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November 30, 2012

#Gold: Solution to the Banking Crisis - Sprott Asset Management

Gold: Solution to the Banking Crisis

By: Eric Sprott & David Baker

The Basel Committee on Banking Supervision is an exclusive and somewhat mysterious entity that issues banking guidelines for the world's largest financial institutions. It is part of the Bank of International Settlements (BIS) and is often referred to as the Central Banks' central bank. Ever since the financial meltdown four years ago, the Basel Committee has been hard at work devising new international regulatory rules designed to minimize the potential for another large-scale financial meltdown. The Committee's latest 'framework', as they call it, is referred to as "Basel III", and involves tougher capital rules that will force all banks to more than triple the amount of core capital they hold from 2% to 7% in order to avoid future taxpayer bailouts. It doesn't sound like much of an increase, and according to the Basel group's own survey, the 100 largest global banks will only require approximately €370 billion in additional reserves to comply with the new regulations by 2019.1 Given that the Spanish banks alone are believed to need well over €100 billion today simply to keep their capital ratios in check, it is hard to believe €370 billion will be enough protect the world's "too-big-to-fail" banks from future crises, but it is indeed a step in the right direction.2

Initial implementation of Basel III's capital rules was expected to come into effect on January 1, 2013, but US banking regulators issued a press release on November 9th stating that they wouldn't meet the deadline, citing a large volume of letters (ie. complaints) received from bank participants and a "wide range of views expressed during the comment period".3 It has also been revealed that smaller US regional banks are loath to adopt the new rules, which they view as overly complicated and potentially devastating to their bottom lines. The Independent Community Bankers of America has even requested a Basel III exemption for all banks with less than $50 billion in assets,"in order to avoid large-scale industry concentration that would curtail credit for consumers and business borrowers, especially in small communities."4 The long-term implementation period for all Basel III measures actually extends to 2019, so the delays are not necessarily meaningful news, but they do illustrate the growing rift between the US banking cartel and its European counterpart regarding the Basel III framework. JP Morgan's CEO Jamie Dimon is on record having referred to Basel III regulations as "un-American" for their favourable treatment of European covered bonds over US mortgage-backed securities.5 Readers may also remember when Dimon was caught yelling at Mark Carney, Canada's (soon to be former) Central Bank Governor and head of the Financial Stability Board, during a meeting in Washington to discuss the same topic.6 More recently, Deutsche Bank's co-chief executive Juergen Fitschen suggested that the US regulators' delay was "hurting trans-Atlantic relations" and creating distrust... stating, "when the whole thing is called un-American, I can only say in disbelief, who can still believe in this day and age that there can be purely European or American rules."7 Suffice it to say that Basel III implementation has not gone as smoothly as planned.

One of the more relevant aspects of Basel III for our portfolios is its treatment of gold as an asset class. Documents posted by the Bank of International Settlements (which houses the Basel Committee) and the United States FDIC have both referenced gold as a "zero percent risk-weighted item" in their proposed frameworks, which has launched spirited rumours within the gold community that Basel III may define gold as a "Tier 1" asset, along with cash and AAA-government securities.8,9 We have discovered in delving further that gold's treatment in Basel III is far more complicated than the rumours suggest, and is still, for all intents and purposes, very much undecided. Without burdening our readers with the turgid details, it turns out that the reference to gold as a "zero-percent risk-weighted item" only relates to its treatment in specific Basel III regulation related to the liquidity of bank assets vs. its liabilities. (For a more comprehensive explanation of Basel III's treatment of gold, please see the Appendix). But what the Basel III proposals do confirm is the regulators' desire for banks to improve their liquidity position by holding a larger amount of "high-quality", liquid assets in order to improve their overall solvency in the event of another crisis.

Herein lies the problem, however: the Basel III regulators have stubbornly held to the view that AAA-government securities constitute the bulk of those high quality assets, even as the rest of the financial world increasingly realizes they are anything but that. As banks move forward in their Basel III compliance efforts, they will be forced to buy ever-increasing amounts of AAA-rated government bonds to meet post Basel III-compliant liquidity and capital ratios. As we discussed in our August newsletter entitled, "NIRP: The Financial System's Death Knell", the problem with all this regulation-induced buying is that it ultimately pushes government bond yields into negative territory - as banks buy more and more of them not because they want to but because they have to in order to meet the new regulations. Although we have no doubt in the ability of governments' issue more and more debt to satiate that demand, the captive purchases by the world's largest banks may turn out to be surprisingly high. Add to this the additional demand for bonds from governments themselves through various Quantitative Easing programs… AND the new Dodd Frank rules, which will require more government bonds to be held on top of what's required under Basel III, and we may soon have a situation where government bond yields are so low that they simply make no sense to hold at all.10,11 This is where gold comes into play.

If the Basel Committee decides to grant gold a favourable liquidity profile under its proposed Basel III framework, it will open the door for gold to compete with cash and government bonds on bank balance sheets – and provide banks with an asset that actually has the chance to appreciate. Given that US Treasury bonds pay little to no yield today, if offered the choice between the "liquidity trifecta" of cash, government bonds or gold to meet Basel III liquidity requirements, why wouldn't a bank choose gold? From a purely 'opportunity cost' perspective, it makes much more sense for a bank to improve its balance sheet liquidity profile through the addition of gold than it does by holding more cash or government bonds – if the banks are given the freedom to choose.

The world's non-Western central banks have already embraced this concept with their foreign exchange reserves, which are vulnerable to erosion from 'Central Planning' printing programs. This is why non-Western central banks are on track to buy at least 500 tonnes of net new physical gold this year, adding to the 440 tonnes they collectively purchased in 2011.12 In the un-regulated world of central banking, gold has already been accepted as the de-facto forex diversifier of choice, so why shouldn't the regulated commercial banks be taking note and following suit with their balance sheets? Gold is, after all, one of the only assets they can all own simultaneously that will actually benefit from their respective participation through pure price appreciation. If banks all bought gold as the non-Western central banks have, it is likely that they would all profit while simultaneously improving their liquidity ratios. If they all acted in concert, gold could become the salvation of the banking system. (Highly unlikely… but just a thought).

