When the Reserve Bank of India and the government tried to staunch gold imports by increasing duties and limiting supply in order to help their western central bank counterparts, who were deeply embarrassed by their inability to return Germany's gold, the experiment in currency controls had the effect of making the premiums paid for actual gold jump to 21.6% over western paper 'spot' prices.
What good is a 'spot price' for gold if it is just a construct derived from the paper gold price on the increasingly gold deficient Comex, and not from a physically transacting market? And what good is a price set on a so-called physically transacting market like the LBMA if it is done in secret, with leverages said to be approaching 100 to 1?
Recent revelations about the manipulation of price benchmarks, from LIBOR to derivatives to basic commodities, seem to have knocked the efficient market hypothesis into a cocked hat, which is where it always belonged, if the dustbin was full. Markets are naturally efficient to the extent that men act naturally like angels.
Here is an interview that Tekoa da Silva recently conducted with an Indian gold dealer about the future of demand for physical gold in India, which he believes will be strong, and more importantly, why.
Let's see, if one region of the world is willing to pay, for substantial amounts, a 21% premium for a physical commodity that is easily transportable, what might an astute economist predict would happen?
The 'average person' might expect them to predict a substantial flow of that commodity from west to east. These days, however, far too many economists see what they have been told to see by whomever is rewarding them. Economists, like all men alas, do not always act like angels.
So to summarize, as leverage becomes outsized, any reversion to the mean, also known as unwinding, becomes more difficult.
Every time the registered gold inventory has reached these extreme lows there was an intermediate price trend change within six months. This time it could be six months, or nine, or twelve. The longer a divergence from natural market dynamics continues, the harder it will be for players to unwind their short positions and obtain real bullion to cover. And in a market break, inventory will evaporate almost overnight. Those who are slow to act will be bailed-in.
It is all about the pricing and managing of risk. And I think deep down that it is about financially breaking the miners and taking advantageous positions in them ahead of the next leg up for gold in this currency war.
It's an old story. I hope that the compliance guys are considering the counterparty risk in metals derivatives when they do their worst case scenarios.
I hope that the regulators and policy makers understand what a 'break in confidence' in the gold market could trigger beyond itself. My own outlook remains for stagflation, with hyperinflation being unlikely except in the event of a major policy error and unfortunate series of follow-on decisions. But this current crop of crony capitalists are just the gang of blindly arrogant knuckleheads to do the improbable.
This is what I think based on what I can see, and I could be wrong. But the facts seem fairly clear and sound, as it seems to happen in every Ponzi scheme or market instability before things break and start moving on their own momentum. People suspend their disbelief because things seem to keep moving against reason, until they don't. And then the experts say, 'who could have seen this coming?'
The point of this is not how high is too high.
The point is that when the market turns, how high must prices go to clear supply against demand.
There is 'plenty' of gold at the Comex and in the world. Unfortunately not much of it is for sale at these prices.
That is the key. If prices were falling in an environment of ample supply and slack demand, then it would be a different story. But they are not. Demand worldwide for physical bullion is high historically, and supply is thin. And yet prices have decreased. And there is plenty of evidence of market manipulation. How hard is this to understand?
As I have said any number of times, the Comex is not where the market is going to break. The physical market is not centered on the Comex, which is the locus of paper price fixing.
If and when the Comex breaks it will be because there is a general default in the physical market, most likely in Asia and the LBMA that triggers a run on the bullion banks, and then on the Comex.
Like the dollar, the Comex will not default in the technical sense because like US bonds they can force a settlement in their paper at a price they dictate. The problem with that, of course, is that while it is technically not a default, it is a very real blow to confidence that is not easily undone. It is a de facto default.
I am concerned that these jokers will go too far. And the further they go, the less force is required for a 'trigger event' to create a break in confidence. Those who place their hopes in the players to avoid that regrettable outcome are probably engaging in wishful thinking. Tell it to the London Whale.
I do have some hope that the Exchange and/or the regulators will act, but typically they are lulled into the complacency of continuity and political pressure until things begin to get very unstable. For now the bigger players will just reassure them that there is plenty of gold at the warehouse that can be moved quickly to meet deliveries if required.
