Precious Metals Extend Decline as Treasuries Shine

Precious metals prices fell further yesterday as high demand was reported at US Treasuries auctions this week. The decline also coincided with news of Russia’s plan to sell 1.6 M oz. of gold, taking advantage of higher prices.

Top Takeover News

Gold Reserve (GRZ), previously the takeover target of Russian minerals giant Rusoro, announced that its Brisas property has been seized by the Venezuelan government.

Best High-Grade Precious Metals Discovery

Among recent gold discoveries, Great Basin Gold’s (GBG) stood out most. Drilling at its Hollister, Carlin Trend, Nevada property showed bonanza gold grades of up to 2,156 g/t. Great Basin also announced that its Hollister property is producing 60,554 oz. of gold at a lower average cash cost of just $ 324/oz.

Top Coin News

The Austrian mint, the world’s largest producer of pure gold coins, Announced today that it will cut production by nearly a third over the next year. Sales of coins were up over 14% and total bullion sales were up 23% this year

In the U.S., over 110,000 2009 American Buffalo gold coins have been sold since first released on October 15. In just two weeks’ time, coin sales amounted to nearly 64% of the total sales from all of last year.

Rubicon’s Big Hit

Last week, Rubicon Minerals (RBY) announced more impressive drill results at its Phoenix Gold project at Red Lake, ON. The team intercepted high-grade gold measuring 3 to 457 g/t. Although some prior drill holes uncovered higher gold grades, Daniel Earl of TD Newcrest calls this latest discovery, “…one of the deepest high-grade hits to date in the F2 Zone.”

This could be one of the most significant hits since the program began. Rubicon CEO, David Adamson, noted the “important extensions to the depth potential and strike length potential of the F2 gold system…The system remains open in all directions and…extends the F2 system beyond our current 9X target areas.”

Some analysts believe that the F2 gold zone is considerably larger than anyone previously imagined. For instance, analysts at Macquarie Captial Markets said the results “increase our assumed volume of the mineralized envelope by well over 75%…”

In our opinion Rubicon’s latest results show an absolute minimum resource of 5 million ounces of gold at Phoenix Gold; however, estimates are more likely to be well above 6 million ounces. Consistent with past discoveries of similar significance, Rubicon announced another share offering–this time to raise $75 M in capital. Bear in mind that the company will use the proceeds to step up the drilling program, but most importantly, Rubicon now has more institutional support than ever.

Gold Takes a Break as Indian Buying Season Ends

This week, we saw a slight decline in precious metals prices as festival gold buying during India’s Dhanteras and Diwali settled. The price of gold, silver, and platinum showed significant support near $1,045, $17.40, and $1,350 respectively.

New JV Projects

This week, major gold miner, AngloGold Ashanti (AU) and major diamond miner, DeBeers announced a groundbreaking joint venture project to explore and eventually mine minerals in the ocean.

Top Takeover Talk

China’s state-owned China Minmetals Corp is looking for potential takeover targets, specifically gold mines in Australia and Canada, according to a top executive. Thus all eyes are on Canadian and Australian juniors with significant gold reserves.

Best Recent High Grade Discovery

Apollo Gold (AGT) recently announced assay results from its Grey Fox property near Timmins, Ontario, at which high-grade gold between 8 and 277 g/t au was intercepted.

Top Coin News

The new 2009 American Buffalo gold coins went on sale last week and have quickly become the US Mint’s best-selling coin. Since then, over 71,000 coins have been sold, far more than the American Eagle gold coin’s sales for the entire month of October. Given such high demand for the Buffalo, the US Mint raised its price by $100 to $1,118.88 per coin.

Silver: The Undervalued Precious Metal

Gold and gold stocks may have set records last week, but silver and silver stocks have yet to rebound to last year’s highs. As a result, gold has grabbed the spotlight even though silver has been and continues to be, by far, the better investment.

This year, The price of silver has increased by 63% compared to gold’s mere 30% rise. Furthermore, if you bought silver after the 2008 market correction (last November), then your investment would have doubled compared to a 53% gain if you invested in gold.

Even since the start of the precious metals bull market, silver has been a better investment than gold. From November 2001 to March 2008, the price of silver has surged 416% compared to gold’s 317% advance from April 2001 to its all-time high last week.

The reason we believe that silver will continue to outperform gold is that silver is still severely undervalued. Just take a look at the 1:60 ratio of the price of gold to silver, which is not only much higher than a historical average of 1:15, but higher than current production rates. Roughly 80 M ounces of gold are produced annually, compared to about 600 M ounces of silver–a ratio of just 1 to 7.5! This implies that silver should be trading at $142 an ounce. Although it may be a long time before silver reaches that price, silver still has a long way to go in order to close the gap between its absurdly undervalued market price and its true value.

Gold & RBY Soar to New Heights

Yesterday, gold and many precious metals stocks set new records. The price of gold hit a new (nominal) high above $1,070, before quickly retreating. Similarly, shares of Rubicon Minerals (RBY) reached a record price of $4.80, over 20% higher since our September 28th commentary.

New JV Projects:

Last week, Platinum Group Metals (PLG) announced details on a second joint venture project with Japan Oil Gas and Metals National Corporation (JOGMEC). In Japan’s efforts to accumulate precious metals assets, the company will invest $3.2M for 37% interest in the new 60 sq. mi exploration area in South Africa’s platinum-rich Bushveld complex. On Monday, shares of PLG jumped nearly 15% and volume remains twice as high as average.

Takeover Targets:

This week, Solitario Exploration (XPL) announced that it has upped its bid for Metallic Ventures (MTLVF) to $18 B after learning that Metallic Ventures received a bid from a third party. The news of the rival bids pushed MTLVF shares up nearly 9% in intraday trading on Tuesday.

Recent High-Grade Discovery:

Exeter Resources (XRA) recently released bonanza-grade drill results between 9 and 942 g/t Au, and 92 and 29,452 g/t Ag at its Cerro Moro, Santa Cruz, Argentina property. This is by far, one of the best high-grade gold and silver discoveries of the year.

Analysts Bullish on 2010 Gold Price

If you ask leading analysts, gold prices will continue to reach new highs in the coming months. Last week, a Deutsche Bank analyst announced that gold prices would reach $1,100, saying, “We are positioning for fresh highs in the gold price.”

A few weeks earlier, Credit Suisse analysts told clients to expect gold to continue to rise in September and October.

Similarly, RBS analyst, Stephen Briggs said he expects the price of gold to reach $1,100 and that “Gold’s long-term history as a harbinger of inflation, or gauge of inflation expectations, is clear…”

They’re not only bullish on gold. Industrial metals are expected to rise as well. Societe Generale (SocGen) gave investors a bullish outlook on industrial metals, citing, “very positive fundamentals.”

One reason for all the increasingly bullish sentiment regarding precious metals prices is speculation regarding the end of US Dollar hegemony.

Yesterday at the G-7 meeting in Istanbul, US Dollar weakness was a hot topic. Almost immediately after an official statement suggested that no action should be taken to soften the Dollar’s decline, gold prices jumped from about $1,003 to $1,020 within a couple of hours.

Furthermore, there are increasing reports that the Dollar will no longer be used as the sole currency for oil trading. Although denied by key officials, the mere speculation was enough to push gold prices to record (nominal) highs of over $1,033 this morning.