So far there have only been two banking jurisdictions that have openly incorporated gold into their capital structures. The first, which may surprise you, is Turkey. In an unconventional effort to increase the country's savings rate and propel loan growth, Turkish Central Bank Governor Erdem Basci has enacted new policies to promote gold within the Turkish banking system. He recently raised the proportion of reserves Turkish banks can keep in gold from 25 percent to 30 percent in an effort to attract more bullion into Turkish bank accounts. Turkiye Garanti Bankasi AS, Turkey's largest lender, now offers gold-backed loans, where "customers can bring jewelry or coins to the bank and take out loans against their value." The same bank will also soon "enable customers to withdraw their savings in gold, instead of Turkish lira or foreign exchange."13 Basci's policies have produced dramatic results for the Turkish banks, which have attracted US$8.3 billion in new deposits through gold programs over the past 12 months - which they can now extend for credit.14 Governor Basci has even stated he may make adjusting the banks' gold ratio his main monetary policy tool.15

The other banking jurisdiction is of course that of China, which has long encouraged its citizens to own physical gold. Recent reports indicate that the Shanghai Gold Exchange is planning to launch an interbank gold market in early December that will "pilot with Chinese banks and eventually be open to all."16 Xie Duo, general director of the financial market department of the People's Bank of China has stated that, "[China] should actively create conditions for the gold market to become integrated with the international gold market," which suggests that the Chinese authorities have plans to capitalize on their growing gold stockpile.17 It is also interesting to note that China, of all countries, has been adamant that its 16 largest banks will meet the Basel III deadline on January 1, 2013.18 We can't help but wonder if there is any connection between that effort and China's recent increase in physical gold imports. Could China be positioning itself for the day Western banks finally realize they'd prefer gold over Treasuries? Possibly – and by the time banks figure it out, China may have already cornered most of the world's physical gold supply.

If global banks' are realistically going to improve their balance sheet diversification and liquidity profiles, gold will have to be part of that process. It is ludicrous to expect the global banking system to regain a sure footing through the increased ownership of government securities. If anything, we are now at a time when banks should do their utmost to diversify away from them, before the biggest "crowded trade" of all time begins to unravel itself. Basel III liquidity rules may be the start of gold's re-emergence into mainstream commercial banking, although it is still not guaranteed that the US banking cartel will adopt all of the Basel III measures, and they still have years to hammer out the details. If regulators hold firm in applying stricter liquidity rules, however, gold is the only financial asset that can satisfy those liquidity requirements while freeing banks from the constraints of negative-yielding government bonds. And while it strikes us as somewhat ironic that the banking system may be forced to turn to gold out of sheer regulatory necessity, that's where we see the potential in Basel III. After all – if the banks are ultimately interested in restoring stability and confidence, they could do worse than holding an asset that has gone up by an average of 17% per year for the last 12 years and represented 'sound money' throughout history.

Appendix: Gold's treatment in Basel III

Basel III is a much more complex "framework" than Basel I or II, although we do not claim to be experts on either. It should also be mentioned that Basel II only came into effect in early 2008, and wasn't even adopted by the US banks on its launch. Post-meltdown, Basel III is the Basel Committee's attempt to get it right once and for all, and is designed to provide an all-encompassing, international set of banking regulations designed to avoid future bailouts of the "too-big to fail" banks in the event of another financial crisis.

Without going into cumbersome details, under the older Basel framework (Basel I), the lower the "risk weighting" regulators applied to an asset class, the less capital the banks had to set aside in order to hold it. CNBC's John Carney writes, "The earlier round of capital regulations… government-rated bonds rated BBB were given 50 percent riskweightings. A-rated bonds were given 20 percent risk weightings. Double A and Triple A were given zero risk weightings — meaning banks did not have to set aside any capital at all for the government bonds they held."19 Critics of Basel I argued that the risk-weighting system compelled banks to overweight their exposure to assets that had the lowest riskweightings, which created a herd-like move into same assets. This was most evident in their gradual overexposure to European sovereign debt and mortgage-backed securities, which the regulators had erroneously defined as "low-risk" before the meltdown proved them to be otherwise. The banks and governments learned that lesson the hard way.

Basel III (and Basel II) takes the same idea and complicates it further by dividing bank assets into two risk categories (credit and market risk) and risk-weighting them depending on their attributes. Just like Basel I, the higher the "riskweight" applied to an asset class, the more capital the bank is required to hold to offset them.


It is our understanding that gold's reference as a "zero percent risk-weighted asset" in the FDIC and BIS literature only applies to gold's "credit risk" - which makes perfect sense given that gold isn't anyone's counterparty and cannot default in any way. Gold still has "market-risk" however, which stems from its price fluctuations, and this results in the bank having to set aside capital in order to hold it. So for banks who hold physical gold on their balance sheet (and we don't know of any who do, other than the bullion dealers), the gold would not be treated the same as cash or AAA-bonds for the purposes of calculating their Tier 1 ratio. This is where the gold community's conjecture on gold as a "Tier 1" asset has been misleading. There really isn't such a thing as a "Tier 1" asset under Basel III. Instead, "Tier 1" is merely the ratio that reflects the capital supporting a bank's risk-weighted assets.

HOWEVER, Basel III will also be adding an entirely new layer of regulation concerning the relative liquidity of the bank's assets and liabilities. This will be reflected in two new ratios banks must calculate starting in 2015: the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR).


Just as Basel III requires risk-weights for the asset side of a bank's balance sheet (based on credit risk and market risk), Basel III will also soon require the application of risk-weights to be applied to the LIQUIDITY profile of both the assets and liabilities held by the bank. The idea here is to address the liquidity constraints that arose during the 2008 meltdown, when banks suffered widespread deposit withdrawals just as their access to wholesale funding dried up.

This is where gold's Basel III treatment becomes more interesting. Under the proposed LIQUIDITY component of Basel III, gold is currently labeled with a 50% liquidity "haircut", which is the same haircut that is applied to equities and bonds. This implicitly assumes that gold cannot be easily converted into cash in a stressed period, which is exactly the opposite of what we observed during the crisis. It also requires the bank to maintain a much more stable source of funding in order to hold gold as an asset on its balance sheet. Fortunately, there is a strong chance that this liquidity definition for gold may be changed. The World Gold Council has in fact been lobbying the Basel Committee, the Federal Reserve and the FDIC on this issue as far back as 2009, and published a paper arguing that gold should enjoy the same liquidity profile as cash or AAA-government securities when calculating Basel III's LCR and NSFR ratios.20 And as it turns out, the liquidity definitions that will guide banks' LCR and NSFR calculations have not yet been finalized by the Basel Committee. The Basel III comment period that ended on October 22nd resulted in the deadline being pushed back to January 1, 2013, and given the recent delays with the US bank regulators, will likely be postponed even further next year. Of specific interest to us is how the Basel Committee will treat gold from a liquidity-risk perspective, and whether they decide to lower gold's liquidity "haircut" from 50% to something more reasonable, given gold's obvious liquidity superiority over that of equities and bonds.

