Commodity Corner
Views on commodities and energy
from MacroScope:
Should central banks now sell gold?
Central banks in debt-strapped countries have a golden opportunity ahead of them, if you will excuse the pun, to help their countries' finances by selling their yellow metal holdings.
At least, that is the message that Royal Bank of Scotland's commodities chief Nick Moore has been giving in recent presentations -- and he thinks it might happen. The gist is that gold is now at a record price but banks have not come close to meeting their sales allowance for the year.
Under the Central Bank Gold Agreement there is a quota of 400 tonnes that can be sold by central banks within a 12 month period and with only about three months to go in the latest period less than 39 tonnes has been sold. At today's price that remaining 361 tonnes is worth some $14 billion.
Moore believes that euro zone central banks in particular may increase their sales because of the record price and the deteriorating fiscal positions. Furthermore, he reckons the price of gold will come down over the next 12 months as its safe-haven appeal eases and inflation expectations fade.
Among the so-called PIGS -- Portugal, Italy, Greece and Spain -- Italy is the major gold holder with qround 2450 tonnes. But Portugal has some 380 tonnes, Spain 280 and Greece 112.
Might current prices not tempt them to selling a few billion euros worth over the next few months to help balance the budget a bit?
from Summit Notebook:
That’s rich. I meant the wine.
What do gold and wine have in common?
Price.
Well, too high of a high price, according to Jeffrey Rubin, director of research at Birinyi Associates, the stock market research and money management firm.
Rubin told the Reuters Investment Outlook Summit on Tuesday that he thought gold prices were "certainly a little frothy" at current levels and that he would rather be a buyer of the gold miners such as Newmont Mining Corp, Barrick Gold Corp, or Freeport-McMoRan Copper and Gold Inc. Gold hit an all-time high above $1,250 an ounce on Tuesday as investors piled in due to fears that European credit contagion could lead to a double-dip recession.
Rubin isn't expecting a double-dip U.S. recession, saying the chances are slim. He also felt stock prices were likely near a bottom. Not so for the price of a wine? A good year is already priced in, so to speak.
In the spirit of austerity, we asked Rubin what personal spending he might curtail. For a wine collector with a 1,500 bottle collection, the answer was bitter.
from Global Investing:
It’s the dollar
Two graphs (from Scott Barber) to remind that what you get from assets depends on the currency:
from Global Investing:
Start building the bunker
They keep telling us that the recession is over so maybe now's the time to start worrying about inflation. That's the view many wealthy investors are already taking, reasoning that a little bit of the yellow shiny stuff will provide some comfort as we start piling our cash into wheelbarrows to do the weekly groceries shop.
It is gold exchange traded commodities (ETCs) that have seen the biggest investor inflows this year so perhaps it's not surprising that the gold price broke through $1,000 an ounce this week.
"Investors are concerned about sovereign risk, quantitative easing, government deficits and the outlook for the US dollar," said Nicholas Brooks, head of research and investment strategy at ETF Securities, at a Dow Jones Indexes commodities briefing on Tuesday. "They are using gold as an insurance policy."
Physically-backed gold ETC holdings are now 8 million ounces, up 33 percent versus end-2008 levels, he said. Gold inflows have been relatively steady, even when the price has corrected, with the biggest flows coming not when Lehman went bust, but when the scale of US quantitative easing and the fiscal cost of the financial bailout became apparent. This supports the view that gold is being used as a hedge against sovereign and inflation risk, Brooks said.
Billionaire hedge fund manager John Paulson has been building up a large exposure to gold this year, seemingly as part of an inflation hedge.
John Reade, head of markets strategy at UBS Investment Bank, also confirmed that UBS clients were showing an interest in assets that would provide inflation protection. "You don't need high inflation for gold to perform well - you only need an increase in the number of people who expect inflation to rise."
Over the last 30 years the returns from gold have been reasonable but not great, with high volatility, he said. But in an environment where the US dollar is weakening, the Fed Funds rate is rising and inflation is rising, gold can be expected to perform, with returns of over 40 percent per annum if CPI increases. This suggests that an investor's tactical allocation to gold should rise in the coming months, Reade said.
from From Reuters.com:
Mining gold in Russia’s remote Chukotka region
Chukotka, a region revived in the last eight years by the $2.5 billion investment of Chelsea soccer club owner Roman Abramovich, produced a fifth of Russia's gold in the first half of this year. Gold is the region's passport to growth after Abramovich quit as governor last July.
Only South Africa holds more gold than Russia, but Moscow's fragmented industry has struggled to access vast reserves in its inhospitable Far East. The region was first mined in the 1930s by prisoners of the Gulags set up by Soviet leader Josef Stalin.
Senior Commodities Correspondent Robin Paxton and Moscow-based video journalist Heleen van Geest return from the Chukchi Peninsula with a series on the revival of gold mining in the Gulag region.
from MacroScope:
Gold to go
Automatic teller machines (ATMs) -- 500 of them -- dispensing pieces of gold will be available around Germany, Switzerland and Austria by the end of this year.
That at least is the plan of German precious metals online trading company TG-Gold-Super-Markt.de. The ATMs, to be located at airports, railway stations and shopping malls, are intended to accustom ordinary people to the idea of investing in a physical asset such as gold, the thinking goes. Thomas Geissler, the company's chief executive, said the gold ATMs might even improve relations between the sexes. "I have yet to meet a woman who does not like a gift of gold. It's better than flowers. Flowers are more expensive. They wilt and you (as a man) don't get as many points at home as if you bring gold," he said. A prototype ATM on display for a one-day marketing test at the main railway station in Frankfurt, Germany's financial capital, did indeed reward your correspondent with a 1-gramme (0.0353 ounce) piece of gold. It cost the equivalent of $42.25 -- a 30 percent premium over the spot market price.
