Chinese gold consumption: Far higher than most analysts and media tell us

Edited version of article which first appeared on news.sharpspixley.com on Feb 15th

Once again we are indebted to Koos Jansen for crunching the numbers on China’s gold imports in 2016.  He has added together direct imports to mainland China from the following nations/areas which publish detailed export statistics – namely Hong Kong (771 tonnes), Switzerland (442 tonnes), Australia (53 tonnes up until September – October to December figures not yet available) and the UK (only 15 tonnes, although most UK gold exports to China now seem to be being routed via Switzerland where the refiners take good delivery gold bars from the UK and re-refine them to the sizes and purities demanded in the East).  Jansen sees little more going directly into mainland China from other sources and allowing for around 20 tonnes going in from Australia for the final quarter of the year comes up with a grand total of Chinese gold imports at approximately 1,300 tonnes. (See: CHINA Net Imported 1,300t Of Gold In 2016)

In addition – the USA will have exported around 4.5 tonnes direct to the Chinese mainland, and Jansen also comments that South Africa doesn’t break down its gold export figures so he may well suspect that some is going in from there too – but the amounts will be relatively small so we can stick to 1,300 tonnes as a nice round figure.

Add to that China’s own gold output, estimated by Jansen at 453 tonnes and there will also have been a scrap gold element to be taken into account.  This suggests that China ‘consumed’ around 2,000 tonnes of gold in 2016, which equates quite closely to the Shanghai Gold Exchange (SGE) gold withdrawals figure for the year of 1,970 tonnes – (See: 2016 SGE gold withdrawals lowest for four years).  This would seem to confirm Jansen’s oft-made assertion that SGE gold withdrawals are equivalent to total Chinese gold demand – a premise largely dismissed (perhaps without any adequate reason) by the major gold consultancies which virtually all put Chinese demand at less than 1,000 tonnes.

In part, this discrepancy relates to what the major consultancies label as ‘demand’.  They tend to ignore what Jansen labels as institutional demand which he puts at at least 778 tonnes plus, depending on the amount of supply from scrap sources.

In terms of Chinese gold flows though, all the above figures ignore Chinese central bank demand.  While this, at least in terms of reported additions to its gold reserves, appears to have slipped in 2016, it still came to a little over 80 tonnes – so overall gold flows for China last year look to have been in excess of the 2,000 tonnes noted above, although not by much.  This equates to 60% plus of the total of global new mined gold in 2016.

One other point from the latest statistics is the continuing reduction of the proportion of gold flows into the Chinese mainland via Hong Kong.  Too often we still see media headlines suggesting Chinese gold demand has risen, or fallen, purely based on the stats coming out of Hong Kong.  Based on the gold import figures alone, Hong Kong now accounts for less than 60% of the gold going into mainland China.  Thus the Hong Kong figures can no longer be considered a proxy for total Chinese gold imports.  As Jansen points out in his article:

Most likely Hong Kong’s position as the largest gold exporter to China will slowly fade in the coming years, as the State Council is stimulating gold freight to go directly to Chinese cities (hoping the Shanghai International Gold Exchange will eventually overtake Hong Kong’s role as the primary gold hub in the region). Consequently, gold exports to China are increasingly bypassing Hong Kong.  In December 2016 we got a preview of what is about to come: Switzerland net exported an astonishing 158 tonnes directly to China, up 418 % from November 2016, up 168 % from December 2015, and 106 tonnes more than Hong Kong did.”

See our own take on the Swiss December figures: China 154, Hong Kong 39.  Swiss Dec gold exports show remarkable gold flows.  We have long been pointing out the decline in importance of exports from Hong Kong to the mainland in the overall Chinese gold import figures.  Perhaps our message will eventually get through to much of the mainstream media – and some ‘expert’ commentators and analysts – who continue to ignore this point and continue with headlines which appear to collate Chinese total gold imports with those coming in from its Special Administrative Region!

Get It, Got It, Gold 2 – The Presentation

Nearly a couple of months ago now we reported on Grant Williams’ December Things that make you go hmm…(TTMYGH)  newsletter entitled Get it, Got it, Good  which in turn was based on Grant’s presentation at last year’s Mines and Money London given in December, shortly after the election of Donald Trump as President of the USA. To read the original article click here.

We would highly commend Grant’s newsletter – it’s one of the few I get which I always read from start to finish as it gives a unique, and hugely valuable analysis of geopolitics, and geo-economics.  The reason I am returning to this is that Grant has now published the full video of his Mines & Money presentation without it being behind his newsletter subscription wall and I would commend all Lawrieongold readers to view it.  To do so click here.  The presentation highlights how Trumponomics differs from Reaganomics, although there are some common angles, and how much U.S. and global geopolitics/economics have changed since President Reagan’s policies set the U.S. economy on its then upwards path.  Don’t necessarily expect the Trump version to do the same is one of the messages.

Obviously I have altered the title here to insert ‘Gold’ instead of the ‘Good’ of Grant’s original – a title based on a verbal exchange between Danny Kaye and Basil Rathbone in the 1955 film – The Court Jester. This is because part of the comment involves the gradual demise of the petrodollar and the likely positive effects on gold of what Grant sees as the possibility for effectively exchanging oil for gold via the Shanghai Gold Exchange and a fully convertible yuan. A number of countries are now attempting to bypass the petrodollar and, at the same time, reduce their proportions of holdings of U.S. Treasuries in their foreign exchange totals as perhaps the world starts reducing its reliance on the greenback in global trade.  Grant sees all this as gold positive in the long term.

As an aside, the other newsletters I tend to read from start to end every issue are Otto Rock’s (pseudonym) often irreverent Inca Kola News daily blog posts digest – to keep abreast of the nefarious goings on within the Canadian junior mining markets, with particular reference to Latin American pump and dump operations and other scams.  Otto often uses language I would hesitate to  use myself – but which almost always makes for extremely interesting, and often amusing,  reading.  If you are interested in the Canadian junior miners sector this should be must reading in helping you sort the wheat from the chaff: Click on http://incakolanews.blogspot.co.uk/ .  The IKN daily digest is free, but Otto also publishes a paid weekly newsletter which offers specific investment advice.

I also read Ed Steer’s daily paid newsletter.s gives a somewhat right wing view on geopolitics and precious metals, but that covers angles often ignored by the mainstream media so is invaluable in highlighting aspects that one might otherwise not have access to without trawling through dozens of websites on a daily basis.  It also carries daily informed commentary on what is going on in the U.S. precious metals futures markets.

Gold:Silver Ratio Moving In Silver’s Favor

My latest article on Seeking Alpha

Summary

When the gold price advances, silver tends to do even better in percentage terms.

The Gold:Silver Ratio (GSR) is a great indicator of silver price trends and in recent days it has fallen below 70 and is testing 69.

Hecla Mining remains our precious metals stock pick for the year. It is already up over 14% year to date and we are only one month in!

To read full article click on: http://seekingalpha.com/article/4040993-gold-silver-ratio-moving-silvers-favor

Gold flows to China via Switzerland soar in December

The latest gold import and export figures into and out of Switzerland both showed huge increases in December with exports to China a particularly notable 158 tonnes compared with a rather small 30.6 tonnes in the previous month.  With gold flows into the Chinese mainland from Hong Kong also picking up in December this represents pre-Chinese New Year holiday demand and may also have been boosted by the lower gold prices prevailing in the final quarter of 2016.