The only hint we've heard thus far has come from the World Gold Council itself, which suggested in an April 2012 research paper, and re-iterated on a recent conference call, that gold will be given a 15% liquidity "haircut", but we have not been able to confirm this with either the Basel Committee or the FDIC.21 In fact, all inquiries regarding gold's treatment made to those groups by ourselves, and by other parties that we have spoken with, have been met with silence. We get the sense that the regulators have no interest in stirring the pot by mentioning anything related to gold out of turn. Given our discussion above, we can understand why they may be hesitant to address the issue, and only time will tell if gold gets the proper liquidity treatment it deserves.

November 29, 2012

#Turkey sees no clash with U.S. over #Iran “#gold for #gas” : euronews

More on the Gold for Gas Deals between Turkey and Iran

Reuters, 29/11 12:47 CET
By Evrim Ergin
ISTANBUL (Reuters) – Turkey’s energy minister said on Thursday that he sees no conflict between Ankara and Washington over U.S. plans to widen trade sanctions against Iran, including Turkish-Iranian “gold for gas” trade.
U.S. senators and aides told Reuters this week that new sanctions aimed at reducing global trade with Iran in the energy, shipping and metals sectors may soon be considered by the U.S. Senate as part of an annual defence policy bill.
One senior aide said the move would end “Turkey’s game of gold for natural gas”, referring to Iran’s conversion of Turkish payments for gas into gold because of the sanctions.
Iran sells oil and gas to Turkey, with payments made to Iranian state institutions. U.S. and European banking sanctions ban payments in U.S. dollars or euros, so Iran is paid in Turkish lira – of limited value for buying goods on international markets, but ideal for buying gold in Turkey.
Asked about the planned new sanctions, Turkey’s Energy Minister Taner Yildiz said: “I’m not of the view that there will be any negative situation, a clash with the USA, regarding natural gas, oil and mining. We are talking with the USA.”
Couriers carrying millions of dollars worth of gold bullion in their luggage have been flying from Istanbul to Dubai, where the gold is shipped to Iran, industry sources with knowledge of the business told Reuters last month.
Turkey’s Deputy Prime Minister Ali Babacan said last week that the lira Iran received from Turkey for its gas was being converted into gold because sanctions meant that it could not transfer the cash into Iran.
Official Turkish trade data suggests that nearly $2 billion in gold was sent to Dubai on behalf of Iranian buyers in August. The shipments help Tehran to manage its finances in the face of Western financial sanctions.
The sanctions, imposed over Iran’s disputed nuclear programme, have largely frozen it out of the global banking system, making it hard to conduct international money transfers. By using physical gold, Iran can continue to move its wealth across borders.
As the banking sanctions began to bite in March, Tehran sharply increased its purchases of gold bullion from Turkey, according to the Turkish government’s trade data.
Turkey’s gold exports as a whole jumped more than fourfold to $11.2 billion in the first eight months of 2012.
More than 90 percent of Iran’s gas exports go to Turkey under a 25-year supply deal. Turkey imports about 10 billion cubic metres of gas a year from Iran, making it the country’s second-largest supplier behind Russia.
(Writing by Daren Butler; Editing by Nick Tattersall and David Goodman)
euronews provides breaking news articles from Reuters as a service to its readers, but does not edit the articles it publishes.
Copyright 2012 Reuters.

NewsWires : euronews : the latest international news as video on demand

The MasterMetals Blog

Gold Fields spinoff shows decline of South Africa's #gold sector | Reuters $GFI

1 share in #Sibanye, or "We are one" in Zulu, for every Gold Fields share.  Sibanye Gold to be listed on the JSE

 Gold Fields spinoff shows decline of South Africa's gold sector

JOHANNESBURG | Thu Nov 29, 2012 10:00am EST
(Reuters) - Gold Fields (GFIJ.J), the world's fourth-largest bullion producer, is spinning off its two oldest South African mines in the latest sign of the country's once mighty gold industry succumbing to declining output and soaring costs.
In a move that nearly severs its ties with South Africa, Gold Fields' 70-year-old KDC mines near Johannesburg and its Beatrix operations near the central city of Bloemfontein will be renamed Sibanye Gold and floated on the Johannesburg stock exchange in February.
The deal leaves Gold Fields with just one mine in South Africa, the highly mechanized South Deep operation on which it has pinned the bulk of its hopes for growth. The rest of its mines are in Ghana, Peru and Australia.
Gold production in South Africa has halved in the last seven years, knocking Africa's biggest economy off its perch as the world's top bullion producer, a position it held throughout most of the 20th century.

Gold Fields spinoff shows decline of South Africa's gold sector | Reuters

November 28, 2012

#Gold crashing

Gold crashes as the markets rally on fiscal cliff hopes...

The MasterMetals Blog

Turkey Swaps #Gold for Iranian #Gas

Loophole in Western Sanctions Allows Iran to Buy Gold in Turkey With Turkish Payments for Gas Imported From Iran

Turkey Acknowledges Gold Exports Tied to Iran Gas Purchases -

ISTANBUL—Turkey on Friday acknowledged that a surge in its gold exports this year is related to payments for imports of Iranian natural gas, shedding light on Ankara's role in breaching U.S.-led sanctions against Tehran.
The continuing trade deal offers the most striking example of how Iran is using creative ways to sidestep Western sanctions over its disputed nuclear program, which have largely frozen it out of the global banking system.
The disclosure was made by Turkey's Deputy Prime Minister and top economic policy maker Ali Babacan in answers to questions from the parliamentary budget committee.

Read the rest of the article online (Subs. required): Turkey Acknowledges Gold Exports Tied to Iran Gas Purchases -

See our previous note on the Iran-Turkey Gold-gas situation:  MasterMetals: Iran’s Neighbors Act as Gold Funnels | Gold Investing News:
in the first six months of 2012, [with] gold exports to Iran, we are talking about a gold export figure in excess of $6 billion. So, compared to past trends, we are definitely talking about something extraordinary here,” he said.

