Precious Metals Contrarians See Opportunity in Negative Sentiment

by: Stefan Gleason*

Gold and silver markets entered this summer with sentiment toward the metals in something of a deep freeze.

For several months, precious metals prices have gone essentially nowhere. No sustained rallies to attract momentum traders; no washout plunges to attract bargain hunters. The long, protracted stalemate between bulls and bears has frustrated metals investors and, frankly, bored the public.

Sell, Sell, Buy

As a consequence, bullion buying volumes dipped.

The U.S. Mint’s sales of gold and silver Eagles in the first half of the year lagged far behind the pace of 2017, when it sold 302,500 ounces of gold and 18 million ounces of silver.

As of this writing, the U.S. Mint sold just 6.5 million 1-ounce silver coins and 110,000 ounces of gold – a collapse in sales from levels seen in recent years.

Another measure of the public’s disinterest in owning precious metals is declining internet search volumes.

Google Trends data for May show the fewest searches for the phrase “buy gold” since July 2007. Back then, gold traded at around $670/oz – a pretty good price at which to buy amidst public apathy.

Some beleaguered gold bugs are taking the lackluster market conditions as a sell signal. Bullion selling by the public has increased since the start of the year. Money Metals Exchange saw a marked increase in customers wishing to sell, particularly since we offer the best “bid”prices in America.

The silver lining in a depressed bullion market is that buyers can obtain most popular products at low premiums. In some cases, premiums over spot prices have dropped to historically low levels.

We are happy to facilitate either sell or buy orders, but our experience is that when lots of people want to sell, it’s an opportune time to buy – at least for those with a long-term perspective.

The futures market bears this out time and time again. When speculators are lopsidedly positioned on the short side, that usually serves as a contrarian indicator that the market is close to bottoming. By May, speculators had piled in on the short side in the silver futures market in a bigger way than they had in several years.

Investors in the Far East aren’t worried about the ups and downs on the charts. They are concerned with acquiring more ounces.

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Sentiment turned extremely negative in both the paper and physical markets even as gold and silver prices maintained their trading ranges. Although both gold and silver came close to suffering major technical breakdowns this spring, no longterm damage was done.

Given the negative sentiment and the strength of the U.S. dollar in the spring, the downside in metals markets could have been far worse. The fact that it was minimal suggests underlying technical strength.

It appears that growing demand among the world’s central banks is helping to put a floor underneath prices. In recent years, Russia and China have been steadily accumulating gold. Over the past decade, Russia has more than tripled its gold reserves from 600 tons to nearly 2,000 tons.

China’s gold reserves have also grown dramatically. It’s difficult to get exact numbers, as the Chinese government has acquired much of its gold in secret. But it could be as high as 4,000 tons.

Smaller players on the global stage are accumulating physical gold as a way of countering U.S. sanctions and U.S. dollar dominance in global trade. In the first quarter, Iran’s gold bullion purchases surged.

Iran’s Islamic neighbor Turkey, surprisingly, was the second largest state buyer of gold for the first quarter.

Clearly, many countries that count the United States as an adversary are turning to gold as a means of gaining greater independence and leverage in international trade. The ultimate goal of the emerging Russia-China-Middle East economic alliance may be to dethrone King Dollar.

It won’t happen overnight. But gold is gradually rising as a credible counterweight to the U.S. dollar and other fiat currencies.

Far East countries like China are known for their long-term time horizons. They aren’t worried about the ups and downs on the charts. They are concerned with acquiring more ounces. They are happy to buy on price dips when they come. Disciplined long-term investors should be as well.

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China gold – positive news on all fronts

Linked below are two articles I have posted recently on the Sharp Pixley website – both on the latest state of play in the Chinese gold markets.  The first of these looks at gold withdrawals from the Shanghai Gold Exchange (SGE), which some observers equate to the real level of Chinese gold demand being somewhat higher than that suggested by the major Western consultancies which have perhaps more limited criteria on what should actually be included in the demand figure.  We have noted beforehand, quite frequently in fact, that SGE gold withdrawal figures equate far more closely to the total of known gold imports from countries/areas which break down their gold export statistics by country of destination, plus China’s own gold output plus an allowance for scrap and from unpublished import data than the estimated Chinese consumption figures by the consultancies.

Be this as it may, for the first five months of the year, SGE withdrawals are up by 8.55% on the figure at the same time a year ago and up 7.79% on the first five months of 2016 .  We speculate further that if we add Hong Kong consumption to that of the Chinese mainland this account for around 70% of all new mined gold, and with the continuing growth in numbers of the Chinese middle classes, and the continually rising national GDP, gold demand is likely to be on the increase given the propensity of the Chinese middle class population to buy precious metals as a hedge Ginat difficult financial times.  A link to that article is as follows:

Chinese gold demand continues to rise yoy

My second article in the past week on Sharps Pixley noted that the total reported amount of gold in China’s forex reserves, as reported monthly to the IMF, remains unchanged as it has done now for nineteen successive months – indeed ever since the Chinese yuan, or renminbi, has been accepted as an integral part of the IMF’s Special Drawing Right.  We think this situation is highly unlikely given indications over the years from Chinese politicians and academics that the country is aiming to at least match the gold reserves of the Big Western national gold holders.

China has a track record of announcing big gold reserve increases only at multi-year intervals and putting this down to gold being purchased and held in non-reportable accounts until moved into its official forex figures.  Again, we speculate that this gold may be being purchased and held by the state-owned commercial banks on behalf of the People’s Bank of China and only moved into the PBoC reportable accounts at say five or six year intervals.  A link to this article is:

China official gold reserves unchanged again as forex holdings dip

Another piece of positive news on Chinese gold demand came from the World Gold Council which reported a return to growth in Chinese gold jewellery demand.

Market Update: China’s jewellery market – quietly improving

Trump opens Pandora’s box. Global trade war very positive for gold.

Article first published on Sharps Pixley website

Well we’ll soon see if President Trump’s imposition of steel and aluminium tariffs on the EU, Canada and Mexico is for real – or just another negotiating tactic.  He is very much a believer in promising the worst as a tactic for generating concessions in his business dealings, but will this work in global geopolitics?  Tit for tat tariffs are already being promised by those affected – they can play at that game too! – and if they all come about they could cost far more in American jobs than any possible regeneration that might be seen in the U.S. steel and aluminium sectors.  Those are too far down the line of closures and write-offs to see any kind of short term recovery.  And U.S. manufacturers currently relying on imported aluminium and steel for their products will see costs rise which, no doubt, will see them having to increase prices for their goods making them less competitive in both domestic and global markets.

And, of course, such a trade tariff war could easily escalate dragging in more products and countries.  A global trade war does nobody any good as noted by top economist Martin Murenbeeld (www.murenbeeld.com) in his latest weekly Gold Monitor newsletter for his subscribers.

Martin is renowned for his comprehensive, but conservative, analyses of the gold market.  As we have noted before he is mildly bullish, but circumspect, on his stated outlook for precious metals.  He is not a predictor of a rapid rise to a $5,000 or $10,000 metal price but, in our view is a much more realistic observer of metal price trends in looking for steadily rising medium to long term price levels in line with a perhaps weakening dollar index.

As he states: “a global trade war would be catastrophic for the world economy – and would be a big issue for the gold market! A global trade war would seriously alter central bank policies – more loosening/less tightening – which is a plus for gold! And the dollar’s reserve-currency role would be damaged, and accelerate the move to a multiple reserve-currency world (with the dollar playing a much-reduced role).   Central bank gold reserves around the world would likely rise accordingly.”  If he is correct in his analysis and President Trump does not reverse course, the global economy could be in for some very uncomfortable years as /a tariff war stutters and possibly escalates.

What is puzzling about the Trump tariffs so far is the countries which have been targeted – all supposedly allies of the U.S. – while China, which most see as the biggest culprit in terms of what are seen as unfair trade practices, seems to be attracting less immediate attention, although talks with the Chinese are ongoing.  However, one suspects that China, and some other Asian nations will become targets too and again tit-for-tat  tariff increases will result with damaging results for the sectors so chosen.  While President Trump has described the tariff increases as a national security issue given steel and aluminium are used in weapons manufacture, others see the moves as pure protectionism of the worst kind.  Such trading issues usually end up as economically disadvantageous to all parties – hence the likely benefits to the gold market as investors look to so-called safe havens.

FRANK HOLMES: GO GOLD! Inflationary Tariffs Could Supercharge the Yellow Metal

By Frank Holmes, CEO and Chief Investment Officer, U.S. Global Investors

Global sales of semiconductors crossed above 400 billion for fisrt time in 2017

Ready for inflation?

Just days after Treasury Secretary Steven Mnuchin reassured markets that a trade war between the U.S. and China was “on hold,” the Trump administration announced that it would be moving forward with plans to impose 25 percent tariffs on as much as $50 billion worth of Chinese exports to the U.S. Beijing has already suggested that it will retaliate in kind.

The White House also reinstated tariffs on imports of steel and aluminum from Canada, Mexico and the European Union (EU) after allowing earlier exemptions to expire. Again, there’s a big chance the U.S. will see some sort of tit-for-tat response.

Steel prices are already up 45 percent from a year ago. The annual change in the price of a new vehicle in the U.S. has been dropping steadily since last summer, according to Bureau of Labor Statistics data, but with the cost of materials set to rise dramatically, we could see a price reversal sooner rather than later.

US midwest hot rolled steel price up 45 percent from last year
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Next up, the U.S. government could slap steep tariffs on imported automobiles—and possibly even ban German luxury vehicles outright, according to a report by German business news magazine WirtschaftsWoche.

These decisions, if fully implemented, will have a multitude of implications on the U.S. and world economies. What I can say with full confidence, though, is that prices will rise—for producers and consumers alike—which is good for gold but a headwind for continued economic growth.

