Wednesday, February 27, 2013

New projects in Peru to add $3.6 billion to overall mining investment for 2013

New mining projects in Peru will attract over $3.6 billion in investments this year, adding to the overall industry forecast of $10 billion, said Wednesday the president for the country’s National Society of Mining, Oil and Energy (SNMPE), Eva Arias.

The South American nation’s extractive sector, which accounts for some 60% of the economy, saw investments for $8.5 billion last year and is expected to bring $53 billion over the next decade, added Arias.

According to LPBnews (in Spanish), mining investment jumped 18% last year compared to 2011 despite large-scale protests against exploration and extraction activities that swept the country in 2012.

SNMPE warned in September last year that, as a result of non-stop anti-mining protests in different regions of the country, investors had started looking for greener pastures and so mining investment in the South American nation was expected to fall.

Although that didn’t happen, the body said Peru did fall to third place from second in the list of world’s top copper and silver producers.

Gold price drops below $1,600, continues worse monthly losing streak in 16 years

The gold price fell by as much as $25 on Wednesday to touch a low of $1,591 and erasing much of the gains of the previous day.

Ben Bernanke's testimony in front of US Senate members praising the Fed's QE program and suggesting that it should stay in place into 2014 lifted gold yesterday.

But today's positive economic news in the US – better than expected housing data –  had the opposite  effect as it signaled that the Fed's ultra-accomodative monetary policy may end sooner rather than later.

QE, which floods markets with cheap money, increases gold's allure as a hedge against inflation amid currency depreciation.

In late afternoon trade gold for April delivery was off its lows changing hands for $1,594, still down $21 on the day.

Gold is down over 3% in February and is set for its fifth monthly drop in a row.

The last time that happened was in January 1997.

Holdings in gold-backed ETFs dropped to a 5-month low of 2,530 tonnes on Tuesday, data compiled by Bloomberg show, the worst performance since April 2008.

Source: Mining.com

Vale Q4 loss $2.65bn, twice as deep as forecast

Brazilian mining giant Vale on Wednesday posted its first net loss in ten years in the fourth quarter after taking charges for tax judgments and underperforming mines, a loss twice as big as analysts' expectations.

Vale lost $2.65-billion in the three months ending December 31, compared with a profit of $4.67-billion a year earlier, according to a securities filing. It was the company's first quarterly loss since the third quarter of 2002.

The result was bigger than the $1.27-billion average loss estimate in a Reuters survey of analysts. Vale, the world's second-largest mining company, is the largest producer of iron-ore and second-largest producer of nickel.

Net sales, or sales minus sales taxes, fell 19% compared with a year earlier to $11.72-billion, close to the $11.30-billion net sales outlook in the survey.

Earnings before interest, taxes, depreciation and amortisation, fell 97% from a year earlier to $257-million.

Edited by: Creamer Media Reporter

Gold Market Report 27 February

Fundamentals "Still Supporting Gold" as Bernanke Testimony "Shows QE Has Long Way to Go"

U.S. DOLLAR gold bullion prices fell slightly in Wednesday morning's London trading, but held above the $1600 per ounce level it rallied above yesterday after Federal Reserve chairman Ben Bernanke  told Congress that that Fed's ongoing quantitative easing policy "is providing important support to the recovery" and that the benefits "are clear".

Stock markets also posted gains this morning, making up some ground lost yesterday, while commodities were broadly flat and longer-dated US Treasuries gained.

Like gold, silver eased lower this morning but held above $29 an ounce by lunchtime in London.

In his testimony to the Senate Committee on Banking, Housing and Urban Affairs, Bernanke added "inflation expectations appear well anchored" and that the Fed does not expect to see "the development of significant inflation pressures".

Bernanke also reiterated the importance of keeping the federal funds rate close to zero.

"Keeping long-term interest rates low has helped spark a recovery in the housing market and has led to increased sales and production of automobiles and other durable goods," he said.

On the New York Comex the number of gold put options, which rise in value as gold falls below a given strike price, rose to a record following the publication of the latest Fed policy meeting minutes last week, according to news agency Bloomberg.

Following Bernanke's testimony yesterday however "the market is a little less concerned about a premature exit of quantitative easing, which would be bad for gold," says Nick Trevethan, senior commodity strategist at ANZ.

"Don't forget that the Fed's focus is on jobs and inflation. The job market has stabilized, but we are not seeing efficient job growth to make the exit of QE look imminent. There is still a long way to go."

Britain's economy meantime grew by 0.3% in 2012, according to the second estimate of fourth quarter gross domestic product published by the Office for National Statistics Wednesday, which revised last year's growth estimate up from zero. The Q4 contraction of 0.3% reported in the first estimate however remains unchanged, while government spending rose 0.6% over the quarter and 2.6% over the year as a whole.

