Border Gold Corp: A Long Bridge to Where?

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A Long Bridge to Where?

“The best the ECB can do is to buy time in the hope that other policy-making entities with better instruments will step in, both at the national and regional levels”

-Mohammed El-Erian, Former CEO of PIMCO

 There was certainly no shortage of action in the markets this week. Following a week when the Swiss France made a 30 per cent move in a matter of seconds, it would have been hard to believe we could match the week prior in terms of volatility and excitement. We are currently witnessing an undeniable shift in monetary policy. Six years since a financial crisis, and just recently the consensus was for an improving economy and a rising rate environment, but instead we are now seeing round two of central bank stimulus with a number of G20 central banks participating.

The surprise for the markets this week was provided by the European Central Bank. Somehow the ECB was able to deliver investors an open ended stimulus program that exceeded expectations. The oft-quoted Mario Draghi line from the summer of 2012 pledging to do whatever it takes to preserve the Euro finally came to fruition. The ECB President, Mr. Draghi and his team of central bankers delivered a US Fed style open ended stimulus aimed to buoy risk assets and support the sovereign debt markets of member nations. The question is, will it work?

The shortfall with Quantitative Easing in the United States was very simply the fact that there were no complimentary fiscal policies. Too many analysts and commentators concentrate on the actions of central bankers and whether or not there policies are justified. This is the wrong question to be asking.

A prime example of this was the Swiss National Bank’s decision last week to abandon the peg. Their balance sheet had grown so exponentially, and would have been under even more pressure to support the Franc given the action seen in the Euro this week. Abandonment was more an inevitability than a decision. And in the United States, 2008 and 2009 saw credit markets freeze and a slow response in terms of fiscal policies. The Fed bought time for the economy by keeping rates near zero, keeping downward pressure on long term debt markets, and an imperfect response, but created a wealth effect in the equity markets to hope for increased consumption and spending in the economy.

Similarly, the Europe Union will see similar outcomes, but faces similar challenges. Moreover, the situation there is posed as even more challenging given already politically unpopular and unfavourable policies and social unrest. One common example of this, and has been evident through the Euro Crisis is small businesses through Europe cannot get affordable credit and loans because the financial institutions don’t want the risk. The transmission of the process undertaken by the ECB to the financial institutions to the lenders is broken, and that’s just one task to fix.

Mohammed El-Erian’s quote above addresses the shortfall in the ECB’s policies. Many have referred to these coordinated actions by central banks as building a bridge to nowhere. I don’t like to be that pessimistic. But the point is that monetary policy will not be a sufficient solution to spurring economic activity should they not be accompanied by policies from fiscal and regional levels of government. Time will tell if my views will have to shift.

Border Gold Corp: Cutting Their Losses, Early

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Cutting Their Losses, Early

The Swiss National Bank (SNB) shocked currency markets Thursday of this week with a policy decision that crippled the Euro-Franc cross. Their announcement sent the franc soaring 30 per cent against the euro before settling lower, (still 16 per cent stronger) into the end of the week. This was as the SNB abandoned their 1.20 franc peg they’ve been defending since September of 2011, coincidently when the gold market peaked at over 1,900 USD per ounce.  The decision by the SNB has far reaching implications for not only financial markets, but also for when policy becomes exhausted and policy makers themselves are rendered helpless.

The move in the Swiss franc really demands the attention of investors as it is one of the biggest, if not the biggest, single day move from a liquid western economy’s currency in modern time. Beyond the questions of the stability of financial markets and the overleveraged and crowded trades that amounted to millions of dollars in losses for investors, there are the direct losses to Swiss businesses and the Swiss economy as their exporters are heavily linked to and trade with a European market. As well, the price adjustment in the franc reminded all investors of a bid for haven assets as even gold ended the week 4.5 per cent higher.

