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India Hopes to Wean Citizens From Gold
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Interesting article, bears watching....
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By Anand Giridharadas
International Herald Tribune, Paris
Wednesday, March 16, 2005
http://www.iht.com/bin/print_ipub.php?
file=/articles/2005/03/15/news/gold.html
MUMBAI, India -- The Indian government is placing a long-range wager
that an increasingly prosperous population can be coaxed to part --
at least physically -- with its boundless hoards of gold.
A policy floated recently would allow Indians to buy virtual
or "paper" gold in denominations as low as $2, instead of investing
in necklaces, bangles, and coins. It is a step, analysts say, toward
bringing millions of poor Indians into the banking system and
unlocking the untapped investment potential of more than $200
billion worth of privately held gold in India.
Indians are the world's biggest gold consumers, with more than half
the country's savings tied up in physical assets. Particularly among
the very poorest, Indians are prone to spending much of their income
to acquire the metal, locking up their assets in the resulting
hoards.
Economists say such a high rate of hoarding constrains the Indian
economy, which is short of capital.
The economy is projected to grow into the world's third largest,
after the United States and China, by 2040.
Details of the program, disclosed in four brief sentences in the
government's budget speech late last month, are still under
discussion.
But the basic proposal is for funds traded on gold exchanges that
allow "gold units" to be bought and sold without physical
possession -- much like buying shares in Coca-Cola without having to
stash the beverage at home.
Initially, the metal itself would be retained by the bank, as the
seller of a paper gold certificate, and the buyer could at any time
trade in the paper to receive the current market value of the
quantity of gold originally bought -- not just the amount of money
originally spent.
The long-range vision, experts say, is to put the value of the gold
to work, perhaps by allowing banks to "sublet" gold deposits, just
as they lend out deposited cash. Doing so could inject more capital
into the economy than top multinationals have done: Indians last
year poured about twice as much money into gold -- about $10
billion -- as foreign direct investors poured into India.
Equally, paper gold could make shareholders of the 700 million
village dwellers who, though starkly poor, purchase about two-thirds
of India's gold.
"They are exposed to only traditional ways of investing," said
Pankaj Razdan, managing director of Prudential ICICI Mutual
Fund. "This would be a different way of getting them to participate
in capital market."
Gold has long been a last line of defense for Indian households, a
hedge against pensions evaporating, ventures folding, prices
inflating, and children's emigrating.
Now the government appears to be betting that, after 14 years of
reforms and prolonged economic growth, growing numbers of Indians
are crossing a confidence threshold that renders the hoarding of
gold outmoded.
"It's probably as significant a measure of what's going on behind
the reforms as any," said Peter Bernstein, the author of "The Power
of Gold: The History of an Obsession."
"If people are really beginning to transfer from gold to financial
assets, that's a tremendous vote of confidence in the reforms."
Indeed, paper gold could serve as a referendum on whether reform has
released Indians from a once-paralyzing fear of the future.
"In the past, our mental model of money was that of a stagnant pool
that always needed to be protected -- from evaporation, leakage, and
reckless use," wrote Santosh Desai, an advertising executive, in an
essay in the local magazine The Week.
"This is the first generation that sees tomorrow as being better
than yesterday, and this fundamental change has transformed the way
in which we see money," wrote Desai, who is the president of McCann
Erickson India.
"From being fearful hoarders of money, we are today willing to be
energized by the continuous flow of money in our lives."
But is this, the world's most gold-gulping nation ready to part,
even just physically, with its gold?
Don't bet your bangles on it.
"What is the reason I'm buying gold?" said Pinank Mehta, an asset
manager. "The reason for my purchase is a lack of trust in the
present institutions. Now why would I buy physical gold and give it
back to the same guys who are the cause of my not trusting the
present system?"
The government can hope that growing numbers of Indians will abandon
that view. Nevertheless, interviews with policy makers, gold
traders, jewelers, and consumers suggest that Indians retain a
cultural need to touch and feel their yellow metal.
Analysts say that for affluent families, paper gold might simply
become an additional investment vehicle.
"I possess about half a dozen single gold earrings," wrote Natasha
Ramarathnam, a Delhi mother, in an e-mail. "When I lose one of a
pair, I put the survivor away and get a new one. But never throw it
out, as I would a silver one, or exchange it at the shop."
