Eric Sprott: Gold Alert (June 8, 2012)

Friday, June 8th, 2012

 
By Eric Sprott & Shree Kargutkar

June 8, 2012

There have been key developments in the physical gold market over the last few weeks which we feel are worth highlighting:

1) The Chinese gold imports from Hong Kong in April, 2012 surged almost 1300% on a YoY basis. Total gross imports for the month of April were 103.6 tonnes and the net imports were 66.3 tonnes¹. It is not the data for April alone which has caught our eye. There has been a stunning increase of gold imports through Hong Kong for export into China over the past 2 years. Between May 2010 and April 2011, China imported a net 66 tonnes of physical gold through Hong Kong. Between May 2011 and April 2012, that number jumped to 489 tonnes. This represents an increase of 640%.

HONG KONG GOLD EXPORTS TO CHINA (KG)

Source: Census and Statistics Department of Hong Kong

2) Central banks from around the world bought over 70 tonnes of gold in April, 2012. Data from the IMF showed developing countries such as the Philippines, Turkey, Mexico and Sri Lanka were significant buyers of gold as prices dipped².

3) Iran purchased $1.2B worth of gold in April, 2012 through Turkey. As the developed nations continue devaluing their currency at the expense of developing nations, countries such as Iran, China and Mexico are forced to look at alternative stores of value³.

4) After twenty years of lackluster returns and stagnant bond yields, Japanese pension funds have finally discovered the value of investing in gold. The $500M Okayama Metal and Machinery pension fund placed 1.5% of its assets into gold bullion-backed ETFs in April in order to “escape sovereign risk”⁴.

5) Bill Gross writes⁵, “Soaring debt/GDP ratios in previously sacrosanct AAA countries have made low cost funding increasingly a function of central banks as opposed to private market investors. Both the lower quality and lower yields of previously sacrosanct debt therefore represent a potential breaking point in our now 40-year-old global monetary system. […] As they (investors) question the value of much of the $200 trillion which comprises our current system, they move marginally elsewhere – to real assets such as land, gold and tangible things, or to cash and a figurative mattress where at least their money is readily accessible”. Is the bond king recommending gold? YES, YES YES!

6) The Gold Mining ETF, GDX, has seen strong inflows in the past 3 months. The number of units outstanding have increased from 162.5M⁶ to roughly 187M⁷ between March 1, 2012 and May 31, 2012. This represents an increase in assets of almost $1.2B in a span of 3 months. It is worth pointing out that for a majority of this three months period, GDX, and by extension the gold mining companies were experiencing significant declines in their market values.

We believe there has been a material change in the gold investing landscape. The HUI, which is the Gold Bugs Index, is now up over 20% from its lows since May 16th, 2012. The slide in gold equities seems to be subsiding as a foundation for a strong move upwards is set. New buyers, represented by the Chinese, central banks, Japanese pension funds and the Iranians, bought almost 140 tonnes of gold in April alone. To put this into perspective, the annual gold production is approximately 2600 tonnes⁸. China and Russia produce around 500 tonnes of gold annually, which never makes it to the open market. This leaves about 2100 tonnes of gold production annually for the rest of the world.

When buyers representing 140 tonnes of new demand enter a market which only has 175 tonnes of monthly supply, we are left wondering about two things:

1) In a balanced market, where is the source of supply to the new buyers going to come from?

2) How can a new buyer of size get into the gold market, which is already balanced, without significantly impacting the price of gold?

The answer is fairly obvious. When demand outstrips supply, prices move higher. These significant macro changes in the supplydemand dynamic of the gold market should propel the price of gold to new highs.

1. HK Gov statistics website: http://www.censtatd.gov.hk/

2. IMF website: http://www.imf.org/external/data.htm

3. http://www.resourceinvestor.com/2012/06/05/irans-gold-imports-from-turkey-surgedin-april?ref=hp

4. Financial Times: http://www.ft.com

5. http://www.pimco.com/EN/Insights/Pages/Wall-Street-Food-Chain.aspx

6. http://www.forbes.com/sites/etfchannel/2012/02/28/notable-etf-inflow-detected-gdx-abx-gg-nem-3/

7. http://www.forbes.com/sites/etfchannel/2012/05/29/noteworthy-etf-inflows-gdx-abx-gg-nem-3/

8. GFMS – www.gold.org

Tags: Bill Gross, Bond Yields, Buyers Of Gold, Central Banks, China, Developed Nations, Eric Sprott, ETF, ETFs, Gold, Gold Bullion, Gold Exports, Gold Imports, Gold Market, Gross Imports, Investing In Gold, Key Developments, Market Investors, Month Of April, Private Market, Shree, Sovereign Risk, Sprott, Sprott Gold, Statistics Department
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Gold Market Radar (May 14, 2012)

Sunday, May 13th, 2012

Gold Market Radar (May 14, 2012)

For the week, spot gold closed at $1,579.48 down $62.74 per ounce, or 3.82 percent.  Gold stocks, as measured by the NYSE Arca Gold Miners Index, fell 3.81 percent. The U.S. Trade-Weighted Dollar Index gained 1.0 percent for the week.

Strengths

• The Indian government caved to pressure from local gold retailers which had been on a 21-day strike and decided to withdraw the levy of 1 percent excise duty that it had imposed.  With this move gold is set to become cheaper for consumers in India and traders expect a revival in demand in the coming crucial months.  Particularly, June and July are the important months for weddings and also for rural India as the monsoon rolls in across the country and cash crops are harvested. Importantly, the government has also decided to raise the threshold limit for cash purchases of jewelry whereby purchases below this level do not require the buyer to cite their income tax related PAN number.
• Another very positive news story was that mainland China’s gold imports from Hong Kong surged more than six-fold in the first quarter.  Imports were 135.53 tons between January and March. Demand has climbed in the world’s second-largest economy as rising incomes and curbs on property speculation boosted purchases. The country is already the world’s top consumer of copper and biggest producer of steel.  The purchases through Hong Kong may signal that the mainland is accumulating reserves.
• China’s rapid economic development has completely changed the market for gold over the years.  Consumption was 203.1 tons in 2001 and, by 2011 the figure had more than tripled to 769.8 tons according to the World Gold Council.  Rising incomes in China have boosted purchasing power and citizens are turning to the precious metal as an investment and a store of value, especially given the weakness of the country’s real estate sector.  There is also a strong sentiment for China to increase its official holdings in gold: A senior official was recently quoted by local newspapers as saying that China should further diversify its foreign exchange portfolio and make more gold purchases when the price slips.

