Randgold’s Kibali U/G section on track despite possible political pitfalls ahead

In a statement to local media Randgold Resources CEO, and driving force, Mark Bristow, reported excellent progress at its 45%-owned Kibali gold mine in the DRC, which it operates.  It built the mine ahead of schedule as an open pit operation with the underground section to follow, despite it being located in one of the most remote parts of the African continent in the northeast of the mineral rich Democratic Republic of Congo (DRC) close to its border with South Sudan.  The construction logistics were daunting with virtually all the heavy equipment needing to be trucked to the site from ports far away on Africa’s east coast.

Kibali is also owned as to 45% by the much larger Anglogold Ashanti, which ceded construction and management to Randgold because of the latter’s strong prior expertise in constructing and operating gold mines in Mali and Cote d’Ivoire and in maintaining good relations with the governments in those nations – even through some major political changes. The balance of 10% of Kibali is owned by DRC parastatal, Sokimo.  However, while technical progress has perhaps exceeded expectations there are obviously some potential political pitfalls ahead if they cannot be warded off through negotiations with government, Bristow also warned.

The Kibali gold mine, nowadays one of the largest such operations in Africa, remains on track to achieve its production target of 610,000 ounces this year as its underground operations and the integration and automation of the vertical shaft enters the final commissioning and automation stage, Bristow told the audience at an event in DRC capital, Kinshasa.  The mine is anticipating a significant increase in production once the final shaft commissioning, which remains on a tight schedule, has been completed.

At a briefing for local media, Bristow said in spite of the high level of activity at the mine, there had been a significant improvement in the safety statistics, with its total injury frequency rate continuing to decrease and lost time injury frequency rate down to 0.31 per million hours worked in the September quarter.

Following the anticipated completion of the underground mine in the fourth quarter, the only major capital project still in the works would be Kibali’s third new hydropower station, currently being constructed by an all-Congolese contracting team.  Bristow said the availability of self-generated hydropower and the mine’s high degree of mechanisation and automation were important factors in Kibali’s ability to sustain its profitability throughout the ups and downs of the gold price cycle.

To date, over $2 billion has been spent on acquiring and developing Kibali, of which the majority had been paid out in the form of taxes, permits, infrastructure and payments to local contractors and suppliers.

“With capital expenditure tapering off, Kibali should now be preparing to pay back the loans taken to fund its development.  We are concerned, however, that its ability to do so will be impeded by the increasing amount of debt – currently standing at over $200 million – owed to the mine by the government.  TVA refunds, excess taxes and royalties in violation of the country’s mining code, make up the bulk of this amount,” Bristow said.

Another troubling development was the recent re-introduction to parliament by the Ministry of Mines of a proposed new mining code which is exactly the same as the one the government withdrew in 2015 after it was comprehensively demonstrated that it would seriously damage or even destroy the Congolese mining industry.

“Randgold has proven and continues to prove that it is committed to the DRC and to the development of a gold mining industry capable of making a substantial and lasting contribution to the country’s economy.  Despite all the challenges, including the volatile political climate and a deteriorating economy, we continue to invest here.  Our exploration teams are searching for our next big discovery in the greenstone belt of the north-eastern DRC.  In line with our local supply strategy, Kibali spent approximately $40 million with Congolese contractors in the past three months alone.  We are developing substantial agribusiness and other community projects.  And perhaps most important, we invest in the training and empowering of Congolese nationals, who already make up most of the Kibali management team, thus making a contribution of incalculable value to the expansion of the country’s skills base,” Bristow said.

“The DRC has all the materials for building a sustainable mining industry but that will require a fully committed partnership between the government on the one hand and the mining companies on the other.  Despite recent indications to the contrary, we remain confident that such a partnership is within reach, and that the government will see the critical importance of maintaining a stable, investor-friendly fiscal and regulatory environment for the country’s mining sector.  In this regard, we would welcome the opportunity to work with the government in jointly selecting an independent group of experts to benchmark the DRC mining code and its fiscal framework and to model the impact of the new proposed code, which we believe will be damaging to the development of the industry.”

These are, in effect, dire warnings by Bristow and illustrate some of the potential problems arising when working with the DRC government.  The DRC has enormous mineral potential for the production of many strategic metals and minerals, but the kinds of problems noted by Bristow could have a serious impact on further potential inward investment in the mining sector and could also adversely affect ongoing operations in the country.  The country had a hugely successful mining industry back in the mid 20th Century, but this largely fell into disrepair in the latter half of the century as foreign expertise was shunned.  One hopes this will not happen again.  The world needs the metals and minerals the DRC can supply.

