Thursday, January 31, 2013

Gold Market Report 31 January

Investors "In Great Danger" If They Don't Own Gold, Warns Faber, as GDP Drop Sees US Fed Press On with QE

 

The PRICE of GOLD held onto most of yesterday's $15 jump at $1676 per ounce Thursday morning in London, ticking back as Asian and European stock markets fell after Wednesday's surprise drop in US economic output figures.

Silver also eased back, but held at 1-week highs above $32 per ounce after rising yesterday in gold's "slipstream" as one bullion-bank analyst put it.

"This Friday's [non-farm US payroll] report remains crucial," says a note from Swiss bank UBS – currently
encouraging its institutional clients to buy gold
outright rather than as a credit-risk deposit.

"Some adjustments to [gold] positioning are likely to emerge" after Wednesday's 'no change' decision from the US Federal Reserve on zero interest rates and quantitative easing.

"But overall, the gold market should resume subdued trading," says UBS, "as is typical ahead of a key event" such as the monthly jobs report.

Russia's foreign ministry meantime condemned a reported Israeli air-strike on a military research unit inside Syria, saying Thursday that – if confirmed – this "unprovoked attack [would] blatantly violate the UN Charter."

Shares in Italy's struggling Banca Monte dei Paschi di Siena – founded in 1472 – steadied as the Italian central bank weighed MPS's second bail-out request in four years after it hid losses of €500 million on a 2008 derivatives deal.

German banking giant Deutsche Bank lost €2.2bn ($3.0bn) for the last 3 months of 2012, it said today.

"A year ago, the mood in Europe was horrible and nobody could see how on earth stocks could go up," says Gloom, Boom & Doom author and money-manager Marc Faber, who
urged CNBC anchor Maria Bartiromo
to buy gold earlier this week.

"Now since May 2012, less than a year ago, Portugal, Spain, Italy, France, are up between 30 and 40% and Greece has doubled...!"

Factory-gate prices across France and Italy fell in December from November, new data showed today.

House prices in the year to October fell 2.5% across the 17-nation Eurozone, with Spain's home-price drop accelerating to 15.2%.

"For the first time in four years," Faber continued Wednesday, pointing to the US stock market, "since the lows in March 2009, I love this market. Because the higher it goes the more likely we will have a nice crash, a big time crash.

"You are in great danger if you don't own any gold," Faber had earlier told Bartiromo.

Near-term, reckons Deutsche Bank analyst Xiao Fu – and despite Wednesday's $15 rise on poor US growth data and the Federal Reserve's no-change decision on zero rates and QE – "Gold lacks a convincing catalyst near term to take it convincingly higher and instead remains susceptible to opportunistic selling."

But "Any thought given to reining in some of the Fed's buying power will now be shelved," counters Ed Meir in his daily note for INTL FCStone.

"[Wednesday's] GDP number clearly shows that the US economy is still far from capable to muster its own momentum without key fiscal and monetary stimulus.

"In the least, this should provide an element of support to the precious metals group, at least over the short term."

After creating and spending first $1.4 trillion on mortgage and Treasury bonds in 2008, and then a further $600 of T-bonds starting in 2010, the US Fed will likely acquire a further $1.1 trillion of US government debt with its current program of quantitative easing, according to a Bloomberg survey of analysts.

"Given the sluggish [US] economy," says precious metals strategist Eugen Weinberg at Commerzbank, "it would be premature to discuss [the Fed] abandoning the quantitative easing programme.

"Despite the noticeably higher risk appetite displayed by market players of late, gold demand is thus unlikely to ebb away completely. On the contrary, high sales of US gold coins in January, and renewed inflows into the gold
ETFs
recently, point to relatively robust demand for gold."

Over in India – most likely the world's #2 gold consumer market in 2012 behind China – the economic affairs secretary contradicted the finance minister yesterday over plans to
raise gold import duties again
, in a bid to curb household appetite to buy gold, widely blamed for India's yawning trade deficit.

Two days after Palaniappan Chidambaram told the Financial Times that New Delhi is considering "some other steps to moderate the import of gold" further, Arvind Mayaram told Reuters that "I don't think there is any plan as of now."

 

Adrian Ash

 

(c) BullionVault 2013

 

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.

 

 

Anglo American takes $4bn hit on Brazil Minas Rio

London-based mining giant Anglo American (LON:AAL) confirmed Tuesday it will take a $4 billion writedown on the value of its flagship Minas Rio iron ore project in Brazil due to delays and mounting development costs.

The company said its capital expenditure on the project was now expected to hit $8.8 billion, more than three times the $2.6 billion projected back in 2007. It also revealed that its forthcoming full-year results would be hit by the impairment charge.

“We are clearly disappointed that the diversity of challenges that our Minas Rio project has faced has contributed to a significant increase in capital expenditure,” said outgoing CEO Cynthia Carroll.

“Despite the difficulties, we continue to be confident of the medium and long-term attractiveness and strategic positioning of Minas Rio and we remain committed to the project, ” she added.

Of the 300-odd licences required for the project, only 17 are left outstanding, added Carroll, who will be replaced by AngloGold Ashanti’s (NYSE:AU) CEO, Mark Cutifani, at the end of March.

Minas Rio is one of Anglo's major capital allocation fiascos of recent years and was largely responsible for Carroll's deteriorating image.

The company acquired its first stake in the project in 2007 and took control the following year after sealing a $5.5 billion deal with Brazilian billionaire Eike Batista's MMX.

So far Anglo has spent $5 billion on developing it and said last year that total development costs could exceed $8 billion – more than three times original estimates.

The project was intended to help diversify Anglo’s assets, which at that point was heavily dependent on South Africa for the bulk of its revenue. Instead it turned out to be a bruising top-of-the-market deal.

Falling profitability and worries about Minas Rio has weighed heavily on Anglo's stock.

The $39 billion counter is down just under 30% over the past year, compared to peers BHP Billiton, Rio Tinto and Xstrata, which have been trading mostly flat.

Shares in the group were trading high in London on Tuesday afternoon, climbing 2.75% to 1,924.00 at 2:33 pm GMT.

Anglo American will release its 2012 results on February 15.

Wednesday, January 30, 2013

Global outlook is positive for US coal and minerals mining, says NMA CEO

The following points were made today by National Mining Association (NMA) President & CEO Hal Quinn at a press briefing held at NMA's Washington, D.C., headquarters:

"The outlook for U.S. coal and minerals mining in 2013 is positive due to clear improvements in key sectors of the U.S. economy and the global demand for mined products, particularly in developing economies. While we see continued slow growth in the overall U.S. GDP and another slight contraction in Europe, projected increases in domestic new-home construction and automobile sales forecast to reach 15.3 million in 2013 are buoying demand for copper, palladium, molybdenum and other metals that are vital to these sectors. U.S. copper production, alone, is expected to be up by more than 10 percent in 2013, according to mineral commodity specialists at the U.S. Geological Survey (USGS).

"Iron ore production will benefit from infrastructure projects and stimulus spending in China, the world's biggest buyer and the purchaser of 40 percent of worldwide production of all base metals.

"Gold demand is expected to remain relatively strong, according to GFMS and USGS analyses, driven by continued financial uncertainty, central bank purchases of gold to diversify reserve assets and the continuation of current monetary policies here and abroad. At this point, the USGS expects a slight uptick in 2013 U.S. gold production. Silver tends to run in tandem with gold, based on investor demand, but has a variety of industrial applications that will be strong in China, in particular.

