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Central Bank Gold Sales
http://amarks.homestead.com/CBGold.html
THE YEAR 1906
This will bump your reality. The year is 1906.
One hundred years ago. What a difference a
century makes. Here are some statistics for 1906
************************************
The average life expectancy was 47 years.
Only 14 percent of the homes had a bathtub.
Only 8 percent of the homes had a telephone.
There were only 8,000 cars and only 144 miles
of paved roads.
The maximum speed limit in most cities was 10 mph.
The tallest structure in the world was the Eiffel Tower!
The average wage in was 22 cents per hour.
The average worker made between $200 and $400 per year
A competent accountant could expect to earn $2000 per year, a dentist $2,500 per year, a veterinarian between $1,500 and $4,000 per year, and a mechanical engineer about $5,000 per year.
More than 95 percent of all births took place at HOME .
Ninety percent of all doctors had no college education. Instead, they attended so-called medical schools, many of which were condemned in the press AND the government as "substandard."
Sugar cost four cents a pound.
Eggs were fourteen cents a dozen.
Coffee was fifteen cents a pound.
Most women only washed their hair once a month, and used
borax or egg yolks for shampoo.
Canada passed a law that prohibited poor people from entering into their country for any reason.
Five leading causes of death were:
1. Pneumonia and influenza
2. Tuberculosis
3. Diarrhea
4. Heart disease
5. Stroke
The American flag had 45 stars.
The population of Las Vegas , Nevada , was only 30.
Crossword puzzles, canned beer, and ice tea
hadn't been invented yet.
There was no Mother's Day or Father's Day.
Two out of every 10 adults couldn't read or write.
Only 6 percent of all Americans had graduated from high school.
Marijuana, heroin, and morphine were all available over the counter at the local corner drugstores. Back then pharmacists said, "Heroin clears the complexion, gives buoyancy to the mind, regulates the stomach and bowels, and is, in fact, a perfect guardian of health."
Eighteen percent of households had at least one full-time servant or domestic help.
There were about 230 reported murders in the entire U.S.A.
The Gold Investment Digest can be downloaded free of charge at http://www.gold.org/deliver.php?file=/rs_archive/GID_Oct06.pdf. Users will need to register and log-on to www.gold.org
gold digest - central bank gold sales
http://www.gold.org/deliver.php?file=/rs_archive/GID_Oct06.pdf
see page 7 in regard to Central Bank Sales (and treatment of forward sales)
central bank gold sales
YTD sales = 6 tonnes
YTD "Planned" sales = 24 tonnes
18 tonnes behind scheduled sales already this YTD
graphs here:
http://amarks.homestead.com/CBGold.html
Faber
Gold and silver to outperform US bonds and equities!
Despite its correction from $730 to the current level, gold is still up 12% year-to-date compared with a gain of 7% for the S&P 500. I continue to believe that over the next few years gold and silver will significantly outperform US financial assets.
Over the last three months, both the US bond and stock markets have rallied strongly. The bond market rally is driven by investors' expectations of a weaker economy and interest rate cuts by the US Federal Reserve Board later in the year or in early 2007.
As a result, investors have pushed the yield on 30-year US Treasury bonds down from 5.20% in June to currently a tad over 4.70%. At the same time, investors have driven up the US stock market to a more than five year-high. Investors clearly expect continuous corporate profit growth and declining inflation rates.
I have to say that an investor buying 30-Year US Treasury bonds as a long term investment (say, for holding his position to maturity) must have a lot of faith that, for the next thirty years, the US rate of inflation will never exceed more than 3%. This is an assumption which, given the history of the Fed and its money printing bias, is most unlikely to materialize.
Sell US equities and bonds
In fact, I am leaning increasingly towards the view that both buyers of bonds and equities could get it badly wrong. The bond buyers because inflation will continue to increase despite a weaker economy and the stock buyers because corporate profits will begin to disappoint!
Therefore, given the over-bought condition of both the US stock and bond markets and a rather poor technical picture (the new high list is not expanding sufficiently), I would certainly not rule out a more meaningful downside correction starting soon, or even a nice little crash. In addition, the US dollar has begun to weaken significantly against the Chinese RMB, which could add to inflationary pressures.
So I am far less optimistic after the recent strong US stock and bond market performance than the complacent buyers of bonds and stocks. There are many factors affecting US financial assets that could in future have a negative impact on their pricing.
Crash coming?
And, while I am not ruling out some further strength over the next few months, we also need to recognize that both equities and bonds are very overbought right now. Therefore, I would either postpone any new buying or implement some selling. A better buying opportunity is likely to present itself at the end of October or in November.
Since emerging markets have a close correlation with commodity prices, and since the correction of industrial commodity prices, which began in May, is likely to last longer, we would also postpone any buying in emerging markets.
In fact, for the intermediate term US equities could out-perform emerging markets. Also, Asian stock markets are likely to out-perform the markets of Russia and Latin America.
Couple of good articles, IMO
Jim Rogers
http://www.ft.com/cms/s/b2474566-5942-11db-9eb1-0000779e2340.html
______________________
SEARCH FOR YIELD AND GOLD
by Christopher Laird
PrudentSquirrel.com
October 12,2006
This piece is about investor flight into cash and bonds. I look at the ultimate prognosis for that with a coming US and world deflation, and gold. First, some preliminaries.
Gold is money, nothing more or less
I have had a time trying to tell readers not to expect gold to be an investment. I have written about this for several years now. That is hard to do in a raging commodities bull market. If you can understand what gold is for, you will be far more comfortable buying either it or gold stocks. If you expect it to be something that generates ‘returns’ then you are barking up the wrong tree, and will be disappointed when speculators change to other sectors for their hot money…as is happening at this time.
Gold is not supposed to provide interest returns, speculation returns or whatever ‘returns’.
The recent gold bull, which has many good reasons to exist, made people think gold and gold stocks (also silver, but I talk about gold as the precious metals complex) as some kind of manufacturer of ‘returns’ of speculative capital appreciation and so on.
Gold (precious metals) is not about returns on ‘investment’ or anything like that. The fact that the gold price has doubled in the last 5 or so years is because gold is money, and not easy to ‘make’. There has been so much fiat inflation in the last 5 years, that there were suspicions that the USD was on the verge of collapse.
The last time there was true fear the USD was about to fall apart was in the late months of 2004, when the USD threatened to go below 80 in the USDX. At that time, Warren Buffet and Bill Gates were making moves to change tens of billions of their dollars into Euros or whatever currency, and even talking to the press that the USD was done for. These guys are definitely not stupid to say the least.
It is one thing for Chris Laird to tell you all the USD is toast ultimately, and quite another for one of the richest men in the world to say so – and move something like $20 billion into foreign currencies to boot – in late 2004 – Buffett.
However. We do have a short term gold bear. There are reasons for this, actually good ones, conspiracies aside, (which I believe in - to suppress gold).
Ok so what is this paper about?
It is about the fact that people are looking to move money into bonds- good sovereign bonds, and are for the time being getting out of the commodities and energy complex.
That includes gold for the short time being.
I saw a paper out about the fact that investors are seeking interest on good bonds versus looking for capital gains in commodity and energy stocks and or bullion or paper gold.
That kind of struck me. It fits many things that are happening both macro economically and also in the commodity and gold markets. We all know the yield curve is very inverted. When there is a recession coming, investors like bonds and the curve inverts.
But, there is a catch. Even though there is flight to bonds and cash, if there is a really serious recession or depression, particularly with the indebtedness the US and Japan have now, ultimately, the USD and probably the Yen are going to collapse together. Those bonds are going to be defaulted on or inflated into oblivion. Savers will be wiped out, and gold is really the only answer to that kind of situation, or another currency if there is still one standing. Make no bones about it, the whole world is in an unprecedented currency and debt inflation.
The reasons are manifold, I have written, and others have written about the reasons. Too much damn money being printed in excess of actual world GDP growth. Way too much speculation in markets and even commodity markets, in real estate. Too much government debt, too much deflation on the horizon and hence more panicky inflation to come to fight it which will fail to solve the problem. Look at Japan.
There are many places all the liquidity that Japan tried to fight off their deflation in the ‘90s found. Then the US tried to fight off its imminent deflation after the Tech crash and 911 with ridiculous 1% interest rates. The world tried then to fight off their respective deflations with unprecedented money growth in the west of 8% or more per year across the board. So they inflated everything.
We are going to have deflation in the world, and panicky bond issuance to stop it, deficit spending you won’t believe, and ultimately a USD collapse. But it will be preceded by actual debt deflation and bond defaults. Just a gigantic economic mess which will ultimately destroy the USD and Yen.
Why is the USD strengthening now?
That is not because the US economy just had improved employment numbers, all courtesies to economists aside. The reason the USD is strengthening is also not completely because of the latest Korea nonsense. Recently, war news has barely budged gold.
The reason the USD is strengthening is because gigantic entities such as macro funds and insurance companies are buying all the ‘quality’ sovereign bonds they can get their hands on. The ones that actually pay some interest. That means the USD denominated ones.