You Can’t Suck and Blow at the Same Time
US midwest hot rolled steel price up 45 percent from last year

Let me explain. I’ve often said that middle class taxpayers elected Trump president by and large to take on entrenched bureaucrats, cut the red tape and streamline regulations. People are fed up. A study last year by the Congressional Budget Office (CBO) found that government workers not only earn more on average than private-sector workers with similar educational backgrounds, they’re also guaranteed health, retirement and other benefits. Trump responded to these concerns by signing an executive order that eased the firing of federal workers.

He’s kept his word in other ways. Since being in office, he’s already eliminated five federal rules on average for every new rule created, according to the Competitive Enterprise Institute (CEI). He’s weakened Obamacare and Dodd-Frank, not to mention slashed corporate taxes.

In 2017, the number of pages in the Federal Register, the official list of administrative regulations, dropped to 61,950 from 97,069 the previous year. This is especially good news for productivity. Research firm Cornerstone Macro found that Americans were more productive when there were fewer rules, less productive when there were more rules.

productivity decreased as the number of federal rules and regulations grew
click to enlarge

These are all positive developments that should help boost the economy. The problem is that they could be undermined by tariffs, which are essentially regulations. We believe government policy is a precursor to change, and history suggests that rising tariffs and regulations hurt the economy.

Consider automobiles. U.S. automakers are the second largest consumer of steel following construction. In March, the Wall Street Journal estimated that the tariffs could add at least $300 to each new vehicle sold in the U.S. And speaking to Bloomberg last week, a spokeswoman for the Alliance of Automobile Manufacturers said the tariffs on steel and aluminum imports will make cars more expensive. “These tariffs will result in an increase in the price of domestically produced steel—threatening the industry’s global competitiveness and raising vehicle costs for our customers,” Gloria Bergquist said.

Do tariffs on imported vehicles threaten united states auto sales
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Higher Inflation Has Historically Meant Higher Gold Prices

The good news in all this is that higher inflation has historically been supportive of the price of gold. In the years when inflation was 3 percent or higher, annual gold returns were 15 percent on average,according to the World Gold Council (WGC).

gold has historically rallied in periods of high inflation
click to enlarge

When gold hit its all-time high of $1,900 an ounce in August 2011, consumer prices were up nearly 4 percent from the same time the previous year. The two-year Treasury yield, meanwhile, averaged only 0.21 percent, meaning the T-note was delivering a negative real yield and investors were paying the U.S. government to hang on to their money. This created a favorable climate for gold, as investors sought a safe haven asset that would at least beat inflation.

CIBC: Major Gold Firms to Generate Strong Free Cash Flow and ROIC
gold has historically rallied in periods of high inflation

Finally, I want to draw attention to an exciting research report released last week by the Canadian Imperial Bank of Commerce (CIBC). I’m a huge admirer of the work CIBC does, especially that of Cosmos Chiu, director of precious metals equity research. Chiu and his team write that the “future looks brighter” for gold equities on improved free cash flow and return on invested capital (ROIC). Both factors are among our favorites. I recently shared with you a chart that shows that, over the past 30 years, ROIC outperformed other factors by as much as one and half times.

With gold trading near $1,300 an ounce, producers are currently posting positive margins, according to CIBC. As a result, every stock in the bank’s large-cap universe, with the exception of Kinross, is expected to generate positive free cash flow through 2019.

Go Gold! Royalty/Streaming Companies Deliver the Profits

The bank has even better news for royalty and streaming companies, particularly Franco-Nevada, Royal Gold and Wheaton Precious Metals. For one, the three big royalty names delivered combined shareholder returns of 6.2 percent between 2013 and 2017, outperforming both senior producers and physical gold.

Three largest royalty and streaming companies forecast to deliver strong return on invested capital
click to enlarge

Now, CIBC forecasts the royalty group will generate strong ROICs, “steadily inching higher over the next decade… to average between the 5 percent and 8 percent mark from 2018 – 2023.” ROIC measures how well a company can turn its invested capital into profits.

Loyal readers already know we’ve long been fans of Franco-Nevada, Wheaton Precious Metals and other royalty/streaming names. To find out why we believe they’re the “smart money” of the gold mining space, I invite you to watch this brief five-minute video.

AXEL MERK – Inflation & Precious Metals to Rise, Fed to Act Late

Mike Gleason* of Money Metals Exchange interviews Axel Merk of Merk Investments.

Mike Gleason: It is my privilege now to welcome back Axel Merk, President and Chief Investment Officer of Merk Investments and author of the book Sustainable Wealth. Axel is a highly sought after guest at financial conferences and on news outlets throughout the world and it’s great to have him back on with us.

Axel, it’s a pleasure to have you join us again today and thanks very much for coming on.

Axel Merk: Great to be with you. What a week.

Mike Gleason: Exactly. Well, Axel when we spoke to you in February the equity markets were in the midst of a sell off and some significant volatility, which had been extraordinarily low, came roaring back to life. Since then, the stocks have recovered some. The S&P regained about half of what it lost by the end of February and has been trading in a range since then.

Our thoughts are that precious metals are trading inversely correlated to equities markets, at least for now. Unless we get a pullback in stocks or more appetite for safe-haven assets it will be hard for metals to get much going to the upside. But what are your thoughts on the relationship between gold prices and stock markets, Axel? And what factors do you expect to be driving stocks between now and say the end of the year?

Axel Merk: Sure, and for context I think we should just mention we are talking before the Non-Farm Payroll Reports (are out), so who knows what’s happened to markets since we have talked? One of the things I don’t recall if I mentioned in February is, ever since last December, and I still believe in that, the markets have been a bit like a washing machine. That correlations have been breaking down. And, if you go back to, kind of, all the way to the financial crisis, that’s the 2008 one, not the one from a week ago, that means that whenever there was a crisis the Fed bought treasuries. And so whenever “risk” falls off, when equities are plunging, bonds were rising. And that kind of ingrained this perception about certain types of correlations and so, similarly, the price of gold was actually reasonably highly correlated to that of treasuries. And so we got this thing that gold and the stocks are sometimes moving in tandem, sometimes they move in opposite directions.

Since January 1970, if you look at monthly correlations, the correlations between stocks and bonds is 0.00. So, there is no correlation. Yet, we get caught up in this thing that, for months at a time, sometimes there’s a correlation that is significant. I think the most noteworthy thing of late is that yields have been, until a good week ago, have been matching higher and the price of gold was falling up. And then, conversely, when bond yields were falling, gold didn’t rise.

And so, gold has kind of marched on its own in some ways and I happen to believe that a lot of the buyers of gold these days are doing it because they are concerned about the equity markets because of volatility spiking. And the reason why volatility and the price of gold are related is because gold doesn’t have cashflow. And that means the future cashflows don’t get discounted more, whereas, if you have a quote unquote risk asset, like equities, and volatility increases, those future cashflows get discounted more and the prices of equities, all else equal, tends to fall. So, that’s why in “normal” circumstances the price of gold should rise when equities tumble. Obviously, that doesn’t always happen.

Mike Gleason: You pay more attention than most people to events in Europe and the European markets. Lately, troubles in the PIGS nations have crept back into the news. Populace in Italy and Spain are making hay by opposing EU imposed austerity and it’s a reminder that deep fundamental issues remain and the union may not survive. Let’s start by getting your take, if we can, on the overall status of the EU. Will there be any high-profile exits, perhaps by Italy or Spain? Is Great Britain going to complete its exit? Or are you expecting the EU to weather the storm here, Axel?

Axel Merk: The UK is almost certainly going to exit and nobody else, probably, any time soon. Now, I say that, I might have egg on my face in a few years down the road on that. But let me, maybe before we get too far carried away, make a general statement because I think we’ve seen this movie before. What we’ve had is a classic case, classic as in classic for financial crisis type of case, where investors were piling in into an asset that they perceive to be risk free, only to wake up that it is risky after all. And what I’m referring to, of course, is Italian bonds, right?

Who wouldn’t want to grab for some yield? And if you don’t grab for some yield, especially if we’ve had someone like the head of the ECB doing quote unquote whatever it takes, all but guaranteeing the debt. So, why would you get a negative yield, or very low yield on German bonds when you can get Italian treasuries for a much juicier return? So, we’ve had yield chasers in there.

Now, the noteworthy thing is, and, again, this is the same picture we’ve had throughout the financial crisis, the folks holding these are not risk-friendly investors. Those are folks who thought that stuff was risk-free. So, sure enough, there is some event happening and people is “Oh, my God! Italian bonds are risky! How could I have possibly known?” So, they run for the exit.

Now, that doesn’t mean there’s nobody there to buy them. Whenever somebody sells something, somebody has to buy it. The folks buying are risk-friendly investors. And so, for example, on Wednesday, there was a treasury option and it was very well received and obviously they’re not the same guys that sold the day before, but now you have risk-friendly investors come in. And you needed to have that kind of a shake-out and have other investors go in.

Now, none of that means whether Italy is going to survive or not, but the relevant part here is that the system cracks when you build up this pressure cooker, when you have an unsustainable situation, and to me, it is unsustainable that folks, like Italians, pay a very, very small premium over – kind of a borrowing cost – than in Germany, for example.

And when this pressure builds up, well, at some point, some steam has to be let gone and, depending on how much pressure has built up, the fallout can be greater. And so, for now, people woke up and now they can deal with this crisis as a risk event, whereas, before, it was something that was kind of a black swan event, and it blew up in some people’s faces.

Mike Gleason: Let’s talk a little bit more about the implications for gold and silver markets. In recent weeks, the euro has weakened and that has been a big driver in the rally of the dollar indexes. This prompted some selling in gold and silver. On the one hand, we could see a continued euro weakness and dollar strength weighing on gold and silver prices; on the other hand, metals could get a bid if concerns over serious trouble in the EU drives some safe-haven demand. What is your best guess about which dynamic might win out there?