"Government spending can't be sustained at that level," says Deutsche Bank economist George Buckley, "so an important part of economic growth is actually going to be taken away and the risk is that exports remain negative and that consumption weakens because of higher inflation."

The Bank of England's Monetary Policy Committee has discussed the possibility of setting negative interest rates, MPC member and BoE deputy governor Paul Tucker told the Treasury Committee yesterday.

Holdings of bullion held to back gold exchange traded funds meantime are on course for their biggest calendar month drop since April 2008, according to data tracked by Bloomberg.

"The [gold] market has lost increasing support this year in line with other perceived 'safe havens' such as the Japanese Yen, Swiss Franc and US Treasuries," says a note from Deutsche Bank this morning.

"We expect gold returns will eventually recover although this will most likely require a moderation in growth expectations and with it a correction in global equity and interest rate markets."

"The fundamental background for gold remains reasonably supportive," adds a note from Credit Suisse.

"It is rather that potential gold investors consider other classes more attractive...investors have the tendency to buy less of the precious metal in an environment where growth is stabilizing."

Gold bullion imports worth $2.7 billion contributed to Thailand's record trade deficit last month, the country's Commerce Ministry revealed Wednesday. Over the whole of 2012 demand for gold from Thailand was worth $4.3 billion, according to latest World Gold Council figures.

The volume of gold imported by Thailand rose 133% year-on-year, Ministry figures show, although its report did not include figures for gold exports.

Last week India, the world's biggest source of private gold demand, banned imports of gold jewelry from Thailand unless the authorities can be satisfied that the work in making the jewelry had added at least 20% to its value over and above that of the bullion content.

India last month raised its import duty on gold to 6%, although a trade agreement with Thailand meant that gold imported from there was only subject to a duty of 1%.

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.

Tuesday, February 19, 2013

Gold Market Report - 18 February

Gold Fails to Hold Asian Gains, Next Large-Scale Devaluation "Could Be the Pound"

U.S. DOLLAR gold bullion prices failed to hold onto gains made in Monday's Asian session, falling to $1611 an ounce by lunchtime in London, just a few Dollars above Friday's six-month low, as the US Dollar extended recent gains.

Gold dropped 3.4% over the course of last week, including a sharp drop during Friday's US trading.

"The latest price slide was accompanied by significant outflows from gold ETFs," says today's commodities note from Commerzbank.

"Investors on the futures market are [also] largely to blame [for the price drop]."

The speculative net long position of gold futures and options traders on the Comex fell to its lowest reported level since August in the week ended last Tuesday, weekly data from the Commodity Futures Trading Commission show. The spec net long is calculated as the difference between 'bullish' long and 'bearish' short contracts held by Comex traders categorized as 'noncommercial'.

"Clearly, the market, which has been plagued by concerns over central banks' commitments to continued monetary accommodation, was concerned about the downside that would be opened up in the absence of Asian players that were celebrating Lunar New Year last week," says Marc Ground, commodities strategist at Standard Bank.

Trading volumes set a new record on the Shanghai Gold Exchange Monday, according to newswire Reuters, with more than 22 tonnes of the Au9999 contract (for bars of 99.99% purity) traded, as China's markets re-opened following last week's Lunar New Year holiday.

Silver meantime rallied back above $30 an ounce during Monday's Asian session, trading either side of that level during the morning in London.

European stock markets were little changed on the day by lunchtime, with volumes reported lower with US markets closed today for Presidents' Day.

Commodities were also broadly flat, with the exception of copper which was down more than 1.2% on the day by lunchtime in London.

On the currency markets, the US Dollar Index, which measures that currency's strength against a basket of other currencies, touched its highest level so far this year this morning.

Following a two-day meeting in Moscow, G20 finance ministers issued a joint communiqué over the weekend saying they will "refrain from competitive devaluation" of their currencies.

"We will not target our exchange rates for competitive purposes," the statement added.

"[The communiqué will] limit Japan's ability to provide verbal guidance on the Yen moving forward," reckons Adarsh Sinha, foreign exchange strategist at Bank of America Merrill Lynch.

"This likely takes away a key tool used by Japanese officials to weaken the yen at an unprecedented pace and shifts the burden of evidence to policy implementation."

The Yen however fell further against the Dollar this morning, extending Friday's drop and erasing most of the gains made last week ahead of the G20 meeting. 

Following the onset of the financial crisis in 2007, the Yen rose by more than a third against the Dollar by mid-2011, though it has since weakened by more than 20%.

Elsewhere on the currency markets, Sterling fell to a seven-month low against the Dollar this morning, also edging lower against the Euro.

More money managers are shorting Sterling than buying it for the first time in five months, the Financial Times reports, citing the latest CFTC data.