The USD now pays a 3% interest premium over the Yen and 1 to 2% over the Euro denominated bonds. We will get to gold’s reaction to all this in a moment – and the ultimate fate of the USD and Yen, and gold’s ultimate rise to incredible heights.
But in the meantime, gold bugs are stuck with a situation where there is flight out of the commodities and energy complex and into what are called ‘quality’ sovereign debts issues.
But then again, that gives gold bugs the chance to buy gold and gold assets at prices that are very low compared to the inflationary 70’s. There is a lot to all this and I know that I am kind of rambling, but bear with me.
A couple of weeks ago, before the dollar rallied about 2 points in the USDX to about 87 or so, I stated that I suspected the USD would strengthen into 2007. My primary reason was financial flight to safety, not political flight to safety. It looks as if that observation is proving to be true.
Of course, there were a plethora of gold bugs who were writing that a slowing US economy would result in a falling USD and rising GOLD price into Jan 2007, not the least of which was GFMS, which for its own reasons, expected gold to go to over 700 bucks by Dec 06. Not only GFMS but lots of premier gold analysts were saying gold is going to 700 by Dec 06.
So why is this? Simply, it is because there is speculator flight out of the commodity complex and energy, and into things like stocks (stupid) and bonds (not as stupid).
The place to be right now in my view is cash and gold or silver bullion (not necessarily gold stocks as much but that is fine if you can take a drop to 500 or below and sit on them for later – I know that most people are not as patient to sit and watch gold stocks drop 30% and sit tight).
Now, Cash is good and so are good quality bonds. The problem with bonds is that they can be defaulted. The problem with cash is that it tends to be devalued over time. The problem with gold bullion is none of the above. It’s just bulky and non-electronic.
People love convenience, particularly if you figure to go and buy some gold or silver bullion in hand, you have to find a place to get it, hide or safety it someplace, and be paranoid about robbers.
OR you can put that stuff into safe deposit boxes and have the government possibly confiscate it at the bank. You can’t have it both ways. If you don’t like any of the above, get electronic accounts. I don’t like them, I have to use some but I sure don’t save using them, I was an Oracle systems engineer and I know full well how fast electronic accounts can be frozen or screwed up and locked – I was paid to fix those situations.
Problem with bonds
Lets broad brush this. Even though bonds are king now, ultimately they are not safe. Reason? We have a deflation coming allover the west and even in China. The respective governments are going to try and fight that with trillions of new paper money. The problem with that is that bond defaults will follow that. Then we have the currency crises world wide, probably starting with the USD, then the Yen, as the USD and Yen are sister currencies for reasons I won’t go into- and ultimately even China might have a RMB/Yuan collapse. And of course the Euro too – in spite of the EU economic semi resurgence, they are going the way of the USD and Yen too ultimately (5 to 20 years)- for all the reasons gold bulls have talked about. Friends Don’t forget what I am going to say right here: 20 years passes very quickly.
Gold bulls have to have long time horizons
If there is fight into cash and quality (for now) bonds, gold is going to stay cheap (for now).
As many of my readers know, I started a series of gold short term bearish articles a couple of months ago. Fortunately, my subscriptions have held up or even gone up. Perhaps that is fair since I stuck my neck out and made unpopular predictions about where gold was going. I got emails from people saying they appreciated that exact thing.
Nevertheless, I am writing this piece to tell people that gold is definitely not dead. But if you are looking for speculation gains from gold (remember that means precious metals in general to me) you are barking up the wrong tree. If you are looking for ’investment’ returns from gold, you are barking up the wrong tree.
Gold Is Money!
Gold is cold hard cash. Nothing more, nothing less. If you want investment returns, go put money into bonds or a bank account. Gold will not provide interest, nor will it always go up, as in a misconceived notion of capital gains. Gold is not about capital gains either.
Gold is inflation protected savings, with no interest return. Pure and simple.
The problem the gold community has right now is that they have promoted gold and gold stocks as investments, when intrinsically gold (precious metals) is not an investment- it is money and savings. Even a gold stock is an agent for gold as money (inflation protected) and should not be regarded as ‘investment’.
The gold community has good reasons to promote gold in these times. With the world inflating currency at 8 or more percent a year, when the actual GDP growth in the west is really about 2- 3% - that means that your cash is being devalued quite a bit every year.
Gold is cheap
I did a study of gold from 1983. I picked 1983 because that is when Volcker got US inflation under control with super high interest rates in the high teens. Gold then stabilized in the $500 range.
Right now, gold is about $570. If you divide that USD price by about 3, (that is my inflation adjustment since 1983) that comes to $190. So, even though gold hit 870 back then, it is really only $190 right now in 1983 USD. Analogously, gold is NOT anywhere near the 1980’s highs of $870.
All this does is show us how cheap gold is, how strong actually the Fiat world is - for the moment.
Achilles heel of fiat in the west today
For now, people are preferring bonds and cash (money markets) to gold and commodities and energy. The commodities and energy thingy was last year’s deal (hot sector).
The hot sector today is cash and bonds, and the press will figure that one out. When the stock markets crash either this or next year cash and bonds will be king.
Commodities are not dead, gold is most definitely not dead either. But the hot money is going to find its way into all the best money funds on the planet, and into every bond of any quality you can imagine, and interest rates ultimately world wide are going to drop.
-Which is perfectly fine with the governments, because they are going to be running gigantic fiscal deficits soon after the next world recession starts and borrowing like mad.
They are going to be offering lots of bonds to the bond hungry world, now, are going to triple their national bond debts, and have currency collapses in 20 years at the outside – by this analyst’s view.
The Achilles hell of the western fiat currencies will be bond defaults and resultant currency collapses. That happens once their economies cannot keep up the yields investors want, or default outright in phases. The Achilles heel is the final collapse of yield prospects for US bonds, and hyperinflation and monetization of the USD bond universe.
That will also drag down the Yen for similar reasons. Ultimately the Euro too.
At that time, gold bullion holders may survive the economic panics.
This scenario is well over a year out. Of course, there is always the possibility of a USD collapse before, if the UST bond holders bail out for any reason.
But the search for yield, the flight out of speculation in markets of all types, and the flight out of commodities and energy ultimately because of recession, is going to make cash and bonds king for the next couple of years.
Gold bugs should be ok with that
Gold bugs will get the opportunity go buy more physical bullion for very cheap prices. That is the good thing. The bad thing some will reply to me is that gold stocks could drop quite a bit as speculators get out of commodities in general.
U know, I bought gold bullion at 635, and 604 even as I was writing that gold was going below 600. Reason? One day you will want to buy some gold bullion but there won’t be any for sale. It will be off market. I buy gold bullion automatically. I don’t care about these prices.
That kind of thing is for people who will never have any actual bullion should there be the USD crisis we all expect.
There will be a USD crisis. Look at the gold complex as a defense against that, but, don’t look for gold to make more actual money! That is for speculators and that mentality is totally INIMICAL to what gold is really about.
I say again, buying the gold complex for investing purposes is not what gold is about, that only works when speculators are hot on either commodities or are totally focused on inflation, which is disappearing as we speak,- gold bug writers aside.
The USD is going to strengthen into 2007. Commodities are going to lose speculative froth. Gold is going lower. Buy it when you get the chance, because after this coming deflation, there is going to be hyperinflation, and you won’t be able to get any bullion for any price, it will be off market. For the time being, cash and bonds are also OK if you MUST have interest or investment returns. Stocks are not good now, but they might rally a bit more, but I certainly would not count on that.
Gold Leasing/Central Bank Gold Sales
Most noticeable trend in the last 5 years has been the decline of lease rates. We have had an interesting inversion of the gold lease rate yield curve over the past 2 months which may have been caused by Central Bank leasing... (inversion i.e. 1 year gold lease rate higher than 6 month rate). Could possibly be related to Barclays comments, but in a different way? (leasing versus forward sales may be different?)
here are current long term lease charts
http://www.kitco.com/lease.chart.html
here is interesting article written in Jan 06 discussing lease rates. interesting article but not necessarily factual...?
http://www.financialsense.com/fsu/editorials/2006/0119.html
Have you seen any recent articles relating to this basserdan...?
Best I can find is Barcharts link to gold futures that does show volume, looks like at least a 30 minute delay.
From the Mostly Gold page, click on link under:
December Gold Futures-90 minute
to see chart.
Much preferred the old chart, but quote.com made it impossible to retrieve the old chart without buying subscription...
Central Bank Gold Sales
I remain sceptical as well on that Barclay's report..
http://www.miningmx.com/gold_silver/273020.htm
Banks not selling more gold: GFMS
Allan Seccombe
Posted: Wed, 11 Oct 2006
[miningmx.com] -- THE gold price will find a floor at $540 in the short term but will move up to $700 in the next six months, but it could fall to as low as $400 within six years, Philip Klapwijk, chairman of GFMS said on Wednesday.
GFMS is also sceptical about speculation swirling around the gold market that the signatories to the central bank gold agreement had sold their full quota of 500 tonnes for the year to September 26, despite figures showing sales of 393 tonnes, he said.
