Come What May

Come what may essentially describes the plan here. A lot will depend on how the management views the gold market, whether their opinion is that the gold price will crash, or finally move the company forward counting on a gold bull market.

They have been quietly setting things in order, but their habit of releasing material news into gold price corrections, or stock market corrections is a dead giveaway. This week would have certainly set them at odds with their own inclinations. Whether they hold an equity swap position insuring against their own company failure is not entirely certain, but they will be seriously considering abandoning their strategy on a share price advance they weren't counting on. And this is exactly what is required, a share price advance.

At $1200/oz. U.S., and a declining $CDN, the gold price is now TWICE a preliminary feasibility study done years ago, which projected a $600/oz. U.S. gold price in a rising $CDN dollar. Even if the gold price advance should stumble in $U.S. terms, the decline of the loonie is virtually guaranteed along with a decline in oil prices.

From the view of the market in GBN.V shares, there is a very aggravated, frustrating attempt to trade their way out of an erroneous naked shorting position, one of which was accumulated over years. The sellers are all gone, and this week its clear that gamblers on company failure are headed for the exits. And buyers en masse still have to show up in number. This has put significant upward pressure on the stock.

And there are still a couple of brokers insisting their bearish trading strategy is absolutely correct. In the face of a powerful stock market decline and rising GBN.V share price, they futilely continue to vend-forward shares they don't own in an absolutely pointless trade, haplessly defending a naked shorting position they had sold forward at a much lower share price. They are on the hook, they sold you the boa constrictor they are going to devour themselves with.

Price and interest rates are moving firmly against the formerly bearish picture in this penny stock while blue chips in goldilocks land are clearly facing a rout.

Garbage In/Garbage Out

There is a problem in computer science called 'Garbage In/Garbage Out' where, if you put the wrong numbers in the computer, there is no likelyhood whatsoever that the answers will come out correctly. I think this is the case with computer trading algorithms, where nobody foresees a further decline in the discount rate, and when it does, it creates havoc with the markets. Nobody is prepared for what comes next, which is probably negative short-term interest rates.

Garbage In / Garbage Out presaged

On two occasions I have been asked,—”Pray, Mr. Babbage, if you put into the machine wrong figures, will the right answers come out?” … I am not able rightly to apprehend the kind of confusion of ideas that could provoke such a question.

http://improbable.com/2010/05/05/garbage-in-garbaged-out-presaged/

$IRX

I believe the $IRX is the most important chart going into the next few weeks, as the discount rate is set to decline. The peak came in early April @.17%. Since then the rate had declined. This rate will not be stable no matter how much in treasuries the Federal Reserve throws into the short term money markets. The chart reads 1.2%, but this is really .12%, well below the policy rate in the U.S. In Canada, the policy short term rate closely matches the yields on short term treasuries.

A negative discount rate will not read on the chart, but a chronic negative rate will certainly be reported in the press. It was said during the depression that the greatest crime of the century was call money rates @ 200%, meaning you could not borrow money to buy stock unless you put up twice the amount you intended to borrow.

supersize: http://www.flickr.com/photos/11747277@N07/4588801568/sizes/o/

stockcharts.com

Rummaging Around

The following link is for an economic geology paper on the geologic setting of the Jolu Gold mine. Its gobbledy-gook, but what its saying is that the deeper you go into the rock, the grades are consistent or improve. These are the kind of results you are getting in the Seabee Mine 1000m down, neighbouring to the La Ronge gold project. The former mines in the mill zone are known to grade 14g/t, and we still don't know the scope and results of the soil gas hydrocarbon survey of that zone.

http://econgeol.geoscienceworld.org/cgi/content/abstract/89/5/1017

From the Saskatchewan Ministry Of Natural Resources, I found the following pdf presentation:

http://www.saskmining.ca/uploads/news_files/53/golden-band-resources.pdf

Casual Fridays

DFO documentation found here:

http://www.ceaa.gc.ca/050/documents/41460/41460E.pdf

This kind of assessment is undertaken for large projects.

The Traction Is In The Gold Markets

Bullion Lease rates were briefly above policy rates in the U.S., where we were seeing the biggest daily advances in the gold price.

At these times, it's theoretically cheaper to borrow readily available gubmint money and purchase gold futures for a guaranteed return when this occurs, than it is to lease bullion and vend it into the market on a short sale, when bullion lease rates exceed the policy rate. (we saw this briefly leading up the the retest of the high this week.)

If perhaps short term money rates turn negative, then commercial banks buying these futures will very likely take physical delivery of the bullion, rather than trade cash or buy paper with negative interest from the money markets.

http://www.kitco.com/market/LFrate.html

-F6