Switzerland has always been a major conduit for gold flowing into stronger Eastern hands.  That into China for example stays there and doesn’t come out again.  The private Swiss gold refineries, Valcambi, Metalor, Pamp and Hereaus all specialise in re-refining gold scrap and 400 ounce good delivery gold bars into the smaller, mostly kilobar, sizes in demand in the Middle and Far East.

But most significant in the latest figures were the exports recorded to China of 158 tonnes – and given that China imports gold directly from a number of other sources too – this suggest a huge pick-up in Chinese demand at the end of a particularly weak year.  We have already pointed to a sharp fall in Shanghai Gold Exchange (SGE) gold withdrawals over the year (See:  2016 SGE gold withdrawals lowest for four years) which is symptomatic of the same overall reduction in gold demand in China over the full year, but whether the big rise in December imports from Switzerland is purely due to demand ahead of the Chinese New Year, or is gold price-related following the dip in US dollar bullion prices immediately following the US Independence Day holiday in July, is uncertain – but probably a combination of both.

bloomb-china-gold-imports-dec

The above graphic from bloomberg.com demonstrates the huge increase in Chinese gold imports from Switzerland in December.

UPDATE: Same old, same old. Yellen speaks, gold falls

Here’s a lightly edited version of my latest article posted on the Sharps Pxley website yesterday – trying to make sense of gold’s latest price movements as President Trump’s inauguration approaches.  Yet again today gold is testing the $1,200 level on the downside and this time around the level may not be held, particularly if the Donald’s inauguration address seems to be conciliatry, as it probably will be – but with Trump who knows?

Gold investors are obviously holding back until they see which way the wind blows.  The world’s biggest gold ETF, GLD, has seen no purchases or sales since last Friday when 2.96 tonnes were added.  GLD sales or purchases do seem to provide something of a guide to the gold price direction – in the US dollar at least, which looks to be strengthening a little today – indeed today’s gold price weakness may well be down to a small recovery in the dollar index.

The EDITED VERSION OF THE Sharps Pixley article follows:

Gold has had a decent run, after a sharp fall immediately following last month’s US Fed interest rate rise.  If one looks back to last year, the gold price was volatile, particularly before and after the various Fed Open Market Committee (FOMC) meetings and it looks that this year the same may happen all over again, but this time around gold price movement up or down may be tempered by the perceptions of how the USA’s 45th President’s proposed policies may affect the economy.  While the Fed may be set on at least three interest rate rises this year – Yellen’s San Francisco statement yesterday did nothing to suggest this wouldn’t happen – we still think they may play wait-and-see before pulling the interest rate trigger, although others, like the well-respected, but nowadays slightly alarmist commentator, Jim Rickards, think the Fed will move quickly and implement another 25 basis point increase as early as March.

This year’s FOMC meetings, at which interest rate decisions are usually made, are due to be held right at the end of this month (Jan 31-Feb 1), which is almost certainly too close to the President Trump inauguration (tomorrow) for any such decision to be made.  The following meeting will be on March 14-15 – Rickards’ suggested date for the next rate rise – then May 2-3 and June 13-14 bring up the balance of FOMC meetings in H1 2017. We think the Fed may err on the side of caution and wait for one of these latter two meetings to raise rates for the first time in 2017 – if at all – in order to see which way the economic wind is blowing after the first few months of office of perhaps the most divisive U.S. President ever.  However an early rate rise could be seen as a Fed attempt to regain credibility given its failure to match its own economic predictions in previous years.

For the record, the H2 FOMC meetings will be on July 25-26, September 19-20, October 31-November 1 and December 12-13.  Expect gold price volatility around all these dates, as we saw in 2016.  If the Fed does raise rates early and the U.S. economy looks stable, unemployment doesn’t rise and equity markets don’t collapse then there could be a further two, or even three, rises in H2, but the uncertainty around the Trump Presidency makes this far from a sure thing.

Yellen’s statement yesterday did reiterate that in her, and presumably her colleagues’, viewpoint the U.S. economy remains on course to be able to support three small interest rate hikes this year, and more next, with a potential target of ‘normality’ of around 3% by the end of 2019.  But the Fed has been notoriously poor in its predictions for the strength or otherwise of the U.S. economy over the past five years or so.  Has its forecasting suddenly improved.  The Trump Presidency could well throw the Fed’s projections into disarray yetr again – but this could go either way if the new President’s policies are perceived to be generally stimulative for the U.S. economy.

Yet Rickards, despite his prediction that the Fed will raise interest rates at the March FOMC meeting disagrees: “They (The Fed) will raise (rates) in March and then something will hit the wall, either the economy or the stock market or both. Then the Fed will backpedal from there, starting with a forward guidance then perhaps a rate cut later in the year,” he says on his blog, and recommends holding gold and U.S. 10-year Treasurys.

If Rickards is correct in his predictions, the gold price could fly in the final three quarters of the year as the Fed misses its interest raising opportunities again.  But others do see the U.S. economy, inflation and unemployment levels ticking all the boxes for the Fed’s interest rate raising plans going forward.

But so much will depend on President Trump and whether Congress will allow him to proceed with his plans to cut taxes, spend heavily on infrastructure to boost the economy and implement other fiscal stimuli and cut legislative blockages given the country’s huge debt position.  The Trump proposals, if implemented, can only increase debt!  If the Trump boost to the economy is thwarted – there may be a Republican majority in both houses, but there are a number of anti-Trump GOP members in Congress and coupled with probably blanket opposition from the Democrats still sore over the Trump Presidential Election victory – the Donald’s legislative path may thus not be an easy one.

The last day of April will see the Trump Administration’s first 100 days in office – a time when the media tends to make its first judgments of likely success or otherwise of the new President’s proposed programmes – and we believe the Fed should not take any interest rate raising decisions before then at least, although what we believe is a sensible course will hardly influence the FOMC in its deliberations!

What will the first 100 days see?  We think some of the proposed policies will have to be rolled back altogether and a number of compromises will have to be made to satisfy Congress, while the Senate may block one or more of the Presidents’ proposed cabinet members from taking office which coluld make for an adverse perception of President Trump’s promises and his ability to deliver on them..

Gold is testing the $1,200 level on the downside today, but the enormous opposition to Trump as President, which will likely be highlighted by huge demonstrations in the nation’s capital, may sober the equity markets and boost gold again temporarily – but thereafter volatile markets are likely until a much clearer idea of where Trump policies are taking the nation become apparent.