"When you buy gold," she wrote, "you buy it for life, and never
think of selling it."
A group of migrant workers, emerging from a garment factory in
Mumbai, said they would embrace a mechanism to bypass money lenders,
who, when converting their gold to cash, physically slice off 10
percent as a fee.
"If there is an emergency or some need arises, you can sell it back.
But it gets cut, and so it's discounted," said Dinanath Kanojaya, a
migrant from Uttar Pradesh state.
A virtual-gold system could also expand much-needed rural credit:
The poor could gradually put cash into paper gold, and then take out
more affordable loans from government banks with paper gold as
backing, said Sanjeev Agarwal of the World Gold Council.
Still, few expect physical gold to make an exit. Some say that gold,
along with cricket and hot tea, is what makes Indians Indian.
Gold is an established feature of Hindu mythology and festivals. The
word "gold" has seven synonyms in Sanskrit. Ancient Indian healers
believed in gold's powers to improve blood flow. It remains the
preeminent status symbol for women rich and poor.
Some attribute India's attachment to gold to a long history of
turbulence: millennia of foreign invasions, rising and falling
empires, political consolidations and disintegrations and avaricious
governments.
Gold is also, many say, the surest way to keep money safe, both from
the reach of thieves and the gaze of the tax man.
All hedges were supposed to be gone by 1Q05, but estimated production of only 16K ounces for 1Q05 instead of 20K ounces should leave about 4K ounces still needing to be delivered into. Thus, RNC should be hedge free by end of April 2005.
but I also like Dylan
Positively 4 Street, probably his best...
"you've gotta lotta nerve to say you are my friend
when i was down you just stood there grinnin'
you've gotta lotta nerve to say you have a helping hand to lend
you just want to be on the side that's winnin'
you see me on the street, you always act surprised
ya say "how are you?", "good luck", but ya dont mean it
when you know as well as me you'd rather see me paralized
why dont you just come out once and scream it
i know the reason you talked behind my back
i used to be among the crowd you're in with
but do you take me for such a fool, to think i'd make contact
with the one who tries to hide what he dont know to begin with?
you say i've let you down - ya know its not like that
if you're so hurt, why then doncha show it?
you say you've lost your faith, but thats not where its at
ya have no faith to lose - an' ya know it
no, i doe not feel that good when i see the heartbreaks you embrace
if i was a master thief perhaps i'd rob them
and tho i know you're dissatisfied with your position and your place
dont you understand, its not my problem?
i wish that for just one time you could stand inside my shoes
and just for that one moment i could be you
yes, i wish that for just one time you could stand inside my shoes
you'd know what a drag it is to see you"
Private Placement now to close next week. Would not be surprised to see a close below C$1.00 as a final puking point. RNC should start to beat guidance beginning in 2Q05, we'll see...
Loonie ?? Par schmarr...
Kim Parlee: What's the next catalyst for gold? Is it still in the U.S. dollar?
John Embry: Initially, I think, it is going to be the U.S. dollar. Now but I believe it will go far beyond that. Because eventually the U.S. dollar just can't fall to nothing, which a lot of people seem to think. But one of the things that won't restrain it from falling is that the other countries will be forced to debase their currencies by printing more money to keep their currencies from rising too much against the U.S. dollar. We've seen it in Canada. Don Coxe is a friend of mine and I saw Don a couple of times in the last couple of weeks. He is convinced that the Canadian dollar is going to par. I don't think the Canadian government has any intention of allowing it to go to par because our commodity business would be fine but Ontario and Quebec would be wiped out.
Kim Parlee: Our manufacturing base?
John Embry: Our manufacturing base would be murdered. So we're all alone. They talk about the euro going to 1.60, 1.70? Europe's not that competitive with the United States at even 1.40. So I don't buy the idea. The currencies that are severely undervalued are clearly the Asian currencies. And they are the ones that will ultimately rise a lot against the U.S. dollar.
Kim Parlee: But if you're a Canadian central banker, what do you do with so much interest in commodities, oil, energy? How do you dissuade people from buying Canadian dollars?
