USDX vs gold in new territory

Again.

The last deflationary move has carried the system out of the immense head that has been building for the past four-and-a-half years. We are in new territory, with the possibility of continuation along the deflationary trend that as been operating for over ten years, or a switch to an inflationary trend, which could potentially result in another big runaway reaction as begain in 2011.

The isoquants in the above figure are lines of constant product of the gold price and the USDX. They represent the apparent gold price to a company that is mining gold outside of the US, and are the theoretical trajectory that the system would show if the only factor affecting gold price was the US dollar.

If we just look at the last 14 months, we see three distinct behaviours in the system. From April until mid June 2018, the system followed the 1200 isoquant, showing an almost perfect inverse relationship between the gold price and USDX.  From mid-June to late September, there was a sharp fall in the gold price with a nearly constant value for the USDX index. This phase was bad for gold companies. Since September, we have seen both rising gold and rising USDX, which this space interprets as a deflationary indicator. This is the sweet spot for mining companies, especially those outside the US, who get more dollars per ounce produced, and also see the value of the dollars rise. This improvement in fundamentals is well reflected in the GDX index, as seen below.

Image of recrystallization of niobium minerals in a carbonatite

From a location that will remain secret for now.

Every so often I get out of my hospital bed and look at some rocks. This image comes from a rock slab I took down to the SEM lab in the Geology Department at the University of Toronto last month some time.

Most people have some idea of how a scanning electron microscope works. Fewer will know about an attachment that many of them have--an energy-dispersive X-ray analysis detector. This device allows for estimation of the elemental composition of a point on a mineral (or a section of whole rock) in a non-destructive fashion.

Blasting a sample with electrons (how the SEM works) ionizes the target area--when it recaptures an electron it releases a quantum of energy in the X-ray spectrum that is characteristic of the element that has been ionized. This allows for the specific elements to be identified and their relative amount quantified.

A second method of analysis involves back-scattered electrons, which create a grey-scale image that results is grey scale, with lighter coloured grains containing heavier elements.

The backscattered electron image above tells me that the white grains have the heaviest elements in them. The X-ray spectrum (not shown) tells me that the heavy element present is niobium. The mineralogy work previously done suggested that the principal niobium-bearing mineral present is pyrochlore--but the x-ray spectrum suggests that many of these grains are actually ferro-columbite (as columbite, but Fe>>Nb), pseudomorphed from pyrochlore.

The gangue minerals are represented by two different regions of grey. The light grey can be shown to be phosphates (mainly apatite) and the darker grey is carbonate (mainly dolomite).

The image above captures something interesting. The columbite grains have begun to lose their distinction from the gangue minerals. Niobium and other heavy elements are being shifted around (the bright white "tendrils" surrounded by black [=silica]) by some late-stage fluid reaction. The x-ray spectrum shows that in addition to Nb, there are rare earth elements present (mainly cerium). This suggests alteration of the columbite to possibly fersmite--although I haven't isolated grains well enough to establish the crystal structure yet.

I wanted to share this because I think this is a spectacular image--from a scientific perspective. From a metallurgical perspective, we would prefer not to see all of those little unrecoverable tendrils of Nb and Ce locked in silica.