"The Pound seems clearly at risk of following the Yen and suffering the next large-scale devaluation for a major currency," reckons Mansoor Mohi-Uddin, head of global currency strategy at UBS.

"It is possible that the full benefits of [Sterling's] 2007/8 depreciation are yet to be realized," said Bank of England Monetary Policy Committee member Martin Weale in a speech on Saturday, adding that "growth of exports and a shrinkage of imports would together be a helpful source of demand for UK output".

The Royal Mint plans to make its first gold coins in India since 1918, in partnership with refiner MMTC-PAMP, with a view to marketing the coins in the world's largest gold buying market, the Mint announced Monday.

The announcement comes as British prime minister David Cameron starts a three-day visit to India, where he is due to meet business representatives.

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.

Thursday, February 7, 2013

Gold ETFs in India touch 40 tonne (40,000 kilo)

Continued investor demand and rising prices help ETF assets as well as reserves double from May 2011

Author: Shivom Seth

India's high gold imports are hurting the country's current account deficit. The government's import restrictions are hurting the populace. The only organisation not worried, as of now, are gold backed exchange traded funds.

Worried investors are veering towards the country’s 14 gold exchange traded funds (ETFs), which together have garnered 40,000 kilo of the precious metal.

The ETFs allow investors to trade in the metal in a non physical form and electronically on stock exchanges. Gold ETFs debuted in India about six years ago.

The first gold ETF launched in 2007 by Benchmark Mutual Fund (now Goldman Sachs) was followed by 13 others in quick succession. The 14 mutual fund houses present in this segment are managing gold assets worth nearly $2.2 billion (Rs 120 billion).

In terms of gold weight, Goldman Sachs Gold ETF manages 11,218 kilo, followed by RShares Gold ETF with nearly 9,800 kilo. Kotak Gold ETF and SBI Gold ETS hold about 4,500 kilo each.

Incidentally, comparatively smaller gold ETFs from UTI and HDFC fund houses manage gold weighing less than 3 tonne each.

While one might consider the gold stocked at the ETF a huge cache, it could also prove to be a bane for some. SBI chairman Pratip Chaudhuri was recently quoted by newswire agencies as saying that the bank was unable to profit from the two tonne of gold lying in the gold deposit scheme of the bank, or lend it out.

Recently, the Indian government allowed gold ETFs to deposit part of their gold holdings with banks in an effort to manage the demand for imported gold. The idea was to put the gold corpus of ETFs to productive use.

The SBI chairman, however, is not too hopeful. Gold ETF's have a tax rate of 10%, as compared to bank deposit interest tax rate at 30%. Investors would necessarily go to gold ETFs, rather than invest in bank deposits.

Incidentally, bank finance for purchases of gold bullion has been prohibited, though banks have been allowed to continue their role as nominated agencies in gold imports. The government had also strongly advocated the cause to unlock the value of idle or unproductive gold, which lays in vaults across the country.

The SBI chairman complained that the government was not making it conducive for investors to bring their gold to the bank.

If an investor buys gold from the bank, he cannot return the gold to the bank. This has limited many purchases, since the selling option does not exist with gold bought from banks across the country.

The chairman has suggested that the government ensure a two way opportunity, a buy and sell option, and have investors approach banks either to buy or to park their precious metal.

However, at 40 tonnes, India's total gold ETF holding is only about 10% of the 398 tonne of gold the country imported in the April-October 2012 period.

Source: Mineweb

Gold Market Report 7 February

Gold & Silver "Trapped" in Tight Range, Volatility Near Half-Decade Lows, as PGMs Grab Attention

 

The GOLD PRICE eased $5 per ounce from a 2-day high in London trade Thursday morning, holding above $1676 as Asian stock markets closed lower but Europe held flat.

The Euro currency held onto a half-cent rise as the European Central Bank kept its key lending rate at a record low of 0.75% for the 15th month in a row.

Crude oil rose with other commodities, but silver bullion remained unchanged for the week so far at $31.80 per ounce.

Daily swings in the silver price haven't been as small as this week since spring 2007. Volatility in the US Dollar gold price has only been lower than yesterday on 15 days since mid-2005.

"The story in the precious metals market," says Commerzbank's commodities team, "continues to be the explosion in the price of platinum" – now 13% higher since the start of the year.

Palladium, which is also used primarily in the auto industry, is similarly "in a very bullish trend," they add, while "Gold and silver remain range-bound."

Technical analyst Russell Browne at bullion bank Scotia Mocatta calls the
gold price
"trapped" for the last month.

While the market may be "building a base" from which to rise higher, "We do not expect any speculative buying until the market can break 1695," he adds, "a level which has held since mid-December."

Commodity analysts at the
World Bank forecast
a 4% drop in the gold price by end-December, with a further 3% fall to $1550 over 2014.

