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September 30, 2011

Lot of politics lies behind Mongolian mining -

How hard is it to get a huge mine off the ground? 

Lot of politics lies behind Mongolian mining -

Standing in a ger, a traditional herder's tent, near the Oyu Tolgoi copper-gold mine, N. Bagabandi, a former president of Mongolia had an answer: "Oyu Tolgoi has had a very difficult time getting started, like an elephant giving birth," he said.



"It had to go through a lot of challenges to get to today's success."

Mr Bagabandi made the remarks at a dinner party held in the ger and that was attended by Jan du Plessis, chairman of Rio Tinto.

Rio owns an indirect 32 per cent holding in the mine through its stake in Ivanhoe Mines, owner of 66 per cent of Oyu Tolgoi.

At first blush, the dinner, hosted in the Big Ger entertainment complex built at the behest of Ivanhoe chairman Robert Friedland, appeared to be just another chance for politicians and business people to toast each other.

But behind the scenes, the elephant giving birth has been more challenging than anyone had anticipated.

The day before, Mongolia's mining minister D. Zorigt had mailed a letterrequesting discussions with Ivanhoe and Rio about the time frame in which the government could raise its stake in the mine from 34 per cent to 50 per cent.

The politics behind the mining minister's request are worth scrutinising because they will set the tone for other developments in Mongolia's mining sector in coming months.

Mongolia's general elections are set for June. Mr Zorigt and prime minister S. Batbold – who both oversaw the signing of the Oyu Tolgoi agreement in 2009 – belong to the majority party, the Mongolian People's party (MPP), which is in a coalition government with a smaller but powerful rival the Democratic party.

Mr Batbold and Mr Zorigt have seen their political fortunes waning steadily this year, as support for them within their own party has eroded and other party members jockey for position. The MPP is particularly nervous because of the emergence of a powerful former prime minister, N. Enkhbayar, who has re-entered politics.

In a bizarre turn of events Mr Enkhbayar has registered his new political party as the Mongolian People's Revolutionary party, the old name for the majority Mongolian People's party. The MPP is concerned that the name confusion will cost them votes.

The erosion of support for Messrs Batbold and Zorigt is sufficiently serious for sources in Ulan Bator to believe that Mr Zorigt will not last until the end of the year in his position. The attacks against him have been going on all year – most recently in May when parliament discussed a motion to dismiss him – and the Oyu Tolgoi agreement is always one of the arrows in the arsenal.

The possibility that Mr Batbold could get pushed out by his own party ahead of elections also cannot be ruled out, although that is less likely.

So this month, when 20 members of parliament sent Mr Batbold a letter asking him to reopen the investment agreement, the challenge was serious. Under Mongolian law, a minimum of 19 lawmakers out of the total 76 are required to bring a motion to the floor to dismiss the prime minister, so the signatures of 20 lawmakers was symbolically significant.

On the other side of the aisle, Democratic party leader and Mongolian president Tsakhia Elbegdorj is increasingly powerful, and is regarded as an influential decision maker behind the development of the Tavan Tolgoi coking coal deposit, which is one of the largest in the world.

The irony of the Mongolian government's move on Oyu Tolgoi is that in Ulan Bator people close to government usually have only nice things to say about how important the mine is for Mongolia.

Quietly, people close to and within government say there is little chance that the investment agreement will get changed in any significant way. If Rio and Ivanhoe can succeed in keeping the political heat off, then the birth of the elephant that is Oyu Tolgoi could still proceed on track.

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September 26, 2011

Hallowed gold haven succumbs to sell-off -

From the FT, the important stuff is at the end of the article - after they talk down the barbarous relic...

Traders point out that this is not the first time gold has fallen at the peak of a crisis. At the height of the financial crisis in 2008, gold struggled for direction. From March 17, the day after the Bear Stearns collapse, to a low in mid-October, the bullion fell more than 30 per cent. In the next year, it surged 50 per cent.

Likewise, when the Dubai World default triggered a wave of selling across global financial markets in November 2009, gold dropped 12 per cent in the subsequent 10 weeks, only to rally to fresh records.

Indeed, there were signs on Monday that some traders were attempting to pick a bottom. By mid-afternoon in London, bullion had rallied more than 5 per cent from its low of the day to trade at $1,612.

Investors in gold through exchange-traded funds, which now hold more gold than most central banks, have also stuck with the metal. The holdings of the largest, the SPDR Gold Shares, remained flat at 1,252 tonnes throughout the whole of last week.