Perhaps precious metals investors should take heart though from my colleague Ross Norman’s price predictions for the current year – See:  Sharps Pixley Forecasts Gold To Average $1310 With A High Of $1390 In 2017

SP ARTICLE – LINK NOT WORKING: GATA Points to ‘Proof’ of Gold Price Suppression Intent

The link on the Sharps Pixley website to the above article doesn’t seem to be working and  readers can’t access it at the moment, so here’s a second copy of the original article:

GATA Points to ‘Proof’ of Gold Price Suppression Intent

It has long been claimed that the gold price, along with virtually every other traded market, is manipulated by financial interests which can lay hands on sufficient funds, or credit, to be able to do so.  That is an unfortunate aspect of the capitalist system and tends to benefit the big money, mostly at the expense of the small investor.  But since its formation in 1998 the Gold Anti-Trust Action Committee (GATA) has gone a stage further with its claims that not only is the gold price manipulated (which suggests it can be pushed up as well and down), but that there is collusion by big money (mainly the bullion banks), central banks and governments to go a stage further and keep the gold price SUPPRESSED, given that a rising gold price is seen by the financial markets as a sign of weakness in the almighty dollar and in the global economy.  That runs counter to the impression that governments wish to portray.

From time to time GATA has also managed to acquire documents which support its point of view in terms of memos from some key figures, particularly from the US Treasury and Federal Reserve, which would appear to support the idea of a gold price suppression policy.  And now it has just been involved in publishing a document, dating back to the early 1970s, which has just appeared in the TF Metals Report, citing a cable obtained by Wikileaks.

The cable, according to GATA, suggested that the U.S. gold futures market was created in December 1974 as a result of collusion between the US government and gold dealers in London to facilitate volatility in gold prices and thereby discourage gold ownership by US citizens.  That is perhaps an arguable contention as it perhaps rather points out the consequences of a change in US policy in allowing citizens to own gold.

The cable was sent to the State Department from the US Embassy in London and describes the embassy’s extensive consultations with London bullion dealers about the imminent re-legalization of gold ownership in the United States and possible substantial gold purchases by oil-exporting Arab nations.

The cable reads: “The major impact of private U.S. ownership, according to the dealers’ expectations, will be the formation of a sizable gold futures market. Each of the dealers expressed the belief that the futures market would be of significant proportion and physical trading would be minuscule by comparison. Also expressed was the expectation that large-volume futures dealing would create a highly volatile market. In turn, the volatile price movements would diminish the initial demand for physical holding and most likely negate long-term hoarding by U.S. citizens.

The cable is interesting not just for confirming the assertions by GATA and others in the gold-price suppression camp that futures markets also function as mechanisms of commodity price suppression and support for government currencies, an assertion perhaps first made comprehensively in 2001 by the British economist Peter Warburton, but also for showing the close connection at the time between the U.S. government and London-based gold dealers and producers, some of which are cited by name.  Those cited include Samuel Montagu & Co., Sharps Pixley & Co., Mocatta & Goldsmid, and Consolidated Gold Fields.  The first three mentioned were at the time London’s largest bullion dealers and the latter was in effect, mainly through its South African subsidiaries and associates, the world’s largest miner of gold.

It should be noted, however that none of the above cited companies exist in their original form nowadays, and, except perhaps for Mocatta’s successor, can  no longer be considered part of any grouping which exerts any significant effect on the gold price today.  The following is a note to set the record straight on this given that the companies quoted may well have had a major influence in the markets around four decades ago.

Thus, Samuel Montagu is no longer a bullion dealer/broker, but now just forms part of the private banking service of HSBC. The name was actually last used by HSBC in 2000. But its former precious metals broking activities will now form part of HSBC’s continuing business – but not under the Samuel Montagu name.

Sharps Pixley was bought by Kleinwort Benson and then by Deutsche Bank which effectively closed it down.  Subsequently the name was acquired by current CEO, Ross Norman, who relaunched the company around six years ago as a website portal to sell gold in UK markets, as well as providing news and information about the precious metals markets. In 2013 Sharps Pixley was acquired by Degussa Goldhandel from Germany which claims to be one of the largest sellers of retail physical gold in Europe, but the Sharps Pixley end is still run by Ross Norman.  It recently launched a state of the art retail bullion shop/outlet in London’s prestigious St. James Street.

Mocatta & Goldsmid is now ScotiaMocatta, the precious metal and base metal banking division of the  Bank of Nova Scotia, while Consolidated Gold Fields was originally the controlling entity for the gold mining company that is now Gold Fields of South Africa.

The abovementioned cable from the US Embassy in the UK to the State Department perhaps does not quite provide ‘proof’ of US Government involvement in actual gold price suppression, but is yet another piece of circumstantial evidence that it was certainly aware of the likely effects of the futures market on the gold price pattern and may well have colluded in this as being in its best interests.

 

SGE Gold Withdrawals 2016 – Big drop from 2015

The SGE has now published its December figure for gold withdrawals from the Exchange brining the 2016 total to a shade over 1,970 tonnes – around 24% down on the record 2015 figure – see Table below:

Table: Shanghai Gold Exchange Monthly Gold Withdrawals (Tonnes)

Month 2016 2015 2014 % change 2015-2016 % change 2014-2016
January 225.08 255.42 246.00 – 11.8%  -8.5%
February* 107.60 156.36 171.67 – 31.2% -37.3%
March 183.24 213.35 146.56 -14.1% +25.0%
April 171.40 195.45 129.59 -12.3% +32.2%
May 147.28 162.15 129.34 -9.2% +13.8%
June 138.51 195.67 128.03 – 29.2% +8.2%
July 117.58 285.50 137.53 – 58.8% -14.4%
August 144.44 265.27 161.95 – 45.6% -10.8%
September 170.90 259.98 202.43  -34.3% -15.6%
October  153.25 176.29 201.11  -13.1%  -23.8%
November  214.72 202.71 212.49  +5.9%  +1.0%
December  196.37 228.21 235.66  -13.9%  -16.7%
Full Year  1,970.37 2,596.37 2,102.36  -24.1%  -6.3%

Source: Shanghai Gold Exchange, Lawrieongold.com

For commentary on the latest SGE figures I’ve published an article on the Sharps Pixley website.  To read it click on: 2016 SGE gold withdrawals lowest for four years

 

How did gold and silver really do in 2016 and where are they headed this year?

Musings on what is likely to happen with precious metals in the year ahead and a look at how they actually performed in 2016 – very much a year of two halves.  Precious metals behaved really strongly up to the July 4th Independence Day holiday in the USA – but from there it was virtually all downhill for gold and silver, with big sales out of the Gold ETFs to accompany, or some would say drive, the price downturn.  This article was published on sharpspixley.com and, in the context of the timing of the price downturn should perhaps be read in conjunction with an article I published on seekingalpha.com; GLD Drops 158 Tonnes Since Independence Day and another published on the same site which also included some stock picks: 2017 Predictions – Gold, Silver, PGMs, The Dollar, Markets and Geopolitics…

Gold is, as usual, somewhat unpredictable.  Its performance in 2016 will have been very much dependent on the performance of your local currency vis-à-vis the US dollar.  Even in the latter the actual year-end price is also dependent on location and timing.  For example year-end prices in US dollars in Shanghai, London and New York were sharply different – respectively US$1,185, US$1,159 and US$1,151 based on the SGE final benchmark price for the year, the final LBMA gold price setting in 2016 and the final New York spot price.