"Most risks are on the downside," says the World Bank's latest Commodity Market Outlook, "as the pace of global recovery improves, including further easing of financial tensions in Europe."

The recent "high gold prices have [also] attracted considerable investment in the gold mining industry," the report adds, "not only to replace aging existing mines but also to develop new mines."

China's gold mining output rose in 2012 for the 6th year, Shanghai Securities News said today, confirming its world #1 position with a record 403 tonnes.

Together with
China's gold imports through Hong Kong
of 524 tonnes (net of exports), that figure takes China's domestic demand for last year to at least 926 tonnes.

Imports to India – the world's #1 consumer nation until 2012, but with no domestic mine output – fell one-third by value over the first 9 months of last year, perhaps taking full-year shipments below 650 tonnes.

"[The gold] market is slow these days," Reuters quotes a Mumbai bank dealer, "as overall sentiments are not so good because of [central bank] comments."

After gold import duties were hiked to 6% last month, the Reserve Bank of India on Wednesday proposed strict controls on import quantities, perhaps forcing wholesalers to re-export certain quantities and use recycled domestic metal instead, to try and cut the country's large trade deficit.

"If they come up with quota system," says the dealer quoted by Reuters, "then market will become very ugly."

The Rupee slipped back Thursday against the Dollar, but remained 5% above last month's multi-decade lows.

Sterling meantime whipped violently as first Mark Carney – who takes over as governor at the Bank of England this summer – spoke before lawmakers in London, and then the central bank held UK interest rates at 0.5% for the 48th month in succession.

"[Economic] risks are weighted to the downside..[but] inflation is likely to rise and may remain above the 2% target for the next two years," the Bank said as it also maintained its quantitative easing at £375 billion ($590bn).

It will now start recycling the cash from maturing government bonds, it said, into new purchases of public debt.

"Returns to QE have declined, particularly in the US, as the scale of programme has increased," said Mark Carney, currently head at the Bank of Canada, to the Treasury Select Committee this morning.

But "unquestionably" the UK economy's "considerable slack...will be a situation that merits considerable monetary policy stimulus," when he takes over from Sir Mervyn King in June.

The gold price for UK savers today touched a 10-week high above £1073 per ounce.

It has risen more than 5-fold since King moved from deputy to governor in June 2003. Consumer price inflation has averaged 2.7% per year, against the Bank's official target of 2.0%.

 

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, February 5, 2013

Gold Market Report 5 February

Gold "Could Test Resistance After Consolidation", Chinese Gold Imports from Hong Kong Set New Record

WHOLESALE MARKET gold bullion prices rose above $1680 an ounce Tuesday morning in London, trading close to last week's high, as stocks, commodities and the Euro also gained and US Treasuries fell, following better-than-expected services sector data from Europe.

Silver meantime touched $32 an ounce for the first time this week.

"We will remain short term bearish [on gold] while resistance [around $1696 per ounce] caps," says Axel Rudolph, senior technical analyst at Commerzbank.

"Should this resistance zone unexpectedly be overcome, however, our medium term bullish forecast will be reinstated with the 1750 region then being targeted."

"The January 4 low at $1625 is pivotal," add technical analysts at Scotia Mocatta,"and there should be good support there...the consolidation since that date may indicate gold is forming a base."

Sentiment towards gold among western households grew less bullish last month, according to data published by BullionVault Tuesday.

The Gold Investor Index, which tracks buying and selling on the world's largest physical gold market for private investors online, fell to 54.9 in January, down from a 12-month high of 58.3 a month earlier and its lowest reading since September. A figure above 50 indicates more net buyers than net sellers over the month.

Weekly data published by the Commodity Futures Trading Commission last Friday meantime show the speculative net long position of gold futures traders, a closely-watched measure of futures market sentiment, fell to levels not reported since August during the week ended last Tuesday, indicating reduced bullishness among traders.

Over in India, traditionally the world's biggest source of private gold demand, the government's "anti-gold" stance  means Indian gold demand "is going to face a difficult year", according to Philip Klapwijk, global head of metal analytics at precious metals consultancy Thomson Reuters GFMS.

"Comparing demand last year with 2011, we see this rather strange phenomenon that India was the standout for the country where demand collapsed the most," Klapwijk told a conference in cape Town Monday.

"In other parts of the world, they shrugged off the 6% increase in gold prices rather well and in other parts we saw growth in jewelry demand."

Gold bullion imports to China through Hong Kong nearly doubled in 2012, hitting a record 834.5 tonnes, the island's Census & Statistics Department said today. 

Now the world's largest gold consumer as well as the number one mining producing nation, however, China also trebled its exports of gold through Hong Kong, the data show.

Gold bullion imports net of exports rose 56.0% to 523.6 tonnes on BullionVault's maths.