In July, Turkish gold sales to Iran reached nearly $2 billion. That trade that did not go unnoticed or unreported; Turkish and international media began to hone in on this relationship.

As the spotlight grew brighter, Iran’s demand for gold from Turkey seemed to decline. Simultaneously, an enormous appetite for gold erupted in the United Arab Emirates (UAE).

Some believe that the players, aiming to mask the trade, switched up their game a bit.

November 27, 2012

#Canadian junior #energy producers look like income trusts | Financial Post

But can they afford it?

Canadian junior energy producers look like income trusts | Investing | Financial Post

November 27, 2012
Canadian junior oil and gas companies seem to be reinventing their business plans in order to once again gain access to capital after three producers last week announced they will switch to an income-and-growth model not unlike the former income trusts that dominate the larger-sized intermediate exploration and production companies.
Pinecrest Energy Inc. and Spartan Oil Corp. announced their intent to merge and institute a dividend of approximately 8%, while Whitecap Resources Inc. announced plans to implement a monthly dividend early next year that will yield about 7%. The announcements come after two others — Twin Butte Energy Ltd. in 2011 and Renegade Petroleum Ltd. earlier this year — also converted into yield-and-growth companies.
Historically, junior oil and gas companies received capital from investors looking for high growth rates. It was not unusual to see such companies spend two to three times their annual cash flow trying to achieve growth rates in excess of 20% to 25% per year.
Investors since the 2008 recession, however, have turned away from high-growth companies, focusing instead on perceived lower-risk dividend-paying companies. But very few of the intermediates have delivered on the growth side of the equation and many have also been equally challenged to sustain their dividend.
Thanks to higher-cost resource plays, capital budgets have more than doubled since 2006 when measured as a percentage of cash flow, said a recent TD Securities report.
In other words, capital budgets have expanded while cash flow has remained somewhat flat for oil producers and down for gas producers.
While investors may be partially forgiving on missed production-per-share growth targets, they are not as kind when it comes to dividend cuts. For example, the share prices of both Enerplus Corp. and Pengrowth Energy Corp. more than halved this year after large dividend cuts.
Therefore, we believe it is very important investors understand the risks and ask how and if these junior companies can do a better job of managing growth and sustaining yields than their larger peers.
A great starting point is to look at a company’s payout ratio, which represents its ability to pay a dividend over the longer term. This is done by taking the planned dividend payment and capital expenditures and dividing by estimated cash flow.
Anything more than 100% means the company will be using debt to pay its dividend to investors. Interestingly, the intermediates on average have had payout ratios above 100% since the federal government’s decision to tax income trusts back in 2006.
We also recommend looking at a company’s balance sheet strength, capital efficiencies, production decline rates, netbacks and hedging activity.
The greater the decline rate and the weaker the capital efficiency, the more money required to maintain production rates, cash flow and, subsequently, the dividend. In addition, the stronger the netback (lower cost structure and higher priced commodities), the easier it is to generate free cash flow and sustain the dividend.
A strong balance sheet also affords a company time to meet its objectives without having to immediately cut its dividend. Finally, commodity hedging is important to minimize the risk of diminished cash flow from a correction in oil and/or natural gas prices.
In conclusion, we think this could end up being a win-win scenario for the sector, because junior producers may now have the option of either growing into dividend companies and raising capital as part of that plan, or selling out to an existing dividend-paying junior producer.
That said, the jury is still out on whether the income model will work for smaller producers. To that end, investors should at least undertake some diligence and not base their decisions to invest solely on the attractive yields being offered.
Martin Pelletier, CFA, is a portfolio manager at Calgary-based TriVest Wealth Counsel Ltd.

read the article online here: Canadian junior energy producers look like income trusts | Investing | Financial Post

November 16, 2012

#Soros and #Paulson funds remain bullish on #gold

Soros raises gold ETF holdings by half, nearly triples Freeport stake
While the Soros and Paulson funds remain bullish on gold, major gold ETF shareholder Windhaven dropped its SPDR Gold holdings during the third quarter. Author: Dorothy Kosich
Posted: Friday , 16 Nov 2012


Billionaire fund manager George Soros increased his stake by half in the SPDR Gold Trust while fellow billionaire fund manager John Paul maintained his holding in the world’s largest gold bullion-backed ETF.

However, Paulson reduced his position in Gold Fields, while Soros Fund Management nearly tripled its position in Freeport-McMoRan Copper & Gold, SEC filings showed Thursday.

During the third quarter, Soros Fund Management raised its interest in SPDR Gold shares from 884,400 shares in the second quarter to 1.3 million shares.

Over the same period, the fund also upped its holdings in the Market Vectors Gold Miners ETF from 1 million shares in the second quarter to 2,325,000 shares in the third quarter. However, the fund only maintained its holdings in Market Vectors Junior Gold Miners ETF at nearly 2.4 million shares.

Meanwhile, Soros Fund Management’s holdings in Freeport-McMoRan increased from 385,000 shares in the second quarter to 1,295,558 shares in the third quarters.

During the third quarter, Soros invested in Molycorp, but apparently sold its Newmont holdings. The fund sold its second-quarter holdings in PotashCorp , but bought 4.4 million shares in coal company Peabody Energy in the third quarter.

SEC records show that Soros also added Kinross Gold to its portfolio at 1,766,019 shares during the third quarter. However, the fund dropped molybdenum miner Thompson Creek from its portfolio during the same period.

During the third quarter Paulson & Co. maintained its holdings in Agnico-Eagle Mines, Allied Nevada Gold, Barrick Gold, Iamgold, NovaGold and Randgold Resources Ltd.

However, it reduced its holdings in AngloGold Ashanti by 13% from 32,761,921 shares in the second quarter to 28,403,545 shares in the third quarter. Nevertheless, AngloGold Ashanti remains one of the fund’s largest holdings.

Paulson also reduced its stake in Gold Fields from 18,038,600 shares in the second quarter to 6,541,600 shares in the third quarter.

The fund increased its holdings in gold junior International Tower Hill Mines from 5,103,500 shares in the second quarter to 8,949,654 shares in the third quarter.

Paulson's holdings in NovaCopper were reduced slightly from 5,995,077 shares in the second quarter to 5,921,608 shares in the third quarter.

The fund also stood pat on its SPDR Gold Trust investment at 21,837,552 shares.

