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Dear Members,


Before we get started this week, I want to share something that will shock you.  

 

The US now ranks 190th in the World in account balance.

   

The account balance is a country's net trade in goods and services, plus net earnings from rents, interest, profits, and dividends, and net transfer payments (such as pension funds and worker remittances) to and from the rest of the world during the period specified.

 

China ranks number one with a positive balance of $272,500,000,000. 

 

The US? Ranked number 190th in the world with a negative balance of $ -561,000,000,000.

 

Countries such as Haiti, Kosovo, Uganda, Rwanda, Zimbabwe, and Vietnam all have better balances than the US.  

 

Take a look at the rankings here:

 

Click Here for Account Balance (1 - 95)  

Click Here for Account Balance (96 - 190) 

 

With US debt continuing to climb and interest rates at all time lows, you can see why I continue to be bullish on gold and bearish on the Dollar. Which leads us to a question I get asked a lot: Gold is up big, so why aren't the producers up higher?

 

The Difference Between Gold and Gold Producers 

 

It seems logical that as gold prices move up, the big gold producers should make more money. But that isn't always the case.  

 

Especially now.

 

Often times, gold moves with the price of oil - especially in a situation where there is risk and tension involved. I hate using the word "war" but the unrest in the Middle East has only gotten worse, leading to a further drain in the worldwide supply of oil.  

 

I've always liked oil and gas. It's a cash flow business and much simpler to value than precious metals or other commodities. It gets used up and once it's gone, it's gone.  

We are far, far away from any real "green" alternatives. This makes oil the most preciously traded resource.

 

I have been predicting that oil will hit $100 over the last few months. The growing unrest in the Middle East only adds more fuel to that theory.  

 

While there are many that say these oil prices won't last, I am not so sure...yet. As long as there is tension in the Middle East, there will be room for oil's advances. Unless you believe the situation will just disappear, oil prices will remain high.

 

We know the demand for oil hasn't changed much. As a matter of fact, given the high price of oil, demand should diminish in an economy that's trying to pick itself back up - which would lead to lower oil prices. But the fear factor is once again in play. Oil is rising because of fear and risk, and not macro-economic growth.

 

And that's what we're seeing. The overall stock market dropping, as oil rises.  

 

Barclay's has estimated that one million barrels of oil per day has been shut down from the world as a result Libya. But is that enough to justify the climb in prices? Just as the Greek crisis took oil down, the unrest in the Middle East is forcing it up. So it doesn't matter if it's justified - the market plays on perception, not reality.  

 

I expect prices to climb even higher in the short term, and would not be surprised to see $120/barrel. Whether oil remains consistently at those levels in another question, but the fact that oil could hit $120 could have negative consequences. We'll likely see $105 by the end of next week which should give us another great opportunity to profit from oil's run like it did in 2008.  

 

But we all remember what happened after the run in 2008, when oil hit $147. How can we forget?

 

While we can make a lot of money from knowing that oil could reach $120, it wouldn't be good for the overall economy. It would be downright brutal.  

 

$120 oil is the level that oil as a share of global GDP starts to move above 5.5 per cent of GDP, which has historically been an environment where global growth has come under pressure. We've seen this over and over again, with our most current reminder in 2008.  

 

We have seen a major increase in the price of oil in the last two years, and every time we have seen oil prices rise 120 per cent over a two-year period there has been a recession, with the exception of 2006 when the housing boom counteracted the price movement. This time around there won't be a housing boom to mitigate the effects. And the world knows this.

 

Saudi Arabia and other OPEC nations have already talked about replacing any lost Libyan oil. But that may actually lead to higher prices in the long term.

 

Right now, the price of oil is kept in check because there is around 5 - 6 million barrels a day of excess capacity on a global basis, with the majority of this in Saudi Arabia.  But if they start to make up for short falls elsewhere, such as Libya, that spare capacity still never drops. That means that oil has to be made up from the overall supply, leading to higher overall prices in the long term.