"Coal is on track to become the world's primary energy source—surpassing oil—by 2015, according to Wood McKenzie, two years ahead of the International Energy Agency's current estimate. Here at home, coal's contribution to meeting electricity demand will increase by nearly 45 million tons over 2012 levels, and total domestic consumption will rise by 50 million tons due to slight improvements in the U.S. economy; cooler weather; and natural gas prices that are expected to increase by 22 percent, according to the Energy Information Administration (EIA).

"Demand for coal in Europe has increased—particularly in Germany and Britain—in response to higher gas prices. Demand for coal throughout Asia for electricity and steel production contributes to a robust U.S. coal export forecast of 111 million tons in 2013.

"With these improved conditions for coal production and demand in 2013, NMA expects total U.S. coal production to come in at 1.016 billion tons in 2013—slightly more optimistic than EIA's January short-term forecast.

"Longer-term, NMA expects U.S. coal to benefit from recent and planned construction of higher efficiency coal-based power plants with higher output rates and lower emissions. The remaining coal fleet will, on average, be larger, more efficient and run at higher capacity—recovering at least 100 million tons of U.S. coal production lost to retirements of older plants.

"We continue to see improvements in U.S. mine safety and health. We finished 2012 with the second safest year on record for mine fatalities. Nonetheless, we are well short of our goal of eliminating fatalities and reducing our injury rate by 50 percent by 2015. We believe NMA's CORESafety® safety and health management system gives our operations and the people who work there the tools to reach that goal.

"Public policy challenges continue to limit the potential of U.S. mining to provide reliable materials and affordable energy vital to our economy and way of life. Inefficient and unpredictable permitting processes thwart investments that provide high-paying jobs and added value throughout the chain of production. Regulations that needlessly limit our energy options by halting the construction in the U.S. of new advanced coal plants that can serve as the platforms for cleaner coal technologies worldwide are a failure of ambition and policy. If the U.S. wants to compete with the world's fastest growing economies and remain in the forefront of technological innovations, we must address these critical shortcomings."

Note: NMA's outlook for the U.S. and global economy is drawn from a variety of economic forecasts, including the International Monetary Fund's forecasts of last week. Similarly, NMA's outlook for metals demand and U.S. production relies on a variety of public forecasts, mineral commodity specialists at the U.S. Geological Survey and leading U.S. and international producers. NMA's coal outlook is developed annually by NMA's Economics Committee and is reviewed and updated every six months.

The National Mining Association (NMA) is the voice of the American mining industry in Washington, D.C. Membership includes more than 325 corporations involved in all aspects of coal and solid minerals production including coal, metal and industrial mineral producers, mineral processors, equipment manufacturers, state mining associations, bulk transporters, engineering firms, consultants, financial institutions and other companies that supply goods and services to the mining industry.

Chile copper output falls in December, up 3% in 2012

Chile produced 513 344 t of copper in December, a 1.8 slip from a year earlier, but boosted its output of the red metal by 3% to 5.45-million tonnes during all of 2012, the government said on Wednesday.    

December output in the world's No 1 copper producer fell on lower ore grades and maintenance work in certain mines, the INE statistics agency said. Annual output rose last year to its highest since 2007, according to data from state copper commission Cochilco and the statistics agency.    

"Among the factors that explain this rise are better ore grades in some deposits, production increases in mines that began operating in 2011 and a low base of comparison due to a strike that affected an important mining company in July 2011," the agency said.    

World No 1 copper mine Escondida's union stunned the copper market in 2011 by staging a two-week strike, sending the mine's output tumbling and raising the specter of an increase in labour action.    

Cochilco had estimated 2012 copper output at 5.45-million tons in November, but Mining Minister Hernan de Solminihac had said in April that production would reach a whopping 5.7-million tons. Many analysts at the time had called his forecast too ambitious.     

On Monday Cochilco said Chile's copper output in 2012 reached 5.43-million tons.          

Chile is expected to produce 5.59-million tons of copper this year, up 3% from 2012 levels, as heavy investment in mines pays off, Cochilco also said on Monday.      

Cochilco said a pick-up at state copper producer Codelco's century-old Chuquicamata deposit and the launch of its Ministro Hales mine at the end of the year will help lift output of the metal, which is used in construction and power generation and transmission.     

But analysts have warned that several factors threaten forecast jumps in production, including deteriorating ore grades, delays to key energy and mining projects, and operational woes.    

Chile's molybdenum output nosedived 25% in December year-on-year to 2 008 t.

Production posted a 16.6% tumble to 30 155 t in 2012 from 2011 levels.

Edited by: Creamer Media Reporter

Mining investment in Argentina grows 72% despite risky business climate

By Cecilia Jamasmie

Mining-related investments in Argentina increased a whopping 72% in 2012 compared to the previous year, said local consultancy firm IES Online on Tuesday.

Despite mounting government interventionism in the industry, foreign and local investors spent a total of $3.8 billion and the firm expects this trend to continue this year, with planned investments already amounting to more than $4 billion (or $20bn Argentine pesos).

Whether these investments will be actually carried out and whether the Argentine mining sector can attract more ventures in 2013 is something the consultants did not talk about it, especially considering the socio-political risks the country poses.

Since Argentina recovered from the 2001/2002 currency crisis, the country has relied on an export-based economic growth model, which has made it increasingly dependent on Asian demand for commodities such as soya or beef.

President Cristina Fernandez de Kirchner – who succeeded her late husband Nestor Kirchner – has become infamous for her unorthodox economic approach and monetary policy, inherited from her predecessor. Government intervention in the economy, explains the UK Trade and Investment office in a report published earlier this year, has become increasingly common and her administration has struggled to protect a shrinking trade surplus by implementing import restrictions.

Miners have been particularly affected by Fernandez’ measures. Vancouver-based Pan American Silver (TSX: PAA), for instance, had to halt investment in its Navidad project, the richest undeveloped silver deposit in the world, last year after local authorities submitted a draft law that would significantly increase the economic burden on mining companies.

And on Monday, after Brazil’s Vale (NYSE:VALE) announced it was temporarily suspending its $6 billion Rio Colorado potash project in the Argentine province of Mendoza, the provincial government reacted by sending Vale an ultimatum.  As reported by local newspaper Los Andes (in Spanish), the authorities told the Brazilian miner it had five working days to present a new timeline or the concession could be revoked.

Gold Market Report 30 January

Gold & Silver Jump on Weak US Data, Big Swiss Banks Raise Gold Account Fees

 

GOLD and silver jumped to 4-session highs above $1674 and $31.65 per ounce respectively Wednesday lunchtime in London, gaining as new data showed the US economy unexpectedly shrinking in late 2012.


US stock-market indices held flat near 5-year highs, while the EuroStoxx 50 was unchanged near 18-month highs despite news that Spain's GDP shrank by 0.7% in the last 3 months of 2012.

Greek newspaper Kathimerini meantime said 30 activists from the communist PAME union briefly stormed the Athens' office of employment minister Yiannis Vroutsis.

The Euro currency this morning rose to its best level in 14 months at $1.3560.

The
gold price in Euros today hits its lowest level since May 2012 at €1228 per ounce.

"Bernanke will not be giving a press conference" after today's US Federal Reserve announcement, notes Wednesday's commodity report from Standard Bank. "So there will be plenty of reading between-the-lines of the official statement.