We can’t view SGE comparisons for the full year as it only commenced announcing its benchmark prices back in April, but from the final LBMA price for 2015 to that in 2016, gold rose 9.1% over the year.  In terms of New York prices gold rose a slightly smaller 8.5% over the year. On the other hand in Russian rubles the gold price FELL by 10.6% over the year as the ruble appreciated against the dollar after a very sharp fall in 2014/15.  On the other hand, in the Pound Sterling, the UK gold price rose 22.5% over the year!  The Brexit vote effect!

But, as far as the media is concerned it tends to be the US dollar price which is the only one which matters so let’s look at the prospects for the gold price in the year ahead in US dollars – and for the other precious metals as well.

While global geopolitics and economics all have an effect on the dollar price of gold, it will almost certainly be the US itself and the impact on it of the Trump Presidency’s policies which will be the primary gold price drivers.  If President Trump is perhaps as unpredictable as his performance through the runup to the election suggests then we could see some major domestic and foreign policy upsets in relation to what has gone before.  Trump’s stated policies on the US economy have proved popular with Wall Street, but may well not fly – at least not nearly as quickly as the general public might expect, or even at all.  This could all see a reversal in the seemingly inexorable advance of general equities and an about-turn by the Fed in terms of interest rate rises, both of which would likely see a boost in the gold price.  Indeed general equities could crash given that they look to be overbought and in most cases earnings don’t look sufficient to justify the high prices currently prevailing.  At some stage the stock price bubble will surely burst.  Some ‘experts’ are predicting a crash of epic proportions – perhaps 80% -but although this is indeed possible we reckon that if there is a major correction ahead it will be more in the order of 50% as in the 2008/9 crash when the Dow fell around 55% at one time.

Should an equities market crash of this magnitude occur again, similarly to 2008 the gold price could be brought down sharply too as funds and investment houses struggle for liquidity and a fall to $1,000 or thereabouts wouldn’t be out of the question but again, as in 2008/09, gold would likely recover far faster than equities and then go from strength to strength as its safe haven role would become paramount again.  Where gold might end 2017 therefore could be a matter of timing.  If equities don’t crash, but perhaps correct by say 10-15%, then gold could well hit the $1,400 mark during the year.  If there is a major equities crash and it happens early in the year, gold could still hit the $1,400 mark – and steam on upwards in 2018, but if there is an equities market crash, and it peaks in the final quarter of the year then gold could well end the period in a much weaker position – but still steam ahead in 2018.

On Foreign policy there would appear to be, on the face of things, the likelihood of a rapprochement with President Putin’s Russia – if Congress allows this to take place.  The nomination of Rex Tillerson as Trump’s Secretary of State certainly suggests a change of relationships here, although it is yet possible that Tillerson’s nomination may be rejected by the Senate.  Trump may well be trying to take a leaf out of President Ronald Reagan’s book whose positive relationship with Russia’s Mikhail Gorbachev led to the end of the arms race, perestroika and effectively the end of the US/Russian stand-off, which now seems to be being resurrected by the current leaderships of two of the world’s three superpowers.  But while Trump may be heading towards a less hostile relationship with Russia, he also looks as though he may also be stirring up problems ahead with the third major superpower, China.

Domestic and foreign policy uncertainties may form the crux of a gold price resurrection in 2017.  This may already have started in 2016, but big financial sector interventions from around mid-year succeeded in nipping that in the bud – even so gold was up around 8% over the year and silver an even higher 15%.  This was after being up respectively around 25% and 45% immediately after the US independence Day holiday – a turnaround date which saw inflows into the world’s largest gold ETF switch to major outflows (See: GLD Drops 158 Tonnes Since Independence Day).  The referenced article looks at the seemingly pivotal impact of major holidays in the USA seemingly often providing the inflection points for complete changes in investment sentiment with respect to precious metals prices.

Where all the political and economic uncertainties which lie ahead will impact is probably on the strength, or otherwise, of the US dollar.  It is currently riding high, in part due to the US Fed’s 25 basis point interest rate rise and the avowed prospect of two or three more such increases during the year.  But those with even short memories may recollect that the Fed promised the same thing for 2016, but didn’t deliver.  Could it be déjà vu all over again in the immortal words of Yogi Berra!  We doubt the Fed will move until after it sees the initial impact on investment sentiment of the Trump Presidency.  The Fed’s FOMC meetings this year are scheduled for Jan. 31-Feb. 1, March 14-15, May 2-3, June 13-14, July 25-26, Sept. 19-20,. Oct 31-Nov. 1 and Dec. 12-13, thus we doubt any move to raise rates will happen until at least the May meeting, and perhaps not until June unless there’s a huge (and in our view totally unjustified) equities surge immediately following Trump’s accession to the White House.  If Trump’s supposedly business-friendly initiatives run into serious opposition in Congress then the dollar may well suffer.

But, there’s little doubt that dollar strength will be important for the gold price and the prospects of a trade war with China and the unwinding of some other key trade agreements, which Trump appears to wish to implement, could be destabilising for the greenback.  It is also perhaps not in US interests for the dollar to appreciate further – the dollar index (DXY) is currently comfortably above 103 which is a new record having varied between 91 and 103 during 2016, and this may colour the Fed’s thinking on interest rate rises too.  A high dollar makes US exports less competitive (which is why so much US company manufacturing activity has moved offshore), and imports cheaper, which would be a further blow towards trying to balance the nation’s current account.  We suggest that, over the course of the year ahead, the Fed will move surreptitiously to bring the dollar index down to perhaps a level of around 95, which is not conducive to further interest rate rises and which is gold positive.

While gold opened higher in early New Year trade, it rapidly lost ground, falling below the key $1,150 mark in Europe.  It remains to be seen how the US will react once markets open there.  But again, in 2016, it opened the year weaker before surging upwards.  Will this year see a repeat?

If we are correct in our assumptions about gold and we do see something of a repeat of 2016, then silver will do even better.  The gold:silver ratio (GSR) has slipped back to over 72, up from around 66 when silver peaked in mid 2016 (it had started the year near 80 and at one stage had risen to close to 84) but we think that if gold does perform then a GSR of around 65 could be seen again given silver tends to outperform gold in a rising gold scenario – and if gold hits $1,400 then silver could rise to over $21, still a huge way short of the near $50 it hit back in 2011 before a massive price takedown.

So overall a positive view of the gold price in the year ahead and perhaps an even more positive one on silver, BUT if there is a general equities crash as many doom and gloom merchants are predicting (and the uncertainties surrounding the Trump Presidency would perhaps make this even more likely) then booth gold and silver could suffer heavily in the financial fallout.  The comfort here is that would likely not be as intense a fall as the equities market and the recovery would be far quicker.

Paranoid Americans may stymie some positive Trump policies

Donald Trump, assuming all is well, will receive the keys to the White House in a little under three weeks’ time and thereafter could change the face of US politics.  Some of his announced policies during the Presidential Election hustings, fill this distant observer with dread, and The Donald’s historical indiscretions and financial dealings may well come around to bite him in the bum and even put his likelihood of completing a full term in jeopardy, although if this is the case he would probably have to be forced out of office – his huge ego would likely prevent him from resigning.  What odds on a President Pence ahead?

