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   -- Weekly Market Update for the Week Commencing 26th January 2015

Big Picture View

Here is a summary of our big picture view of the markets. Note that our short-term views may differ from our big picture view.

In nominal dollar terms, the BULL market in US Treasury Bonds that began in the early 1980s ended in 2012. In real (gold) terms, bonds commenced a secular BEAR market in 2001 that will continue until 2018-2020. (Last update: 20 January 2014)

The stock market, as represented by the S&P500 Index, commenced a secular BEAR market during the first quarter of 2000, where "secular bear market" is defined as a long-term downward trend in valuations (P/E ratios, etc.) and gold-denominated prices. This secular trend will bottom sometime between 2014 and 2020. (Last update: 22 October 2007)

A secular BEAR market in the Dollar began during the final quarter of 2000 and ended in July of 2008. This secular bear market will be followed by a multi-year period of range trading. (Last update: 09 February 2009)

Gold commenced a secular bull market relative to all fiat currencies, the CRB Index, bonds and most stock market indices during 1999-2001. This secular trend will peak sometime between 2014 and 2020. (Last update: 22 October 2007)

Commodities, as represented by the Continuous Commodity Index (CCI), commenced a secular BULL market in 2001 in nominal dollar terms. The first major upward leg in this bull market ended during the first half of 2008, but a long-term peak won't occur until 2014-2020. In real (gold) terms, commodities commenced a secular BEAR market in 2001 that will continue until 2014-2020. (Last update: 09 February 2009)

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Outlook Summary

Market
Short-Term
(1-3 month)
Intermediate-Term
(6-18 month)
Long-Term
(2-5 Year)
Gold N/A Bullish
(26-Mar-12)
Bullish
US$ (Dollar Index) N/A Bearish
(26-Jan-15)
Neutral
(19-Sep-07)
US Treasury Bonds (TLT) N/A Neutral
(18-Jan-12)
Bearish
Stock Market (DJW) N/A Bearish
(28-Nov-11)
Bearish
Gold Stocks (HUI) N/A Bullish
(23-Jun-10)
Bullish
Oil N/A Bullish
(17-Dec-14)
Bullish
Industrial Metals (GYX) N/A Neutral
(15-Sep-14)
Bullish
(28-Apr-14)

Notes:

1. Our short-term expectations are discussed in the commentaries, but except in special circumstances we won't attempt to assign a "bullish", "bearish" or "neutral" label to these expectations.

2. The date shown below the current outlook is when the most recent outlook change occurred.


3. "Neutral" means that we think risk and reward are roughly in balance with respect to the timeframe in question.

4. Long-term views are determined almost completely by fundamentals and intermediate-term views are determined by a combination of fundamentals, sentiment and technicals.

2015 forecast for the Treasury market

Our 2015 forecast for the US Treasury market was essentially summarised in the list of "2015 surprises" included in the 7th January Interim Update. Surprises 1) and 2) covered US interest rates and the US government bond market. Here they are again, with minor changes to the wording:

1) We expect that the Fed will continue to make noises about 'normalising' monetary policy, but will end up doing almost nothing. At most, there will be a single 0.25% rate hike. One reason is the fear that economic weakness elsewhere in the world, primarily the euro-zone, will weigh on the US economy. Another reason is the absence of an obvious "price inflation" problem. A third reason is the Fed's unwavering commitment to the absurd Keynesian idea that an economy can be strengthened by punishing savers.

2) We expect US Treasury yields to defy the majority view by ending the year flat-to-lower. More specifically, we expect the 30-year T-Bond yield to be roughly unchanged over the course of the year, but that yields will decline in the middle and at the short end of the curve. Of all the Treasury securities, the 5-year T-Note should experience the largest decline in yield as traders belatedly realise that the Fed will not be taking any significant steps towards 'policy normalisation' during 2015 or 2016.