"[But] we feel it is important to note that the Fed's balance sheet is only one piece in a puzzle of growing liquidity and negative real interest rates.

"Strategically we remain bullish on gold over the long term. The cost of holding gold relative to cash remains negligible."

Gold account fees at Swiss banking giants Credit Suisse and UBS are being raised however in a bid to shrink their balance-sheets, says a report in today's Financial Times.

"Like their global peers, UBS and Credit Suisse are under regulatory pressure to reduce capital-intensive activities ahead of the introduction of Basel III global banking rules," says the FT.

So the two banks are hiking costs for unallocated accounts – where the customer pays full price to buy gold, but is then owed the metal, bearing credit risk if the bank fails rather than becoming an outright owner as with
allocated gold.

Unallocated gold enables the bank to lease out the metal, earning an income from the client's gold. But analysis of London Bullion Market Association
data shows that the net return on 12-month gold leasing has fallen from averaging 1.63% in the decade to Jan. 2003 to averaging less than 0.40% in the 10 years since.

Moreover, "When [gold] is on balance sheet it does create costs" in the form of capital requirements by regulators, an anonymous source tells the FT.

Gold demand in Asia meantime eased off Wednesday, according to Reuters, as Chinese wholesalers prepared for next month's Lunar New Year celebrations, and Indian wholesalers cut prices in a bid to clear stockpiles.

"Those who have built up a large inventory before [this month's new import-duty] tax hike are selling at a discount right now," the newswire quotes a bank trader in Mumbai, citing discounts to local prices of 0.5% – some $6 per ounce.

The Chinese New Year falls in 2013 on 10th February.

 

Adrian Ash

 

(c) BullionVault 2013

 

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.

Tuesday, January 29, 2013

Gold Market Report 29 January

Gold Outlook "Bearish in Short Term" as Fed Meeting Looms, But "Growing Global Liquidity Makes Long Term Outlook Bullish"

WHOLESALE Gold Bullion prices climbed back above $1660 an ounce Tuesday morning, broadly in line with where they ended last week, as stocks and commodities fell slightly and the Dollar ticked higher against the Euro ahead of tomorrow's interest rate decision from the US Federal Reserve.

"We are seeing a technical rebound following a few days of price decline," one trader in Shanghai told newswire Reuters this morning.

"In the short run, gold is still going to drift without much conviction, though over the longer term it is still facing very heavy pressure on the upside."

"We have neutralized our medium term forecast and also now have a short term bearish outlook," says Commerzbank senior technical analyst Axel Rudolph, citing gold's failure to breach its 55-day moving average at $1696 an ounce.

"The $1625.77 level is still key for the medium term trend. Failure here could provoke a sell-off to below the $1600 level."

Like gold, silver regained some ground this morning after losses in recent days, climbing back above $31 an ounce.

Here in London, the FTSE 100 retreated from five-year highs this morning, as other European stock markets also dipped slightly.

In the US, the Federal Open Market Committee begins its two-day meeting today ahead of the Fed's latest policy decision tomorrow.

"This week's FOMC meeting and US non-farm payrolls [on Friday] will be key in setting gold's price trajectory," says a note from Barclays Capital.

"[Minutes from last month's] FOMC meeting [show] that some FOMC members are looking for an exit to further asset purchases before the end of 2013," says the quarterly preview from Standard Bank's commodities desk.

"If the Fed stops its quantitative easing program, it should temper some of the upside for gold and silver – at least in US Dollar terms – relative to an environment where the Fed still expands its balance sheet...but to us, the Fed's balance sheet is only one piece in a bigger puzzle of growing liquidity and negative real interest rates."

The Fed will continue with $85 billion a month of asset purchases – comprising $40 billion of mortgage-backed securities and $45 billion of government bonds – until the first quarter of 2014, by which time it will have bought $1.14 trillion worth, according to the median estimate in a survey of economists conducted by news agency Bloomberg.

"To get to the point where Bernanke would be comfortable letting up, you have to have a good solid string of economic reports [this year] that you're just not going to get," says Eric Green, global head of rates and FX research at TD Securities in New York.

"The Fed is resuming rapid expansion of the monetary base," says Don Coxe, former strategy advisor at BMO Financial Group, in his final issue of his monthly BMO strategy journal 'Basic Points'.

"Japan will soon be flooding the currency markets with Yen. The European Central Bank remains expansionary...it is almost impossible to conceive of a more bullish long-term backdrop for gold."

Coxe also sees demand from India and China, two countries that account for around half of world gold demand, continuing to support gold prices.

Indian exports of gems and jewelry are expected to rise by 15% this year to more than $44 billion, with silver exports seen jumping 30%, according to Pankaj Kumar Parekh, vice chairman of India's Gems and Jewellery Export Promotion Council.

"At such high prices, gold is going out of budget for many youngsters," says Parekh.

"A wrist bracelet of white gold is now replaced with sterling silver as it is cheaper."

Ben Traynor

(c) BullionVault 2013

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 28 January

Safe Havens Assets "Under Pressure" as Gold, Silver Fall While Stock Markets Hit 5-Year Highs

THE U.S. DOLLAR gold price extended its losses from last week Monday, dipping to a near-three-week low below $1655 per ounce during London's morning trading, as stock markets ticked higher, with the FTSE 100 hitting its highest level since May 2008.

The S&P 500 meantime climbed above 1500 last week for the first time since December 2007.

Silver this morning dropped below $31 an ounce to hit a two-week low, while other commodities were broadly flat and US Treasuries gained.

Last week saw spot gold fall 1.5%, while silver was down 2.1%.

"It seems that a number of safe haven refuges like gold, the Japanese Yen, US Treasury bonds, and the Swiss Franc have all been under pressure lately," says Ed Meir, metals analyst at brokerage INTL FCStone.

"Investors [are becoming] more comfortable parking their capital in riskier asset classes like the Euro and equity markets."

The Swiss Franc is still "too strong", Switzerland's economy minister Johann Schneider-Ammann said Saturday, adding that he "hopes it will devalue further".

"The Franc is still very strong," Swiss finance minister Eveline Widmer-Schlumpf told reporters at the World Economic Forum in Davos the same day.

In September 2011, the Swiss National Bank announced a peg of SFr1.20 to the Euro in September 2011, following several years of Franc appreciation. The Swiss currency has weakened in recent weeks against the Euro, trading above SFr1.24 this morning, as the Euro has strengthened on the currency markets.

On Friday, SNB chairman Thomas Jordan told Davos he expects further weakening of the Franc. 

A campaign to force a referendum on Switzerland repatriating all its foreign-vaulted gold bullion and increasing its gold reserves is nearing its target of 100,000 signatures.

Britain's chancellor George Osborne would prefer to see the bank of England continue with its current inflation target policy framework rather than shift to targeting a nominal level of economic output, according to a report in the Financial Times Monday.

In a speech last month, Bank of Canada governor Mark Carney, who takes over at the Bank of England this summer, suggested a role for so-called nominal GDP targeting. When he spoke in Davos on Saturday however Carney "went out of his way not to mention nominal GDP", the FT reports, but instead praised "flexible inflation targeting".

Since the start of this month, Sterling has depreciated 4% against the Dollar and more than 5.5% against the Euro, which climbed to a 14-month high against the Pound this morning.

The gold price in Sterling meantime is up more than 2% from where it started January, while the Dollar gold price is flat on the month and gold in Euros is down 3%.