...
Dehedging will continue to provide support, but it will not match the estimated 378 tonnes for 2006 – a 341% increase on the previous year. Central bank gold sales are seen moderating and scrap will be less of an issue than it was in the first half of 2006.
If prices are sustained at these levels and mining companies can find new sources of production, gold output will ramp up as other assets start to look attractive against an extremely high gold price, with a weak dollar offering value and stocks will look cheap next to bullion.
“Gold will suffer quite significant falls somewhere down the track… It’s quite possible in five or six years time, assuming we are not in a 19-year bull market, we see gold prices down at $400 an ounce,” he said.
Gold production is not seen picking up in a big way over the next two to three years because of a decade of underinvestment in exploration and development, he said.
The European Central Bank released gold sales figures for the last week in September, from which many parties drew conclusions about what the signatories to the Central Bank Gold Agreement had sold for the year. Their annual quota up to 2009 is 500 tonnes.
GFMS estimated the central banks sold 393 tonnes, but Barclays reckons forward sales were not reflected in the data and the full 500 tonne quota might have been met.
Klapwijk said GFMS did not think the quota has been filled.
“The evidence held up for that has largely been market participants pointing to a lot of volume going through the market lately. There is no supporting evidence from a pick up in leasing rates, which you would expect to see if a transaction that size had gone through the market,” he said.
“It is also not in keeping with past behaviour by central banks over the first five-year agreement and the first year of this agreement. Some forward sales are not impossible, but I’m a believer that it’s unlikely that you’ve had a 100 tonnes or more sold in a very short period,” he said.
“We have taken the view that there might be some forward sales, I’m sceptical there were sufficient forward sales to take us to 500 tonnes.”
Album Art War Album Cover War
yep, that CBOT gold future link no longer works and I really miss seeing the volume...
why don't you find me another link which shows gold futures with volume@!@!@
interesting north korea developments...
Central Bank Gold Sales
http://www.amarks.homestead.com/cbgold.html
2006/2007 Fiscal Year
2005/2006 Fiscal Year
Sales Under CBGA1 and CBGA2
EDV.to , just looking
currently at 26% discount at C$6.14
sold 95% of my EDV, looking to buy back at some point in time.
central bank gold sales
5 tonnes sold vs. expected of 14 tonnes
happy thanksgiving...
also this...
of key importance:
"Germany's Bundesbank said on Thursday that it does not plan to sell any gold from its reserves for a third year...This news means that European central banks are unlikely to reach the 500-tonne Central Bank Gold Agreement sales quota for a second year in succession as they re-evaluate the importance of gold's role in their foreign exchange reserves... The Bundesbank's announcement comes at the start of the third year in the second five-year pact governing European Central Bank gold sales."
see France comments at bottom.
Differing views emerge on Central Bank gold sales
--------------------------------------------------------------------------------
Conflicting opinions arose on Thursday as to whether or not the European Central Bank (ECB) had sold its full 500-t yearly quota of gold under the five-year Central Bank Gold Agreement (CBGA).
Precious metals consultancy firm GFMS said on Wednesday that the ECB had sold only 393 t of gold in the second year of the CBGA and added that the sales under the remainder of the five-year agreement were unlikely to reach yearly quotas.
This comes as the ECB released a statement saying that Eurosystem members sold 2 t of gold over the week ending September 29, which GFMS said confounded market speculation that there had been “a last-minute rush to sell gold before the end of the second agreement year”, which ended on September 26. “This was responsible for the period's price weakness,” it said in a statement.
Meanwhile, Barclays Capital was quoted by Reuters as saying that it believed ECB had indeed sold the full quota.
Reuters quoted precious metals analysts Costanza Jacazio as saying that the sales had not figured the weekly financial statements issued by the ECB, owing to a the way the Bank reported them. She said that the statement excluded forward sales, which Barclays believed could have taken place, but were not showing up yet.
Moreover, Reuters quoted Jacazio as saying that the price of the yellow-metal could be supported, as Barclays believed that the Banks might have had met their full quota.
The CBGA, sometimes referred to as the Washington Accord, was signed between 15 central banks to limit their gold sales to a total of 500 t/y and to provide stability and certainty in the international gold market. This has removed the risks of sudden sentiment shifts that characterised the gold market in the late 90s.
The GFMS, however, said that, given the shortfall the second-year agreement, the Banks would be hard-pressed to achieve the full 2 500-t limit set for the five-years to September 2009.
“We are now quite sure that the 2 500-tonne limit cannot be achieved.”
GFMS, however, cautioned on blaming a policy shift owing to a change in attitude towards gold as a reserve asset as an explanation for last year's shortfall, saying that it rather believed that CBGA countries were “simply spreading out or delaying some of their planned diposals”.
But, it said that the CBGA would, probably, not deliver the once expected 500-t of gold to the market each year and this, coupled with some buy-side interest elsewhere in the world, could suggest that a high watermark for net sales had probably been reached in 2005, with the lower level of sales expected in 2006. GFMS said that it could indicate a new trend of more moderate net selling from the official sector.
It also said that a third CBGA was unlikely to materialise.
_____________
Bundesbank Boosts Sentiment for Gold Market
By Chris Flood
Financial Times, London
Thursday, October 5, 2006
http://www.ft.com/cms/s/15eeae1a-5493-11db-901f-0000779e2340,_i_rssPage=...
Germany's Bundesbank said on Thursday that it does not plan to sell any gold from its reserves for a third year, giving a significant boost to sentiment in the gold market after recent sharp falls in prices.
This news means that European central banks are unlikely to reach the 500-tonne Central Bank Gold Agreement sales quota for a second year in succession as they re-evaluate the importance of gold's role in their foreign exchange reserves.
"We are perhaps on the threshold of an era of more moderate net official sector selling," says Philip Klapwijk, executive chairman of GFMS, the precious metals consultancy.
The Bundesbank's announcement comes at the start of the third year in the second five-year pact governing European Central Bank gold sales.
As Germany holds 3,423.5 tonnes of gold exchange reserves, it had been expected to be one of the largest sellers of bullion under the pact.
Italy, another large holder of gold reserves, as well as Ireland and Luxembourg have also not sold any gold over the last two years.
With gold prices down by more than 10 per cent since the start of September and more than 20 below their 26-year peak in May, much of the recent weakness was put down to uncertainty over how much gold central banks would sell before the end of the second year of the CBGA on September 26.
In 2004, 15 of Europe's central banks agreed to limit gold sales to 2,500 tonnes over the next five years at a maximum rate of 500 tonnes a year.
This extended the first agreement that was negotiated in 1999 to stabilise prices when gold was languishing below $300 a troy ounce and which allowed European central banks to sell 2,000 tonnes of gold between 1999 and 2004. A key point of the CBGA is that the 500 tonne sales quota cannot be rolled over from one year to the next.
At the end of August, central bank sales were about 100 tonnes short of the quota. This effectively created an overhang in the market and concerns that a last-minute rush by central banks to sell gold would drive prices sharply lower.
The expectation that central banks would rush to sell also encouraged a sharp decline last month in the number of long positions -- betting that prices would rise -- held by speculators, according to the Commodity Futures Trading Commission.
The European Central Bank on Wednesday provided an update for the market over how much gold was sold last month but this appears to have created more confusion than clarity.
The ECB's update provides a value for the sales rather than volume and this was further complicated by a revaluation of the gold sold.
Analysts trying to work out the final position have come up with differing figures, which have opposing implications for the outlook for gold prices.
GFMS says Europe's central banks sold just 393 tonnes of gold against the full quota of 500 tonnes.
"This confounds market speculation during much of September that there had been a last-minute rush to sell gold before the end of the second agreement year and that this was responsible for the period’s price weakness," said Mr Klapwijk.
However, Costanza Jacazio, of Barclays Capital, takes a different view. "We believe that central banks have reached the 500-tonnes quota due to the reporting system adopted by the ECB that shows only gold sales settled during the annual sales period and excluding forward sales not actually settled during the period."
These two contrasting views provide different implications for the outlook for prices. If central banks did indeed sell 100 tonnes of gold as suggested by Barclays Capital, that would explain much of the price weakness experienced in September.
However, if the shortfall was as large as 107 tonnes, as suggested by GFMS, then the cause for gold's recent weakness remains more fundamental, mainly a lack of interest from jewellery makers in view of the continuing volatility and high level of prices for bullion.
Barclays and GFMS agree that the outlook for gold sales by central banks is now changing.
GFMS thinks it unlikely that sales under the remainder of the agreement will reach 500 tonnes on an annual basis. Barclays also agrees that European central banks are likely to fall short of achieving the 2,500 tonne limit set for the five years to September 2009.
Gold rose 0.5 per cent to $568.85 a troy ounce on Thursday.