However, among his proposals for revival of the US economy and in realigning some aspects of US foreign policy there are, in the writer’s opinion both positives and negatives, but what are the chances of some of what I see as positives being allowed to proceed by a Congress which may be opposed to some of them in principle – be they Democrat or Republican?

Principal among these Trump flagged intentions is a rapprochement with President Putin and Russia, whether or not there was Russian involvement in the hacking into Democratic National Committee emails.  Julian Assange, whose Wikileaks organisation publicised the emails, and certainly no fan of the US Administration, has denied Russian involvement and the President Obama accusation that President Putin may have been directly involved in authorising the alleged hacking smacks of opportunistic posturing by a Democratic President whose party had just lost the Presidential election to a candidate who was anathema to half the American population – and to much of the Western World as well.

Both Russia and the USA have a paranoid streak when it comes to the other stemming from many years of mutual distrust.  What might be considered as legitimate by the one may be seen as a major threat by the other and nowhere is this more apparent than in Eastern Europe.  Russia’s annexation of Crimea with its dominant ethnic Russian population is a case in point.  Given that Russia had, by agreement, based its Black Sea naval fleet there meant Crimea was of major strategic interest to Russia and the changes in the Ukraine Government resulting in the ousting of President Yanukovyc, which seemingly were orchestrated by the US, had put this at risk.  The threat of NATO expansion into the Ukraine will have contributed to Russian paranoia over the military threat this posed given NATO had already moved forces into other areas which had previously been part of the Former Soviet Union, contrary to what Russia believed were promises by NATO not to expand into these territories.

The Crimea move brought US and European sanctions against Russia into play, damaging the latter’s economy, although this has made something of a recovery as European trade has been partly, at least, replaced by building additional Asian trade ties.  Indeed the sanctions have probably been more economically damaging to Europe than to Russia.  But the sanctions are set to persist until Crimea is returned to Ukraine – a highly unlikely outcome given it would hugely undermine President Putin’s credibility.

The paranoia is not just one sided though.  The US population has a hugely paranoid streak when it comes to any individuals or regimes seen as acting in contrast to what are seen as the US’s best interests.  This is aided by national media which are largely little more than propaganda outlets for the Administration – not that this is any different in Russia, or in most other countries for that matter. This was brought home to me by US attitudes to Al Jazeera, which is a pretty independent Middle Eastern-based TV news station which is in general an accurate reporter of Middle Eastern and World Affairs.  Al Jazeera was demonised by the US Administration and media over its Gulf War reporting – not because it was inaccurate, but because it did not necessarily follow the US propaganda line over what was actually happening on the ground.  To this day the majority of Americans still seem to believe that Al Jazeera is totally anti-American.  Indeed, if asked, many Americans who have never watched Al Jazeera probably think of it as a propaganda outlet for Islamic State, which it patently is not.

And so it is with Russia, as it was with Communism with which Russia is still equated in the USA.  (This spills over into Cuba too – it will be interesting to see how Trump resolves all this – he seems to be pro-Russia and anti-Cuba).  The Russian/Communism paranoia probably has its roots in the McCarthyism era of the 1950s – described by Wikipedia as “the practice of making accusations of subversion or treason without proper regard for evidence” – in which many prominent Americans were unjustly branded as having Communist leanings and suffered loss of employment and/or destruction of their careers; some even suffered imprisonment. Most of these punishments came about through trial verdicts later overturned.

Thus Russia becomes a convenient scapegoat for perpetrating anything that might be considered anti-American – like hacking into the DNC emails – even though it is probably seen as perfectly legitimate for American agencies  to undertake similar practices and try to help promote regime change in countries where policies are seen as running counter to American interests.  We live in an era of government spin and as one gets older one becomes more and more sceptical about what our own governments and media are telling us.

But back to American paranoia.  Trump’s avowed policies of getting closer to President Putin – in a similar manner to President Reagan with President Gorbachev – in our view could go a long way towards defusing global tensions.  It could certainly help bring an end to the Syrian conflict, although that could also align the US with Iran and Hezbollah, as well as President Assad,  which would be a decidedly uncomfortable relationship.  However with many in the US Congress, on both sides of the political divide, having been imbued almost since birth with anti-Russian feelings, they may well seek to block any closer relationship with President Putin’s Russia.

What of Trump’s other flagged policies?  Some will undoubtedly fall by the wayside anyway.  Certainly getting Mexico to pay for the much vaunted border ‘wall’ seems unlikely to see the light of day.  The massive proposed infrastructure building programme cannot be an immediate fix and may be fraught with difficulties anyway and we suspect that delays in implementing this will have an adverse effect on equities markets.  Tax cuts would be popular, but again may be easier in theory than in practice as so often these are perceived to benefit the ‘already-haves’ more than the ‘have-nots’.

On other foreign policies a confrontation with China may well not be in American interests, although Trump seems determined to venture down this path.  A potential military confrontation in the South China Sea seems to run counter to suggestions that the US may refrain from intervention by force in the affairs of other nations – policies which have cost America dear and cost the countries in which it has been militarily involved even more dearly in terms of infrastructure destruction and huge losses of life.

Some kinds of economic moves against the Middle Kingdom and against US  companies which have set up manufacturing outlets there, and elsewhere to take advantage of lower wages, look to be on the cards.  These could be counter-productive in that China, in particular, may just use that as an excuse to take over these manufacturing plants and produce competitive products at even lower prices.

Trump’s policies on Taiwan could also have a major negative effect in terms of confrontation with China, but here again US Congress may prefer to retain the status quo, although Trump’s unpredictability will raise doubts as to whether he’d pay heed.

Unpredicatbility may well be the key take-away from a Trump Presidency.  In theory, altyhoughh not always in practice, safe haven assets thrive on unpredictabily.  The No.1 sahe haven asset has been the US dollar but this could well suffer if Trump’s policies don’t set the American economy back on the upwards track.  Indeed we believe the dollar could be heading for something of a fall as early as by the summer if Trump’s policies don’t have an immediate positive effect on equities and the US economy and a falling dollar will likely mean a rising gold price (in US dollar terms at least) and a rising gold price could well lead to an even more rapidly rising silver price, with the even better beneficiaries being gold stocks and silver stocks .  Our thoughts on this scenario are laid out in an article on Seeking Alpha- 2017 Predictions – Gold, Silver, PGMs, The Dollar,  Markets and Geopolitics.  Do read and draw your own conclusions!

The Demonization of Putin.  Is it Justified?

To be honest we just don’t know, but given that the U.S. is just as adept at political spin as Russia – indeed probably even more so – there has to be a strong suspicion that accusations by the Obama administration of President Putin’s personal involvement in hacking into the Democratic Party’s National Committee emails – indeed of any involvement all by Russia in such hacking activity, has to be taken with a pinch of salt.  Not only is the U.S. Administration smarting from a perception that Putin’s alliance with Syria’s President Assad is making inroads into that nation’s civil war that the U.S. has not been able to achieve with its military actions, but the U.S. Democratic Party, led by President Obama, is desperate to find a scapegoat for the defeat of Hillary Clinton in the Presidential race from a seemingly impregnable position – and who better to fill this role than Russia and President Putin himself.