Meanwhile, a third major fund, Windhaven Investment Management, substantially increased its holdings in the ISHARES Gold Trust by nearly 500% during the third quarter. Windhaven upped its investment in the ISHARES Gold Trust from 4,237,713 shares in the second quarter to 25,107,965 shares in the third quarter.

However, Windhaven substantially decreased its investment in the SPDR Gold Trust from 3,847,555 shares in the second quarter to 2,060,732 shares in the third quarter.

Read the article online here: Soros raises gold ETF holdings by half, nearly triples Freeport stake - GOLD NEWS - Mineweb

November 14, 2012

Independent producers emerge in #LatinAmerica, IHS Forum told - #Oil & Gas Journal

Latin American independent producers are following strategies similar to their US counterparts as they try to penetrate previously closed exploration and production arenas, two company executives said during the 2012 IHS Forum in Washington, DC.
They’re identifying niches where they can work more efficiently than multinationals or state oil companies and playing to their strengths.

Read the article online here:  Independent producers emerge in Latin America, IHS Forum told - Oil & Gas Journal

#China needs to add to its #gold #reserves to ensure national economic and financial safety

China needs to add to its gold reserves to ensure national economic and financial safety, promote CNY globalization and as a hedge against foreign reserve risks according to an official from the department of international economic affairs of the ministry of foreign affairs. 

November 12, 2012

U.S. to become biggest #oil producer and energy independent

#USA will overtake #Saudi Arabia to become the world's biggest oil producer before 2020, and will be energy independent 10 years later

U.S. to become biggest oil producer and energy independent - Nov. 12, 2012

Oil and gas boom puts US on track for energy independence

LONDON (CNNMoney) -- The United States will overtake Saudi Arabia to become the world's biggest oil producer before 2020, and will be energy independent 10 years later, according to a new forecast by the International Energy Agency.
The recent resurgence in oil and gas production, and efforts to make the transport sector more efficient, are radically reshaping the nation's energy market, reported Paris-based IEA in its World Energy Outlook.
North America would become a net exporter of oil around 2030, the global organization said Monday.
"The United States, which currently imports around 20% of its total energy needs, becomes all but self sufficient in net terms -- a dramatic reversal of the trend seen in most other energy importing countries," the IEA stated.
The U.S. is experiencing an oil boom, in large part thanks to high world prices and new technologies, including hydraulic fracking, that have made the extraction of oil and gas from shale rock commercially viable.
From 2008 to 2011, U.S. crude oil production jumped 14%, according to the U.S. Energy Information Administration. Natural gas production is up by about 10% over the same period.

According to the IEA, U.S. natural gas prices will rise to $5.5 per million British thermal units (MBtu) in 2020, from around $3.5 per MBtu this year, driven by rising domestic demand rather than a forecast increase in exports to Asia and other markets.
"In our projections, 93% of the natural gas produced in the United States remains available to meet domestic demand," it said. "Exports on the scale that we project would not play a large role in domestic price setting."
North America's new role in the world energy markets will accelerate a change in the direction of international oil trade toward Asia, and underscore the importance of securing supply routes from the Middle East to China and India.
The IEA said it expects global energy demand to increase by more than a third by 2035, with China, India and the Middle East accounting for 60% of the growth, and more than outweighing reduced demand in developed economies.
That will push world average oil import prices up to $125 per barrel (in 2011 dollars) by 2035, from around $100 per barrel at present, but they could be much higher if Iraq fails to deliver on its production potential.
Iraq is set to become the second largest oil exporter by the 2030s, as it expands output to take advantage of demand from fast growing Asian economies.

New fuel economy standards in the U.S. and efforts by China, Japan and the European Union to reduce demand would help to make up for a disappointing decade for global energy efficiency.
"But even with these and other new policies in place, a significant share of the potential to improve energy efficiency -- four-fifths of the potential in the buildings sector and more than half in industry -- still remains untapped," the IEA stated.
Policymakers are still missing out on potential benefits for energy security, economic growth and the environment.
Growth in demand over the years to 2035 would be halved and oil demand would peak just before 2020, if governments took action to remove barriers preventing the implementation of energy efficiency measures that are already economically viable, the global organization said.

U.S. to become biggest oil producer and energy independent - Nov. 12, 2012

The MasterMetals Blog

Shanghai plans #gold #ETFs as #China seeks to expand market

China is keen to further open up its domestic gold market to the international community, with Shanghai looking at gold exchange-traded funds as the market matures.

Shanghai plans gold ETFs as China seeks to expand market

Author: Rujun Shen and Polly Yam
Posted: Monday , 12 Nov 2012
HONG KONG (Reuters)  - 
China, set to surpass India as the world's top gold consumer this year, is keen to further open up its domestic market for the precious metal to the international community, with Shanghai looking at gold exchange-traded funds as the market matures.
Hoping to tap resilient Chinese demand for bullion as gold prices head for their twelfth straight year of gains, the Shanghai Gold Exchange (SGE) also said it would launch an interbank market early next month.
"As the domestic market matures and opens up, the exchange will launch over-the-counter trading, gold ETFs, Friday night trading and improve the leasing market," SGE Chairman and President Wang Zhe told a precious metals industry conference in Hong Kong on Monday.
The gold ETFs will be traded on the Shanghai and Shenzhen stock exchanges, said Zheng Zhiguang, general manager at Industrial and Commercial Bank of China Ltd.
"There is no doubt that gold ETF products will be launched in China. It's entered a study phase on regulation and operation," Zheng said on the sidelines of the event.
"It will begin as a domestic market, but with future development it can become a global market," he said, adding some of the gold investment products that the bank offers would be linked to ETFs in the future.
But immediate focus is on the launch of an interbank market that will start with spot contracts and gradually offer forward contracts.
All banks trading on the China Foreign Exchange Trading System and National International Funding Centre will eventually be able to trade in the market, including foreign banks, Wang said.
"In the beginning it will pilot with Chinese banks and eventually be open to all," Wang told Reuters.
Currently near three-week highs above $1,730 an ounce, spot gold has gained nearly 11 percent this year, its safe-haven appeal boosted by a shaky global economy.
China's gold market is expanding because of strong domestic demand for the metal, said Xie Duo, g eneral director of the financial market department of the People's Bank of China.
The central bank's policy is to encourage residents to hold physical gold, he said, but declined to comment on the PBOC's own gold buying activity.
"Later on, we will further open up the market and quicken the steps to integrate into the international market," said Xie, without providing details.
"We should actively create conditions for the gold market to become integrated with the international gold market."
But Xie said the central bank has not set a timeline for issuing more gold import licences.
Beijing strictly regulates gold imports and exports and has so far only given licences to nine commercial banks, including Industrial and Commercial Bank of China, Bank of China, Agricultural Bank of China and China Construction Bank.
Still, Chinese banks have been increasing their gold trading on the domestic over-the-counter (OTC) market.
Chinese banks are also allowed to trade gold on the international OTC markets for their own books but not allowed to trade on behalf of their clients, Xie told Reuters.
For now, the central bank has no plan to look into when and how China would allow commercial banks to trade gold through the international OTC markets for their clients, Xie said. "That is not the development direction," he added.
China has official gold reserves of 1,054.1 tonnes, the world's sixth-largest, which account for under 2 percent of its total reserves, according to the World Gold Council.
Top gold holder the United States has more than 76 percent of its reserves in its 8,133.5 tonnes of gold holdings.
(Writing by Manolo Serapio Jr.; Editing by Clarence Fernandez and Joseph Radford)