In addition to the absence of an obvious "price inflation" problem, there are two current reasons and one potential reason to expect flat-to-lower Treasury yields (flat-to-higher Treasury prices) over the course of this year. The current reasons are sentiment (surveys and the COT data indicate that bullish sentiment is not yet close to an extreme) and the good value offered by US Treasury securities relative to the value on offer in Europe and Japan. The potential reason is stock market weakness, in that a lengthy downward trend in the stock market would likely boost the demand for Treasury debt. This is a "potential" reason because a lengthy downward trend in the stock market is not a sure thing.

The reason to expect Treasury securities with 5-10 year durations to do better than 30-year T-Bonds is the extent to which the T-Bond out-performed over the past 12 months and is now stretched to the upside. The following two weekly charts illustrate what we mean.

The first chart shows that the 30-year T-Bond has reached the top of the moving-average (MA) envelope that limited the powerful rallies of 2008 and 2011, and that the T-Bond's weekly RSI is now at its highest level in more than 10 years. The second chart shows that the 10-year T-Note is only slightly 'overbought'.

The Stock Market

The US

The US stock market is beginning to lag other markets around the world. It hasn't yet signaled that the late-December had significance beyond the short-term, but it is close to doing so. This week's price action could therefore be telling.

The NYSE Composite Index (NYA) has made multiple attempts to break above its July-2014 peak, but has been unable to do so. A daily close below the December-January pullback lows (around 10400) would be the first sign that something more serious than a 1-2 month correction was underway.



The SPX/gold ratio remains precariously poised at its 200-day MA. A solid break below this MA would be evidence that a top of at least intermediate-term importance was put in place in December.



The "Emerging Markets"

US$ strength creates a problem for the so-called "emerging economies" because there is a lot of US$-denominated debt within these economies. Surprisingly, therefore, last week's upward acceleration in the Dollar Index was accompanied by an upside breakout in the iShares Emerging Markets ETF (EEM). Refer to the top section of the following chart for details. Of potentially greater importance, however, is EEM's recent up-turn relative to the SPX illustrated by the bottom section of the following chart.

It's too early to tell if EEM/SPX's recent up-turn is just another bear-market rebound or is indicative of a long-term trend change.



Europe

The ECB's new inflation program will damage the real economy, but it 'did the trick' as far as the asset markets were concerned. For example, the following charts show that both the EURO STOXX50 Index (STOX5E) and France's CAC40 Index decisively broke their sequences of declining tops and rocketed to new multi-year highs last week. Germany's DAX Index had made a new multi-year high (a new all-time high, actually) during the week before last and built on its upside breakout last week.



Europe's senior stock indices are not yet 'overbought' on an intermediate-term basis, but they are 'overbought' on a short-term basis and are likely to soon begin corrections. If last week's breakout was genuine then the STOX5E should not close below 3250 during any corrective activity over the next few weeks.

This week's significant US economic events (The most important events are shown in bold)

Date Description
Monday Jan 26 Dallas Fed Mfg Survey
Tuesday Jan 27 Durable Goods Orders
New Home Sales
Case-Shiller Home Price Index
Consumer Confidence
Richmond Fed Mfg Index
Wednesday Jan 28 FOMC Meeting Announcement
Thursday Jan 29

Pending Home Sales Index

Friday Jan 30 Q4 GDP (prelim)
Employment Cost Index
Consumer Sentiment
Chicago PMI

Gold and the Dollar

Gold

Goldman's 2015 forecast for gold

Early last year we gave banking behemoth Goldman Sachs (GS) credit for looking in the right direction for clues regarding gold's likely performance, which is something that most gold bulls were not doing. In November we again gave them credit, because even though we doubted that the US$ gold price would get close to GS's $1050/oz target their overall analysis had been more right than wrong. It was clear that up to that point the US economy had performed better than we had expected and roughly in line with the GS forecast, which was the main reason that gold had remained under pressure; albeit, not as much pressure as GS had anticipated. But that was last year. This year it's a different story.