Weaknesses

• On Osisko Mining, Mike Curran, gold mining analyst at RBC, noted in his summary of quarterly results that investors were waiting for the Malartic Mine to ramp up, not heat up.  It was a tough day for Osisko as the overnight fire at their mill will likely curtail the processing of ore for the next three weeks and the company’s operating results were weak.  Osisko missed its guidance on both gold production and anticipated ore grades to be put through the mill.
• Calculating the all in costs to produce an ounce of gold by taking net income minus the revenue and dividing by the number of ounces produced showed Osisko’s all in cost to produce an ounce of gold was $1,399 and this number was even higher than the average costs in 2011 of $1,366.   The company ended the quarter with $144 million of cash and equivalents but one analyst, Daniel Earle of TD Securities, noted the balance sheets looks tight. Given the obvious risks the analyst expects the company’s cash balance to decline to $47 million in the third quarter with $245 million in long-term debt.
• Gold Resource Corporation released earnings and held its conference call on Friday.  Unfortunately, investors were only allowed to email in their questions to the company and management was able to pick and choose what questions they were willing to address.

Opportunities

• A couple weeks back we mentioned that Bob Hoye of Institutional Advisors published a report noting that gold’s consolidation was approaching an end and that the price performance of gold mining shares relative to the price of gold was at extremes only seen five times in the past 100 years.  On Wednesday, May 9, we had a strong divergence in the price of gold, down 1 percent, while the mining shares were up close to 2 percent on good volume setting up a bullish divergence.  This rally may have been the first wave of short covering by some faster money players.  As TD Securities noted at the start of the week, May is historically the second strongest month of the year for gold equities with an average return of 4.6 percent and the probability of a positive return is 75 percent.  Institutional Advisor reported on Friday that the last three bullish divergences occurred in July 2010, January 2011, and June 2011 and that within the next four months gold had rallied greater than 20 percent with silver putting in even stronger gains.
• The Shanghai Futures Exchange started trading silver futures this week.  Liberalization of precious metal trading in China has been a big driver of gold over the last decade and China has been a net importer of silver for investment and fabrication demand.  Given that silver is a much smaller market than gold any pick up in demand could prove to have quite a substantial price impact. China is a country which has a long association with the metal, having had a silver-related currency standard up until the 1930s.
• With the contraction of gold equities valuations back down to 2009 levels, they are essentially reflecting gold price closer to $950, yet the price of gold is close to 70 percent higher.  Central bank buying in March was very strong and China’s demand for gold is showing signs of continued strength in its import numbers.  However, U.S. investors are fearful that if financial markets swoon such as in 2008 they will see a sell off in commodities.  Don Coxe, a well known financial historian, reminded investors on Friday that unlike today, in 2008 when Lehman went bankrupt it had a portfolio of $65 billion in commodities that J.P. Morgan aggressively liquidated.

Threats

• In the broader markets, companies that are hitting earnings expectations are getting pummeled if there is any hint of a weaker outlook.  Investors are obviously concerned with the pending increase in tax rates and scripted cuts in spending that are set to take place in 2013. Some estimate the changes could trim 4 percent off GDP.
• Europe is still a mess, socially, politically, economically, and fiscally.  Its long-term refinancing operations (LTRO) program bought banks some time but also locked the banks’ balance sheets to the performance of the government bonds they were encouraged to buy.  The public is not happy with austerity and in less than two years, eight or so European leaders or ruling parties have been forced out of office.  Youth unemployment is big problem in Europe and even college graduates in the U.S. are having difficulty getting full time jobs a year after graduation.
• Globally, since the start of the recession which took hold in 2008, the total value of government debt backed with AAA-ratings has declined from over a 50 percent share of total outstanding sovereign credit to less than 10 percent.

Tags: Cash Crops, Cash Purchases, Dollar Index, Excise Duty, Gold Imports, Gold Market, Gold Miners, Gold Retailers, gold stocks, Mainland China, Market Radar, Nyse Arca, Pan Number, Property Speculation, Rapid Economic Development, Real Estate Sector, S Real Estate, Spot Gold, Threshold Limit, World Gold Council
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Chinese Gold Imports From Hong Kong Rise Nearly 13 Fold – PBOC Likely Buying Dip Again

Wednesday, April 11th, 2012

From GoldCore

Chinese Gold Imports From Hong Kong Rise Nearly 13 Fold – PBOC Likely Buying Dip Again

Gold’s London AM fix this morning was USD 1,654.00, EUR 1,261.63, and GBP 1,040.25 per ounce. Yesterday’s AM fix was USD 1,643.75, EUR 1,255.92 and GBP 1,037.72 per ounce.

Silver is trading at $31.66/oz, €24.08/oz and £19.87/oz. Platinum is trading at $1,591.50/oz, palladium at $636.30/oz and rhodium at $1,350/oz.

Cross Currency Table – (Bloomberg)

Gold climbed $17.70 or 1.2% in New York yesterday and closed at $1,659.00/oz. Gold gradually ticked lower in Asian trading prior to tentative gains in Europe and is now trading around $1,655/oz.

Gold’s 1.2% gain yesterday was the largest since March 26 and its four sessions of gains is the longest winning streak in two months.

XAU/CNY (Renminbi or Yuan) Monthly Chart – Bloomberg

A positive sign for gold was that US COMEX futures volume was the strongest in a week and gold rose despite a sharp 1.5% drop in the S&P 500 and other equity indices and a large fall in crude oil and grains.

Gold appears to be catching a breather today and is taking a break after the four sessions of consecutive gains driven by safe haven flows on a cloudy global economic outlook.

Gold’s proven safe haven attributes were clearly seen again yesterday as the sharp bout of risk off in international markets saw gold again have an inverse correlation with riskier equity and commodity markets.

SHANGHAI SE A SHARE INDEX – 2002- Today

Markets continue to digest the very poor US employment number which has led investors to again question the rose tinted view of the US economic ‘recovery’.

The Fed’s beige book will be released at 18.00 GMT.  Investors will also watch the European government debt market, after Italian and Spanish debt was met with decreased demand due to shaky euro zone economies and renewed contagion concerns.

Chinese Gold Imports From Hong Kong Rise Nearly 13 Fold – PBOC Likely Buying Dip Again

Chinese gold demand remains very strong as seen in the importation of 40 metric tonnes or nearly 40,000 kilos of gold bullion from Hong Kong alone in February.

Hong Kong’s gold exports to China in February were nearly 13 times higher than the 3,115 kilograms in the same month last year, the data shows.

Shipments were 72,617 kilograms in the first two months, compared with 10,564 kilograms a year ago or nearly a seven fold increase from the record levels seen last year.

China’s appetite for gold remains strong and Chinese demand alone is likely to put a floor under the gold market.

Reuters Global Gold Forum

Mainland China bought 39,668 kilograms (39.668 metric tons), up from 32,948 kilograms in January, according to export data from the Census and Statistics Department of the Hong Kong government.

Demand has picked up again after the Lunar New Year and demand has climbed in China as rising incomes and concerns about inflation lead to store of value buying.

There is also a concern about the Chinese stock market which has gone sideways since 2001 (see chart) and increasing concerns that various property markets in China look like bubbles ready to burst.