John Embry: That's a good question because I think David Dodge gave a speech in Vancouver several weeks ago in which he said, "If it was a legitimate rise in the Canadian dollar because terms of trade were improving, because commodity prices were rising," etc., he would probably not intervene to a great extent. But if it's driven by hot money, which will be the second step, you'll see it rising and then all the hot money sloshing around the world will come pouring into the Canadian dollar. The only way you can combat that is by dropping interest rates sharply and try to make it as unattractive as possible. It's not beyond the realm of possibility that you can go to par. But it would be so devasting for the Canadian economy, particularly the central part of the country, that I don't think it would stay there long because the country would be going to hell in a handcart.
I would wait before buying, this amended PP will likely spook more retail investors into selling RNC
RNC Gold Inc. (TSX:RNC) ("RNC" or the "Company") announced today that it has amended the terms of the private placement (the "Offering") announced in a press release of the Company dated February 23, 2005 (and updated February 25, 2005) to provide for aggregate proceeds to RNC of up to Cdn$7.0 million, such proceeds to be realized by the issue of up to 7.0 million units of the Company ("Units").
RNC and Canaccord Capital Corporation, on behalf of Jennings Capital Inc. (collectively, the "Agents"), have amended pricing of the Units such that each Unit will now be sold to investors at a price of Cdn$1.00 per unit, for aggregate gross proceeds to the Company of up to Cdn$7.0 million. Each Unit shall consist of one common share of the Company and one-half of one common share purchase warrant of the Company ("Warrants"). Each whole Warrant will entitle the holder thereof to purchase one common share of the Company ("Warrant Shares") at a price of Cdn$1.25 per Warrant Share for a period of five years after the date of the closing of the Offering.
Frank, I am feeling rather generous, will let you have my ARQ shares for C$4 tomorrow on the open. Place your bid there and you can have all my shares...
http://images.vmd-drums.isacsoft.com/pgetfile.php?aid=20227&fid=113&key=d519444cf74de6d4ec75...
your friend, not waiting for the C$5.40 target,
Marks
thanks Louis, much appreciated...
keep us updated on that June contract, options expiration is generally a time when commercials like to give the gold options crowd a good shellacking, making as many options as possible expire worthless...
your comments:
"The contract to watch for open interest is the June which will be the active one in a couple of weeks (first notice for April is March 31, most are rolled over while in the preceding week). June also is a widely termination for the London style of carry trades (sorta futures).
What has to be observed is the gain in open interest of the Junes. If they peak as they did last year, this would mean that speculative money jumps in (fast money, as in fast-in, fast-out) and the metal could make it's high at the end of the month.
If, to the contrary, there is a a lesser rush in the contract, but a rollover in both Junes and Decembers (slow money) the metals prices could resume the ascent."
me too...
when are you guys going to learn, Louis is the expert!! now someone harrass him into providing us with a commentary again this week...
http://www.investorshub.com/boards/read_msg.asp?message_id=5191980
C$1.08 is my prediction, tried to pick up a partial position at C$1.13 today (and would try to pick up remainder if it fell below C$1.09) but did not get filled...
http://www.investorshub.com/boards/read_msg.asp?message_id=5627006&txt2find=rnc
FWIW, the PP apparently did not close today, should close tomorrow. We'll see. This is the news that likely caused the meltdown today:
"For the first quarter ended March 31, 2005, RNC expects consolidated gold sales of approximately 16,000 ounces. Higher than expected dilution at Hemco and lower than anticipated equipment availability caused by a lack of working capital at La Libertad have resulted in a first quarter production shortfall. The Company anticipates these issues to be substantially resolved and expects to return to budgeted production in the second quarter of 2005."
I reiterate, the primary driver to RNC stock price is their acquiring San Andreas/Honduras mine on terms outlined. This acquisition (on which RNC has right of first refusal) as outlined will be significantly accretive to EPS and cash flow.
The exploration possibility is another potential positive, but more meaningful to others than to me. I just want San Andreas deal done on terms outlined (i.e. 5M shares plus assumption of bank debt).
I added some EPM today as well, C$.85
yep, just read it...
agree with Hartman, something strange happening...
"Overall, this has to go down as one of the nastiest days I have seen yet for U.S. assets as a whole, on a day when the Treasury is busy conducting another debt auction. I have stated many times in the past that it is highly unusual to see downside volatility on Treasury bond prices and the dollar on auction days, and today the Treasury sold $15 billion in five-year notes with a ten-year note auction of $9 billion scheduled for tomorrow. The dollar is currently trading lower versus the euro and yen, U.S. bond prices traded lower right from the open after some rumblings out of Germany, and U.S. stocks, especially some of the big caps in the Dow Industrials, have been bleeding red ink since the open. When the government needs to sell $15 billion, we normally see bonds and the dollar with a neutral to positive bias; not so today!