Stephen M. Jones - Chief Financial Officer, Principal Accounting Officer and Executive Vice President
Well, we consider -- we're happy to consider all alternatives. And certainly, we'll do what's best for all of our shareholders. So we would consider something like that, but we would only consider it if it's best for all of our shareholders. I mean, we think there's still a major opportunity here with the sulfides, and that's not being -- that's not currently reflected in our share price. And it's management's goal to change that and to get that reflected in the share price. And so that's really the focus. I mean the day-to-day focus is to generate cash from the oxide operations, but the longer-term focus is to be able to prove that value to the sulfides. And when we can do that, stock price will increase and will give us a lot of additional opportunities, including opportunities to develop assets like Hasbrouck that we have.
Yes. I'm just calling my question in regards to -- regarding the share price and the 20% flow that is being shorted. Is management doing anything in regarding to this issue?
Stephen M. Jones - Chief Financial Officer, Principal Accounting Officer and Executive Vice President
David, I think -- this is Steve. Yes. I mean, we're well aware that there's a big short position on. The main thing we're doing, David, is everything we've been talking about this morning, which is trying to make sure that we're generating cash flow from operations, that we're getting more efficient in everything that we do, so that we can show that there's not a liquidity issue here. And as well as all the work that Randy has been talking about with M3, relative to the oxidation, to get us to the point of being able to know exactly what the mill is going to look like, and then go out and raise the money and begin construction on the mill. So, I mean, our focus is fundamentally, if you will, is to be able to prove the short is wrong. I know it's frustrating to have that big of a short position out there. It's frustrating for us to do that. But the biggest thing that we can do is just deliver from an operational and cash flow perspective.
Okay. And the other short question that I have was being that during our company's research, we've noted that there's over $100 billion in private equity funds that are out there looking to buy mining assets. So in the near future, would you consider teaming up or selling out to a bigger mining company that would have already the equipment and the expertise to develop this, the Hycroft Mine?
The weak gold ETF holders have sold, so really there's not much left to sell since the long term holders won't sell at these low prices.
The fractional gold ponzi, needs all the ETF metal help it can muster to feed demand.
There is plenty of paper to go around.
Further, there is likely more metal than reported flowing into the country via smuggling through "large and porous" borders, especially when premiums are high, Nichols said. And, he continued, the country’s central bank is thought to be adding to its gold reserves, and some of this may be held in depositories of other central banks and therefore not included in the import data.
Nichols suggested the government is likely trying to encourage private investment demand while at the same time minimizing the impact of its consumption on prices in the world marketplace.
"It wants low prices to acquire gold rather than prices that would certainly be higher if people were giving adequate recognition to the strength of Chinese demand," Nichols said.
He later added: "Intuitively, I have to feel that Chinese demand is very strong, will remain strong over the long run and will become an increasingly important factor in setting the price in world markets."
Several analysts said the data confirm ideas that China will overtake India as the world’s largest consumer of gold in 2013. While Chinese demand has been strong for most of the year, Indian imports have been reported softer in response to government efforts to limit inflows of the metal to curb a large current-account deficit.
"With what is happening in India right now, China would be by far the biggest importer," said Afshin Nabavi, head of trading with MKS (Switzerland) SA. "Don’t forget, they (the Chinese) also have production themselves internally that is consumed by them."
Traders will be closely watching the October data when it is released to see whether there is slowing of Chinese imports. The Chinese market was closed for a one-week stretch for the Golden Week holidays, Nabavi pointed out. Also, several analysts said activity in China was more lackluster at the end of October, with premiums softer than earlier in the year.
"It will be interesting to see what figures we have in October," Nabavi said.
Nichols pointed out, however, that lower premiums may not necessarily be an indicator of reduced domestic demand in China.
"The government has taken steps, in a sense, to provide more supply to the domestic market, increasing the number of banks and financial firms that are licensed to import gold," he said. "They’ve sort of greased the wheels a little bit more in order to ameliorate the possibility of big premiums again."
He said Chinese supplies are likely rising, both mine production and scrap recovery. This means especially strong consumption if the country is importing metal at the same time.