Axel Merk: Curiously, during much of the Eurozone debt crisis, I’m referring to several years ago, the price of the euro and gold were quite highly correlated, but anybody liking gold wouldn’t touch the euro with a broomstick. So, I’m just pointing out, as you pointed out, it’s because if the dollar strengthens that, of course, this yellow metal doesn’t change. And so, as the price of the dollar appreciates, the price of gold might go down. Now, that said, again, as volatility flares up, I do think gold is worthy of the consideration as a diversifier.

Also, the reason why I went into detail here about the yield chasers, the market didn’t trade as if the Eurozone were to break apart. By all means, bank stocks sold off, by all means, volatility surged, all kinds of things happened. But this was, here, momentum traders, yield chasers, being wrong-footed. And we had a violent unwinding of that. And that is one of the reasons why the price of gold didn’t surge in this context, because this was not a trade that said “Oh, my God, the Eurozone is going to fall apart”. Now, if that were to happen, then we going to see a very, very different picture.

We also had, for example, bonds rally, right? But there was a very, very substantial short-position bond and so a lot of these guys took profits or said “Oh, I didn’t expect it that a trade could go against me” and then when something is too good to be true, if too many people are piling the same trades, things go bad.

Now, as far as the context of how this is going to evolve, we have no idea even by the time your broadcast is, what’s going to happen next. Are they going to form a new government, are they going to have called new elections, who knows? Anything is going to happen. We have a populace resentment for all the right reasons and the European Union is incapable of communicating with the people and saying “Hey, we’re the good guys. We actually mean well for you.” People are fed up.

Now, that said, the majority of Italians do appreciate the euro and so that means they want to find a way. Also, we tend to forget that it is extremely expensive to leave the EU. It’s one thing for the Brits to leave the European Union; they don’t share the same currency. If you shared a currency, your banking system is going to be sucked empty. Your economy is going to implode if you leave. And that is something that is not really a very attractive proposition. And so, when push comes to shove, most of these countries decide, “Hey, we might want to stay.”

Now at the other end of the spectrum, though, if you have a populist rising, usually the more extreme opinions prevail. And so they are not ruling out that some bad things can happen. When I buy something in Europe, I buy the German stuff, the Northern European stuff. And ultimately, if it were to break apart while I still have that Northern European stuff, right? And that doesn’t mean buying Italian securities is necessarily a bad thing, but you better be aware of the risks that come with it and tying it back to the price of gold, the question is “Is there contagion? Is the Federal Reserve going to change course?” and so forth. In the short term, I don’t think the Fed it rattled by this. Access to credit continues to be easy. I think the Fed is going to continue to march higher.

Now, all that said, I do also think inflationary pressures in the euro’s going to move higher because I don’t think the U.S. economy is about to implode. And so, because of that, I do think people are going to continue to look at gold as a diversifier and at some point that cycle’s going to turn. I don’t know whether it’s in six months or in a year or down the road. We’re looking at these indicators, I don’t think we’re at the top of the cycle at this stage. I think it’s going to continue for another six months, maybe twelve months, and maybe even eighteen months. I can only give us like a six to ten months outlook on this.

But, for the time being, inflationary pressures are rising and the Fed is going to slowly but surely march higher.

Mike Gleason: George Soros made news this week, and I’m talking about much more than what Roseanne Barr said about him during her Ambien-induced Twitter rampage. Soros warned that Europe and even the world financial markets face an “Existential threat saying everything that could go wrong has gone wrong.”

He’s apparently quite upset at the unraveling of the Iran nuclear deal, anti-EU populism, and new calls for fiscal austerity. At the same time, he launched a campaign this week to try to reverse the Brexit decision. Is this just sour grapes by Soros or do you think the world financial markets are truly on the precipice?

Axel Merk: To understand Soros, I think the only thing one has to understand that he is Hungarian at heart. He grew up in Hungary and he loves Hungary. He would love everybody in the world, especially the European Union, to write blank checks to the Hungarians so that that country’s standard of living moves higher. And so they want the Germans to write checks, they want the French to write checks, they want everybody to write checks so that the Europeans are happy. It has nothing to do with the Eurozone being sustainable or not. I have no idea why people are listening to Mr. Soros. Sure, he had a great trade on the Bank of England, but for him, it is all about trying to support Eastern Europe. That’s very well intended. Godspeed for him, let him help these folks and he has some initiatives and foundations that does it. Great for him. But, to conclude from any word he says, whether the Eurozone is stable or not, I wouldn’t listen for two seconds to his opinion.

Now, that doesn’t mean there aren’t any issues in the Eurozone, by all means. But, a lot of people are biased when they hold a trading position, well, George Soros’s trading position is that he wants Eastern Europe to thrive. And if the West can write a check to do that, then he likes that. Anything, any tough austerity measures, anything that against that, Mr. Soros says “Don’t do it”.

And so, it’s very different answer, probably than you might have expected, or you get from other folks, but, if you look at George Soros as a person who has an agenda to help Eastern Europe, then you understand everything and anything that he says.

Mike Gleason: Getting back to the Fed here, briefly. They have been tightening, which is contributing to some of the dollar’s strength, but they almost certainly don’t want a collapse in the euro, and there is, we think, a limit to how much of a rally they’re going to put up with in the dollar. What are your thoughts there? Expand on that a bit. It seems like the markets have priced in a couple more rate hikes this year. Sounds like you think we’ll probably get those?

Axel Merk: Well, let’s think about it. We got a new Fed chair, right? Jay Powell. And he’s a lawyer. He does not have a magic framework. Bernanke had this Great Depression framework, Yellen was a labor economist, well Powell is a lawyer. And he’s a smart lawyer. And he has good intentions. So, what do lawyers do? Well, they call a committee to decide on things. So, one thing you can be sure of with Powell, in my view, is that he’s not going to be very fast. He’s going to call the best and the brightest, to give him their opinion, and then he’s going to make a judgment based on that. And that might be a very boring answer, but, that’s what it is. And the one thing that a Powell Fed will look at is A, is the economy going to continue to move ahead, is the “slack” exhausted, and are financial conditions all right?

One of the things Yellen always said is that “Hey, our quantitative tightening is like watching paint dry on a wall and it’s really nothing.” Well, that’s a bunch of BS because the whole point of raising rates is to tighten financial conditions. But, at the same time, it hasn’t happened. The financial conditions have been easing. In early 2016, the Fed panicked because the fracking market didn’t do well. This time around, stock marks has had a hiccup or so, but access to credit hasn’t been any tighter. So, as long as access to credit is not tightening, the Fed is going to continue to march.

And what we have is, the typical thing at this time of the cycle is that banks are actually easing lending standards. Because the economy is doing all right, they want to write more credit. And that’s why the Fed is going to continue to tighten. Now, as that happens, of course, at some point they’ll overdo it and push the economy into a recession and maybe they’re geniuses and do a soft landing, but that’s usually more luck than anything else.

And so, at the same time, they’re not in a rush. Last year was the first year in many, many years where the Fed tightened more than was priced in the beginning of the year. This year, I would think the same thing can happen again and what has happened over the last week to ten days is that rate hikes expectations has come down quite significantly, obviously, partially because of what happened in Italy.

Now, that said, 85% of the U.S. economy is domestic, 15% is international. And so, unless Europe blows up the next day, I don’t think the Fed, in the near term, can change course. Also, keep in mind, by the way, just a word back on Italy. Italy has had about one government a year. And so even if they have a new election, even if they elect a more populist government, odds are that their new government is not going to survive very long. There’s a European parliament election next year and the two populist parties, if the two are going to buddy up, and that’s still an if, they might get into an argument because, ideologically, they’re not exactly aligned.

And so, a lot of things can happen, and the Fed is not going to pay attention to that because they going to say “Hey, if something does blow up in our face, we can still reverse course”. And so, it’s very different from the Yellen Fed in early 2016, when it was spooked about equity markets going down. And the reason they were spooked about it is because access to credit in the fracking industry was at risk of spilling over to the rest of the economy. At this stage, we see no signs that access to credit is tighter, so they’ll continue to march ahead.

Now, what does it mean for metals? It doesn’t necessarily mean it’s bad, because the pace at which they’re moving is very slow and, by the way, we are already at extremely low unemployment. The labor participation rate is slowly inching higher. I happen to think that in about six months we’ll have exhausted that so-called slack, which means inflationary pressures are going to accelerate. And that’s exactly when the Fed is going to be at a point where it’s going to slow down the economy. And so, we going to have this inflationary push at the end of this economic cycle where the Fed is, in my view, not going to be fast enough to do something about it. And then, because of the higher rates causing more volatility in the markets, in my view, all of that are reasons why precious metals historically, do reasonably well at the end of an economic cycle, which we’re going to see presumably a year from now, or whenever it’s going to be.

Mike Gleason: Yeah. Very well put. There’s a lot of things circling about, and I think you summarized that all very well. As we begin to close here, any other news stories that you’re going to be watching closely as we progress throughout the year, Axel?

Axel Merk: Well, we’ve got a European Central Bank meeting in June 14th. So, in the short term, that’s probably the most interesting event. Whether anything is going to happen, the one thing that Mr. Draghi is not going to do is he’s not going to take options off the table, which means he’s not going to announce the end of QE. There might have been an early chance for him to do it, but, with what’s happening in Italy, he’s not going to do it.

