But there are currencies that have actually been falling against the green back. My guest today is Sovereign Society’s currency expert and editor of the Money Trader, Jack Crooks.

The dollar has plummeted in Europe and Japan. But it has actually gone up in many countries, such as South Africa, Indonesia, Iceland, South Korea, Argentina. What is the reason for the decline in these currencies?

Jack Crooks: You’d think by reading the news that the dollar has fallen against everybody, but the lowly green back has appreciated against some of those countries. The reasons vary. Iceland is a financial crisis and I think South Africa has a political problem. So you have different reasons for these falls against the dollar in these countries. And you have to get beneath the surface to see.

It goes to show that currencies aren’t always a one-way bets. No matter how bad a currency may look, it may be appreciating against something else.

___________________________________________________________
American Debt Crisis Set to Implode

Ben Bernanke is just DAYS away from unwinding the world’s biggest bet – and his actions could spin markets into a “deflationary, global collapse.” To learn his dirty little secret – and grab potential gains of 319% or MORE, read Jack Crooks’ latest report.
___________________________________________________________

Laura Cadden: I was especially surprised to see the South African rand dropping 26 percent against the dollar in two years. Yet they’re one of the major gold producers of the world. How do you explain this situation?

Jack Crooks: That’s an odd one, especially if you look at the price of gold, as you said. It almost runs completely inverse to the dollar. If gold goes up, the dollar goes down. So you sure would expect the South African rand to go up as. But I think that’s a real political problem there:

The South African government really is shifting more from capitalism to a very socialist economy. They’re having power outages and you’re just seeing a real breakdown in a lot of the key factors that drive an economy. The political side is scaring a lot of investors out of South Africa. And since currencies are driven by money flow, if money is moving out of South Africa, its currency is going to fall.

Laura Cadden: Let’s talk about Iceland. The krona has slumped 26 percent against the Euro this year and it’s down 40 percent since mid-July 2007. What do you think is the big factor there?

Jack Crooks: Now Iceland is a financial fix. There’s a real banking crisis going on in Iceland because Icelandic banks borrowed a lot of international money from Norway, Denmark, Sweden, the European market.

Then we had the credit crunch. Then all of a sudden they couldn’t get the funds to refinance these credit lines. It fed directly into the currency.

There’s no free lunch: A lot of small investors were putting a lot of money in the Icelandic currency because the interest rate was so high. They thought they could earn ten, 15 percent in Iceland interest rates versus three percent in the United States.

There was a reason interest rates were so high in Iceland: Because there was a lot of risk. The currency fell off the table because of that risk when it came to fruition.

Laura Cadden: Iceland hiked their rates up to 15.5% in part because they were battling inflation of 11.8 percent. Can you imagine yields of inflation like this to a U.S. investor. I mean that’s just crazy.

Do you think it’s going to continue? The krona’s going to continue to decline?

Jack Crooks: Well, recently the banks of Norway and Sweden have come in to try and open up credit lines and really save the currency to a degree. This is a real emergency for Iceland.

As you said, it’s really a double whammy. It’s not only financial, but you have that inflation problem in the background. You also have the situation where their economy is starting to slow down. It’s bad news at the moment. So we really need to see how this shakes out because if we have another bout of the credit crunch globally, it’ll continue to feed into Iceland and I think will continue to hurt the currency.

Once we get through this credit problem and if the banking system is stabilized in Iceland I do think it’s going to be a great buy.

Laura Cadden: So are there any opportunities for U.S. investors to leverage this situation for long-term gains?

Jack Crooks: As I said, I think Iceland is going to turn around because the economy ultimately is stable. They just got over-extended on this credit crisis. So I think that would be a nice long-term play, but we want to see some consolidation technically there.

In other places there are a lot of emerging opportunities. Emerging markets all present opportunities—big risk, but the reward is there if you’re willing to take it.

Source: Currency Trading Strategies for a Volatile Forex Market

And a few days ago, Avocet promised to announce profits of $47-$52m for the year to end March.   While precise figures will have to wait for the full announcement in July, this will do nicely to be going on with. Last year profits were only $23m.