Consumer demand for gold beat India for the first time in almost three years in the fourth quarter and China may replace India as the biggest buyer annually this year.

The massive gold purchases may signal the People’s Bank of China is continuing to secretly accumulate gold reserves.

Reuters report that there are suspicions that the number could include purchases from the public sector, as the market was largely quiet during a post-Lunar New Year holiday slump in February. “On the public level, China’s central bank will continue to accumulate gold, which is easier than liberalising their capital account and currency,” said Friesen of SocGen, adding that building gold reserves would help China’s push to turn the renminbi into a global currency.

Accommodative monetary policy will remain an incentive for private investors to buy into gold, he added.

The nation last made its reserves known more than two years ago, stating them to be 1,054 tons.

The PBOC’s gold reserves remain small compared to those of the Federal Reserve and many European nations.  Their gold reserves remain tiny when compared to their massive foreign exchange reserves of $3.2 Trillion.

It is important to note that in past years, Hong Kong gold imports have accounted for about half of China’s total gold imports. China itself doesn’t publish gold import data and the very high and increasing demand from Hong Kong is only a component of overall Chinese demand.

The per capita consumption of 1.3 billion people continues to increase from a near zero base meaning that this is indeed a paradigm shift and not a blip or ‘flash in the pan’.

It means that gold will likely see record nominal highs – possibly before the end of the year.

Prudent western buyers wishing to protect and grow wealth will again buy gold on the dip as the Chinese are doing.

For breaking news and commentary on financial markets and gold, follow us on Twitter.

OTHER NEWS
(Bloomberg) — China’s Feb. Gold Imports From Hong Kong 39,668 Kilograms
Hong Kong government announced Feb. gold exports data on its website.

(Bloomberg) — Russia’s FinEx Plus Plans Gold Exchange Traded Product This Year
Asset Management Co. FinEx Plus LLC plans to start a gold exchange traded product in Moscow and expand that to other commodities this year.

FinEx is in negotiations with the Micex-RTS exchange in Moscow to list the gold product, said Evgeny Kovalishin, general director. FinEx is partly owned by Andrei Vavilov, Russia’s former first deputy finance minister, according to Kovalishin.

(Bloomberg) — Raw Materials Group Sees Gold Averaging $1,775 an Ounce in 2012
Gold will average $1,775 an ounce this year, 13 percent more than in 2011, Raw Materials Group said in a statement today.

Silver will drop 6.3 percent to an average of $33 an ounce, platinum 1.1 percent less at $1,700 an ounce and palladium 2.9 percent lower at $710 an ounce, RMG said.

NEWS
Gold pauses after 4-day rally; investors turn cautious – Reuters

Gold futures retreat in electronic trading – MarketWatch

European stocks stage tentative recovery – Financial Times

Sovereign bonds ‘most overvalued asset’ – Financial Times

COMMENTARY
Was That The Bottom In Gold? – MarketWatch

Price Manipulation in the Gold and Silver Market – RT

JPM’s TV Appearance – Silverseek

Spain’s crisis exposes limits of ECB help – Financial Times

Economist’s Bishop On Concerns Re Paper Currencies and Gold – MSNBC

Tags: Beige Book, Bloomberg, Comex, Commodity Markets, Contagion, Currency Table, Debt Market, Economic Recovery, Euro Zone, European Government, Global Economic Outlook, Gold Imports, Government Debt, Index 2002, International Markets, Inverse Correlation, Longest Winning Streak, Rhodium, Safe Haven, Share Index
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Managing Expectations: Why Gold Should Thrive

Sunday, April 8th, 2012

Managing Expectations: Why Gold Should Thrive

By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors

It’s been a challenging week for gold investors. As I often say, investing, like life, is about managing expectations. Over the past 11 years during gold’s spectacular bull run, investors should remember that price action can go both ways. What helps is to look at the historical rise and fall of gold.  For example, looking at the past decade of one-day 5 percent drops in gold, you can see that this event is pretty rare. In 2006, gold dropped more than 5 percent in a day only two times. In 2008, there were three such events. Another one occurred at the end of this February.

The 1.7 percent drop experienced over the past month shouldn’t surprise gold investors given the seasonal pattern for gold. Whereas gold rises nearly 2 percent in both January and February, over the past 11 years, it’s been a non-event for gold to correct in March.

In addition, it’s a good reminder that bullion has historically been less volatile than the stock market: the 12-month rolling volatility over the past 10 years for gold was 13 percent. For the S&P 500 Index, the 12-month rolling volatility over the same period was 19 percent.

This March, there seemed to be one main driver eight thousand miles away negatively affecting gold prices. I often say that government policy is a precursor to change, and fiscal government policy strongly affected the Love Trade in India last month. To trim its current account deficit, India’s finance minister proposed doubling the customs tax on the precious metal. It was soon reported that jewelers closed shops in protest.

As a result, gold imports into the world’s largest gold market fell 55 percent.

It’s not the customs tax that has the gold shops boycotting, says UBS Investment Research firm. Jewelers’ “prime gripe is with the new 1 percent excise duty on unbranded jewelry” leading to a greater recording of gold transactions, which means more regulation and red tape. What’s so egregious to jewelers is the excise tax will be retroactive so those shop owners holding old gold stocks will have to pay duty on those as well, says UBS.

I believe this is only a temporary sell-off for India. As I often discuss in my presentations, traditional festivals and holidays drive gold demand in India because of their strong history with gold. With their love for the yellow metal, Indians hold the belief that gold “will perpetually rise,” although there are certain buyers that wait for a “psychologically important $1,600 level,” keeping in mind the strength of the rupee, says UBS.

While the seasonal Love Trade period for gold generally falls between August and February, an important holiday is coming up which has historically driven higher sales of gold. Akshaya Tritiya festival occurs on April 24 this year. This is an important occasion for Hindus, celebrated annually in late April or early May, depending on the Hindu calendar. Buying and wearing of gold jewelry is important on this day, as UBS says it’s one of the two “biggest gold buying events” in the Hindu calendar. The second event is Dhanteras, which occurs during the peak seasonality period for the yellow metal.

How important is this festival for the gold market? UBS analyzed the buying data from India last year when Indians celebrated Akshaya Tritiya festival on May 6. It found that “physical sales to India peaked four days beforehand.” Also, “sales were consistently above average for 13 working days” before the festival because local banks and jewelers restocked their inventory.

Two factors need to change to help sales in India this year, warns UBS. The firm says the jewelers’ strike needs to end, and, according to one local who talked with UBS, it would help gold sales if the price of oil would reverse—this would “relieve some of the current account pressure and perhaps allow for more flexibility with regard to gold imports.”

What won’t change over the long-term is Indians’ gold-buying behavior: Indians “have an extensive cultural tie to gold” and this “is not changing,” says UBS.