The SNB’s decision to abandon the peg to the euro ultimately came down to necessity. The commonly watched EURUSD is down over 15 per cent over the last year, and pressure on the euro continues for multiple reasons. The first is simply the threat of deflation to the Eurozone. Stagnant growth and the trap of weak business investment and broken fiscal and monetary policy have the region looking hapless. Then if we include the probability of the European Central Bank embarking on an episode of quantitative easing and factor the likelihood of a Greek exit from the currency union, there are many downward pressures on the euro.

The Swiss franc faces the same appreciation pressures as almost all other currencies that trade directly against the euro. In order to defend their peg they’ve been maintaining for over the last three years, they had to expand their balance sheet (print francs) and buy euro denominated assets. The balance sheet of the SNB relative to the GDP of the Swiss Economy has expanded so drastically they are now the largest of any western central bank at around 80 per cent. By comparison, when the US Federal Reserve saw balance expansion to 4 trillion USD during the process of Quantitative Easing, their balance sheet to GDP ratio was around 26 per cent.

The threat for the SNB was that the size of their assets on their balance sheet would soon dwarf their economy, and their large proportion of assets denominated in euros would too heavily impact their economy from fluctuations and volatility in the euro exchange rate. As is the case with most exchange rates pegs, the market forces will eventually takeover and the outcome that the policy makers had been trying to avoid (like an overly strong franc) becomes reality.

As we see central banks like the ECB and Bank of Japan make moves that increase their influence on financial markets via balance sheet expansion, questions center on the idea of stability. Furthermore, was the market action Thursday a “one-off’, or are we amidst an environment that is setting itself up for snap price adjustments that leave investors too slow and unable to react?

Top Canadian Tech Stock Picks From the Cantech 2015 Conference

One of the highlights from the January 15 Cantech 2015 Investment Conference in Toronto was the panel of investment analysts who revealed their top stock picks for 2015. Presenting their selections was Massimo Voci of Haywood Securities, Pardeep Sangha of PI Financial Corp., Daniel Kim of Paradigm Capital, and Robert Young of Canaccord Genuity.


Border Gold Corp.: A Longer Term View

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A Longer Term View

Following a year where US equity markets found the ability to overcome a Russian invasion of Ukraine, a tremendous decline in oil and commodity prices, and policy uncertainty in the major economies of the European Union and Japan, investors have to question whether the same resilience can hold through 2015. Renowned bond fund manager Bill Gross asked a similar question this week in his monthly investment outlook, taking a look at the year ahead and then suggesting we are now at an inflection point where the western world’s troubles of slowing economic growth can no longer be solved with debt creation and money printing. Consequently, 2015 will be a year for losses in most asset classes as capital looks for a new harbour that can produce positive returns.

The first full trading week of 2015 certainly complemented this story quite well. Violent selloffs in North American equity markets recorded the worst start for North American stocks since 2008.  But it begs the question whether markets are destined for a year of negative returns as Mr. Gross suggests, or can they overcome the crippling factors of deflation in Europe and a weakening emerging market picture along with declining commodity prices.

It’s difficult to imagine in such an interconnected global economy how the US is able to decouple itself, and avoid the perils of economic headwinds originating from outside North America. It is a much different scenario than a few years ago when North American markets were much more vulnerable to fragility of the European economies and the systematic risk of a sovereign debt crisis. Turmoil in peripheral European countries seemed to reap much more havoc than the effect we’ve seen recently. Perhaps that was because of the interconnectedness of the debt crisis. Whereas today, Greek snap election called for later in January do not raise as much fear because bailout loans to the IMF are close to being paid back and Greece’s problems too many extents have been contained to Greece.

But as the European deflation fears once again present themselves (as was reported midweek for the first time in 5 years), the idea of a system wide issue now comes forward again. Mario Draghi and European Central Banks ultimate challenge will be preventing a deflation scenario in Europe, and time does seem of the essence. There has been no change to the fact that unemployment rates remain elevated across the peripheral Eurozone and particularly for the younger demographics. Investment suffers not only from the prospects of subpar returns, but also from the perspective of currency risk as the euro lost approximately 13 per cent in 2014. The paramount example is that German 10 year bunds are yielding less than half a per cent as the trend continues lower. Growth prospects continue to diminish.