It is also unusual to see gold and silver do anything constructive on a Treasury auction day. For most of the morning it looked like the metals would be held in check to remain very close to yesterday’s close, but just before the lunch hour in New York, silver popped for twelve cents to $7.61 spot, with gold moving two dollars higher at $442 spot. A twelve cent move in silver and a two dollar move in gold are nothing to write home about, but the CHANGE IN TRADING PATTERNS is clearly noteworthy. As I write, the dollar continues to deteriorate, dropping below 81.50 on the U.S. Dollar Index. The intra-day low for the greenback was 81.47, so watch the 81.50 level VERY closely, as it will most likely be defended by the dollar bulls. According to Jim Sinclair, a break below 81.50 means we breakdown below 80 into uncharted waters. A break below 80 should be enough to propel gold through the resistance at the prior high of $460 en route to $500+ later this year."
MARTIN M
[miningmx.com] -- Global gold guru Martin Murenbeeld predicted on Sunday that the price of bullion should average $459 an ounce this year, a 12 percent rise on 2004's mean price and almost six percent up on current levels, helped by a weakening U.S. dollar, reports Reuters.
"The outlook (for gold) is positive," Murenbeeld told delegates at the Prospectors & Developers Association of Canada conference, an annual metals industry event attended by about 9,000 delegates, which kicked off in Toronto on Sunday.
Murenbeeld, chief economist with Dundee Wealth Management in Canada, told delgates at the conference that he forecast a more muted rise in the bullion price to $488 an ounce in 2006.
According to Reuters, Murenbeeld forecast an average gold price of $420 an ounce in 2004. His prediction was slightly more bullish than the actual mean price for the year of $409 an ounce.
Thanks, am glad I asked for the commentary!!
thanks for timely update Lewis, now how about some commentary!@!
http://www.investorshub.com/boards/read_msg.asp?message_id=5191980
Most PP seem to somehow trade at least 10% lower than the PP price. This more or less factors in new investors NOT receiving the freebie warrants. PP price = C$1.20 so 10% off would equal C$1.08
Generally I expect at least 15% lower, but do not expect RNC will trade this low (too small a PP being the primary rationale), but it could. You often have existing shareholders selling their shares to participate in the PP with freebie warrants. Since such a small PP and my belief that most PP participants desire to increase their position rather than sell any/some, believe RNC should not trade much below the PP price. Any PP selling should be over before March 10th. My opinion, anything could happen, but this would be what I would be looking at before buying.
Oh yes, and hopefully Frank will tell us when he gets a technical buy on RNC!!!
should I add RNC Marks ?
Fundamentally, yes add to RNC. Would put in a large order at 10% discount to PP price and hope it gets there, i.e. C$1.08. If it does not fall to C$1.08 by March 9, then buy on March 9 or on the open on March 10 as PP close is expected by March 10. That would be my fundamental strategy.
However, I am hoping that Frank will be kind enough to tell us when to buy RNC technically... When he does, load up the boat with RNC for all the cash you got and hope the Sandanistas don't sink it...!!
PDAC, updated presentation & Audited Financials
(1) RNC has held off on issuing audited financials until after the private placement closes but should press release unaudited results early next week.
(2) RNC will be putting the updated presentation on the website within the next week or so.
(3) RNC has a booth at the PDAC.
thanks
What is wrong with the old Canada S&P Gold Index Symbol, is there a new ticker symbol for this?
Old ticker no longer works at Stock Charts.
old ticker was: $sptsegd
Please advise!!
My recollection is as follows:
Embry/Sprott participated in the initial PP @ C$3.00 and 2nd PP @ C$2.00 and now owns about 15% of RNC. I would guess his cost basis is about C$2.33 per share. Embry still likes the company from his recent comments, RNC fits Embry's investment profile - a producer with good management and undervalued relative to its peers. Embry likely took as much of this PP as possible, I guess over 30%, just so he can play double up, catch up on this heretofore losing investment for his fund.
