(Kitco News) – Mining companies need to continue to clean up their balance sheets as investment capital continues to slowly enter the sector, says one mining executive.

Image courtesy of Centerra Gold
Scott Perry, chief executive officer of Centerra Gold, said in an interview with Kitco News that one of the company’s priorities is to pay down its debt so it has a healthy balance sheet in case the sector has to deal with lean times again.

Perry’s comments come as Centerra gold repaid $111.9 million in debt in the third quarter. Perry said that for the year to date, the company has paid off about $172 million of its debt. Last year the company used debt financing to raise $300 million as part of its $1.1 billion purchase of Thompson Creek and its Mount Milligan project.

“I would like to see us continue to aggressively pay off our debt,” he said. “Our goal in this metals price environment is to continue to grow our net cash position.”

Perry explained that Centerra’s philosophy has helped the company grow as the sector has struggled to attract much-needed funds. He explained that the company’s ability to diversify its gold production has been a direct result of its balance sheet.

“The only reason we got Thomson Creek was because we had such a strong balance sheet, significant cash reserves and we were in the right place at the right time,” he said. “The rest of the market was kind of handicapped and in a weak position because of their balance sheets.”

For Centerra, the Thomson Creek purchase last year has been a strategic move with fantastic results, Perry said.

According to the company’s earnings report, 61,640 ounces of gold were produced at Mount Milligan, generating revenues of $48 million during the quarter. The purchase of a Canada-based project has also helped Centerra, diversify its portfolio to reduce its geopolitical risks.

Before its Thomson Creek purchase, Centerra was completely reliant on its Kumtor mine in the Kyrgyz Republic for its cash flow. As an example of its political risk, in the third quarter the company said that it paid a $60 million settlement to the Kyrgyz government. While the mine is not in a great mining jurisdiction, Perry said that the deposit’s assets outweigh the current risks.

“We have got one of the world’s best gold mines and it provides a lot of cash flow that lets us build out the company and diversify,” he said

Gold needs buyers. Not the short term trading types, the physical owners who understand the basis for Gold as a reserve currency. It needs someone to tell stock market longs at all time highs that if they  do not adjust their exposure in dollar terms by rebalancing stocks with hard assets they risk profits. It is ridiculuous to us that for every new all time high we get in  stocks, that no-one is rebalancing their exposure that we see. Gold should track stocks higher a bit as people take profits off the table for retirement. But we know what is going on. Some broker is talking them into something hot. The only thing that truly trends in this world is humans extrapolating never ending trends. It’s nauseating and we have tons of equity exposure as a group.

If gold does not get some common sense people to invest in it soon, the momentum vultures may have their way. And if tyou want to buy Gold lower, you may get your chance.

From Reminiscences of a Stock Operator:

Of course there is always a reason for fluctuations, but the tape does not concern itself with the why or wherefore. It doesn’t go into explanations. I didn’t ask the tape why when I was fourteen, and I don’t ask it today at forty…”

Tape watching back in Jesse’s day is what we now call momentum trading. And that is the lens we are looking through again today. We have no alerts, but are seeing a planetary alignment that if we get one alert, the chances of 2 more are high.

To be clear. Sometimes we use the momentum to give us a better price to enter  (eg a predicted washout gives us better buy prices).

Sometimes we surf the momentum (eg- a lot of shorts in market, we get a bull signal, amdcwecjump on the bandwagon). And sometimes we do nothing. But being able to handicap where those inflection points in markets that attract irrational interest is a great tool in deciding what we want to do.

 Gold is in trouble. Post the Chinese Congress and their “back to usual” behavior of roiling the commodity markets like a bull in a china shop (forgive the euphemism) one would at least some love to be thrown Gold’s way. But so far nothing lasting on that front has happened, unlike its base brethren, and recently Silver’s rise.

Thats not to say it’s done yet. No need to get your fork ready just yet. Let’s just say we had hoped for some algo short covering to show up with the other metals being so buoyant. Alas it did and someomecsmashed it back down.

Is it too much to ask for $1290? There should have been more stops above $1280 but so far nothing. This again may just be the product of end of year liquidation stifling any sustainable momentum higher.