Whether or not the North American markets perform in the short term will be determined by investors comfort with their volatility. At this point, six years into a bull market, it’s about the longer term view. Above all else, the number one consensus call a year ago as 2014 began was that interest rates in the US were going to begin to creep higher. And perhaps to the surprise of many, longer term bonds were one of the best performing asset classes of the last year. The consensus was wrong. Interest rates were supposed to move higher because of improving prospects for long term economic growth. Instead, they moved in the other direction.

With all the caution and some pessimism from respected analysts such as the aforementioned Mr. Gross, gold is catching a bid and is moving somewhat in tandem with a stronger US dollar.  This could very well be that the US dollar is in for a rest and a bit of a pullback from recent levels which would add to gold’s punch.  The biggest worry going into the second half of 2015 could very be the rekindling of the sovereign debt crisis and this time it will be much more difficult to paper over.


Frank Holmes’ Surprising Stock Pick


Frank Holmes, CEO and Chief Investment Officer at U.S. Global Investors, talks about the gold and oil price and provides some insight into whether the commodities “Super-Cycle” has come to an end. He also mentions a surprising stock pick that involves diamonds as well as a “no-drama” fund where he parks his cash.


Border Gold Corp: Divergence Part II

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Divergence Part II

The focus of financial markets has certainly stuck with the fallout in the price of crude oil, and rightly so as its impacts will be far reaching from global economic growth projections to domestic monetary policy. One thing that’s seems to be lost, however, is not the over excitement of lower energy prices putting approximately $75 billion back in US consumers wallets and a similar story around the globe. Instead, what’s missing is the lack of focus going to a diminishing global growth picture out of emerging markets and a continuing weakening demand for crude oil and energy. The story with oil and lower prices warrants as much concern over weakening demand as it does over a supply glut, and the price action to end the week in all markets illustrates that.

This week for the markets was a classic risk off environment with equities and commodities ending the week lower and bonds and the US dollar moving in a positive direction. Unfortunately, as optimistic as most have been over the positive benefits of lower energy prices, the financial markets are tied too closely with the pressure of falling oil prices. Concerns particularly over the balance sheets of a number of oil producers, and in particular their debt loads, have sparked fear over the stability of the resource sector, and leave investors puzzled. In a week that already saw oil prices fall 12 per cent, at what point will this market find stability?

The other factor to key in on was a report released at the end of the week from the Paris based International Energy Agency that said demand growth for crude oil next year would be less than a million barrels a day. This is driven by weaker outlooks for countries like Russia, China, and Brazil, and the prospects of a strong dollar stunting other emerging markets. The strong dollar impact on emerging markets has the potential to be somewhat far reaching.

A number of the emerging economies of the world benefitted tremendously during the aftermath of the financial crises as the US Federal Reserve’s weak dollar policies caused exchange rate appreciation in their markets, which not only made them attractive for capital investment, but also lower their import costs. Essentially, in today’s market we are seeing the opposite. A strong dollar is increasing the burden of their US denominated foreign debts and increasing the cost of the raw materials they purchase to fuel the growth of their economy. Emerging economies do not see the same benefits of lower energy prices that those of advanced Western economies might.

Looking to next week (FOMC meeting Tuesday-Wednesday) and beyond, investors will be looking for an answer as to what impact this has on fed policy. Expectations vary from March until about September for when the Federal Reserve will begin to raise their key policy rate. If they drop the “considerable time” phrase from their statement when referring to the duration of a 0 to 25 basis point fed funds rate is something that could support a move sooner rather than later.

Last week I wrote on the topic of divergence between North America’s economies and the rest of the world, and its impact on financial markets. It’s a topic that was further explored by many economists and commentators this week. The question is whether this sharp drop in oil prices keeps the fed at bay because lower energy and producer prices keep downward pressure on inflation, and the global economy poses too much of a risk, or does it accelerate the likelihood of this divide?