By Allen Sykora Kitco News
Friday November 1, 2013 11:04 AM
(Kitco News) - China’s net gold imports from Hong Kong declined marginally in September but overall are considered strong, with one investment bank citing this as an example of the continued shift toward more demand in Eastern nations than in the West.
Shipments to China from Hong Kong were 116.3 metric tons in September, with exports to Hong Kong of 6.9. This left net imports of 109.4 metric tons, down 0.7% from 110.2 the prior month, according to news reports.
"Month-to-month data that show small changes are not really that meaningful. What counts is the trend over a longer period…," said Jeffrey Nichols, managing director of American Precious Metals Advisors and senior economic consultant for Rosland Capital. China "has become in recent years perhaps the major factor in the physical market and it’s likely to remain so or become even more-so in the years ahead."
The Chinese government does not release actual statistics for imports into mainland China. As a result, analysts monitor data from the Hong Kong Census and Statistics Department in an effort to measure the flow of the yellow metal into China.
"This was…the fifth consecutive month to show net imports in excess of 100 tons," said Commerzbank. News reports peg net imports at 826 tons so far this year, double the first nine months of 2012.
Commerzbank said Chinese imports so far have exceeded the outflows from global gold exchange-traded products, which it lists at just shy of 703 metric tons in the first nine months of the year.
"This is further evidence that gold demand is shifting from West to East," Commerzbank said.
Market Vectors Gold Miners ETF (GDX) is down by 3.5% Friday. Fast-trading tools Direxion Daily Gold Miners Bull 3X Shares (NUGT) and Direxion Daily Gold Miners Bear 3X Shares (DUST) are zipping by 10% apiece.
So, do you agree with Gero? The Fed’s willingness to “taper” is the most obvious wild card. Here’s another: The dollar.
If you think the dollar will continue looking better, as it has lately, that’s a headwind for gold.
Once you get past the dollar, there’s also the steady outflow of ETF money to consider. Hedge funds and other owners of SPDR Gold Trust have been persistent sellers all year, to the point that the ETF’s assets under management are about half the size versus a year ago.
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Sentiment: Strong Buy
By Brendan Conway - Barron's
A rise in a key manufacturing gauge to the highest since 2011 does nothing to stanch speculation of a stingier Federal Reserve, which in turn is weighing on the price of gold.
The data, not to mention another sharp rise in the dollar and reports of slower Indian gold buying around the Diwali festival, has gold futures losing 1.1% to $1,310 Friday morning, and heading for the fourth loss in five sessions. SPDR Gold Trust (GLD) is off 1.1% to $126.38 Friday.
The glumness shows up in the futures and options markets, too, where activity has been muted. If hedge funds, aggressive traders and institutional investors are speculating less or just sitting on their hedges, you can guess they’re not getting too excited.
It all suggests a buying opportunity, argues RBC Capital Markets precious metals strategist George Gero in a morning email: “All this could point to a market already having priced in the negatives and an upside surprise by bargain buyers caused by Middle East problems, more stimulus in Europe and [the] Far [E]ast as well as bargain hunting near [the] 1300 area,” he writes.
Certainly among those three worry factors, headlines from Europe are picking up. The euro fell versus the dollar for a fifth straight day amid speculation the European Central Bank will be forced to cut interest rates as soon as next week due to the region’s economic weakness.
The latest catalyst: sagging inflation. The euro-area’s annual inflation rate fell to the latest since November 2009 last month, at 0.7%. Meanwhile, unemployment was at a record 12.2%.
Matters are particularly nasty this morning in gold-mining stocks and funds. Barrick Gold (ABX) is one reason. As my colleague Ben Levisohn explained, the company suspended operations at a troubled mine, and announced it would sell more shares. Barrick is down more than 7% this morning, extending its 2013 loss to 49%.
SDBullion has learned from industry contacts that the US Mint alerted its Primary Dealers Thursday that The Mint is halting its weekly allocation of 2013 Silver Eagles, and will be suspending all sales of ASEs for 4 weeks!
*Updated 2:30pm EST: Silver Eagle shortage already underway as primary dealer wholesalers have taken the rare step of raising ASE prices intra-day on a Friday.