 

 

Here’s what we see based on our recent disappointment from a decisive lack of follow through.

Things are getting close to a trigger on a couple time frames on the volatility system (VBAS)we use. Worse, the trigger levels on the downside are lining up on those different time frames.

Bottom line: If gold cannot hold above $1280, it will not hold at $1268 according to our algo. Why? We don’t know. We only handicap risk reward and probabilities. The reason can come tomorrow.

Jesse again:

The reason for what a certain stock does today, may not be known for two or three days, or weeks, or months. But what the dickens does that matter? Your business with the tape is now-not tomorrow.

The reason can wait. But you must act instantly or be left. Time and again I have seen this happen…

To put this quote by Livermore in context for you we could call them momentum traders.

“You’ll remember that Hollow Tube went down three points the other day while the rest of the market rallied sharply. On the following Monday you saw that the directors passed the dividend. That was the reason…”

Notice Livermore wasn’t making notes to potentially trade the reason in the future. He didn’t care why. He was simply reading it and found the reason amusing. Modern tape readers can use the news to trade stocks in play. We happen to care why after the fact, if only to refine our systems and be on the look out for leaking info of a repeat type of event on the future.

 

 

Charts:

The Monthly says a big move is coming in next 60-90 days with no bias  as we said in Gold Macro Analysis: A November to Remember

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The Weekly gives the most optimistic outlook, but is nowhere near an alert

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The Daily is set up for a good trade on a settlement above  $1295 or below $1268.

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240 Minute chart’s upper trigger of $1280 was rejected multiple times. Today’s new high breaking a “triple top” congestion and prompt rejection is not helpful. Meanwhile it’s lower trigger is at $1271.

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60 Minute Chart- has $1280 as upper boundary and $1275 as lower.

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Other posts describing the market in this way.

On a momentum basis, when the shorter term triggers are hit while longer term ones are nearby, that gives impetus for follow through on a snowball type effect.

In human terms. Some momentum traders watching hourly charts traders will sell below $1275, which is no big deal.

But if that triggers the 240 chart watchers to sell at $1271, then we are hitting  stops at $1268 on the daily.

So:

$1275>$1271>$1268>>???

At that point momentum either accelerates and we get a washout, or it runs into physical demand which backs off but absorbs all the panicked  selling in a violent, choppy day.

If momentum accelerates, then the monthly chart becomes our guide. And that’s where we run into our prediction of a $50 move one way, followed by another $50-200 move in either direction.

Keep your powder dry if you are a  bullish trader. Keep your cash liquid if you are looking for an investment entry point. One may be coming soon.

Cheers

(Kitco News) – Gold is seeing little reaction to the official news that President Donald Trump has nominated Jerome Powell to be the new Federal Reserve Chair.

“Based on his record, I am confident that Jay has the wisdom and leadership to guide our economy through any challenges,” said Trump in the Rose Garden at the White House.

Following Trump’s comments Powell noted that the U.S. economy is close to a full recovery and close to full employment. He added that the financial system is stronger than it was before the financial crisis.

“I will continue to work with my coleauges to make sure the Federal Reserve is vigilant to market changes and risks,” said Powell.

Current Chair Janet Yellen said that she is committed to working with Powell to insure a smooth transition.

Analysts are not surprised that markets are seeing little reaction as the nomination was widely expected.

December Gold prices last traded at $1,278 an ounce, relatively unchanged on the day.

The nomination ends weeks of speculation, with markets expecting Powell to be nominated as he is seen as the most likely candidate to continue the policies enacted under Yellen’s tenure.

However, some economists have raised concerns that Powell, as a lawyer, doesn’t have the experience needed to lead the U.S. central bank.

“The Fed will face many difficult challenges over the next few years and it is unclear whether Powell has the skills to navigate them,” said Paul Ashworth, chief U.S. economist at Capital Economics. “The risk of a serious policy mistake – in either direction – will arguably be higher under Powell’s leadership than under Yellen’s. And policy communications may become more muddled, if Powell doesn’t provide strong intellectual leadership and the policy debate descends into a free-for-all among regional Fed Presidents.”