 

Although I prefer to say otherwise, the unrest in the Middle East has just gotten started. That means continued high prices for commodities and continued high prices for oil and gas. It's not rocket science. Whenever there is war, tension, unrest, or whatever word you choose to use, energy, food, and resource prices go up - including gold.

 

So now we go back to the question. Gold is up big, so why aren't the producers?

 

Why have we seen Barrick, Goldcorp, Kinross, Newmont Mining, Agnico-Eagle Mines Ltd., and Yamana Gold Inc. all drop 2-7%, as oil climbs 2%?

 

Gold producers require a lot of energy to pull the gold out of the ground and energy costs a lot of money. As a matter of fact, the majority of the costs associated with producing gold is energy.

 

With the tension in the Middle East and the media outlets screaming $200 oil, this puts a very dramatic constraint in the profits for the big producers.  

 

Commodity prices, labour costs, and energy prices are rising around the world. When you have high oil prices and high labour costs, the bottom line for the gold producers drops significantly - even if gold climbs.

 

Furthermore, big producers are forced to mine for lower grades, as the higher grade ore deposits are running out of steam. That means for every tonne of processed rock, producers are yielding less gold, which leads to less money.

 

If oil continues its climb or remains at these levels over the coming months, you can be sure that these big producers will have some disappointing quarterlies. For these producers to satisfy shareholders, they'll need to produce more gold to continue revenue growth. They no longer have the luxury of high gold prices combined with $40-$60 oil, like they did last year. Ultimately, this means exhausting more resources.  

 

So does that mean we should stay away from gold stocks? Nope. In fact, it's quite the opposite.  

 

The SPDR Gold Trust (NYSE: GLD) and other Gold ETF's continue to climb forward and companies that aren't producers are still making a very strong run.

 

Last week we talked about Kaminak Gold Corporation, ATAC Resources, and Northern Dynasty. Two of them made advances this week while one remained steady, despite oil climbing higher. Why? Why are they climbing when the major producers are falling? 

 

In order for the majors to keep up, they need to produce more - especially with higher oil prices. The market forces these majors to increasingly exhaust resources because every investor wants to see increased revenue.  

 

There are only a few ways a major can increase its value besides having gold prices climb, when energy costs stay consistent. They can either increase production, or acquire other gold properties and add to their reserves.

 

The majors do not explore. They let the juniors do the work. While they may invest in the exploration programs of the juniors, they rarely get their hands dirty. Their job is to produce as much gold as they can, in the shortest time possible. Because of that, they need to replace their dwindling supply, which means they are always eyeing take over targets. That's why theres a lot of money being poured into the sector.  

 

Many of the juniors I have spoken with have had little problem financing their projects. The speculative investments from the funds and banks are rising quicker than ever signalling a junior market that is becoming more bullish everyday.  

 

Later this week, we're going to be skipping our regularly scheduled issue of Equedia Weekly to present an exclusive in-depth report on a junior gold exploration company that:

  • has over 5 million+ gold-equivalent ounces  
  • owns 100% of a brand new gold district
  • has target prices from respected analysts nearly double where it trades today
  • has a very sophisticated and respected management team
  • is an ideal mid-term takeover target
  • has an extremely aggressive 2011 drill program planned, nearing 40,000m of drilling 
  • has millions of dollars in the bank
  • and has numerous projects in the works with the majors
It's going to be a very exciting year for this company and their drills are about to turn. Last year, they drilled out less than 8000m, hit some very big numbers and found new discoveries under a restricted drill program due to obligations with a major. This year, they have free rein and are about to embark on a drill program nearing 40,000m. That's a big program for any company and it shows the utmost confidence in their project. The details of their drill program should be released later this week.

I can't wait to share their story.

 

Until next week,

 

Ivan Lo

Equedia Weekly  

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United Mining Group Extends Contract at Galena Mine - Click to Read

Casey Research

What You Need to Know About Buying Silver Today

By Jeff Clark, Big Gold  

  

Jeff Clark

It's hard to believe that less than three years ago, silver was $8.80 an ounce. Since then it has nearly quadrupled in value (up 385%) and more than doubled in the last 12 months alone.     