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Metals Focus’ Precious Metals Investment Focus still sees gold averaging $1,400 next year

I recently attended Metals Focus’ launch of its latest publication on Precious Metals Investment and while its overall conclusions were somewhat mainstream the group’s analysts are looking for the gold price to AVERAGE US$1,400 next year which suggests at times spot prices will go higher than this.  I published an article on this on the Sharps Pixley website on this which is set out below:

Metals Focus still sees gold hitting $1,400 average in 2018

Yesterday saw the launch of London-based precious metals consultancy Metals Focus’ second annual Precious Metals Investment Focus publication which, in its 90+ pages, goes into considerable detail on the current prospects for gold, silver, platinum and palladium.  The consultancy also yesterday published its latest Precious Metals Weekly newsletter, which emphasised some of the findings of the longer report and, perhaps, what it sees as the potentialimpact of the increased likelihood of a U.S. Fed small interest rate rise at its December meeting.  However some others – notably Jim Rickards in a recent interview – would disagree feeling that the most recent U.S. economic data would scare the Fed into delaying any further rate increases into 2018, if then.

Metals Focus has a dedicated team of analysts looking at all aspects of the Precious Metals sector – and also nowadays provides the statistical element of the World Gold Council’s regular quarterly analysis of global gold supply and demand.  The group was initially put together as a break-away from the longstanding GFMS analytical group when the latter was acquired by Thomson Reuters in 2011 and a number of its analytical team previously worked for the latter and some of the methodology of its analysis mirrors that of GFMS, although the conclusions do sometimes differ slightly.

Looking at gold as the prime driver of the precious metals complex – although increasingly the other precious metals are to a major extent dependent on their demand as industrial metals particularly in the case of the platinum group (pgms) – the report does see potential for further positive price growth given the supporting underlying macroeconomic and geopolitical outlook.

In his presentation at the launch of this latest publication, Neil Meader, the group’s Research and Consultancy Manager, reflected on a slightly disappointing performance for the complex, despite great promise earlier in the year.  The report thus suggests only a 2% average rise in the metal price this year compared with 2016.  An earlier 5 year analysis of the precious metals complex by the consultancy had predicted $1,400 gold this year, and while this has not been totally ruled out, the latest analysis suggests that this price level may now not happen until next year unless some worrying geopolitical event (North Korea looks to be the most likely instigator) causes the metal price to spike again.

Writing here a week or so ago, we had suggested keeping a close eye on the largest gold ETF (GLD) to see the trend in institutional investment in gold in North America, which seems to be a great indicator of U.S. investment demand and thus of the overall trend in the global gold price level.  After a strong couple of months, the past two days have seen 10.35 tonnes withdrawn from the ETF which is perhaps indicative of weak institutional demand for gold in the light of the recent price falls, although much of these can be put down to some recovery in the dollar index over the past few days.

In today’s trading gold is, so far, up a few dollars from yesterday’s low point although has not retained some of its earlier price gains seeing a degree of profit taking (or an engineered decline depending on who one believes) after it moved briefly back above $1,280.  Silver is pretty flat while platinum and palladium are trading at broadly similar levels after the latter’s high flying move of last week. In later trading palladium again moved slightly ahead of platinum, although not significantly so.  Thus so far this week platinum has moved up a little and palladium down a little more.  Metals Focus favours platinum over palladium into next year.  We may disagree given the latter’s better current fundamentals but all the North American precious metals markets are managed by the big money to a greater or lesser extent and, ultimately the markets each tend to move in the way the bullion banks and major institutions determine as the prime players in these market.

What the Metals Focus Investment Focus publication does do is set out its price forecasts in the light of what it sees as the supply/demand parameters for the current year and next.  For gold it sees a surplus, albeit a slightly smaller one of 22 tonnes in 2018 and an average price for that year of $1,400 as against a $1,275 average for the current year, itself up from $1,251 in 2016.

Silver is seen as outperforming gold next year, as it usually does in a rising gold market and again sees a supply surplus of 72 tonnes this year and 66 tonnes in 2018.  The consultancy analysts see silver, like gold, benefiting from a recovery in investor interest in safe haven assets.  Here the analysts are looking for a $20.60 average price for the year which some may see as optimistic, but if you are a silver investor optimism usually rules.

The analysts also see some kind of recovery in platinum, despite a 450 million ounce projected surplus. leading to  an average price of $1,090 in 2018 – due largely to platinum’s historic correlation with the gold price.  However it sees palladium as underperforming its fellow pgm despite a 1.44 million ounce projected deficit and are predicting an average price of only $880 an ounce.  That is around $30-40 below where it is at the moment, although the 2017 average price is seen as only $830 an ounce.  We would probably disagree here with, in our view, palladium having the distinct possibility of maintaining a premium over platinum given the disparities in fundamentals supply/demand data.

 

Views on Chinese gold demand and official reserve data

Two more articles I’ve published on the Sharps Pixley website – the first looking at Chinese gold demand as represented by Shanghai Gold Exchange (SGE) withdrawals and the second on yet another monthe where China says it has not increased the volume of its gold reserves (we doubt the veracity of the Chinese ‘official’ figures.  Do click on tghe links to read the articles on info.sharpspixley.com.

The article on the latest SGE withdrawal data – Chinese gold demand heading for 2,000 tonnes this year

Latest Chinese gold reserves article: China says it adds zero to its gold reserves – again

 

Gold price: Korean bomb test could see fireworks in the gold market

Edited and updated version of an article I published on the Sharps Pixley website at the weekend following the North Korean hydrogen bomb test confirmation.

When the world’s largest gold ETF – SPDR Gold Shares (GLD) – adds gold into its holding, the gold price usually rises – and vice versa, and perhaps the second most bullish pointer for gold is that between June 8th and August 7th, some 80 tonnes of gold were liquidated out of GLD with only a limited overall impact on the gold price.  For the first month of the two month sell-off period, gold did fall back, but in the second month of sales out of GLD the gold price reversed and actually rose.  OK, so without these sales perhaps the gold price would have risen more sharply.  Since August 7th though we have seen purchases into GLD and the gold price has indeed risen fairly substantially, despite what look like big ‘flash crash’ sales of paper gold knocking the price back sharply, but only succeeding to do so for a very short time.

 Another factor which has been apparent is that the trading volumes seen over the past few weeks have been particularly high for the end of what is a holiday period.  This suggests a raging battle under way between gold bulls and gold bears which the bulls appear to have been winning.  But – and it’s a big but – the holiday period is now coming to an end with the Labor Day holiday and the serious players will be back at their desks.  As we have pointed out before, major U.S. holidays seem often to provide inflection points in the markets, and observers will be keen to see whether Labor Day 2017 will prove to be one of these and see the gold price either take off strongly upwards, or be knocked sharply back yet again.

But the No.1 bullish factor for the gold price this week is probably the fact that North Korea is confirmed to have tested a new, more powerful, nuclear weapon (50-60 kilotons according to reports – some put it at 100-120 kilotons) over the weekend, and the claim by North Korea that it could be fitted to one of its inter continental ballistic missiles (ICBMs).  This may well sway any likely post-Labor Day inflection point towards the likelihood of a serious gold price boost this week, although initial upwards price movement has been limited – the powers that be have obviously been successful so far in damage limitation!

GLD liquidations or purchases may also provide a strong pointer to market direction for precious metals.  It tends to be bank and/or fund purchases or sales which account for major moves in GLD, so whether the ETF’s gold content bleeds or grows should be an excellent guide as to where the gold price may be headed.  Weak U.S. economic data has effectively removed the Fed’s prospective rate rise scenario from the gold price equation – at least for a couple of months although may have an impact again in November as speculation will reign over whether the Fed will implement another small rise in December, or kick the can down the road once more.  The U.S. dollar is looking weak and a weak dollar tends to see the dollar gold price rise. And it is the dollar gold price which the market judges to be the most important indicator, even though the gold price in other currencies, like the euro or the yen, should perhaps be just as relevant to the gold investor.

We have ignored silver in this scenario, but silver continues to be tied to gold.  The gold:silver ratio (GSR) has fallen back below 75 again and will undoubtedly fall further should the gold price get a boost after Labor Day and the latest North Korean bomb test.  We see the GSR coming back down into the 60s which would make silver a far better short term buy than gold, but beware silver’s volatility.  However neither would be much good in a nuclear wasteland!

While North Korea’s Kim Jong-Un may not be as unstable as the media makes him out to be, the bomb test is yet another serious escalation in the DPRK/US confrontation and the big danger for further escalation here is that President Trump may be forced into military action, having backed himself into a corner with his rhetoric.  Unlike Iraq it looks as though North Korea’s weapons of mass destruction (WMDs) are real and the U.S. may now feel it has to make a move, however costly this may be to the U.S. itself and its Asian allies within easy range of North Korea’s missiles, before the threat to the U.S. itself escalates further.   If North Korea has indeed developed a nuclear warhead for its ICBMs and they are capable of targeting U.S. mainland cities, the U.S. may feel the necessity to strike and try and curtail the programme before the threat grows to an uncontrollable level.

The seemingly increasing threat of war between North Korea and the USA, could well give the gold price a huge boost in the days and months ahead with safe haven demand escalating worldwide – and particularly in Asia and the U.S. itself.  It could also persuade those banks holding big short positions in gold and silver to cover and reverse their policies.  A gold price reset could be on the cards even sooner than those like Jim Rickards and Eric Sprott have suggested – see $5,000 gold – then $10,000. Gold bulls sing from same songbook.

Thus be prepared for fireworks when North American markets re-open this week, although one suspects the big institutional holders with enormous short positions in gold and silver amy do their best to limit rises while, perhaps, unwinding from these.   The latest North Korean bomb test is probably favouring gold moving upwards – perhaps strongly – once the markets are back in full swing.

Gold price performance – latest views

Here are links to a couple of articles I’ve posted in the past few days on the Sharps Pixley website for which I am a contributing editor;

The first looks at gold’s performance despite some seemingly concerted attempts to knock the price back – a subject I’ve commented on before.  These look to have failed – at least in terms of making a major permanent dent in the metal price, although the mere process of knocking the price back – even if only for a very short time – may indeed make potential gold investors more cautious.  The article is: Even another flash crash can’t keep gold price down.  Click on the title to read it.

The second looks at predictions for gold at $5,000 and then $10,000 from a couple of the more rational gold bullish commentators and why their predictions will almost certainly come about – over time.  It’s just a matter of how long it will take for these levels to be achieved which is in doubt.  I point out in the article that in terms of the yellow metals’ past performance these estimates are not only reasonable, but perhaps conservative.  As I point out in the article, in my lifetime gold has risen from an admittedly controlled $35 an ounce to over $1,900 at one point – a 54x increase – and over 37x to the current price level.  Even a 37x gold price rise from the ca. $1,320 where its stands today would put it at over $48,000 – probably unlikely without some kind of global catastrophe, but at least it puts a rise to a mere $10,000 into context – only around a 7.5x increase from where it is at the moment!”

To read the full article, click on $5,000 gold – then $10,000. Gold bulls sing from same songbook

Even another flash crash can’t keep gold price down for long

This is a lightly edited version of one first posted on the Sharps Pixley news website

2 million ounces of gold were dumped on the gold market in a minute on Friday, just ahead of Janet Yellen’s speech at Jackson Hole – and, after a very brief downwards spike to below $1,280, the gold price rapidly climbed back to unchanged.  This has to be an incredibly bullish signal for gold in that even this amount of presumably paper gold thrown at it (62.2 tonnes) couldn’t keep the gold price down.  Bloomberg described the 2 million ounce trade as ‘mysterious’.  Perhaps at least that is a welcome change from the usual ‘fat finger’ attribution which seems to be applied to these seemingly increasingly frequent mega-sales of paper gold which, despite protestations to the contrary, seem to be designed to keep the gold price suppressed.

Today, the gold price drifted upwards ahead of New York’s opening and then, at around 11.00 am New York time the price spiked upwards sharply, soaring through the $1,300 psychological barrier.  The question is where to next?

The key here may well be what has been happening with physical gold.  On Friday the SPDR Gold Shares ETF (GLD) had almost 6 tonnes of gold bought into it.  GLD has thus seen 18.33 tonnes of physical gold added to it in 2 weeks after what we might describe as ‘mysteriously’ seeing some 80 tonnes withdrawn over the previous two months – during which time the gold price didn’t seem to be spooked by this amount of gold being taken out of the world’s biggest gold ETF.  We had already pointed out the anomaly that America’s second biggest gold ETF – the iShares Gold Trust (IAU) – had not seen corresponding metal liquidations.  The Swiss gold import and export statistics, also reported in these pages, had shown that there appears to be a ready market in Asia for any physical gold released in the west, and this could well be a sign that gold could be moving into a short supply situation in the West.  If America starts buying physical gold again, we could thus see big price rises with buyers bidding up what might be an increasingly rare commodity.

As I write, the gold price rise seems to have stalled at the $1,310 level and there will almost certainly be attempts to drive it down, or at least prevent it rising further.  But it does seem to have some momentum behind it and could well move up to the $1,320s.  But, as we have pointed out before, this time next week is the U.S. Labor Day holiday and this often seems to provide an inflection point in economic trends.  It could presage a sell-off in gold or see the price boosted into the stratosphere, figuratively speaking.  Nothing is simple with gold.  But if gold gets a boost after September 4th we could see equities – and perhaps bitcoin – moving sharply in the other direction.  Both would seem to be in bubble situations and sooner or later all bubbles burst.

We’d rather bet on gold than alternatives.  Even if there is a gold price turndown ahead it is likely to be relatively minor, while the fall, when it comes, as come it must, in equities and bitcoin could be devastating.  Food for thought ahead of the U.S. holiday weekend.

Tubthumping gold- Rewritten and reposted

Another article posted on info.sharpspixley.com yesterday – a rewritten and reposted version of one I wrote a week ago.