Crucially for traders who watch technical models, the yellow metal managed on Monday to stay above $1,525, its 200-day moving average, a level that has not been breached since January 2009. A fall below that level could indicate a sustained drop in prices, traders say.

see the whole story here:: Hallowed gold haven succumbs to sell-off -

-- The MasterFeeds

Hedge funds seen sticking with gold despite sell-off -

Hedge funds seen sticking with gold despite sell-off

Laurence Fletcher and Tommy Wilkes


7:49 AM CDT, September 26, 2011

LONDON (Reuters) - The recent sell-off in gold may not be enough to make some hedge funds with long-term bull positions change their views that the metal is still one of the best bets for profit in a perilous global economy.

Gold has dropped around 11 percent since the start of last week as liquidity-strapped investors scrambled to convert gold into cash amid fears over Greece's near-bankruptcy, likely hitting a number of hedge funds which have profited from its bull run in recent years.

However, the yellow metal is still around 7 percent above its level at the start of July, and is up 14 percent this year, leaving long-term holders comfortably in the black for now.

"I don't think... people who hold it as another currency... are changing their view," said Morten Spenner, chief executive of $2.8 billion fund of funds firm International Asset Management (IAM).

"For some people who are long-term holders ... and who have banged that drum, they're likely to take it (the price fall)," Spenner said, adding that short-term market volatility that put pressure on the price of gold would not sway managers to abandon their positions.

Some big-name hedge fund managers have been successfully betting on the gold price this year, including John Paulson and Paul Tudor Jones.

Meanwhile, some managed futures funds -- whose investment decisions are dictated by computer models -- such as Man Group's AHL and Winton Capital may have been hit by the fall in gold, although profits in other areas have offset the damage.

The AHL fund has sold down much of its long position in gold in recent weeks -- one of the $23.9 billion fund's best-performing trades in 2011 -- after its models showed that the metal's price was losing its momentum, although it still has a small long position.

"If you look at the price action in precious metals, particularly over the last four weeks, it's been pretty sideways and choppy. That is the sort of scenario where we actually start reducing our positions because it does indicate to us that there is no strength in that trend," Kevin Chuah, senior client portfolio manager at AHL, said.

The fund, which has also taken out a small short position on base metals including copper recently, gained last week after profiting from short positions on equities and crude oil and long positions on bond markets, Chuah said.

Winton, which manages $25 billion in assets and whose flagship fund is up around 1 percent this month, declined to comment.

Coast Sullenger, managing director of Gaia Capital, which buys commodity-related stocks, said gold equities had performed well recently, despite last week's sell-off, and he may buy more gold equities if prices continue to fall.

"Gold equities is one of the only sectors that has been performing," he told Reuters. "If the sell-off continues, it will probably create more of a buying opportunity... Gold shares are trading at a very, very low valuation, vis-a-vis their own history.

"We're of the opinion that gold shares is an asset class you should be overweight."

(Editing by Sinead Cruise and Mike Nesbit)

Hedge funds seen sticking with gold despite sell-off -

What is happening to gold? Buy opportunity once liquidation is done?

Gold was down $124 at one point this morning, hitting a recent low of $1,532. At the time we are writing this email, Gold has rebounded up to $1,620 only down $36. What is causing all this sell-off and volatility?
Speaking with investors this morning in Europe it appears that the main causes are:
1- CME margin requirements have increased by 21%. IMPORTANT TO NOTE THAT THIS IS THE THIRD TIME SINCE EARLY AUGUST THAT THE CME HAS RAISED MARGIN REQUIREMENTS. THEY HAVE NOW INCREASED BY 90% IN A FEW WEEKS. THIS IS CAUSING FORCED LIQUIDATION. Most investors believe that once this forced liquidation is done and the weak hands are gone, gold will rebound.
2- ETF concerns that the gold backing may be questionnable. 
The article below provides a good summary of some of the current concerns. 

Posted on 26 September 2011 06:12:15 by blam

Why Gold's Decline Is Accelerating?

Commodities / Gold and Silver 2011
Sep 25, 2011 - 04:34 PM
By: DK Matai

"The era of procrastination, of half-measures, of soothing and baffling expedients, of delays, is coming to its close. In its place we are entering a period of consequences."

That was Churchill in a speech to the House of Commons at the Palace of Westminster in London on November 12, 1936, as the clouds darkened over Europe. Dark clouds are hovering once again in regard to the euro, eurozone sovereign defaults and an interlinked banking crisis. More than $3.4 trillion has been erased from global equity markets last week, sending a prominent world index of shares into bear market territory, on concern that governments are running out of tools to avert another deep recession.