 

That's great for those who already own the metal - but is it too late for the rest of us to get in?    

To answer that question, BIG GOLD Editor Jeff Clark sat down with our friends of The Daily Crux. Read what he had to say about the silver rally, and why you should view any correction as good news.     

 

Crux: Jeff, silver has had an incredible run over the past year or so... Where do you think it's headed next?

 

Jeff Clark: Well, that's probably the most common question we get these days. Silver has definitely been very exciting. The price has basically doubled in a year, and many of the stocks have done much better than that... So you could be forgiven for asking how long that can continue.

 

I think the bullish case for silver going forward comes down to three main factors.

 

The first is industrial demand. Everyone knows industrial use is much greater for silver than gold, and that does make it more susceptible to an economic slowdown. But what's interesting is these industrial uses are growing rapidly.

 

For example, all of the following uses for silver are increasing: medical, electronics, food processing, water treatment, paper, building materials, wood preservation, textiles, consumer products... the list goes on and on. Every bandage-maker, for example, now offers a silver-based product. You can buy silver-laced toothbrushes, hairbrushes, combs, and make-up applicators. In England, you can buy silver-based soap.

 

The takeaway is that all these uses are on the rise, so even in an economic slowdown, there is a higher level of base demand. The demand for any individual application could decline, but the total number of applications for silver is increasing. Over time, I think we'll see increasing levels of demand.

 

The second major factor is investment demand. Investment demand is soaring and can't be ignored. The U.S. Mint sold more one-ounce Silver Eagles in January than in any other month since they began creating them in 1986. China's net imports of silver quadrupled in 2010. Against all this you have the fact that most Americans don't own any gold or especially silver. So even though there's already incredible investment demand, the potential for it to increase is still tremendous.

 

The third factor is supply. Ask yourself what's wrong with this picture: Total global demand for silver is about 890 million ounces a year. Worldwide mine production is about 720 million ounces a year. Scrap currently makes up the difference, but I think the crucial point to recognize is that producers can't dig up enough silver to meet current demand.

 

So what happens if industrial uses continue to rise? What happens if investment demand continues growing? What happens if we do get some type of currency collapse? What happens if Doug Casey is right and we get a true mania in gold and silver?

 

Click Here to Continue Reading


More Casey Research Articles


> Robotics, Part 1 - Where Are We Today?
> Why I'm Buying Silver at $30

> How Much More Demand Can Silver Handle? 

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Capstone Reports 2011 Prefeasibility Study for Kutcho Copper-Zinc Project, BC - Click to Read

Stock Screening Strategy: Buying Stocks Making New 52-Week Highs
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Today Kevin Matras is going over a simple screen with a powerful concept:

Buying stocks making new highs.

 

Some are reluctant to buy stocks making new 52-week highs. If you're one of them, have you ever asked yourself why?


Kevin Matras talks about stocks making new highs and why you shouldn't be afraid to buy them in this video segment of Zacks Screen of the Week, an overview of the timely stock screening strategies aimed at helping you produce more profitable investing results.

More Zacks Videos:

> Momentum Stock Picks - February 25, 2011
> Aggressive Growth Stock Picks - February 24, 2011
> Value Stock Picks - February 22, 2011

Featured News:
Goldcorp Expands Canadian Gold Growth Projects - Click to Read
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Rosebud Augeries - February 23, 2011

 

After Charles Foster "Citizen" Kane was exposed by mortal enemy Jim Gettys, he received this memorable dressing down: "If it was anybody else, I'd say what's going to happen to you would be a lesson to you. Only you're going to need more than one lesson. And you're going to get more than one lesson." Would it be too much to regard Kane as a metaphor for 21st-century America?

 

Graham Summers writes on Seeking Alpha February 8, "According to the Office of the Comptroller of the Currency's Quarterly Report on Bank Trading and Derivatives Activities for the Second Quarter 2010 (most recent), the notional value of derivatives held by US commercial banks is around $223.4 trillion." Ninety-five percent of this stupendous amount is held by just five banks: JPMorgan, Bank of America, Citibank, Goldman Sachs and HSBC. Derivatives are commonly held to be a hedge against risk, but as Summers points out, "$188 trillion of the $223 trillion...is related to interest rates... That's 13 times the US' entire GDP, and nearly four times world GDP."