#VRIC15 | The Coming Dawn

The Vancouver Resource Investment Conference is back for its 20th year. Over 350 companies, and 40 speakers will gather over the two days to illuminate the mining, metals and resource industry. Enjoy and share the video below with anyone you think would be interested in attending this annual and indispensable event.

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Border Gold Corp: Divergence

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With less than a month to go in 2014 investors are faced with the question, what gives? The relationship that exists between an expanding global economy and the demand for its natural resources from the emerging markets is absent. As we’ve witnessed, equity markets have snapped back since their recent correction with the broader S&P 500 back up over 14 per cent since the mid-October low. Moving in the other direction, however, commodities have fallen roughly 8 per cent and much of the leg lower exacerbated by the steep decline we’ve seen in the price of crude oil.

Longer term interest rates and those in that asset class that have been forecast to be creeping higher this year continue on their lows. The expectation was for a US 10 Year Treasury yield over 3 per cent at the beginning of the year, and it seems about as distant as the time past since the forecasts were made. Yields have tracked down around 2.25 to 2.5 per cent.

The conundrum is simple. We’ve had a six year rally in the equity markets, particularly in North America that has been accompanied by subpar growth around the level of 2 per cent. And while the financial markets have taken off from the lows of 2009, it’s the economy that’s lagging and there is a continued divergence between North America and the rest of the world.

As North America advances, economies like Japan and the countries of Europe remain stagnant. Furthermore, they create headwinds for the rest of the globe. This is especially true for a country like Canada as we are linked to and rely on a strong network for global trade. And it’s the divergence that’s taking place between the commodity and stock markets that’s illustrating this concern.

There is more to the story of the weakening commodity markets then simply a global supply glut. Demand for the world’s resources is diminishing with the prospects for global economic growth. And since in part this bear market is being driven by a weak outlook from China and other emerging economies, it raises the issue of which direction the global economy is headed, and whether this ‘America on its own’ rally is really sustainable.

The other question to ask is what’s currently driving this equity market higher. Support for stock prices is continuing off a theme of last year, and that is buy backs and dividend hikes from cash rich American corporations. Pair that with fixed-income investors looking for alternatives to a low interest rate environment, and there’s no question as to where the demand for equities is coming from, but it circles back to idea of sustainability.

The real economy is what needs to catch up with the market at this point. Investors are looking to the labour market and whether wage growth will finally expand beyond the mediocre 2 per cent level, barely keeping pace with inflation. Quite possibly, this will likely come in the new year following a period when workers traditionally see raises. If that’s the scenario, with the strength in November’s payrolls, the Fed may stand ready to begin to raise interest rates sooner than expected. But before we get too excited on what’s going on in the US, let’s think of the message of what this weak commodity price story is really telling.


Border Gold Corp: Swiss Votes… No

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Swiss Votes…No

In the wake of the Swiss referendum on whether the central bank should increase their allocation to gold, investors are tasked with the question, is the no vote yet another reason to be bearish on gold at present time. Voters clearly rejected the question of whether the Swiss National Bank (SNB) should hold at least 20 per cent of their balance sheet in physical gold, which would have lead them to the purchase of 1500 metric tons over the next five years.

Even though some gold bugs were clamoring on this vote as a reinforcement for responsible management of a country’s currency, especially in the wake of quantitative easing and rapid expansion of the monetary base in countries like the US, Japan, and potentially Europe, this vote was more about anti-EU sentiment and the euro’s influence on the Swiss Franc. In the near term, its certainly possible some noise or gyrations leads the market to react to the “No” vote and we may see prices trade lower, but it too remains consistent with a strong US dollar trend that is yet to see gold return as that safe haven asset.

Citibank’s Willem Buiter made headlines this week leading up to the vote as he strongly advocated for the “No” position. It shouldn’t really come as a surprise that like-minded academic economists believe in leaving the autonomy of central bank operations with the people who manage that institution and not subject to populist regulations. Especially because a central bank is in place to instil longer term views than perhaps myopic policy decisions witnessed in different levels of politics.