FWIW, RNC management forgave debt owed to it by RNC in exchange for RNC shares valued at C$1.68 per my recollection. RNC management thought its shares were very undervalued at C$1.68 or they would not have forgiven this debt, and simply preferred to be paid back the cash. Now the share price is C$1.21, so they likely wish they would have waited...
RNC will use proceeds to get Panama mine into production much faster (1 year earlier) than if they had to wait on internal cash flow. They did a deal to buy used mining equipment at a very cheap price relative to new equipment but they needed the cash now to consummate the deal is my understanding. Also, some proceeds will be used for exploration which would have had to wait until at least 3Q05 given the lack of cash. RNC will be unhedged by end of 1Q05, thus instead of getting $340 for POG on 70% of their production, RNC will begin to get market prices for POG, hence much better cash flow starting in 2Q05, IMO.
I hope RNC management is in on this latest PP, since it is beginning to appear doubtful that their substantial position in warrants may not be in the money @$2.50 by year end, hence these management warrants may well expire worthless.
RNC is betting that even at this ridiculously low PP price & terms, this PP will be accretive to share price. First, it is a tiny PP at only C$6M. Second, if the exploration hits like they believe, then an additional 1M ounces in reserves will certainly do wonders to their share price since it is easily accessible from their existing mine (very little new capex needed to put into production). Third, Panama going into production sooner rather than later may likely give RNC a better production growth profile which investors are willing to pay up for, and the equipment was gotten on the cheap similar to Alamos used equipment at Mulatos. We will have to see how this pans out. If it were me, I may have simply relied on internal cash flow and waited, or more likely I would have just raised $2M or so for the exploration. But RNC management believes that both the exploration and earlier production from Panama will both be accretive to the stock price. Time will tell.
Finally, you may be right this sweetheart PP deal may be tied to future promotion. I can't see how RNC can fall any further based on the fundamentals, but I have been thinking that ever since it went below C$1.60, i.e. when management forgave its debt to convert to equity at C$1.68. I hope RNC management was a buyer of this recent PP, but have not asked them yet...
World economy: Commodities - Our forecast for gold
COUNTRY BRIEFING
FROM THE ECONOMIST INTELLIGENCE UNIT
The price of gold rose by 3% in 2004, mostly on the back of US dollar weakness, to average US$410/oz for the year. The price reached a new 16-year high of just under US$460/oz in early December 2004, but slid back on fund selling to end the year at around US$431/oz.
Since the start of 2005 gold has traded mostly in the range US$420-430/oz, as the dollar started to regain some strength. Trading, for the most part, has been subdued as market participants waited on the sidelines for the release of financial and economic data to outline where the US dollar would be headed next. Talk of possible sales of the IMF's gold reserves for debt relief also added to the uncertainty.
In late February, however, the gold market made a sharp recovery to test US$435/oz, following a steep decline in the dollar (due to worries that the world's central banks, especially in Asia, were shifting their reserves away from the dollar). A sustained recovery in the gold price will require continued expectations of significant dollar depreciation as well as strong market fundamentals.
Demand
On the demand side, our outlook for the gold market remains positive. Gold consumption comprises purchases of gold jewellery, bars and coins for retail investment purposes. Supplementing this demand is the short-term investment demand from speculative funds and more recently, the longer-term investment opportunity via the gold exchange traded funds (ETFs) that have been launched over the last two years in Australia, UK, South Africa and the US. The ETFs require no physical delivery of gold and thus provides a more accessible gold investment alternative for a wider audience. This encourages more trade and greater demand as the concerns of insuring and storing the investor's gold are taken care of.
The World Gold Council (WGC) reported at the end of January 2005 that global gold demand in 2004 grew for the first time in four years on the back of economic growth in India, the US and China. The actions of investors hedging against a weaker US dollar also helped boost demand. Total gold consumption is estimated to have risen by 2% to 3,260 tonnes in 2004.
Gold consumption
Tonnes
2003
2004
2005
2006
2007
2008
2009
Fabrication
2940
2990
3100
3190
3250
3300
3370
(of which)
India
Italy
USA
Japan
Saudi Arabia
590
610
570
600
630
670
700
90
100
120
120
140
150
150
450
470
490
500
540
590
590
160
150
140
120
120
120
120
165
170
170
170
170
170
170
Retail investment
250
270
250
230
230
230
230
Total
3190
3260
3350
3420
3480
3530
3600
Sources: World Gold Council briefing note and Gold Fields Mineral Services; EIU.