China's central bank meantime injected a record 450 billion Yuan ($72 billion) into the country's money markets Tuesday ahead of next week's Lunar New Year holiday.

Bank of Japan governor Masaaki Shirakawa announced Tuesday that he will step down three weeks earlier than scheduled, and will now leave his post on March 19.

At its most recent policy meeting, the BOJ doubled its inflation target from 1% to 2% and announced it will launch open ended quantitative easing once the current round of QE ends next year. 

The BOJ's move was largely expected, having been called for by prime minister Shinzo Abe following his election victory in December, and was described as "threatening an end to central bank autonomy" by the head of Germany's Bundesbank Jens Weidmann.

"[Shirakawa's] resignation will likely push forward the timing of bold monetary easing action [by the BOJ," reckons Akito Fukunaga, chief rates strategist at RBS Securities Japan in Tokyo.

"Shirakawa has probably judged that it's better for the BOJ to start with a new top three who have similar views."

In Europe, the services sectors of Germany, Spain and the Eurozone as a whole all saw better-than-expected improvements in conditions last month, according to monthly purchasing managers' index data published this morning, although the PMIs for Spain and the Eurozone remained below 50, indicating sector contraction.

Italy's services PMI by contrast was lower than the consensus forecast among analysts, and down on the month earlier, indicating a sharper rate of contraction during the month.

In the UK, January's services PMI was 51.5, up from 48.9 a month earlier.

"A huge sigh of relief accompanies these numbers, as a return to growth of the service sector in January greatly reduces the likelihood of the UK falling back into a 'triple-dip' recession," says Chris Williamson, chief economist at Markit, which produces the PMI.

Both the Euro and Sterling rallied against the Dollar this morning, although Sterling reversed most of the move by lunchtime. Both currencies remain below where they started the month.

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.

Monday, February 4, 2013

Gold Market Report 4 February

Futures Market Retreat "Good for Gold in the Long Term", Spain Hit by Political Crisis

WHOLESALE MARKET gold prices hovered just below $1665 per ounce Monday morning in London, having failed to hold onto gains in earlier Asian trading, as stocks and commodities also ticked lower along with the Euro, which retreated from recent highs following news of a political scandal in Spain.

Silver erased most of Friday's gains this morning, dropping below $31.60 an ounce.

The gold price in Euros meantime regained some ground this morning as the Euro fell against the Dollar. Last Friday, gold in Euros dropped to its lowest level since May last year as Euro-Dollar touched a 14-month high.

In New York, the so-called speculative net long position of Comex gold futures and options traders fell to its lowest reported level since last August during the week ended Tuesday 29 January, weekly data published Friday by the Commodity Futures Trading Commission show.

The spec net long is calculated at the difference between 'bullish' long and 'bearish' short contracts held by traders such as hedge funds which are classified as 'noncommerical', and is regarded as an indicator of short-term sentiment in the derivatives markets.

"The 'weak hands' are further retreating from the gold market, which is a good thing in terms of the long-term price prospects," says today's commodities note from Commerzbank.

Spanish prime minister Mariano Rajoy, who travels to Berlin today for talks with German chancellor Angela Merkel, denied allegations in the Spanish press over the weekend that he received illegal payments from a slush fund run by his Popular party (PP).

Support for the PP has fallen six percentage points to 24% since the allegations were made, according to a poll published by Spanish newspaper El Pais, while 77% of those surveyed said they do not approve of Rajoy.

The number of unemployed in Spain meantime rose to 4.98 million last month, official figures published Monday show. Last month brought news that the unemployment rate rose to record levels above 26% towards the end of 2012.

In Italy, prime minister Mario Monti today criticized his predecessor Silvio Berlusconi's proposal to reimburse taxes paid on primary residences that were levied by Monti.

"Berlusconi wants to buy the votes of Italians with the money that Italians had to turn over to cover up the shortfall left in the public accounts by Berlusconi," Monti said.

A poll published last week showed Berlusconi had cut the lead of front runner Luigi Bersani to five percentage points ahead of elections in three weeks. 

Bersani's Democratic Party (PD) has faced criticism for allegedly receiving funding from Siena-based Monte dei Paschi (MPS), the world's oldest bank dating back to 1472, which  is currently being investigated for covering up losses on derivatives trades and overpaying for its 2007 acquisition of Banca AntonVeneta.

MPS lost an estimated €2 billion-plus in 2012, following a €4.6 billion loss in 2011.

In Germany meantime, politicians have expressed skepticism over whether to accede to Cyprus's request for a bailout from the European Union and International Monetary Fund.

"Without the introduction of effective controls on money-laundering and urgently needed structural reforms, we need not even discuss financial aid," Rainer Bruederle, a member of the Free Democratic party which shares power with Merkel's party, said over the weekend.