This year, GS's gold market analysis begins on the right track by stating that stronger US growth should support higher real US interest rates, which would be bearish for gold. Although we expect that the US economy will 'tread water' at best and that real US interest rates will be flat-to-lower over the course of this year, GS's logic is correct. What we mean is that IF the US economy strengthens and IF real US interest rates trend upward in response, there will be irresistible downward pressure on the US$ gold price.

However, the analysis then goes off the rails. After mentioning something that matters (the real interest rate), the authors of the GS gold-market analysis then try to support their bearish case by listing factors that are either irrelevant or wrong. It actually seems as if they've taken the worst arguments routinely put forward by gold bulls and tried to use the same hopelessly flawed logic to support a bearish forecast.

For example, they argue that the demand for gold will fall because "inflation" levels are declining along with oil prices. They are therefore unaware, it seems, that "price inflation" has never been an important driver of the gold market and that the latest two multi-year gold rallies began with both "inflation" and inflation expectations low and in declining trends. They also appear to be unaware that the large decline in the oil price is very bullish for the gold-mining industry.

Their analysis then gets even worse, as they imply that the price weakness of the preceding three years is a reason to expect future weakness, whereas the opposite is closer to the truth. They go on to cite outflows from exchange-traded funds (ETFs) and reduced investment in gold coins as bearish influences, apparently unaware that the volume of gold coins traded in a year is always too small to have a noticeable effect on the price and that the change in ETF inventory is a follower, not a driver, of the gold price.

Finally, just when it seems as if their analysis can't possibly go further off track, it does by asserting that lower jewellery demand and a greater amount of producer hedging will add to the downward pressure on the gold price. The facts are that jewellery demand has always been irrelevant to gold's price trend and that gold producers are part of the 'dumb money' (meaning: they tend to add hedges at low prices and remove hedges at high prices, that is, they tend to do the opposite of what they should be doing based on gold's intermediate-term risk/reward).

In conclusion, last year the GS analysts were close to being right for roughly the right reasons. This year, however, they cannot possibly be right for the right reasons. They will either be right for the wrong reasons, or they will be wrong.

Our 2015 forecast for gold

Here's the conclusion of our 2014 gold forecast:

"Based on the small historical sample size, which is all we have to go on, you should ignore the predictions that gold will zoom straight back to its 2011 top. This is particularly so considering that gold's true fundamentals are mixed at this time (no longer bearish, but not yet bullish). Gold is likely to provide a good return in 2014, but even if a major bottom is in place the gold price is unlikely to trade significantly above $1600 and could have trouble getting beyond the $1400s."

We were wrong about gold providing a good return in 2014, at least relative to the US$. In US$ terms gold was flat in 2014, although it did provide a good return in terms of every other currency.

In 2014 gold performed roughly as expected in US$ terms during the first half of the year, but then fell to a new bear-market low during the second half. The problems for the US$ gold price during the second half of 2014 were the perceived strength of the US economy (linked to the continuing upward trend in the S&P500 Index), the flattening of the US yield-curve (related to the perceived US economic strength), and the Dollar Index's upside breakout from a long-term basing pattern.

The gold market has come to ignore the strength in the Dollar Index, because the US dollar's rise on the foreign exchange market has come to be seen as more of a reflection of declining confidence in the ECB and weakening global growth than a reflection of improving US$ fundamentals. However, there is no evidence, yet, that the S&P500 has peaked. Also, the US yield-curve hasn't yet signaled a trend reversal from flattening to steepening, and despite the problems in the 'oil patch' the general belief is that the US economy will make real progress this year.

There is never a good time to make a 12-month forecast, since forecasting is for the birds. But right now is a particularly bad time to make a gold forecast, the reason being that changes in other markets are needed to turn the gold market higher on a sustained basis and the needed changes may or may not be about to happen. Of primary importance, a sustained turn to the upside in gold almost certainly requires a sustained turn to the downside in US equities. Some long-term indicators are warning that such a change is in the works, but the S&P500's price action hasn't yet signaled anything of the sort. The first sign would be a daily S&P500 close below 1970.