Shanghai plans gold ETFs as China seeks to expand market - GOLD ANALYSIS - Mineweb

November 9, 2012

New #ASX disclosure #rules to come into effect in late 2013

The Australian bourse has received regulatory approval to introduce new listing rules enhancing the disclosure of reserves and resources by mining and oil and gas companies.
The new rules would require mining companies to report in accordance with the Jorc Code with new requirements for the disclosure of additional information when exploration results, estimates and ore reserves, as well as production targets were disclosed.

For oil and gas companies, the new rules required them to report in accordance with the Society of Petroleum Engineers - Petroleum Resources Management system, as well as new requirements for the disclosure of resource and reserve estimates.

The new rules also required, from both mining and oil and gas companies, a yearly mineral resource and ore reserve statement in the annual report.

See the whole article online here:  New ASX disclosure rules to come into effect in late 2013

The MasterMetals Blog

November 7, 2012

Iran’s Neighbors Act as Gold Funnels | Gold Investing News

As life in Iran becomes more expensive and more difficult, its inhabitants are turning to gold to cope with the vicious bite of sanctions.

There are two ways to deal with hyperinflation. Primarily, it’s through dollars and also alternatively through gold

Iran’s Neighbors Act as Gold Funnels Wednesday November 7, 2012, 4:30am PST

By Michelle Smith - Exclusive to Gold Investing News

As life in Iran becomes more expensive and more difficult, its inhabitants are turning to gold to cope with the vicious bite of sanctions. Iran sold over 2 million barrels of oil per day last year, but only about 1 million barrels a day in October. Its currency, the rial, is rapidly losing value and hyperinflationary conditions are worsening. Even meat consumption has reportedly declined. But as conditions in the nation deteriorate, the amount of yellow metal that Iran is funneling in from its neighbors is on the rise.

“There are two ways to deal with hyperinflation. Primarily, it’s through dollars and also alternatively through gold,” said Ambassador Mark Wallace, CEO of United Against Nuclear Iran.

One effect of sanctions, however, is that it has become much more difficult for Iran to obtain major foreign currencies. A portion of what is available is needed for legitimate trade in the private sector. But in addition to that, the public wants to store its wealth in safe havens.

Problems with the rial and oil income have led to the buying and hoarding of gold and dollars. These problems have also forced Iran to use third parties and other nations to disguise its economic activities, states a report from the Center for Strategic and International Studies.

The Iranian regime and its elite cronies are suspected of hoarding metal, and one of the third-party strategies they appear to be employing is the use of neighboring countries to funnel enormous quantities of gold into Iran.

“In 2010 and 2011 combined Turkey’s total gold and jewelry exports amounted to $4.3 billion,” said Inan Demir chief economist at Turkish Finansbank, quoted in Voice of America.

“Now, in the first six months of 2012, [with] gold exports to Iran, we are talking about a gold export figure in excess of $6 billion. So, compared to past trends, we are definitely talking about something extraordinary here,” he said.

In July, Turkish gold sales to Iran reached nearly $2 billion. That trade that did not go unnoticed or unreported; Turkish and international media began to hone in on this relationship.

As the spotlight grew brighter, Iran’s demand for gold from Turkey seemed to decline. Simultaneously, an enormous appetite for gold erupted in the United Arab Emirates (UAE).

Some believe that the players, aiming to mask the trade, switched up their game a bit.
Iran includes Dubai in gold network

To see Iran’s lifeline at work, pay a visit to Istanbul’s Ataturk International Airport and find a gate for a flight to Dubai, states a Reuters article.

“Couriers carrying millions dollars worth of gold bullion in their luggage have been flying from Istanbul to Dubai, where the gold is shipped on to Iran, according to industry sources with knowledge of the business,” the article notes.

Customs data from Turkish airports is said to support these claims.

Further, Turkish trade data shows that in August the nation’s main partner country for exports was suddenly the UAE, despite having been Iran in the previous months. And of the $2.3 billion worth of gold that Turkey exported in August, $1.9 billion worth was sent to the UAE.

Again, in September, the UAE was Turkey’s most valuable export partner. And again, the bulk of its appetite was for gold. Of the total $1.39 billion in exports, $1.14 billion was yellow metal.

During this time, Iran has fallen from the top spot, but it still remains one of Turkey’s most valuable export partners.

Frank #Giustra, BC Business, November 2012

A little hagiography on Frank Giustra.


November 5, 2012

Style meets substance in Rob McEwen | Mining Markets

Some promotion for $MUX #McEwen Mining
Style meets substance in Rob McEwen

By: Alisha Hiyate2012-10-16

Rob McEwen does things a little differently than other mining CEOs.

For one, the president and CEO of McEwen Mining (MUX-X, MUX-T) doesn’t just court large institutional investors. He also makes himself unusually accessible to retail shareholders.

The master promoter hosts a weekly investor lunch at McEwen Mining’s downtown Toronto headquarters, where shareholders and prospective investors can hear the latest from the company, meet the management team, get their picture taken with the mining mogul, and even leave with a McEwen Mining-branded goodie bag.

“Everybody’s putting money in,” McEwen tells Mining Markets during a mid-August interview. “They’re entitled to ask questions and to get an answer.”