Fear Trade for Gold is Still Alive
The world has been experiencing the largest liquidity boom, as the central banks’ seven-month easing binge continues. Over this time, ISI counted 127 different stimulative policies, such as printing money, lowering interest rates and other easing measures, taken by governments around the world.

The policy shifts helped carry the equity market a long way from the low on March 9, 2009. At the time, we noted in a special Investor Alert that there were significant government policy changes that signaled the market had hit rock bottom. According to USA Today, from the 2009 bottom through the end of the first quarter, the S&P 500 Index increased more than 100 percent. No wonder U.S. equity investors are singing.

However, the side effect of the abundance of printing by the central banks in the U.S., Europe, Japan and England has bloated balance sheets amounting to nearly $9 trillion. This is double the amount that it was three and a half years ago, says Ian McAvity in his recent Deliberations on World Markets, as the printing presses have pumped our monetary system full of liquidity. This is merely “kicking the can down the road,” as central banks will have to deal with the overhang later, says Ian.

This has historically been a strong positive catalyst for gold. An analyst at the Economics and Finance Fanatic blog put together a visual that illustrates just how strong of a catalyst the nonstop printing of money is. The chart compares the U.S. adjusted monetary base since 1990 with the “surging” price of gold. As you can see below, the amount of money in the U.S. system climbed to extraordinary heights since 2008, with gold following the same path.

The economic challenges of the U.S. and eurozone “promise to be a prolonged one with sluggish economic growth,” says the blog, and easy monetary policies will likely be the remedy for awhile. I believe this provides a strong case that any pullback in the gold price appears to be a buying opportunity. Ian says, “Tax uncertainty, festering toxic debt that’s out there but out of sight and impossible debt service ability looming? I’ll stick with gold and sleep better at night.”

U.S. investors might sleep better at night with an allocation to gold in the face of continued negative real interest rates. The chart below shows how gold has historically climbed when interest rates fell below zero percent, with a “strong correlation from 1977-84, and again recently when rates turned negative in early 2008,” according to Desjardins Capital Markets.

The U.S. has not made any cuts in entitlements which make up 60 percent of the deficit. There have been no changes in fiscal policy and no change in current monetary policy. Ian McAvity says these factors together make “the most powerful argument in favor of converting that paper into gold.”

What would have to change to make me turn bearish? I believe the following three actions would need to be taken:

1. Real interest rates would have to increase 2 percent above the CPI in the U.S. and Europe
2. GDP per capita in Chindia would need to fall, negatively affecting the Love Trade
3. Substantial fiscal cuts would need to be made in entitlement programs in the U.S. and Europe

I believe there is a low probability of these events occurring any time soon, so in this environment, gold should thrive.

Tags: Bull Run, Bullion, Chief Investment Officer, China, Current Account Deficit, Driver Eight, Excise Duty, Finance Minister, Frank Holmes, Gold, Gold Imports, Gold Investors, Gold Market, Gold Prices, Government Policy, India, Investment Research, Managing Expectations, Precious Metal, Seasonal Pattern, Thousand Miles, U S Global Investors, Volatility
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Gold Market Radar (April 9, 2012)

Sunday, April 8th, 2012

Gold Market Radar (April 9, 2012)

For the week, spot gold closed at $1,631.23 down $37.12 per ounce, or 2.2 percent. Gold stocks, as measured by the NYSE Arca Gold BUGS Index, fell 6.8 percent. The U.S. Trade-Weighted Dollar Index jumped 1.3 percent for the week.

Strengths

• Following the release of Fed minutes that indicated sentiment towards renewed stimulus programs was not immediately pressing, the pullback in bullion prices stimulated strong physical demand from India on Wednesday. Dealers reported that buying demand was the strongest since March 14. Historically, Indian buyers have been fairly price-sensitive to buying when they perceive pricing is at bargain levels.
• Randgold Resources, Mali’s largest investor, and AngloGold Ashanti, Africa’s largest gold producer, said on Wednesday they had enough supplies of fuel to sit out any immediate changes in the way they do business with respect to the coup d’état in Mali.
• Mark Bristow of Randgold Resources said the company, which sources two-thirds of its gold from Mali, had no problem bringing in fuel and shipping gold despite border closures by the 15-state Economic Community of West African States designed to squeeze Mali’s economy. Gold companies with mines in Mali are playing down the risk of border closures and fallout from sanctions imposed on the West African nation after a coup last month.

Weaknesses

• Gold’s recent decline has also been based on India’s nationwide jeweler’s strike to protest a tax on non-branded ornaments. The strike is in its 19th day today. The country was the world’s second-largest bullion consumer in the fourth quarter.
• Gold imports into India tumbled more than 55 percent in March. The president of the Bombay Bullion Association notes that the country imported just 15 to 20 tonnes of gold in March as compared to the 45 to 55 tonnes that is usually imported on a monthly basis. He added that the high price of the precious metal also deterred fresh purchases in the first quarter.
• The combined jewelers strike in India plus the comments that the Federal Reserve was unlikely to provide more stimuli for the economy, sent many gold stocks to 52-week lows this week. In addition, this situation was exacerbated by a large fund complex in Canada that had a change in ownership, with the new management instituting wholesale changes for many of the firm’s portfolios, dumping millions of shares of gold-mining and oil stocks.

Opportunities

• An upcoming Hindu festival, Akshaya Tritiya, held on April 24, may be the catalyst that brings the jeweler’s strike in India to an end and moves gold prices higher in April. In terms of important festivals, the Akshaya Tritiya festival and Dhanteras are the two biggest gold-buying events in the Hindu calendar. These are essential buying occasions that jewelers won’t want to miss, especially after the strike-inflicted drop in revenues in March.
• According to an analysis of the Chinese gold market, growth in aggregate demand from jewelry buyers, private investors, and the People’s Bank of China will continue to outpace growth in total supply from mine production and secondary sources. Furthermore, it suggests that the country’s gold production and consumption are both far higher than figures suggest, but also that this gold will not find its way back on to the global marketplace.
• With both domestic supply and demand relatively price inelastic, the market will require a growing stream of imports, which will be available only at higher prices. Despite bullion prices having moved up from $300 to more than $1,600 over the last decade, world gold mine production is essentially unchanged.

Threats

• The Mozambican government is seeking to guarantee that the sale of shares in mining companies whose assets are in the country should bring financial benefits to the country. A team of officials from the Ministries of Mineral Resources and of Finance has been set up to work on how to tax these sales. The new law, which is expected to be submitted to the country’s parliament, will stipulate that the transmission of mining rights and titles must obligatorily take place in Mozambique and any public offer of shares must be announced in the Mozambican press.
• Ongoing conflicts in Eritrea and the threat of additional sanctions pose significant risks to the country’s mining sector and those companies operating within the borders. The country is currently the target of U.N. sanctions, its hostilities with neighboring Ethiopia have reignited in recent months, it faces serious infrastructure issues (particularly with regards to water), and its authoritarian government’s military and geopolitical ambitions are unsustainable. So while Eritrea’s mineral deposits are attractive, it will remain one of the riskier mining jurisdictions in Africa for the foreseeable future.
• A Romanian court annulled a zoning plan that further delayed the development of Gabriel Resources’ Rosia Montana project. The project has been a favorite for a number of non-governmental organizations to rally around to prevent the development of the mine. Reacting to the news today, Gabriel’s share price plunged 23 percent.