"Cyprus is based on a business model that damages us all," added Johannes Kahrs of the opposition Social Democrats.

"Yet it is now supposed to be saved by the EU. The SPD will not support that."

"There's general unease...about the fact that Cyprus takes in a good deal of cash from Russians," explains a note from Standard Bank.

Over in India meantime, traditionally the world's biggest gold buying nation, Rupee gold prices fell to five-month lows Monday as the Rupee touched its highest level against the Dollar since October.

At the start of the year Indian gold dealers imported increased quantities of gold ahead of a rumored import duty hike, with the authorities duly raising the duty from 4% to 6% last month.

"Not many deals are happening [at the moment]," one dealer at a state-run bullion importing bank told newswire Reuters this morning.

"[The] market has to clear the old stocks, which could finish this week."

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.

Sunday, February 3, 2013

Gold edging closer to upside breakout – Nichols

A number of factors suggest that gold has found a base between $1650 and $1690 and is poised to move up through $1700, form a new base at that level, and from there move onwards and upwards.

Author: Lawrence Williams

As we prepare for this year’s Mining Indaba in Cape Town in South Africa (tough destination but someone’s got to go!) in a country which for years dominated global gold production but which is now rapidly slipping down the list of the world’s producers, it’s a good time to take stock of the gold market and what’s been happening in it.  This time, rather than putting forth my own views I’m drawing on Jeff Nichols’ latest observations for Rosland Capital in the U.S.

As regular readers may have gathered, I consider Nichols’ views as perhaps the most similar to my own of all the gold pundits out there, although he is perhaps marginally more bullish than I.

Nichols feels that gold is edging closer to an upside breakout having built a good base of support in the $1650-$1690 range and he’s convinced that sooner, rather than later, the price will push back through $1700 and create a new floor at that level.

He also feels that one of the bullish indicators is what he sees as “the spate of downward revisions to the price forecasts proffered by many of the major banking firms, dealers, trading houses, and other institutional participants in the gold scene.”

One has to admit that there does seem to be a bit of a herd instinct among these forecasters – they seem to look at short term trends and base their medium and long term forecasts on them and them alone.

At the beginning of last year they were almost unanimous in predicting a $2,000 gold price by the year end – on the basis of Nichols’ observations surely a bearish signal.  This year the forecasts are all being trimmed back and in classic contrarian style perhaps we can expect fireworks in the gold price, although this assumes that some of the strange selling activity on COMEX runs its course.

Indeed Nichols is pretty circumspect on the reasons for this, not being prepared, like many of the strongest of the gold bulls, to attribute any sinister motives to what appear to be regular take-downs in the price each time gold appears to be about to take off again.

He describes these, although not in his latest published commentary, as being institutional speculators and trading desks at the big banks and hedge funds making good money trading the range based on technical trading models and the latest bit of news -- economic or political -- out of Washington.  It’s just that the pattern and timing of the take downs does, to the writer, suggest something rather more concerted than this.

But, back to the indicators. Nichols feels that the man-in-the-street, particularly in the Middle East and Asia, tends to be a far better judge of where the price is actually going, and notes that buying of bullion by individual investors has continued to grow and the gold ETFs, despite some big unloading by some funds, are still running at near-record levels.  Add to this continued central bank buying and he sees the gold moving from weak hands into strong ones which, assuming the buying continues, will ultimately lead to a supply squeeze.

“As a result” Nichols notes in an email, “unbeknownst to most gold analysts and traders, the physical market is becoming increasingly tight with bullion going one way to the Asian markets (as evidenced by the high bar premiums in China) and to a number of central banks.  Put another way, gold is moving into strong hands -- and recent buyers, be they the "man in the street" across Asia or the reserve managers at central banks -- are unlikely to sell anytime soon, even at much higher prices.”

The latest possible game-changer, as Nichols sees it, is the forthcoming launch of two gold ETFs in Shanghai for the Chinese investment market.  While the individual in China may still prefer to hold physical metal, he sees the proposed ETF launch, which has already been approved by the government, as providing yet another opportunity to invest in gold via ETFs, and the Chinese “man in the street”, who has had a huge effect already on the rise in the gold price over recent years, could become even more important to the world gold price going forward.

Jeffrey Nichols, Managing Director of American Precious Metals Advisors and Senior Economic Advisor to Rosland Capital, has been a leading precious metals economist for over 25 years.

Source: Mineweb

Gold Market Report 1 February

"End of an Era" for Gold as S&P 500 Records Best January Since 1997

THE U.S. DOLLAR gold price recovered some of its losses from the previous day Friday, edging higher to $1666 an ounce by the end of the morning in London, while most stock markets also edged higher ahead of US nonfarm payrolls data due out 08.30 Washington, DC time.