The so-called speculative net long position in Comex gold futures and options – calculated as the difference between 'bullish' long and 'bearish' short contracts held by noncommercial traders – ticked higher in the week ended last Tuesday, weekly data published Friday by the Commodity Futures Trading Commission show.

The world's biggest gold exchange traded fund meantime continued to see outflows of bullion held to back its shares on Friday. The volume of gold held by SPDR Gold Trust (GLD) fell by nearly two tonnes from a day earlier to 1329.9 tonnes, its lowest level since the start of October.

The world's largest silver ETF also continued to see outflows, with the volume of silver held by iShares Silver Trust (SLV) falling to 10,468.8 tonnes Friday – though this was still more than 300 tonnes above where it was 10 days previously following strong inflows.

"For the first time in eight weeks, ETFs' commitment to silver has wavered," says Standard Bank commodities strategist Marc Ground.

Kazakhstan and Russia both added to their gold reserves last month, International Monetary Fund figures show. Kazakhstan's reserves rose 1.7% to 115.3 tonnes, the figures show, while Russia grew by 2.1% to 957.8 tonnes.

Russia's central bank intends to continue buying gold, its first deputy chairman Alexei Ulyukayev said earlier this month, although he denied there is a target for gold to make up 10% of reserves.

Despite a flurry of new regulations to control "speculation" in Vietnam's gold market, unlicensed trading of bullion continues, according to local press reports. 

Some dealers and consumers have switched to trading rings and other jewelry pieces instead of gold bullion bars. This weekend, the State Bank said it will become the sole point for import and export of gold.

Ben Traynor

(c) BullionVault 2013

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.

Friday, January 25, 2013

Gold Market Report 25 January

Gold Looking "Sloppy" Short term, But Pullback "Attractive" as Chinese Buyers Take World #1 Spot

 

The GOLD PRICE slipped back to last night's near-two week lows at $1665 per ounce Friday lunchtime in London, heading for a 1.1% drop on the week as world stock markets and other "risk assets" rose.

Silver also ticked lower to trade 2.7% beneath Wednesday's 5-week highs.

Germany's Ifo index of business sentiment meantime hit its best level since June.

The European Central Bank surprised analysts by saying 278 banks in the single-currency zone will repay €137 billion ($184bn) of their
3-year LTRO loans
next week, nearly two-thirds more than expected.

"It now seems that the stronger tone in global equity markets, coupled with a notable easing in European and US market tensions, is leading to short-term pressure on gold," reckons INTL FCStone analyst Ed Meir.

"We think it will continue for a little while longer, given that negative chart picture[s] are also contributing to the sloppier tone."

Also looking at gold price charts, this week's "failure to make a new high...is bearish," says bullion bank Scotia Mocatta, pointing to $1625 as the "next level of support."

Barclays' technical analysts think a "pullback" to $1640 is now likely, following Thursday's finish in US gold futures beneath $1675.

Despite stronger-than-forecast US economic data, however, "Accommodative [monetary] policy is still expected to remain in place for some time," counters London market-maker UBS, "a scenario that continues to be conducive for higher gold prices.

"[Gold's] recent pullback should be viewed as an opportunity to pick up metal at more attractive levels."

On the currency markets Friday, the British Pound fell to a 5-month low against the Dollar and a 13-month low against the Euro after new data showed the UK economy shrinking 0.3% at the end of 2012.

That capped the drop in Sterling
gold prices
to £5 for the week at £1056 per ounce.

The quantity of
gold bullion
held to back shares in the world's biggest gold ETF trust fund – State Street's GLD – shrank again on Thursday, down another 3 tonnes to 1331.7 and now 1.7% smaller from mid-December's record holding.

Silver backing the iShares Silver ETF – the SLV – extending this week's contraction to 237 tonnes or some 2.2% of the total.

That is "still well under half" of last week's addition however, notes Bloomberg News.

"We used to watch Comex [futures contracts] open interest," Bloomberg quotes Bernard Sin at Swiss refining group MKS in Geneva, "but now everybody looks at ETF holdings to give a clear signal of investor interest."

Over in Asia, meantime, China is "now clearly the largest global consumer of gold" – overtaking India at last – says the latest Commodities Weekly from Natixis.

Analysts at the French investment bank and bullion dealer point to the latest available import and mining-output data available from the world's top two gold buying nations.

"India's low figure is the combination of a weak Rupee, slower economic growth and higher import tariffs."

On the supply side, gold mining bosses are "more optimistic" about gold prices in 2013 than they were in 2012, says the new
Global Gold Price Report
from consultancy PwC.

"Eighty-three per cent of executives believe we will see a rise in the price of gold, with zero expecting to see a decline," says PwC.

"Executives of some of the largest gold companies expect to see the price of gold climb beyond $2000 in 2013."

 

Adrian Ash

 

 (c) BullionVault 2013

 

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.

China Economist Sees Inflation Risk

Inflation is the main concern in China’s economy in 2013, and regulators should also move to deal with risks from wealth-management products and China’s burgeoning stock of money, said a former adviser to China’s central bank.

“The main concern in 2013 is on prices” said Li Daokui, an economist at Tsinghua University and former academic member of China’s monetary policy committee. Mr. Li thinks that inflation for 2013 could average around 4% for the year, with a peak of 5% or more in the second half. That considerably higher than a 2.6% increase in prices in 2012.

Speaking to The Wall Street Journal at the World Economic Forum in Davos, Switzerland, Mr. Li said he sees growth in China’s gross domestic product at 8.1% to 8.3% in 2013, a slight acceleration from 7.8% growth in 2012. Stronger growth could also contribute to a resurgence in China’s property prices. “House prices could surprise people,” he said.

Rising prices could push China’s central bank to start tightening policy mid-year, Mr. Li said, with use of open market operations to drain liquidity the most likely mechanism. Movements on interest rates, if required, would come through liberalization of rates, rather than movement in the benchmark rate, Mr. Li said.

The rapid growth in China’s wealth-management product sector represented a risk to the economy, Mr. Li said. Wealth-management products—short-term investments that offer some of the security of a deposit with higher interest rates—have grown rapidly in the past few years to equal more than 10% of the deposits in the banking system, according to some estimates.

Asian markets mixed, Tokyo surges on yen tumble

HONG KONG: Asian markets were mixed on Friday, with Tokyo's Nikkei surging on the back of a weaker yen, while Wall Street provided an uneven lead.

The yen resumed its downtrend after a brief rally as the country's vice finance minister indicated the new hawkish government would step in to stop the currency from returning to record highs against the dollar.

Tokyo surged 2.14 percent, Hong Kong added 0.11 percent and Sydney was 0.42 percent higher while Shanghai climbed 0.10 percent but Seoul lost 0.69 percent.

Takehiko Nakao said the government was closely watching the yen's movements in currency markets, adding that "appropriate action" would be taken if it got too strong.

His comments in an interview with the Wall Street Journal sent the yen tumbling Thursday in New York.

The US dollar jumped to 90.40 yen from 88.56 yen a day earlier, while the euro climbed 120.91 yen from 118.00 yen.

In early Japanese trade the dollar stood at 90.42 yen and the euro bought 120.87 yen. The single currency fetched $1.3371, from $1.3376 in New York.