--------------------------------------------------------------------------------
France...? I find this difficult to believe. If so, France actual sales vs planned sales of 500-600 tonnes (over 5 years) is now ahead of schedule at 340 tonnes (115 year 1, 125 year 2, plus extra 100 this past week=340 tonnes)
"Barclays Capital said Europe's banks had sold an extra 100 tonnes from reserves in a rush to meet a quota deadline on September 26 but had done so by selling through forward contracts that disguised the effect.
"We have been able to infer this from trading patterns. It has had a major impact on the markets," said Costanza Jacazio, the bank's gold expert. Barclays is one of the world's three top bullion traders.
"We suspect that the Banque de France has been involved," she said."
also this...
Central Bank gold sales may be lower than forecast
By: Tessa Kruger
Posted: '06-OCT-06 09:00' GMT © Mineweb 1997-2006
JOHANNESBURG (Mineweb.com) --Gold sales by signatories of the Central Bank Gold Agreement (CBGA) fell short of the annual 500 tonne quota at 393 tonnes at the end of the second Agreement year on 26 September. Sales under the remainder of the Agreement, running until September 2009, are unlikely to reach the annual quota of 500 tonnes for the full five year Agreement period, GFMS, a leading source of information on precious metals said in a statement.
Barclays Capital, though, does not concur, suggesting that the full sales quota may have been realised, but the figures did not appear in the statistics as they were forward sales.
However gold sales rose “markedly” in September, with Eurosystem countries selling approximately 55 tonnes. This rise in official sector sales could have had some adverse effect on the gold price during September, but GFMS maintains that investor liquidation across the commodities sector made a bigger impact.
There had been much talk in the market of a possible increase in Eurosystem sales and forward sales that had already taken place during this time.
A number of analysts contended that the speculation was pushing the second CBGA year annual figure towards its 500-tonne limit – contributing significantly to the slump in the metal’s price.
The decrease in Eurosystem sales could partly be attributed to improved sentiment towards gold, but it is more likely that some CBGA signatory countries are spreading out or delaying some of their planned sales.
“The fact that CBGA will probably not deliver the expected 500 tonnes of gold to the market each year and evidence of some side buy-interest elsewhere, suggests that official sales may have peaked in 2005.
“The lower level of sales expected in 2006 indicates a new trend of more moderate net selling from the offical sector”.
Thanks. We shall see...
The European Central Bank does sell forward. The price spikes on 10/25/05 and 5/13/06 were ECB sales (see yellow line) that were forward sales. Also ECB stated it would not sell any more during 2nd year, but guess they could have lied and sold forward in 2nd year and will report during 3rd year. Per the footnotes on the ECB:
"The European Central Bank (ECB) announced at the end of March 2005 and March 2006 that it had completed sales of 47 tonnes and 57 tonnes respectively under CBGA 2. (These were forward sales.) It stated that it will not sell any more during the second year of the agreement. It did not make any sales under CBGA 1. The ECB decided in 1998 that 15% of the initial reserves transferred to it by eurozone central banks would be in gold. By early 2005, this proportion had risen to 22% following valuation changes and a programme of dollar sales to support the euro in 2000."
that the sales had not figured in the weekly financial statement issued by the European Central Bank due to the way the central bank reports them. She said the statement excluded forward sales that Barclays believed to have happened in September but were not showing up yet.
______________________
LONDON (Reuters) - Barclays Capital said on Thursday it believed Europe's central banks sold the full 500 tonnes of gold in the second year of an agreement that regulates bullion sales.
Costanza Jacazio, precious metals analyst at Barclays, said at a commodity outlook briefing that the sales had not figured in the weekly financial statement issued by the European Central Bank due to the way the central bank reports them.
She said the statement excluded forward sales that Barclays believed to have happened in September but were not showing up yet.
Other analysts have said sales fell short of the quota during the year that ended on September 26.
European central banks have agreed to cap gold sales at 500 tonnes a year to avoid destabilising the market.
Jacazio said she did not expect to see a clarifying statement from either the ECB or individual central banks on this issue.
The fact that the banks might have met their full quota would possibly support prices in the short term, she added.
"The fall in gold prices (in September) was relatively small given the amount of selling we have seen through the month," she said.
Spot gold was quoted at $570.90/571.90 a troy ounce by 1256 GMT, up from $566.00/567.00 late in New York on Wednesday.
Prices hit their lowest since mid-June the previous day as weak oil prices soured investor sentiment across commodities markets.
(Reporting by Clare Black, editing by Bernard Halloran; Reuters Messaging: atul.prakash.reuters.com@reuters.net; +44
Yes, I am sure. The yellow line is sales in Euro (37M Euro). You can compare this yellow line to the one on 2006 chart, and see 37M is on the low side.
The 2 tonnes actual sales is the blue line which one can barely see on this chart... Look close, and you will see a blue speck right below the pink line.
http://amarks.homestead.com/CBGold.html
Updated Central Bank Gold Sales
http://amarks.homestead.com/CBGold.html
Per middle 2006 chart, about 110 tonnes short of 500 plan.
Per top 2007 chart, YTD is 2 tonnes versus expected plan tonnes of 4 tonnes. Thus, for first partial week of 2007, Central Banks are 2 tonnes behind expected sales.
Bottom Graph is sales by country for CBGA 1 and CBGA 2.
$Gold 65 Week Moving Average = $550.16
no, European Central Banks did not sell all their gold allotment (about 108 tonnes short of planned sales), just 37 tonnes this past week (some of which likely included the new agreement)
http://www.ecb.int/press/pr/wfs/2006/html/fs061004.en.html
Gold - 65 weekly average has provided support in the past...
October 03, 2006 Oil & Gas: E&P
Investment conclusion
Lowering sector rating to 3-Negative. E&P companies are dealing with a combination of (1) weak industrial demand and (2) soaring costs. We recently outlined our view that extremely weak industrial demand is likely responsible for increase in injection rates and drop in nat. gas prices. Our new analysis implies E&Ps need roughly $12 gas to grow cash flow generation capability by 7%/year. Gap between likely prices and current costs lead us to downgrade group. See "Top of Cycle" note issued today for views regarding an out-of-control cost structure.
Summary
• E&Ps destroyed estimated 6% of stock-market value (ex. changes in valuation arising from changing oil and gas price expectations) in '06. Cash flow would need to be 65-70% greater than est'd 2006 cash flow to convince us that E&Ps grew shareholder value at 7% annual clip. This math implies E&Ps need nat. gas prices over $12/MMBtu to cover '06 costs.
• Despite 9% rise in est'd oil/gas revenues in '06 -- EPS fell avg of 8% in '06E and est'd CFPS rose 2% -- costs up est'd 20%.
• Average debt rose ($12 bil.), shares outstanding rose ($3 bil.) yet cash flow generation capacity of 15 large E&Ps did not increase (ex. prices) - implies $15 billion of shareholder value destruction before allowing for expected return.
• E&P companies need to slash budgets to rein in out-of-control costs. We think Q3 conference calls will lead investors to question the ability of E&Ps to fund '07 drilling plans; and this could lead to reductions in '07 production forecasts.
• We believe that the massive industrial demand destruction that has occurred over the past few years will become apparent now that peak air-conditioning load is behind us.
• If there are fewer "price-elastic" customers willing to step up and use more gas, we believe it will mean that we need to fix the supply imbalance by cutting production and we estimate this will be a slow (9-18 month) process.
• Cutting full-year '06 gas price estimate from $7.50/MMBtu to $7.00/MMBtu and '06 oil-price est. from $70/bbl to $67.50/bbl. Also cutting '07 nat. gas forecast by $0.50 to $7.50. Maintaining our $60/bbl oil estimate.
• Q3 asset write-downs could add to negative sentiment. Although market reaction has been muted in past write-down’s, full-cost ceiling test write downs could add to negative sentiment. APC APA DVN NFX are subject to full-cost ceiling test; while CNQ and ECA may need to disclose in US GAAP footnote.
• We believe that PXD, PPP and ECA may be most challenged to deliver results due to combo of cost structures and time lag between spending and expected production.
• Most gas-levered names include APC, NFX, ECA, PPP, XTO and EOG ($1 change in long term gas expectations should mean 9-13% to shares); while OXY, APA and TLM are least exposed .
• We estimate that 4 companies we cover will report 2H'06/'07 hedge gains of more than $100 mm at our new price deck. These include XTO EOG NFX and CHK (which is covered by J Robertson). We advise against overly relying on adept hedges when making investment decisions.
• We continue to believe that NBL and DVN will outperform peers. upgrading APA to reflect view that APA's broad geographic diversification will allow APA to outperform peers.
• We would avoid shares of PPP PXD APC and NFX for near term performance.
• In Canada we would rather own CNQ than ECA.