Tags: African Nation, Anglogold Ashanti, Border Closures, Bullion Prices, Canadian Market, China, Coup D, Dollar Index, Economic Community, Gold, Gold Bugs, Gold Companies, Gold Imports, Gold Market, Gold Producer, gold stocks, India, Mark Bristow, Market Radar, Mining, Nyse Arca, Pullback, Quar, Randgold Resources, Spot Gold
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Gold Market Radar (March 26, 2012)

Sunday, March 25th, 2012

Gold Market Radar (March 26, 2012)

For the week, spot gold closed at $1,661.90 up $1.90 per ounce, or 0.1 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, fell 0.4 percent. The U.S. Trade-Weighted Dollar Index slid 0.6 percent for the week.

Strengths

• U.S. Mint gold and silver bullion coin sales rebounded from disappointing lows in February. As of Sunday, March 18, gold bullion sales totaled 30,000 ounces, while overall gold bullion coin sales in all sizes were reported at 31,500 ounces. In February, these sales were 20,000 ounces and 21,000 ounces, respectively. Sales of one-ounce silver bullion coins were 1,647,000 ounces, a substantial increase over the 1,490,000 ounces reported for the entire month of February.
• According to an industry source and a Financial Times report, the fall in gold prices has prompted one or more central banks to buy as much as four tons of bullion in recent weeks. The purchases, worth about $250 million at current prices, were reportedly made through the Bank for International Settlements (BIS). The FT said banks have bought between four and six tons in the over-the-counter physical market last week.
• Zambia’s Finance Minister said that the country will not bring back the 25 percent mining windfall tax it scrapped in 2009 because it may force mine closures. This is the first that we have heard in some time of a country realizing the negative implications for demanding an increased share in the mining companies’ profits.

Weaknesses

• After closing up shop for five days over the introduction of an additional tax on gold imports, bullion traders across India decided to open their shops on Thursday, following late-night developments with government officials to end the impasse. More than one hundred thousand bullion dealers across the country had shut their shops as a form of protest, and traders estimate they could have suffered a revenue loss of over $700 million in sales.
• Bernanke’s speeches haven’t been falling on deaf ears, with Turkish, Indian and Vietnamese governments wary of gold. The governments of the three countries are facing weakening currencies, widening trade deficits, and a population buying more and more gold. In line with Bernanke, all believe gold should bear much of the blame.
• Thursday morning, news quickly spread of a military coup in Mali, as reports emerged that soldiers had overthrown President Amadou Toumani Toure’s government and seized power. The stated objective from the Malian army has been to end an “incompetent regime,” condemning the government of its inability to fight terrorism. Randgold Resources, which owns three mines in Mali, plunged as much as 17 percent in London on the news before rebounding to about 12 percent off. The CEOs of IAMGOLD, Randgold and AngloGold Ashanti all have maintained that production has yet to be affected.

Opportunities

• The Financial Times reported this week that Deutsche Bank has plans to open a new precious metals vault in London next year, seeking to cash in on booming investor demand for physical gold and silver. In London, which is the center of the global bullion market, vault space is running low even as the growth in exchange-traded funds (ETFs) backed by precious metals has led to a steep rise in demand for vaults.
• Although India may have increased taxes for gold, the move could present an opportunity for silver, the poor man’s gold, to shine. After escaping India’s budget reforms, investors have shown a keen interest in buying one kilo silver bars. On Friday, India’s Finance Minister exempted branded silver jewelry from excise duty. Silver coins of purity 99.9 percent and above were also exempted from excise duty. However, the excise duty on refined gold was doubled from 1.5 to 3 percent. “Silver has clearly been exempted for a reason,” said Prithviraj Kothari, president of the Bombay Bullion Association. “Out of $50 billion worth of imports of precious metals into India, silver imports were just $4 billion, while that for gold was the other $46 billion,” he said.
• According to a survey of fund managers, the era of quantitative easing, a process by which central banks buy assets such as government bonds to inject funds into the markets, may be coming to an end. According to a March survey by Bank of America Merrill Lynch, investors are “more upbeat about the future and the prospects for growth and they no longer expect further quantitative easing measures to be taken by the Federal Reserve or the European Central Bank.” The report, however, did find that fund managers still see sovereign debt as the biggest tail risk to the global recovery. Investors foresee higher inflation, with a net 13 percent expecting it to rise in the coming year. All in all, the uncertainty could continue to bode well for gold prices continuing to rise.

Threats

• In another move to control mining companies’ financials, Zimbabwe ordered mining firms to bank locally this past week, depositing their export earnings with local banks. This comes as the government’s latest move to exert pressure on miners as it tries to address the dollar crunch afflicting its economy. Last week, Impala Platinum, the world’s second-biggest platinum producer, bowed to pressure and said it would surrender a 51 percent stake in its Zimplats unit to local black investors.
• The implications of a silicosis class action suit for the South African mining sector are very serious, but no one yet knows how it will all play out. On Tuesday, a South African lawyer said that he was preparing a class action lawsuit against leading gold mining firms on behalf of thousands of former miners who say they contracted silicosis, a debilitating lung disease, through negligent health and safety practices. The principal targets of the suit would be AngloGold Ashanti, Gold Fields and Harmony Gold—South Africa’s three biggest gold miners—and minor producer DRDGOLD. The implications for the gold mining industry and for its relations with the government—already strained by past talk of nationalization—could be huge.

Tags: Bank For International Settlements, Bank For International Settlements Bis, Bullion Dealers, Bullion Traders, Central Banks, Coin Sales, Dollar Index, ETF, ETFs, Gold Bullion Coin, Gold Bullion Sales, Gold Imports, Gold Market, Gold Miners, Gold Prices, gold stocks, Market Radar, Nyse Arca, Silver Bullion Coins, Spot Gold, U S Mint, Windfall Tax
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Gold Market Radar (March 19, 2012)

Saturday, March 17th, 2012

Gold Market Radar (March 19, 2012)

For the week, spot gold closed at $1,660.00 down $53.65 per ounce, or 3.1 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, fell 6.3 percent. The U.S. Trade-Weighted Dollar Index slid 0.3 percent for the week.