"Nakao's comments serve as a stark reminder of the government's unrelenting drive to pursue a weaker currency in an attempt to resuscitate the economy," Chris Gore, currency analyst at Go Markets said in a note to clients, according to Dow Jones Newswires.

The comments also capped a rise in the yen that began on Tuesday as dealers were left disappointed by the Bank of Japan's plan, which had been widely expected, to set an inflation target to beat deflation, and pursue unlimited monetary easing.

Highlighting the work ahead, official data Friday showed the economy remained stuck in a deflationary rut, with core consumer prices slipping 0.1 percent in 2012, the fourth annual decline.

While traders took heart from another rise on the Dow, which ended 0.33 percent higher after figures were released showing weekly US jobless claims fell for a second straight week, Wall Street's other two major indexes fared less well.

The S&P 500 was flat and the tech-rich Nasdaq fell 0.74 percent, dragged by a 12 percent plunge in Apple after the iPhone maker's latest earnings report fell short of expectations.

Seoul, which fell on weak economic growth figures Thursday, took another hit on Friday after index giant Samsung Electronics posted below-forecast results for the October-December fourth quarter.

Oil prices fell, with New York's main contract, light sweet crude for delivery in March dropping eight cents to $95.87 a barrel and Brent North Sea crude for March delivery shedding 18 cents to $113.10.

Gold was at $1,667.10 at 0200 GMT compared with $1,677.37 late Thursday.

Source: AFP

Newmont investing US$150mn in Conga this year but won't build mine without community support - CFO

Newmont Mining (NYSE: NEM) plans to spend US$150mn in 2013 on its 51.35%-owned US$4.8bn Minas Conga gold-copper project in Peru's Cajamarca region, CFO Russell Ball said Thursday at CIBC's 16th annual Whistler Institutional Investor Conference.

On an attributable basis, the company looks to invest US$80mn in equipment, US$40mn in reservoir construction and about US$30mn for community and social costs.

"We have downsized significantly, and we are reviewing capital cost estimates as we go forward," Ball said.

Newmont voluntarily suspended construction on the Conga project in November 2011 following violent protests which prompted the government to declare two states of emergency in Cajamarca, but has continued work on related reservoirs.

"Until we can generate acceptable project returns and we get local community and government support, we're not going to progress the project," Ball confirmed.

Newmont continues to follow its "water first approach" announced in August 2012 to focus first and foremost on the construction of four reservoirs it has agreed to build in Cajamarca to give community members a year-round supply of water.

"We do have about 2,000 people on site today building some of the sediment structures and reservoirs, and finalizing the camp construction," Ball said.

Conga is one of the biggest investment projects in Peru's US$53.7bn mining portfolio. Average output over the first five years is estimated at 650,000-750,000oz/y gold and 160M-210Mlb/y (72,575-95,254t) copper, at cash costs of US$300-400/oz and US$0.95-1.25/lb, respectively.

Local miner Buenaventura (NYSE: BVN) and the World Bank's International Finance Corporation (IFC) also hold a 43.65% and 5% stake, respectively, in the project's operator Yanacocha.

Thursday, January 24, 2013

Cliffs Natural to take $1bn impairment for Thompson Iron Mines

Cleveland-based Cliffs Natural Resources on Thursday said it would record a goodwill impairment of $1-billion related the 2011 acquisition of Consolidated Thompson Iron Mines.

The goodwill impairment charge will be recorded as a noncash expense for the year ended December 31, 2012, and is mainly driven by the project's expected lower long-term volumes and higher capital and operating costs.

The delay of the Phase 2 expansion of the Bloom Lake mine, which the company acquired with the Thompson Iron Mines transaction, also contributed to the impairment.

Cliffs also said it expects to incur between $100-million and $150-million of other charges related to its Eastern Canadian iron-ore business segment.

Meanwhile, Cliffs' board recently authorised the sale of the company's 30% interest in Amapa. Based on the pending terms of the sale, Cliffs expects to record a noncash pretax impairment expense of $365-million within its fourth-quarter results.

In the fourth-quarter, Cliffs also expects to record $542-million in noncash valuation allowances related to two of the company's deferred tax assets, namely the Mineral Resources Rent Tax, in Australia and Alternative Minimum Tax in the US, carryforwards.

Lower long-term pricing assumptions and the related impact on profitability and expected future tax payments primarily drives these valuation allowances.

As a result, Cliffs would record these valuation allowances as an expense within the income tax expense line item on its statement of operations.

The company’s stock traded down 1,75% on the NYSE at $36.53 apiece on Thursday morning.

Edited by: Creamer Media Reporter

Gold Market Report 24 January

Traders "Bored" by Gold But Long-Term Case "Robust" as Russia Buys, Spanish Sell

 

PRECIOUS METALS prices fell in Asian and London trade Thursday morning, taking gold and silver to 1-week lows as commodity prices also dropped and stock markets stalled.

Shares in Apple Inc. were set to open New York trade 8% lower after the gadget giant reported weak Christmas sales.

 

New purchasing managers' data today showed business activity and sentiment in China rising to a two-year high.

Markit's PMI data also rose faster than expected everywhere in the Eurozone except France.

"The reason we are lower today [in gold and silver] is simple," reckons Marex Spectron's head of precious David Govett in a note.

"The market is long, the market is bored, the market is getting restless."

Longer-term however, "The investment case for gold looks robust," says Blackrock fund manager Evy Hambro, interviewed by
The Telegraph
, "with recent action by governments indicating that real interest rates are likely to remain negative in 2013, and the risk of inflation has increased.

"The behavior of central banks," adds Hambro, "suggests gold purchases look set to continue as diversification of currency exposure remains a key focus."

The US Federal Reserve's policy-making team will meet next Tuesday and Wednesday, and Fed chairman Ben Bernanke "can count on [his colleagues] to endorse the current program" of
quantitative easing
, says Nathan Sheets, Bernanke's senior international economics advisor for four years to 2011.

"Markets overreacted to the [Dec. meeting] minutes," reckons Dean Maki, chief US economist in New York for Barclays. "Nothing in the minutes said the Fed is going to be anything less than supportive of the economy in the coming months."

"[Bernanke] is going to stay the course and engage in QE," agrees Maki's opposite number at Bank of America-Merrill Lynch, Michelle Meyer, also quoted by Bloomberg.

Despite Sterling's 2007-2009 drop of 25%, "yesterday we found out that one UK official, [David] Miles of the [Bank of England], believes that the Pound has not fallen far enough," says Standard Bank's currency strategist Steve Barrow, pointing to Wednesday's release of UK monetary policy minutes.

Furthermore, says Barrow, yesterday's announcement of an "in or out" UK referendum on European Union membership in 2017 "play[s] into the hands of the Sterling bears."

Having sought a "safe haven" during the Eurozone crisis, "Some foreign direct investment and other capital flows into the UK could turn around as the crisis eases and the UK threatens to cut its ties with the EU," Barrow warns.

Meantime at the World Economic Forum of policy-makers and business leaders in Davos, Switzerland, "We are
buying gold
and will continue to pursue this course," said Russia's first deputy chairman Alexei Ulyukayev today.

Despite hitting the 10% target set by President Putin 7 years ago for gold as a proportion of Russia's reserve assets, "This is a course of asset diversification in a situation when investing in securities or deposits remains risky," Ulyukayev said.

Russia's sovereign gold reserves are now the 4th largest in the world, worth some $520 billion.