If the S&P500 is in the process of rolling over the downside on a long-term basis then it's highly probable that gold bottomed last November and will generate the sort of performance in 2015 that we originally expected to happen in 2014. That is, gold will probably work its way higher over the course of this year with a top most likely occurring in the $1400s and with an outside chance of making it as high as $1600. The most plausible alternative is that the S&P500 will make some additional headway over the next few months and gold will drop to test its 2014 bottom during the second quarter of this year prior to a long-term reversal.

Current Market Situation

When the Dollar Index was bottoming at around 79 in May of last year, gold was priced at around US$1300/oz. When the Dollar Index was peaking at 95.8 last Friday, gold was priced at around US$1300/oz. Who woulda thunk it?

Gold's ability over the past 2.5 months to gain ground in US$ terms while the US$ strengthened against all other currencies led to a very sharp rise in the non-US$ gold price. As illustrated by a chart included in the preceding Weekly Update, a result is that the euro-denominated gold price recently reached the top of a moving-average (MA) envelope that has always limited intermediate-term rallies in the past. As illustrated by the chart displayed below, another result is that the gold/UDN ratio, an indicator of gold's performance in non-US$ terms, is also now at the top of a MA envelope that has always limited intermediate-term rallies in the past.

The implication is that while the gold/UDN ratio could make some additional headway over the next couple of weeks, three months from now it will probably be trading at a lower level.



In non-US$ terms, the gold market is extended to the upside on an intermediate-term basis. In US$ terms, it is extended to the upside on a short-term basis. This is confirmed by the fact that last Tuesday (the date of the latest COT data) the speculative net-long position (and the offsetting commercial net-short position) in COMEX gold futures was at its highest level since January of 2013.

The COT report is a sentiment indicator, with relatively-high levels in the speculative net-long position indicating relatively-high levels of bullish sentiment. Since short-term price highs invariably coincide with short-term extremes in bullish sentiment, an extreme in the speculative net-long position (and the offsetting commercial net-short position) will almost always occur near a short-term price high. The problem is that there is no fixed level that constitutes an extreme in the COT data.

Based on what happened in the gold futures market over the past two years it is reasonable to consider a speculative net-long position in the 160K-180K range to be an extreme, but if a new bull market has begun then the COT level that constitutes an extreme will shift upward over time. For example, in 2010-2011 the extremes were in the 250K-300K range and a level of 170K would have indicated a constructive absence of short-term enthusiasm.

Although a new bull market could be underway, the current level of the speculative net-long position should be viewed as a "caution" sign or a "hold off on new buying for now" sign.

Note that a routine pullback would take the gold price down to around $1250/oz. A decline to $1250 is likely within the next several weeks even if a new bull market has begun and even if the price first rises to around $1350.



Clarification of last week's Interim Update

In last week's Interim Update we discussed the potential for the gold market to be positively affected by a change in the Yuan's peg to the US$. Just to be clear, we expect that when a substantial change to the Yuan-US$ peg happens the purpose will be to devalue the Yuan, that is, to substantially increase the number of Yuan per US$.

By the way, if/when a Yuan devaluation happens it will likely do so over the space of many months rather than in one fell swoop.

Gold Stocks

In last week's Interim Update, we wrote:

"After a market has suffered a large decline, a rebound to the vicinity of the 200-day MA is the most that can reasonably be expected from the INITIAL rally. It could go a bit higher, but a market that has just suffered a sharp fall after having spent years in a bearish trend is unlikely to rally back to the 200-day MA and then just keep going. That's regardless of whether the rally is part of a new bull market or a bear-market rebound. If the rally is part of a new bull market then the rise to the 200-day MA (or a little higher) will typically be followed by a pullback or a sideways consolidation lasting at least 4 weeks. The start of a new bull market would then be signaled by a solid break above the high of the initial rally."

Here are two charts that illustrate what we were talking about. The first chart shows the path taken by the HUI after its major low in November-2000. Notice that a 4-week consolidation got underway as soon as the 200-day MA was reached. The second chart shows the path taken by the S&P500 after its major low in March-2009. In this case, a 5-week consolidation got underway following a single-day rise above the 200-day MA.



