Thursday, November 29, 2012

Gold Market Report 29 November

Gold's Comex Drop "A Test of Downside Interest", Fat Finger Trade "Not to Blame" for Selloff

WHOLESALE gold bullion prices rose to $1725 an ounce Thursday morning, recovering some ground after yesterday's sharp drop during US trading, as stocks, commodities and the Euro also gained and US Treasury bond prices fell.

Silver climbed to $33.87 an ounce, 2.7% up on yesterday's low but 0.9% down on this week so far.

Gold fell more than $30 an ounce in an hour Wednesday, dropping 1.5% in just a few minutes. Gold trading volume on the New York Comex futures and options exchange was more than double its 250 day average, according to Reuters.

Silver also fell Wednesday, with Bloomberg reporting the highest silver Comex volumes since May 2011, although silver rebounded more quickly than gold and was back to within a few cents of its pre-crash level by the time US markets closed.

"[Yesterday's move] puts our bullish view into jeopardy," says Scotiabank technical analyst Russell Browne.

"We shall shift to neutral should support at $1705 be broken."

"We don't think anything has materially changed for gold," adds a note from UBS.

"Essentially the metal is back to where it was trading last week. This is another test of downside buying interest but it also highlights the commitment issues that reside when the market attempts to climb higher."

Online gold exchange BullionVault saw the number of customers adding to their gold holdings triple on Wednesday compared to a day earlier.

The volume of bullion held by gold exchange traded funds meantime rose to a fresh all-time high Wednesday, according to Bloomberg data. The world's biggest gold ETF SPDR Gold Shares (GLD) also saw holdings set a new record at just over 1347 tonnes, a 1.2 tonnes rise from the previous record set a day earlier.

A spokesman for Comex operator CME Group denied yesterday's fall in gold prices was the result of a so-called 'fat finger' trade, a term used to suggest human error. Nor was stop logic triggered, the spokesman added, meaning that the fall was not sufficiently rapid to trigger a pause on CME's electronic Globex trading platform.

"Gold probably saw some additional pressure from technical stop loss selling," CME's mid-session gold report said Wednesday, "as the gold market fell through a series of key chart points."

"Some players blamed the lack of fiscal cliff progress undermined gold and other commodities," added the exchange operator's end –of-day gold market report.

"But if that was the focus of the trade one might have expected gold to have bounced more significantly into the President's White House Press conference."

President Obama yesterday urged voters to use social media website Twitter to put pressure on their representatives in Congress to reach a deal on the so-called fiscal cliff of tax rises and spending cuts currently scheduled for the end of the year.

"We don't have a lot of time here," Obama said. "We've got a few weeks to get this thing done...the Senate's already passed a bill that keeps income taxes from going up on middle class families. Democrats in the House [of Representatives] are ready to vote for that same bill today. If we can get a few House Republicans to agree as well, I'll sign this bill as soon as Congress sends it my way."

Republican Congressman Tom Cole of Oklahoma suggested this week that Republicans should support the bill.

"We all agree that we're not going to raise taxes on people who make less than $250,000," said Cole.

"We should just take them out of this discussion right now, continue to fight against any rate increases, continue to work honestly for a much bigger deal."

Republican House Speaker John Boehner rejected Cole's suggestion Wednesday. Boehner added however that he is optimistic a deal can be agreed.

Treasury secretary Timothy Geithner will today hold talks with Congressional leaders on the subject.

US hedge fund SAC Capital meantime was issued with a so-called Wells Notice by the Securities and Exchange Commission Wednesday, informing SAC that it will face charges over insider trading. 

The world's number four gold producer Gold Fields announced today that it plans to spin off two of its South African mining sites as part of a business restructuring. The two sites, Beatrix and KDC, have both been affected by strike action in recent weeks.

Ben Traynor

BullionVault

Gold value calculator | Buy gold online at live prices

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK's longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics. Ben writes and presents BullionVault's weekly gold market summary on YouTube and can be found on Google+

(c) BullionVault 2012

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Peru’s copper, silver production up; gold, moly fall in Sept

Peru’s molybdenum production fell by half in September 2012 as lead and zinc output improved, says the country’s mining ministry.

Author: Dorothy Kosich

Peru’s Ministry of Energy and Mines reported copper production increased 9.58% in September while iron ore was up 81.55% and silver increased 8.65%.

The ministry reported copper production was up 5.46% during the period of January to September 2012 from 898,875 metric tons from January to September 2011 to 947,922 metric tons. For September 2012 copper production was 113,615 metric tons, up 9.58% from 103,680 tons metric for September 2011.

The increased copper output was attributed to higher production from Sociedad Minera El Brocal, Compania Minera Antamina and Compania Minera Milpo.

Iron ore production for September 2012 was reported at 892,478 long tons (906,799 metric tons), up 81.55% from 491,580 long tons (499,498 metric tons). For the period from January to September 2012, Peru’s iron ore production totaled 5,371,234 long tons (5,457,425 metric tons), up 2% from 5,266,475 long tons (5,350,985 metric tons) during the same period of January to September 2011.

Peru’s silver output increased by 3.65% in September 2012 from 282,348 kg fine (9,077,699 troy ounces) in September 2011 to 292,677 kg fine (9,409,784 ounces). Increased silver production for September of this year was reported at Minera Argentum, Cerro Manager and Compania Antamina.

For the period from January to September 2012, the mining ministry reported cumulative silver production of 2,588,775 kg (83,231,050 ounces), 2.55% higher than 2,524,488 kg (81,164,174 ounces) of silver output reporting during the same period of last year.

Gold production for September 2012 was reported at 12,822,724 grams (412,260 troy ounces), down 9.12% from the 14,108,776 grams (453,607 ounces) reported in September 2011. Gold production for September of this year declined at Minera Laytaruma and Minera La Zanja.

During the period from January to September 2012, Peru reported total gold production of 124,273,608 grams (3,995,489 ounces) up 0.17% than the same period of 2011 for total production of 124,068,705 grams (3,988,901 ounces).

The mining ministry reported zinc production of 108,810 metric tons for September of this year, up 15.69% from 94,058 metric tons of production for September 2011. Increased production at Minera Antamina, San Ignacio de Morococha and Ancash Nyrstar was reported in September 2012.

For the period from January to September 2012, Peru reported total zinc output of 974,924 metric tons, up 2.29% from 953,076 metric tons of zinc production reported during the same period of last year.

Peru’s lead production fell by 4.12% from 20,578 metric tons in September 2011 to 19,730 metric tons in September of this year. The decrease was attributed to lower production at Empresa Administradora Cerro, Minera Atacocha and Minera Santa Luisa.

From January to September of this year, Peru reported total lead output of 188,442 metric tons, up 10.88% from 169,951 metric tons of lead production reported during the same period of 2011.

The mining ministry reported molybdenum production plunged 50.6% from 2,167 metric tons in September 2011 to 1,071 metric tons in September 2012. Peruvian moly is mined by Southern Peru Copper.

For the period from January to September 2012, Peru’s moly output declined 7.19% from 13,644 metric tons from January to September 2011 to 12,663 metric tons.

The mining ministry reported that Peru’s sole tin producer, Minsur, reported a 21.26% decline in production in September 2012 from 2,707 metric tons in September 2011 to 1,071 metric tons.

For the first nine months of this year, Peru reported total tin production of 19,522 metric tons, down 9.92% from 21,672 metric tons during the same period of last year.

Source: Mineweb

Global platinum mining capacity to increase 38,000 kg by 2015—U.S. Geological Survey

While the United States will continue to be highly dependent on foreign PGM exports through 2020, the nation could ease its dependence through recycling, the U.S. Geological Survey suggests.

Author: Dorothy Kosich

A U.S. Geological Survey scientific investigations report forecasts that South Africa, Russia, Canada, and Zimbabwe will continue to be the principal sources of PGM for at least the next decade.

Global platinum mining capacity is expected to increase by 24,000 kg in South Africa, 9,000 kg in Russia, 3,000 kg in Russia and 2,000 kg in Zimbabwe from 2011 to 2015, according to the report authored by David R. Wilburn.

