Peter Brimelow: Gold bushwhacks bears -- Is a central bank buying?


By Peter Brimelow
Monday, May 21, 2012

NEW YORK -- Gold bushwhacked the bears last week. It's even got gold bugs talking about gold stocks ... again.

After breaking gold bugs' hearts by plunging to a new low for the year on Thursday, gold violently reversed. Measured by the CME floor close, the benchmark gold contract gained $38.30 on the day. It followed up on Friday by adding another $17, for a two-day gain of 3.31%.

The NYSE Arca Gold Bugs Index (HUI) jumped 5.29% in these two days.

Gold stocks' outperforming the metal is significant, because they have been atrocious this year. As of Friday's close, the HUI was down 20.5% on the year, while gold was actually up 1.4% on the year. Just a restoration of late 2011's multiples could produce serious gains.

If gold's reversal sticks, it will be a triumph for the contrary opinion sentiment indicators. Nothing else had been offering any comfort.

The Hulbert Gold Newsletter Sentiment Index has been negative for a record 29 days. The previous record, which ended in early 2005, was followed by a 72% rise in gold over the next 15 months.

... Dispatch continues below ...


Prophecy Platinum (TSXV: NKL) and Ursa Major Minerals
Sign Combination Agreement

Company Press Release
Friday, March 2, 2012

VANCOUVER, British Columbia, Canada -- Prophecy Platinum Corp. (TSX-V: NKL, OTC-QX: PNIKF, Frankfurt: P94P) and Ursa Major Minerals Inc. have signed a binding letter of agreement for a business combination through a proposed all-share transaction. In doing so Prophecy and Ursa have acted at arm's length and the transaction has been negotiated at arm's length.

Prophecy will issue one common share in exchange for every 25 outstanding common shares of Ursa. Ursa options and warrants will be exchanged for options and warrants of Prophecy on an agreed schedule.

Prophecy's offer represents a value of about $0.15 per each common share of Ursa based on Prophecy's share price of $3.70 as at March 1, representing a premium of 130 percent to Ursa's March 1 closing price of $0.065.

Prophecy is to subscribe for $1 million common shares of Ursa by way of private placement financing at $0.06 per share, subject to regulatory approval. Upon placement completion, John Lee and Greg Hall, current Prophecy directors, will be appointed to Ursa's board.

Prophecy thus will become a mid-tier resource company with a robust and diversified pipeline of platinum nickel projects, including:

-- The fully permitted open-pit Shakespeare PGM-Ni-Cu mine close to Sudbury, Ontario, infrastructure with near-term production capabilities.

-- The flagship Wellgreen (Yukon) PGM-Ni-Cu project with more than 10 million ounces of Pt-Pd-Au inferred resource. Drilling is under way and a preliminary economic assessment study is pending.

-- Manitoba's Lynn Lake Ni-Cu project with more than 262 million pounds Ni and 138 million pounds Cu measured and indicated.

For the complete announcement, please visit Prophecy Platinum's Internet site here:

When MarketVane's Bullish Consensus for gold hit 51% on Wednesday, it was at the lowest except for one day -- 49% on Nov. 13, 2008 -- for many years.

The far-sighted Australian bullion commentary The Privateer thinks something really significant has happened.

This weekend it observed: "What is interesting about the snap-back this week -- in both the physical and paper forms of gold, including gold stocks -- is that gold has once again started to rise, while other asset markets (especially stock markets) are still falling."

Another positive voice, from an unusual source, is veteran gold analyst Frank Veneroso.

As I noted during last Christmas' gold gap-down, Veneroso earned an important place in gold-market history for conceptualizing, in the 1990s, the importance of Eastern physical demand to the gold price, then a new factor. But for several years he had dismayed gold bugs by ignoring the metal.

After the Christmas gap-down, I reported that Veneroso had surfaced expressing a "hunch" that efforts by "a bunch of traders" to cause a technical breakdown would be defeated by central-bank buying. And, indeed, by Feb. 23, gold had risen 14%.

Now Veneroso has circulated another essay entitled "At the Threshold of the End of Central Bank Independence, Gold Is Compelling."

He writes: "It may finally become clear to market participants that the body politics around the world will demand that central banks implement debt-eroding inflations."

"With the death of the myth of independent central banking, gold should assume a unique position as a monetary asset. I think we are very close to this point."

This represents a tremendous shift for Veneroso, formerly a dogged skeptic about the influence of monetary matters on gold.

Gold bugs are also excited about some strange technical news about Thursday's rally. With bearishness previously so intense, it would have been normal for Thursday's big jump to involve considerable short covering, which would have slashed the number of outstanding contracts on the CME -- the "open interest."

But precisely the reverse happened.

As Bill Murphy, proprietor of the LeMetropoleCafe website, put it on Friday evening: "The gold open interest rose a whopping 16,891 contracts yesterday to 433,847, which is new recent high, by a substantial degree. Almost everyone thought yesterday was about short covering. ... It was new buying. The sort of major-league buying brought to your attention for weeks now in this space."

A correspondent at Le Metropole Café remarks: "If indeed gold is underpinned by some enormous strategic buyer -- probably a central bank -- which is what the data implies, a number of market participants will have to do some serious rethinking."

Rethinking the value of gold shares will be top of that list.

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Sona Discovers Potential High-Grade Gold Mineralization
at Blackdome in British Columbia -- 13.6g over 1.5 Meters

From a Company Press Release
November 22, 2011

VANCOUVER, British Columbia -- With its latest surface diamond drilling program at its 100-percent-owned, formerly producing Blackdome gold mine in southern British Columbia, Sona Resources Corp. has discovered a potentially high-grade gold-mineralized area, with one hole intersecting 13.6 grams of gold in 1.5 meters of core drilling.

"We intersected a promising new mineralized zone, and we feel optimistic about the assay results," says Sona's president and CEO, John P. Thompson. "We have undertaken an aggressive exploration program that has tested a number of target zones. Our discovery of this new gold-bearing structure is significant, and it represents a positive development for the company."

Sona aims to bring its permitted Blackdome mill back into production over the next year and a half, at a rate of 200 tonnes per day, with feed from the formerly producing Blackdome mine and the nearby Elizabeth gold deposit property. A positive preliminary economic assessment by Micon International Ltd., based on a gold price of $950 per ounce over eight years, has estimated a cash cost of $208 per tonne milled, or $686 per gold ounce recovered.

For the company's complete press release, please visit: