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Gold is firmer this morning, thanks to a broad reminder to investors about the perils of debt with a bite being taken out of depositors’ accounts in Cypriot banks in order to help pay for a bailout of the island’s financial system – a decision that may end up haunting the euro zone…as of 7:00 am Pacific, bullion is up $17 an ounce at a 3-week high of $1,610…Silver is up 24 cents at $29.01…Copper has tumbled 8 cents to $3.43…Crude Oil has lost $1.13 a barrel to $92.32 while the U.S. Dollar Index is off one-fifth of a point to 82.67…

Cyprus Bailout/Tax Heist

The Wall Street Journal reports this morning that, according to two European officials with knowledge of the situation, Cyprus is preparing a new proposal for its prospective international lenders that will ease the pain of an extraordinary deposit tax for smaller depositors…the new proposal will aim to raise $7.6 billion U.S., the amount already set as a requirement for Cyprus’s $13 billion bailout from the euro zone and the troika of lenders made up of the European Commission, the European Central Bank and the International Monetary Fund…the new proposal will see smaller depositors, those with up to $130,000, taxed at 3%; savers with $130,000 to $650,000 taxed at 10%; and those with over $650,000 taxed at 15%, one official said…Cyprus is a nation of only 800,000 people and has approximately $90 billion in deposits, much of this held by Russians and other foreigners (various reports have stated that Russians had stuffed between $25 and $35 billion in Cypriot banks)…

The decision to impose this unprecedented tax on depositors risks a political backlash for the newly elected center-right government on the Mediterranean island and a wider political fallout for the euro zone leaders who are guiding the bloc’s crisis strategy…the tax was the only way out for the bloc’s finance ministers after Germany, the euro zone’s biggest economy, and the International Monetary Fund insisted that financial aid to Cyprus should be limited to $13 billion…

Cyprus state broadcaster CYBC reported that a man drove a bulldozer into a bank branch in Limassol, the island’s financial centre, to protest the levy…euro zone finance ministers should be more concerned, however, about what kind of retaliation Vladimir Putin has in mind…

Changes In China?

The news out of Cyprus overshadowed interesting developments in China over the weekend…the new premier of China pledged to curb the power of bureaucrats, rein in government spending and provide a more level playing field for private enterprise in the world’s second-largest economy…“The reform is about curbing government power; it is a self-imposed revolution…it will require real sacrifice and this will be painful,” Li Keqiang said at a news conference to mark the close of China’s ceremonial parliament on Sunday, just two days after he replaced Wen Jiabao as premier…in another hopeful sign for global investors, Keqiang singled out the state-dominated railway, energy and financial sectors as areas where Beijing would allow private capital “to enter more smoothly and effectively”…

Meanwhile, just as concerns over a hard landing in the world’s second largest economy look to have faded, economists at Nomura have sounded a warning that the Chinese economy is exhibiting the same worrying symptoms that triggered the 2008 financial crisis…the country’s rapid buildup of leverage, decline in potential growth and elevated property prices, are three red flags that should not be downplayed, according to Nomura economists Zhiwei Zhang and Wendy Chen…”China faces rising risks of a systemic financial crisis and the government needs to take action quickly to contain such risks…we believe the true extent of financial risks in China is not fully appreciated by investors,” the two wrote in a report released over the weekend…

Today’s Markets

Asian markets were down sharply overnight, led by Japan’s Nikkei Average which tumbled 2.71% or 340 points to close at 12261…diminishing concerns about Europe’s sovereign debt crisis have largely underpinned much of Asia’s stock market gains in 2013 and investors are wondering if the Cyprus bailout deal could spark a fresh risk-off trade…China’s Shanghai Composite fell 39 points to 2240, its lowest level in two months…European shares are off their lows of the day with markets generally off about 1%…the Dow is down 55 points as of 7:00 am Pacific…the TSX, aided by a rising Gold Index, has slipped only 50 points while the Venture is down 3 points to 1114…

CDNX-Gold Comparison

It’ll be interesting to see how the Venture Exchange performs in the event of a broad market pullback with Gold turning to the upside…over the last year or so, the Venture and Gold have essentially moved in tandem after the CDNX strongly under-performed against bullion in 2011 (notice in the 5-year weekly chart below how the Venture started going in the opposite direction of Gold in 2011 – a clear warning sign after a period of out-performance by the Venture)…so far in 2013., through the end of last week, Gold is down 6% while the Venture has declined 8.5%…

Updated Long-Term Silver Chart

Short-Term Silver Chart

TomaGold Corp. (LOT, TSX-V) Updated Chart

Drilling continues at the Monster Lake Gold discovery where TomaGold Corp. (LOT, TSX-V) and Real Quinto Capital Corp. (QIT, TSX-V) launched a Phase 2 program a week ago in an attempt to extend high-grade mineralization at depth…expect continued volatility in both plays with LOT showing Fibonacci support at 24 cents…as of 7:00 am Pacific, LOT is up a penny at 27 cents…

Note: John, Jon and Terry do not hold positions in LOT.