As the global financial crisis gathers momentum, why has gold dropped 15 percent since reaching a record $1,923.70 an ounce on September 6? Also, silver has plunged the most since October 1979. In two days, gold dropped 9.3 percent, the most since February 1983. The weekly decline of 9.6 percent was also the most in nearly three decades.

These are the possible fundamental causes for the accelerating decline in the price of gold:

1. Exchange Traded Funds (ETFs)

The UBS rogue trader, who caused the chief executive of UBS -- Oswald Gr�bel -- to lose his job over the $2bn black-hole, has accidentally highlighted the problem with ETFs. As the recent ATCA briefing, "Are The $1.4 Trillion ETFs The New WMDs? Anatomy Of The Highly Toxic UBS Scandal" points out:

"Think of all the gold ETFs and then ask yourself: How much physical gold actually underpins the gold ETFs? Answer: Not a lot! As much as half of the trades in gold are now driven by ETFs, while some blame them for speculatively driving up [commodity] prices."

Top gold sources say that some ETFs are involved in fractional selling in ratios of 1:100 and there is only 1 kilo of gold for every 100 kilos of gold-equivalent ETF units which are sold and re-sold. As queries for physical gold repatriation start, gold funds and myriad financial institutions and shadow banking vehicles -- such as prominent hedge funds -- may keel over?

Attention is just beginning to gather on the accounting principles of the popular but tainted gold and silver Exchange Traded Funds (ETFs). The gold inventory is under scrutiny for usage in COMEX -- Commodity Exchange -- deliveries, enabled by questionable shorts to the GLD and SLV shares by its own custodians. The Bar Lists are regularly seen as erroneous and suspicious.

The biggest gold and silver funds are now on the defensive, as they may soon face mass investor exits on the back of heavy discounts to the precious metal spot prices and doubts about the levels of physical gold they actually hold.

2. Paying for Losses and Booking Profits

There is clear evidence that investors are selling gold to pay for massive losses in other asset classes like equities and commodities. In parallel, many investors have made a solid profit in their gold-linked investments. As the markets crash and there is a need to find ready cash and report profits, it is easier to do so by selling their hitherto profitable gold positions.

3. Source of Liquidity and Margin Calls

Gold has become the source of liquidity for global margin calls. It is difficult to say at what level this liquidation will stop. COMEX -- Commodity Exchange -- is making it more expensive for speculators to trade. CME -- Chicago Mercantile Exchange -- Group has increased the margin requirements on gold and silver. The minimum cash deposit for gold futures will rise 21 per cent to $11,475 per 100-ounce contract in the speculative Tier 1 category at the close of trading on September 26, Chicago-based CME has said. For silver, the minimum cash deposit has been raised to $24,975 from $21,600.

4. Flight to Cash

We are seeing a flight from illiquidity to liquidity, ie, from all asset classes -- including precious metals -- to cash because 2008 is still very fresh in people�s minds. In October 2008, gold prices tumbled 18 percent as the most-severe slump since the Great Depression spurred losses in global equity and commodity markets. However, the yellow metal jumped 23 percent in the next two months.

5. Too Fast Too Soon

The summer run-up in the gold price was too far too fast and too soon as institutional speculators extended their long positions in paper derivative markets. All these tell-tale signatures suggested a big fall at some stage, which has now arrived. Rather than any dramatic reversal in world physical markets, it looks like gold's precipitous price decline in recent days and weeks can be attributed at some level to the same set of speculators -- including some prominent hedge funds and the trading desks of the big Wall Street, European and Asian banks -- reversing their positions or cashing out of gold altogether.

6. Deflation and Commodities

Slowing world growth has created pressure on gold and commodities from the deflation angle. The broad slide in commodity markets also helped drag gold lower, as declines in the commodity indices prompted managers to liquidate gold.


The fall in the price of gold at a time of increased global uncertainty can be counter-intuitive for some investors to understand. Of all the reasons cited for the accelerated decline in the price of gold, knowledgeable senior executives -- with board level responsibilities in gold mining and gold bullion trading -- suspect that worries about Exchange Traded Funds (ETFs) and investors pulling out of their leveraged gold positions are amongst the most likely suspects. The increased margin requirements may still be a minor contribution but would likely cause a further modest dampening of sentiment.

Is this a short-term or long-term correction? Could the correction in gold prices be short-term and similar to initial losses suffered in 2008 or is this a more long-term correction like the one in the early 1980s that lasted for more than two decades? The length of the fall in gold prices depends perhaps on how long will it take for the ETF situation to normalise!

Some senior executives from the gold industry feel that the long-term upward trend in the price of gold is likely to continue because physical supply from new production is very limited and the overhang from central banks pretty securely locked-in for the moment. This leaves open the question that how long will the transition period of falling gold prices be before the long-term trend resumes?

