A Nuclear Threat

In this week’s letter, Ivan Lo talks about the nuclear threats made by North Korea, how the market continues to climb, another look at gold, and gives up update on Corvus Gold.

Dear Readers,

The world seems like its back on track. The S&P has now popped passed 1500, as I had predicted last year. It is now on the longest winning streak since 2004. This is the best January for the Dow Industrials since 1994. The markets have performed phenomenally this month. It’s been one for the record books.

Everything looks bright and employment, although dull, is showing signs its moving in the right direction.

But what would happen if a catastrophic world event were to threaten our future?

More on this in a bit.

Time to Get Serious

We are at a time where things are much more serious and fragile than it appears.

Russia and China are traversing the world in attempts to bypass the dollar. Tensions are rising between Japan and China over territorial islands. Middle East tensions continue to heat up. NATO continues to set up defence systems in Turkey, with the first of six Patriot missile batteries now operational.

But the real story comes from North Korea, who just threatened the United States.

North Korea’s Nuclear Threats

On Thursday, North Korea’s National Defense Commission not only called the United States the “archenemy of the Korean people,” but directly threatened the United States with nukes:

“We are not hiding that a variety of satellites and long-range rockets will be launched, and a high-level nuclear test will be carried out in the new phase of the anti-US struggle, targeting the US, the sworn enemy of the Korean people…

We will launch an all-out action to foil the hostile policy toward the Democratic People’s Republic of Korea being pursued by the US and those dishonest forces following the US, and safeguard the sovereignty of the country and the nation…

Settling accounts with the U.S. needs to be done with force, not with words.”

Those of you who have been reading the Equedia Weekly Letter know that I tell the story how it is and how I see it. I don’t try to cover things up nor bluff up controversy in attempts to stir the pot. If the threats and actions continue, it could lead to more drastic actions.

North Korea wants to be recognized by the international community as a nuclear power. Conducting a third nuclear test would only further boost North Korea’s Kim Jong Un’s credentials and prestige, and give him the confidence boost he seems to need as a 30-year old Head of State.

Impoverished, North Korea is still heavily armed. They have already conducted two nuclear tests, in 2006 and 2009. After a botched missile launch last spring, it successfully launched a multistage missile in December, putting a satellite in orbit.

While North Korea is still many years from a workable weapon that could reach the United States, much less one armed with a nuclear warhead, the threat is enough to draw mass attention. I believe North Korea will soon follow-up with a third nuclear test. But that’s not all.

While you may have heard about North Korea’s threats, the media hasn’t told you the scariest part: Iran’s involvement.

Open Source Intelligence (OSINT) is now suggesting that as many as 100 Iranian nuclear weapons technicians and scientists are now in North Korea after an agreement was signed last year between the two countries that focused on scientific and technological cooperation. This comes on the heels that news of last month’s rocket launch was assisted by Iran.

The situation around the world is very real and we should all be watching very closely.

At the end of the day, it all affects how we trade. It doesn’t matter if North Korea has the clout to pull off a nuclear strike on the US; all that matters is that they are stirring the pot and the world is watching. This will increase tensions around the world and induce fear into the market.

Keep up with world news if you’re going to be trading.

A Whole New World

When I wrote last year that the S&P would hit 1500, most experts thought I was nuts. The fundamentals weren’t there to justify it, and to some degree they were right. But the market has changed. So much in fact that technicals, and a lot of what experts have studied throughout their careers, are no longer relevant – at least not entirely.

The advent of computers and the internet have brought much change to the industry. Brokers are no longer required to trade stock; anyone can trade stock for less than $10 a trade. Algo-machines now represent probably well over 30% of daily volume on any exchange in a given day. These trading software platforms place and make trades in nanoseconds and often hold stocks for no more than 16 seconds. Just ask the guys at Tradebot.

Those who used to study technical charting patterns have never studied the effects of these machines. It’s a different world now.

