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Gold Action in Seasonal Slowdown
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(April 11, 2009) Traditionally, a national pause occurs in the gold business in the weeks preceding the 15th April. In preparation for this least holy of days, US citizens are busy contemplating his or her personal finances as they prepare to render unto Uncle Sam Caesar his due.
Contributing to this pause is that tax season generally puts a hold on potential major purchases. And here in the Sonoran desert, snowbirds begin their seasonal out-migration this time of year, hightailing it back home to do their taxes, and await what passes for Spring in their frozen homelands.

And with the gold market suddenly gone cold, our phones, after signaling non-stop action going back to September of 2008, are almost silent. Which is a shame, as bullion products have flowed into dealer’s inventories, and the yellow metal itself has suffered a better than 12% price haircut over the past few weeks. In other words, it’s probably the best time to buy gold in over a year.

The fall-off in bullion business has run concurrently with the recent new-found life in the equities market, as the heart-stopping draining of trillions of dollars worth of stock values that we’ve seen since late last year seems to have halted about a month ago.

Nothing goes straight, down or up, so it is a bounce we are currently having in the stock market. Stocks have had a spectacular run-up since the second week of March, and a few questions about animals come to mind:

Is the damage of the bear market over? Do we smell a bull coming our way? Or are we seeing a dead cat?

At any rate, the frantic scramble for physical gold has abated in small part, back to approximately the heightened but not maniacal level we started to see when the phrase ‘credit crunch’ was first uttered in September of 2007.

But if the gold world gives us a break in the action, we’ll certainly take it. After the last seven month’s worth of long days and working weekends, we could use it, to be sure.

Barron’s this week ran a two-page article focusing on an Amex-listed gold exploration outfit known as the Tanzanian Royalty Exploration.

As Vito Racanelli explains in his article, the business model for this little company is to acquire properties with promising mineralization, perform the drilling and exploration of those properties, with the idea of selling off promising sites to larger mining firms for development. In other words, to explore for royalty arrangements in Tanzania – thus its name, Tanzanian Royalty Exploration.

Mr. Racanelli didn’t seem to think much of the firm’s prospects: $370 million market cap, $1.2 million in the bank, no active mineral production (and therefore no income) at all, and no proven gold resources on its books. As a matter of fact, Barron’s allowed him two full pages of space for an article about a very slightly-capitalized firm which in eight years seems to have raised millions of dollars from investors, with nary a gram of gold to show for it. The only story seems to be that its chairman has quietly reduced his stake in the firm over the past few years.

So why did Barrons and Mr. Racanelli even bother to trot out a boring story about such a non-player in the world of gold production? Mostly, because TRE’s chairman and chief executive is that hoariest of goldbugs, Jim Sinclair, the media’s perennial go-to guy for a bullish sound bite about gold, going back to the days when Krugerrrands were a novelty.

The article compares TRE to other gold exploration companies by the numbers, and finds it wanting: “Most of the other gold-exploration companies have more cash on their balance sheets and more gold than Tanzanian Royalty. But the market values them much more cheaply than Tanzanian.”

Mr. Racanelli’s two-pager falls short of being a credible expose of anything untoward, and you have to wonder what Barron’s had in mind in publishing it. Unless, of course, they simply hold a grudge against this particular gold guru. The most succinct thing they have to say is this:

“Without Sinclair, it is likely TRE’s market cap and share price could be significantly less golden.”

Which can hardly be counted as any sort of stunning insight about Tanzanian Royalty Exploration and its famously bombastic spokesperson.

But on to bigger issues. Mainly, is a lack of borrowing really what ails our economy?

In both the mainstream press, and much of whatever you would call its alternate, dire emphasis is placed on the unavailability of credit in the US, as if that were a bad thing. Our big banks are receiving massive infusions of funds, it is said, in fervent hopes that they will act as conduits and loan all those bucks to worthy businesses and consumers. But, we might ask, for what?

The consumer, for the most part, has enough debt already, thank you. For most everyone who purchased a home in the last six years or so, they are already carrying more debt than their mortgaged ‘assets’ are worth, so how does is come to be universally agreed upon that this person needs to borrow more? On what collateral? On what implied future income stream? And to what end?

After all, it was debt, staggering towers of debt, debt expressed in creative ways heretofore unknown, that got us into this pickle in the first place – so how can more debt be the cure?

It’s not like the market is telling us that our country is full of worthy borrowers, whose reasonable hopes of expanding a business or just buying stuff to play with is being stymied by lack of funds. If that un-tapped market existed, you would see new banks and loan offices opening on every corner to profit from that unmet need.

In short, that’s how capitalism works. And from looking at the swelling amount of US investment capital currently floating around listlessly in low-paying money market funds, it’s obvious that there is plenty of available money out there, just waiting its chance at a good opportunity.

As a matter of fact, that is the central and best argument against this whole process of rescuing, bailing out, and re-liquifying the Citicorps, Bank of Americas, AIGs, and General Electric Capitals of our country – why not just let them suffer the consequences of their own bad judgment and go bankrupt? Other banks, and other investor- backed enterprises, will surely take their place.

Do we as Americans hold in our hearts so little faith in the resilience of capitalism that we don’t think that a thousand new institutions would bloom to take the place of fallen financial Goliaths, provide capital where warranted, and be a safe depository for invested funds?

Such a free-market outcome would certainly be healthier than the current raft of prevarications we’re having to abide from The Powers That Speak, such as the re-branding of what are known to one and all as ‘toxic’ assets, i.e., assets that aren’t assets at all, into something called “legacy assets,” As if these poor assets, alas, are a legacy that we will always have with us. Sheesh.

There can be no doubt that the sequential multi-trillion-dollar bailout of the mighty and well-connected will bring many unfavorable, unintended, and simply unfair outcomes. But so misguided, poorly thought-out, and philosophically indefensible are these mutually back- scratching gifts from the supposed guardians of the public purse to the undeserving. that the public defense of these measures requires the demise of plainly spoken truth.

 

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