Strengths

• Precious metals with an industrial use have so far fared the best this year. Platinum is up just under 20 percent and silver is up almost 17 percent while gold is up slightly over 6 percent. Slightly improving economic conditions have been the driver for the stronger performance of platinum and silver versus gold as of late.
• China’s Ministry of Industry and Information Technology noted in its most recent figures that China currently holds the title of the world’s number one gold miner since 2007. The country has continued its dominance in world gold production with output rising last year by 5.89 percent to 360.95 tons. Overall, world production of gold is not that different from where it was 10 years ago, despite the price gains made over the past decade that should have stimulated more production.
• Despite the volatile gold prices we have seen lately and perceived passing of the latest wave of potential financial collapse, there are still many supporting arguments as to why gold will continue to remain a vital cornerstone in a portfolio during these still highly uncertain times. Economic growth is still weak, sovereign debt is still unsustainable, particularly if interest rates go higher, and from emerging markets to China, many countries are engaged in diversifying out of dollars and into gold as a means to achieve more stable reserve holdings.

Weaknesses

• India increased the tax on gold imports for the second time this year after record purchases widened the current-account deficit. Gold imports have grown by almost 50 percent over the last three quarters in India. Starting April 1, the government will tax gold bars, coins and platinum at 4 percent, which is up 2 percent from the tax set in January. Silver will incur no change in tax. Gold for immediate delivery fell on this news.
• In an agreement that may set a precedent for other foreign-owned mining companies, Zimbabwe and Impala Platinum, the world’s second-largest platinum producer, announced the agreement transfer of a 51 percent stake in the company’s Zimplats project to black Zimbabwean investors, as required by the government. The joint statement said that the 51 percent stake would be split with 10 percent to the community, 10 percent to Zimplats employees, and 31 percent to the state’s National Indigenization and Economic Empowerment Fund.
• Unfortunately, we saw another agreement setting a precedent for confiscatory fiscal agreements between the Ecuadorian government and Ecuacorriente’s Mirador project with taxes, royalties and duties combined to encompass 52 percent of profits. Kinross has been in the public eye over contracts negotiations for its Fruta Del Norte project along with IAMGOLD for its Quimsacocha project.

Opportunities

• Singapore announced that it is planning to boost its share of global gold trade sevenfold after scrapping taxes on bullion, according to International Enterprise Singapore, the city state’s external trade agency. Currently, about 2 percent of world gold demand flows through Singapore, and the goal is to increase that to 10 to 15 percent over the next five to 10 years.
• Last year Venezuela requested the repatriation all of its gold assets in fear of international rulings which might have encumbered the gold due to nationalization steps taken place within the country. This week, an article highlighted that there is a concern among political leaders worldwide who are worried about the whereabouts of their gold, especially any holdings held in the U.S. because of the possibility of a confiscation of foreign gold reserves by their custodian, the U.S. government.
• As an example, this January, the Dutch government admitted than only 10 percent of its 612.5 tons of the tenth-largest official gold reserve is held in the Netherlands. When questioned, the Dutch Treasury replied that the gold is located in Ottawa, New York, London and Amsterdam. More alarmingly, almost 60 percent of Germany’s gold is stored outside of the country with the majority of it being held in the Federal Reserve Bank of New York. The author argued, “What would happen if Germany needed to access its gold holdings urgently?” It would not be a surprise to see more countries take control over the security of their gold stocks in the future and this will likely raise the profile of gold in the public’s eye.

Threats

• South Africa, which used to be the world’s biggest gold producer, continues to see its gold production plunge. Following an 8.2 percent drop in December, South Africa saw an 11.3 percent fall year-over-year in January. South Africa was recently overtaken by China, Australia and the United States as the largest gold producers, and is at risk of being overtaken by Russia as the decline continues, according to Statistics SA. Lower ore grades, having to mine increasingly deeper, and declining mine lives have been three of the driving factors behind the decline.
• The Indonesian government recently announced that it will be renegotiating all existing mining contracts. The country’s new law will require all firms to divest the majority of ownership of mines, and applies to all firms with existing “Contract of Work” agreements signed prior to the new rule. The Indonesian government made the announcement that the law is aimed at increasing the participation of local investors in mining.
• Government talks in Peru with illegal miners fell into disarray and turned into a riot which left three people dead. These wildcat miners generally have no formal mining concession or environmental permits to operate nor do they follow international standards. The Peruvian government is attempting to halt the illegal operations within the county.

Tags: Current Account Deficit, Dollar Index, Financial Collapse, Gold Bars, Gold Coins, Gold Imports, Gold Market, Gold Miner, Gold Miners, Gold Prices, Gold Production, gold stocks, Market Radar, Nyse Arca, Nyse Index, precious metals, Russia, Sovereign Debt, Spot Gold, Three Quarters, World Gold
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The Enduring Popularity of Gold

Monday, February 20th, 2012

The Enduring Popularity of Gold

By Frank Holmes, CEO and Chief Investment Officer, U.S. Global Investors

The World Gold Council (WGC) reaffirmed the power of the Love Trade in its 2011 Gold Demand Trends report released this week. Gold demand grew 0.4 percent in 2011 despite a 28 percent year-over-year increase in bullion’s average price.

After flirting with the top spot for some time, China emerged as the world’s largest gold market for jewelry and investment during the fourth quarter of 2011 as demand in India weakened. This is the first time China’s demand outpaced India’s in 11 quarters. However, India did retain the gold demand crown for the entire year, purchasing 933 tons compared to China’s demand of 770 tons.

I always say the trend is your friend, and I believe China’s increasing demand for gold is one trend that is just getting started. Although gold imports from Hong Kong were cut in half in December, HSBC Global Research reports that overall gold imports from Hong Kong were 10 times the historical average from January through November 2011. HSBC expects a continued rise in Chinese incomes will keep demand at a robust pace. The WGC sees domestic demand for gold jewelry and investment driving 20 percent growth in Chinese gold demand during 2012.

China should consider its leadership as the No. 1 gold market a short-term position, though. While China’s presence in the bullion market is strong and growing for jewelry and investment, India’s ancient relationship with the yellow metal is such that “domestic drivers of demand are largely independent of outside forces,” says the WGC. The WGC does not see India’s role in the gold market diminishing over the long term.

Ajay Mitra, the WGC’s managing director for the Middle East and India, recently expressed India’s strong ties with gold in a 60 Minutes feature. Gold has always been a part of India’s history, culture and tradition. I have witnessed firsthand the strength of this bond many times over the years. As the famous saying goes, “no gold, no wedding.”

Don’t Forget About the Fear Trade

The Fear Trade was also recently reaffirmed by the Federal Reserve when it publicly stated its intention to keep inflation at “exceptionally low levels” through 2014. Inflation is the kryptonite to the Fed’s monetary efforts and it’s likely the Fed will take any measures necessary to prevent inflation spikes.

