The big picture for gold has turned mega bullish, despite volatility as a shocking game-changer took place in the gold market this week.
April 1 (King World News) – Alasdair Macleod: Gold and silver drifted lower on balance this week, seemingly caught in limbo while traders tried to make sense of news developments. In Europe this morning, gold traded at $1935, down $22 from last Friday’s close, and silver was at $24.75, down 73 cents on the week.
Comex volumes for gold were moderate to low, and for silver low all week. Gold deliveries yesterday were a staggering 12,491 contracts (1,249,100 ounces, 38.85 tonnes) and silver 647 contracts (3,235,000 ounces, 100.62 tonnes). With bullion scarcity, paper market liquidity continues to be tapped…
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Yesterday was the end of the first quarter, an event which combined with earlier option and contract expiries is associated with suppressed prices as bullion bank dealers, who take the short side, book their profits. This is reflected in the decline in open interest.
An event occurred this week which market historians might describe as pivotal, not just for gold, but everything else. Russia has finally responded to the West’s sanctions by dividing the world into two categories: friends, which include the likes of China and India and anyone not in the US-NATO camp, and unfriendlies freezing payments. Force majeure clauses are being triggered in supply contracts and the unfriendlies will have to pay for oil and natural gas in roubles. It appears that unfriendlies will have to pay for all other Russian exports in roubles as well.
Separately, Russia’s central bank announced it would buy gold from Russian banks at a fixed RUB5,000 per gramme until end-June. To say analysts are caught unawares is an understatement, and they are scrambling to make sense of it. Crucially, there appears nothing to stop a Russian bank from buying gold in, say, Dubai, if it can acquire the dollars to do so. For inventive bankers, getting round currency sanctions should be easy…
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If the arbitrage takes place, the gold price will become attached to the rouble exchange rate. At this morning’s currency rate RUB 5,000 is the equivalent of $61.389 per gramme, against this morning’s market price of $62.229 – a discount of 1.37%. A stronger rouble should take gold with it, so what are the prospects for the rouble?
There is no doubt that the unfriendlies, particularly in the EU, have no alternative but to buy roubles to pay for Russian imports. The move is modelled on the creation of the petrodollar in 1973, when the Saudis (and therefore OPEC) agreed to only accept dollars in payment for oil. It meant that all oil importers had to acquire dollars, which led to the dollar dominating global trade settlements to this day.
The Russian central bank will be able to manage the exchange rate against this new demand, allowing it to reduce interest rates, control imported inflation and remove exchange controls. A controlled rise in the rouble exchange rate is in prospect, which through Russian banks’ arbitrage appears likely to put a further squeeze on low physical bullion stocks in the West and therefore on paper derivative equivalents.
Finally, a look at gold’s technical position, which looks set for a new bull run.
Also of importance…
One Of The Strongest Stocks In The World
John Lewins: “2021 represented another major step forward for K92. Operationally, Kainantu delivered record throughput, production and finished the year particularly strong. Q4 also provided our most complete quarter to date, including record quarterly production, mine throughput, mill throughput, strong metallurgical recoveries, low all-in sustaining costs of $672/oz and, once again, a positive grade reconciliation to the resource model. This resulted in the Kainantu operation beating our updated guidance on both production and costs. Financially, K92 is the strongest position it has ever been, with a record cash balance of $71m and no debt, well positioning the Company to fund its growth and exploration.
Massive Expansion Of Gold Production
In terms of production growth, we achieved the Stage 2 Expansion run-rate of 400,000 tpa (1,100 tpd) in late-Q3, and in early Q4, announced a Stage 2A Plant Expansion to increase throughput another 25%, as the mill has continued to show that it is very capable of operating at much higher throughput rates. Q4 recorded 21 days with throughput exceeding 1,300 tpd and a daily record of 1,538 tonnes. Commissioning is expected for Stage 2A in the second half of 2022, at a plant expansion capital cost of approximately $2.5m. Subsequent to year-end, we announced a high-grade updated Kora resource estimate and maiden Judd resource estimate, providing the basis for the Definitive Feasibility Study and Updated Preliminary Economic Assessment for the additional expansion, Stage 3. Work is well underway on these studies.
Some Of Our Best Drill Holes Ever Will Further Expand Production
Exploration also delivered strong results during the year, reporting 177 drill holes at Kora and Judd. Drilling recorded some of our highest drill holes recorded to date, with many highlights including hole KMDD0415 recording 7.51 m at 192.50 g/t Au, 8 g/t Ag and 0.22% Cu (192.92 g/t AuEq, 4.11m true width) from the K1 Vein, 6.45 m at 105.96 g/t Au, 11 g/t Ag and 0.60% Cu (106.95 g/t AuEq, 4.06 m true width) from the K1 Vein, and at Judd, hole JDD0022 recording 8.51 m at 48.56 g/t Au, 47 g/t Ag and 0.54% Cu (49.93 g/t AuEq, 6.25 m true width) from the J1 Vein. Importantly, due to the proximity of our exploration to mine infrastructure, production is able to rapidly benefit from exploration success. At Judd, in just over a year from the discovery of high-grade underground, its first long hole stope was mined in Q4 and has become a new major mining front for K92 that is expected to provide a boost to operational flexibility in both the near and long-term.
Ramping Up Exploration For 2022
The recent strong results from surface exploration drilling at Kora South and Judd South, also show very promising potential and plans are well underway to ramp-up exploration, with the second drill rig now operating and a third drill rig planned near-term. Concurrently, Kora South and Judd South surface sampling and mapping is underway, stepping out along strike towards the interpreted A1 Porphyry. Our property wide airborne geophysics results also show that exploration is potentially just scratching the surface in terms of both vein and porphyry exploration. We see an elevated likelihood that our exploration budget will increase for 2022.
Major Support From Papua New Guinea And Australia
Lastly, I would like to underscore that these significant accomplishments were achieved during the burdens from the COVID-19 pandemic. Our workforce has been extraordinary during the last two years and our resiliency towards COVID-19 continues to strengthen. The support of the Governments of both Papua New Guinea and Australia have also been a major factor in our success as well.” K92 Mining, symbol KNT in Canada and KNTNF in the US.
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