Those of us who remember 1990s pop music may well recall the Brit anarchic band Chumbawumba and its major hit titled Tubthumping.  Its refrain, which actually comprised most of the song was the repeated over and over – ‘I get knocked down but I get up again.  You are never going to keep me down.’ which could well be the anthem for the gold price in recent months.  (For a link to a YouTube feature of the band appearing on the David Letterman Show around 20 years ago now, complete with a probably unanticipated political add-on – ‘Free Mumia Abu Jamal’, not on the original recording – click here.)

Gold ‘knockdowns’ when gold appears to be in freefall are seeming to occur at ever increasing frequencies – indeed whenever gold seems to be making strong progress again, but as the song suggests it still manages to get up again.  The falls are steep, and the recoveries gradual, but gold does seem to get back to where it was, and then some, over time.

If these ‘knockdowns’ had happened just a couple of times one could put that down to profit taking and normal trading with data driven gold being spooked by occasional bouts of adverse news. But this keeps on occurring.  The drops and flash crashes have nearly all been very steep indeed, which does suggest some kind of external influence putting big paper transactions into play. But, what should be comforting for the gold bulls is that each time gold has been ‘knocked down’ in this manner it has subsequently ‘got up again’ mostly back to prior levels, although the overall effect may well have been to exert some kind of overall price control slowing down what we see as gold’s inevitable rise.  Rewording the refrain from Tubthumping:  ‘Gold gets knocked down, but it gets up again.  You’re never going to keep it down

The strange recent big sales out of America’s GLD, the world’s largest gold ETF, without similar sales seeming to have been made out of IAU – America’s second largest gold ETF – also look as though they may have been designed to help keep the gold price under control.  The fact that these appear to have had little impact in actually depressing gold prices, although may have well helped prevent price rises in the light of continuing strong Asian demand for physical gold, could well suggest that gold is building up strength for an upwards breakout.

As to Asian demand, the anticipated fall-off in Indian demand after the pre-GST restocking is reportedly not taking place – at least not to the extent analysts had expected – and Chinese demand appears to be holding up to, or slightly bettering, last year’s levels.  If one includes Turkey as being in Asia, there have been increasingly strong imports of gold going in to that nation.  Turkey has acted as a conduit for gold going into other Middle Eastern nations, notably Iran, but one suspects these latest increases may reflect safe haven buying by the domestic population in the light of increasingly autocratic moves by Turkish President Recep Tayyip Erdogan, and other destabilising political events in the Middle East.

The North Korean situation and war of words between Supreme Leader Kim on the one hand and President Trump on the other have also been fanning the flames of uncertainty which has been positive for gold as a safe haven investment, both in the Far East and the USA, but if the rhetoric gets toned down on both sides, as we expect it might be, then we could yet see gold slipping back again, but the ongoing underlying rise looks inevitable.  It may not happen as fast as the more bullish observers are suggesting though.

These facts, coupled with a small decrease in new mined supply, suggest that gold has the potential to again threaten the $1,300 level through the rest of what is normally a weak northern summer although there’s not much of it left to accomplish this.  The American Labor Day holiday (Sept 4th this year), which is traditionally the end of the North American summer holiday period, often seems to be a game-changing date for the gold price to move in either direction.  It will be interesting to see what is in store for us in this respect this year, but in our view the force is now with gold – to add a Star Wars analogy to the Chumbawumba refrain.  Be prepared for a steadyish rise, but still with the occasional ‘knockdown’ en route.

Gold – Rhetoric and U.S. economy calling the price

Article first posted on info.sharpspixley.com yesterday

While there is little doubt that the USA has a much larger and proven nuclear arsenal than North Korea, Kim Jong Un will know that to deploy this against the relatively small Asian nation is fraught with problems in that nuclear fallout as a result of any such attack could also have an impact on China and South Korea – the one a potentially even more dangerous adversary and the other an ally.  Whereas if North Korea were to take out say Guam with a nuclear strike, which it has threatened to do, the impact on other nations would be far less.  However we feel either scenario is unlikely, although one can’t rule out an escalation into conventional warfare..

In assessing the risk though one assumes the U.S. is also bearing in mind that North Korea has long threatened drastic military action against its many perceived adversaries, but has seldom, if ever, delivered this.  There is also no certainty that North Korea has developed small enough nuclear warheads to fit into its Intercontinental ballistic missiles (ICBMs) which it has been developing, nor if they really have the range to reach the U.S. mainland, or the accuracy of delivery to hit their targets with any precision.  Anti-missile defence systems are also likely to be deployed around potential targets by America and its regional allies, but their efficacy is also unproven.

The whole rhetoric game – from North Korean Supreme Leader Kim Jong Un on the one side and President Trump on the other – may thus be bluff on both sides, but with a U.S. President who is prone to shoot from the hip, it is still a very dangerous confrontational game.  While a conventional non-nuclear war between the two powers would be hugely costly in terms of lives (North Korea has a huge and well equipped military) – even if China was not to be drawn in on the North Korean side – it would also be enormously dangerous to the South Korean capital, Seoul, which is only 35 miles (60km) from the North Korean border and potentially within artillery range.  (North Korean capital Pyongyang is around 130 km (80 miles) from the border so would not be quite so vulnerable to artillery attack from the South).