Palladium capacity worldwide is expected to increase an additional 16,000 kg in Russia, 14,000 kg in South Africa, 4,000 kg in Zimbabwe, and 1,000 kg in Canada “if new or expanded mine and associated processing capacity comes into production as planned,” said Wilburn.

“It is likely that the magnitude of these changes in PGM capacity has been influenced by such factors as the global economy, electrical capacity shortages and mine safety concerns in South Africa and geopolitical conditions in the major PGM producing countries,” he observed.

Of the 52 sites or regional operations reviewed for the USGS analysis, 16 sites were producing PGMs before 1995, 28 sites commenced production from 1995 through 2010, and eight sites were expected to begin production from 2011 to 2015 if development plans come to fruition.

In his analysis, Wilburn noted feed sources of PGM are changing in South Africa and Russia which combined accounted for 89% of platinum production and 82% of palladium output in 2009.

The Geological Survey estimates that global production capacity for platinum is expected to increase by 16% to 310,000 kg/yr. between 2010 and 2016. Global production capacity for palladium is expected to increase by about 14% to 277,000 kg/yr. during the same period.

“A greater amount of South African PGM capacity is likely to come from deeper, higher cost Upper Group Reef seam 2 deposits and deposits in the Eastern Bushveld capacity,” said the USGS. “Future Russian PGM capacity is likely to come from ore zones with generally lower PGM content and different platinum-to-palladium ratios than the nickel-rich ore that dominated PGM supply in the 1990s.”

The USGS estimated that about 13% of the global platinum production and 42% of global palladium production came from Russian in 2010.

“Although deposits containing PGMs are widespread, those mined for PGMs because the PGMs are economically recoverable at 2010 prices are limited,” the U.S. Geological Survey suggested.

Meanwhile, recycled PGMs from catalytic converters, electrical components, and jewelry has increased so that recycled PGMs accounted for about 30% of worldwide platinum supply and about 29% of global palladium supply in 2010, according to the report.

In 2010, the United States imported about 94% of the platinum and 58% of the palladium consumed. Virtually all the PGM in the United States comes from the Stillwater Complex in Montana.

However, PGMs are also present in the Duluth ultramafic complex in Minnesota, said the report. The most advanced project is the PolyMet Mining’s NorthMet copper-nickel project.

“In 2020, the United States will continue to be highly dependent on PGMs from South Africa, Russia, Canada and Zimbabwe,” the USGS predicted. “The United States, however, may reduce its dependence of foreign primary PGMs if the recycling rate for PGMs increases.”

In his analysis, Wilburn suggested the growth of the fuel cell industry is expected to increase demand for PGMs during the next decade.

“The amounts of mineral exploration and PGM recycling are also likely to increase during the next decade because PGM demand is expected to remain strong and existing sources of primary supply to become more expensive,” he advised.

Wednesday, November 28, 2012

Gold Market Report 28 November

Gold Falls to One-Week Low, Democrats "Showing Cockiness" Over Fiscal Cliff

THE DOLLAR gold price fell to a one-week low below $1735 per ounce Wednesday, as stocks and commodities also edged lower while the Dollar and US Treasuries gained despite ongoing uncertainty over how the US will address its deficit problems.

Silver fell to $33.73 an ounce, also a one-week low.

"We are bullish silver, looking for a retracement back to the $35.35 [an ounce] high from early October," says the latest technical analysis from bullion bank Scotia Mocatta.

Bullion held to back shares in the world's largest gold exchange traded fund SPDR Gold Shares (GLD) rose to a new all-time high yesterday at 1345.8 tonnes.

On the currency markets the US Dollar Index, which measures the Dollar's strength against a basket of other currencies, extended gains this morning despite ongoing uncertainty over the so-called fiscal cliff of tax rises and spending cuts due to kick in at the end of the year.

"I haven't seen any suggestions on what [the Democrats are] going to do on spending," said Republican senator Orrin Hatch Tuesday.

"There's a certain cockiness that I've seen that is really astounding to me since we're basically in the same position we were before."

"I think they feel somewhat emboldened by the election," added Republican Congressman Tom Price.

"How could you not when your president is re-elected after running four straight years of trillion Dollar-plus deficits?"

Senate majority leader Harry Reid, a Democrat, said yesterday he hopes the Republicans can agree to proposed measures to raise additional tax revenue as a way of reducing the federal deficit.

"And as the president's said on a number of occasions, we'll be happy to deal with entitlements," Reid added, though he did not elaborate on where spending cuts might be made.

"If the talks drag on," says today's commodities note from Commerzbank, "this could result in significant increases in the gold price."

The US Treasury meantime did not brand China a currency manipulator Tuesday, contrary to press reports predicting that it would. The Treasury Department did however say the Renminbi "remains significantly undervalued".

Over in Europe, the European Court of Justice, Europe's highest court, yesterday rejected a challenge to the legitimacy of the Eurozone's permanent bailout fund the European Stability Mechanism. 

The ECJ rejected Irish politician Thomas Pringle's argument that the ESM contravenes Article 125 of the European Union Treaty, which states that EU members states "shall not be liable for or assume the commitments...of another Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project."

"The court has clarified that Eurozone creations such as the ESM and other bailout funds are not an EU fiscal system by the backdoor," says Hugo Brady, analyst at think-tank the Centre for European Reform.

Elsewhere in Europe, the number of unemployed in France rose to its highest level in 14 years last month, official figures published Wednesday show.

French president Francois Hollande warned Tuesday that an ArcelorMittal steelworks in northern France could be nationalized. The company has given the French government a deadline of December 1 to find a buyer for two blast furnaces or it will close the plant, which employs 629 people.

"The president reaffirmed his determination to guarantee permanently the employment at the site," a statement from the Elysée said.

The central bank of South Korea meantime may buy more gold before the end of this year, according to local press reports. Korea added 16 tonnes to its gold reserves in June, on top of the 40 tonnes it bought last year, according to data published by the World Gold Council.

Ben Traynor

BullionVault

Gold value calculator | Buy gold online at live prices

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK's longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics. Ben writes and presents BullionVault's weekly gold market summary on YouTube and can be found on Google+

(c) BullionVault 2012

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Gold Market Report 27 November

Comex Options Expiry "Could See Gold Push to $1800", Markets "Unimpressed" with "Very Ambitious" Greek Debt Deal

THE DOLLAR gold price fell below $1750 an ounce Tuesday morning, though it remained near to where it started the week, as stock markets recovered yesterday's losses following news of a deal on Greece's debt burden.

"We continue to be bullish so long as gold holds above the $1705 low from mid-November," says the latest technical analysis from Scotia Mocatta.

Over in New York, the difference between bullish and bearish contracts held by Comex gold futures and options traders, the so-called speculative net long, rose for the second week running in the week ended last Tuesday, data published last night by the Commodity Futures Trading Commission show.

"Based on the rally across metals last week, that speculative length is most likely to have picked up substantially [since last Tuesday]," says Standard Bank commodities strategist Walter de Wet.

Comex gold options expire later on Tuesday.

"For calls, the bulk of open interest [OI] rests at the $1800 strike, with more than 3.2 million ounces," says a note from UBS.

"With OI so high, could today be the day that gold gravitates closer to the much coveted $1800 level?"

Over in India, traditionally the world's biggest source of private gold demand, the Rupee regained some ground against the Dollar Tuesday, but remained near two-month lows, with Rupee gold prices near two-month highs.

"There are no [gold] buyers at these levels," says Mayank Khemka, managing director at New Delhi bullion wholesaler Khemka Group.

"There are a few investors who are selling and booking profits."

Silver meantime also edged lower this morning, though it remained above $34 an ounce, as other industrial commodities were broadly flat.

Eurozone finance ministers agreed early on Tuesday to amend the timetable for reducing Greece's debt-to-GDP ratio. Greece is now expected to bring the ratio down to 124% by 2020, up from the previous target of 120%. An additional target of "substantially lower than 110%" has been set for 2022, while by 2016 Greece should aim for an interim target of 175%.