A day earlier, gold dropped 1% during Thursday's US session, in what one analyst describes as "a remarkable display of schizophrenic volatility".

A few hours later there was "little buying on the physical side" in Friday's Asian session according to one Hong Kong dealer quoted by newswire Reuters.

"There's some buying from mainland China...but I think gold is a bit tired after it failed to break $1700 an ounce."

European stock markets edged higher this morning, with exceptions in Italy and Spain. Spain's IBEX 35 index extended recent losses and was down 1.4% on the day by lunchtime today, the first day of trading after a ban on short selling dating from last July came to an end yesterday. Spanish stocks have now erased their gains from January.

The S&P 500 by contrast has seen its best start to a year since 1997, rising 5.2% last month.

"Earnings are strong, the economies around the world are bottoming and valuations are attractive," reckons Paul Zemsky, head of asset allocation at ING Investment Management in New York.

BNP Paribas today became the fifth big bank to follow Goldman Sachs and cut its 2013 gold price forecast by up to $100 per ounce. 

The French bank's analysts now believe gold will average $1790 per ounce this year.

Credit Suisse meantime published a note today entitled 'Gold: The Beginning of the End of an Era', arguing that the 2011 gold price peak could prove to have been the high "in this cycle" as the financial crisis grows less acute.

Like gold, silver also edged higher this morning, ticking above $31.40 an ounce, while other commodities were broadly flat.

China's manufacturing sector meantime continued to expand in January, though at a slower rate than the month before, according to official purchasing managers' index data published by Beijing Friday.

China's official manufacturing PMI fell to 50.4 last month, down from 50.6 in December, with a figure above 50 indicating sector expansion.

HSBC's manufacturing PMI by contrast rose to 52.3, up from 51.9 a month earlier, implying an accelerated growth rate. The HSBC PMI is more heavily weighted towards small and medium enterprises than the official PMI, which places greater emphasis on the views of purchasing managers at larger state-owned enterprises.

"Overall, I will put more weight on today's official PMI, largely because the current recovery is still rather narrowly based," says Li-Gang Liu, chief China economist at ANZ.

"We believe the state sector tends to benefit from this round recovery much more than the SME sector, a sector that tends to dominate the HSBC sample. The HSBC PMI also has a pattern of pro-cyclicality. When the markets are optimistic, the HSBC often becomes more so, and vice versa."

Over in Europe, Germany's manufacturing PMI rose from 46.0 in December to 49.8 last month, while for the Eurozone as a whole the manufacturing PMI rose from 46.1 to 47.9.

"Providing there are no further setbacks to the region's debt crisis, these data add to the expectation that the Eurozone is on course to return to growth by mid-2013," says Chris Williamson, chief economist at Markit, which produces the European PMI data.

In the UK meantime, manufacturing PMI fell last month to 50.8, down from 51.2 a month earlier. Similar PMI data for the US are released later today.

The US Senate Thursday approved legislation to extend the federal debt ceiling until May 19. The legislation now needs to be signed into law by President Obama.

The US Mint meantime reported a record monthly volume of silver American Eagle bullion coin sales for January. Just under 7.5 million ounces of the silver coins – which are produced specifically for investment purposes – were sold last month. Sales of gold American Eagle coins were their highest since July 2010 at 150,000 ounces.

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.

Rio Tinto faces tough talks in Mongolia over giant mine

ULAN BATOR/MELBOURNE – Rio Tinto faces tough negotiations next week in Mongolia, where the government is under pressure to plug a budget deficit and increase its share of the wealth from the $6.2-billion Oyu Tolgoi copper and gold mine.

Oyu Tolgoi, 34% owned by Mongolia and controlled by Rio Tinto, produced its first concentrate this week and is on track to start supplying metal and paying royalties by June.

The success of the mine is crucial for both sides as, at full tilt, Oyu Tolgoi will account for nearly a third of Mongolia's economy, while Rio Tinto is depending on the mine to drive growth beyond its powerhouse iron-ore business.

Rio Tinto is not expected to have to give up a bigger share of the mine, but some analysts say it could end up agreeing to provide more funding in areas like infrastructure to remove uncertainty over a project that is expected to produce 425 000 t of copper and 460 000 oz of gold a year.

Rio Tinto and its subsidiary, Turquoise Hill Resources, last year fended off an attempt by Mongolia to renegotiate their 2009 investment agreement on Oyu Tolgoi.

The government is drafting a law that would require Mongolians to hold at least a 34% stake in mines, however talk that this would apply to Oyu Tolgoi has died down.

Instead, there is speculation the government may press Rio for more funding outside the agreement, which includes a 5% royalty on all sales, as Mongolia faces a revenue squeeze despite being touted as the world's fastest growing economy as recently as 2011.

"It looks as if the government of Mongolia will run a large budget deficit in 2013," said Nick Cousyn, COO at BDSec, an investment bank in Mongolia.