Of course since the American accusations in the UK pro-Remain Labour MP, Ben Bradshaw, has now accused Russian hackers of positively influencing the Brexit vote in June’s referendum.  He appears to offer no element of proof to back up his accusation other than his view that such a hack was ‘highly probable’, but on absolutely no evidence beyond his own supposition.  The word bandwagon comes into mind.

Indeed, even in the U.S., where the statements on Russian hacking have been flowing thick and fast, the CIA which has made the allegations of the Russian hack into the DNC emails, will only say that there is ‘convincing circumstantial’ evidence (which Bradshaw described as ‘proof’ in his statement to the UK House of Commons) and there is certainly no ‘proof’ out there of any direct Putin involvement, even if Russian hackers were involved.

Russia and Putin have, unsurprisingly asserted that the American accusations are ‘ludicrous’.  Even Julian Assange, the founder of Wikileaks – another U.S. bête noire – which released the hacks to the public says the Kremlin was not the source – but, in the slightly misquoted words of Mandy Rice-Davies (for those who remember the Profumo political and sex scandal in the UK of 55 years ago) ‘he would say that wouldn’t he’.  But in modern-day spin if accusations are repeated often enough, and particularly by well-respected figures like President Obama, they tend to be taken as the truth even though there is possibly no firm evidence to back them up.

No doubt when a Trump administration, which appears to be less paranoid about Russia and President Putin, takes over in a month’s time, such accusations will be confined to history and we’ll never know the truth one way or the other.

Two gold and silver stock tables showing some of the huge gains made YTD

The two tables shown below were prepared by me for an article which has now been published  on seekingalpha.com.  (Click on link to read full article) .The article looks at the companies included in the tables, some of my investment suggestions made a year ago on seekingalpha.com and some ideas for future investment in the sector.

What the tables show is the huge price leverage which can be achieved from investing in the right gold and silver mining stocks rather than the precious metals themselves in a year like 2016 where gold and silver transitioned from being totally out of favour to being prime asset classes with institutions and investors playing catch-up.  It also shows that some stocks are still showing triple digit gains this year despite the recent falls in gold and silver prices.

Note:  The tables only cover top tier gold and silver stocks.  Selected juniors may have done even better, but others will have crashed and burned – junior mining is always a risky sector!

World Top 10 Gold Mining Companies with U.S. stock quotes (US$)

Stock Price Jan 1 Price Dec 16 Rise YTD Peak Fall from Peak
Barrick (ABX) 7.38 14.28 93.5% 23.16 38.3%
Newmont (NEM) 17.99 31.66 76.0% 45.86 31.0%
Anglogold (AU) 7.10 9.51 33.9% 22.65 58.0%
Goldcorp (GG) 11.56 12.53 8.4% 20.15 37.8%
Kinross (KGC) 1.82 3.03 66.5% 5.74 47.2%
Newcrest (NCMGY) 9.47 12.37 30.6% 20.06 38.3%
Gold Fields (GFI) 2.77 2.67 -3.6% 6.45 58.6%
Sibanye (SBGL) 6.09 6.61 8.5% 20.78 68.2%
Agnico Eagle (AEM) 26.28 37.34 42.1% 58.77 36.5%
Freeport (FCX)* 6.77 13.83 104.3% 16.21 14.7%

*Primary copper producer but still one of the world’s top gold miners

Source Yahoo Finance  and lawrieongold.com

Some other U.S. quoted relevant precious metals miners and indexes (US$)

Stock Price Jan 1 Price Dec 16 Rise YTD Peak Fall from Peak
Yamana (AUY) 1.86 2.64 41.9% 5.90 55.3%
Randgold (GOLD) 61.93 68.74 11.5% 125.41 45.2%
Harmony (HMY) 0.93 1.89 103.2% 4.76 60.7%
Eldorado (EGO) 2.97 2.75 -7.4% 5.07 45.8%
Coeur (CDE) 2.48 9.08 266.1% 15.96 43.1%
Hecla (HL) 1.89 5.39 185.2% 7.24 25.6%
Pan American (PAAS) 6.50 14.71 126.3% 21.46 31.5%
XAU Index 45.30 73.41 62.1% 112.83 34.9%
HUI Index 111.18 165.32 48.7% 284.14 41.8%
GDXJ Index 19.21 29.86 55.4% 51.70 42.2%

Sources: Yahoo Finance  and lawrieongold.com

 

Deliberations on the U.S. Fed rate rise and gold

Two articles published by me on sharpspixley.com in the aftermath of this week’s FOMC meeting announcing a 25 basis point U.S. interest rate rise and looking ahead to three more in 2017.  Despite virtually every analyst and commentator predicting the increase which should have suggested that the rise had already been discounted in the recently weaker gold price the news precipitated a further $20 plus fall despite this.  This totally disregarded the Fed predicting three rate rises in 2016 the last time it increased rates by 25 basis points, exactly a year ago, and then failing to raise rates at all until now.  How short memories are – particularly in the financial world.  And how poor the Fed’s record has been in predicting the path of the U.S. economy.  Perhaps it will be all-change in 2017 under the somewhat unpredictable President-elect Trump, but we see some hopes being damped.  Whether gold will benefit, or continue to weaken, will probably depend on the big money which is likely to continue setting paper gold prices which still dominate, although Shanghai is doing its best to bolster prices – so far to little avail.

The first of the two Sharps Pixley articles written a couple of hours after the rate increase decision was announced, and the accompanying Fed forecast can be read by clicking on this link: Gold hammered on U.S. Fed rate decision.

The second was written the following morning (UK time) as the gold price continued to weaken and the dollar index to strengthen.  Indeed much of gold’s fall could be put down to dollar strength rather than gold weakness, although offloading of gold from the big gold ETFs did continue which will not have helped sentiment.  To read this article click here: Gold and silver dip further as dollar continues on upwards path.

Today the rise in the U.S. dollar index appears to have halted and precious metals prices appear to have stabilised.  Whether that will continue into next week we do not know given the gold bears appear to be in the ascendant, but there is an impression gold has been oversold, the dollar overcooked and maybe, just maybe, something of a precious metals recovery is already under way.

With gold little is as it seems

 

A lightly edited rerun of another of my sharpspixley.com articles – well I do need to supplement my pension by writing for SP.  In it I endeavour to point to  various aspects of gold pricing and analysis  which set the yellow metal apart form other metals (except perhaps silver which tends to hang onto gold’s coattails.)  Gold is unique in being neither a true commodity – nor a wholly monetary metal although it falls far closer to the latter than the former.  So here goes:

The longer I have been associated with the gold mining sector – over 50 years since I worked as a junior mining engineer on what was then one of the world’s oldest and largest major gold mines – the more I recognise that the gold price itself frequently defies all logic.  Back then gold mining economics were easier to predict in many respects, although perhaps not for the miners which were feeling the squeeze from rising technical costs and a gold price which had been fixed at US$35 an ounce for around 30 years.

According to official U.S. inflation statistics, although these almost certainly understate the true position, $35 back then would be worth just under $300 today – not a level at which most, if any, gold miners could be profitable, but it should also be recognised in most gold producer domestic currencies the inflation rate will have been many times higher and the relative value of mined gold to the economics of gold mining will have changed drastically.  (Other estimates based on the fall in the purchasing power of the dollar suggest that $35 in 1960 is actually the equivalent of around $1,150  today – interestingly about where the gold price is now!)  Gold was thus probably underpriced 60 years ago and thus still is in today’s money.