Perhaps his respectful treatment of McEwen Mining’s shareholders is because the former investment banker who founded Goldcorp (G-T, GG-N) in the early 1990s, is one of them, despite his affluence. (He’s donated tens of millions of dollars to the McEwen Centre for Regenerative Medicine and $2.8 million to the California-based X Prize Foundation, which is dedicated to fostering breakthroughs in science and technology.)

McEwen believes that CEOs should own a significant holding in the companies they lead. He owns 25% of McEwen Mining’s 268 million shares outstanding, a position that cost him around $110 million. And although the company he runs bears his name, McEwen doesn’t take a salary.

So when McEwen talks about building shareholder value, it’s not another bromide spouted by a well-meaning executive. As McEwen Mining’s largest shareholder, he really means it.

“When I wake up in the morning, I’m thinking about the share price. When I go to sleep, I’m thinking about the share price — and what can you do to build value,” he said during a panel at an investment conference in Hong Kong this summer. “I think that’s missing in the executive suite of most companies out there.”

You can bet, then, that when McEwen Mining encountered an unexpected cash flow problem this year that required the company to raise money in a very stingy market, its president and CEO gave the solution a lot of thought.

Rio’s Mongolia mine clears major hurdle #OT

Looks like Oyu Tolgoi is finally ready to star producing!

Rio's Mongolia mine clears major hurdle
Financial Times, 8:32am Monday November 5th, 2012--
By Leslie Hook in Tianjin
Rio Tinto's $5bn Mongolian copper-gold mine Oyu Tolgoi is set to start producing after finally sealing a deal with China for power supply

Read the full article at:

November 2, 2012

If you only read one article on #Gold, this is it!! Scott Minerd - Return to Bretton Woods | Guggenheim Partners

If you only read one article on #Gold, this is it!!
Return to Bretton Woods
Scott Minerd -  Guggenheim Partners

The gold-convertible U.S. dollar became the global reserve currency under the Bretton Woods monetary system that lasted from 1944-1971. This arrangement ended because foreign central banks accumulated excessive reserves of U.S. Treasuries, threatening price stability and the purchasing power of the dollar. Today, central banks are once again stockpiling massive Treasury reserves in an attempt to manage their currency values and gain advantages in export markets. We have, effectively, returned to Bretton Woods. The trouble is that the arrangement is as unsustainable today as it was during the middle of the last century.

Bretton Woods is a resort in the mountains of New Hampshire that was made famous by a series of meetings of world leaders and economists in 1944. Nine months before the last of Hitler's V-2 rockets struck Britain, 730 delegates from the 44 Allied Nations congregated in Bretton Woods to create a new world order, including a monetary system that could resolve the festering economic consequences of the First World War and the Great Depression.
Under the Bretton Woods Agreement, the world's currencies would be pegged to the U.S. dollar and central banks would be able to exchange dollars for gold at a set price of $35 per ounce. It was this arrangement that firmly established the U.S. dollar as the global reserve currency. The system worked relatively well for almost three decades (1944-1971). During that time, Bretton Woods' member states achieved increasing levels of trade, economic cooperation, and initially, a period of relative price stability.
The trouble with the system was that global central banks had pegged their currencies at low levels to support exports to the U.S. This led to the accumulation of massive dollar reserves in the hands of foreign central banks. These dollars were used to buy interest-bearing U.S. Treasuries. The structural imbalance, which resulted in ever growing dollars reserves, created problems that would ultimately compromise the very existence of Bretton Woods.
Today, global central banks are once again managing the exchange values of their currencies relative to the dollar to ensure export competitiveness. Just as pressure mounted as a result of the accumulation of large Treasury reserves by foreign central banks under Bretton Woods, today, ever-expanding dollar-denominated reserves on central bank balance sheets around the world threaten global price stability and even dollar hegemony. Though a reversal of this unsustainable pattern is not imminent, the ultimate consequences could be even more severe than the precedent set 41 years ago.
By understanding the demise of Bretton Woods, we gain a better handle on how today's global monetary arrangement may result in a period of relative price stability in the short-run followed by a rapid depreciation in the purchasing power of currencies on a global scale. An historical perspective provides the framework to better understand the current monetary system and the impact these policies have on investment portfolios.
The Golden Years of Bretton Woods
At the outset of Bretton Woods, the value of the United States' gold reserves relative to the monetary base, known as the gold coverage ratio, was approximately 75%. This helped to support the dollar as a stable global reserve currency. By 1971, the issuance of new dollars and dollar-for-gold redemptions had reduced the U.S. dollar's gold coverage ratio to 18%.
The consensus view during the early years of Bretton Woods was that the dollar was as good as gold. Gold has no yield so central banks held interest-bearing Treasuries on the assumption that they could always be converted to gold at a later time. By the early 1960s, there was widespread recognition that the U.S. could never fulfill its commitment to redeem all outstanding dollars for gold.
Despite this disturbing fact, central banks did not call the Fed's bluff by selling their dollar reserves. They had become hostage to the system. By the end of the decade, the problem had intensified to the point that if any central bank attempted to convert its dollars to gold, its domestic currency would rapidly appreciate above the levels that were pegged under Bretton Woods. This would lead to severe economic slowdowns for any country who challenged the U.S.
Throughout the 1960s, foreign central banks implicitly imported inflation as a result of maintaining the exchange value of their currencies at the artificially low rates set in 1944. The overvalued dollar led to trade deficits versus a sizable trade surplus for the United States. Because of the undervaluation of non-U.S. currencies, Bretton Woods member states were forced to expand their money supplies at rates that compromised price stability. As foreign exporters converted dollars back to their local currencies, the dollar reserves on central bank balance sheets continued to grow.
This surplus of dollars held by central banks, and subsequently invested in Treasury securities, reduced the United States' cost of borrowing and allowed the country to consume beyond its means. Valéry Giscard d'Estaing, then finance minister of France referred to the situation as "America's exorbitant privilege," but he was only half right. As Yale economist Robert Triffin noted in 1959, by taking on the responsibility of supplying money to the rest of the world, the U.S. forfeited a significant amount of control over its domestic monetary policy.
The End of the Golden Years
When Triffin introduced his theory to the world, he accurately predicted the collapse of Bretton Woods and the end of an era of U.S. trade surpluses. Triffin told Congress that, at some point, foreign central banks would become saturated with Treasury securities and seek to redeem them for gold. However, because this would appreciate their currencies and slow growth, it was difficult to envision a set of circumstances that would lead foreign central banks to stop accumulating more dollars.
By the middle of the 1960s, the U.S. was escalating the war in Southeast Asia while expanding social welfare programs under Lyndon Johnson's Great Society. As the U.S. pursued a policy of both 'guns and butter,' its trading partners questioned the country's willingness to restore fiscal balance. Over time, the U.S. trade surplus deteriorated as America imported more than it exported. Further, the increasing trade deficit in the U.S. accelerated the accumulation of dollar reserves around the world. As a result of the massive growth in reserves, the Bretton Woods nations saw domestic inflation rise by an average of 5.2% during the 1960s, relative to U.S. inflation, which was 2.9%.
European countries began to consider that the price of dollar-denominated inputs such as oil would fall dramatically if their currencies were revalued upward. By abandoning Bretton Woods, they could reduce their domestic inflation by reasserting control over their domestic money supply. However, the possibility of an exit from Bretton Woods had not been contemplated in the original 1944 plan.
How would member states leave Bretton Woods? The answer could be found in Trffin's prediction. Forced to swap dollars for gold, the U.S. would have to admit that it could no longer keep its pledge to exchange gold for $35 per ounce. Between Bretton Woods' establishment in 1944 and its demise in August 1971, the U.S. exported almost half of its gold reserves. In the 12 months leading up to the end of Bretton Woods, the Fed lost nearly 15% of its total gold reserves; a rate at which the U.S. would have depleted all of its reserves in a short time. This led then-President Richard Nixon to abruptly end the dollar's gold convertibility by 'closing the gold window.'
While the United States' trading partners immediately reaped the benefits of reduced inflation and cheaper imports, the end of gold convertibility for the dollar would set in motion a decade of subpar growth and high inflation. In the early 1970s, members of the Organization of the Petroleum Exporting Countries (OPEC) saw the purchasing power of their dollar-denominated oil receipts rapidly erode. They seized the opportunity to raise prices. Between 1973 and 1980, oil prices would rise by more than 1,000%. As a result, during the 1970s, countries that had pursued relatively weaker currencies under Bretton Woods began to seek relatively stronger exchange values to constrain their energy costs. The resulting fall in demand for the dollar led to a drastic reduction in its purchasing power.
Bretton Woods II: The Sequel
The early success of Bretton Woods, which relied upon weak currencies to successfully promote exports looks surprisingly similar to the policies being practiced by central banks around the world today. Some have referred to the current policies in foreign exchange markets as Bretton Woods II. Although not officially acknowledged, central banks are once again tacitly pegging their currencies to the dollar. As the U.S. is expanding its monetary base through quantitative easing (QE), other countries have few options but to join this race to the bottom. This situation is as unsustainable today as it was in the 1960s. (For a more in-depth discussion, read one of my previous commentaries, The Return of Beggar-Thy-Neighbor.)
Once global growth begins to accelerate and capacity utilization increases, economic bottlenecks will cause the price of inputs, such as energy, to rise. There will then be another inflection point when countries will realize that by allowing their currencies to appreciate, reduced import prices will spur productivity and domestic growth. This will happen when it becomes apparent that the savings resulting from lower input prices exceeds the export losses associated with a stronger currency. Though the timing of this event is difficult to forecast, its occurrence will likely cause Bretton Woods II to collapse.