“The United States Mint will issue its last weekly allocation of 2013 dated American Eagle Silver Bullion coins on Monday, December 9, 2013. We will begin accepting orders for 2014 dated American Eagle Silver Bullion coins on Monday, January 13, 2014.”
At the end of 2012, the Mint also took the unusual step of halting sales of 2012 Eagles on December 20th through the first week of January, which resulted in large premium spikes of ASEs as a shortage developed. The resulting supply squeeze in Silver Eagles also resulted in a tightening of other official mint products (Maples and Philharmonics) as well as generic silver rounds and bars as Silver Eagle demand was forced into other products.
With silver spot prices nearly 50% lower than 2012 levels, and the Mint shutting down production 11 days earlier this year (December 9th), expect physical premiums on ASEs to jump significantly over the next 2-3 months.
We will continue selling 2013 Silver Eagles as low as $2.69 over spot at SDBullion as long as we can, but suppliers are warning that significant premium increases are imminent.
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“This town is funny,” she said. “You had a big win so everyone expects you’re going to have exactly the same win. But this is a hard job. There are no guarantees here,” she said.
West took some time off and then dived back in, finding new private investors in Westport, Conn.-based Lime Rock Partners and choosing new bankers.
She formed Black Shire in 2010 and grew production to about 7,000 boe/d, mainly from east central Alberta oil assets purchased from Cenovus Energy Inc. and Penn West Petroleum Ltd.
The cash-and-stock sale announced this week is expected to deliver more than three times returns to her private investors.
West says her next venture is going to be different. Good practises are not going to be weighed as a cost on the bottom line or a public relations exercise, they will be at the core of everything Imaginea does.
That could mean hiring a corporate innovation champion. It could mean slower or slightly less profitable development to make sure all negative affects are considered and mitigated at the project planning level.
She said it could mean re-employing oil and gas roads, leases and power lines for green energy, such as wind farming, as an example.
West said Lime Rock hasn’t signed off on the idea yet but is interested, perhaps mainly because of Black Shire’s success. She said she is also in touch with private “green funds” to gauge their interest.
“Part of me wants to start tomorrow. Part of me wants to take a break. But I’m so excited to change the world, likely it will be pretty quick,” she said.
“There are some really great assets right now up for sale. There’s a window of opportunity because companies are very stuck right now. They don’t know what to do so they’re saying, ‘Let’s sell assets.’”
The daughter of a corporate payroll specialist and a school secretary, she trained as a chemical engineer at the University of Calgary, cut her teeth in the industry at Imperial Oil Ltd. and Gulf Canada Resources Ltd. and then got the urge to go out and build her own energy company.
West, who has never married, remortgaged her house and hit up everyone she knew in 1999 to start her first and only publicly traded company, Touchstone Petroleum Inc., which peaked at about 280 barrels of oil equivalent per day and was sold after two years.
The shares had tripled by then, creating a nice profit for everyone, and West moved on to her next venture, Chariot Energy Inc.
With $20 million from Dallas-based private equity firm Natural Gas Partners, Chariot bought non-core assets in Alberta from several big players, grew production to 3,700 boe/d, mostly oil, and was sold in April 2005 to Kareco Energy Ltd. for $188 million. Investors earned four times investment.
Then-Kareco chief executive Grant Fagerheim remembers West as a woman of “integrity, honesty, and high energy.”
“She was very pleasant to deal with through that transaction and made sure to provide all facts whether favourable or not and was adamant about ensuring that her staff were well taken care of,” he said in an e-mail.
West launched Auriga Energy Inc. that fall, a company for which a series of unfortunate events — West calls them “poison darts” — were waiting.
After losing $11 million in a third-party gas plant insolvency, a sudden plunge in gas prices in 2008 stifled cash flow and prompted Auriga’s bankers to reduce its line of credit. Its private equity backers refused to pony up more cash.
In the end, with failure looming, the company was sold in a stock-swap deal to Orion Oil and Gas Corp. and West barely broke even.
Some investors were angry, she recalls.
Black Shire Energy founder says next venture all about sustainability BY DAN HEALING, CALGARY HERALD OCTOBER 11, 2013
CALGARY — It’s been quite a week for Suzanne West, an energetic 48-year-old Calgarian who bikes to work downtown most days and is currently teaching four fitness classes a week.