Reassuringly dull

Low costs…rising production… politically relatively stable locations… prudent management – the Avocet story is reassuringly dull.

It wasn’t always so. Until recently, they operated in such locations as Tajikistan. Avocet got out of that country – much to the relief of the shareholders.   Now Avocet is mining and exploring in Malaysia – it owns 100% of Malaysia’s Penjom mine, the country’s largest gold producer. It also owns 80% of the North Lanut gold mine in North Sulawesi, Indonesia.

The trading statement also announced the latest gold production figures. These came in 10% better than the same time last year, at 157,907 ounces. The average price received was 26% higher.

While those numbers went up, costs went down. Cash costs are 10% lower than a year ago, at around $316 an ounce. In fact Avocet is one of the cheapest gold producers.

As CEO Jonathan Henry commented: “In the current inflationary environment it is especially pleasing to be able to report continuing cost reductions which firmly place Avocet in the lowest quartile of global gold producers.

“Meanwhile the strong gold price has improved margins and our operations continue to generate significant cash that we are investing in our portfolio of production, development and exploration assets.”

Those profits do not even include money from disposals. There is another $21m from the sale of a prospect in Malaysia.

Continues below

Recommended

Grab an easy £550 – £1,100 every single week.

Become a part-time Forex profit raider – in no time: in fact within 30 days you’ll be trading an average weekly income of £550 – £1,100, depending on what you stake. That’s between £28,600 and £57,200 per year tax free!

Terry Hodgkinson piled up £1,455 in his first week using stakes no higher than £5…

How much will you make?

Management is playing it safe on the gold price. It has prudently set up a cap arrangement on 190,000 ounces of production from January 2010 to July 2011 at $755 an ounce. And it has placed put options on 400,000 ounces at $600 an ounce between April this year and July 2011. So it has protected its profits even if the gold price does not hold at current levels.

Rising capacity and loads of cash

Not that this kind of arrangement pleases everybody! Some of the investment message boards have carried grumbles at its complexity.

For the board, it is a reflection of having lived through $350 gold. The effect of that was nasty even for low cost producers. The directors prefer to take out insurance – just in case!

Production is rising nicely. Avocet’s Bakan project in Indonesia will be commissioned in 2009. Based on the current mine plans, Avocet should produce around 170,000-200,000 ounces a year for the next five years. There are ten new exploration projects in Indonesia, and a number have been showing “excellent” drilling results.

Capacity will likely expand beyond what Avocet currently indicates, as exploration projects mature.

There is a load of cash – $122m at the year end – and no debt. But that cash is a bit of a two-edged sword!

Institutional shareholders don’t buy gold miners for their cash. They want that money put into producing gold.

Pressure is now on for an acquisition

While Avocet has produced deals in the form of exploration projects and has steadily increased the resources and reserves in its portfolio, that’s not enough!

It’s in a hurry to increase production. Avocet wants to reach an annual production level of 1 million ounces. And it wants to do this while it can still enjoy the current high gold price. Hence the pressure for acquisitions.

Avocet already has an interest in approximately 27% of Dynasty Gold Corporation, and a 19% interest in Monument Mining. Both companies are listed on the TSX Venture Exchange in Canada.

Jonathan Henry has given the reassurance that the board is discussing potential acquisition opportunities. As a 1% shareholder himself he also has a vested interest in growing Avocet as fast as possible. But the pressure is on.

Keep looking!

Erin and Isabel

PS Make sure you don’t miss out on getting all the latest industry news in one daily hit with a brand new free eletter from Fleet Street Publications.

Costs, in general, have been hard to contain. Understandably, given the power cuts and safety issues, South African stocks have performed particularly badly. But in general gold shares have underperformed.

So is this now a buying opportunity? Investec Asset Management seems to think so – but with some reservations.

For once Erin and I agree. Small to medium sized gold producers (not explorers or developers!) with rising unhedged output that have a tight rein on costs are the ones to watch. If all goes well these are the ones whose earnings should rise more than gold, says Investec’s Daniel Sacks. And it’s these players, too, that could well be bid targets for the sector’s heavyweights.

Majors eye junior producers

Take AngloGold Ashanti. It might do well if it bought out an unhedged smaller producer. In a preliminary results presentation AngloGold’s Aussie chief, Mark Cutifani, admitted that, if the gold price hung around $900, this miner would receive “significantly lower than the spot price” in 2008.

AngloGold has sold up to 60% of its future output at well below the current spot price for gold. As much as 20% lower! And that is based on a gold price of around $900. This gold major has a hedge book of some 10.4million ounces at the end of 2007, the largest among gold producers.

It couldn’t be much worse, say analysts. To buy out the hedge book, AngloGold would need a staggering share issue of roughly a third of its equity. Worse still, if mines continue operating at 90% power, 400,000 of AngloGold’s glittering ounces will remain buried. So getting rid of the hedge book sooner rather than later seems unlikely.

Unless, of course, it takes out a smaller producer!

The world’s number one, Newmont, is another that might do well to look for juniors. Here is a company that has struggled to top up its already mined reserves. So, small-fry producers and explorers have been in frame. And why not! Why reinvent the wheel? If somebody else is further down the track and doing it better, that seems the obvious thing to do.

Tight on the purse strings

So which of these small to medium companies might be good bid targets for the big boys? Could it be London-listed Randgold Resources? Or perhaps one of Canada’s juniors, Kinross Gold or Great Basin Gold.

Recommended

Five ‘Power Trends’ to Buy into Now

One ’secret line’ has pinpointed every major stock market trend of the last 207 years…

If its next call is correct – and you have exposure to the five specific ‘power trend’ investments detailed below – your wealth could multiply for the next 20 years… recession or not!

Click here to find out more.

Past performance and forecasts are not a reliable indicator of future results. Your capital is at risk when you invest in shares, never risk more than you can afford to lose. Please seek independent financial advice if necessary. Fleet Street Publications Ltd. Customer Services: 0207 633 3600.

Ferdi Dippenaar, president and CEO, reckons that come 2008 Great Basin will start delivering golden ounces from the Hollister site in Nevada. “This is our year of delivery,” he has been quoted saying. In the first year 80,000oz are expected, with 160,000oz expected for the next six years at a cash cost of US$214/oz. But rumour has it that Barrick and Newmont are in talks with Great Basin. Apparently, they want to acquire Hollister to boost their reserves.

Given the estimated resource at its Burnstone property in South Africa, perhaps this is where the focus should be. After drilling 245 holes in 2007, measured and indicated resources are said to be 11m ounces. Roughly 2m ounces have been added to inferred resources category. So no reserves yet! But the company has completed a feasibility study which estimates and average of 254,000 oz of gold for 19 years! And it could be made a much bigger project. Mr Dippenaar has said Burnstone 2 and Burnstone 3 are certainly an option!

The good thing about Great Basin is that its balance sheet is strong – it has no debt and has funding to the tune of US$57m. That means it is able to finance both of the above projects and also continue exploring. It recently entered into a joint venture with a private Mozambican company to explore a 12 square kilometre property in this former Portuguese colony. Better still, it is unhedged, so able to take advantage of a strong gold price.

Management talks the talk

Mr Dippenaar has certainly used his marketing acumen to raise the profile of this company! Last year Great Basin was one of the world’s best performing gold stocks. Marketing training also means he knows what to say on issues like safety. Because Burnstone is a new mine “actually designed for safety” he said in an interview. He also said “we will not kill anybody”.

What is clear is that Mr Dippenaar, a Namibian-born accountant and former marketing manager at Harmony Gold, has his eyes firmly on containing costs. He is even willing to share infrastructure and resources, like energy, with neighbouring mines.

Now we usually favour companies run by miners, but having an eye for numbers in these times can’t be a bad thing.

So keep mining,

Erin and Isabel

PS Make sure you don’t miss out on getting all the latest industry news in one daily hit with a brand new free eletter from Fleet Street Publications.