Demand in India, the world’s largest gold consumer, rose at its fastest rate in six years, reaching an estimated 610 tonnes. Demand in Saudi Arabia is estimated to have risen for the first time in four years on the back of the higher oil price. At the beginning of 2005, physical consumer demand has remained strong, encouraged by the fall in the gold price to US$420/oz. The weaker price has helped boost buying in India (for the wedding season) and elsewhere in Asia (for the Chinese New Year). This in turn has helped support gold at the lower levels of its recent trading range.
But continued growth in gold demand for the rest of the year will be difficult with the higher US dollar gold price and slower global economic growth set for 2005. In India, a substantial part of the annual demand for gold comes from the agricultural sector as farmers put their savings into gold due to the lack of other available alternatives. The ‘patchy’ monsoon that India suffered in 2004 is likely to have adverse effects on farmer fortunes, and we expect Indian gold demand to slow in 2005.
Gold jewellery requires more promotional investment to put it in the minds of consumers when it comes to spending their discretionary income. Gold jewellery is faced with increased competition, not only other jewellery such as platinum and silver, but also from mobile phones, electronics, travel, and other luxury expenses. According to the WGC, gold jewellery’s fortunes will depend largely on the ‘extent and effectiveness of gold promotion’. The Council has launched several promotional campaigns to raise gold’s profile in various countries such as China and the US, which are proving quite successful. The promotion of white-gold, which is cheaper than the alternative platinum metal at present, has been particularly successful in providing greater opportunities for gold in the white-metal jewellery segment.
Supply
The main sources of gold supply to the market are mine output, central bank sales, hedging activity by gold producers and old gold scrap that is returned to the market.
Mine output
Gold output in 2004 is estimated to be around 2,480 tonnes, down 100 tonnes from 2003. Despite production increases in Australia, Russia, China, Peru, Tanzania and Mali, the combined growth was not sufficient to offset declines from South Africa, the US, Canada and Indonesia (the latter due to the fall in output from Grasberg mine).
South African gold output is expected to continue its fall in 2005. The slide in output levels will depend on the performance of the rand. The local mining industry requires a buoyant dollar and a stable rand for mine output levels to consolidate at around 360 tonnes. The strong rand has resulted in a big drop in local income from dollar sales of gold, making mines unprofitable and vulnerable to closure. Grades have been falling as mines go ever deeper. South Africa's gold output is not expected to recover, even with the development of the South Deep and Target gold mines, and is forecast to fall to around 340 tonnes by 2009.
The Russian Gold Industrialists Union reported at the beginning of February that Russian gold output was likely to rise marginally in 2005 to approximately 183 tonnes, up from 180.5 tonnes last year. Exports of all forms of gold, ingots, powders and granules, totalled 173 tonnes last year - up 23 tonnes from the previous year. However, there was concern over the future growth in production given the depletion of resources at existing mines and a delay in commissioning new mines.
Gold supply
Tonnes
2003
2004
2005
2006
2007
2008
2009
Mine supply
2580
2480
2520
2535
2550
2570
2580
Official sector sales
530
370
510
480
550
480
500
Old gold scrap
950
850
800
750
700
650
650
Producer hedging
-380
-420
-300
-200
-100
-70
-70
Total supply
3680
3280
3530
3565
3700
3630
3660
Sources: World Gold Council briefing note and Gold Fields Mineral Services; EIU.
Globally, gold mine output will rise steadily over the forecast period as growth in several countries offset the trend decline from the historically big producing countries of South Africa, the US and Canada. Russia and China are two new producing countries that show promise should the enabling environment for new mine project development be further promoted by the respective governments. Both countries are thought to have untapped reserves which are waiting to be exploited. Global gold mine output should start to improve as higher gold prices stimulate explorations and mine expansions. By 2009 global mine output will approach the 2,600 tonne mark (surpassing the record level achieved back in 2001).
Central bank gold sales
Net gold sales from the official sector (mainly central banks) added around 370 tonnes to the gold market in 2004. Sales from within the European central bank Agreement--both the first agreement that expired at the end of September 2004 and the continuation of sales within the renewed Agreement--comprised the bulk of the selling last year. Steady selling from the Swiss has continued in the renewed Agreement, while France entered the gold market for the first time to sell part of its vast hoard of gold.