On Wednesday, Calgary intermediate Twin Butte Energy Ltd. announced it was buying Black Shire Energy Ltd., the private oil and gas company West founded three years ago and heads as president and CEO. The deal is worth $358 million.
On Friday, West received confirmation that she is the western finalist for the 2013 RBC Canadian Women Entrepreneur Awards for excellence in entrepreneurship. The winner is to be chosen next month.
The news is enough to cast the spotlight on any individual, but what convinced the publicity-shy Calgarian to chat with the Herald are not her past deeds but rather her next one — creating a new oil and gas company that will commit to a set of environmental and people-first principles she calls Project Step-Up.
All she needs now is the money — she’s set her sights on raising as much as $500 million in private equity for what she wants to call Imaginea Energy Trust.
“I’m still an acquire-and-develop kind of girl,” she said, admitting her new venture is raising eyebrows among oil and gas investors.
“This just has a different mandate, an ‘and’ mandate. I don’t know the rule book that says you can’t make a ridiculous amount of beautiful, sustainable profits and not wreck the planet at the same time.
“It needs more creativity, more innovation, more tenacity and more discipline to do that but there’s no reason why we can’t.
“In fact, I swear we’ll do better.”
Aside from her position as one of the rarest of all Calgary oilmen — an oilwoman — West has a lot in common with her mostly male peers.
October 30, 2013 7:01 PM EDT
The Citigroup Inc.'s headquarters, center, is seen in Canary Wharf, London. Photographer: Jason Alden/Bloomberg
Citigroup Inc. (C) and JPMorgan Chase & Co. (JPM) are putting their top London currency dealers on leave after regulators probing the manipulation of foreign-exchange rates started investigating the traders’ use of an instant-message group, three people with knowledge of the moves said.
Rohan Ramchandani, Citigroup’s head of European spot trading, was told yesterday he will be placed on leave, said one of the people who asked not to be identified because he wasn’t authorized to talk publicly. Richard Usher, JPMorgan’s chief dealer in London, went on leave two weeks ago, said another person. Both are taking leave by mutual agreement with their employers and neither has been suspended, the people said.
Standard Chartered Plc (STAN) has also placed Matt Gardiner, its assistant chief dealer in the U.K. capital, on leave, a fourth person said Oct. 29. None of the traders has been accused of any wrongdoing.
Regulators are focusing on an instant-message group the traders set up to share information about their positions and client orders over a period of at least three years, four people with knowledge of the probe said this month. The roster of banks in the group changed as the men moved firms and also included Barclays Plc (BARC), Royal Bank of Scotland Group Plc and UBS AG (UBSN), three people with knowledge of the communications said.
Investigators are weighing whether the messages amounted to attempts to manipulate the market, two people said. The five firms account for about 47 percent of the $5.3 trillion-a-day foreign-exchange market, according to a May survey by Euromoney Institutional Investor Plc. (ERM) Two other traders, who weren’t part of the conversations and who asked to not be identified because they do business with those involved, said that they and others in the market referred to the message group as “The Cartel.
They did it anyway....
Mexico's senate approves reforms including 7.5% mining tax
By Business News Americas staff reporter - Wednesday, October 30, 2013
Mexico's senate has approved tax reforms which include a 7.5% mining charge.The reforms, which include changes to income tax, value added tax as well as an...
This news article is one of hundreds published daily by Business News Americas about the commodities, markets, movements, companies, projects, economics and politics integral to the development of Latin America. Including news and insight from South America, Central America and the Caribbean, BNamericas includes Mining insight and forecasts for business opportunities in Mexico. The business development service focuses on major projects, active companies, such as Grupo México, Goldcorp; and business and sales contacts, providing networking opportunities with leading executives throughout Latin America.
Taken together, the Fed isn’t taking a December adjustment to the bond-buying program off the table. But that comes with the strong caveat that it depends on whether the economy is living up to its expectations. As part of that assessment, Fed officials will be updating their economic forecasts in December and will need to make a judgment about whether their projection of accelerating economic growth in 2014 is likely to be met.