Summary
Problem #1. Cost Structure
We estimate that E&P companies destroyed about 6% of their stock market value in 2006. See "Top of Cycle" issued today for views regarding an out-of-control cost structure. We summarize the elements of value creation that we measured for 15 large E&Ps as follows:
• Enterprise value should have risen as a result of a 5% increase in overall oil and gas production. We estimate the value of increased production at current valuations of about $60,000 boepd, or about +$16 bil
• The value decrease resulting from rising cash costs is estimated at -$16 bil -- equals 6 times the increase in cash operating costs
• The portion of enterprise value owned by beginning shareholders was reduced by a $15 bil. Increase in average debt and equity in 2006 vs. 2005. This value creation metric is about $34 billion short of earning a 7% return on stock market value - that is more than 60% of 2006 cash flow earned in a $65-70/bbl and $7.00-7.50/MMBtu environment. Some may argue we should award the companies some credit for increased oil and gas prices over time. If we dial in a 4-5% expected price increase, the shortfall is cut in half. Capital and operating costs are out of control as companies drill aggressively while claiming economics are strong. Issue: Bottoms up drilling math looks so attractive – how can corporate returns look so poor? This is an issue we have struggled to understand – if companies claim go-forward drilling returns of 30%, 50% and even 100%, how can corporate returns be so poor?
• Go-forward lease level drilling returns explicitly ignore sunk costs (not only acreage and seismic costs but also overheads and the costs of drilling abandoned prospects well as early high-cost wells in new plays that companies use to optimize drilling and/or completion techniques). We believe that the leakage can be on the order of 30% (that implies that a 45% lease level return translates into a 15% corporate return).
• Many long-lived gas plays deliver the majority of production value in the first few years – yet production and reserve recovery continues for a long, long time. We ran an example for a non-conventional well and this led us to estimate that the first 50% of production can contribute 75% of the net present value (NPV) and the first 75% of production accounted for more than 90% of NPV. Perhaps we should assign the capital costs according to value returned and assign a finding cost of $4.00-4.50/mcfe to the valuable reserves (rather than reported numbers near $3) as a starting point in our economic analysis. Under this calculation the Henry Hub natural gas price required to earn an adequate rate-of-return may need to be the sum of (1) up to $4.00-$4.50 to recover capital spent, (2) about the same $4.00-4.50 to earn a return on that capital, (3) another $2.00-2.50 for cash costs and (4) +/- $1 for differentials. This would imply a required Henry Hub natural gas price of $11-12.50 to earn an adequate return on a finding and development cost of $3/mcf.
Problem # 2. Natural Gas Demand
A dramatic structural shift in natural gas demand patterns has masked the enormous decline in natural gas usage for at least the past two years. Electric power usage of gas rose 21% -- or 5.6 bcfpd -- in July to 32.7 bcfpd. The 2 summers were about equally hot. This 5.6 bcfpd increase in power demand more than accounted for a 2-3 bcfpd slowdown in injection rates vs. 5-year averages. Rising supply and/or falling industrial demand account for the 3 bcfpd gap. Increased reliance on gas to meet peak air conditioning requirements will continue for at least the next several years until significant new coal-fired capacity becomes available. Summer gas usage was much stronger than in past years due peak air conditioning, but year-round industrial demand has evaporated -- down 5-6% in the past 2 years and down nearly 30% from its 1997 peak. There is plenty more industrial demand that is vulnerable if gas prices stay high or as capital projects (energy conservation projects or projects that move gas-intensive consumers overseas) that are in the pipeline get completed (they will). Industrial demand was still the largest sector at 36% of gas demand in 2005.
Now that the peak summer demand season – along with structurally higher peak air conditioning demand for natural gas is behind us -- the storage overhang is again expanding. The storage overhang has risen from to 320 bcf 4 weeks ago to 354 bcf. We will likely end the refill season (November 3) at record levels, with an overhang of 300-400 bcf. That excess gas could be more than enough to meet requirements even if the winter is cold. Weak industrial demand, along with flat to rising US production, is likely to exacerbate the oversupply situation.
The Solution: Price Signals Could Be Telling Producers to: (1) Lower Costs and (2) Decrease Supply
Natural gas prices of $4-6/MMBtu in the recent past have not provided sufficient incentives for gas-consuming customers to help work off the overhang in storage. We expect that the supply-demand imbalance will need to be corrected on the supply side. We believe that E&P companies need to lower drilling budgets. A combination of terrible returns in 2006 and falling cash flows are likely to provide the impetus to budget disappointments.
• Capital spending cuts may be signaled on Q3 conference calls. We think that companies will likely provide hints, or that investors will deduce, that cash flow estimates are inadequate to fund aggressive increases in 2007 spending
• 2007 production growth forecasts are likely to moderate over the next 90 days as the market realizes that the companies cannot spend enough money to grow production.
• Production can react quickly if activity is reduced -- but activity needs to slow first. If indeed 30% annual production declines are the norm, the self-corrective mechanism can be quick. A 20% cut in drilling activity would likely lower supply by 1-2 bcfpd within 12 months. A production decrease of this magnitude (2-4%) would be similar to the experience in 2002 when yearover- year production fell 3-4%.
• Overall per-unit costs need to come down – If average energy prices had not risen in 2006 (we estimate that price realizations rose more than 10% to about $46/BOE in 2006) cash flow per share would likely have decreased on average. As a matter of fact cash flows per share rose an average of 2% in 2006 – even after allowing for a 9% change in unit revenues. Companies were unable to grow cash flow per share in 2006 and they need to find a way to finance cash flow per share growth from internally. We expect (1) a “high-grading” process where companies forego drilling their least economic wells; (2) decreased investment in new acreage; (3) decreased spending on areas where economic returns are uncertain and in any case may be years away.
Company Recommendations
While we are lowering our overall sector recommendation, we believe that there are both better and worse places to be invested in the group. Our top picks are NBL, DVN, APA and CNQ. While we retain 1-OW ratings on EOG and XTO, we are concerned that the high gas leverage may cause those shares to lag a bit in the near term despite attractive natural gas hedges (especially in the case of XTO). We retain a 1-OW on TLM as well, but we are concerned that Q3 production is likely to disappoint as a result of UK North Sea and other shortterm issues.
• 3-UW. Believe that PXD, PPP and ECA may be most challenged to deliver results due to combination of cost structures and time lag between spending and expect production. We rate each of these stocks 3-UW.
• Near-term risks. In addition to the 3-UW rated shares, we would suggest that investors looking for near term performance also avoid APC and NFX. APC because of its need to sell assets to raise cash – lower gas prices are likely to negatively impact proceeds for producing assets. NFX because of its aggressive capital spending plans
• The most gas-levered names, in our view, include APC, NFX, ECA, PPP, XTO and EOG ($1 change in long term gas expectations should mean 9-13% to shares); while OXY, APA and TLM appear least exposed
• Don’t count on hedges for too much protenction. We estimate that 4 companies among the larger producers will report 2H'06/'07 hedge gains of more than $100 mm at our new price deck. These include XTO and CHK (covered by J Robertson) which should report material gains of more than $1 billion each if our oil and gas forecasts are correct, as well as EOG and NFX which should report modest gains. We advise against overly relying on simple metrics that look at how much gas or oil is hedged. It is worth noting that 8 of the 13 large companies with price protection in place for 2007 have protection at prices that average less than $7/MMBtu.
• Upgrading APA to 1-OW to reflect view that APA’s broad geographic diversification should allow APA to outperform peers. The big win in our view would be if APA would sharply reduce North America spending and use the extra cash to either reduce debt (more likely) or to increase its previously announced $1 billion share buyback authorization (less likely).
• Canada swap idea. In Canada we would rather own CNQ than ECA. The risk an investor runs in shorting ECA is that the company appears likely to announce an upgrading agreement for its oil sands operations in the next 2-3 weeks. ECA’s plan is for bitumen production (SAGD) production to reach 500,000 bpd over the next 12 years – a processing arrangement would reduce the volatility of ECAs returns and perhaps cause investors to place more value on its oil sands (SAGD) assets.
on natgas, am looking for end of Oct as the low...
Ortega Leads, Run-Off Likely in Nicaragua
October 3, 2006
- Former head of state Daniel Ortega is holding on to the top spot in Nicaragua’s presidential race, according to a poll by M&R. 30.9 per cent of respondents would vote for the Sandinista National Liberation Front (FSLN) member in this year’s election, down 1.2 points since August.
Eduardo Montealegre of the Nicaraguan Liberal Alliance - Conservative Party (ALN-PC) is second with 26.4 per cent, followed by José Rizo of the Constitutionalist Liberal Party (PLC) with 16.3 per cent, Edmundo Jarquín of the Sandinista Renewal Movement (MRS) with 15.9 per cent, and Edén Pastora of Christian Alternative (AC) with 0.9 per cent.
In 2001, the PLC’s Enrique Bolaños won the presidential election with 56.3 per cent of the vote. The PLC and the FSLN have traditionally been the dominant parties in the Central American country’s political scene. Montealegre once belonged to the PLC, and the MRS was assembled by former FSLN members.
In March 2005, the FSLN officially designated Ortega as its presidential nominee. Ortega governed from 1985 to 1990, but was a losing candidate in the 1990, 1996 and 2001 ballots.