September 22, 2011

Copper Just Getting Destroyed, Slips Into Bear Market

Click for jumbo image.

Copper is down 6.5% this morning, and more than 20% from just two months ago, meaning it has entered a bear market, notes Rhiannon Hoyle.

Copper is the metal with a degree in economics, according to ancient wisdom, so this is not a good sign for the global economy.

It follows preliminary PMI data showing China’s manufacturing sector is contracting for the second month in a row in September.

China, recall, is supposed to ride to Europe’s rescue. It may have problems of its own.

Copper Just Getting Destroyed, Slips Into Bear Market - MarketBeat - WSJ

The MasterMetals Blog

Commodity Red Flag...

This morning the South Korean won is hitting again this morning a new low. This is important to watch unfold as it could have repercussions to the upside for the US$ and the commodities to the downside (not to mention the C$).  In this chart, the Asia Dollar Index, the CRB (Commodity basket) and the Australian Dollar (another commodity currency, like the C$ but less liquid) and the move to the downside is clear.  Recall, China’s Renminbi is still pegged to the US$ so watching the currencies of the smaller Asian countries who have benefitted from not only China’s economic boom directly but also indirectly from China outsourcing could prove to be a clearer leading indicator of global economic slowdown.
Mark Steele is also highlighting in his comment this morning that Asian Sovereign CDS are wider (attached).

September 21, 2011

Gold: Which Way From Here?

"Gold at over $2,000 is assuming some form of breakup to the eurozone (probably Greece's exit)"

Gold: Which Way From Here? - Seeking Alpha

Gold slipped below $1,800 per ounce last week as equities rallied in a burst of risk on investor enthusiasm. Does this spell the end of the bull run? The gold price has seen a lot of volatility of late, and questions are being asked — not least by those holding long positions — as to what the future holds in store for gold prices.

GFMS, the precious metals consultancy, is understandably still bullish. In its recent quarterly Gold Survey, it is quoted by the Telegraph as saying, "Given strong demand for bullion from the public and private sectors … the relatively constrained increase in scrap supply and the 'stickiness' of jewellery demand in the fact of higher gold prices, we can easily envisage gold breaking through the $2,000 market before year-end." Pointing to strong purchasing by central banks in the first half of this year, GFMS predicts full-year bank demand could reach 336 metric tons, the highest level since the collapse of Bretton Woods 40 years ago. The firm is not alone; even normally conservative HSBC raised its 2012 average price to $2,015 from $1,625, with analyst James Steel citing "the euro-zone debt crisis, currency wars, and deep uncertainty among investors" among factors driving higher prices.

Which Way? Make Up Your Minds

But analysts do not seem to be able to agree even on the direction, never mind the degree. Back in late August, a summary of their views showed UBS' fourth-quarter price at $2,100 and Societe Generale's at $1,950 and $2,275 for 2012, with $2,500 for the last quarter of next year. Bank of America-Merrill Lynch agreed, seeing $2,000 as a 12-month target, while JPMorgan went along with SocGen, predicting $2,500 in a year's time. Citi, on the other hand, revised its figure for 2012 up to just $1,650 for 2012 before falling in 2013; likewise National Bank of Australia has it back to $1,600 by the end of this year and the closely followed Goldman Sachs predicting $1,645 an ounce, $1,730 an ounce, and $1,860 an ounce on a three-, six-, and 12-month horizon, respectively.

Nick Moore of RBS makes the point that gold is in a fundamental supply surplus and its rise is therefore a reflection of investor demand rather than physical supply and demand factors. High prices alone bring on an element of physical demand destruction — total global investment in gold dropped 24 percent in volume terms to 624 metric tons in the first half of this year. Clearly, net speculative length in gold has been falling, as the graph below shows:

Source: Standard Bank

Speculative longs — those holding gold in the expectation of a rise — have been falling, as speculative shorts have now risen above last year's average of 90.7 tons.

Los Preciosos Otros

Silver and palladium have been in the news of late, more because of their performance relative to gold than because of major fundamental changes in their respective markets. Although ETF buying for silver remains strong, some are questioning how much further it can go. It has risen 885 percent over the last decade against gold's 569 percent, and yet industrial demand could be shaky in the short term as recessionary fears spread beyond the eurozone to slowing Asian and North American markets.