International Monetary Fund chief Christine Lagarde called previously for there to be no movement in the deadline or target, arguing that instead Greece's debt burden should be reduced by imposing further losses on creditors.

In addition, a Eurogroup statement referred to the possibility of Greece buying back some of its debt currently trading below par value, a measure Germany has advocated.

"If this is the route chosen," the statement said, "any tender or exchange prices are expected to be no higher than those at the close on Friday 23 November 2012."

The deal also included a possible reduction of the interest rate Greece pays on bailout loans, as well as a 10 year suspension of such payments, although these measures are subject to how much progress is made on reforms.

"The Eurogroup expects to be in a position to formally decide on the disbursement [of Greece's next tranche of bailout funding] by 13 December," the Eurogroup statement said.

On the currency markets the Euro edged lower against the Dollar Tuesday morning, as gold and silver also eased slightly in Dollar terms.

"Gold does not appear to be particularly impressed by last night's agreement," says this morning's commodities note from Commerzbank.

"The budget balance and economic growth targets set in the program are very ambitious, and it is questionable whether they will actually be achieved. If not, the Greek debt problems could return to the spotlight more quickly than anticipated."

Greece's economy will shrink by 4.5% next year, following a contraction of 6.3% in 2012, according to the latest Economic Outlook published by the Organisation for Economic Cooperation and Development Tuesday.

"The monetary policy stance should be further eased in many economies," the OECD report says.

"Additional easing is required in the Euro area, Japan and some emerging market economies, including China and India... excessive near-term fiscal consolidation should be avoided."

The OECD has cut its growth forecasts for the UK, predicting a 0.1% contraction for 2012, followed by growth of 0.9% next year – down from 1.9% forecast back in May.

The second estimate of third quarter UK GDP published this morning confirmed the UK economy grew at 1.0% between July and September.

Britain's chancellor George Osborne meantime unveiled his choice of successor to Mervyn King as Bank of England governor Monday. Osborne has appointed current Bank of Canada governor Mark Carney, describing him as "the best for Britain". Carney will take over the role next July.

Ben Traynor

BullionVault

Gold value calculator | Buy gold online at live prices

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK's longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics. Ben writes and presents BullionVault's weekly gold market summary on YouTube and can be found on Google+

(c) BullionVault 2012

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Chile Escondida copper mine union agrees to early labour talks

Unionised workers at the world's No1 copper mine, Chile's Escondida, have voted in favour of early labour talks with the mine's controller, global miner BHP Billiton, a union leader told Reuters on Tuesday.

Escondida's union stunned the copper market last year by staging a two-week strike, which sent the mine's output tumbling and raised the specter of an increase in labour action. Holding early talks this year suggests improved chances that the firm and workers can clinch a deal.

"We were invited by the company (to hold negotiations) and the workers accepted," Marcelo Tapia, a union leader at Escondida, told Reuters.

BHP declined to comment. Escondida's labour contract is set to expire next June.

BHP and Rio Tinto, which owns 30% of the mine, have approved plans for a $4.5-billion expansion of Escondida to boost output.

Escondida's third-quarter output surged 72.4% from a year earlier to 253 800 t, boosted by better ore grades and a low base of comparison from the year-ago quarter. Output in the January-September period was 787 000 t, up 31.6% from a year earlier.

The mining industry in Chile, the world's leading copper producer, is also bracing for collective negotiations at state copper producer Codelco's massive Chuquicamata mine. Most unionised workers at the century-old deposit have voted to start early contract negotiations, a union source told Reuters earlier this month.

Edited by: Creamer Media Reporter

Oil and gas drive Australia resources spend to record A$268bn

Investment in the Australian resources sector has reached an all-time high of A$268.4-billion, with liquefied natural gas (LNG), gas and petroleum project accounting for the bulk of the record investment.

LNG, oil and gas investments amount to A$195-billion, the Bureau of Resources and Energy Economics (BREE) stated in its ‘Resources and Energy Major Projects—October 2012’ report.

Federal Resources and Energy Minister Martin Ferguson welcomed the strong project pipeline, which was up 3% from the previous release in April 2012.

“To put Australia's investment in oil and gas in perspective, the total committed expenditure on these projects is comparable to the cost of the Apollo Moon Program in today's prices,” Ferguson said.

The report stated that 87 projects were in the committed category, of which 51 were minerals projects, 18 gas and petroleum projects and 18 infrastructure projects. A further 277 projects were in the planning stages.

BREE executive director and chief economist Professor Quentin Grafton said 11 mega projects, costing more than A$5-billion each, accounted for A$201-billion, or 76%, of the total committed investment in resources and energy major projects. Most of these mega investments were LNG projects located in the Pilbara region of Western Australia and Gladstone, in Queensland.

In the six months to October 2012, ten projects worth A$13.2-billion were committed to after receiving a positive final investment decision, the largest of these was for an additional LNG train at the Australia Pacific LNG plant at Gladstone.

Ferguson said that the report showed that Australia had a “solid” pipeline of potential investment in resources and energy, despite weaker commodity prices.

“In the face of lower commodity prices, the delivery of this pipeline of projects is contingent on keeping production costs down, providing access to skilled labour and increasing our productivity and efficiency.”

Grafton also noted that any substantial net increase to the dollar value of committed projects would require either cost increases to larger, existing projects and/or a new final investment decision on a large project within the coming year

Ferguson noted that the Australian government was working with the resources industry to ensure that Australia remained competitive, and continued to attract investment in one of its most valuable sectors.

Edited by: Mariaan Webb

Trevali to start Peruvian plant commissioning early in 2013

Zinc-focused miner Trevali Mining reported development at its Santander zinc/lead/silver mine, in west-central Peru is in the final phase with initial mining and milling operations scheduled to start early in 2013.

The company said all critical mill and processing infrastructure was now in place and underground development continued to progress, with 1.8 km of ramp completed.

About 100 000 t of ore averaging 5.6% zinc, 0.65% lead and 1.65 oz/t silver has been stockpiled on the surface for processing when commissioning of the 2 000 t/d plant starts.

Trevali said all core site infrastructure is also complete and fully operational, including accommodation units, catering facilities, and various mine planning and site offices.

Construction of the project's 65 km transmission line to the national grid has also been completed and energising the power line is currently being coordinated with the Peruvian regulator in order to reduce disruptions with local end-users.

The company expected the Santander mine to access power from the Peruvian grid before the end of the year. Before this takes place, the site is being powered by the company's run-of-river power station at Tingo and supplemented by a combination of generators and excess power from a neighbouring mining unit.

Underground development has found several zones of potentially significant footwall satellite mineralisation sites that would require additional drilling and, depending on the results, might provide additional mill-feed.

The company’s Toronto-listed shares on Tuesday closed almost 2% higher at C$1.03 apiece.

Edited by: Creamer Media Reporter

India's coal import bill heading for the sky

India’s coal import bill was standing at $29-billion as the country imported some 245-million tons of coal over the past three years, India’s junior Coal Minister Pratik Prakashbapu Patil said before the Indian Parliament on Tuesday.

However, quick calculations by analysts indicated that India’s annual bill would skyrocket to $18-billion a year by 2017, based on an import requirement of 185-million tons a year and at current international coal prices and a 5% growth in domestic production.

Giving details on imports over the last three years, the junior minister said that in 2009/10 import were 73.2-million tons, valued at $7.06- billion, with 68.91-million tons imported in 2010/11, valued at $7.49- billion, and 102.8-million imported during 2011/12, valued at $14.21-billion.

The analysis pointed out that the forecast increase in the coal import bill should be viewed against India’s worsening current account deficit (CAD), so far majorly attributed by the government and Reserve Bank of India (RBI) to rising oil prices and sustained rise in gold imports.

According to a recent statement by the chairperson of Prime Minister’s Economic Advisory Council, C Rangarajan, India’s CAD rose to $ 78.2-billion or 4.2% of gross domestic product in 2011/12 on the back of increased imports of gold and oil. Gold imports during 2011/12 stood at $62-billion, accounting for over 80% of the CAD, according to government data.