On Sept. 27, the MRS issued a communiqué, accusing Ortega of betraying the principles of the Sandinista revolution. The statement claims Ortega’s pact with former president and PLC member Arnoldo Alemán "only served to assign positions, pay huge salaries and establish a system of institutional corruption that benefits drug traffickers and the powerful, who can pay off judges."
The Nicaraguan presidential election is scheduled for Nov. 5. In the event no presidential contender receives 40 per cent of all cast ballots, the first place finisher can only avoid a run-off by reaching the 35 per cent mark and holding a five-point advantage over the closest rival.
Polling Data
Who would you vote for in the presidential election?
Sept. 2006
Aug. 2006
May 2006
Daniel Ortega (FSLN)
30.9%
32.1%
27.2%
Eduardo Montealegre (ALN)
26.4%
27.2%
27.9%
José Rizo (PLC)
16.3%
14.9%
13.3%
Edmundo Jarquín (AH)
15.9%
21.6%
--
Edén Pastora (AC)
0.9%
1.4%
1.2%
NatGas Monthly & Weekly Charts updated
http://amarks.homestead.com/robrymodel.html
Apple I-pod Sweatshops in China...
what is the definition of a sweatshop nowadays...
"Workers were being forced to toil for as little as $50 a month under Dickensian conditions, one commentator said. Poor Asians, mostly women, were caught in this vicious cycle because Americans are addicted to gizmos, another rued.
Amid the hysteria, Apple began its own audit of the factory, which is situated in China's Shenzhen special economic zone and is owned by Foxconn Technology Group, a unit of Taiwan's Hon Hai Precision Industry Co.
The findings, unveiled last month, are interesting.
Air-conditioned hostels, Apple's auditors discovered, are available to workers free of charge; the dorms have TV rooms, free laundry, snooker tables and public telephones; the campus comes with soccer fields, a swimming pool, supermarkets, Internet cafes, banks, 13 restaurants and a hospital.
There's no child labor; no one is paid less than the locally mandated minimum wage; male and female employees are housed in separate dormitories; safety isn't a concern.
Everyone has medical coverage.
The biggest complaint of workers: a lack of overtime opportunities during non-peak periods.
This is a sweatshop? "
http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_mukherjee&sid=aSO.ka_trHHE
Donald Coxe: When Supply Finally Exceeds Demand \from another board:
- My thanks to a subscriber for this excellent Global Portfolio Strategy report by the ever-colourful Donald Coxe for BMO Capital Markets. It is posted in the Subscriber's Area but here is the opening:
The commodity stock rally that began nearly five years ago was one of the two great bull markets of the Bush economic recovery.
The other, of course, was housing.
As in past Triple Waterfalls, the long economic rally also delivered a dead cat bounce to the asset class that was still in the early stages of its long-term collapse. Information technology stocks rose from their slough of despond. However, despite the best efforts of today's kings' horses and men-the Shills & Mountebanks-it turned out that putting Humpty-Dumpty back together again was too big a challenge: Nasdaq still languishes at 1998 levels, and hordes of US pension funds that sought to atone for years of over-optimism by betting big on one monstrous win are queuing up for bailouts by the Pension Benefits Guaranty Corporation.
The commodities bull market, which Wall Street chose to minimize until the profits from $60 oil and $3 copper became too big to overlook, has been the object of derision, disdain, and-in the case of oil-despair. Oil's rise has been treated as a bad-news story for consumers and the global economy, which has meant it has stayed on Page One. Oil industry profits also got there, but only because demagogic politicians pilloried Big Oil's CEOs, alleging that their inflated compensation packages were responsible for soaring gasoline prices.
Commodity stocks entered their bull market after 9/11 at a 4.8% weighting in the S&P and they've barely managed to double that weight, despite spectacular earnings gains. The stock market never re-rated them: their p/es declined sharply in absolute and relative terms. In particular, those base metal stocks that did not become objects of takeover bids have been trading at homebuilder multiples. This picayune valuation reflects widespread Street warnings about the two bubbles-housing and commodity. With their single-digit multiples, the metals and oils are characterized as this decade's versions of the tech bubble by those who ne'er professed fear of bubbles when techs traded at triple-digit multiples.
My view - Of the two great bull markets mentioned in the opening, I would say that the US housing boom owed everything to the Bush administration's economic policies and Greenspan's Fed. And the former Fed Chairman commenced the partial deflating of that bubble before retiring last March.
The industrial commodity bull run owes far less to Bush and the Fed, although the latter supplied its share of liquidity. Instead, the seedbed for a recovery by resources was the 21-year prior bear market, which took prices to record lows in real terms for many of these industrial resources. And some of the fertilizer for the flowering of this seedbed appeared in the form of a synchronized global economic recover for the first time in many years. However the growth in demand turned Jurassic as one large-population underdeveloped nation after another, led by China and India, abandoned primitive economic experiments for capitalism. I maintain that this conversion on the road to Damascus, repeated to a greater or lesser degree on other continents, will produce by far the biggest and longest boom in industrial commodities and precious metals that the world has ever seen.
And what of house building and mining stocks?
This item continues in the Subscriber's Area.
Email of the day (1) - On Timothy Guinness' view of natural gas:
"I have just listened to Tim Guinness on a conference call and asked him whether, given the collapse in US Nat Gas, he was looking to build up his exposure to US Gas plays.
"If I understood rightly, he said that a model he runs suggests that the excess storage built over this year would be accounted for on the demand side by substitution alone at these price levels. He sees US Gas at $7-8 next spring and having reduced exposure last autumn is looking to up the fund's weighting to gas plays."
My comment - Thanks for this insight. Timothy Guinness is highly experienced, not given to hyperbole and a great fund manager. I suspect his forecast on natural gas prices is conservative.
My personal portfolio: Stop raised on stock market futures position, and this trade has been increased - Details and charts are in the Subscriber's Area.
Email of the day (2) - On ECTs:
"A question regarding ETCs. You stated that this will be a positive for commodities in the future. However, an observation that I would ask your opinion on is that today's investment arena seems to react immediately in creating vehicles to allow smaller individual speculators to have access to whatever seems to be attracting publicity and is the "hot play of the month". Examples would be gold ETFs, the silver ETF, an assortment of instruments in the FX market such as credit default swaps, and now ETCs. Supporting your thesis of supply-demand imbalance 100%, do you believe these vehicles can have the effect of creating more volatility and pushing prices up far too quickly, just to see them have hard corrections as opposed to a rational trending market. I know there has been much discussion and disagreements in the financial world about how much of the previous commodity run was due to hedge fund or other speculative party's involvement. I guess this might be similar to the "Economist" cover story contrarian play."
My comment - It was actually Eoin who commented on the ETCs and posted charts in the Library but you will not be surprised to hear that we agree on this subject and feel that your initial premise is absolutely correct. The financial industry can only really market products that are fashionable at the time. Consequently a flurry of new investment vehicles allied to a specific area is almost certainly a contrary indicator, for at least the short term. I don't know to what extent the ETCs will catch on over the longer term, as there are competing instruments, but suspect interest will develop slowly, at least until the underlying commodities have completed their current medium-term currections. These would not have commenced when the ETCs were in their planning stages.
Additional Commentary by Eoin Treacy
GaveKal US Equity Strategy: Reviewing Our Bullish Stance on US Equities - Thanks to a subscriber for this bullish report by Steve Vannelli and Clay Allen which covers a number of important issues concerning investors at present. The full report is posted in the Subscriber's Area but here is a section:
The catalyst for further market gains and sector rotation will, we believe, continue to be ebbing commodity prices, particularly energy prices. This week we learned of the demise of two hedge funds who had over-extended positions in natural gas contracts (Amaranth and Motherrock). These events could lead one to believe that the recent plunge in energy have little to do with fundamentals, and everything to do with the unwinding of highly speculative, and leveraged, positions.
But Amaranth and Motherrock's demise also bring us back to a point we have made repeatedly in the past year: there are today a lot of people involved in the commodity space who might not really belong there. Commodities have been the epicentre of massive speculative capital flows in recent years. As we wrote in Are Washing Machines an Asset Class? and Will the Malthusian View on Oil Carry the Day?, the intellectual foundations upon which billions of dollars have poured into the commodity space look shaky at best. As this view gains greater acceptance, more stories like Amaranth's may yet come out. There is a massive amount of money balanced on the head of pin.
If we are correct that oil prices will continue falling, then the US stock market has, most likely, much further to run.
Another very important development has been the recent very sharp drop in long bond yields (which has taken almost everyone by surprise).
The recent rally in US Treasuries challenges the consensus belief that the twenty year bond bull market is ready to be buried; as shown above, the twenty year bull channel is still very much in force.
And this is important for US stocks. Indeed, as can be seen below, peaks in yields (major and interim) were associated with many major rally starting point in the last 25 years: 1982, 1984 (mid-cycle slowdown), 1987, 1990, 1994 (mid-cycle slowdown), 1996, 2004…. Will 2006 prove the exception?
My view - Oil's fall from near $80 to today's $61 will have a positive effect on company balance sheets and will help to keep inflation under control in the medium-term. The bond markets are also already starting to price in a US rate cut some time early next year, urged on by the expected slowdown in GDP growth. However, will these be the main positive conditions motivating the expected rally for 2007 through to 2008?