The one thing to keep an eye on there is, what I think may happen in the Eurozone is that they have indicated they’ll stop QE before they’ll start tightening. I wouldn’t be surprised if they’ll get more flexible in that. Meaning that they’ll start hiking rates. At the same time, at some point, if the crisis were to escalate, Mr. “Whatever-It-Takes” Draghi is going to say “Hey, but, we’re not going to allow Italian bonds to trade at too much of a premium” and so to interfere in the markets that way. But they have to, in my view at least, get off that negative interest rates because it’s creating havoc in the rest of the Eurozone that’s actually doing quite well. So, he might, again, pull up some ace up his sleeve where he’s going to say “Yep, rates are going to move higher, but only for Germany and the Northern European countries, whereas, for Italy and others, we’ll guarantee that rates are not going to move higher”.

And before you dream too far ahead, just keep in mind, Draghi’s job is coming to an end at the end of next year, so, as we go towards the end of this year, people are going to speculate who’s going to succeed him. But that’s a story for another day.

Mike Gleason: Yeah, we seem to be focusing a lot of our interest on Europe, once again here. It seems like we’ve been down this road before.

Well, good stuff as always, Axel. It’s great to get your perspective on these matters and we look forward to catching up with you again later this year. Now, before we let you go, please tell listeners a little bit more your firm and your services and then also how they can follow you more.

Axel Merk: Sure. The firm is, my name, Merk Investments. Look us up. Sign up for our newsletter on our website. Follow me on Twitter, that’s really the best way to be in tune of what is happening there. We have several funds, including a gold fund. And we provide some services to institutions and other folks. But come to MerkInvestments.com and browse around.

Mike Gleason: Excellent stuff. Thanks again, Axel. Appreciate your time and hope you enjoy your summer and thanks for joining us again. Take care.

Axel Merk: Yep. My pleasure. Take care.

Mike Gleason: Well, that’ll do it for this week. Thanks, again, to Axel Merk, President and Chief Investment Officer of Merk Investments, Manager of the Merk Funds. For more information, be sure to check out MerkInvestments.com and follow him on Twitter. His handle is @AxelMerk.

Check back here next Friday for our next weekly Weekly Market Wrap Podcast. Until then, this has been Mike Gleason with Money Metals Exchange, thanks for listening and have a great weekend everybody.

*About the Author:

Mike Gleason is a Director with Money Metals Exchange, a national precious metals dealer with over 50,000 customers. Gleason is a hard money advocate and a strong proponent of personal liberty, limited government and the Austrian School of Economics. A graduate of the University of Florida, Gleason has extensive experience in management, sales and logistics as well as precious metals investing. He also puts his longtime broadcasting background to good use, hosting a weekly precious metals podcast since 2011, a program listened to by tens of thousands each week.

Ted Butler Discusses the Great Silver Fraud

Ted Butler is nothing but obsessive on what he sees as a huge criminal fraud in the multi-year manipulation of the silver price by big money players with the apparent complicity of the regulators.  But his obsession is almost certainly rooted in truth.  No-one studies this market quite to the extent Ted Butler does.

In his latest posting on silverseek.com he likens Comex activity on silver to the recently uncovered Theranos medical diagnostic fraud in an article entitled Great Frauds Require Darkness – the main difference being that the Theranos fraud only had a life of nearly 15 years before the company behind it came crashing down, while what Ted sees as the Comex silver fraud has been in place now for more than twice as long and is still ongoing, with far more powerful vested interests supporting it.  As ted puts it “all the leading legitimate participants and regulators have aligned themselves to prolong the fraud.

You can read his full article by clicking on the following link:  Great Frauds Require Darkness

My posts on Sharpspixley.com so far this month

Readers of lawrieongold.com will be aware that I also write articles for the Sharps Pixley website.  In case you’ve missed these and would like to read them links to those I’ve published there so far this month are set out below:

Further thoughts on peak gold

18 May 2018 – Additional thoughts on peak gold following a couple of emails from Jeff Christian of the CPM Group which agree that Ian Telfer’s assertion that all major gold deposits have been found already is, at best, premature.

Lawrence Williams

Peak gold according to Ian (Telfer)

17 May 2018 – Goldcorp chairman and industry doyen, Ian Telfer, reckons we are at peak gold – or thereabouts – a view with which we would agree, but also says allthe mega gold deposites to be found already have been – with which we would take issue.

Lawrence Williams

Mixed forecasts on platinum

16 May 2018 – Two detailed reports on platinum at the start of London Platinum Week come up with differing opinions on some aspects of the market, although have broadly similar conclusions overall.

Lawrence Williams

Gold ETF inflows up sharply in April – WGC

14 May 2018 – While equity markets and the gold price have remained flat so far this year one area of encouragement for gold investors may be a reportedly high level of gold inflows into gold ETFs in April.

Lawrence Williams

China’s official gold reserves unchanged – again

08 May 2018 – The Chinese central bank has yet again released an unchanged gold reserve tonnage for the end of April, while its overall forex reserves have hit a five-month low, due – so officials say – to dollar strength against other leading currencies.

Lawrence Williams

Chinese gold demand way up in April

05 May 2018 – Using the latest Shanghai Gold Exchange gold withdrawal figures as a guide to demand, the latter is picking up nicely with April withdrawals well up on those of the past few years.

Lawrence Williams

Q1 gold demand lowest for 10 years

03 May 2018 – The latest Gold Demand Trends report from the World Gold Council sees Q1 gold demand at its lowest for 10 years due almost entirely to a fall in investment demand in key markets. Other demand sectors are somewhat similar or up on a year ago.

Lawrence Williams

Randgold: Q1 Production and Profits Lower but Guidance Unchanged

As readers of lawrieongold will know, Randgold Resources is a gold mining company I cover more comprehensively than most as its stock is an important constituent of the FTSE 100 index here is London.  It has released its Q1 2018 financials and production data today and I will be attending CEO Mark Bristow’s presentation to analysts at the london Stock Exchange later today.  In the meantime, to keep readers up to date, here is the company’s own release on the Q1 figures, but bear in mind as a company press release it will present the data in the best possible light!  Hopefully more detailed analysis will be available following Bristow’s presentation later.  He is not a CEO who tends to bypass difficult questions!

KIBALI SHINES AS RANDGOLD MAINTAINS ANNUAL PRODUCTION GUIDANCE

London, 10 May 2018  –  Randgold Resources said today its 2018 production guidance remained intact despite a softer first quarter in which it contended with multiple challenges.

Following the full commissioning of its underground mine, Kibali in the Democratic Republic of Congoincreased quarterly production by 22% compared to the corresponding quarter of the prior year and is on track to achieve its 2018 target of 730 000 ounces.

In Côte d’Ivoire, Tongon’s production was impacted by a series of work stoppages.  With operations now back at full capacity, the mine is committed to clawing back most of the lost production.  Randgold’s flagship operation, the Loulo-Gounkoto complex, made a strong start to the year although changes in the mining schedule affected the underground grade, impacting on production.

Results for the quarter, published today, show group production lower at 286 890 ounces (Q4 2017: 340 958 ounces) and total cash cost per ounce higher at $720/oz (Q4 2017: $627/oz).  Profit was down at $66.5 million (Q4 2017: $87.1 million).  Cash and cash equivalents grew by 3% to $739.5 million while the company remains debt-free.  At the recently held AGM, shareholders approved the 2017 dividend of $2 per share, a 100% increase on the previous year.

Chief executive Mark Bristow said coming off a strong prior quarter and record performance in 2017 the company had anticipated a slower start to this year with a gradual build-up throughout the year.  Despite the issues that arose, it was still confident of meeting its annual production guidance of 1.30 to 1.35 million ounces.

“It was a very active quarter, in which we ramped up the underground production at Kibali, advanced the Gounkoto super pit project and the development of the Baboto satellite pit at Loulo, and prepared the Ntiola satellite deposit at Morila for mining,” Bristow said.

“At the same time we also successfully handled the difficult labour situation at Tongon, sorted out the sequencing at Loulo and continued negotiations relating to the new mining code with the DRC government.  This demonstrates the depth and competence of our management team, and its ability to deal with complex operational and socio-political issues on multiple fronts.”

During the quarter, exploration highlighted the potential to add ounces at Kibali, Loulo and Tongon as well as new reserve opportunities at the Massawa project in Senegal.  Bristow said Randgold was also aggressively hunting for its next big project in the African gold belts as well as further afield.

Gold Demand Looks Promising in India and China

By Frank Holmes, CEO and Chief Investment Officer, U.S. Global Investors

Gold was up half a percent year-to-date through last Friday. This doesn’t sound very exciting, but over the same period, the S&P 500 Index was in the red—the first time in nearly a decade that stocks have been negative for the year through the beginning of May. The yellow metal is doing the one thing for which many investors have it in their portfolio—namely, it’s trading inversely to the market. This highlights its longstanding role as an attractive diversifier and store of value.

Gold bullion has outperformed the market so far in 2018
click to enlarge

Gold has been under pressure from a strengthening U.S. dollar, and May has historically delivered lower prices. As I’ve pointed out before, this makes it an ideal entry point in anticipation of a late summer rally before Diwali and the Indian wedding season, during which gifts of gold jewelry are considered auspicious. Demand in China for the remainder of the year also looks promising.

India Gold Demand Weakened, but a Healthy Monsoon Could Help Reverse That

India’s demand for gold jewelry in the first quarter was down 12 percent from the same period last year, according to the latest report from the World Gold Council (WGC). Consumption fell to 87.7 metric tons, compared to 99.2 tons in the first three months of 2017. Contributing to this weakness was the fact that there were fewer auspicious days in the first quarter than in the same period of the past three years, according to the WGC.

However, this followed a monumental fourth quarter 2017, when gold demand in the world’s second-largest consumer was 189.6 metric tons—an all-time record—so a decline was expected.

Looking ahead, it’s estimated that India will have a “normal” monsoon season this summer. This is good news for gold’s Love Trade. A third of India’s gold demand comes from rural farmers, whose crop revenues depend on the rains from a healthy monsoon. When the subcontinent experiences a drought, as it did in 2014 and 2015, gold consumption suffers.