So far the government was seized by trade imbalances caused by gold imports boosting the trade deficit, which in turn increased the CAD and a fallout in the form of a steadily-weakening Indian currency.

However, little attention has been paid to the macro-economic impact of the rising import dependency of the country’s energy security as indicated by a predicted spurt in coal imports, analysts said.

Back-of-envelope calculations revealed that the coal import bill by 2017 would account for 23% of the CAD, as it stands today.  According to Rangarajan, capital inflows into India would be insufficient to cover the CAD.

The trade deficit was at an all time high of $21-billion in October, up from $18-billion in September, resulting from weak exports which has been declining for the past six consecutive months to a negative 1.6% in October, year-on-year.

Viewed against a 40% increase in oil import bill, which stood at $140-billion in 2011/12, India’s increasing import-linked energy security as reflected by cost of imported coal would be a near term macro-economic negative, according to analysts.

Edited by: Esmarie Swanepoel

Monday, November 26, 2012

Gold Market Report 26 November

Gold Dips Ahead of Greek Debt Talks, Indian Central Bank to Offer Investors "Dematerialized Gold"

U.S. DOLLAR prices to buy gold fell back below $1750 an ounce, a few Dollars below where they closed last week following Friday's rally, while stocks and commodities also edged lower and US Treasuries gained ahead of further discussion on Greece at today's meeting of Euro finance ministers.

Silver meantime dipped briefly below $34 an ounce this morning, though it remained within 1% of Friday's one-month high.

On Friday, spot gold rallied in US trading to close above $1750 an ounce for the first time in over a month. One analyst this morning called Friday's move a "technical breakout" enabled by "illiquid trading conditions" a day after Thursday's Thanksgiving holiday in the US.

"We'd like to see prices above $1760 to confirm the movem," adds a note from ANZ.

That would pave the way for a test of $1790-$1800...[but] We think $1800 will prove to be a step too far in the current market, and remain confident in year-end forecast of $1780."

Over in India, where a central bank official talked today of the benefits of investing in "dematerialized gold", bullion importers today opted not to buy new stock for the wedding season, with the Rupee weakening against the Dollar.

Eurozone finance ministers meet today to discuss Greece, following last Tuesday's meeting that ended without agreement to pay Athens its latest tranche of bailout funding. 

Policymakers are yet to agree on how Greece should reduce its debt-to-GDP ratio, with the aim of bringing it down to 120% over the next decade. Some Euro members have suggested reducing the interest rates Greece pays on its loans, while Germany is reported to favor allowing Greece to buy back some of its debt at below face value.

In a closed-door meeting last week German finance minister Wolfgang Schaeuble reportedly told his counterparts from France, Italy and Spain, as well as International Monetary Fund chief Christine Lagarde, that Germany might eventually write off some of its loans to Greece. At the Eurozone finance ministers meeting the next day however Schaeuble ruled this out.

"It turns out that Schaeuble may have exceeded his mandate from the Chancellery, if he had one," one EU official told Reuters.

Elsewhere in Europe, two thirds of the vote went to pro-independence parties in yesterday's regional elections in Catalonia, with the Catalan Republican Left (ERC) party, one of several parties that have called for a referendum on Catalonia's independence from Spain, more than doubling its number of seats in the regional assembly in elections held Sunday. 

The Convergencia i Unio party of Catalan president Artur Mas won 50 of the 135 seats, down from 62, Bloomberg reports, meaning Mas does not have a majority in the assembly.

"With a majority, Mas could have negotiated [with the national government in Madrid] for all kinds of goodies to postpone the referendum but clearly that's not an option anymore," says Ken Dubin, political scientist at Carlos III University in Madrid.

Despite being Spain's richest region, Catalonia requested a €5 billion bailout from the national government back in August. Mas has called for independent tax collection and has said net transfers from Catalonia to other regions are to blame for its financial difficulties.

Over in India meantime, rules restricting banks from buying gold back from customers are "a work in progress", the Reserve Bank of India's deputy governor Subir Gokarn told a conference Monday.

Gokarn also elaborated on last week's announcement that the authorities are looking at creating investment products linked to gold to satisfy demand in a country that is traditionally the world's biggest god buying nation, and which imports the vast majority of its bullion.

"Since current account deficit is large and capital flows are becoming more uncertain," Gokarn said, "the role of innovation is to find ways to not deny the ability or choice of investing in gold... can we find ways to give [people] gold like products, what one may call dematerialized gold, with gold like qualities but are not entirely dependent on physical possession."

Ben Traynor

BullionVault

Gold value calculator | Buy gold online at live prices

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK's longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics. Ben writes and presents BullionVault's weekly gold market summary on YouTube and can be found on Google+

(c) BullionVault 2012

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Sunday, November 25, 2012

China's Oct iron ore 13% on month as colder weather dampens demand

China imported 56.43 million mt of iron ore in October, down 13% month on month but up 13% year on year, data released Friday by the General Administration of Customs of China showed.

With the onset of colder weather halting construction projects in China in October, demand for steel and correspondingly, steelmaking raw material iron ore, weakened considerably from September.

"It's hard for construction projects to take off in the north now due to the snow, and it's also difficult in the south because of the rain. Steel demand is really weak now," a Jiangsu-based mill source said.

Australia remained the largest supplier of iron ore to China, selling 27.33 million mt in October, down 21% month on month but up 20% year on year. Contributing to the month-on-month decrease in Australian ore imports was the trend of mills in China to procure more port stocks and non-mainstream material in a bid to lower production costs and remain competitive in a depressed market. The price difference between port stocks of

Australian material and seaborne imports widened significantly in October, making dockside cargoes more popular.

Brazil was the second largest supplier to China in October, delivering 14.68 mil mt, up almost 7% from September and up 22% year on year, and South Africa third.

Imports from India, the fourth largest supplier, totaled 270,000 mt in October, 65% down from the previous month and down 87% year on year. Imports have been declining since India hiked export duties to 30% from 20% on December 30, 2011.

Imports from the southwestern Indian state of Goa have plummeted further since September after environmental clearance was suspended at 93 mining leases, mostly for iron ore.

China's Oct moly ores, concentrate imports plunge 73.6% to 377 mt

China's October imports of molybdenum ores and concentrates plunged 73.6% on year to 377 mt, the latest figures from the General Administration of Customs of China showed Friday.

Of the total imported, 307 mt consisted of roasted moly ores and concentrates, and 70 mt were those other than roasted.

China also exported a total 692 mt of moly ores and concentrates in October, down 25.4% year on year. All were roasted ores.

There were no non-roasted ores exported for the month.

In January-October, imports of molybdenum ores and concentrates totaled 8,121 mt, down 38.3% from a year ago, while total moly ores and concentrates exports amounted to 10,412 mt, down 36.9% from last year.

Meanwhile, China recorded no imports of ferromolybdenum in October.

Imports stood at 10,000 kg in the same month last year, and at 20,001 kg in September 2012.

Ferromoly exports in October reached 20,000 kg. There were no exports of ferromoly recorded for the same month last year. Exports in the previous month of September was 14,000 kg.

Imports of ferromoly in the first 10 months of 2012 totaled 188,346 kg, down 27.6% year on year, while exports stood at 216,000 kg, down 15.2% from 2011.

China's tax cut plan for iron-ore miners unlikely to slash imports

A proposed tax cut by China for its iron-ore miners could lead to lower prices of the raw material, but it is unlikely to reduce imports by the world's top buyer as it does little to improve the competitiveness of domestic producers.

China may also face strong opposition to the plan to drop the total tax rate for local iron-ore miners to 10% to 15% from 25% because of the potential revenue loss for local governments, industry officials and analysts say.

China is the world's biggest producer of the raw material, with an annual output of more than one-billion tons. But the low quality of its iron-ore means it relies heavily on imports.

It buys about two-thirds of globally traded iron-ore, with this year's imports of the steelmaking raw material expected to top last year's record 686-million tons.