Thats what you call a good return on investment, selling the gold at a 30 percent premium, with little risk involved. Smart thinking, smart business idea!
from Global Investing:
Gold offers double-edged shine
It was Goldman Sachs who famously predicted oil prices to reach $200 a barrel last year, but there are a school of bullish investors who forecast a substantial rally in gold.
Take Gold and Energy Advisor, which predicts gold will soon reach $2,500 an ounce (from today's $895) then to $5,000. The Florida-based firm argues that gold is the only asset class that’s not only private (as opposed to state-owned), but also liquid, portable, fungible, divisible, and valuable enough that a small amount can store a massive amount of wealth.
It also argues that of $11.5 trillion stored in offshore accounts and other assets, if one percent were transferred into gold, that would be almost four times the entire annual investment demand for gold.
Perhaps not as bullish, but Investec Asset Management also reckons that gold could perform well in either an inflationary or deflationary environment.
Investec also argues the potential areas of concern for gold investors: an increasing supply of recycled gold and the potential return of the "Goldilocks" scenario, where the economy sustains moderate growth and inflation in a "not too hot, not too cold" environment.
"This Goldilocks economy would completely remove the safe-haven investment case for gold as a form of insurance against inflation or as an alternative currency. Real yields could once again be obtained in cash and bonds, and equities could begin discounting economic growth," it says.
from Summit Notebook:
Investors hoarding gold?
This week we've brought you interviews with some of the world's best-known mining and steel companies. One thing that we've heard over and over again is: gold is king. Industry watchers say thinking of gold as an investment is not a bad idea. Check out Conway Gittens' story:
from Global Investing:
Attention, girls: Diamonds may not be your best friend
Marilyn Monroe, who sang "Diamonds are a girl's best friend" in the 50s, might be shocked to find out that the value of dimonds has fallen rapidly in the past six months.
According to Nomura, the average best price for to quality 1-Carat diamonds has fallen below $7,000 from hitting a multi-year high near $9,000 in September 2008.
Perhaps gold might grab her attention. The metal has surged towards $1,000 an ounce in the past weeks as investors rushed to seek save-haven gold when stock markets came under renewed pressure.
Barrick’s El Dorado?
Despite their calm assurances, executives at the world’s biggest gold miner Barrick Gold must be at their wits’ end over their stalled Pascua Lama project.
For two years, Argentine and Chilean officials have been bickering over how to share the lucrative tax proceeds from the cross-border mine, which has been poised for construction to start since late 2006. One government official after another has suggested the green light is imminent. But after making some impatient noises last year, Barrick seems to be biting its lip — resolved for an even longer wait. When Barrick reported fourth-quarter results last week, new Chief Executive Aaron Regent put on a brave face about the delay, but his pledge to give an update on the progress in the second quarter suggested a solution is still some way off. It is ironic that a diplomatic spat over sharing the spoils of the mine has put the ambitious and controversial project on ice. Pascua Lama straddles a freezing, inhospitable spot high in the Andes and faced a storm of protest from Chilean environmentalists before President Michelle Bachelet finally gave it the go-ahead. Late last year, an Argentine law protecting Andean glaciers looked like it might be the nail in Pascua Lama’s coffin until a surprise presidential veto kept it off the statute books. But none of that matters while the tax row drags on, and the harsh Andean winters mean construction is unlikely to be able to start now until September 2009 at the earliest. Company officials have declined to say how much it is costing to maintain the site. Some industry analysts have even hinted Barrick might abandon it altogether. But it will take a lot more for the Canadians to lose interest in Pascua Lama. One of the world’s largest untapped gold fields, the site will become even more appealing as prices for the metal nudge up to above $1,000 per ounce again.
Discussion on how to share the tax millionaire mining project between the two countries is the last major point that remains to be resolved to start the works, according to schedule, should have party two years ago.
As at the beginning. So today the talks between Chile and Argentina on how to share the tax flagship project Pascua Lama gold mining, located on the border between both countries. The inability to resolve this issue prevents the start of construction, which already has a delay of two years.
In June, the Chilean government sent a proposal to Argentina that was presumed then, would be definitive and that would settle the debate. But until now there has been no response from the trans and the dialogue is cut off.
According to a source linked to the talks, the government of Cristina Fernandez would have found no satisfactory proposal. The lack of a response to concern those involved, because at least two years by the mining project, Canadian Barrick, should have initiated the work, according to the initial schedule.
From the beginning, the idea that Chile was the bulk of taxes for services are paid indivisible border here, considering that 80% of Pascua Lama is on this side of the range, while Argentina has proposed a plan “50 -50. The proposal submitted in June was relaxed that point, but apparently was insufficient for the aspirations of the neighboring country.
Added to this is that the political situation in Argentina is quite complicated after the arrest of farmers and their struggle with the government for precisely taxes. According to a source by “El Mercurio”, this is another factor that would explain the lack of dialogue in recent weeks.
The resolution of this issue is key to other bi-national projects can see the light, as it set the tone for what the criteria under which the taxes are distributed. Meanwhile, in the folder of the Binational Commission for the Mining Treaty rested other millionaires projects.
The consequences
Moreover, the delay in the definition is tax makes the cost of the project. At the beginning of the plan, the budget of the works amounted to U.S. $ 1.500 million. But the increase in the price of key inputs like steel, the outsourcing of engineering and energy made the company estimates its current cost between $ 2,300 and U.S. $ 2.400 million.
A few months ago, authorities in the Argentine province of San Juan-sharing project with the neighboring region of Atacama in Chile, Barrick said it estimated at U.S. $ 3,000 million investment to build the mine.
Canadian Barrick has said that the project has not been compromised by this situation, and furthermore, other points are still unresolved. Among them, several sectoral permits Argentina left pending.