The India Meteorological Department (IMD) reports that its forecasts suggest “maximum probability for normal monsoon rainfall” and “low probability for deficient rainfall during the season.”

Chinese Bullion Demand Off to a Good Start in 2018

In China, the world’s largest importer of gold, jewelry demand rose 7 percent in the first quarter to 187.7 metric tons, a three-year high. According to the WGC, Chinese retailers are working on improving the customer experience, providing consumers with “a more holistic retail solution.” The industry is expecting a strong 2018 after a relatively subdued 2017.

Except for a weak February, demand so far this year has been particularly strong, with monthly withdrawals from the Shanghai Gold Exchange (SGE) above the two-year average of 170 metric tons. April represented the third straight month of rising demand. Withdrawals were 28 percent higher than in the same month in 2017, according to veteran precious metals commentator Lawrie Williams.

China gol ddemand rose for the third straight month in April
click to enlarge

Williams writes that fears of a potential trade war with the U.S. could be driving Chinese investors into safe haven assets, including gold bars and coins. Indeed, the WGC reports that bullion demand in the first quarter finished at 78 metric tons, above the three- and five-year averages. (See: Chinese gold demand looks to have risen sharply in April)

I believe this all bodes well for the Love Trade going forward, meaning it might be an opportune time for investors to consider increasing their exposure to gold and gold mining stocks. As always, I recommend a 10 percent weighting, with 5 percent in bars, coins and jewelry, and 5 percent in high-quality gold stocks, mutual funds and ETFs.

Chinese gold demand looks to have risen sharply in April

An edited version of an article first written for the Sharps Pixley website – to see original click here

Despite the latest analysis from the World Gold Council (WGC) which suggested a poorish start to the year for gold demand (See:  Q1 gold demand lowest for 10 years), Chinese demand as represented by gold withdrawals out of the Shanghai Gold Exchange (SGE) appears to have picked up well in April coming out at 28% higher than in 2017 and 24% higher than in 2016 (see table below).  They are still around 9% down on the record 2015 figure for the first four months of the year, but at least the trend appears positive when some other demand statistics appear to be slipping.

Indeed April 2018 gold withdrawals were actually comfortably higher than those in April 2015 too, but in the latter year gold withdrawals out of the SGE were particularly strong in the second half and totalled almost 2,600 tonnes for the full year – around 80% of total global new mined production.  We don’t expect this figure to be matched in the current year, but the latest Chinese figures look to be off to a good start and we could be heading for the best demand figures since 2015.

Table: SGE Monthly Gold Withdrawals (Tonnes)

Month   2018 2017 2016 % change 2017-2018 % change 2016-2018
January   223.58 184.41 225.08 +21.2%  -0.7%
February*   118.42 148.24 107.60 -20.1% +10.7%
March  192.61  192.25 183.24  +0.2%  +5.1%
April  212.65  165.78 171.40  +28.3% +24.07%
May  138.08 147.28
June  155.51 138.51
July  144.71 117.58
August  161.41 144.44
September  214.24 170.90
October*  151.54  153.25
November  189.10  214.72
December  185.21  196.37
Year to date   749.07 690.68 687.32 +  8.45% +8.98%
Full Year  2,030.48  1,970.37

Source: Shanghai Gold Exchange.  Lawrieongold.com

*February and October tend to be anomalous months because of week long holidays when the SGE is closed

Of course, as we have pointed out here previously it is a contentious issue as to whether SGE withdrawal figures are truly an accurate indicator of total Chinese gold demand.  The major precious metals consultancies come up with all kinds of differing reasons why this is not the case.  But in support of our views on this we should point out that SGE gold withdrawal figures seem to relate far better to the sum of China’s own gold production plus known gold imports, plus a reasonable figure for scrap supply and unquantified imports, than these same consultancies’ rather narrower estimates of Chinese annual gold demand.

The latest SGE figures thus do suggest that Chinese investment demand for gold bars and coins may be picking up – particularly as the gold price will have appeared weak at times which could have appealed to bargain hunters.  The prospects of a trade tariff war developing with the USA may also be driving Chinese citizens with disposable income (a part of the populace which is increasing all the time) to safe haven investment.  Furthermore,the huge falls in the value of cryptocurrencies will also have diminished interest in these as a safe investment asset which again may have turned the gold-loving Chinese back to the yellow metal.

The WGC Q1 report noted above does suggest that gold jewellery demand in China is picking up too and points to a continuing sharp global growth in technological demand – and China is at the forefront of the latter in that its high tech industries are becoming world dominant.

4 Big Reasons Why You Might Want to Consider Gold Stocks Right Now

The price of gold has been feeling the pressure lately from a stronger U.S. dollar, which is at a four-month high, and rising Treasury yields. Nevertheless, the yellow metal eked out a positive March quarter, returning close to 1.3 percent, while the S&P 500 Index posted its first negative quarter since 2015. This tells me the investment case in gold and gold mining stocks remains as strong as ever.

Below are four more reasons why I think you should consider adding gold stocks to your portfolio right now.

1. Gold mining stocks look inexpensive.

Billionaire investor Warren Buffett once said: “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”

Compared to the broader equities market, gold mining stocks, as measured by the NYSE Arca Gold Miners Index, look incredibly “marked down” right now. They’re far below the average gold miners-to-S&P 500 ratio of 0.7 for the nine-year period, and nearly as undervalued as they’ve ever been.

Gold mining stocks are incredibly undervalued relative to broader equities
click to enlarge

I believe that for investors with a long-term horizon, this makes gold miners look especially attractive as we await valuations to revert their mean, or average. Hopefully this can be achieved without a significant decline in the S&P.

2. Rising inflation has historically lifted gold prices.

Inflation can be understood as the destruction of wealth. Every time consumer prices head higher, a dollar loses some of its value, whether in your pocket or your savings account. Inflation can also weigh on stock prices, as some investors anticipate it cutting into corporate earnings. They might therefore decide to move their money into other assets.

That includes gold, which has enjoyed a long history of being an attractive store of value during times of higher inflation.

After being mostly stagnant for several years, inflation looks as if it’s ready to stage a strong comeback, thanks to rising oil prices and new trade tariffs imposed by the Trump administration, among other factors.

But which measure of inflation is most accurate? The Federal Reserve prefers the consumer price index (CPI), but there are others, including the New York Fed’s Underlying Inflation Gauge (UIG) and ShadowStat’s Alternative CPI.

no matter which gauge you use, inflation is on the rise
click to enlarge

From the chart above, we can surmise that inflation could be highly understated right now. According to the official CPI, prices rose 2.4 percent year-over-year in March. But if we use the Fed’s methodology from 1980, as ShadowStats does, it’s possible prices advanced more than 10 percent from a year ago.

Regardless of which measure you trust the most, it’s clear that inflation has been heating up at a faster pace—meaning it might be time for investors to consider adding to their gold exposure.

3. Gold supply is shrinking while demand continues to grow.

Like most hard assets, prices of gold and other precious metals respond to supply and demand. If supply goes up but there’s little demand, prices tend to struggle to gain momentum. But if the reverse happens—if supply can’t meet demand—prices have a better chance of increasing.

It’s possible we could see the latter scenario in the coming months.

That’s because many explorers and producers went into cost-cutting mode after the price of gold broke down from its record high of around $1,900 an ounce in August 2011. Exploration budgets were slashed, and partially as a result, there have been fewer and fewer large-deposit discoveries.

What this all means is that if gold demand were to spike unusually high, there’s a strong probability that not enough gold would be available. We would expect the metal to be traded at a premium.

gold supply crunch ahead?
click to enlarge

In the chart above, you can see how a smaller number of projects have been added to the pipeline in some recent years, thanks to a decrease in exploration budgets. Meanwhile, demand has continued to grow as incomes rise in emerging markets that have a strong appetite for the yellow metal—India, China and Turkey chief among them.

4. Gold prices have historically tracked government debt—which appears to be increasing dramatically.

I think what’s also driving gold demand right now are concerns over the U.S. budget deficit and ballooning government debt. The Congressional Budget Office (CBO) recently said it estimated the deficit to surge over $1 trillion in 2018 and average $1.2 trillion each subsequent year between 2019 and 2028, for a total of $12.4 trillion.

Believe it or not, servicing the interest on this debt alone is expected to exceed what the government spends on its military by 2023.

Now, the International Monetary Fund (IMF), in its April “Fiscal Monitor,” says U.S. government debt will continue to expand as a percent of gross domestic product (GDP), even surpassing levels we last saw during World War II.

gold supply crunch ahead?
click to enlarge

This is a cause for concern, the IMF writes, because “large debt and deficits hinder governments’ ability to implement a strong fiscal policy response to support the economy in the event of a downturn.”

You can probably tell where I’m headed with all of this. Savvy investors and savers might very well see this as a sign to allocate a part of their portfolios in assets that have historically held their value well in times of economic contraction.

Gold is one such asset that’s been trusted as a store of value in such times. As I’ve shown elsewhere, gold has tracked U.S. government debt up since 1971, when President Richard Nixon ended the gold standard.

 

Randgold still investing in Malian gold

As noted earlier this week,Randgold Resources CEO, Mark Bristow, has been on a tour of the company’s operations – all in West and Central Africa – ahead of the release of the company’s Q1 2018 results announcement in just under a week’s time.  The latest visit was to its Loulo-Gounkoto complex in Mali, which in combination is currently the largest gold producer in Africa, although this position may soon be usurped by the Randgold-operated, and 45%-owned, Kibali gold mine in the DRC.