The Fed has targeted a 2 percent inflation rate, which means the U.S. dollar will lose 33 percent of its value over the next 20 years, says The Daily Reckoning’s Charles Kadlec. In the next four years alone, nearly 10 percent of the “value of Americans’ hard earned savings” will be destroyed, says Charles.

Put another way, Charles estimates that it will take $150 in the year 2032 to purchase the same amount of goods you could get for $100 in 2012.

Charles isn’t the only one opposed to the Fed’s “monetary manipulation.” In his latest letter to shareholders, Warren Buffett faults the government and its “systemic forces” for destroying the purchasing power of investors. He argues stock investments offer the best long-term investment opportunity because interest rate levels don’t offset the loss of purchasing power due to inflation.

However, there is one group that benefits from the low interest rate environment—borrowers. This means the largest borrowers in the world, developed world governments, will be able to service their enormous amounts of debt more easily. This year alone, the U.S., Japan and Europe will roll over $8 trillion in federal debt.

CIBC World Markets sees the secular bull market in gold continuing for “several years,” as the firm believes debt in major economies have reached a point “where financial and economic pressures will manifest themselves in ways that have up until now only been dreamed about.” With these manifestations, Ian McAvity equates gold to insurance. He suggests to readers that they wouldn’t cancel fire insurance because their house hasn’t had a fire. “Gold proffers the best ability to protect long-term purchasing power against deliberate devaluation of the paper alternatives,” he concludes.

For evidence of this, one needs to look no further than the significant gold purchases by central banks over the past few years. Emerging markets’ central banks have been the strongest buyers, experiencing a record increase in gold purchases last year. After building up their reserves during most of the post-World War II period, central banks’ gold holdings remained stable. Following the end of the cold war, they began a selling spree, helping to “explain bullion’s profound price weakness” during the 1990s, says HSBC Global Research.

The trend started to reverse about the same time the Fed cut interest rates in 2007, says Adrian Ash from Bullionvault. Now, total gold holdings sit at a six-year high with the total current amount of gold reserves sitting around 31,000 tons. In 2011 alone, the WGC says central banks had a net purchase of 440 tons, the highest figure since 1964.

The WGC says central banks are concerned about the creditworthiness and low yields of their existing reserve assets held in dollars and the euro. Their solution: diversify with gold.

Value is in the Eye of the Beholder

In Bangkok Thailand, the Buddhist temple Wat Traimit is home to the largest golden Buddha in the world. In its lotus position, the statue is over 15 feet tall and weighs five tons; if it were solid gold, it would account for 3 percent of the world’s mined gold.

For two centuries, the statue was thought to be worthless because it was covered in plaster to protect the figure from a Burmese attack.

As the story goes, when the Buddha was moved to a new temple in the 1950s, it slipped from the crane and fell. That night, a monk dreamed the statue was divinely inspired, which prompted him to visit the Buddha image. Through a crack in the plaster, he saw a glint of yellow and the statue’s true beauty was revealed. At today’s price of gold, the Buddha is worth more than $277 million.

Sometimes the true value of things isn’t always apparent. Like the Golden Buddha, the true value of gold miners has remained hidden while the price of bullion has shined. CIBC noted in its February report that gold equities have “undergone significant multiple compression and now trade well below historical averages.”

Here’s just one illustration of how cheap gold stocks appear compared to gold. The yellow line represents the number of gold and silver index units that can be purchased with one ounce of gold. While the historical ratio averaged 4.5, today an investor can buy more than 8 units of the XAU to one ounce of gold. In other words, shares of gold mining companies can be purchased at one of the cheapest levels in nearly 30 years.

Dave Rosenberg from Gluskin Sheff also favors gold equities. He particularly likes miners who can grow production and reserves while keeping costs under control. “Because input costs tend to be more positively correlated in the early years of a rally, history has shown that the equities tend to dramatically outperform the bullion in the later stages of a gold bull market.” He suggests buying undervalued gold mining stocks in politically safe areas with higher-grade projects and a relatively simple way of extracting the metal.

For thousands of years, pharaohs, explorers, rulers and investors have been attracted to gold, as the precious metal has been a vital tool in building and protecting wealth. While gold naysayers focus on the day-to-day fluctuations in price, I believe gold equities and bullion will continue to enjoy “maximum popularity,” as the Oracle of Omaha puts it, for years to come. The allure of gold—whether it is from Fear or Love—cannot be underestimated.

This commentary references the investment theory of an investment as insurance against a separate market event that could negatively affect performance of an investment. The reference does not guarantee performance or a safeguard from loss of principal by investing in that asset.

Tags: 60 Minutes, Ajay, Ancient Relationship, Bullion Market, Chief Investment Officer, Feature Gold, Frank Holmes, Global Research Reports, Gold Demand Trends, Gold Imports, Gold Jewelry, Gold Market, History Culture, Hsbc, Investment India, Term Position, Time China, U S Global Investors, Wgc, World Gold Council
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Gold Market Radar (February 6, 2012)

Sunday, February 5th, 2012

Gold Market Radar (February 6, 2012)

For the week, spot gold closed at $1,726.25 down $12.82 per ounce, or 0.74 percent.  Gold stocks, as measured by the NYSE Arca Gold BUGS Index, fell 1.2 percent. The U.S. Trade-Weighted Dollar Index was essentially flat with a gain of just 0.1 percent for the week.

Strengths

• The Year of the Dragon Lunar New Year holiday in China set a new record for gold buying.  Sales for the two top jewelry sellers reached about 600 million yuan ($95 million), a nearly 50 percent jump over the prior year.  With many Chinese losing money in the stock and property markets last year, gold is emerging as one of the preferred investment choices.
• The China Gold Association reported that the country’s gold production for 2011 rose 5.9 percent in 2011 to 361 tonnes.  Five years ago, China became the world’s largest producer of gold. Most analysts believe that all of this domestic production is bought by the government to add to its reserve base, which is underweight gold relative to the size of its economy and its exposure to the dollar.
• In addition, estimates for Chinese gold imports in 2011 are roughly 490 tonnes. The public has a large appetite for gold accumulation as a means to build wealth.

Weaknesses

• A recent study by South Africa’s ruling African Nation Congress (ANC) has rejected calls for mine nationalization, but has come out in support of higher taxes and royalties.
• The policy for nationalization lost political momentum after the prime instigator, Julius Malema of the ANC Youth League, was found guilty of sowing discord among the party.
• Talk of nationalization has kept investors wary of South Africa, with higher taxes and royalties still issues.

Opportunities

• Don Coxe, in his latest edition of Basis Points, urges gold investors to invest in gold equities at the expense of bullion ETFs as the Fed continues its policy of nonstop money at zero rates.  Likewise, David Rosenberg, of Gluskin Sheff, notes the Fed policy of currency debasement means that, in his opinion, exposure to gold and gold mining stocks in a portfolio is an absolute necessity.
• In a recent issue of Market Musings & Data Deciphering, David Rosenberg highlighted the Fed policy of keeping interest rates low with the potential for more quantitative easing to come, coupled with the current back-door QE program in the eurozone as being very constructive for gold.
• Rosenberg suggested investors would be more highly rewarded if they bought gold mining stocks versus gold bullion.  He also noted that, historically, gold mining equities tend to dramatically outperform bullion in the later stage of a gold bull market.