Exports of physical gold from Spain to the UK have meantime multiplied 10-fold in the last decade to €1.2 billion, a report in yesterday's
Expansion newspaper claimed, with gold pawned by cash-strapped consumers finding its way into large bars for gold investing
.

"The sale of second-hand gold is raising more than a billion Euros a year for Spanish families," the paper quotes one analyst.

Instead of heirloom jewelry, "Families here need the liquidity."

 

Adrian Ash

BullionVault

 

(c) BullionVault 2013

 

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.

Newmont reports 2012 output of 5m gold ozs., 143m lbs. copper

Newmont Mining has announced a first-quarter gold-linked price dividend of $0.425 per share (subject to board approval), a 21% increase over the prior year quarter.

Author: Dorothy Kosich

Newmont Mining has forecast 4.8 million to 5.1 million ounces of gold production and 150 million to 170 million pounds of copper in its 2013 guidance.

The company said it anticipates 2013 all-in sustainable costs to be between $1,100 and $1,200 per gold ounce of production.

This compares to 2012 total attributable gold and copper production of 5 million ounces and 143 million pounds of copper, down from 2011 full year production of 5.185 million gold ounces and full year copper production of 206 million pounds.

Newmont also reported attributable gold and copper production of 1.3 million ounces and 42 million pounds for the fourth-quarter 2012, down from 1.304 ounces of gold production and 47 million pounds of copper output during the same period of 2011.

Consolidated costs applicable to sales for 2012 averaged between $670 and $680 per ounce for gold and $2.30 to $2.40 per pound of copper.

“In 2013, we will focus on mining fundamentals—from technical competency to safety and social responsibility—to lay the groundwork for a profitable group and more robust cash flow generation,” said Newmont President and COO Gary Goldberg.

“Our priority is to advance projects that deliver profitable production gains, including completing construction at Akyem and beginning production in late 2013, and advancing our stripping campaign at Batu Hijau to prepare for Phase 6 mining,” he added.

Newmont currently plans $2.1 billion to $2.3 billion in attributable capital expenditures, of which 40% is allocated to development capital. The company’s investment priorities including completing Akyem construction, finishing the Phase 6 stripping campaign at Batu Hijau during 2013 and 2014, and identifying the best paths forward for Conga in Peru and Tanami in Australia. The company expects 2013 capex to decline 20% from 2012.

Additional capital investment is also possible at the Merian project in Suriname pending the outcome of further discussions with the government and more project evaluation.

Source: Mineweb

Pan American Silver sets 25.1m-oz. silver production record in 2012

“2013 looks to be another record-setting production year for Pan American,” says Pan American Silver’s COO Steve Busby.

Author: Dorothy Kosich

Pan American Silver reported achieving a new annual production record of 25.1 million ounces of silver and record gold output of 112,282 ounces last year, up 15% and 43%, respectively from 2011.

CEO Geoff Burns observed, “2012 was an excellent production year for Pan American. We achieved our targets for silver production and cash costs during the fourth quarter and for the full year, and in the process we set new quarterly and annual production records for silver and gold.”

“In large part this was the result of the acquisition and integration of the Delores mine,” he noted. “However, we also saw both our La Colorada and San Vicente mines establish new annual silver production records.”

“We expect 2013 to be even better, as we are forecasting increases in both our silver and gold production while our cash costs per ounce remain basically unchanged,” Burns predicted.

This year, the Vancouver-based miner expects to produce 25 million to 26 million ounces of silver, an increase of up to one million ounces from 2012, while gold production is expected to jump 34% to between 140,000 and 150,000 ounces.

Cash costs are forecast at $11.80 to $12.80 per ounce of silver, net of by-product credits.

The company anticipates 2013 base metals production of 36,000 to 39,000 tonnes of zinc, 11,500 to 12,500 tonnes of lead, and 3,500 to 4,000 tonnes of copper. Pan American produced 36,848 tonnes of zinc, 12,266 tonnes of lead, and 4,162 tonnes of copper for the full year of 2012.

Pan American Silver also reported record fourth-quarter 2012 silver production of 6.9 million ounces, an increase of 30% over the fourth-quarter 2011, as well as record fourth-quarter 2012 gold production of 32,381 ounces, an 88% increase over the fourth-quarter of 2011. Preliminary consolidated cash costs for the fourth-quarter 2012 were $11.75 per silver ounce, net of by-product credits.

Capital investments this year are expected to total $157 million, Pan American Silver COO Steve Busby said, “Our capital budget for 2013 is larger than normal, as we have several multi-year projects planned for 2013 at our operations. These include: construction of leach pad 3 at Dolores, and tailings dam expansions at Huaron, San Vicente and La Colorado, as well as a significant open pit push back at Alamo Dorado.”

“I’m expecting our capital programs to return to more normal levels in 2014 once these projects are completed,” he advised.

Source: Mineweb

Forget Germany, Check Out Turkey's Central-Bank Gold

Now here's a central bank really putting gold to good use...

 

by Adrian Ash

 

AMID the brouhaha over Germany's gold reserves at the Bundesbank, there's another central bank using gold actively to bolster its currency and financial stability.

The strategy looks the same – sitting on big stockpiles of the stuff. But the aim differs, because gold is much closer to the everyday financial system. The tactics differ too. Because the central bank hasn't bought and paid for this gold. Private citizens have.

"Gold-based deposit accounts [in Turkey] surged 15% this year through the end of July," explained
BusinessWeek
back in October, "three times the increase in standard savings accounts."

"Although much criticised for its use of 'unconventional measures'," the
Financial Times
added in December, "few would argue that the decision last year by Turkey's central bank to allow the country’s banks to buy gold was anything less than a roaring success."

Buying gold isn't quite right. Starting in October 2011, the central bank began allowing commercial banks to hold a portion of their "required reserves" – needed to reassure depositors and other creditors they had plenty of money to hand – in physical gold bullion. Starting at 10%, that proportion was then raised to 30%.

Private citizens were similarly encouraged to hold their gold on deposit with their banks. That gold was thus transferred to the central bank's balancesheet. Et voila! Privately-owned gold now backed the nation's finances. A smart idea, which has coincided with Turkey's currency rising, interest rates falling, huge current-account shrinking, and government bonds regaining "investment grade" status.

Publicly targeting some of Turkey's estimated 2,200 tonnes of "under-the-pillow" gold, currently worth some $119 billion, the CBRT's governor Erdem Basci has meantime been awarded The Banker magazine's prestigious "
Central Banker of the Year 2012
" award. But with everything going so swimmingly, might Turkey risk over-heating?

Well, the CBRT this week cut its key interest rates – and raised the amount of gold which commercial banks choosing to use bullion as required reserves must hold with it. That fine-tuning is a bid to a) deter foreign investors from buying Lira and so pushing it Lira too high, too fast, and b) prevent those inflows boosting the pace of domestic credit growth by giving the banks too much money to play with.

See, with Turkey's mess of the early 2000s now fading from memory (it knocked 6 zeroes off the Lira in 2005), the currency recently neared 12-month highs against both the US Dollar and the Euro. "Amid accelerating capital inflows" from foreign investors, said the central bank in
Tuesday's policy statement, "recent credit growth has been faster than envisaged.

 

"In order to contain the risks on financial stability, the proper policy would be to keep interest rates at low levels while continuing...to implement a measured tightening [of credit] through reserve requirements."