The proposed tax cut will "not make one iota of difference" in China's iron-ore imports, said Rory MacDonald, an iron-ore broker at Freight Investor Services (FIS).

Other analysts agreed, saying the move to cut taxes would also not change China's status as one of the world's most expensive iron-ore producers.

"Given China's place at the top of the global cost curve, reducing cost support through lower taxes will only mean that prices fall, leaving the domestic producers in the same position as before the tax cuts," said Graeme Train, commodity analyst with Macquarie in Shanghai.

Production cost will be cut by $12 per ton at the top of the curve if the overall tax rate is chopped to 10%, Train said.

Chinese miners, whose margins have been squeezed by higher energy, labour and environmental costs, spend between $90 to $130 to produce a ton of iron-ore, compared to $30 $50 per ton for big producers in Australia and Brazil.

"It's just a retrospective nod by the government to lighten their load a bit after what's been a tough year and a half. I don't see them passing it on to pricing, they'll embrace it potentially to widen profit margins," FIS' MacDonald said.

MORE VULNERABLE TO PRICE VOLATILITIES

A forecast drop in global iron ore prices over the next three years as top overseas miners ramp up output while Beijing's steel output growth slows will also negate any benefit from China's planned tax cut.

Even with iron ore prices unlikely to return to record levels of near $200 per ton reached last year, the still big margins enjoyed by low-cost producers Vale, Rio Tinto and BHP Billiton mean they can go ahead with plans to boost output, although they are holding off on longer-term strategies.

"I don't think China can cut reliance on seaborne supplies priced off spot indices by growing its domestic iron ore industry. It only can really achieve a decrease in reliance on seaborne supplies by purchasing mining assets overseas and shipping the material back home," said FIS' MacDonald.

With thinner margins, Chinese miners are also more vulnerable to price volatilities than their overseas rivals. Some of them have been forced to shut in recent months when prices slumped to three-year lows below $87 a ton. Prices have since rebounded to around $120.

Still, with local governments already struggling with falling revenues on a slower economy, there are doubts on whether the tax cuts could be rolled out.

"There are various taxes and many parties are involved. It's still hard to predict which tax could be cut, which not," said an official from industry group China Iron and Steel Association who declined to be named as he was not authorised to speak to media.

"However, they may have to make compromises eventually if local mines are not able to maintain business."

Edited by: Reuters

Latam miners urged to 'future-proof' operations

Latin America’s ability to attract mining investment remains robust despite current global economic pressure. Even from an exploratory point of view, the region’s potential is vast and its rewards tantalising; great swathes of territory have yet to be subjected to modern exploration.
But while Latin America’s allure remains bright, companies either seeking to invest or already well-established in the region often fail to appreciate regional risk and how to mitigate it. Sadly this can ultimately lead to the loss of a project that has taken years of investment and labour to develop.

“Most of the people you talk to at an early stage of a mining project will tell you how much homework they’ve done. They’ll talk about the tax regime, how stable the country is or how great the regulations are. They might discuss 20- or 30-year scenarios. But they should be doing a lot more on the local side,” Control Risks’ VP global services South America Daniel Linsker told delegates at the Mine Latin America conference on November 7.

“Locally you can have everything from licencing trouble to community trouble,” he said. “And always bear in mind that what a national government says and promises might not necessarily translate into help at the local level.”

“Another major issue revolves around illegal or informal miners. They often let a company prospect an area to discover the high-grade ore and then oppose the operation until the company packs up and leaves, allowing them to mine the ore for themselves,” he said. “Remember too that many social movements, NGOs and unions have members who build their political careers simply by opposing mining.”

Deep-rooted problems may even develop during early-stage prior consultation. “Most counties in the region have instituted or are instituting a format for prior consultation. Unfortunately [the process] is being morphed into a sort of local referendum. This poses all sorts of challenges,” he warned. “If it becomes a local referendum you have to careful of how it is organised, what the campaigning rules are and who gets the right to vote.”

One vital solution was to empower communities by involving them directly with the project. “[Companies should] empower communities rather than simply giving money or building projects. Show them what their rights are and involve them from the onset. Enable them to enforce their own rights; this seems the most effective way,” he said.

RIGHT TO REDRESS

Arguments about operational risk in Latin America were expanded on by Norton Rose’s managing partner in Colombia, Glenn Faass and Norton Rose’s co-head for Venezuela mining practice, Rubén Eduardo Luján, in a joint interview with Mining Weekly Online. They stressed the importance of engaging in prior consultation, with Luján highlighting Peruvian legislation and how this might become a framework for Mexico.

On the issue of illegal miners and enforcing company rights both Luján and Faass argued that while the laws to protect mining companies are in place, many of the problems stemmed from ensuring their enforcement.

“The question is not the law itself in any of these jurisdictions, but the enforcement of the law,” Faass said. “For example, in Colombia you will ultimately get the right legal result if you are willing to spend time and money on it. But you then have to make sure it is applied and that can be difficult. Often the authorities that enforce legal rights tend to be part of the community in which the enforcement occurs and they may have more sympathy for the illegal miners rather than the legal miner.”

Clear and specific legislation can be key remedy for this, Luján said. “Peru offers the example of pro-active legislation. The government has stepped in providing specific legislation opposed to generic legislation that governs illegal mining. In some instances illegal mining is penalised through the criminal code.”

In discussing expropriation and nationalisation, both Faass and Luján stressed that there were well-established mechanisms for redress. Often the fact that expropriation is alleged can lead to a resolution. “The simple fact that expropriation is being alleged is a powerful public relations tool that is relevant to all of the countries in the region, because almost all are keen to attract foreign investment,” Faass said.

“The second avenue for a company is to seek arbitration if their investment was made under commercial agreements that have arbitration clauses within them. This may permit or require international or domestic arbitration, with many of the regions jurisdictions credible for dispute resolution,” he added.

“Finally, their rights could extend to international arbitration claims through an international treaty if the country in question is a signatory. When a company has such a claim, it’s often the case that a result will be achieved and for this to be respected by the national government. Sometimes this is because a national government will have assets outside a country that are liable to be seized in satisfaction of the arbitration award.”

FUTURE-PROOFING

Faass and Luján added that companies should think long and hard about future-proofing their operations against risk at local and national levels.

“Mining companies should make protection planning before they get involved in their investments. There might be jurisdictions where this might not be relevant in the immediate future, but there are some others where you might need to plan in case there are future issues with a government,” Luján said.

While Colombia has no history of expropriation or nationalisation, Norton Rose still advises those operating in or seeking to operate in the country to put precautionary measures in place, Faass said. “Remember a country that might not be an expropriating jurisdiction today could become one during a project’s 20 to 30 year timeline,” he added.

Faass and Luján also underlined the critical importance of engaging with local communities as the best means for mitigating risk and threats against a mining operation. “The important thing for companies operating in Colombia and the wider region is to develop community relations that makes them part of the community and allows people to recognise their economic contribution. Then you will generally find these things become easier,” Faass said.

Edited by: Henry Lazenby

Barrick upbeat on Pueblo Viejo despite protests

Canada-based Barrick Gold expects the protests against its $3.8-billion joint venture Pueblo Viejo gold mine, in the Dominican Republic, to gradually decline as more people become aware of the cleanup effort made by Barrick and the economic benefits the mine will provide.

“In the long run, we’re confident that people will see these benefits and will see Pueblo Viejo as a positive contributor to the country,” says Barrick spokesperson Andy Lloyd. “Pueblo Viejo is an outstanding operation and a world-class gold deposit.”

Pueblo Viejo, which is 60% owned by operator Barrick and 40% by Canada-based Goldcorp, is facing more protests, mostly spurred by concern over environmental damage, but ironically, one in September was caused by demands for more local jobs. In that protest, 30 people were hurt in clashes with local police. Last month, another protest resulted in one injured demonstrator and a burnt down minivan that Barrick uses to transport workers.