Platinum, on the other hand, is looking cheap relative to gold, having fallen to a discount. Nick Moore said that over the last ten years, platinum has averaged $420 per ounce higher than gold. According to Johnson Matthey's Platinum 2011, published earlier this year, the market fundamentals for platinum are tight. The market showed a very small surplus of 20,000 ounces in 2010 as global supplies rose 35,000 ounces to 6.06 million ounces while gross demand in auto catalysts rose by 43 percent to 3.13 million ounces and industrial demand increased 48 percent to 1.69 million ounces. Slowing Chinese growth in automotive construction is probably the cause for the recent falls, but industrial use has remained robust. Platinum's position seems more solid than Palladium's, which is increasingly looking bearish, with short positions mounting, suggesting prices will be lower in the fourth quarter.

Support for gold looks largely reliant on eurozone debt worries. Recent positive sound bites on possible solutions to those worries have caused the price to pull back; an exit for Greece or downgrade of a major state's credit rating will see it pick up again. Gold at over $2,000 is assuming some form of breakup to the eurozone (probably Greece's exit). That's not looking likely in the short term, but with European politicians more focused on their domestic political fortunes, continued dithering — and hence risk of ultimate failure and support for gold — remains a strong possibility.

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September 14, 2011

Peru govt. approves new mining royalty scheme - FAST NEWS | Mineweb

Peru govt. approves new mining royalty scheme

Peru's Finance Minister Luis Castilla reported on Tuesday that the government has approved three new mining royalty or tax schemes to fund anti-poverty initiatives and infrastructure projects, without specifying the new rates.

Posted:  Wednesday , 14 Sep 2011 


Peru's government has approved three new mining royalty or tax schemes to fund anti-poverty initiatives and infrastructure projects, Finance Minister Luis Castilla said on Tuesday.

The new system based on operating profits would replace the current 1-3 percent royalty miners pay on sales, Castilla told reporters without specifying the new rates. Congress must approve the proposal.

"It brings together three main objectives of the government: to maximize income for the state, to preserve competitiveness in the mining sector ... and to preserve tax security," Castilla said after a cabinet meeting.

Securing more state resources from miners to fund social programs in a country where a third of the population is poor was a campaign promise made by leftist President Ollanta Humala, who was elected in July. For a factbox, see:

Castilla specified that the new royalty applied to mining firms that did not sign tax stability agreements with the government in the 1990s. Those firms would also pay a "special tax" directly to the central government, he said.

Firms with tax stability agreements will pay a "special contribution," also applied to profits, he said.

"The government will be empowered to sign accords with companies that have tax stability agreements, and this scheme will be applied to them," Castilla said.

The "special contribution" will also be calculated based on operating profits, he said.

Many large international firms operating in Peru including Xstrata, BHP Billiton and Barrick Gold are protected by tax stability agreements.

However, some of the agreements have already expired. Southern Copper, controlled by Grupo Mexico, no longer counts on a tax stability in Peru. The country's largest precious metals miner Buenaventura does not have a tax agreement with the government.

Prime Minister Salomon Lerner announced last month that Humala's government and mining firms had agreed on a new system that would yield around $1 billion per year in contributions from mining firms.

Miners consulted by Reuters said a sliding scale of royalty rates was being devised to take into account individual company profits.

Last year, the state collected $646 million in royalties applied to sales. Miners in Peru also pay a corporate income tax of 30 percent.

Peru is the world's No. 2 producer of copper and silver and the No. 6 gold producer. Minerals account for about 60 percent of its exports.

(Reporting by Marco Aquino and Teresa Cespedes; Writing by Luis Andres Henao and Caroline Stauffer, Editing by Himani Sarkar)

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Resource Nationalism tops mining/metals risks for 2011-12—E&Y

Resource Nationalism tops mining/metals risks for 2011-12—E&Y

Resource nationalism has imposed greater controls on foreign investment, mandated beneficiation, and resulted in use-it-lose-it demands and other risks to global mining, says Ernst & Young.

Author: Dorothy Kosich
Posted:  Wednesday , 14 Sep 2011 


Ernst & Young's latest mining and metals report cites resource nationalism as miners' top risk for 2011 while skills shortage, capital allocation and infrastructure access continue to dominate the business agenda.

In the past 12-18 months, 25 nations have increased or announced their intention to mining taxes or royalties, as some have invoked "use it or lost it" clauses.

Governments worldwide are looking to increase local participation in mining projects "and we think this trend will only increase," said the E&Y report, "Business risks facing mining and metals 2011-2012."

Among the many forms of recent resource nationalism are imposition of a resource rents; amendments to royalty or other tax rates; imposition of greater controls on foreign participation; institution of new mining codes; mandatory government/local participation; and preference for state-owned minerals. Surprisingly, E&Y considers a nation's decision to encourage in-country beneficiation of raw commodities before export to be a business risk although economists often advocate such developments.