The big question probably is whether President Trump is painting himself into a corner with the ever-expanding hostile rhetoric.  Kim Jong Un has a history of not following through on his more dire threats so may feel that Trump will also prove to be a paper tiger.  But is this a misjudgement?  The world just doesn’t know and there is a fear that the continuing provocations may just result in a shooting war.  While nuclear arms may not be deployed by either side, at least initially, were North Korea to see itself losing such a conflict, its seemingly unstable leadership might consider launching a nuclear strike and heaven knows what that would lead to.

China may also be drawn in to any military conflict as it would rather not see a potentially hostile regime on its border.  If a shooting war does start then the ultimate diplomatic solution would, assuming Kim Jong Un is actually defeated, perhaps give China control over whatever government would take the place of the current North Korean regime.

Gold supposedly thrives on uncertainty and while the hostile rhetoric between North Korea and the USA continues, the ensuing uncertainty will build.  Coupled with the U.S. economy not performing as the Fed would like, we could also see a further decline in the U.S. dollar which should, de facto, give a boost to the dollar price of gold, which could thus be seen to appreciate strongly in dollar terms as 2017 progresses, even if the gains are not mirrored in other key currencies.

At the moment the gold price seems to be hovering uncomfortably in the $1,280s.  Some seem to be trying to knock it back – U.S. trading on Friday for example saw the gold price pulled back sharply from a couple of brief forays into the $1,290s, but whether this was profit taking, or a case of once again the powers-that-be not wishing to see the psychological $1,300 level breached, remains to be seen.  Morning trade in Europe today has seen the yellow metal move a little weaker in price, but this week could be make-or-break in terms of a move into the $1,300s.  There are still a couple of weeks of the northern hemisphere holiday season yet to run when trading can be thin, although that hasn’t been the case in the past week, but we will probably have to wait until post U.S. Labor Day (Sept 4th) for any real trend to develop.

What will happen then will be very much dependent on the escalation, or de-escalation of the U.S.-North Korean militaristic rhetoric and on U.S. economic data, which has recently been gold supportive in showing weakness in the purported U.S. economic recovery, thus reducing the Fed’s interest rate raising options

Over the longer term, this observer remains on the side of the gold bulls.  Asian demand, which is soaking up virtually all the physical gold which is available, will continue to grow as the overall wealth trend in the region remains positive; New mined supply will remain flat, or trend downwards, albeit perhaps only marginally.  Should U.S. safe haven demand return – more likely the longer the Trump-Kim war of threats continues – then we could see a serious squeeze in physical gold availability and the diminution of the ability of paper gold transactions – real or spoofed – to control the price.  Interesting times!

Posts on Sharps Pixley: Tubthumping gold and; Chinese Gold Reserves: Playing the old game

I posted the two articles following on the Sharps Pixley website yesterday and are reproduced here in a lightly edited form:

Tubthumping gold

Those of us who remember 1990s pop music may well recall the Brit anarchic rock band Chumbawumba whose one major hit was called Tubthumping.  Its refrain, which actually comprised most of the song was the repeated over and over – ‘I get knocked down but I get up again.  You are never going to keep me down.’ which could well be the anthem for the gold price in recent months.

A gold ‘knockdown’ happened again yesterday (*th August) when gold appeared to be in freefall once more just after the New York market opened, but the extremely sharp drop, which took it down over $10, in a matter of minutes, managed to reverse itself yet again and the yellow metal managed to end the day just about where it had started – at a little over $1,260 and so far today (9th August) has moved upwards further – to close to $1,270 at the time of writing, although some of this overnight increase will have been due to increased geopolitical tensions involving North Korea.  Since then it has risen to breach $1,280 although this could be reversed once New York opens.

If these ‘knockdowns’ had happened just the once one could put that down to normal trading with data driven gold being spooked by occasional bouts of adverse news. But this keeps on occurring.  The drops and flash crashes have nearly all been very steep indeed, which does suggest some kind of external influence putting big paper transactions into play. But each time gold has made a recovery mostly back to prior levels, although the overall effect of the knockdowns may well have been to exert a kind of price control.

The strange recent big sales out of America’s GLD, the world’s largest gold ETF, when no similar sales seem to have been made out of IAU – America’s second largest gold ETF – also look as though they may have been designed to keep the gold price under control.  The fact that these appear to have had little impact in actually depressing gold prices, but may have well helped prevent price rises in the light of continuing strong Asian demand for physical gold, could well suggest that gold is building up strength for an upwards breakout.