 

Reporting from Istanbul, Reuters notes that the CBRT raised its "reserve option coefficients" for Gold Bullion and non-Lira currencies. In other words, it forced commercial lenders who choose to hold a proportion of their cash reserves in gold or foreign exchange to deposit more with the central bank.

"The measures will transfer as much as $2.9 billion in foreign exchange and gold from lenders to the central bank's reserves," says
Bloomberg
, "as well as withdrawing 300 million Liras from local-currency markets."

Analysts at Goldman Sachs had forecast this move last week, noting after comments from Turkish central bank governor Basci – and also noting last month's rise of 2% in the Lira's exchange rate to the Dollar – that CBRT "has shifted focus towards the financial stability risks posed by accelerating capital inflows."

Using interest rates and other tools, it would "lean against these inflows and their subsequent FX appreciation pressures," said Goldman's analysts. The CBTR this week cut its annualized rate for overnight loans to 8.75%. That compares with the 12% charged 12 months ago, when inflation ran to double-digits and the Lira was still struggling to find its floor, says the Wall Street Journal's
Emerging Europe blog
.

Can you imagine such a policy, let alone such a turnaround. Of course, not all of Turkey's gold policy can be fully guessed by analysts outside, and there are still plenty of risks to Turkey's growth and stability too. Not least its current account deficit...perhaps the 7th worst in 2012 at $59 billion (
IMF forecast
).

Still, that was down from second place – behind the ever-winning United States of course – in 2011. That spot is now taken by the dear old United Kingdom, a nation which all-too famously
sold half its national gold reserves
at multi-decade lows between 1999 and 2002. A decade later our deficit with the rest of the world yawned above $80 billion last year.

The UK could of course play a similar gambit to Turkey. Indeed, Bullion Vault set forth just such
a modest proposal to Parliament early last year.

 

"Make private gold deposited at the Bank of England free of capital gains tax. This would dramatically increase the financial firepower of the bank at a time when our commercial banks need support, as might our currency very soon."

 

Some hope! And in the absence of a central bank, or government, willing or able to tackle stability on your behalf, UK savers might want to note that gold did for Turkish households back when the Lira collapsed – time and again – on the currency market.

 

Adrian Ash

 

(c) BullionVault 2013

 

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.

Tuesday, January 22, 2013

China eyes 60% of total steel capacity by 2015

China aims to bring around 60% of total steel capacity under the control of its top 10 steel mills by 2015 as part of a wide-ranging plan to restructure its industries.

China, the world's largest steel producer, aims to bring around 60 percent of total steel capacity under the control of its top 10 steel mills by 2015 as part of a wide-ranging plan to restructure its industries.

The Ministry of Industry and Information Technology (MIIT) announced on Tuesday it would encourage big state firms to acquire smaller rivals in a variety of industrial sectors, including automobile and machinery manufacturing as well as agriculture, metals and cement.

It said it would also seek to bring 90 percent of automobile production under the control of its top 10 firms by the end of 2015 as well as 90 percent of aluminium production capacity.

The government also plans to cut the number of firms involved in the exploration, smelting and separation of rare earths over the next three years.

Around half of China's total steel capacity is now owned by the 10 biggest steel firms following previous restructuring programmes, but Beijing has struggled to overcome obstructionism and red tape from local bureaucracies, or change the economic incentives that have allowed small and private mills to thrive.

"It is still quite difficult to consolidate and the key issue remains the local governments -- they remain big supporters of steel mills," said Henry Liu, head of commodity research at Mirae Asset Securities in Hong Kong.

Overcapacity has been identified as one of the biggest problems facing the sector and the reason why profit margins remain perilously thin.

Chi Jingdong, vice-secretary general of the China Iron and Steel Association, told a conference in December that total steel capacity now stands at 980 million tonnes -- a surplus of nearly 300 million tonnes.

ENVIRONMENTAL CURBS

China said last month that it would also winnow down the number of small and private mills by raising environmental requirements, forcing steel producers to improve efficiency and install new equipment.

According to new guidelines included in a "five-year plan" to combat pollution, steel mills will not be permitted to build new capacity in 47 large cities, including Beijing, Shanghai, Tianjin and Chongqing.

While the new rules are likely to increase environmental costs, the majority of small and profitable private mills are likely to have the resources to upgrade and -- if necessary -- relocate, but most have already done so, said Liu.

Analysts say market forces are likely to be the determining factor in the end, and while the faltering economy has hurt the industry, officials have said it could also be a blessing if it puts the minnows under more pressure to restructure.

But Liu said conditions were still not bad enough to force some of the smaller players out of business.

"Even though we talk about the economic slowdown, the steel mills are fine -- they are still making a decent return."

Reuters

Traders to lose heavily as India hikes gold import duties to 6%

The hike in gold import duty in India is set to help smugglers push the precious metal and increase the price of gold by $13 per ten gram in the domestic market.

Author: Shivom Seth

In what some fear will be a crippling blow, the Indian government has hiked the import duty on gold and platinum to 6% from 4% with immediate effect, in a move aimed at curbing imports of the precious metals and check the widening current account deficit.

India's passion for the yellow metal could dive by about 25% as a result of the import duty hike, according to the All India Gems and Jewellery Trade Federation's Bachhraj Bamalwa, who addedd the precious metal had put such a strain on finances that the government was left with no option but to hike the duty.

"The decision will boost smuggling and the parallel economy. The Indian government will lose heavily," he said.

On a day when gold climbed toward a one month high in the international market, rising to $1,689.87 an ounce, the Indian government has dealt a body blow to the Indian industry, said retailers.

The yellow metal’s price rose in the global market on hopes of the US announcing further stimulus measures. Silver, too, is expected to gain as it trades near a month’s high in the global market.
The Bombay Bullion Association has predicted that gold imports in the March quarter are expected to slow down to 100 tonnes against the 200 tonnes logged in the December quarter.

"It is not just a question of halving imports for the next quarter. The cost of a kilogram of gold will increase from $2,603.42 (Rs 140,000) to $3,719.17 (Rs 200,000). This will act as an incentive for many people to bring in smuggled gold," said an official.

Prithviraj Kothari of RiddiSiddhi Bullions said there would be a difference of 7% between the domestic and the international price of gold. This, he added, would have Indians bringing in more gold into the country while on their trips abroad.

"The government should harness the existing reserve of gold in our country. It is just targeting imports all the time,'' he added.

While investment demand for the precious metal is expected to fall immediately, gold consumption in the jewellery sector is expected to remain largely unaffected.

SOPS INCLUDED

As if doling out a sop, the Indian government has also decided to link the Gold Exchange Traded Fund (ETF) with the gold deposit scheme, which will enable mutual funds to unlock their physical gold and invest in gold linked schemes offered by banks.

The changes proposed to the gold deposit scheme are expected to make it attractive for individuals to deposit their idle gold with banks. India is the world's largest consumer and importer of gold.

However, outflow of the foreign exchange on gold imports has been impacting the country's current account deficit, which has widened to $38.7 billion or 4.6 per cent of the GDP during the first half of the current fiscal.

Gold imports in 2011-12 amounted to $56.5 billion. In the current financial year, till December, they are estimated at $38 billion. The hike in customs duty is also set to impact overall jewellery demand.

In a note, Geojit BNP Paribas Financial Services said that the country had managed to do away with gold smuggling, but with the higher duty structure, the phenomenon would reoccur and lead to unwarranted illegal activity.