In an announcement Randgold confirmed that it continued to see Mali as having potential for further growth and is continuing to invest there – Loulo-Gounkoto is already the single biggest foreign investment in the country.  The compzny says Q1 output will fall back from Q4 2017 levels due to scheduling production from lower grade areas – although we will have to wait for the quarterly announcement to find out by how much.

Randgold (LSE: RRS and NASDAQ: GOLD) has arguably been the No.1 global gold growth stock over the past several years, despite all its operations being in what the investment community sees as difficult investment environments.  It has been particularly adept in continuing to grow its gold output while maintaining mostly good relationships with its host governments, which is presumably why the much larger Anglogold Ashanti, which also owns 45% of Kibali, ceded construction and operational management of the DRC’s largest gold mine to Randgold.

A lightly edited version of Randgold’s statement on its Malian operations is set out below:

Randgold’s Loulo-Gounkoto gold mining complex in Mali, already one of the largest of its kind in the world, is still expanding, with the Gounkoto super pit and the new Baboto satellite pit joining its Yalea and Gara underground mines.

Speaking at a site visit for local media, chief executive Mark Bristow said the complex’s all-Malian management team, which steered it to a record performance in 2017, had made a good start to this year, although production was expected to be lower than the previous quarter on the back of forecast lower grades, reflecting the sequencing of mining lower grade blocks at both Loulo and Gounkoto.  Although slightly delayed, mining of the Baboto satellite pit was now well on track to support the complex with softer oxide ore feed.

“We expect grades to pick up and production to increase through the rest of the year to deliver our production guidance of 690,000 ounces for 2018,” said Tahirou Ballo, the GM of the complex.  Mr Ballo noted that production from the underground mines continued to show a steady improvement since Loulo took over the mining from contractors in 2016.

Chiaka Berthe, the West African GM of operations, said the Loulo-Gounkoto complex represented the largest foreign investment to date in the Malian economy.  After all these years it was still investing in new mining projects like the Gounkoto pushback and the new Baboto satellite pit he said.  The country is rich in other gold opportunities, and Randgold continues to search for extensions to the known orebodies as well as new discoveries in its extensive Malian landholdings.

On its sustainable development policy in the areas around its mining operations, Randgold also continues to invest substantially in its host communities.  Some 5,000 students are enrolled at 17 schools built by the company, and last year 52 of them were awarded bursaries for further study.  Randgold is also advancing the development of commercially viable agribusiness enterprises, to mitigate the socio-economic impact of the complex’s eventual closure.  The project already includes five incubation farms and an agricultural college with 70 students.

WGC: Q1 gold demand lowest for 10 years

On a day with gold trading around $1,310 and stock markets almost universally in the red, the World Gold Council (WGC) issued its latest Gold Demand Trends quarterly report and it doesn’t make for great reading for gold investors.  According to the WGC’s latest figures Q1 gold demand was the lowest for 10 years, primarily due to a fall in gold investment demand led by China, Germany and the USA – usually the principal investment demand centres.  Altogether the WGC reckons that global bar and coin demand fell by 15% quarter on quarter and ETF inflows were softer too, although still positive at 32.4 tonnes.

God followers in the USA certainly won’t be too surprised at these figures given the extremely weak reported gold coin sales from the U.S. Mint – see chart from www.goldchartsrus.com below:

Compared with say 2015 and 2016 U.S. Mint coin sales have been pretty subdued for two years now and they won’t have been helped by the lacklustre performance of the gold price over the past month or so.  Gold has remained range-bound mostly in the low $1,300s largely due to a sharp pick up in dollar strength as represented by the dollar index, which has risen around 4.5% from its low point this year – and gold is down a somewhat similar percentage from its high point of around $1,365 at the time of writing.  The gold price is generally inversely related to U.S. dollar strength and this suggests the correlation is holding up well.  The dollar appears to have turned down a little today and if this is the start of another downwards leg then the gold price could benefit accordingly.

The WGC report is not wholly negative for gold.  It does suggest that jewellery demand is holding up reasonably well with strength in China and the U.S. counterbalancing a decline in Indian jewellery demand, while industrial demand for the precious metal in the tech sector has seen six consecutive quarters of growth.

So where does that leave us now?  Equities are still looking nervous with falls almost across the board, bitcoin appears to be picking up a little with BTC back over $9,000 and Ethereum pushing up above 700, although we remain dubious about long term strength in crypto currencies.  One commentator – I forget who – described bitcoin as like Candy Crush vouchers, or in other words has parallels to computer gaming, and we wouldn’t disagree seeing it crashing back to near zero as definitely a possibility – we shall see.

If equities continue their weakness – and even at its current depressed level gold has outperformed th Dow and the S&P 500 so far this year.  All are in negative territory so far but gold is only down around 0.75% whereas the DJIA is down over 4% since the beginning of the year and S&P 500 down over 3%. (By comparison bitcoin is down over 30% since the beginning of the year and over 50% from its heady peak.) In other words, year to date gold has done a better wealth protection job than U.S. equities and way better than bitcoin!

Register at, or log on to, www.gold.org to download the full report.

Above article lightly edited version of one first published on Sharps Pixley website on May 3rd

MARC FABER: Holding Nation’s Gold Reserves in the USA Always a Risk

The latest podcast guest for Mike Gleason* at Money Metals Exchange is Dr. Marc Faber whose financial predictions are always of strong interest to the investment community everywhere.

Mike Gleason: Coming up we’ll hear from the one and only Marc Faber of The Gloom, Boom and Doom Report. Dr Faber has some alarming things to say about how America’s foreign policies may have disastrous implications for the U.S. and global economies, and for the dollar. He also weighs in on which asset class, crypto-currencies or precious metals, will ultimately will be the major benefactor of all of the pending geopolitical unrest. Don’t miss a tremendous interview with Dr Doom, Marc Faber, coming up after this week’s market update.

Precious metals markets suffered a big setback this week as the U.S. dollar gained strength. The dollar rose to a three-month high on interest rates and upbeat economic data, including strong durable goods numbers. The dollar’s rise against the euro was also boosted by the European Central Bank’s decision Thursday to maintain its ultra-loose monetary policy.

Precious metals traders responded by hitting the sell button. Gold prices are down 1.0% on the week to bring spot prices to $1,323 an ounce as of this Friday recording. Silver currently checks in at $16.52 after falling 3.6%. Platinum is down 1.5% this week to $917, and palladium is off 4.2% to come in at $988 per ounce.

Metals markets could continue to face selling pressure if the U.S. dollar continues to rally. Dollar bulls note interest rates continue to look relatively attractive in the United States, with the European Central Bank showing no signs of trying to catch up with the Fed in raising its benchmark rate. Some currency analysts describe the dollar as the best looking house in a bad neighborhood.

Dollar bears counter that the Federal Reserve’s nominal interest rate hikes are lagging behind rising inflationary pressures. Moreover, rising deficit spending makes the U.S. fiscal house one of the worst looking in any neighborhood. The current debt to GDP ratio of close to 100% puts the United States in a danger zone.

Other countries that have seen their government’s debt balance exceed the output of their economy went on to experience political upheavals, defaults, and hyperinflations. The most notable example currently playing out is Venezuela.

The bolivar has lost more than 99% of its value since the socialist economy collapsed, sending prices up thousands of percent. The Venezuelan stock market is up some 1,600% so far this year alone. Of course, that doesn’t mean you can expect to get rich quick buying Venezuelan stocks. They are moving largely just as a side effect of inflation.

That’s easy to see in an extreme case like Venezuela. It’s less obvious when inflation is rising at a relatively low annual rate, as it has been in the United States in recent years. But over time the stock market has gotten and continues to get artificially inflated while politicians and mainstream media outlets cheer on what they want us all to believe is a true bull market.

But those who believe the Dow would be sitting at over 24,000 without the inflationary stimulus of the Fed is simply fooling themselves. A rising stock market can actually be a symptom of a systemic problem leading to a currency crisis. Investors don’t see it that way right now, which is why they aren’t running to gold in a big way. But it won’t take much for the powers that be to lose control and for investor perceptions to shift.

It’s a question of when, not if. When will the unsustainable growth in government debt reach a tipping point that sends a shock into the financial system?

The most recent omnibus budget deal virtually guarantees trillion dollar deficits going forward. President Donald Trump reluctantly signed it into law and in so doing may have sealed the dollar’s long-term fate. The Trump administration is trying to pare the spending back by a few billion dollars… certainly not enough to change the country’s fiscal trajectory… but even that likely won’t happen. GOP leaders Paul Ryan and Mitch McConnel promised Congressional Democrats they’d get all the spending they want. And that promise apparently supersedes the promise Republicans made to voters about getting spending under control.

It’s difficult to believe they will have a better opportunity to do so after this fall’s elections, when Democrats are likely to pick up seats – and quite possibly the majority in Congress. Investors would be wise to prepare for the end of the Trump rally and the ultimate inflationary consequences of bipartisan debt spending.

Well now, for a closer look at America’s politics internationally and what it all might mean for gold and silver, let’s get right to this week’s exclusive interview.

Marc Faber

Mike Gleason: It is my privilege now to be joined by a man who needs little introduction, Marc Faber, editor of The Gloom, Boom and Doom Report. Dr. Faber has been a long-time guest on financial shows throughout the world, and is a well-known Austrian economist and investment advisor, and it’s a tremendous honor to have him on with us today.

Dr. Faber, thanks so much for joining us again, and how are you?

Marc Faber: Well, it’s my pleasure to be on your show. Thank you.

Mike Gleason: Let’s start out here with the equities Marc. Now the U.S. stock markets peaked in late January and made their lows for the year in early February. Stocks have been trading in a range since, but are currently pushing back towards those lows as volatility has certainly picked up. If you had to guess about which way the markets are likely to break from here, what would it be, and do you think we’ve seen the top for 2018 or can speculators keep pushing the markets higher for a bit longer?