Much of the environmental concern is based on the previous exploitation of the Pueblo Viejo mine, which was developed by local mining firm Rosario Dominicano between 1975 and 1999 and then abandoned owing to financial and environmental problems. When Barrick took over the mine it found significant contamination and had to invest more than $375-million in environmental remediation.

“Given the negative history associated with historic mining at the Pueblo Viejo site, it’s not surprising that some people have concerns about mining,” Lloyd says. “But we know our operation has been designed as a modern, world-class mine that will ensure the environment is protected. We’ve also carried out an extensive clean-up of the contamination left behind by the previous mining operation, and our goal is [to] leave the area with an environment in far better shape than the one we first encountered there.”

Barrick also emphasises the economic impact of Pueblo Viejo, which had proven and probable gold reserves of 25.3-million ounces as of December 31, 2011. “The mine is … going to generate substantial economic benefits for the country, from jobs, taxes and royalties to support for Dominican businesses and community development,” Lloyd says.

During the construction phase it employed 11 000 people, but long-term it will generate just under 2 000 jobs – still a significant number in the area where it operates.

Meanwhile, Pueblo Viejo’s estimated annual exports of $1.3-billion a year will be the equivalent to 15% of total Dominican exports, according to a recent report by the Centre for Social Responsibility in Mining at Queensland University’s Sustainable Minerals Institute.

While mining only accounted for 0.4% of Dominican GDP last year, the Pueblo Viejo project alone is expected to account for 2.9% of Dominican gross domestic product within the next decade, the report says.

First gold was poured at Pueblo Viejo in August and commissioning activities are currently taking place. It has also already exported small quantities of gold, but will start full-scale exports once production starts.

“Commercial production is expected by the end of the year,” Lloyd says.

Edited by: Henry Lazenby

Saturday, November 24, 2012

Gold Market Report 23 November

 

"Exciting Week" Ahead for Gold as Silver Hits 6-Week High, US Prepares $99Bn Bond Sale

 

The DOLLAR PRICE of physical gold rose back to $1734 per ounce in London on Friday morning, nearing the top of the last 5 weeks' trading range as so-called "risk assets" also crept higher.

Asian and European stock markets were slightly stronger, while the single Euro currency pushed back above $1.29.

Commodity prices added 0.5% on the broad GSCI index. Silver touched its best Dollar-price in 6 weeks above $33.50 per ounce.

"Activity is muted," said one London dealer, with US markets due to re-open but many traders extending the Thanksgiving holiday.

"[The
gold price
] is stuck between $1715 and $1740 area for now," Reuters quotes Ronald Leung at Lee Cheong Gold Dealers in Hong Kong.

"But speculators are still bullish on gold, as uncertainties about the 'fiscal cliff' hang around and they believe that central banks around the world will stay loose on monetary policy."

On a technical analysis, the gold price "is just a few dollars shy of its 50-day moving average sitting at $1741," says a note from Swiss investment and bullion bank, UBS.

"More importantly, a key technical level [is] lurking at $1739.10...A break above this level, which is the month’s high, would be a crucial bullish development.

Again citing the US holiday, "Market participants may have to wait until after the weekend to see some action," UBS adds. "[European] investors still have the day ahead to position for what may be an exciting week."

Next week the US Treasury will seek to raise $99 billion in new debt, according to Bloomberg data.

Treasury bond prices rose Friday, pushing interest rates down to just 1.67% on 10-year debt.

"Pimco is avoiding, or trying to keep a low weighting, on maturities beyond 10 years," said Tony Crescenzi, a portfolio manager at the giant bond-fund group, in an interview. "Because we know the Fed’s intent is to reflate a deflated economy."

Nearer-term, he believes, "Treasuries provide good insurance against macro risk."

British Gilts and German Bunds also rose Friday morning, reducing 10-year German yields to just 1.42% – despite stronger-than-expected Ifo business confidence data – after the S&P ratings agency cut the status of 3 more Spanish banks.

Spain's sovereign debt prices fell, nudging 10-year interest rates up to 5.68%.

Spain's wealthiest region, Catalonia, goes to the polls on Sunday for elections which local president Artur Mas has called a referendum on independence from Madrid.

Over in Athens meantime, negotiations continued over €31.2 billion in bail-out funds which Greece has been waiting for since June from the International Monetary Fund.

The IMF said this morning that Greek debt would be "viable" if cut to 124% of GDP by 2020. It is currently on track to hit 190% by 2014.

"It's natural [we] look out for other types of assets," today's Financial Times quotes a Brazilian economist after new data showed the central bank adding more than 17 tonnes of
gold bullion
to its national reserves in October.

That took Brazil's total reserves to 53 tonnes, an 11-year high.

The latest gold reserves data from the IMF also show Turkey, Kazakhstan and Russia again raising their national holdings as well.

 

Adrian Ash

BullionVault

 

Gold price chart, no delay   |   Buy gold online at live prices

 

Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can buy gold today vaulted in Zurich on $3 spreads and – starting this Sunday – just 0.5% dealing fees.

 

(c) BullionVault 2012

 

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Thursday, November 22, 2012

Gold Market Report 22 November

Bundesbank Sold Gold "Just for Commemorative Coins", Silver Industrial Demand Forecast to Rebound in 2013

THE U.S. DOLLAR gold price traded close to $1730 an ounce during Thursday morning's London session, holding onto gains made a day earlier, as European stock markets edged higher, with US markets closed today for Thanksgiving.

"We believe that the German Bundesbank's sale of 4.2 tonnes of gold was intended solely for producing commemorative coins," says today's commodities note from Commerzbank, referring to International Monetary Fund figures published Wednesday showing October's buying and selling of gold by central banks.

"By its own account, the Bundesbank keeps 7 tonnes of gold ready each year for the production of coins, gold which it sells to Germany's Federal Ministry of Finance. In October 2011, the Bundesbank had sold 4.7 tonnes of gold for this purpose."

Silver hovered below $33.50 an ounce this morning, like gold holding gains from Wednesday, as oil prices ticked lower and copped gained.

Industrial demand for silver is forecast to rebound next year following an estimated 6% drop in 2012, according to a report by precious metals consultancy Thomson Reuters GFMS published by the Silver Institute.

"This will owe much to a new peak in China," the report says, "while a jump in the Indian market will see the country post its second highest total on record."

Industrial demand accounted for more than half of total silver demand last year, with that share projected to grow to around 60% in 2014, according to GFMS.

China's manufacturing sector has shown improved activity this month, according to the provisional release of HSBC's purchasing managers index published Thursday. HSBC's flash PMI rose 50.4, up from 49.5 a month earlier, with a figure above 50 indicating an expanding sector.

In Europe meantime, flash PMI data published by Markit show improved manufacturing conditions in both Germany and the Eurozone as a whole this month, although the sector PMIs remains below 50.

Increasing the European Union's budget would be "quite wrong" said British prime minister David Cameron this morning as he arrived in Brussels ahead of a summit that will see discussions of the EU's budget over the rest of this decade.

Cameron's coalition government lost a parliamentary vote at the end of last month when members of his Conservative party joined opposition Labour in backing calls for an outright cut in the EU's budget rather than just a freeze.

"[Cameron's] people expect the impossible," says Tim Bale, professor of politics at Queen Mary University of London.

"That's the problem, they want him to fail. They don't want him to bring back the deal that can possibly be done, because that will prove [Britain] can't deal with the EU and the only solution is to get out of it."

The Euro extended yesterday's gains this morning following reports that Euro members could contribute an additional €10 billion to temporary bailout fund the European Financial Stability Facility in order to fund Greece while it waits for international lenders to agree payment of its latest tranche of bailout funding.

Argentina meantime must $1.3 billion to hedge funds that did not agree to the country's sovereign debt restructuring in 2001, a US court ruled Wednesday.

Judge Thomas Griesa has issued an injunction against Argentina, adding that this extends to "other persons who are in active concert or participation with the parties or their agents."

This includes Bank of New York Mellon, which is trustee for Argentina's restructured debt, and extends to the US payments system, the Financial Times reports.