Threats

• The Fed policy of extending low interest rates is making life much more difficult for insurance companies and pension funds that manage long-term liabilities and for retirees seeking income from their investments.  Corporations are keeping high cash balances, partly due to uncertainty over future tax policy. Perhaps some of the reserves will be needed to fund pension plan deficits, which rose more than 50 percent in 2011.
• Newmont Mining noted in its recent regulatory filing with the SEC that its Hope Bay project in the far north of Canada will be subject to impairment testing.  Back in 2007 when gold prices were trading around $800, Newmont paid $1.5 billion for a 55 million ton resource that is estimated to contain 10.1 million ounces of gold. This works out to a resource grade of 5.69 grams per ton of gold. Today gold has doubled in price, but apparently there is some concern that the $900 million in estimated capital requirements to build the project may escalate beyond where the project’s returns would not be robust enough to take the risks.
• Equity issuance has been heavy recently.  Detour Gold raised about $240 million in the prior week, while NovaGold raised as much as $333 million this week, diluting current shareholders by more than 10 percent.  While the NovaGold financing represents only a small fraction of the additional $6.7 billion it will need, financing of this magnitude cumulatively takes some of the momentum out of the market.

Tags: Anc Youth League, David Rosenberg, Don Coxe, Gluskin Sheff, Gold Bugs, Gold Equities, Gold Imports, Gold Investors, Gold Market, Gold Production, gold stocks, Holiday In China, Investment Choices, Lunar New Year, Malema, Market Radar, Nyse Arca, Political Momentum, Preferred Investment, Zero Rates
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Gold Market Radar (January 9, 2012)

Sunday, January 8th, 2012

Gold Market Radar (January 9, 2012)

For the week, spot gold closed at $1,617.95 up $54.25 per ounce, or 3.5 percent. Gold stocks, as measured by the NYSE Arca Golds BUGS Index, gained 3.7 percent. The U.S. Trade-Weighted Dollar Index rose 1.4 percent for the week.

Strengths

• Junior tiered mining stocks outpaced the senior peers by almost a two-to-one margin this week, demonstrating excellent relative strength in the first week of trading. Much of this can be attributed to the end of tax-loss selling. Seasonally, the January Effect seems to be on a good start.
• Rio Alto came out with its much anticipated updated resource statement for its La Arena project in Peru. Rio Alto added 434,000 ounces of gold in contained metal to oxide resources in some 25,000 meters of new drilling; bringing measured and indicated resources at La Arena up 41 percent to 1.5 million ounces of gold at a grade of 0.46 grams per ton. The market reacted positively to these results, up 14 percent for the week.
• The U.S. Department of Labor’s Mine Safety and Health Administration reported its second lowest number of mining deaths in a century for the past year.

Weaknesses

• India’s gold imports tumbled to 35 tonnes in December, from the 75 tonnes recorded a year earlier. The country’s imports for November also fell 75 percent from the same period a year ago, with only 20 tonnes imported recorded. Higher prices, a week rupee, and increasing inflation for the country are all drivers of the decrease in sales and imports.
• Rye Patch Gold slid 22 percent for the week largely on drilling results from its Garden Gate Pass Project that was a technical success in intersecting the right host rocks, which are on trend with Barrick Gold’s Red Hill/Goldrush discovery announced earlier in the year, but these holes only carried anomalous gold.
• Peru’s overall gold production slid 12.22 percent for the month of November, and cumulatively from January to November 2011, fell 1.17 percent. Silver and copper production also fell 6.45 percent and 1.72 percent cumulatively from January to November 2011.

Opportunities

• Peru’s government, which has been making a considerable effort to curb anti-mining protests that are threatening the mining industry in the country, said that companies now must set up an environmental conservation fund as part of future contracts. The fund will be used should any damage be done to natural surroundings in protest-related events. The Cabinet Chief, Oscar Valdes, said that they will also create an office in charge of settling social conflicts related to mining and other industries. After Peru’s new president ran for office on somewhat of an anti-mining platform, he has to come to terms with the fact that mining is the county’s biggest source of revenue and wealth cannot be created without jobs.
• According to Frost & Sullivan, the world’s second-largest gold jewelry market, China, may boost gold consumption by 35 percent in 2012, on rising income and continuing urbanization. Factors such as demographics and proliferation of wealth will be driving the increased demand.
• Gold retailers in India have now taken a new incentivized approach to selling gold, luring in buyers with the promise of an iPad and allowing citizens to buy gold using their credit and debit cards. “Earlier we used to give 10 percent discount, or silver idols or free pendants. We have now moved to smaller electronic items to bring in more footfalls,’ said Saumesh Gargi, a gold retailer in Mumbai’s teeming Zaveri Bazaar. An iPad was given to the highest gold jewelry transaction through credit or debit every hour at a retail shop in Mumbai during the festive season.

Threats

• The Environmental Protection Agency released its Toxic Release Inventory (TRI), reporting the United States’ metals mining as the largest contributor of toxic chemicals released into the environment of 2010. Contrary to this, the National Mining Association maintains that nearly 85 to 90 percent of the substances reported by mining operations for the TRI inventory occur naturally in the local rock and soil.
• Readers should be aware that it is only after the rock containing these naturally occurring elements is loaded into a truck and moved that the reclassification of the rock to toxic material is triggered. The latest TRI report showed that 3.93 billion pounds of toxic chemicals were released into the environment, a 16 percent increase from 2009. Ironically, if one considered all the soil and sediment that is moved by rivers and streams each year for which the EPA regulates these waterways, then the EPA itself would likely be the largest polluter of toxic materials in the U.S.
• HSBC and Barclays cut their 2012 gold price forecasts by more than $100 per ounce, but still uphold their bullish view on the precious metal. The change in forecasts came after gold posted a gain of 10 percent last year, and although it maintained its 11th consecutive year of gains, it was the smallest annual gain in three years. James Steel, HSBC’s chief commodity analyst, cut his 2012 forecast to $1850 per ounce from $2025, attributing the euro weakness, liquidation related to equity losses and a slump in physical demand from emerging markets. Mr. Steel, however, did keep his 2012 silver forecast unchanged at $34 an ounce.

Tags: Arena Project, Barrick Gold, Dollar Index, Drilling Results, Gold Imports, Gold Market, Gold Production, gold stocks, Goldrush, Host Rocks, January Effect, Market Radar, Mine Safety And Health Administration, Month Of November, Nyse Arca, Resource Statement, Rye Patch, Spot Gold, Technical Success, U S Department Of Labor
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