The HUI's current situation is shown below. If a multi-week correction has begun, which is probably the case, then it will ideally be a choppy, sideways affair with the price oscillating between the low-180s and the low-200s.



The Currency Market

The ECB's new inflation program

Here is a summary of the new monetary inflation program introduced by the ECB last Thursday as part of its efforts to create more "price inflation":

1) The headlines touted a monthly asset monetisation figure of 60B euros, but this includes about 10B euros under existing programs. The additional amount of monthly asset monetisation resulting from the new program is therefore intended to be 50B euros. This is in line with the figure that had previously been leaked to the press.

2) The bulk of the additional asset purchases will be government bonds, with most of the buying directed towards the bonds of the largest economies (Germany, France and Italy).

3) The ECB will coordinate the asset-purchase program, but most of the buying will be done by the national central banks.

4) The program will begin in March-2015 and the initial plan is for it to continue until September-2016. That is, the initial plan is for 50B euros of additional money creation per month for 18-19 months, or a total additional boost to the money supply (or at least the monetary base) of a bit less than 1T euros.

5) Importantly, the program is OPEN-ENDED, in that although September-2016 is currently the expected end date the ECB left the door wide open to extend the program if deemed necessary.

6) The likely effect of the ECB's new program on the euro-zone money supply is not clear to us at this time. For every dollar of assets purchased by the Fed, one dollar gets added to bank reserves (part of the monetary base, but not part of the money supply) and one dollar gets added to the money supply. That is, the Fed's QE directly boosts the US money supply. However, the process is different in Japan and could be different in the euro-zone.

Did Thursday's ECB news result in blow-off moves to price extremes in the euro and the Dollar Index that will hold for many months? At this time there's no way of knowing, but that's certainly possible.

The Dollar Index

Over the past 6 months the euro has been subject to a sentiment-driven, trend-following speculative selling spree of historic proportions. We say that the selling has been sentiment-driven because euro fundamentals are not materially different today than they were in the middle of last year, either in absolute terms or relative to US$ fundamentals.

It was well known many months ago that the ECB was going to take action to boost its balance sheet by around 1 trillion euros, with skepticism that it would actually be able to implement such a monetary expansion causing relative weakness in European equities and helping to weaken the euro. Early this month the markets began to believe that the ECB would find a way to make the expansion happen, which caused European equities to reverse upward relative to US equities. This upward reversal in relative equity performance suggests that the currency-market action of the past three weeks will prove to be an overshoot.

Due to the multiple waves of speculative euro selling, the sympathetic declines in other European currencies and the weakness in commodity currencies stemming largely from the crash in the oil price, the Dollar Index is now as 'overbought' as it has ever been with the exception of November-2008 (the crescendo of the Global Financial Crisis).

Two weeks ago we presented a version of the following long-term chart to illustrate the extent to which the Dollar Index was 'overbought' at that time. The top section of the chart shows the Dollar Index and a 200-day/8% moving average envelope (the blue lines). The bottom section of the chart shows the Dollar Index's 250-day rate of change (ROC). With the aid of this chart we pointed out that a) except for briefly during the 2008 financial crisis, at no time since 1990 had the Dollar Index been higher relative to the aforementioned MA envelope, and b) the Dollar Index's 250-day ROC, while unusually high, was still slightly below the extremes of 1993, 1997 and 2000 and well below the extreme of 2008.

The updated version of the chart shows that relative to its MA envelope, the Dollar Index is still not quite as high as it was in November-2008. However, aside from the 2008 financial-crisis-induced blow-off, the Dollar Index is now much higher relative to this MA envelope than it has ever been. The chart also shows that the 250-day ROC is now roughly where it was at the 1993, 1997 and 2000 peaks.