The anticipated fall-off in Indian demand after the pre-GST restocking is reportedly not taking place – at least not to the extent analysts had expected – and Chinese demand appears to be holding up to, or slightly bettering, last year’s levels.  These facts, coupled with a small decrease in new mined supply, suggest the portents gold has the potential to again threaten the $1,300 level through the rest of what is normally a weak northern summer.  The American Labor Day holiday (Sept 4th this year), which is traditionally the end of the North American summer holiday period, often seems to be a game-changing date for the gold price.  It will be interesting to see what is in store for us in this respect this year.

For those interested here’s a link to youtube of Chumbawumba’s appearance on the David Letterman show: Chumbawamba – Tubthumping (Live at David Letterman Late Show)

Chinese gold reserves: Playing the old game

According to its reporting to the IMF, China has now not officially added to its gold reserves for nine months in a row.  Indeed these gold reserves have remained static, as far as official disclosures go, ever since the yuan (renminbi) was admitted as a constituent of the IMF’s Special Drawing Right in October last year.  Prior to that the country had been reporting monthly increases to its gold reserves from July 2015, apparently in the interests of transparency – but before that had only reported increases at five or six year intervals in the meantime keeping up the pretense of not adding to its reserves at all on a month-by-month basis.  It definitely looks as though, now that the yuan is a constituent part of the SDR any suggestion of even limited transparency in China’s gold reserve building process has again fallen by the wayside.  Secrecy reigns.

China achieves this by holding gold in accounts it says it does not need to report to the IMF rather than within its official Forex Reserve figures.  Given the nation’s often-stated affinity to gold’s role in any global financial restructuring which may lie ahead it indeed seems highly unlikely that the country is not again surreptitiously adding to its gold reserves.  Indeed it poses the question as to whether what it has been reporting as its total reserve figure is in reality in any way representative of what it truly holds in gold in terms of its total gold reserve.  Mind you this policy could well apply to other nations too as most national gold holdings are not audited on any kind of consistent basis.  The IMF relies totally on what its constituent nations tell it – it does not check their accuracy.

Many believe that China’s ultimate aim is to hold more gold than the USA does – officially reported at 8,133.6 tonnes.  China’s current reported total gold holding is 1,842.6 tonnes, but few believe that this is the true total with estimates out there of a realistic total of 4,000 tonnes or even higher.  If the 4,000 tonne estimate is correct then that would put China in second place among national holders of gold – more than Germany, currently in second place, which reports some 3,374 tonnes (For the latest reported world gold holdings click on WORLD OFFICIAL GOLD HOLDINGS).

For example – re. Chinese holdings, a recent note on that country’s www.globaltimes.cn website stated: ‘Although the People’s Bank of China (PBC), the country’s central bank, has not publicly disclosed plans to increase gold reserves since October 2016, some market analysts, based on calculations on domestic gold output and imports in recent years, estimated that the country’s above-ground gold reserves totaled 20,193 tons as of June, according to a report published by domestic industry website cnfol.com over the weekend.  While about 16,193 tons of gold are owned by Chinese citizens, the remaining 4,000 tons are held by the country’s central bank, said the report.’

While such figures are only analysts’ estimates, it does indeed seem likely that the nation’s gold reserves are higher than officially stated – almost certainly substantially so, but whether they are double the current figure , or several times this, remains conjecture until China comes clean with an  accurate figure.

There has been the suggestion that China is not announcing its true gold reserve figure, nor any monthly build-up, with a view towards not boosting the gold price, which might rise substantially if it were to do so, in order for it to keep on buying at what it sees as relatively low prices in an ongoing process of reducing the US dollar component of its forex holdings.

It may also, though, have an interest in not knocking the gold price back due to the reported holdings by Chinese citizens (see above) – it may well thus have an agenda to control the price on their behalf, but without letting it rise uncontrollably for the time being – but also not allowing it to fall back – as it continues to work towards a build-up in domestic demand as its main economic driver, rather than continue to rely on exports to keep the wheels of its manufacturing sector turning.

As a fully state-controlled economy, and as the world’s biggest known producer and importer of physical gold China does have the power to control the gold price if it so wishes to.  If it sees a potential domestic benefit in allowing the price to rise and thus boost the wealth and the spending power of its gold-holding citizens it is well capable of doing so.  Yet another possible factor in the gold price manipulation theories that abound.

Gold’s resilience remarkable as GLD holding falls further

How much further can SPDR Gold Shares (GLD), the world’s largest gold ETF, continue to bleed gold without adversely affecting the metal price?  It has shed a hair over 75 tonnes since its 2017 peak some 6 weeks ago, 61.8 tonnes in the past month alone and over 162 tonnes in the past year.  It is now at a level not seen since March 2016 when its holdings were rising sharply, yet the gold price over the past week or so has been trending upwards.  This is a huge contradiction in the yellow metal’s normal price movement.  We are either heading for a very sharp price reversal – or if the current price level around $1,260 holds – a very significant turning point leading to significant gains if the current falls in the GLD holding are reversed.