Steps can be taken to respond to resource nationalism risks, according to the E&Y report. These include investing in transparent relationships with host government; aligning with the host government's long-term economic and political incentives; focusing on generating direct and sustainable benefits for the host community through social and community development programs; aligning with multi-lateral agencies to achieve a prominent victim status in the face of mounting resource nationalism; partner with state-owned enterprises; and encourage direct government participation in the project at market prices.

Skills shortage ranked as the second highest threat to mining and metals businesses. "Indeed, we believe it may become a bigger risk in both developed and developing countries as we move into 2012," said the report.

"The long term impact could mean increased costs, a reduction in productivity and difficulty in meeting contractual obligations," said E&Y's Louise Rolland.

Significant risks associated with skill shortages include project delays, safety, higher operational costs, and reduce productivity, the report warns. To ease these risks, mining companies can invest in training; tap broader talent pools beyond traditional channels, groups or age brackets to fill positions; fast-track careers; initiate programs that encourage semi-skilled and retired workers to re-enter the workforce; and substituting capital for labor.

Infrastructure access climbed from its sixth ranking in 2010 mining business risk to third among the2011-2012 risks. "The lack of available infrastructure means that production cannot get to the markets where the demand is," said the report.

"A lack of sufficient rail networks appear to be the largest global bottleneck," said E&Y. "However, if the sector is meet the expected supply challenges for the expected growth in demand from the rapidly developing economies, greater innovation is required to bring together producers, customers, infrastructure, operators, financiers and governments."

Maintaining a social license to operate was ranked as the fourth top risk to miners, "and it has been a more significant risk in the 2011-2012 top ten list," said E&Y. Among the issues which can affect a social license to operate are environmental performance, risk to reputation caused by safety incidents, and land disputes.

Capital project execution, which was not a major risk a year ago, now sits in the middle of the top ten risks for miners. A large number of new mining projects, expansions and restarts have almost simultaneously been announced this year.

"Tight management of major capital plans in today's mining and metals landscape of a scarcity of inputs has become more imperative than ever," said E&Y. "Addressing risks surrounding the construction of mining projects is also critical and many miners have seen cost escalations that have forced them to defer, cancel or suffer the costs of project delays and/or overruns."

Among the other top 10 risks highlighted in the report are price and currency volatility, capital allocation, cost management, interruptions to supply, and fraud and corruption.

Under the radar risks or those that did not make it into E&Y's top 10 for 2011/12 are access to secure and cost effective energy, access to capital, climate change, consolidation, project pipeline shrinkage, scarcity of water, increased regulations, new communication vehicles for community activism, and new technologies.

To read the full reports, go to

September 13, 2011

Metals commodities likely to be hot and volatile for some time - INDEPENDENT VIEWPOINT | Mineweb

Metals commodities likely to be hot and volatile for some time

Programs to stimulate the economy are likely to keep commodity prices strong in the short to medium term and net longs have been increasing for the past four weeks as funds increased their bullish bets.
Posted: Tuesday , 13 Sep 2011

NEW YORK (Economic Times) -
Funds increased bullish bets on raw materials for a fourth straight week, the longest series of gains this year, on speculation that economic-stimulus programmes will lift demand for metals, grains and energy.
In the week ended September 6, speculators raised their net-long positions in 18 commodities by 0.2% to 1.28 million futures and options contracts, government data compiled by Bloomberg show. That's the highest level since June 14. Funds became bullish on copper for the first time in three weeks, and wagers on a gold rally increased for the first time since early August.

Last week, Federal Reserve chairman Ben S Bernanke said policy makers this month will discuss tools they may use to help the recovery, and president Barack Obama proposed a $447-billion plan to spur job growth. The Standard & Poor's GSCI Index of 24 commodities has surged 22% in the past year as the Fed kept US borrowing costs near zero percent and bought Treasuries in a bid to stimulate growth.

"The printing presses of various governments running overtime is likely to keep the commodity markets hot and volatile for quite some time," Philip Gotthelf, the president of Equidex Brokerage Group in Closter, New Jersey, said ....
To read full article click on Source - The world's premier mining and mining investment website Metals commodities likely to be hot and volatile for some time - INDEPENDENT VIEWPOINT | Mineweb

September 9, 2011

Eric Sprott interview-Silver is a 30 Bagger to $1,200

“I think it’s becoming obvious to everyone that it’s the one area that you can feel safe to invest in. We are witnessing events unfolding that are suggesting to us that we are finally seeing a differentiation in the market between gold stocks and general stocks.