Buiter, however, did stress one key point that it’s important for even those in favour of the floor on gold reserves, and that is requiring a central bank to hold a minimum amount of gold ultimately decreases the values of those gold holdings to zero. As we know, gold standards ultimately fail. As the Citi Global Economist said, gold has been in a 6,000 year bubble, arguably making it the longest-lasting bubble in history, but that’s not really a surprise. A bubble is anything that is priced above its intrinsic value.

The intrinsic value of gold is something that economists have been trying to put a mark on for years. The typical arguments when comparing it to another financial asset are it doesn’t produce cash flow, and not providing any right to future earnings or repayment minimize any fundamental value it might have. What we do know about gold is that history has proved it to be a commodity that is tied to the global monetary system, and its limited supply and negative correlation to the world’s reserve currency make it a popular hedge when diversifying a portfolio.

Inevitably, the price of gold might be the longest bubble in human history, but if that is indeed the case, what will change that? The famous words of former US Federal Reserve Chairman, Ben Bernanke during a senate testimony were, “no one really understands gold prices.” That’s because how we value or price assets in today’s financial world doesn’t apply to gold. Gold is and always has been a hedge. Setting a predetermined or fixed allocation of a balance sheet to gold will ultimately devalue it because it takes that metal out of the market permanently, and the price adjusts. But gold’s flexibility and role in a dynamic investment environment, as we are in today has been proven over the life of its 6,000 year bubble.


5 Canadian Uranium Penny Stocks That Could Power Higher

Uranium stocks may soon be on the radar of investors again as the spot price of the underlying commodity surged to recent high US$44 a pound, up 28% from year-ago levels and about 57% since bottoming out at US$28 during the summer. The following five speculative stocks could get a big boost if money begins to go back into this sector:


Milestones Are Key to Successful Junior Resource Investing: Mark Lackey

CHF Capital Markets Executive Vice President Mark Lackey offers up his insight on the recent gold price decline, reveals some factors investors should consider before buying a junior resource stock, and mentions a small energy name he likes that’s set to begin production.


“What If It’s 1982 Again?” – Thoughts on Gold and My Recent Trip To Europe – Chris Berry

Jeremy here,

Last week I had the opportunity to travel through Germany and Switzerland with 15 public companies. The trip was hosted by The Canadian Securities Exchange and Zimtu Capital Corp. Our good friend Chris Berry was a keynote speaker and acted as an MC during the presentations and seminars.

I have linked his recap below of the trip and his EU views below.


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By Chris Berry (@cberry1)

For a PDF copy of this note, click here.

Europe has always fascinated me. A thousand years of rich history confront you regardless of the country or city you visit. Opportunities to talk to Europeans from all walks of life regarding their views on current events or the global financial markets put in a unique historical context are worth the time and effort it takes to plan a trip.

My recent trip to Frankfurt, Munich, Zürich, and Geneva was no exception. I went as a keynote speaker on the Fourth Annual Zimtu Capital Bus Tour where I spoke in each city and also served as a moderator and emcee. Accompanying Zimtu were a well-rounded stable of companies representing resources as varied as diamonds, potash, coal, and uranium. Representatives from the Canadian Securities Exchange along with several CSE-listed companies were also in attendance, and as these companies were not natural resource-focused (vertical farming, biotech, high tech), it gave this year’s tour a more diverse flavor than in years past. Everyone – from institutional and individual investors to the companies themselves – had a unique opportunity to view the small cap discovery sector in a different light.

That said, this note focuses on European investors opinions of the resource sector now that we are three years into what feels like a seemingly relentless malaise. My experience in Germany wasn’t unlike that of years past. The typical investor appears more interested in owning the physical silver or gold bullion than mining shares (although this isn’t universally the case). This is interesting, indeed, relative to the overwhelming opinion of analysts that deflation is a more likely scenario for the EU in general.

While I would argue that many individuals I know have accepted the reality of lower precious metals prices for the foreseeable future – many people I spoke with in Germany thought that gold and silver should be – and would be – trading higher soon. The rationale for this wasn’t always clear as the usual arguments about manipulation and looming hyperinflation were trotted out while deflationary trends so evident were not given much credence.