A ship from Argentina's navy was seized in Ghana last month following an application by a subsidiary of US hedge fund Elliot Capital Management, one of the holdouts from the 2001 default.

India's government is examining the creation of financial investments linked to gold, such as gold-backed bonds, the Hindustan Times reports.

"Recent [central bank] data showed a declining trend of savings by Indian households including bank deposits," an official from India's finance ministry said, "[so] in order to attract household savings, paper products that are linked to gold [should] be developed." 

Ben Traynor

BullionVault

Gold value calculator | Buy gold online at live prices

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK's longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics. Ben writes and presents BullionVault's weekly gold market summary on YouTube and can be found on Google+

(c) BullionVault 2012

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

U.S. Deficit Shrinking At Fastest Pace Since WWII, Before Fiscal Cliff

By JED GRAHAM

Believe it or not, the federal deficit has fallen faster over the past three years than it has in any such stretch since demobilization from World War II.

In fact, outside of that post-WWII era, the only time the deficit has fallen faster was when the economy relapsed in 1937, turning the Great Depression into a decade-long affair.

If U.S. history offers any guide, we are already testing the speed limits of a fiscal consolidation that doesn't risk backfiring. That's why the best way to address the fiscal cliff likely is to postpone it.

While long-term deficit reduction is important and deficits remain very large by historical standards, the reality is that the government already has its foot on the brakes.

In this sense, the "fiscal cliff" metaphor is especially poor. The government doesn't need to apply the brakes with more force to avoid disaster. Rather the "cliff" is an artificial one that has sprung up because the two parties are able to agree on so little.

Hopefully, they will agree, as they did at the end of 2010, to embrace their disagreement for a bit longer. That seems a reasonably likely outcome of negotiations because the most likely alternative to a punt is a compromise (expiration of the Bush tax cuts for the top and the payroll tax cut, along with modest spending cuts) that could still push the economy into recession.

Rather than applying additional fiscal restraint now, the government needs to make sure it sets the course for steady restraint once the economy emerges further from the deep employment hole that remains. In fact, a number of so-called deficit hawks are calling for short-term tax cuts to spur growth, rather than immediate austerity.

From fiscal 2009 to fiscal 2012, the deficit shrank 3.1 percentage points, from 10.1% to 7.0% of GDP.

That's just a bit faster than the 3.0 percentage point deficit improvement from 1995 to '98, but at that point, the economy had everything going for it.

Other occasions when the federal deficit contracted by much more than 1 percentage point a year have coincided with recession. Some examples include 1937, 1960 and 1969.

President Obama hasn't gotten much credit for reining in the deficit, probably because a big part of the deficit progress has come from the unwinding of extraordinary government supports that he helped put in place. Stimulus programs have come and mostly gone; the end of stimulus to states led them to enact Medicaid curbs; jobless benefits in recent months have fallen by 50% since early 2010 (due to both job gains and extended benefits being exhausted).

TARP and the bailouts of Fannie Mae and Freddie Mac also make the deficit improvement look better, boosting the fiscal '09 deficit by about $200 billion more than in fiscal '12 (though the initial cost of TARP was overstated).

Still, military spending is now on the decline due to fewer troops in Iraq and Afghanistan; Medicare costs rose 3% last year vs. the average 7% growth in recent years; and after the last year's Budget Control Act, excluding the automatic cuts set to take effect in January, nondefense discretionary spending is already on a path to shrink to 2.7% of GDP, well below the 3.9% average, notes the Center on Budget and Policy Priorities.

Gold Fields weighs alternatives for Peru’s Chucapaca mine

Cecilia Jamasmie

South African miner Gold Fields (NYSE, JSE:GFI) revealed its initial plan to develop a gold deposit into an open-pit mine in isn't feasible.

The miner, world’s number 4 gold producer, is working on the nearly $1.2 billion Chucapaca gold project in a 51%-49% venture with local miner Buenaventura.

"The partners have studied the viability of a large open-pit operation capable of sustaining a 30,000 tonnes per day throughput. A first draft of the feasibility study has been completed and as a result of relatively high capital and operating costs this option would not have delivered acceptable project returns," the companies said in a joint press release.

Gold Fields said that future studies would focus on other options to develop the deposit, including underground mining or a combined model of open pit and underground.

Earlier this year, the South African company said it expected to start producing gold in Chucapaca in the second half of 2015, depending on negotiations with communities and regulatory permits.

Chucapaca has estimated resources of 7.6 million ounces of gold and equivalents.

Euro crisis: Major implications for investors

The euro crisis has begun to feel like an everlasting steeplechase with high hedges and water obstacles blocking the path to economic resurgence on the Continent. Each time a hurdle has been cleared another problem emerges to potentially block the track. The latest developments involve ugly anti-austerity riots across the southern tier and open rifts emerging among the creditors, most notably between the International Monetary Fund and northern nations. Despite the difficulties, I believe that ultimately the horse will pass the finish line; the Continent has too many economic bright spots to simply slip into irrelevance. The big question should be whether the monetary jockey (the euro) will be thrown off the mount before that happens. Investors should prepare for both eventualities. But while the race is ongoing, the uncertainty over the euro currency is galvanizing the push for full political union of the Eurozone and providing effective camouflage for the weakness of the world's reserve currency, the U.S. dollar.Future historians of the European Union likely will ponder how democratically elected governments of once proud empire nations willingly surrendered their sovereignty without full and open discussions. The answer lies in greed and fear. By 1950, Western Europe had been ravaged by two horrific Continental wars in 35 years and had been tossed about like a tennis ball in the Cold War match between the United States and the Soviet Union. In light of the situation, the impulse for greater European unity and cooperation was natural.

The key founders of a united Europe were France and Germany. The French sought security by attaching themselves to Germany, while the Germans saw an opportunity for the political hegemony that the two wars could not deliver. But had the idea of European Union been originally presented as a means to empower Germany, few European peoples would have accepted it, least of all the British.

To that end, Jean Monet, one of the early architects of the Union, is alleged to have said, "Europe's nations should be guided towards the superstate without their people understanding what is happening. This can be accomplished by successive steps each designed as having an economic purpose, but which will inevitably and irreversibly lead to political union." He suggested patience in waiting for "opportunities" to progress the idea. As a Member of the UK Parliament, I witnessed such deception first hand.

Gradually, the innocent sounding European Coal and Steel Community (EC&SC) evolved into the European Common Market (ECM), European Economic Community (EEC), the European Community (EC) and now the European Union (EU), a budding superstate, dominated by Germany.

In perhaps one of the most foolhardy moves in recent decades, the euro currency was launched in 1999, long before the political or fiscal unification had taken hold in earnest. In retrospect, the creation of a currency in the absence of a unified state with coordinated fiscal policies seems doomed to failure. And failing it appears to be.

With each stumbling block, the invariable solution offered has been increased political integration and austerity. On November 7th, German Chancellor Angela Merkel flew to London apparently to 'persuade', if not compel, Prime Minister Cameron to tone down or delay his objections to increased EU budget expenditures. She felt so confident that, for the first time, she exposed the covert plans for the European Superstate.

According to the UK Telegraph, Merkel said, "Of course, the [unelected] European Commission will one day become a government, the [unelected] European Council a second chamber and the European Parliament [which currently has no effective power] will have more powers."

Clearly, a failing euro provides all the ingredients needed to knock down barriers to unity. As evidenced by massive public demonstrations in Portugal, Italy, Greece and Spain, the southern tier is desperate for rescue funds. In order to preserve bloated pensions and early retirement, many citizens would gladly accept lost sovereignty.

The failure of the euro also has provided cover for the severe debasement of the U.S. dollar. Prior to the crisis, the euro had established itself as the world's second currency. Its threatened failure has resulted in massive flights of capital into U.S. dollars. The result is that the colossal currency and debt crisis threatening the U.S. dollar and Treasury markets has been largely obscured. Today, most investors appear to be blissfully unaware that the United States faces debt problems that are worse than many countries in Europe.