Uncertainty regarding the 25th January election in Greece probably helped maintain downward pressure on the euro and upward pressure on the Dollar Index through to the end of last week and could result in some additional pressure this week as attempts are made to form a new government in that country (the party that gets the most votes probably won't have an outright majority and will therefore have to do deals with other parties to form a government). However, regardless of the outcome of this election there is almost no chance of Greece leaving the euro-zone this year. The anti-"austerity" Syriza Party, which has been leading in the polls, has promised to be tougher in negotiations with the EU; it hasn't promised to take Greece out of the monetary union. Apparently, most Greek citizens want to retain the euro.

Due to the historic (or near-historic) extremes in the currency market, our intermediate-term outlook for the Dollar Index has shifted to "bearish".

The Yen

Like every other currency the Yen has lost a lot of value relative to the US$ over the past 6 months. However, when the Dollar Index was rocketing upward during the final two days of last week, the US$ wasn't the strongest currency in the world; the Yen was.

Over the course of the past week the Yen was flat relative to the US$ and appears to be building a base. However, it also appeared to be building a base during the first half of last year, only to subsequently reveal that it was just consolidating prior to resuming its bear market.

The stock market continues to hold the key to an upward Yen reversal of substance. For a multi-month Yen rally there will probably have to be persistent weakness in the S&P500 Index.

Updates on Stock Selections

Notes: 1) To review the complete list of current TSI stock selections, logon at http://www.speculative-investor.com/new/market_logon.asp and then click on "Stock Selections" in the menu. When at the Stock Selections page, click on a stock's symbol to bring-up an archive of our comments on the stock in question. 2) The Small Stock Watch List is located at http://www.speculative-investor.com/new/smallstockwatch.html

Company news/developments for the week ended Friday 23rd January 2015:

[Note: AISC = All-In Sustaining Cost, FS = Feasibility Study, IRR = Internal Rate of Return, MD&A = Management Discussion and Analysis, M&I = Measured and Indicated, NAV = Net Asset Value, NPV(X%) = Net Present Value using a discount rate of X%, P&P = Proven and Probable, PEA = Preliminary Economic Assessment, PFS = Pre-Feasibility Study]

  *Asanko Gold (AKG), a company that has $230M of cash plus $90M of undrawn credit and is fully financed through to production in Q1-2016, has made the decision to issue at least 20M new shares at the low price of C$2.02 (about US$1.65) per share. This is strange, to put it mildly. Considering the massive (relative to company size) financial resources already held by AKG, this equity financing does nothing other than needlessly dilute shareholders, make the company less attractive as a takeover target, and minimise the stock's response to the more bullish short-term environment for gold.

  *Evolution Mining (EVN.AX) announced its results for the December quarter. Quarterly production of 113K ounces was the highest in the company's history and the AISC of US$848/oz was the lowest in the company's history, leading to record quarterly cash flow from operations of around A$40M. Guidance for the Financial Year ended 30th June 2015 has been maintained at 400K-440K ounces, with costs expected to be at the low end of the guidance range. These are obviously good results. EVN appears to be doing a satisfactory job of managing its costs and is benefiting from the strength in the A$-denominated gold price.

We won't know the extent to which these good production results have boosted the company's balance sheet until we see the Half Year report next month.

EVN ended last week near its highest price in almost 2 years (see chart below). It also ended the week at long-term resistance. EVN's close proximity to long-term resistance and the potential for a multi-week correction in the gold market prompted us to remove the short-term EVN position from the TSI Stocks List last week. However, we continue to like EVN's intermediate-term prospects and expect the stock to trade up to at least A$1.50 later this year.



  *Pilot Gold (PLG.TO) reported the results of preliminary metallurgical testing from its Kinsley Mountain gold project, Nevada. The purpose of this testing was to determine the amenability of mineralization from the Secret Canyon target to produce a high-grade concentrate.

Overall recovery, which includes the gold recovered into flotation concentrate plus gold leached from the final tails, was between 89% and 95% in each of the tested samples. This is good. It means that at this early stage, metallurgy does not appear to be an obstacle.