I did an interview at the Munich Precious Metals show with Miningscout which you can see here

The meetings in Switzerland were notable for their dynamism, commentary, and questions from the attendees. The discussion of the Swiss gold referendum (20% backing of the Swiss currency by physical gold) loomed large over the conferences with the audience split 50/50 on it passing. The main issue wasn’t the disbelief that the precious metals and mining company shares were falling. This appeared to be an accepted reality and the question was more of “What do we do given this new lower metals price environment?”

One exchange I had in particular stood out. While talking about gold and silver, my counterpart turned and asked:

“What if this is 1982 again?”

 The chart below explains her fears and provides context. 

After a parabolic boom in the gold price in the late 1970s, the gold price collapsed (circled in black) and remained range bound until the early 2000’s. I add this chart not to invite scrutiny from gold bugs, but to demonstrate this woman’s concerns. If we are indeed at a point in the gold cycle resembling 1982, this has profound implications for your gold and currency investments. What will you do as a gold investor if the gold price remains flat for the next 20 years?

For the record, while I think gold will tread water in the near-term, I don’t believe were in another 1982-type scenario. The global economy is much more integrated than ever before, and is drowning in debt and derivatives. I think many now view gold as its own asset class rather than its traditional role as a hedge against inflation. In this way, gold is a victim of its own success, as is silver. Days where the price of gold rises or falls $20 per ounce are looked upon as trading opportunities and the long-term rationale for owning precious metals or company shares has taken a back seat. This type of thinking is dangerous. If anything, the concern should be for higher, rather than lower gold prices based on the potential for widespread economic instability and Central Banks unable to mop up excess liquidity in the financial system fast enough to prevent inflation.

However, that’s not the casein Europe. This has everything to do with Central Banks around the world jawboning the equity markets higher with zero interest rates and QE and talking down inflationary expectations. Regular readers will know that we are at least in the disinflation and possibly in the deflation camp. While in Europe, I made this case to each audience. With a collapsing velocity of money, excess labor, capital, and dormant liquidity choking the global financial system, excess inflation (and by extension the need for the precious metals) is currently a distant reality. 

The Euro Zone is struggling to generate sufficient economic growth and is clearly fighting disinflation rather than generating inflation, China continues to moderate its growth rate, and Japan has just entered its fourth recession since 2008. Who will serve as the engine of global demand to ignite wage pressures and the inflation Central Bankers covet? How did we get to this point where Central Banks covet inflation but can’t seem to generate it 

The Japanese battle with deflation began with a stock market collapse in 1989 as a result of a real estate bubble. When banks in Japan curbed their lending, wages halted their climb and sufficient organic economic growth has never really returned. This scenario should sound familiar to everyone in the US as almost the exact same scenario has unfolded there since 2008. One must believe that Federal Reserve officials in the United States are watching the developments in Japan and the failure of their own version of QE (Abenomics) to generate growth with increasing concern.

As I said before, I don’t yet believe we’re at another “1982-style” inflection point for a number of reasons. Regardless of that, turning on the television and watching the price of gold and oil fall and assuming the entire commodity complex is suffering the same fate is a big mistake. I also made this point to my audiences.

Despite what the doom and gloom crowd would have you believe, the global economy has never been more prosperous and generally speaking living standards are still on the ascent. It’s important to remember that the global economy is, on balance, still growing. Scientists and entrepreneurs all over the world are at work in R&D labs focused on finding solutions to some of life’s most pressing issues. Finding those high growth opportunities is exactly what small cap disruptive discovery investing is about and my travels in Asia and Europe have reinforced this view.

I’ll be speaking about these themes at Mines & Money in London Dec 1 – 4. Please reach out if you’ll be there.  