So far, estimated sales within the renewed Agreement of the European central banks are: Switzerland 130 tonnes, Austria under 90 tonnes (an exact amount has not been announced), Sweden 60 tonnes, France 500-600 tonnes, Germany 508 tonnes (this estimate is based on Germany only selling 8 tonnes within the first year to September 2005 and 120 tonnes each in the remaining four years of the renewed Agreement), the Netherlands 165 tonnes and Portugal estimated at 80 tonnes. Thus around 1,500 tonnes of the total 2,500 tonnes agreed to be sold over the next five years to the end of September 2009 can be accounted for. Italy has evaded the issue of selling any of its gold. However, should Italy not decide to sell in the latter half of the Agreement, the total sales volume may not all be sold. The gold market could take this as bullish.
Overall, around 500 tonnes was disposed of by the European central banks in 2004. Netting off this amount were purchases of around 55 tonnes by Argentina for foreign reserve diversification. There were also several other smaller purchases over the year by a couple of central banks buying local gold production and not selling it on, as well as the reversal of swap transactions by central banks which increased gold reserves.
Looking ahead, the European central bank selling will continue to dominate the official sector, with only minor purchases of gold expected over the years to 2009. One interesting development is the recent discussions on how the IMF could use its gold to help the world’s poorest nations in debt reduction. Talk has moved from a revaluation of its 3,217 tonne gold hoard to the possibility of selling some of its gold. Sales seem unlikely to get the required 85% majority from IMF members to sell any of its gold, given that the US, which holds 17% of the voting rights, is against sales. Revaluation (along similar lines to that conducted back in 1999-2000) of part of the IMF gold reserves, which are held at an historical cost of around US$40/oz, could unleash some additional funding for debt relief. This will remain an issue to watch over the coming months.
Gold producer hedging
In the past, gold producer hedging resulted in an acceleration of gold mine supply to the market, as producers sold forward their production to lock-in a higher price for future output. However, due to falling interest rates and investor distrust of the practice, companies started to buy back ounces hedged when circumstances have proved advantageous (a process known as dehedging) and/or delivered into hedges without replacing expired contracts. Since 2000 dehedging has resulted in gold mining companies taking gold off the market at unprecedented levels. According to Gold Fields Mineral Services (GFMS), miners dehedged for a fifth consecutive year in 2004 by 445 tonnes, the highest annual fall in the global producer hedge book since the dehedging cycle began.
Activity in the last quarter of 2004 is indicative of producer activity going forward. Spikes in the gold price and new mine project finance requirements will continue to offset the ongoing dehedging of the big hedge books, mostly held by the major gold producers. But these producers are reaching their hedge book reduction targets, thus the pace of dehedging is forecast to slow from its elevated levels in recent years to around 70 tonnes in 2009.
Price outlook
Our view on gold has not changed significantly. Its fundamentals will remain supportive of higher prices. Positive factors include reductions in producer hedging, improving demand for gold (boosted by increased promotion to consumers), small increases in gold mine production and predictable gold sales by central banks. In addition, global economic uncertainty, political tensions and equity market losses will strengthen gold’s safe-haven status. However, the direction in the gold price will continue to be set by the fortunes of the US dollar, particularly its performance against the euro. The recent bout of US dollar strength is not expected to hold over the short-to medium-term. With the dollar set to continue to weaken for much of 2005, gold will once again move higher. However, this will be tempered somewhat over forthcoming months by the uncertainty surrounding possible IMF gold sales.
In 2005 the gold price will on average rise by 6% along with a continuing weakening of the US dollar against the euro. Although much of these gains will be reversed in 2006, gold will maintain a US$400/oz plus price range. Over the medium to longer term, the gold price is expected to fall back to trade around US$350/oz, just below its long-run average price. As the dollar starts to steady out and interest rates start to rise, the gold price will rely on traditional buyers of the metal in such sectors as jewellery and industrial applications to support the price, while producers cap price increases by starting to hedge once again. The resulting market surpluses will weigh down on prices.