Investment Implications: A Green Light for Gold
Gold was an important component of the Bretton Woods system. As a monetary anchor, it provided stability for the dollar as a global reserve currency. With the demise of gold convertibility under Bretton Woods, global price stability began to unravel. After being depegged from its official price of $35 per ounce in 1971, gold rose by more than 2,000% over the next 10 years. Investors migrate to gold when currencies no longer function as good stores of value.
The U.S. gold coverage ratio, which measures the amount of gold on deposit at the Federal Reserve against the total money supply, is currently at an all-time low of 17%. This ratio tends to move dramatically and falls during periods of disinflation or relative price stability. The historical average for the gold coverage ratio is roughly 40%, meaning that the current price of gold would have to more than double to reach the average. The gold coverage ratio has risen above 100% twice during the twentieth century. Were this to happen today, the value of an ounce of gold would exceed $12,000.
The possibility of an upward revaluation of the official price of gold should not be minimized. Although I do not anticipate or advocate a return to the gold standard, an upward revaluation of gold by one of more central banks is possible. If the Federal Reserve, for instance, announced that it stood ready to purchase gold at $10,000 per ounce, the gold-coverage ratio of the dollar would return to 75%, roughly where it stood at the beginning of Bretton Woods. This could restore confidence in the value of the dollar if its ultimate role as a reserve currency were to be challenged.
Gold's industrial use only represents .03% of global GDP. Therefore, its upward revaluation would not cause a significant economic shock associated with rising input prices. Likewise, a higher price would probably not affect the behavior of the world's largest holders, which are central banks and sovereign wealth funds.
Prescient investors should consider making allocations to gold and other precious metals as a hedge against the erosion of purchasing power of the dollar as well as for the potential upside from positive market price appreciation or a possible intervention at the policy level. Despite the sizable appreciation in gold prices in the last decade, gold is far from overvalued. This makes gold a low-risk investment and leads me to believe that gold will never again trade below $1,600 an ounce.
The Precarious Balance Continues
Almost 70 years later, the global monetary system is still living in the long shadow of Bretton Woods. Triffin's views are as relevant today as they were when they were first published more than half a century ago. The current paradox in the global monetary system is as unsustainable as it was under the original Bretton Woods Agreement. The exact timing of an inflection point for Bretton Woods II remains unclear, and although it is not imminent, its eventual occurrence is virtually certain. As was the case in the 1960s, a reversal of the acquisition of Treasuries by foreign central banks will cause a major shift in global capital flows and insecurity about the value of dollar-based assets, particularly Treasuries.
The most likely outcome will be renewed support for precious metal, which functions as a store of value and a hedge against currency depreciation. In contrast to the 1960s, bullion is free to float at market prices and gold markets have already begun discounting a future set of circumstances which is much different from today. The time to buy insurance on the end of Bretton Woods II is before the inevitable occurs.
None of this should come as a surprise given the unorthodox growth of central bank balance sheets around the world. The collapse of Bretton Woods in 1971 caused a decade of economic malaise and negative real returns for financial assets. Can anyone afford to wait to find out whether this time will be different?