 

Now here's the kicker: "Not ALL of this money is 'at risk,' since the same derivatives can be traded/spread out dozens of ways by different banks as a means of dispersing risk. However, given the amount of money at stake, if even 4% of this money is 'at risk,' and 10% of that 4% goes wrong, you've wiped out ALL of the equity at the top five banks."

 

So, three years after derivatives nearly destroyed the world economic system, nothing has been done to identify the "toxic paper" and retire it-and no one has been punished. Have you seen anything about this in the Mainstream Media? It is in this context that the various conflagrations around the world begin to make sense. State legislators in Wisconsin and Indiana may flee to Illinois and Kentucky, but the chickens have come to roost in America.

 

The roaring comebacks of gold and silver ($1,415.50 and $33.39 respectively, at press time) are now routinely attributed to fear of inflation. But as the venerable William Rees-Mogg writes in the Daily Mail February 21, there is a deeper fear at work.

 

The two commodities which provide the best indicators of the long-term prospect for inflation are oil and gold.

The price for a barrel of Brent Crude has risen to more than $100 and has been very firm at that level. The price of gold has risen above $1,350 per troy ounce and has been reasonably firm at that level. The price of gold reflects the fact that a lot of money has been created by so-called quantitative easing by the central banks. Gold rises when people cease to trust paper currencies.

 

The logic is that gold money cannot be printed but paper money can be, without limit. The increase in paper money eventually leads to a decline in its value relative to gold. Almost all the paper currencies of the last century have either disappeared or lost more than 95 per cent of their purchasing power, whereas gold has actually increased in value.

 

Of course not everyone shares Lord Rees-Mogg's opinion. The aforementioned Goldman Sachs, for one, as this story in the National Post explains. It would seem, therefore, that the bet on paper money is a bet that global stability will prevail, while the bet on precious metals is a bet on the opposite.

 

In the meantime, money is flooding into junior-resource private placements. In the February 8 Globe and Mail, Tim Kiladze reports that Sabina Gold & Silver's $75-million placement became $90 million, while Southern Arc Minerals placement went from $20 million to $27 million overnight, and Golden Predator's went from $15 million to $19.8 million the same day. Indeed, anyone who reads the industry's press releases can attest that there is hardly a private placement offered these days that does not end up oversubscribed.

 

Silver's recent gains have been so robust that...

Click Here to Continue Reading

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Forward-Looking Statements

Except for the statements of historical fact, the information contained herein is of a forward-looking nature. Such forward-looking information involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievement of the Company to be materially different from any future results, performance or achievements expressed or implied by statements containing forward-looking information.

Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that statements containing forward looking information will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on statements containing forward looking information. Readers should review the risk factors set out in the Company's prospectus and the documents incorporated by reference.

Cautionary Note to U.S. Investors Concerning Estimates of Inferred Resources

This presentation uses the term "Inferred Resources". U.S. investors are advised that while this term is recognized and required by Canadian regulations, the Securities and Exchange Commission does not recognize it. "Inferred Resources" have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Resource will ever be upgraded to a higher category. Under Canadian rules, estimates of "Inferred Resources" may not form the basis of feasibility or other economic studies. U.S. investors are also cautioned not to assume that all or any part of an "Inferred Mineral Resource" exists, or is economically or legally mineable.

In This Issue
United Mining Group Extends Contract at Galena Mine
What You Need to Know About Buying Silver Today
Capstone Reports 2011 Prefeasibility Study for Kutcho Copper-Zinc Project, BC
Stock Screening Strategy: Buying Stocks Making New 52-Week Highs
Goldcorp Expands Canadian Gold Growth Projects
Rosebud Augeries - February 23, 2011
How the Wealthy are Investing Right Now
Technical Trading with Harry Boxer
Morningstar: Tips for Asset Location & Allocation in Retirement Accounts
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