Jewellers has also expressed concern that the duty hike would result in large scale smuggling.

Saturday, January 19, 2013

Investors accept a share of the blame for Rio's woeful takeovers

Top shareholders in crisis-hit Rio Tinto have identified an unusual scapegoat for the hapless takeovers that triggered the company's eye-watering $14-billion writedown - each other.

Chief Executive Tom Albanese, who led a top-dollar purchase of the Alcan aluminium group, and Doug Ritchie, the executive who secured Mozambican coal business Riversdale, both lost their jobs on Thursday after Rio confessed how badly their deals had turned sour.

Parsing the company's announcement, investors came to a rare conclusion. Rather than demand further scalps from the Rio board, several said they had only themselves to blame for failing to veto acquisitions that looked so wildly overpriced.

"It is really simple. Big acquisitions, especially big acquisitions at big premiums, are really dangerous. We've known it for years," one of Rio's 15 largest shareholders told Reuters. "It's just that human desire and psychology fight against that evidence."

Thursday's reactions suggest the 'shareholder spring' - the trend identified last year in which investors acted more like owners than passive bystanders (and in the process torpedoed several blue-chip companies' pay packages for senior executives) - may have longer to run.

Albanese was the muscle behind Rio's takeover of Alcan in 2007 - a $38-billion miscalculation that came at the end of a commodities boom and on the eve of a financial crisis which brought chaos to global markets.

Rio's offer for Alcan eclipsed an earlier bid from Alcoa Inc. by more than $10-billion and despite some whispers of discontent, shareholders seduced by the banker spin voted convincingly in favour of the union.

Albanese and Ritchie then gave chase to Mozambique-focused coal miner Riversdale in 2011 during a short-lived period of calm in a volatile global economy.

Optimistic estimates on future market demand and the quality of Riversdale assets helped Rio trump rival bids. Again, the majority of shareholders accepted the deal. But since then, like many others in the region, Rio has struggled with poor infrastructure between pit to port, and has had to cut estimates of how much coal it can deliver.

"Mozambique is more of a surprise but the industry's record on acquisitions is appalling and Rio is not alone in destroying shareholder value," said a second shareholder among Rio's ten largest investors.

Even investors who opposed the deals say there's a limit to how much blame they can deflect back to management and board.

"We always thought Alcan was a poor deal (but) I would not be agitating for the chairman to go," said a third large investor adding Rio had done enough by way of making amends.

Rio shares closed just 0.5% down on London's FTSE 100 in spite of the high-profile sackings, suggesting that investors were braced for bad news long before the company announced it would atone for its unsuccessful M&A activity.

Striking a newly cautious note, the investors called on their cohorts to look harder at the next alluring deal to come to the table.

"The M&A bankers come out with great stories, the managers get excited about scale and it's up to shareholders to identify ill-discipline and react to it," the first investor said.

"It's a perpetual cycle. Scaling up, storytelling, realisation, regret, forget and then there's a brand new story. We're in a phase where in this particular industry, people are starting to pay the price for hubris."

Edited by: Reuters

Friday, January 18, 2013

German Gold: 4 Lessons for Private Investors

The Bundesbank's announcement contained little news for the market. But for private investors...?

 

The GERMAN Bundesbank is rightly famed as the world's least stupid central bank.


Capping German inflation at single-digits all through the 1970s sure helped. Everyone else got double digits or worse (the UK and Italy got over 20% each, twice). The Bundesbank boosted its reputation further by not selling any gold at two-decade lows in the late 1990s. Not even the Swiss National Bank managed to sidestep that amateur's mistake. (The SNB then went on to embrace inflation, actively creating Swiss Francs solely to devalue them.)

So where the Bundesbank still controls policy (as a Euro member, Germany has its interest rates set by the European Central Bank), it pays to pay attention. And this week's news on
Bundesbank plans for gold in 2020
offer four clear lessons for anyone buying gold today.

First, the facts – with
BullionVault's analysis based off the Bundesbank's own news release, and the World Gold Council's compilation of the latest data on Germany's gold reserves.


clip_image001[4]
What with being a fool's paradise and all, plenty of stories on the internet will tell you that Germany is "taking home its gold". But as you can see, it isn't. Fifty per cent will stay overseas. So you might want to look askance at anyone who runs such headlines.

You might then consider what the news does in truth signal...

#1. Hold gold for the long run
Based on the figures in the Bundesbank's announcement, it's clear that the German central bank has no intention of selling gold anytime soon. Its huge gold reserves, the second-largest after the United States', underpinned the Deutsche Mark's famous stability during the Great Inflation of the 1970s. Germany then refused to sell any of its gold reserves when prices were low a decade ago, unlike every other European state except Italy.

Besides very small quantities for commemorative coins, it has steadfastly refused to sell into this rising market either. Short of "the need arising", the Bundesbank has every intention of keeping hold of its gold through 2020, too.

#2. But keep it ready for sale
Despite all the fuss about "taking home its gold", Germany is keeping 50% split between London and New York. It's pulling out of Paris entirely, citing the need for foreign currency in a crisis, which France can't now offer. But the fact is that Paris doesn't offer a deep, liquid market for wholesale bullion. Whereas London, like New York and Zurich, remains a world centre for physical gold bullion. Indeed, London is the heart of global dealing, with wholesale prices worldwide always quoted as the price for London delivery plus a premium for shipping elsewhere.

The Bundesbank makes plain that, if some unspeakable crisis demanded it, being able to sell its gold fast is a prime concern. Hence the 37% staying at the New York Fed, and the 13% staying in London.

#3. And let geography spread your risk
Holding some gold overseas isn't a problem, then. Indeed, it's benefit of gold's deeply liquid international market. Because when asked, central bankers will repeatedly cite the diversifying power of gold as a major reason to own it. (See this French central banker
speaking in 2000, for instance.) Unlike other metals and commodities, gold is not tied to the economic cycle, nor the stock market. It is a natural "hedge" against the US Dollar too. And if you are spreading your investment risk with gold, why not also spread your geographical risk by owning some gold overseas as well?

Historically, the reason that Germany holds gold in the UK, France and US was fear of Soviet invasion. Even with that fear gone, however, geopolitical diversification clearly still makes sense to Frankfurt – starting with a full 37% of its gold being on a separate continent. For private individuals, holding investment-grade gold in secure, professional vaults can cost you just a fraction of a per cent each year. It need cost no more overseas, and that will give you an escape fund if things get really ugly at home.

One last point – the Bundesbank has of course been very reluctant to make this move. It goes against the "gentlemen's agreement" between central bankers – the assumption that each is to be trusted, because they hold themselves and their colleagues as independent from politics and the state. But to be fair, the Bundesbank brought the demands for repatriation and especially for audits of Germany's gold all on its own head. Just in the same way as the US Federal Reserve will surely be forced to
audit the US Treasury's gold at Fort Knox
in due course, too.

There is no need for secrecy. Redacting sections of
the most recent audit of New York-held metal (2011 was the first such visit since the early 1980s) only fuels suspicion where none should be necessary. If you hold physical gold at arm's length – whether in London or in another major centre like New York or Zurich – you'd be sure you get plain proof of your gold's quality and safe delivery inside the vault, with regular checks thereafter. You'd no doubt want to use independent professionals, whose specialism is judging the fineness and market-readiness of physical gold, to conduct the checks and then report back to you.

 

Adrian Ash

 

(c) BullionVault 2013

 

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