up with the Fed.
Precious metals have lost some momentum in recent sessions but this is likely to be temporary. Better earnings than expected will add a bit of risk on trade. Confidence numbers have improved markedly in the US. This has not translated into new spending but if the unemployment surveys released last week are accurate (a big if) this may start to come this month and next. Any sort of improvement would be seized on by a market that is already high on central bank stimulus. US markets are very close to their five year, which means all time, highs. It will take some convincing for indices to move through previous highs so we are due for some sideways consolidation in any case.
The Junior market is doing its own sideways dance. A move through $1800 for gold will probably be equired to for Juniors to push to higher levels. One thing that has started changing is the financing environment. It is still weak, but there was a roughly 30% increase in financings in September and a few large placements have been announced since. We expect a bit more bounce if gold moves a little higher but there is no doubt most Juniors can’t go much farther without closing a placement. Seeing any kind of increase in placements is a good sign. We’re still expecting a somewhat stronger rally and positioning with that in mind.
2012 hasn’t been an easy year for explorers but HRA has been calling for a fall rally since early in the summer. Thanks to a surging gold price that rally appears to have arrived. It’s not a broad rally yet. Traders are looking for companies with discoveries and management that knows how to add shareholder value. HRA is your key to uncovering and profiting from extraordinary resource shares by getting ahead of the crowd. At HRA, we look for companies with the potential to at least double over one or two years based on asset growth and development of metals deposits for production or take over by larger companies.
The HRA – Journal, HRA-Dispatch and HRA- Special Delivery are independent publications produced and distributed by Stockwork Consulting Ltd, which is committed to providing timely and factual analysis of junior mining, resource, and other venture capital companies. Companies are chosen on the basis of a speculative potential for significant upside gains resulting from asset-based expansion. These are generally high-risk securities, and opinions contained herein are time and market sensitive. No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer, solicitation or recommendation to buy or sell any securities mentioned. While we believe all sources of information to be factual and reliable we in no way represent or guarantee the accuracy thereof, nor of the statements made herein. We do not receive or request compensation in any form in order to feature companies in these ublications. We may, or may not, own securities and/or options to acquire securities of the companies mentioned herein. This document is protected by the copyright laws of Canada and the U.S. and may not be reproduced in any form for other than for personal use without the prior written consent of the publisher. This document may be quoted, in context, provided proper credit is given.
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