On the Canadian front, the big institutions are also benefitting from the little guys. They make trades for little cost and even get a kick back from the exchange based on the amount of trades they make. When everyone is scraping for pennies, you can bet the big guys are taking advantage of every retail trader they can by short selling and manipulating the markets any which way that benefits them. This isn’t hard to do given the liquidity issues in the Canadian market which makes it really difficult for companies to thrive.

Market Expectations

Congress has pushed the debt ceiling deadline out to mid-May to give both sid
es more time to pound out a budget agreement, so there are strong reasons to expect a favorable seasonal rally to continue.

There still remains a tremendous amount of cash on the sidelines earning next to nothing in savings accounts and bond funds to fuel a further rally. And as I mentioned in my letter, “Time to Sell the World,” there is evidence that previously bearish investors who took money out of the stock market after 2008 are pouring back in. I also said that once the S&P pops passed 1500, we should all be much more careful as, “we have more downside than up at these levels.

The key to investing is to buy low and sell high; not buy high and sell higher. It may not necessarily happen this month, but I feel we’re closing in on a near-term top. I started this letter saying this is the best January for the Dow Industrials since 1994. What I didn’t tell you is that the best January in 1994 for the Dow Industrials was followed by a nasty decline of 10% the month after.

I know investors remain bullish and sentiment has been pushed higher, but it’s time to start peddling back a little and let your money breathe. Even if just a little.

The market has been up 11 of the last 12 days…

In Gold We Trust

It no longer surprises me that gold continues to get hammered, despite record printing from around the world.

Someone really doesn’t want gold to break $1700.

Word just got out that yet another potential massive bailout for Siena’s Banca Monte dei Paschi, Italy’s third largest bank and the world’s oldest, may soon be passed. If it goes through, it will be the third bailout in three years.

While the bailout numbers seem small in comparison to current money printing policies, it’s the scandal that surrounds the bank that has my attention. Is it just me or are the world’s biggest and oldest banks all involved in scandals that involve our money? How many big name banks have now been involved in massive scandals over the last 5 years, including the biggest ones here on our home turf?

Yet we all continue to trust our dollars; the same dollars that were recklessly printed to bailout the banks that lost our money in the first place.

It’s also interesting to note that while the US Dollar remains the world’s reserve currency, and as such is highly convertible, gold remains the only truly accepted form of payment worldwide:

Tehran has been accumulating huge amounts of the precious metal over the past year as a means of circumventing ever-tightening international financial sanctions over its nuclear enrichment program, which some nations fear is being used to develop a nuclear weapons’ capability.

Turkey continues to provide the lion’s share of Tehran’s demand for gold, said Attila Yesilada, of the Istanbul-based research firm Global Source Partners.

“Gold sales [to Iran] have been diversified through Switzerland and Abu Dhabi, but the annualized total for last year is something like $11 billion, most of it financed through the gold stock of Turkish people,” Yesilada said. “This gold has become Iran’s main currency in terms [of] securing necessities from abroad.” – the Voice of America

I know we’re talking about Iran, but it shows just how powerful, and easily convertible, gold is on a world level.

When you consider that we’re in the middle of a currency crisis and a currency war, gold really is your only last form of liquid protectant.

By the way, the Fed’s balance sheet has now officially reached a new record of $3 Trillion…and counting.

Corvus Gold (TSX: KOR) (OTCQX: KORVF) Update

Despite the recent dip in gold and gold stocks, Corvus continues to push forward making announcements that show the positively changing dynamics of their North Bullfrog project in Nevada.

For those who missed the original report, you can find it here: “The Complete Package”

On January 15, Corvus announced that it had intercepted more gold mineralization from surface at the Jolly Jane Deposit, within the ZuZu zone. This zone, especially with the continued positive drilling, offers a great opportunity to add to the proposed early production at the Mayflower project with its very low strip ratio and deep oxidation.
Much of this drilling will be included in their upcoming feasibility study which is expected within a few months. As Corvus continues to hit, the new data should add significant value to the study.