Of course mining and mineral extraction technology has made huge advances since 1960 and global gold production has more than doubled, but calculations of gold supply and demand are fraught with argument, with some key analysts disputing the estimates from the major analytical consultancies, particularly in respect of Asian demand (See: Gold, GFMS, China Demand – Koos speaks out).  Global new mined gold output does seem to have peaked and looks likely to start reducing further in the years ahead.

Koos Jansen has also published some other analysis which goes much further than what was basically a critique of the way GFMS calculates Chinese gold demand in the face of some substantial – some would say irrefutable – evidence that published figures for gold flows  into China are more than double the GFMS figures for Chinese gold consumption, in part because of what GFMS defines as consumption.  And GFMS is not the only consultancy accused of publishing misleading statistics – its main competitors, Metals Focus and CPM Group also stand so accused.

In an earlier article Jansen goes further and pointed to major anomalies not only in gold demand statistics for China, but for the consultancies’ worldwide estimates too.  He sees the biggest anomalies arising because they tend to treat gold as a commodity and effectively ignore its parallel monetary role – See: The Great Physical Gold Supply & Demand Illusion.

Jansen comments as follows: “In reality gold is everlasting and cannot be consumed (used up), all that has ever been mined is still above ground carefully preserved in the form of bars, coins, jewelry, artifacts and industrial products. Partly because of this property the free market has chosen gold to be money thousands of years ago, and as money the majority of gold trade is conducted in above ground reserves.  Indisputably, total gold supply and demand is far in excess of mine production and retail demand.”

Jansen’s assertion certainly makes some of the seemingly strange goings on in terms of gold pricing perhaps a little more understandable, although not any more transparent –  indeed probably less so.

Meanwhile Deutsche Bank’s settlement of price rigging allegations (without actually admitting guilt) in the silver market, together with an apparent assertion that some other major global financial institutions have been doing likewise, is raising  a host of other questions regarding precious metals pricing.  Some commentators  have been suggesting that if manipulation of the silver market was rife then it is highly likely that the gold market has been similary rigged too which will hardly be a surprise to followers of these markets and justifies some of the accusations that GATA has been making for years.  What remains uncertain in the case of gold in particular is that if it indeed has been happening, which seems highly likely, whether the price rigging has just been conducted by the major financial institutions acting on their own, or whether with the support of government institutions and central banks (which is the GATA position).

What this all means, of course, is that the gold price moves in mysterious ways unfathomable to the person in the street.  With likely regulatory complicity we don’t see this situation ending in the near future unless stimulated by an equity market crash which overwhelms the power of the financial establishment to rein it back.  But then this latter is seen as being increasingly likely by many astute financial observers who see it as not a case of ‘if’, but ‘when’.

Italian referendum : Gold confounds – again

Here’s a lightly edited version of my thoughts on gold’s contrary reaction to the result of the recent Italian referendum which led to the resignation of Italian Prime Minister Matteo Renzi.  Article was published on SharpsPixley.com (I publish articles on Sharps Pixley as I generate a small amount of income whereas I have not tried to commercialise lawrieongold which comes to you free of charge.)

I suppose we should have expected it after the Brexit vote and the Donald Trump US Presidential vote result, but yet again a plebiscite, whose result would normally have been expected to give a significant boost to the gold price appears to have had the opposite effect.  This time it was the Italian referendum which saw a significant defeat for would-be reformist Prime Minister, Matteo Renzi, and his as-promised subsequent resignation.  True, as with the Trump and Brexit votes, once it became apparent which way the results would go, the gold price spiked upwards, but then it was brought down sharply as global markets opened giving further fuel to the conspiracy theorists claims that the financial and governmental elite is working in concert to suppress the global gold price. (Ed Steer who picked the article up in his own newsletter calls it conspiracy fact! – for details on his service click on edsteergoldandsilver.com )

The problem for gold is that strength in the yellow metal’s price is generally seen as recognition that the global economy is indeed in a parlous state and neither the big money, nor the politicians, want to see this interpretation gain public credence.  For the former it would mean a market collapse, perhaps of epic proportions, destroying wealth, and for the latter it would damage the carefully orchestrated perceptions that all is well with the global economy, despite plenty of indicators that this is not the case – not least the debt mountains which have been built by many of the world’s major economies.

Modern day politics is all about perception.  If people can be led to believe that all is well they will continue spending at levels that will indeed help the economy.  In the U.S. for example there is plenty of evidence from non-massaged statistics, that the average person is worse off than they were a few years ago – in some cases substantially so.  Yet we have just seen a consumer spending splurge on Cyber Monday which has broken all records.  This is obviously unsustainable, but how long will it be when this perception that all is well with the world is just a myth is understood by the majority of the general public?

In part the Italian, US and UK votes  highlighted above may also signify that this comfortable existence may indeed be on the way out, albeit perhaps just the beginning of such perception.  All three are being seen as votes against the establishment, but in no case has the majority been large enough to carry much more than 50% of the vote (less in the case of the Trump victory) so there is still a very substantial number of people out there apparently still happy with the status quo.  The ‘protest vote’ will have to grow much further if we are to see any serious perception change.

Part of the underperformance of gold against expectation after the Italian result has been put down to dollar strength, given a sharp fall in the euro as the result was confirmed  which is seen as having the potential to upset the euro applecart and precipitate an Italian  banking system meltdown with a correspondingly adverse impact on the whole European banking sector to which the Italian banks are severely in debt.  But the resultant dollar strength has been shortlived, while gold has remained well down on its Friday close – despite Shanghai trying to give it a boost with a pm gold benchmark price, as calculated by kitco.com, of $1,198.11 – over $20 higher than the Globex spot price at the time.

Benavides new Minera IRL CEO

In a move that many will consider should have happened some time ago, Diego Benavides – who has headed up the Minera IRL Peruvian operating company for some years – has been accepted onto the parent company board and will be the company’s new Chief Executive.  Benavides will have been seen by the company’s Peruvian shareholders in particular as the saviour of the company in protecting the operating company’s gold mining revenues from the alleged predations of the Hodges Board, keeping the Ollachea community onside and being primarily responsible for negotiating the Ollachea financing deal with COFIDE.

In an announcement today, Benavides and three others, were welcomed to the Board by the company’s sole remaining director following the recent AGM.  At the AGM  three of the previous five directors did not offer themselves for re-election and a fourth, the Chairman and CEO, Frank O’Kelly was voted off the Board after a hard-hitting anti-Board campaign by Latin American focused blog, Inca Kola News who felt that some of the AGM proposals were  designed to be for the benefit of Board members rather than the shareholders.  While much of the anti-Board focus was aimed at the three Board members who stood down, O’Kelly was  also voted off  although his downfall was perhaps the perception  that he did not exert sufficient control and guidance and that his choice of fellow directors was misguided.  O’Kelly had been a long time consultant to Minera IRL dating back to the days of company founder – the late Courtney Chamberlain – and thus a  long time associate of company co-founder Benavides.  It was notable that in the announcement of the new Board, the remaining director from the old Board and Independent Chairman, Gerardo Perez, paid a tribute to O’Kelly thus: “I wish to extend my sincere thanks to Frank O´Kelly for his outstanding support in the management of our Company.  It has been a pleasure  to have worked closely with Frank.”

Now we hope that Minera IRL will be able to get on with the development of its flagship Ollachea mine where development is already well in progress.  As O’Kelly himself pointed out prior to his being voted off the board of the company with which he had been involved for many years, Minera IRL has an operating gold mine in Peru in Corihuarmi, which is close to the end of its operating life.  But its flagship project is the major advanced new gold mine development, Ollachea, located in Puno in the South of Peru. This project is fully funded by a Peruvian State Development Bank ($240 million facility of which $70 million has been advanced). The mine is fully permitted and has subscribed a 30 year social license with the local community. The mineral resource exceeds 2.40 million ounces Au and M+I reserves of 1 million ounces, which will sustain a production of 100,000 ounces of gold per annum for a decade. The company is presently drilling off an already constructed 1.2 km access tunnel with a target of adding an additional 600,000 ounces to the resource. The down dip extension which is currently being drilled reports intersections up to 20 m with grades from the only 3 holes for which so far have assays reporting 5 g/t Au, some 40% better grade than the main ore body which was delineated with 82,000 m of drilling. AMEC has filed a NI 43-101 compliant feasibility study.

In anticipation of production by the end of 2018 the company has negotiated a fixed price turnkey EPC contract with Peru’s largest mine construction company, Graña y Montero, and is currently assembling what it describes as a first class owner’s management team. MIRL is in the process of commencing detailed design and placing orders for long lead capital items of equipment.

The company reckons that there are only a handful of advanced gold projects in the world in the condition of Ollachea and there should be enthusiastic acceptance from investors.

This is a situation where prior controversy has depressed the share price to levels of an order of magnitude of what other less advanced gold project are commanding. There is a capacity for a very substantial increase in the share price reckoned O’Kelly.

He went on to note that companies like Dalradian command a market cap ten times that of MIRL, whilst possessing comparable resources but still have permitting and financing challenges ahead. Meanwhile MIRL has a producing gold mine, a fully funded project with all the permits in place, a 1.2 km access tunnel, an EPC fixed price contract with Peru’s largest mine construction company and a 30 year social license for the local community. One can count on one hand, he says, the number of gold projects as advanced as Ollachea.

 

Gold, GFMS, China Demand – Koos speaks out

An edited version of a post which I placed on info.shsarpspixley.com at the weekend – click here for original.  Article was posted before we knew the results of the Italian referendum which, contrary to expectations saw the gold price fall back despite a No vote.  I have already written an article on this for the Sharps Pixley site which I may post here tomorrow.

The article below deals with the ongoing argument about estimates of Chinese gold demand/consumption as disseminated by major gold consultancies and the World Gold Council and thus treated as the definitive figures by much of the world’s media, yet they come in enormously below known gold supply into mainland China which,in our view, makes them decidedly suspect as a true measure of gold flows into China which are perhaps a better indicator of real Chinese gold demand.  Methodology used by the major consultancies is probably key to the huge differences.

Bullionstar’s Koos Jansen has been carrying on a several year-long crusade against precious metals analytical consultancy, GFMS, for publishing what he describes as incomplete and misleading statistics which, he reckons, hugely underestimate true Chinese gold demand.  But it should also be borne in mind that other highly respected consultancies like Metals Focus (which has usurped GFMS’s previous position as supplier of statistical data to the World Gold Council) and America’s CPM Group, although they may not be quite as downbeat on the Chinese statistics as GFMS, also produce far lower estimates for Chinese gold consumption than Jansen’s preferred measure of Shanghai Gold Exchange withdrawal figures.

Jansen actually goes further in suggesting that other GFMS global gold demand data also underestimates the true position, and he calls the consultancy’s figures a cover-up to protect their longstanding business model.

What is more all the above consultancies have tended to come up from time to time with differing reasoning for the apparent consumption discrepancy – all of which have been stated with apparent absolute certainty – until the next year when the latest reasoning is replaced by the next theory.

In a new posting on bullionstar.com – Debunking GFMS’ Gold Demand Statistics – Jansen looks at all GFMS’ latest opinions on this, and why they are all, in his view, incorrect – indeed he describes them as a cover-up, which also has to apply to the theories on this matter promulgated by the other major precious metals analysts.  It is hardly surprising that Metals Focus’ analysis comes up with something close to that of GFMS, although perhaps not quite so downbeat.  This is because the latter consultancy utilises the services of Hong Kong based consultancy Precious Metals Insights for its Chinese data whose managing director is Philip Klapwijk, former executive chairman of GFMS and who will thus have had ultimate responsibility for the original GFMS research on Chinese consumption.  Given Metals Focus provides, as noted above, the data used by The World Gold Council in its pronouncements, this is often the data used by global media as the definitive Chinese gold demand figure.

This might not be a problem if the GFMS and Metals Focus/WGC data was anywhere close to the kinds of figures  which Jansen comes up with, but the figures they use are only less than half those suggested by Jansen who bases his calculations on Shanghai Gold Exchange (SGE) gold withdrawals.  In part this is because what the consultancies count as gold demand ignores financial/institutional intake, which can be substantial, and which is why Jansen considers the data misleading. Last year, for example, SGE withdrawals amounted to over 2,596 tonnes of gold – a new record – whereas GFMS calculations for Chinese consumption came in at under 900 tonnes a figure also picked up by much of the world’s mainstream media.  The difference between that and the SGE figure is ENORMOUS.

We have pointed out here beforehand that the real, and obvious, anomaly comes in when you look at actual gold supply into China.  If we add known Chinese gold imports – from Hong Kong, Switzerland, the UK, the USA and Australia, all of which publish gold export figures  – and add in Chinese gold production (China is the world’s No. 1 gold producer – some 450 tonnes in 2015)  plus an estimate of scrap supply, not to mention direct imports from countries which don’t publish export statistics, we come up with a combined figure of around 2,000 tonnes or more (if anything Jansen’s calculations are even higher).  As gold exports from China are officially prohibited – which isn’t to say that absolutely zero goes out, but close – these figures would seem to make the GFMS calculations even more untenable.

This year though Chinese gold demand is going to be lower by almost any standards.  Up until end-October SGE withdrawals were 1,560 tonnes – 28% down on the record 2015 year and now perhaps suffering a reported import clampdown, although expectations for November withdrawals, due to be announced this week or next, are likely to be far higher than in recent months due to restocking demand ahead of the Chinese New Year holiday, the annual total is likely to be under 2,000 tonnes for the first time since 2012

Even at this reduced level, Chinese gold demand, as represented by the SGE figures is still running at over 60% of global gold output.  Rising premiums also suggest Indian gold demand is back on the up which could be seen as positive for the global gold price but rhe immediate price triggers are probably the result of the constitutional referendum in Italy, the Austrian Presidential vote and the likelihood of the U.S. Fed raising rates when it meets next week – seen as high!