John Kaiser Has A Point

John Kaiser has a point about the latest action in the markets and volatility:

http://www.northernminer.com/videos/play/?plid=1000377338

Net Present Value vs. Gold Sector Net Present Value

Last week, I was ruminating that should the discount rate decline further, or pop into the negative, this will set off an important change in the markets, though we may already be seeing those changes as if rates were negative anyways.

One of the things I was trying to point out was that Net Present Value in a normal sense would look a certain way and that a Net Present Value calculated for a gold sector operation would be the inverse:

source: http://hspm.sph.sc.edu/COURSES/ECON/invest/invest.html

Using the calculator on the source page for Net Present Value, and placing an inverted chart over the original curve, you can visualize how this might look:

supersize: http://www.flickr.com/photos/11747277@N07/4825171381/sizes/l/

This chart should illustrate exactly how Net Present Value would work in the present low interest rate regime in gold vs. a theoretical curve, presumably the financial sector. I would also say that the scale is 0% - 10%, not 0% - 100%.

In the history of the yield curve, interest rates went from a low of ~2% since 1949(with a discount rate at zero and popping into the negative during the depression) to a high of ~18% in 1979 and then down to zero again as of late. I wonder just how closely this theoretical scheme represents just how NPV adjusts for assets in dollars and assets in gold, over a lengthy period of history. It aught to be bang on.

So the conclusion I draw from such a comparison is that since we are in a period of extreme interest rates, then NPV value calculations for gold companies will outshine most other sectors.

Of course, the exact placement of this chart is questionable, since gold companies were going broke in yr. 2000, and during the crash. But it can't be far off.

Weekly IRX

So we take a gander again at the mysterious weekly $IRX chart. The IRX chart technicals say that we have another dip again in store, but more or less the Wilder's ADX says that we are in for very low interest rates for some time and takes a rather neutral stance.(the monthly chart disagrees.)

Perhaps the Swedish Central Bank is the model for us to follow, since they went with a negative repo rate for a time, but recently raised their policy rate. Very likely they followed the market rates on yields. Evidently a low interest rate does not benefit anyone unless perhaps you happen to be operating in the gold sector. But then again, the gold mining stocks have under performed their Net Asset Value.

supersize: http://www.flickr.com/photos/11747277@N07/4825835792/sizes/l/

stockcharts.com

Creamer's Got The Quote

"The mine is coming about at a time when returns on dollar and euro investments are poor; gold exchange-traded funds have unin- viting gearing; the share prices of large gold majors are not rising with the gold price; and the share prices of even large marginal gold mining have already benefited from the gold price rise and will fall if the gold price falls.

Against that background, junior gold- mining companies with projects that can have significant upside are attracting the attention of investors, but some of those have been burnt by their earlier investments in South African junior gold-mining companies and are now cautious."

miningweekly.com

An Interesting Week Ahead

It should be an interesting week ahead, since we don't really know how the IRX will look exactly, and that on the 27th, the Canadian money market rate is posted finally. The 27th is also options expiry on the COMEX. GBN.V stock is trading just under a major long term resistance level as of Friday. AND we have yet to see just who buys into the stock with the close of financing.

GLTA

-F6