But that’s not the only thing that should benefit their upcoming study.

On January 17, Corvus Gold Inc. announced the results of a series of column leach tests on large diameter core sample composites from the Mayflower deposit at North Bullfrog. The final results averaged 88% gold recovery, which represents a 10% greater gold recovery than the 78% gold recovery assumed in the December 6, 2012 Preliminary Economic Assessment (PEA).

88% recovery rates are most certainly on the high end of the spectrum for heap leach operations.

These encouraging results suggest that the potential exists to operate the Mayflower project on a Run Of Mine (ROM) basis. The impact of ROM processing could significantly reduce both capital and operating costs per tonne for the Mayflower deposit where gold production is anticipated for late 2014. It also means Corvus may not need the crusher that was included in their recent PEA for the first phase, and thus the costs for Phase I production would be significantly lower.

The High Grade Continues

The Yellow Jacket high grade discovery at North Bullfrog continues to show its strength and potential to be something big.

Corvus announced last week it has extended and further delineated the trend of the bonanza grade feeder system identified earlier in 2012.

In the recent follow up drill holes, Corvus intersected:

  • 58 metres @ 1.7 g/t gold and 33 g/t silver including 3.8 metres @ 4.1 g/t gold and 151 g/t silver, 4.4 metres @ 6.9 g/t gold and 50.4 g/t silver and 4.1 metres @ 4.3 g/t gold and 25 g/t silver.

The Yellow Jacket high-grade, fault controlled, gold and silver mineralization has now been encountered over a strike length of approximately 700 metres and remains open on strike and at depth. 3D IP imaging has now linked the Yellow Jacket discovery to a large master fault system which extends for over 2 kilometres in length and could have significant potential for additional high-grade mineralization.

In addition, recent detailed mapping, which utilized the new geophysical data, has now highlighted a number of other structural zones with similar signatures to the Yellow Jacket discovery and possible high-grade potential.

The near surface, high-grade Yellow Jacket zone not only offers an immediate positive impact on the North Area mine plan as a potential higher value starter phase, but also potential to evolve into a major new high-grade deposit in its own right.

None of these high grade results, including the 72.4 m grading 1.74 g/t Au and 98.7 g/t Ag, including 4.3 m grading 20.0 g/t Au and 1,519 g/t Ag beginning at 40 m vertical depth from last year’s results, have been incorporated in the current North Bullfrog estimated resource and updated preliminary economic assessment. Once these numbers are added later this year, it will change the dynamics of the projects and make it even better.

Jeff and his team have an incredible track record of success, having discovered over 40 million ounces of gold. These guys know how to strike it big. When they feel they are onto something, they’re usually right. Not only is Corvus’ near term production plan looking good, the high grade potential at Yellow Jacket could transform the project into something even bigger.

I spoke with Jeff recently and he couldn’t be more excited about the prospects at North Bull Frog. As I have mentioned before, having a high grade discovery in Nevada backed by an economical gold mine is extremely significant.

Nevada is one of the best places in the world for gold mining and I believe that Jeff and his team are well on their way to making North Bull Frog the next gold mine in Nevada.

Until next week,

Ivan Lo

Equedia Weekly

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Disclosure: I am long gold and silver through ETF’s and bullion, as well as long both major and junior gold and silver companies. We’re biased towards Corvus Gold Inc. because they are an advertiser and we own shares through their private placement financing dated October 15, 2012, as well as shares purchased in the open market after our initial report, and we own options. Our reputation is built upon the companies we feature. That is why we invest in every company we feature in our Equedia Reports, including Corvus Gold. It’s your money to invest and we don’t share in your profits or your losses, so please take responsibility for doing your own due diligence. Remember, past performance is not indicative of future performance. Just because many of the companies in our previous Equedia Reports have done well, doesn’t mean they all will.

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