"How they will close this gap is anyone's guess, but we think unilaterally changing the OT agreement is off the table," he said.

UPPER HAND

In meetings scheduled for next week, the government could question why project costs have blown out, raising concern that Rio Tinto may want to slow development due to the steeper costs, as it has done with other major capital projects.

Rio Tinto executives in Ulan Bator and a spokesman declined to comment on the upcoming talks.

Turquoise Hill last year put the total project cost at $13.2-billion, including developing an underground mine and sustaining capital costs, up from a 2010 estimate of $9.55-billion.

A Bloomberg report this week said Rio was considering a temporarily halt of construction to protest against demands by the government for a bigger stake in the project and new royalty rates.

In response to the report that cited two unnamed sources, Rio Tinto said it remained on schedule to start selling ore from the mine in the first half of the year.

One analyst said the firm may be considering delaying the project's second stage to build an underground mine, but others said it was unlikely to hold up the expansion for too long.

"It's not going to kill the project off because it's a cracking asset," said Hayden Bairstow, an analyst at CLSA.

The feasibility study for the underground mine is due to be finished in the first half of 2013. Construction was estimated last year at $5.1-billion.

ANOTHER WRITEDOWN?

Rio Tinto's latest battle in Mongolia poses a challenge for its new CE, Sam Walsh, who replaced Tom Albanese in January after the firm reported $14-billion in writedowns in aluminium and coal.

Walsh may want to smooth relations with the government rather than play tough to ensure that the firm does not have to keep fighting off a clamour for greater Mongolian ownership, CLSA's Bairstow said.

"When it's effectively a third of GDP, getting the entire country offside isn't a go-forward position that's going to work," he said.

If the firm bowed to some of the government's demands and as a result had to take a small writedown, the market may be forgiving, as it would remove uncertainty, Bairstow said.

The talks with Rio Tinto are part of a wider effort by the government to squeeze more out of the mining industry.

At a meeting on Friday, Mongolian miners complained about the proposed new mining law that would impose taxes on exploration and step up local ownership of resources to as much as 51%.

Though one of the aims of the law is to make sure resources stay in Mongolian hands, some local miners are just as worried over the legislation as foreign counterparts.

The proposed law includes heavy fines and could even have a company's licensed land revoked by the government, said Enkhsaikhan Batmunk, director general of Magma Mines.

Another concern is that if the state owns 51% of a firm, it will be tough to raise money via a public listing.

But while Mongolians recognised the need for foreign investment, "What's under the ground belongs to them like the sky," said Namgar Algaa, executive director of the Mining Association.

Edited by: Creamer Media Reporter

Friday, February 1, 2013

Anglo writes down US$4bn on Minas-Rio project

Anglo American plc has written down the value of its Minas-Rio iron-ore project in Brazil by US$4 billion after significant increases in capital expenditure.

To reach phase one capacity of 26.5Mt/y, the project is now slated to cost US$8.8 billion, an US$800 million increase on its November 2012 guidance and more than 300% up on its original estimate of US$2.7 billion.

The project has been hit by huge cost overruns linked to the development of the mine, as well as delays in obtaining licences.

“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,” Anglo’s chief executive (CEO) Cynthia Carroll said.

Anglo said the impairment does not consider any potential value from future expansion to 90Mt/y.

The projected first ore on ship (FOOS) date recently changed from late 2013 to late 2014, and the company has put in place a US$600 million contingency fund to ensure that the new deadline is hit.

Anglo has had a difficult year, with strikes in South Africa hitting platinum production.

In April, Carroll will be replaced as CEO by Mark Cutifani, head of AngloGold Ashanti.

Xstrata confirms Las Bambas spend of US$5.2bn

Xstrata plc said that the estimated cost of its 400,000t/y Las Bambas copper project in Peru would be US$5.2bn.

The estimate reconfirms its prediction in August 2012, which was a 7% increase on a previous assessment.

Xstrata is close to completing a US$33 billion deal that will see it taken over by Glencore International plc. The only remaining hurdle is approval by the Chinese regulator.

Analysts at Liberum Capital said the Las Bambas disclosure should allay any fears of a “capital expenditure blowout”.

“Nevertheless, we don’t rule out modifications to the project following the capital allocation review which we expect to follow merger completion.”

Las Bambas is now in the full construction phase having committed almost 65% of the project’s construction capital cost by the end of December 2012, Xstrata said.

It could start producing 400,000t/y of copper from 2015 for at least the first five years, it added.

“Las Bambas represents the next major stage in Xstrata Copper’s Peruvian development plans that will result in combined annual production levels [including its Antapaccay project] in the country of around 700,000t of high margin copper from 2015,” said Charlie Sartain, chief executive of Xstrata Copper.