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Gold's record surge -- a rejection of capitalism?

Section: Daily Dispatches

More like a yearning for a return to capitalism.

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By John Melloy
Executive Producer, "Fast Money"
CNBC, New York
Monday, March 21, 2011

The gold trade has been pretty clear-cut for the last 30 -- even 1,000 -- years. The yellow metal with a nice weight to it has been a store of value against inflation. But something changed 2 1/2 years ago in the middle of the financial crisis.

From 1976 to November 2008, when the consumer price index went up, so did gold, according to analysis by Alan Newman, editor of the Corsscurrents newsletter. Since then, gold has gone up when the CPI has contracted (deflation) or expanded (inflation).

It begs the question: What does a purchase of gold represent?

Surprisingly, many traders said it means an almost nihilistic rejection of our global market system. It keeps going up because more and more people don’t want to play in a capitalist system where banks are still too big too fail, the Federal Reserve buys Treasuries in the open market, and countries openly, and in a coordinated fashion, try to devalue paper assets right before our eyes.


Prophecy Resource Spins Off Platinum/Palladium Venture:
World-Class PGM Deposit in Yukon

Company Press Release, January 18, 2011

VANCOUVER, British Columbia -- Prophecy Resource Corp. (TSX-V:PCY)and Pacific Coast Nickel Corp. announce that they have agreed that PCNC will acquire Prophecy's Nickel PGM projects by issuing common shares to Prophecy.

PCNC will acquire the Wellgreen PGM Ni-Cu and Lynn Lake nickel projects in the Yukon Territory and Manitoba respectively by issuing up to 550 million common shares of PCNC to Prophecy. PCNC has 55.7 million shares outstanding.

Following the transaction:

-- Prophecy will own approximately 90 percent of PCNC.

-- PCNC will consolidate its share capital on a 10 old for one new basis.

-- Prophecy will change its name to Prophecy Coal Corp. and PCNC will be renamed Prophecy Platinum Corp.

-- Prophecy intends to distribute half of its PCNC shares to shareholders pro-rata in accordance with their holdings.

Based on the closing price of the common shares of PCNC on January 17, $0.195 per share, the gross value of the transaction is $107,250,000.

For the complete announcement, please visit:

"I think of gold as a protest vote in the ballot box of capitalism," said Nicholas Colas, ConvergEx Group chief market strategist. "You don't necessarily think your candidate is going to win, but you want the people reading the election results to know you aren't happy with any of the pre-packaged choices."

Bullion futures closed less than 1 percent from a record close Monday, up more than 80 percent from when its correlation with CPI ended, which coincidentally occurred during the aftermath of the biggest financial crisis since The Great Depression.

"We see as much uncertainty about the future as we have seen in decades," wrote Newman in his latest newsletter. "Doubts about the housing market, the financial condition of consumers, the federal government, state governments, and municipalities are still quite apparent."

Newman added, "The frauds of the complicit nature of Wall Street have shredded the confidence of investors."

Last week the G-7 announced a coordinated effort to weaken the yen to boost Japan's economy in the wake of the tragic earthquake. The move has caused a breakdown in the dollar, which has already been on a downtrend since our own Federal Reserve began the purchase of $600 billion in Treasuries in order to keep interest rates artificially low.

These interventions have made gold the asset class for those who feel this isn't really a free market played by the rules, so therefore paper assets aren't worth what Wall Street says they are.

"The current price of gold represents a growing mistrust of all fiat currencies and, more specifically, a demotion of the U.S. dollar from its position as the safest asset," said Jim Iuorio, managing director of TJM Institutional Services.

Add in geopolitical tension and it's hard to think of a scenario where gold goes down. That's what has some traders worried about it.

"It is a trade that is called both a deflation hedge and an inflation hedge depending on whom you are listening to," said Josh Brown, money manager and author of The Reformed Broker blog. "For this reason, we can say gold is a trade with many different types of holders involved for a spectrum of different reasons and rationales. It will be fun watching them all try to squeeze through the exit at the same time."

After all, unlike equities, which pay dividends and have a break-up value, or bonds, which have a principal and monthly coupon payments, gold is worth only as much as the next person is willing to pay for it.

"Gold has no valuation, no metrics, no commercial use," said veteran commodities trader Dan Dicker. "It's the world's most respected ponzi scheme."

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Sona Drills 85.4g Gold/Ton Over 4 Metres at Elizabeth Gold Deposit, Extending the Mineralization of the Southwest Vein on the Property

Company Press Release, October 27, 2010

VANCOUVER, British Columbia -- Sona Resources Corp. reports on five drillling holes in the third round of assay results from the recently completed drill program at its 100 percent-owned Elizabeth Gold Deposit Property in the Lillooet Mining District of southern British Columbia. Highlights from the diamond drilling include:

-- Hole E10-66 intersected 17.4g gold/ton over 1.54 metres.

-- Hole E10-67 intersected 96.4g gold/ton over 2.5 metres, including one assay interval of 383g of gold/ton over 0.5 metres.

-- Hole E10-69 intersected 85.4g gold/ton over 4.03 metres, including one assay interval of 230g gold/ton over 1 metre.

Four drill holes, E10-66 to E10-69, targeted the southwestern end of the Southwest Vein, and three of the holes have expanded the mineralized zone in that direction. The Southwest Vein gold mineralization has now been intersected over a strike length of 325 metres, with the deepest hole drilled less than 200 metres from surface.

"The assay results from the Southwest Zone quartz vein continue to be extremely positive," says John P. Thompson, Sona's president and CEO. "We are expanding the Southwest Vein, and this high-grade gold mineralization remains wide open down dip and along strike to the southwest."

For the company's full press release, please visit: