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Friday, May 09, 2014

Senators blast watchdogs over widespread gold investment fraud

WASHINGTON Wed Apr 30, 2014 6:42pm EDT
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(Reuters) - Lawmakers scolded federal regulators for not doing enough to prevent scam artists from luring retirees into risky investments in precious metals, fraud from which has cost victims an estimated $300 million since 2001.

A convicted felon, a victim and two law enforcement officials testified at a hearing of the Senate Special Committee on Aging on Wednesday, to discuss a report that found an estimated 10,000 Americans - mostly elderly - had fallen prey to such schemes.

One of the regulators, the Commodity Futures Trading Commission, pledged to start informing consumers better. It also said nobody had been sent to jail in the 21 cases of precious metals fraud it had prosecuted.

"The first line of defense is not consumer education. The first line of defense is putting the crooks in prison," said Senator Claire McCaskill, a Missouri Democrat.

Both the CFTC, which regulates U.S. derivatives trading, and the Federal Trade Commission, which enforces laws against false advertising, have investigated and shut down such companies, but the two have no criminal prosecution authority.

McCaskill urged the two regulators to rely less on federal prosecutors and work more with state district attorneys.

Bill Nelson, the Florida Democrat who heads the committee, linked the report to the confirmation of Timothy Massad in his role as CFTC chairman.

"Before I will allow consideration of his nomination in front of the Senate I would like to have a conversation with him," he said. Massad has been confirmed by a different Senate panel, but it is unclear when the full Senate will do so.

Karl Spicer, convicted for his role in a Florida-based scheme to rip off investors though the sale of silver and other precious metals, said that the agencies inspired little fear in the people working on such scams.

"With all due respect to the civil authorities, the people that I have encountered ... don't really respect the civil authority bans," Spicer said. "The gentleman I was with had a CFTC ban, he cooperated; he had a ban and he still went about doing business the very next day."

A group of attorneys helped them evade the rules, for instance, by continuing the business under somebody else's name, he said, adding that the schemes were widespread.

In a typical scam, the report said, a telemarketer phones a potential victim, often a retiree, and gives what is purported to be privileged information about a likely rise in the future price of gold, or silver, or other metals.

The end result is often that a retiree may borrow money at a high interest rate to invest in the metal, pay commissions and storage fees and then lose his or her stake, often thousands of dollars, the report said.

The scams, like many other kinds of fraud, have become more prevalent since the 2008 financial crisis as retirees sought relatively safe investment opportunities. Some seniors, faced with years of near-zero interest rates, have sought out ways to make their retirement nest eggs go further.

Many of the precious metals firms are based in Florida, and the state's Office of Financial Regulation has gone after seven companies whose customers lost more than $54 million, according to the report. Officials in California, Minnesota, North Carolina and Texas have also cracked down on such firms.

In simpler cases, customers are sold coins that are priced at considerably more than their market value. Advertisements for such sales are staples of late-night television programming.

(Reporting by Diane Bartz; editing by G Crosse, Ros Krasny and Ken Wills)

WASHINGTON Wed Apr 30, 2014 6:42pm EDT
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Friday, May 02, 2014

Improving US Economy Hinders Gold Price

By Vivien Diniz   
Thursday May 1, 2014, 4:05pm PDT
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The Federal Reserve once again didn’t do gold any favors this week. Spot gold was down on Thursday to $1,279.24 per ounce on more outflows from gold exchange-traded funds (ETFs) after the Fed stuck with its plan to reduce its monthly bond-buying program. The yellow metal touched a one-week low of $1,277.09 earlier in the day.

The Fed’s decision to reduce its monthly bond purchases was reinforced by its view that the US economy is on the path to recovery. This week, US data showed that consumer spending was at its highest level in over four and a half years in March, while factory activity increased in April. Market watchers will be on the lookout for US nonfarm payrolls data, scheduled to be released on Friday.

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The gold-backed SPRD Gold Trust ETF (ARCA:GLD) saw roughly 4.19 tons of outflows on Wednesday, marking its biggest drop in two weeks. That suggests investor confidence has not quite been restored when it comes to gold. ETF holdings have been on a decline for the past several weeks, with a drop of 30 tons over the last month and a half.

Earlier this week, when gold touched about $1,300 on continued tension between Russia and Ukraine, ETFs seemed like a good idea. Unfortunately, ETFs seem to be caught in the middle of a “tug of war” between the former Soviet nation and the US.

“Total holdings in exchange traded products backed by physical gold fell by 0.6 tons as investors in the yellow metal continue to seek protection from a potential escalation in Ukraine against the risk of further losses as the US economy continues to improve, thereby offering better investment opportunities elsewhere,” said Ole Hanson, head of commodity strategy at Saxo Bank.

US slipping from top spot

Despite the improving US economy, a report out of the World Bank suggests that China’s economic growth is rapidly gaining on that of the US, so much so that China could soon hold the top spot as world’s biggest economy.The US has held the top spot as world’s largest economy for more than a century, and could be surpassed by China as early as this year. Economists, as the Financial Times explains, had previous thought that China would only pull ahead of the US in 2019. The Bank also highlights that India has climbed up the ranks, taking the place of third-largest economy away from Japan.

Company news

This week, merger talks between Barrick Gold (TSX:ABX) and Newmont Mining (TSX:NMC) came to an end. As CTV News reported, both companies blamed each other earlier this week for the collapse of merger talks, which could have resulted in the a combination of the world’s largest gold producers. In what ended up being a war of words, Barrick’s chairman, Peter Munk, pointed to “cultural differences,” adding that Newmont is an extremely conservative and risk-averse company, which made negotiations frustrating.

On Wednesday’s annual shareholder meeting, Munk stepped down from his post after more than 30 years.

Vancouver gold miner Goldcorp (TSX:G) announced its Q1 earnings on May 1. They show a decline due to the lower gold price, despite the company’s increase in gold production.

On Thursday, Corvus Gold (TSX:KOR,OTCQX:CORVF) announced the results from the ongoing Phase 1 drill program at the North Bullfrog project in Nevada. Corvus notes assay results include the full intercept of hole NB-14-380, as well as four recently completed holes on the new West Vein zone. Highlights from the new West Vein zone include hole NB-14-384, which intersected 4.5 meters of 17 g/t gold and 140 g/t silver 50 meters along strike from NB-14-380. Meanwhile, hole NB-14-382 encountered 4.7 meters of 4.6 g/t gold and 0.5 meters of 181 g/t gold 25 meters down dip from NB-14-380.

Detour Gold (TSX:DGC) reported its first-quarter results on April 30. They indicate that Detour met expectations, producing 107,154 ounces of gold for the quarter. The company also saw revenues come in at $110 million from the sale of 84,560 ounces. In addition, Detour closed some equity financing for gross proceeds of C$173 million and repaid $40 million in debt.

Paramount Gold and Silver (TSX:PZG,NYSE:MKT:PZG) discovered a new set of structures to the south of the richly endowed Guazapares Megastructure on the San Miguel project in Mexico. Preliminary drilling has intersected sizable widths of high-grade precious metals.

Also this week, Klondex Mines (TSX:KDX) announced the results of its PEA for the Fire Creek project in Nevada. The assessment points to low all-in sustaining cash costs of $636 per ounce of gold and a $157.3-million after-tax cash flow.

Securities Disclosure: I, Vivien Diniz, hold no investment interest in any of the companies mentioned.

Vivien Diniz   
Thursday May 1, 2014, 4:05pm PDT
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