Oil (p&f, monthly, weekly, daily) remains in a secular bull market. Yes, it has fallen 25% from the peak and a couple of energy related funds have run into trouble, but the fact remains that demand is growing faster than replacement and refinery capacity remains under pressure. The current correction has broken the integrity of the three-year uptrend, implying that the recovery, when it begins, may take longer than other such recoveries. However it does not imply that oil prices are going to fall back to the lows seen in 1998. That possibility could only result from a global depression, which would wipe out demand from emerging markets and no one, to my knowledge, is predicting that.
This section continues in the Subscriber's Area.
Eoin's personal portfolio: one equity index position stopped out at a profit -This section continues in the Subscriber's Area.
Iberian Utilities Soar as Takeover Battles Heat Up - This article by Kristian Rix for Bloomberg covers some of the main reasons the Spanish market has outperformed over the last couple of months. Here is a section:
Shares of Iberdrola SA led Spanish and Portuguese utilities higher after building companies bought stakes in Spain's main utilities and E.ON AG increased a takeover offer for Endesa SA, the country's largest power company.
Iberdrola shares rose 13 percent to 37.80 euros after builder Actividades de Construccion y Servicios SA failed in its attempt to get a 10 percent stake in the utility. It bought 6.3 percent at 37 euros per share, the builder said today.
Spanish utilities are at the center of merger activity in Europe after the European Commission ordered Spain to remove roadblocks it had set up to stop E.ON, a German company, from taking over Spain's main power producer, Endesa.
"Anything is possible now," said Gonzalo Lardies, who helps oversee about $203 million at Metagestion in Madrid.
Gas Natural, which made a bid for Endesa last year, climbed as much as 2.97 euros, or 10 percent, in Madrid investors speculated it may take part in a merger with either Iberdrola of Endesa.
"There is speculation that Gas Natural may be involved in a merger with Union Fenosa and Iberdrola or even a link-up with Repsol,' Lardies said.
My view - Spain and Switzerland both broke up to new highs for the year on August 29th and have continued to lead Developed European markets since then. Spain, in particular, has benefited from significant merger activity in its utilities sector with Iberdrola, Gas Natural and Endesa now subject to speculation.
This section continues in the Subscriber's Area.
Email of the day - on income trusts:
"It shows up as either Toronto, or Canada:WTE.UN (a lot of the Canadian trusts have the .UN suffix). It is Westshore Terminals Income Fund, and is still sort of resource-based, as it derives its income from handling coal shipments. (You can Google it to find out more). A lot of these trust have been hit by the sell off in resource stocks, although there are some that have held up. You may know that there are also a lot of US Royalty stocks e.g. Permian Basin, San Juan Trust or, of course, the Prudhoe Bay Trust. It was new to me until I started investigating! A lot of infrastructure plays (e.g. Amerigas, which I think gets an income from renting out its propane storage tanks and infrastructure to domestic users, and lots of pipeline trusts) seem to go for trust status as a way of flowing through their income to investors. I guess this is the same motivation for the REITs, which Gordon Brown is looking to introduce in the UK. I think there are considerable tax-benefits (although these may evaporate, I guess, if they get over-bought!). In terms of oil and oil exploration companies, it makes sense for them to capitalise their finds, and use the funds to carry on exploring. On the other hand, the investors who buy into the trust get a steady (although probably "wasting") income from their investment.
"There are loads of these in the US and Canada once you start to look for them. I haven't encountered the healthcare trusts yet, but your other correspondent has now pointed me in that direction, and I shall certainly give them the once over.
(Also, a final word of caution, some of these trusts (although none of those mentioned above, as far as I am aware) have been tarred with the brush of Ponzi-finance schemes, whereby the distributions are dependent upon luring in an ever-increasing supply of new investors. I haven't encountered anything of this nature, and have only found apparently bona-fide trust, but it is still important to research these thoroughly, and to take a view on the soundness of the underlying assets and there likely cashflows.)"
My comment - Thanks very much for the information and cautionary note. I have added Westshore Terminals Income fund, Precision Drilling Trust, BP Prudhoe Bay Royalty Trust, San Juan Basin Royalty Trust and the Permian Basin Royalty Trust to the Chart Library.
This section continues in the Subscriber's Area.
Email of the day - On long-term outlook:
"I am a big fan of your service. You mentioned numerous times that 07 and 08 were going to be good years for the global market. Looking at Dow, currently at 11,669, which is not that far from all time high of 12,000.
Does this mean that we are going to see Dow reaching new highs in 07 and 08?
"Aren't we supposed to be in a bear market with contracting P/E ratios and rising yield? What happened to the previous secular bear market of the 70s, where Dow 1,000 was the glass ceiling? It does not seem that this secular bear market would be the repeat of its predecessor.
"What is your take on 2009 and 2010? I believe they are going to be bear markets. We will see bigger corrections than the medium term correction we just witnessed, but to the lesser extent than the bloodbath of 2001 and 2002."
My comment - Thanks to for email which airs an important question. Can I refer you to Comment of the Day on September 15th and David's answer to Email of the Day 1 - On long-term outlook, books and inflation-adjusted metal prices. I found this by putting 'secular bear market' into the Search engine.
Today's interesting charts - The inflation adjusted charts section of the Chart Library helps to put the secular bull market for commodities in perspective.
Australia - strong upward dynamic from the bottom of the range. Today's move changes the profile of the index which had looked like it was starting to roll over to a much more bullish outlook. It would now need to sustain a close below 4,900 to offset potential for additional upside.
more Ferdi...
Promises of more gold output, but data show a decline - Ferdi Dippenaar, CEO Great Basin Gold
In an interview on ClassicFM @ 18:25 on 26 September 2006
[miningmx.com] -- GOLD mining companies in Denver are talking about increased gold output but recent mergers to create larger producers have in fact brought it down, said Ferdi Dippenaar, CEO of Great Basin Gold.
"One thing we've seen is that there have been a lot of promises about increased production," Dippenaar told Classic Business Day, the week-nightly radio show.
"But when the real numbers come out on an annual basis we actually see global gold production is basically decreasing," he told the radio show in an interview from Denver.
"We've seen with consolidation what normally happens with these big mega-mergers is the guys tend to cut out loss making ounces and everyone produces a bit less at the end of the day," he said.
If the gold price had to break through the $600 level from its current mid-$590 level, it could trigger investor interest in gold stock he said.
"I don't think we'll see $800 soon," he said.
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Great Basin empowered before year end
Allan Seccombe
Posted: Tue, 26 Sep 2006
[miningmx.com] -- CANADA’S Great Basin Gold has secured South African Reserve Bank approval to list on Johannesburg’s bourse, a move that could open the way for its empowerment partner to take shares in the holding company rather than the company’s South African project.
Great Basin is drilling and developing the Burnstone project 80km southeast of Johannesburg near Balfour. Company CEO Ferdi Dippenaar expects to conclude an empowerment deal and be granted a new order mining licence before year-end.
Great Basin is talking to Tranter, an empowerment investment group headed by Sipho Nkosi, who is soon to be deputy CEO of South Africa’s largest listed empowered mining company Exxaro. He currently heads Eyesizwe.
“If the empowerment deal is done at the holding company level it makes things easier,” Dippenaar told Miningmx.
it makes things easier“It would allow the empowerment company to hold stock in a listed entity, which means it is a lower risk option when it comes to raising finance, and it will give Tranter access to our other project in Nevada,” he said.
Gold mining analyst Nick Goodwin from T-Sec said Great Basin would be a welcome addition to the bourse. There are less than 10 listed operating gold miners on the JSE, with four of those large companies with mines in South Africa and abroad.
"It's a good time to list (because of the high rand gold price) and it will get good ratings. It will be a small cap stock and it will be an opportunity for investors to put money into a single entity. These small stocks are more exciting because of that," Goodwin said.
A feasibility study indicated the $144m Burnstone mine will produce an average 214,000 oz of gold over its 14-year life of mine, but Dippenaar said there has been a busy R8m drilling programme with four rigs to raise the reserve estimates this calendar year.
A new reserve estimate will be released by the end of the year and could show an increased reserve of one million ounces. This will alter the mining plan by increasing the life of mine and upping production.
“Burnstone could produce 240,000 to 250,000 oz a year on average in the short term. There are some years when it will produce 260,000 oz, but that is a function of tonnage and grade,” he said.
Great Basin owns most of the South Rand Basin near Balfour and the company will continue a vigorous exploration programme next year, he said.
The date for Great Basin’s secondary listing, which will not be a capital raising exercise, will be set by the JSE, but it should be in October, he said.
A decision on whether Tranter will take a stake in the listed company or just the Burnstone project has yet to be made, he added.
African institutional and retail investors hungry for a fresh gold project to invest in have been phoning Great Basin’s offices, demanding to know when the listing will take place, he said.