One of the key days was August 19th and on that day the Dow was down something like 500 or 600 points and the HUI gold index was up 4%. When you can outperform an index by 800 basis points in one day, it’s telling you that things have changed.

We all recall that in the last serious market selloff in 2008, the gold stocks got hammered. This time when the markets are weak, typically the gold stocks and gold have done well. So there have been a lot of things that have changed in the market just recently, that are telling us the market is looking at gold very, very differently than it has in the last ten years....

When asked where he sees the price of silver headed Sprott responded,
“I think silver will outperform gold in the next decade. If silver should trade at a 16 to 1 ratio (to gold), it will probably trade at 10 to 1 because things tend to overshoot. Let’s use Jim Sinclair’s $12,000 target, that would suggest $1,200 silver, which is a thirty bagger from here...The biggest reason it (silver) should go there is people should fear bank deposits, that’s what I think they should fear.”

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How much gold is traded every day?

How much gold is traded every day?

Excellent article from the FT on London Bullion Market Association's (LBMA) study on the gold trading market in London.

their conclusions are that the OTC Trades represented a mere 10% of the overall daily trading volume, as reported by the LBMA members.

"...the volume of gold traded in London is ten times what is implied by the clearing statistics: 10.9bn ounces of gold, worth $15,200bn, changed hands in the first quarter of this year, according to the LBMA’s estimate.

"...That is 125 times the annual output of the world’s gold mines – and twice the quantity of gold that has ever been mined.

"...The 10.9bn figure compares to 1.2bn ounces of gold trades that were cleared – in other words, only a tenth of gold traded on the London market is cleared. About 1.2bn ounces were traded in the form of Comex futures in the same period.

"...The vast majority of the trading – roughly 90 per cent – was in the spot market, rather than forwards, options or swaps.

"...the $240bn average daily turnover in the London bullion market is higher than the global daily turnover of any currency pair except for the dollar/euro, dollar/yen, dollar/sterling and dollar/Aussie dollar, according to the most recent Bank for International Settlements survey

The dollar/Swiss franc, that other great safe haven trade, is worth a mere $168bn a day."

See the report from the London Bullion Market Association has just carried out a study

The Ft article is here: Gold earns its crust as haven asset -

More related articles from the FT:

-- The MasterFeeds

September 8, 2011

Battles loom over commodity price curbs

Commodity Futures Trading Commission is due to impose new curbs on the commodities markets

Battles loom over commodity price curbs / Comment / Columnists

By Gillian Tett

Published: September 8 2011 19:10 | Last updated: September 8 2011 19:10

Once upon a time, economists who crunched the geeky details of commodity prices inhabited a relatively sedate world. No longer. Over the next month, the Commodity Futures Trading Commission is due to impose new curbs on the commodities markets, as part of a wider bout of financial reform. / Comment / Columnists - Battles loom over commodity price curbs

The MasterMetals Blog

September 7, 2011

Debt, blood and fear present golden opportunities - Holmes

Debt, blood and fear present golden opportunities - Holmes

Equities, and gold equities in particular, are likely to benefit from the current macro economic picture that is characterised by expansive money supply, massive debts, says US Global's Frank Homes

Author: Frank Holmes
Posted: Wednesday , 07 Sep 2011

SAN ANTONIO (US Global Investors) -

My long-time friend and mentor Seymour Schulich forwarded an email to me that puts today's U.S. government debt mountain startlingly into context. By removing several zeros, one can place the debt situation in terms we all can understand-that of a family's income and expenses.

A family who takes in an annual income of $21,700 but spends $38,200 will soon be in dire straights. The large outstanding balance on the credit card only exacerbates the situation. Clearly, spending cuts need to be made, but eliminating only $385 from the family's budget would be a drop in the bucket. Either a substantially higher amount of income needs to be made, or the family will have to learn to live with less.

Of course, the fiscal situation is more complicated when it comes to a "family" of 311 million. It is only one part of a large conundrum for the global economy.

Gold is "Sole Beneficiary" in this Economy

Don Coxe, global portfolio strategist, points to the Shanghai Composite Index and Bombay Sensex which are currently at one-year lows, indicating that investors are not feeling confident even in these relatively strong markets where GDP is growing. In this environment, Coxe believes gold is the "sole beneficiary."

We've discussed several times that another driver of gold prices has been real interest rates. Take a look at the chart from Gold Stock Analyst (GSA) depicting the price of gold going back to 1968. In each case when real rates (calculated by subtracting the 12-month moving average of the year-over-year change of CPI from the 12-month moving average of the 3-month Treasury bill) went negative-in the 1970s, the first years of the new decade, and off and on from 2008 until now-gold has had a dramatic rise in price.