However, if European politicians are successful in imposing the political unity needed to save the euro, money will flow out of the U.S. dollar. Alternatively, should the euro fail, other currencies such as a reconstituted Deutsche Mark could rise in its place. Either way, a resolution of the euro problem likely will signal a weaker U.S. dollar and higher interest rates.

Those investors who are overweight in U.S. Treasuries (or the government securities of other debtor nations) could likely suffer when either resolution is reached. Investors should prepare by acquiring assets that will stand and fall on their own merits. Being the least ugly contestant at a beauty pageant is not a strategy for long term success.

John Browne is a Senior Economic Consultant to Euro Pacific Capital. Opinions expressed are those of the writer, and may or may not reflect those held by Euro Pacific Capital, or its CEO, Peter Schiff.

Wednesday, November 21, 2012

Venezuela mining outlook grim

The mining sector in Venezuela is expected to continue declining as a result of minimal private participation after the government nationalised gold mining and discouraged other private mining, industry officials say.

“There’s no major private mining company today,” says Luis Alejandro Rojas Machado, president of Venezuela’s mining chamber Camiven.

In 2010, Venezuelan mining accounted for 27% of the gross domestic product (GDP), according to the United Nations Economic Commission for Latin America and the Caribbean (Eclac). That was the highest rate in Latin America. However, it marked a decline from the 2005 level of 30.3%. Meanwhile, Venezuela’s GDP shrank in both 2009 and 2010.

Earlier this month, the government took over the nickel concession of Anglo American after it expired. Production at its Loma de Nickel mine stopped in September.

After the forced exit of several foreign mining companies, the only significant foreign company now active is CITIC, a state-owned Chinese conglomerate that will develop the Las Cristinas gold mine, one of the world’s largest gold deposits. “Las Cristinas will take between seven and ten years to develop,” Rojas estimates. “The Chinese might use their financial muscle to accelerate that, but you can’t develop a good mine in a day or two.”

Meanwhile, Rojas fears that the state dominance will result in inadequate investments for the development of the sector. “If we don’t see investments, there won’t be production,” he says.

Last year, the mining sector contracted – a trend expected this year as well, according to Rojas. “We have a legal environment that doesn’t permit development,” he says. “This will keep the local mining sector in recession.”

The Venezuelan government nationalised gold mining in August 2011, but by February it had expropriated Las Cristinas from Canadian miner Crystallex, which had tried to develop the mine since 2002, after it was confiscated from Canada-based Vanessa Ventures, in November 2001.

Crystallex has sued Venezuela at The World Bank's International Centre for Settlement of Investment Disputes (ICSID) for $4.3-billion. The ICSID hearing is scheduled a year from now – in November 2013 and the company has no further comments on the dispute.

“The company’s position is to not comment on the case or proceedings,” VP for investor relations Richard Marshall told Mining Weekly Online.

Another company that was affected was Canadian-Russian miner Rusoro Mining, which also saw its assets nationalised without compensation. In July it filed an arbitration claim at ICSID.

“The Venezuelan government's actions have resulted in significant loss to the company and its shareholders,” Rusoro President and CEO Andre Agapov said in a statement at the time. “In light of the government's apparent unwillingness to look for an amicable resolution, it became the company's sole recourse to commence international arbitration.”

Agapov did not respond to several interview requests from Mining Weekly Online, but according to Venezuelan newspaper El Mundo, the company is still hoping to reach a friendly solution with the Venezuelan government, which includes the right to develop mines in the country and recover its $1-billion investment.

Edited by: Henry Lazenby

Debt Crisis Solutions are Leaving Investors Behind

How the losses are being paid for...

IT USED TO BE taken for granted that you could put aside some money and earn enough interest to be better off than when you started.

As the world continues to struggle with the aftermath of an enormous credit boom and its subsequent bust, though, this kind of objective seems hopelessly naïve. Events in Europe and the US this week are the latest reminder of this. To see why, let's start with a riddle:

If I owe you €10,000, and the amount of money I have is zero, is it possible to let me off the hook without you taking a loss?

The question is rather silly, yet it is analogous to the one facing policymakers in Europe right now as they decide what to do about Greece. 

Here's the problem in a nutshell: Greece was tasked with reducing its debt-to-GDP ratio to a 'sustainable' 120% by 2020 (by complete coincidence the ratio for the Eurozone's biggest debtor Italy at the time the target was set last year). That wasn't not enough time, Euro politicians decided last week, so they extended the deadline to 2022.

Christine Lagarde, managing director at the International Monetary Fund, was not happy about this. She would rather see the deadline stay as 2020, with the debt being reduced directly by further write downs. Germany and other Euro members are averse to this since it would impose further losses on creditors. Private sector Greek bondholders were burned back in February, compelled to take losses as part of a restructuring deal.

A further write down might also hit the European Central Bank, which has already agreed to forego profits on its Greek bonds. If the ECB takes actual losses, would this not amount to central bank financing of government debt – something prohibited by European treaty? According to Germany, it would.

So we have a problem where a debtor cannot pay and creditors don't want to take a hit (and in the case of the ECB may not legally do so, many argue). Naturally the first maneuver is to give the debtor a bit more time, which is exactly what Eurozone politicians did last week.

This will only achieve so much though. The latest figures show the Greek economy is still contracting; policymakers will have to buy an awful lot of time if Greece is to pay down the debt through economic growth alone.

So what else can be done? This is where the people at the top are yet to reach agreement. One of the suggestions doing the rounds is to lower the interest rate Greece pays on its bailout loans, a classic move to lower the real, inflation-adjusted value of debt.

Just ask Ben Bernanke. In a speech given this week the Federal Reserve chairman reiterated the need to maintain loose monetary policy for the foreseeable future.

"A highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens," he said.

Bernanke also repeated his call for US lawmakers to sort out the deficit, arguing that monetary policy can only provide a supportive environment; it cannot solve fiscal problems. Not the Bernanke is a deficit hawk:

"Even as fiscal policymakers address the urgent issue of longer-run fiscal sustainability," Bernanke said, "they should not ignore a second key objective: to avoid unnecessarily adding to the headwinds that are already holding back the economic recovery."

In other words, the US government should maintain borrowing near record levels, while also trying to get borrowing onto that sustainable path.

It's a tricky balance, but Bernanke seems confident America's politicians can pull it off:

"Fortunately, the two objectives are fully compatible and mutually reinforcing. Preventing a sudden and severe contraction in fiscal policy early next year will support the transition of the economy back to full employment; a stronger economy will in turn reduce the deficit and contribute to achieving long-term fiscal sustainability. At the same time, a credible plan to put the federal budget on a path that will be sustainable in the long run could help keep longer-term interest rates low and boost household and business confidence, thereby supporting economic growth today."

He may be proven right. But whether he is or not, that "accommodative" policy of below-inflation interest rates is here to stay. 

That should give continued support to the gold price. The chart below is from a presentation by Charlie Morris, head of global asset management at HSBC, given at last week's London Bullion Market Association annual conference:

image

Morris points out that when the annual real rate of interest (i.e. how much you make adjusted for inflation) has been below 2%, gold has tended to do well:

image

Many investors today would be happy with a real return of flat zero – at least they wouldn't be losing ground.

As the world grapples with the plight of sovereign debtors, though, the idea of getting a reliable real return from an investment is sadly starting to seem rather out-of-date. Moody's downgraded France this week; here's one of the reasons it gave in its ratings rationale:

"...unlike other non-euro area sovereigns that carry similarly high ratings, France does not have access to a national central bank for the financing of its debt in the event of a market disruption."

In other words, if France could just print what it owes, it could probably still be rated triple-A. Creditors would get back the money they lent out, and there would only be the small matter of it being worth a lot less than when they lent it.

That is today's reality. It may be unavoidable given the sheer size of the debt problems affecting much of the globe; but it's a pretty raw deal for those trying to grow or even hang onto the value of their savings.

Ben Traynor

BullionVault

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Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK's longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics. Ben writes and presents BullionVault's weekly gold market summary on YouTube and can be found on Google+

(c) BullionVault 2012

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.