Marc Faber: That’s a good question and I think everybody’s interested in the answers and everybody has a different view, but I have maintained that the January 26th high for the S&P up 2,872 was like a mirror image of the low on March 6th, 2009 when the S&P was at 666. At that time, everybody was bearish and leading strategy and I don’t want to name who, but they were predicting for the S&P to fall to 400. And what happened is that, because sentiment was so negative, and the market was so oversold, the market turned around and actually on very poor earnings, started to go up. And now, we have, in January, a high, when everybody felt that the market would go higher and what then happened is that on good earnings, stocks didn’t move up, but started to go down.

So, I think we are in a situation where it is likely, it’s not yet a hundred percent sure, in order to get a clearer picture, if a major bear market has started, we would have to make a low below the February low, but that hasn’t happened yet. But looking at the market and the market action and the momentum and the number of stock that are actually making new lows, I’d say there is a fair probability that the market will disappoint very badly.

Mike Gleason: Dr. Faber, it seems to us that the fate of precious metals markets is tied pretty closely to stock prices, at least in the near term. We lack either fear or greed to drive any trend change. Here in the U.S. there’s very little demand for safe-haven assets. If you look at sentiment in the metals markets you’ll find that the greed factor is also missing. Now that could all change if gold and silver can catch investors’ attention by significantly outperforming stocks for a while longer or if we get the long overdue correction stocks.

Now Marc, you wrote recently about two items you feel would signal a major top in the equity markets. The first had to do with the public going all-in, coupled with an excessive amount of speculation. The second would be the revelation of a major fraud. Those items will be familiar to anyone who had taken a good look at the 2008 financial crisis. Are you expecting history to repeat itself here?

Marc Faber: Well, I think there is a lot of disinformation, and usually when stocks go down, some fraud comes to the surface. And I expect it to happen, and I mean in a major way. Whether the fraud is related to some corporation, which I think is quite likely, or whether it’s related to the fraud that is going on in the pension fund system, where pension funds are grossly underfunded, and, in the future, will either have to increase contributions or reduce distributions. I think these are items that could happen. Secondly, the public may start to lose faith in the system because of the political situation. I think the political situation in the U.S. is very bad, and If you read about what has been happening at the FBI, the CIA in Washington, you have to scratch your head whether that is all possible in a system that is supposedly functioning.

It’s like Watergate, but actually magnified. So, I think there is a possibility that investing public loses interest in financial assets. You talked about precious metals. I think there has been, just recently, a huge short position in the dollar. In other words, speculators, 15 months ago, they were heavily long in the dollar, and now they are very heavily short dollar. I think the dollar may rebound and as a result, precious metals may not move up right away. I think, eventually, they’ll move up, but for the next, say, one or two months, I don’t see how precious metals would rally significantly.

Mike Gleason: Getting back to politics here for just a moment, it does appear that we may be on the verge of a global trade war. What are your thoughts on the tariffs being imposed by the Trump administration on China, and how do you envision that playing out?

Marc Faber: My view is that, actually, the Trump administration, for which, I would have voted for Mr. Trump, but he proves every day that he’s a completely clueless individual. He says one thing and then does something totally different. He changes his view all the time. And I think, quite frankly, there is a trade war which maybe won’t happen, but if there is one, the U.S. will be the big loser, because consumer prices in the U.S. will go up and that is not desirable at the present time, as the Fed is already tightening and interest rates have been rising, so what it will mean is, if there is a trade war, initially the dollar will actually rally. But this is precisely what the U.S. shouldn’t have, a very strong dollar.

Mike Gleason: Turkey is the latest nation to announce that they will repatriate their gold, joining a number of other countries who have declared they will do the same. What does this say about the confidence in the system, and then what do you think these countries are positioning themselves for? Basically, why are they doing this?

Marc Faber: Well, I think the question should be: why did they actually hold gold in the U.S.? I personally think that, to hold your assets that are like a safe-haven, in another country is a risk by itself… so I understand all these countries. And secondly, I think for the first time in Bretton Woods, we have less confidence or less faith in the U.S. dollar as a reserve currency. I think the U.S. policymakers, especially the Neo-cons, had the talent to antagonize Mr. Putin and also Mr. Xi in China.

By doing that, they have actually managed to get them closer into an economic and political alliance. And the goal of these two countries, Russian and China, is probably to gradually move away from a dollar system. I’ll tell you, I personally, I’m not a U.S. citizen, I’m just an international observer of economic, financial, and political trends. I cannot imagine a foreign policy that would be worse for the U.S. itself than what the Neo-cons have engineered. I just can’t imagine.

Mike Gleason: Yeah, that’s a very fair point, there. Speaking of oil and the petrol dollar, oil prices have been moving up steadily for a while now. Do you envision a broader commodity rally taking place here, and then maybe could that benefit precious metals in the long run?

Marc Faber: Well, a lot of industrial commodities have been rallying because of commodities-related circumstances, like aluminum rallies because of the trade embargo against Russia, and so forth. But if I look at industrial commodities, I rather have the feeling that they will come down. Why? I think the increase in interest rates in the U.S. on the 10-year treasury note from 1.38 percent in the summer of 2016 to the current level of over three percent, in other words, we more than doubled in the yield in the bond market. And for the two-year treasury, we have been going up between 10 and 20 times depending how you measure it.

I think these interest rate increases will slow down the U.S. economy, and probably bring about a recession.

Mike Gleason: We talk a lot about the appetite for gold in other parts of the world. Do you ever see the tide changing when it comes to the importance of gold ownership? We know Asians are buying it relentlessly and so are many folks in Europe. On the whole that mindset definitely hasn’t made it here to the U.S. yet, but do you sense that may be coming, and if and when it does, do you foresee any problems with being able to get the physical metal once the masses do finally decide to pour into it as the ultimate safe-haven?

Marc Faber: That’s a good question. We had a total neglect of gold and other commodities in 1999, and then gold rose from $255 to a peak in September 2011 of $1,921. At that time, there was a lot of speculation in gold and in other precious metals and other commodities. And since then we’ve been at a bear market until December, 2016, when gold approached $1,000.

Since then, as you know, we’ve been up something like 30 percent, and it is true, there is some speculative interest in gold, but nothing compared to crypto-currency. People that look for an alternative to paper assets like bonds and equities, they’re all gambling on cryptos. I don’t think that cryptos are safe. Now they may move up and they may move down but I, as an investor for the ultimate crisis, I prefer to be in physical precious metals, gold, silver, platinum.

I think, eventually, these precious metals will come back into the investment portfolios of major institutions and individuals. The major institutions of the world, they hold practically no gold. They have more money in Apple, they have more money in Amazon, than, say, in gold. And I think that will change over time, but I don’t know whether it will be tomorrow or in three years’ time, but my view would be that if you really look at the financial situation, the unfunded liabilities, the government deficit, the inflated asset prices, the conclusion is central banks will have to continue to print money, otherwise the system collapses. That, in my opinion, will boost precious metals prices.

Mike Gleason: As we begin to close, here, Dr. Faber, one of the things we value most about your perspective is that you don’t live in the U.S. More than most people, you’re tuned into what’s happening elsewhere, particularly in Asia and Europe. As for Americans, they can’t seem to get their eyes off the political theater in Washington, and to be fair, there’s never been a show quite like the one we have today, but is there anything of note that Americans are overlooking, and what stories are you going to be watching most closely as we move throughout the year?

Marc Faber: Well, I don’t want to criticize the U.S., because in other countries it is not much better. But the one thing I want to say is the following: Americans have been growing up and they’ve been brainwashed that America is a superpower and they have been educated in the belief of the American exceptionalism. And I just want to say that lots of countries in this world have a different perspective of the world. In particular, if you look at China, it has four times the population of America. Its industrial production is larger than in the U.S., their land mass is larger than the U.S., and they’re growing at a much faster pace. They have, in my opinion, no territorial ambitions, but they don’t want to be controlled by the U.S. that has, in Asia, countless military and naval bases.

They (China) look at the world from their perspective, and the U.S. would do well to consider other leaders’ perspectives, including Xi Jinping and Mr. Kim Jong-un, and Mr. Putin, of course. But if you only look at the world from your perspective, undoubtedly some trouble will arise. And what most Americans don’t see, they have kind of a tunnel vision where the tunnel starts in America and looks at the whole world, whereas other countries, they have another view of the world than the U.S.

And I think it’s very important, both economically and politically to consider the point of view of other countries that, by the way, have become very powerful.

Mike Gleason: Yeah, very well put. We’ll leave it there, and Dr. Faber, thanks so much for your time and for staying up late with us today in your home in Thailand. It was a joy to speak to you again. Before we let you go, please tell people how they can subscribe to The Gloom, Boom and Doom Report so they can follow your great commentaries on a regular basis.

Marc Faber: Thank you very much. I have a website called www.GloomBoomDoom.com. There, they can choose either a printed version of The Gloom, Boom and Doom Report or the website report, or both.

Mike Gleason: Excellent stuff. Once again, it’s been a real privilege to speak to you, Dr. Faber, and I hope we can do it again in not too distant future. Thank so much for joining us.

Marc Faber: It was a pleasure talking to you and to your listeners. Thank you.

Mike Gleason: Well, that will do it for this week. Thanks again to Dr. Marc Faber, editor and publisher of The Gloom, Boom and Doom Report, again the website is GloomBoomDoom.com be sure to check that out.

And don’t forget to check back here next Friday for our next Weekly Market Wrap Podcast, until then this has been Mike Gleason with Money Metals Exchange, thanks for listening and have a great weekend everybody.