Gold market balance
Tonnes
2003
2004
2005
2006
2007
2008
2009
Supply
3680
3280
3530
3565
3700
3630
3660
Demand
3190
3260
3350
3420
3480
3530
3600
Balance
490
20
180
145
220
100
60
Official sector gold holdings
33100
32730
32220
31740
31190
30710
30210
Sources: World Gold Council briefing note and Gold Fields Mineral Services; EIU.
Gold prices
(US$/oz)
2003
2004
2005
2006
2007
2008
2009
1 Qtr
352
408
430
420
380
350
350
2 Qtr
346
394
435
400
380
350
350
3 Qtr
392
401
440
400
360
350
350
4 Qtr
392
434
435
390
360
350
350
Year average
371
410
435
403
370
350
350
% change
20%
11%
6%
-7%
-8%
-5%
0%
SOURCE: ViewsWire London
They said March, listen to BMO Presentation.
http://www.presentation-direct.com/presentations/200502/BMO_resources_02282005/Lobby.htm
per BMO conference:
Capex likely $150M
Likely going 100% heap leach so no mill
Since no mill, recoveries reduced to 80% gold and 54% silver
McFarlane Gordon comments in AGI report:
"Hollister Block
Hecla can earn a 50% working interest in the Hollister Development Block from Great Basin Gold Ltd. (GBG:TSX, C$1.45)
in return for funding a two-stage, advanced exploration / underground development program leading to commercial
production. Hecla estimates the underground development program will cost $21.8 million, most of which will be spent in
2005. Hecla is the manager of all the exploration and development activities, and upon completion of earn-in activities will
be the operator of the underground mine.
The Hollister Block property is located along the northwestern extension of the prolific Carlin Trend in Nevada, between
the Dee mine (8 miles to the Southeast) and the Ken Snyder mine (located 12 miles to the northwest). The property
covers an area of about 964 acres and has been the site of historical gold and mercury production. From 1990 to 1996
the Hollister mine operated two small open-pits with an associated heap-leach facility. Exploration by Great Basin and
Hecla has identified a zone of high grade gold and silver mineralization (>1.0 ounce per ton gold and 7 ounces per ton
silver) that they believe would be amenable to a small scale mining operation accessed by a 6,000 foot decline. With all
required permits received in late 2004 the company plans an aggressive program of underground definition drilling and
bulk sampling of the Hollister high grade vein system in 2005 leading toward a definitive development decision later this
year."
EIU: Commodities - Our forecast for gold
http://www.viewswire.com/index.asp?layout=display_article&doc_id=1348077934
me too, bought some at C$.59
Well, I tried to get Frank to bet on the C$ but he timely reconsidered the proposition.
But if you are game, I will place the following bet, with todays close at US$.807 = C$1.00,:
US$ goes up to $.90 before we see $.75
Yes, that is a bit intriguing...
FWIW, its a tiny PP at just C$5.5M and my understanding is this PP is already way oversubscribed... Would not be surprised if Embry/Sprott took most of it.
Assuming C$1.30 and C$5.5M, that is about 4.2M shares or about 12% increase to existing shares outstanding.
Yes, I like GGG and noticed GLE listing announcement today.
Too busy with corporate/partnership tax returns now to discuss much. In short, Limon is a viable mine for several more years given the new discovery plus I believe there will be no problems with new Costa Rica mine which starts production in 1Q05 and will have first heap leach sales of gold in 2Q05.
nickel inventories large drop again...
* LME nickel inventories fell below 11M tons yesterday, dropping 480 tons to total 10,806 tons.
Hollister comments from HL:
*Began excavation of the underground exploration ramp at the Hollister gold project in Nevada
In 2005, Hecla plans exploration expenditures of approximately $1.5 million in the United States, $4 million in Mexico, $5.5 million in Venezuela, $3 million on unallocated projects, and $9 million in pre-development at the Hollister Development Block project.
More than 500 feet of advance has been made on the decline at the Hollister Development Block gold exploration project in Nevada. This underground exploration project, an earn-in to a joint venture with Great Basin Gold, is located in northern Nevada, near the Carlin trend. Surface facilities are 90% complete. Access to the deposit via the ramp, exploration drilling and drifting, and a feasibility study leading to a decision on production are on schedule to be completed in approximately 18 months.
Louis, where are my updated COT charts...!!
http://www.investorshub.com/boards/read_msg.asp?message_id=5191980
May be too late to play it now, but I purchased some more RNG at US$1.68 a few weeks ago.