The material herein is for informational purposes only and is not intended to and does not constitute the rendering of investment advice or the solicitation of an offer to buy securities. The foregoing discussion contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (The Act).  In particular when used in the preceding discussion the words “plan,” confident that, believe, scheduled, expect, or intend to, and similar conditional expressions are intended to identify forward-looking statements subject to the safe harbor created by the ACT.  Such statements are subject to certain risks and uncertainties and actual results could differ materially from those expressed in any of the forward looking statements.  Such risks and uncertainties include, but are not limited to future events and financial performance of the company which are inherently uncertain and actual events and / or results may differ materially.  In addition we may review investments that are not registered in the U.SWe cannot attest to nor certify the correctness of any information in this note. Please consult your financial advisor and perform your own due diligence before considering any companies mentioned in this informational bulletin.

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The content in this note is not intended to be a comprehensive review of all matters and developments, and we assume no responsibility as to its completeness or accuracy. Furthermore, the information in no way should be construed or interpreted as – or as part of – an offering or solicitation of securities. No securities commission or other regulatory authority has in any way passed upon this information and no representation or warranty is made by us to that effect. For a more detailed disclaimer, please see the disclaimer on our website

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Border Gold Corp: Geopolitics Plays Interference

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Geopolitics Plays Interference

It seems that once again the direction or trend playing out in the markets has been interrupted by geopolitical tensions heating up between Russia, Ukraine, and the Western powers. Precious metals finished the week on higher footing, with gold initially touching below 1,150 USD this past Friday morning, but going on to finish the day approximately 40 dollars higher just shy of 1,190 USD. The predicament for those who have been anticipating a bottom in the precious metals is determining whether or not this is simply just noise that will once again wash through and see the trend of a stronger greenback and weaker precious metal prices continue.

If weeks prior can provide any indication for what Russia-Ukraine tensions mean, it’s that they have led to unsustainable rallies in the metals market. The escalation of sanctions and threat of increased violence simply subside with time, and metals prices tracked lower accordingly. Thus, a suitable question becomes why does the market again react to similar events we have witness play out before if inevitably, time will pass and they will soon be forgotten?

For certain the liquidity of the gold and precious metal markets is one factor for the surge in prices as the relatively smaller market becomes a very quick and instantaneous hedge for the US dollars and risk assets. Short term investors or traders are less concerned about the price level of gold, but instead will go long gold as it  exhibits its safe haven characteristics during these time periods.

Perhaps another reason though is the ongoing uncertainty surrounding the Russian economy. And although what we are currently witnessing with Russia is simply antagonizing tactics with Ukraine, the likelihood of escalation of sustained violence (or war) becomes more and more likely as their economy worsens. The Russian Ruble has depreciated 23 per cent against the US dollar over the past three months. Inflation becomes a huge issue for the Russian consumer with prices up nearly 8 per cent over the last year, and it is a trend that is likely to continue as the economy is extremely dependent of imports of food and agriculture as they are unable to substitute for what is inadequate domestic production.

As the Russian economy gets choked off from the rest of the world, and it’s the citizens that feel the brunt of the pain and suffering as their lifestyles adjust to a weaker economy that makes the majority of them worse off, options become limited. The uncertainty, which is very much priced into the market for Russian Rubles, and attracting a safe haven bid in precious metals, is how far into a corner is Putin backing himself, and what will be the repercussions of his actions.

And one potential repercussion becomes, as the media has been questioning, the likelihood of another cold war. Ongoing and increased sanctions with Russia are slowly cutting the economic ties to the west. It’s not without coincidence that the largest buyers of physical gold in the last quarter were Russia, Kazakhstan, and Azerbaijan. But all central banks in aggregate have bought gold now for 15 consecutive quarters. These are the long terms investors, and as one UBS analyst put it, in this kind of environment, “diversification would be deemed a logical outcome.”


“Don’t Panic!” AlphaNorth’s Steven Palmer Tells Small Cap Investors

Small cap fund manager Steven Palmer of AlphaNorth Asset Management spoke with Gravitas Financial’s Vikas Ranjan recently about October’s stock market sell off and why he believes the broader trend will continue. As well, he explains why he doesn’t have any sector biases and hints that he’s adding some resource names to his portfolio. He also mentions one Venture exchange listed stock that he bought recently that has soared more than three-fold during the past month.