*

Randgold’s Tongon to claw back lost Q1 gold production

As followers of the company will be aware Randgold Resources has had to overcome a succession of problems at its big Tongon gold mine in Côte d’Ivoire – initially by technical problems at the mill and most recently by work stoppages by its labour force.  Although a relatively short life operation – it has around three and a half years’ life remaining based on its existing resource, although the company is working to expand this through brownfields exploration around the current operation.

Randgold CEO, Mark Bristow, is a big supporter of new gold mining exploration in Côte d’Ivoire and the country’s government’s attitude towards mining investment and development and is working hard to try and find new projects there which fit in with its new mine development policies.

Bristow tends to visit all the company’s operations each quarter ahead of the quarterly financial announcements – 2018 Q1 figures are due in the next 2 weeks.  On a visit by Bristow to Côte d’Ivoire last week the company made the following statement on the latest situation at Tongon and the intent to make up any lost production stemming from the recent work stoppages.

 Production at Randgold’s Tongon gold mine was impacted during the first quarter of 2018 by a series of work stoppages which started with the employees of the mining contractor and then spread to other operations.

Management said while this would impact on the mine’s production guidance of 290 000 ounces for 2018, it was making a determined effort to recover most of the lost output, with operations now back at full capacity.  To mitigate the downtime effect and lost plant throughput, Tongon processed ore from the run-of-mine and scats stockpiles during the stoppages and also used the opportunity to upgrade parts of the plant to achieve a higher and more consistent throughput going forward.

Chief executive Mark Bristow told a local media briefing that the mine’s management had been supported in resolving the situation by the highest level of the government as well as parliament members and local authorities, and, along with the workers and union leadership, these parties had also agreed on a constructive process to workshop solutions and prevent similar issues in future.  It was encouraging to note, he said, that government fully acknowledges the importance of Randgold and Tongon to the Ivorian economy, and the fact that Tongon represents the single largest investment in the country’s mining industry.

“The history of Tongon has reflected the occasionally turbulent socio-political nature of its environment and a misunderstanding of the mining business which is a relatively new activity in the country, but management has dealt effectively with the challenges that have come their way.  The mine is managed by a majority Ivorian team and of its 1,700 employees, only 40 are expatriates.  Their record speaks for itself: since it was commissioned in 2010 Tongon has produced 2.7 million ounces of gold and in 2017 it posted record results, despite the slow start to the year,” Bristow said.

“Tongon has three-and-a-half years of life left as things stand but we are actively looking for means to extend this and a number of exciting near-mine opportunities are currently being evaluated by the exploration team.  We’re also exploring for new gold discoveries elsewhere in our large permit portfolio in Côte d’Ivoire, where we intend to retain a long term presence.”

At the same time, however, Tongon is planning for life after its eventual closure by developing an economically viable agribusiness to provide replacement income for former workers and the surrounding communities in line with its sustainable development policy.

We can probably expect a couple of further statements on the company’s other operations ahead of the release of the Q1 figures due on May 10th.  Randgold (LSE: RRS, NASDAQ: GOLD) has been one of the foremost gold mining growth stories with current annual gold production of some 40.9 tonnes putting it in 15th place among the world’s major gold miners, according to precious metals consultancy Metals Focus (See: Top 20 Global Gold Miners – Newmont narrows the No. 1 gap.  

 

 

Polymetal CEO, Vitaly Nesis, very bullish on silver

Slightly expanded version of article first published on the Sharps Pixley website:

Meeting with Vitaly Nesis, CEO of Russia’s second largest precious metals mining company, Polymetal (LSE: POLY), is like a breath of fresh air in relation to talking, if one can get a word in, with the CEOs of many equivalent-sized Western gold miners.  Straight answers to questions seems to be the Nesis mantra!

Polymetal is, according to GFMS, the world’s fifth largest silver miner but it should be ranked primarily as a gold miner, producing last year some 1.433 million gold equivalent ounces (44.6 tonnes) and its gold production by value dwarfs the value of its silver production by around 4:1 at the current gold:silver ratio of around 80:1.  It also produces copper and zinc which also come into the gold equivalent ounce figure at a ratio of 1.5 tonnes of copper equivalent to a gold ounce and 1.2 tonnes of zinc.  Metals Focus ranks it as 18th in its listing of the world’s largest gold mining companies but in terms of gold equivalent ounces it perhaps should be even higher up the listing according to its own latest figures.

The company is in the forefront of Russia’s drive to increase domestic gold output and has what will become its biggest gold mine, Kyzyl in Kazakhstan, due to come on stream in August this year which will add substantially to that country’s gold output too.  This new mine is due to reach full production capacity of around 320,000 gold ounces annually during 2019.

Kyzyl is a world-class asset (high grade by today’s standards with the a reserve grade of over 7 g/tonne gold)  and one of the best development-stage gold projects in the world and was acquired by Polymetal in 2014 for a total of $618.5 million. With its large high-grade reserves and low capital intensity, the asset is set to become the main source of medium-term growth and significant shareholder returns for the company.

Once completed, the project will comprise the Bakyrchik refractory gold deposit and the Bolshevik deposit and a state-of-the-art processing plant that is anticipated to deliver first concentrate production in Q3 this year. Mining has already started in the open pit with the ore being stockpiled ahead of the initiation of the process plant.  The deposits will initially be developed by open pit mining (10 years) and later be substituted by underground mining (a further 12 years). Mined ore will be processed via conventional flotation followed by third party off-take and/or pressure oxidation at Polymetal’s POX facility in Amursk.

The Project is located in north-eastern Kazakhstan in a traditional mining region with good infrastructure and easy access to grid power and the railway. Based in the Auezov Village, the site is approximately 750 km east of the capital city of Astana and 75 km west of the mining and metallurgical industry centre of Ust-Kamenogorsk (or Oskemenpopulation of approximately 300,000). Kyzyl is also in close proximity to the Russian (120 km) and Chinese (330 km) borders. The nearest railway station is 6 km away in the village of Chalobai, connecting Ust-Kamenogorsk to Shar, as well as Russia, China and Europe.

Overall group gold production is scheduled to increase to 1.8 million ounces by 2020 and further to over 1.9 million ounces by 2023 assuming the projects in its proposed forward pipeline go ahead as planned – but some of these do not yet have Board approval.

When questioned on what he felt were the prospects for precious metals going forward Nesis was fairly non-committal on the prospects for an increasing gold price, but admitted to being a strong bull on silver.  He pointed out, as we have also done in these columns, to the high level of the gold:silver ratio (GSR) which is currently at close to 80 (and has been as high as 81.5 recently) and is firmly of the opinion that a GSR of around 60 would be far more appropriate.  Even at what some regard as a particularly low current gold price level of around $1,320, a GSR of 60 would put silver at $22 an ounce – some 33% higher than it is today.  In our view, though, it would probably take a decently rising gold price to stimulate a re-rating of the GSR, in which case the gain in silver would be even higher.

Polymetal currently operates eight producing mines – six in Russia and one each in Kazakhstan and Armenia and has other development projects in the pipeline as well as Kyzyl.  However it has a policy of only managing two new projects at any given time and the current concentration is on Kyzyl and on de-bottlenecking its state-of-the-art pressure oxidation (POX) facility at Amursk in Russia’s Far East.  It won’t take a decision on building what is potentially its next new mine – Nezhda – until Kyzyl is up and running successfully.  Likewise it has a second POX line in prospect at Amursk, but won’t take the decision on that until the current POX debottlenecking programme is also seen to be successfully implemented – due to be in early 2019.

Further down the road will be the Prognoz new mine development in Russia but a go-ahead decision on this would not be made until Nezhda is up and running in 2021, assuming there’s a positive Board decision to go ahead with this.  Prognoz is the largest undeveloped silver project in Russia and one of the largest in the world.  The property comprises a very large high-grade resource of 292 million ounces oof silver at 586 g/t with excellent exploration upside estimated at 119 — 273 million ounces of silver contained at 469 g/t. Polymetal envisions a relatively low-capital and fast development approach for the asset that is based on open-pit mining and conventional processing. Production from the property is estimated at 20 million ounces of silver per annum should the project proceed, but go-ahead is only likely to be given in late 2021 with possible first production in 2024.

There is also a possible pgm project at Viksha as a potential long term prospect, but Nesis obviously thinks this is perhaps non-core and may be sold off,  as may be the barely profitable Maminskoye mine.  The currently unprofitable Kapan mine in Armenia is also under review.

Polymetal’s current priority is, like its Western counterparts, balance sheet improvement and cost control.  The new operations coming on stream will cut capital outlays and should reduce overall group costs.  Current AISC comes in at $893 an ounce putting Polymetal firmly in the mid tier among major gold  producers globally.

The current dividend policy might be seen as generous in comparison with most western gold miners and is to pay out 50% of underlying net income.  Current dividend yield is around 3.8% at the current share price of a little over £7 (its primary listing is on the London Stock Exchange).  It likes to compare its dividend policy positively against other key London-listed precious metals miners Randgold and Fresnillo!

Nesis confirmed that the company’s gold production is nearly all sold to Russian banks, which in turn sell it on the the central bank.  Last year the Russian central bank expanded its gold reserves by well over 200 tonnes and national domestic production was around 270 tonnes according to Metals Focus in its Gold Focus 2018 report, although the country’s Finance Ministry put the level a little higher at just over 300 tonnes.

Maybe because it is a Russian miner with its principal operations in Russia and Kazakhstan, Polymetal has to try that much harder to generate Western investment, but interestingly it has now exceeded its production guidance for six successive years and its current dividend policy, noted above, puts all the major western gold miners to shame. Nesis is of the opinion that investment in mining in Russia is probably less risky than investing in mining in Africa, pointing out that government is stable, there have been no property nationalisations or drastic changes in royalty and taxation policies – and in any case Polymetal is a Russian company working in an environment it understands in its home and allied countries.  It has no desire or intention of spreading its wings outside the areas it knows.