Secret Canyon has excellent grades and widths and, it seems, decent metallurgy, but as it stands the deposit is not big enough to be developed into a mine. That's why the key to turning Kinsley Mountain into a very valuable project is the discovery of other high-grade zones. There is a realistic possibility of this happening, but if it doesn't it won't be a major problem for PLG because the company has other 'irons in the fire'.

  *Ramelius Resources (ASX: RMS) has generated a steady stream of good company-specific news over the past few weeks. Since this occurred in parallel with an improvement in gold-market sentiment, it propelled the stock price sharply higher. About 200% higher, as a matter of fact.

The latest piece of good news was a resource upgrade at the Kathleen Valley gold project, which was acquired in the middle of last year. The project resource is small (163K-oz total gold resource, including 56K ounces of reserves), but for a potential open-pit operation it is high grade (2.8-g/t for the total resource, 4.1-g/t for the reserve). Furthermore, according to RMS's management the ore mined from an open pit at Kathleen Valley could be trucked to the company's Mt Magnet facility for processing. This means that the initial capex associated with a new mine at Kathleen Valley would be minimal.

It's possible that the mining of Kathleen Valley will commence by mid-2015 and contribute to the company's production during the second half of this year.

RMS remains very under-valued assuming that the recent operational improvements at Mt Magnet will be sustained, but it is currently not a good candidate for new buying because its price has run too far too fast.

  *True Gold Mining (TGM.V) is turning into a mess, although not an irretrievable one.

Last week the company announced that Mark O'Dea, the company's executive chairman, had also temporarily taken on the role of company president due to the (probably forced) departure of Dwayne Melrose. The timing of this management change suggests that Mr. Melrose is being blamed for the community-relations issues that led to the suspension of work at TGM's Karma gold project in Burkina Faso.

Regarding the community-relations issues, the press release announcing the management change stated: "We have been closely monitoring the changing landscape in Burkina Faso and near our project area over the past six weeks and have developed a much clearer understanding of certain of the communities' perceptions and concerns related to the Karma project. We are now taking steps to re-focus our efforts in Burkina Faso, re-engage with the local community, address these concerns, and put Karma in a position to move forward. We're making progress, but the state of affairs in Burkina Faso remains fluid as we reconcile a number of competing interests within some of the nearby villages." TGM's press release also stated that there had been $4M-$8M of damage to company property, which should be covered by insurance.

It's still the case that no details have been provided by the company regarding the nature of the dispute/conflict that forced the temporary cessation of construction work, but some details have surfaced nonetheless. In particular, it seems that the problems currently facing TGM have nothing to do with the political upheaval that occurred in Burkina Faso in the final quarter of last year and are also not indicative of a country-wide difficulty in constructing/operating a mine in Burkina Faso. This is why no significant disruptions have recently been reported by other foreign miners operating in the country. Instead, we understand that the obstacles recently encountered by TGM are associated with the specific location of TGM's mine-site.

The problem, in a nutshell, is that TGM's proposed mine is located in an area that is a Muslim place of pilgrimage and that contains an important mosque (more than half of Burkina Faso's population practices Islam). The local Muslims are naturally not enthusiastic about having an open-pit mining operation near their places of worship.

We do not think that it makes sense to sell TGM at the current low price, but new buying will not be appropriate until the concerns of the local community are 'put to bed'.

    List of candidates for new buying

From within the ranks of TSI stock selections the best candidates for new buying at this time, listed in alphabetical order, are:

1) AAU below US$1.10 (last Friday's closing price: US$1.15).

2) AKG (last Friday's closing price: US$1.62).

3) EDV.TO (last Friday's closing price: C$0.58).

4) TGD (last Friday's closing price: US$1.07).

Note that the above list is limited to five stocks. It will sometimes contain less than five, but it will never contain more than five regardless of how many stocks are attractively priced for new buying.

Chart Sources

Charts appearing in today's commentary are courtesy of:

http://stockcharts.com/index.html
http://www.bloomberg.com/
http://www.barchart.com/

http://bigcharts.marketwatch.com/
http://www.economagic.com/
http://research.stlouisfed.org/



 
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