Great Basin also has the Hollister project on the Carlin Trend in Nevada. The Carlin Trend is to Nevada what the Wits Basin gold deposit is to Johannesburg.
A feasibility report into Hollister will be completed in the second quarter of 2007. The decline development at the project is virtually completed and Great Basin has conducted trial mining there.
“The mining infrastructure is in place and it will be very easy to go into commercial production next year,” Dippenaar said. Hollister is expected to produce 880,000 oz of gold over its life-of-mine and 4,5m oz of silver.
Great Basin is currently looking at toll treating some 500 tonnes/day of material from Hollister, which is a joint venture with North American junior miner Hecla Mining, but its feasibility study will look at the purchase of a plant.
Great Basin could purchase a nearby treatment plant and truck material there. Dippenaar would not be drawn on this proposal.
C$ Long Term Chart
Parity sure looks reasonable...
Murenbeeld Weighs $700+ Gold in 2007
finally, get Martin M gold forecast details:
http://www.resourceinvestor.com/pebble.asp?relid=24217
Ferdi sure knows how to get free press from Mining Weekly.... Lots of GBN articles there ever since he came on board...
News Today
Great Basin added to Amex gold index
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Gold development company Great Basin Gold, which is pursuing projects in South Africa and North America, has been added to the Gold Miner's Index (GDM) on the American Stock Exchange (Amex), the company announced recently.
The GDM is a modified market capitalisation-weighted index comprised of the common stocks, or American Depository Receipt of publicly-traded companies involved primarily in gold- and silver-mining.
A recent report detailed that the GDM was up 4,3% in August and up 23% over the first eight months of 2006, the emailed statement said.
“Great Basin is making good progress with the development of both of our projects and remains focused on becoming a midtier gold producer,” president and CEO Ferdi Diepenaar said.
“We are pleased that our efforts are being recognised, and we are also pleased to be part of the Amex DDM.”
The company has two advanced-stage gold projects, namely the Hollister property on the Carlin Trend of Nevada, in the US, and the Burnstone project in the Witwatersrand goldfields of South Africa.
Great Basin recently initiated underground development at its Burnstone project.
A decline was being developed to enable early access for mining and extraction of confirmatory bulk sample, and to provide continuous access for personnel and equipment during production.
Later, a vertical shaft would be developed and commissioned to be used for hoisting ore and waste rock to the surface.
Commercial production was expected to start in 2009.
At the Hollister Development Block project, part of Great Basin's Hollister property, a two-stage underground exploration and development programme was under way.
This was designed to take the project through feasibility and into commercial production.
Hecla Mining Company was operating the underground exploration and development programme under an agreement where it would receive 50% of the project.
The programme included some 5 600 ft of decline and underground development, 50 000 ft of underground drilling, which was 30% complete, and mining of some 5 000 t of bulk sample, as well as site engineering, environmental and socioeconomic studies.
The feasibility programme was scheduled for completion by the end of the first quarter of 2007.
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Published: 2006/09/26 Printer
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Another foreign miner gets set for secondary JSE listing
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Canadian miner Great Basin Gold plans to start trading on the JSE next month, after the South African Reserve Bank approved the gold-development company's secondary listing.
The company, which initially aimed for a listing in July but postponed it to mid-August and later September, attracted a renewed interest from local investors since it announced the results of the Burnstone feasibility report, CEO Ferdi Dippenaar said on Tuesday.
In May, Great Basin announced the results of its Burnstone feasibility report, which indicated that the underground mine had the potential for robust returns and said that it had planned to use flexible, mechanised materials-handling and conventional narrow-reef mining, in combination with a decline and a vertical shaft for access.
Earlier this month, the company started the construction of the decline to develop the R1-billion gold deposit.
The Burnstone project is located on the South Rand area of the Witwatersrand Basin and is being developed on portions of 34 farms near Balfour.
“By listing on the JSE, we will be offering South African investors exposure to both our development projects in South Africa as well as our high-grade gold and silver deposit in Nevada, US. When in production, both are expected to be shallow, low cash-cost operations,” he said.
Earlier, legal and compliance vice president Willie Beckman told Mining Weekly that the JSE listing would provide for a funding mechanism through which the company could structure and fund opportunities in Burnstone and thereby facilitate growth.
He stressed, however, that the listing would not include an invitation to subscribe for shares in Great Basin, adding that it would only be an introduction of the company into the gold-mining sector of the JSE.
Mining Weekly also reported earlier that Dippenaar believed that the secondary listing would, ultimately, add liquidity to the company, whose TSX and Amex shares were attracting renewed investor interest. The company would retain its TSX and Amex listing after listing on the JSE.
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Published: 2006/09/26 Printer
Indian Gold Purchases should be good going forward....
Indian gold
Posted: Mon, 25 Sep 2006
[miningmx.com] -- INDIA may import 10% more gold this year as a fall in world prices just ahead of the marriage and festival seasons had opened up a buying opportunity consumers, reported Reuters citing an industry official. "I believe that a steady gold price is a sound indication that a reasonably good season is ahead of us," Bakul Mehta, chairperson of the Gem and Jewellery Export Promotion Council, told Reuters.
Softer gold prices are also expected to boost the world appetite for Indian jewellery, exports of which could rise 15% in 2006, said Mehta.
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Monsoon shows normal rainfall over almost all India, thus the rural farmers should have cash for gold purchases once the harvest is in...
http://www.gold.org/deliver.php?file=/rs_archive/the_role_of_gold_in_india.pdf
Julian Phillips Central Bank Gold Sales
http://www.financialsense.com/editorials/phillips/2006/0926.html
Gold to average $679 in 2007: Murenbeeld
Brendan Ryan
Posted: Tue, 26 Sep 2006
[miningmx.com] -- GOLD guru Martin Murenbeeld remains bullish on gold, forecasting a probability-weighted price of $646/oz by the year-end, and an average of $679 for 2007.
Addressing the Denver Gold Forum, he said there was a 50% probability that gold could exceed $700 as soon as next year. This did not factor in any “geopolitical blow- up such as Iran”; such events do not form part of his econometric models.
However, Murenbeeld said Iran had a major impact on the gold price “last time around” and, by his estimate, boosted the gold price $400 in the run-up to its $850 peak early in 1980. His assessment is that: “We will see a blow-up of this nature within the next several years.”
But it was not all good news. In advancing eight bullish arguments for gold, Murenbeeld suggested bearish factors were holding back the gold price in the short-term.
These were that monetary policy had tightened in some major economies while some investors were worried about the possibility of a recession. This would reduce demand for commodities as well as lower inflation pressures, he said.
“Those arguments are front and centre at the moment. Gold often does not do well when monetary policies are being tightened and during recessions, barring quick policy action, all commodities suffer.”
But any impact on gold would be limited because monetary authorities are “not willing to take the hit of a recession.
“In the unlikely event the US economy slips into recession, gold price weakness is likely to give way to strength as a result of the sharp decline in US interest rates that is bound to follow,” he said.
The greatest economic danger facing major economies was deflation and that governments/central bankers would follow easier money policies to avoid deflation, he said. “Governments will print more money.”
The core of Murenbeeld’s arguments for a stronger gold price lie in his bearish view on the US dollar and his belief that gold is in a rising commodity cycle that still has years to run.
Murenbeeld said the US dollar “may well have another 15% to 25% to fall” using the events of 1985-87 as a guide and factoring in the current US trade and current account deficits which he described as being “wildly out of whack.”
Investors fleeing the dollar
Turning to the gold demand and supply situation, Murenbeeld said some diversification by certain Asian central banks as well as by OPEC countries out of their huge US dollar holdings and into gold was inevitable.
“Theory argues it should happen and geopolitical factors suggest it will happen. The main barrier to massive dollar diversification is that other markets are not nearly as ‘deep’ as the US dollar market.
“To some degree these countries are stuck with US dollars. You don’t just move $200bn into a market and not make waves,” Murenbeeld said.
Central banks - which hold reserves of gold totalling some 31,000 tons - represented the largest single supply risk to gold but believed the danger was being overstated.
According to Murenbeeld’s estimates, there was only some 4,000 tons of gold that could be sold after deducting the volumes of gold either held by institutions which were unlikely to sell it or were subject to the central bank gold sales agreement.
Said Murenbeeld: “Some of that 4,000 tons has already been lent out to hedgers while some of the central banks which have sold gold in the past – like Argentina – now want to buy gold again. I don’t see a serious risk here.”
Revolutionary changes taking place on the demand side for gold through the creation of the gold exchange traded funds and the deregulation of gold markets in major consuming nations such as India and China.
“Organisational developments on the investment demand side of the gold market are very, very positive for gold over the medium term,” he said.
Finally, Murenbeeld believed the world economy was in a long-term bull market for commodities.
“An analysis of gold price data back to 1800 suggests the minimum length of time a bull market in gold lasted was 10 years which was 1970-1980. We are just entering the sixth year of the current cycle. I think this cycle has legs."
In each uptrend or downtrend there was at least one year of reversal of the trend but that did not mean the cycle was over, he said.