A negative real interest rate means that a hypothetical $100 investment in a T-bill is worth, for example, $98.90 a year later, i.e. you've lost purchasing power. Investors seeking yield have fled to gold in these instances.

Conversely, when interest rates turned positive in the 1980s, gold trended downward for the next 20 years.

Despite gold's dramatic bull run over the last 10 years, the yellow metal is only twice as high as its 1980 price. In comparison to other economic yardsticks since 1980, this is miniscule. Ian McAvity, editor of Deliberations on World Markets, says that federal debt, the S&P 500 Index and even GDP has grown much faster than gold over that same timeframe.

The gross U.S. federal debt of $14.3 trillion is 17 times its 1980 level. In 1980, the S&P 500 was at 105; today, it trades around 1,100. A gold price of $1,808 seems paltry as it is only 2.5 times the 1980 high of $738.

McAvity extrapolates the relative growth rate of the yellow metal, indicating that if gold doubled from its current high, it "would nearly ‘catch up' to GDP, while it might take a quadruple to match the S&P, or even a six-fold gain from here to catch the growth of debt." Multiplying the largest of these figures by the current price of gold means prices could theoretically go to $10,800. By these standards, gold is hardly a bubble.

Gold these days has become so "legitimized," helped by negative real interest rates, that the metal now directly competes with stocks for a share of investors' portfolios, says the GSA. We applaud this development, as we have always thought investors should allocate a small portion of their portfolio to gold. However, we argue that a gold ETF is not always a wise choice, particularly when it is treated as a short-term trade, like a stock.

As we've indicated many times in recent months, a better opportunity for gold investors appears to be in gold mining companies. Coxe agrees, as he believes today represents the "greatest devaluation of precious metal stocks." In his experience, he thinks there has never been such a disparity in precious metals stocks compared to the price of gold. There are two reasons for this: In the 1970s, the gold ETF did not exist, so speculators who wanted gold exposure had to purchase bullion and take physical possession of it or purchase gold mining shares. Also, gold miners have faced higher labor and energy costs as well as increased capital expenditures.

Coxe also brought to our attention the Investor's Business Daily's Industry Sub-Group Rankings, which lists six-month performance to help investors identify potential growing areas of the economy. Out of 197 groups, the third-ranking member on the list was gold mining companies.

Over the last several weeks, gold has received a lot of attention and we've discussed gold stocks and gold bullion quite often. If you were out trying to squeeze in one last summer vacation, here's what you missed:

Two Recent Developments for U.S. Stocks

What hasn't gotten a lot of attention in the media is growing money supply. Instead, much of the media has focused on day-to-day, even hour-to-hour, data. However, it is a key lubricant of the economy and financial markets.

The Federal Reserve influences money supply growth, and as can be seen in the chart below, money supply often spikes during crisis or uncertainty, such as Y2K, 9/11, the collapse of Lehman Brothers and the ensuing financial crisis. The current environment of sluggish growth, government austerity and worries over the European banking sector has likely influenced the dramatic rise in money supply over the past 18 months. The Fed likely errs on the side of caution to stimulate growth as inflation is not currently a concern.

Generally speaking, if money is growing faster than nominal GDP, that excess money tends to find its way to other uses such as investment in stocks, commodities and other financial assets. The relationship between money supply and financial assets is nonlinear and changes over time, but when tallying up pros and cons for the current environment, the recent increase of more than 8 percent in money supply growth provides a tailwind for commodities and stocks.

Equities look particularly attractive relative to bonds, especially today. During the last 40 years, the yield on the S&P 500 has rarely exceeded the yield on the 10-year Treasury bond.

For the long-term investor, the risk/reward profile for owning stocks appears positively skewed. Equity investors have suffered through one of the most difficult decades-rivaling even the Great Depression-while bond investors have enjoyed a 30-year bull market. Long-term mean reversion is a powerful tool that investors can use to help them attain their long-term goals.

It's worth repeating the famous quote from Baron Rothschild, an 18th century British nobleman and member of the Rothschild banking family, who is credited with saying that "the time to buy is when there's blood in the streets."

It has been "bloody" recently and that is precisely the time to have the courage to make long-term investments at favorable prices.

John Derrick, Director of Research, contributed to this article.

Frank Holmes is CEO and Chief Investment Officer of U.S. Global Investors - - The world's premier mining and mining investment website Debt, blood and fear present golden opportunities - Holmes - INDEPENDENT VIEWPOINT | Mineweb

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