What makes the GLD performance even more anomalous is that the other large U.S. gold ETF – the much smaller iShares Gold Trust (IAU) – has actually added around 2.5 tonnes of gold over the past month while GLD has been moving sharply in the other direction.  Year to date IAU has added 14.7 tonnes to its gold holdings, which stand at 210.87 tonnes, while the GLD holding, currently 791.88 tonnes, has dropped by a little over 30 tonnes over the same period.  The performance differences are hard to explain given they are both serving the same investor market.

Yesterday in an article on the www.sharpspixley.com website we included the following quote from Ted Butler in trying to explain the big fall in the GLD gold holdings “”The most plausible and, in fact, only explanation I can come up with is that some large entity is converting shares into physical metal for the purpose of preventing share ownership from rising to or above reporting levels. When a big shareholder converts shares of SLV or GLD into metal, the shares no longer exist and, therefore, don’t need to be reported to any regulator. Likewise, direct physical ownership of silver or gold needn’t be reported to anyone no matter how large the position may grow. (This is another major factor behind why JPMorgan decided to buy physical silver). Again, a large entity amassing a large physical position in silver or gold on the sly is not bearish for price.” (See: GLD bleeds 71.58 tonnes of gold in just over a month).

What else could be behind the fall in GLD gold?  We have also noted on the Sharps Pixley website that the major Swiss gold refiners, which dominate the global remelting and re-refining market are, anecdotally, struggling to source enough physical gold to meet demand as gold out of them continues to flow very heavily to Asia and the Middle East – See: June Swiss gold exports: 90% moving east).  They have to be sourcing their gold from somewhere and they exported some 162 tonnes of gold in June alone – 90% to Asia and the Middle East.  Now maybe there are enough ‘friendly’ holders of GLD gold shares to lean on to supply them with bullion when physical gold is in short supply. The UK was the biggest source of Swiss imported gold in May, although was superseded as the biggest exporter of gold to Switzerland in June by the USA, but most GLD gold is vaulted in London.  Perhaps we will see the UK as being again the biggest exporter of gold to Switzerland this month which is when most of the GLD falls have occurred when the next Swiss announcement comes out in late August?  Certainly bullion coming out of the world’s biggest gold ETF could well be a principal source for all this gold heading East.

Randgold ‘problem child’ gold mine coming right.

For any other mining company, the Tongon gold mine, owned and operated by Randgold Resources, might be deemed a great success.  But for Randgold, which likes to stick to its production projections for all its operations in West and Central Africa, it has been something of a problem child underperforming against its scheduled output targets due to a succession of technical issues.  But even so it has still been a significant producer of the yellow metal at the kind of levels that would still be the envy of many other mid-sized gold mining companies.

Randgold CEO, Mark Bristow, on the occasion of a visit to the mine and to its host country ahead of the company’s second quarter results, due out the first week of August, has told the media in Cote d’Ivoire’s capital, Abidjan, that Tongon  continues to ramp up production as it tracks its 2017 target of 285,000 ounces of gold, making it a globally significant gold producer, but with a relatively short four year life remaining.  But Bristow went on to say that with Tongon now operating to plan, its focus had shifted to finding additional reserves and resources to replace depleted ounces and extend the mine’s life beyond its four years remaining.  The chances are that Randgold will be able to achieve this as the area around Tongon is seen as highly prospective for smaller satellite orebodies – and the company has a good track record of eking extended lives out of its Malian gold operations – notably at Morila which is still producing gold despite originally being due for closure some years ago.

Bristow also confirmed his long held view of Cote d’Ivoire’s exceptional prospectivity and its positive attitude towards foreign investment in the gold mining sector.

Elsewhere in the West African nation, Bristow commented that Randgold’s exploration programmes have defined a large target at Boundiali in the Fonondara corridor, which he described as ‘potentially the most exciting gold prospect in West Africa’.  The company has just completed its annual review of its exploration targets, which Bristow said had also highlighted very positive results from its other holdings in the country.

As to Tongon itself, and its contribution to the Ivorian economy, Bristow commented that last quarter it declared its second dividend, of which the government’s share, including taxes, was US$20 million (FCFA 12 billion).  In total, Bristow claimed that the Tongon mine has contributed just under $1 billion (FCFA 520 billion) to the Ivorian economy in the form of royalties, taxes, dividends, salaries, payments to local suppliers and community investments since it started production in 2010.

We will presumably get a further update on Tongon when Randgold delivers its Q2 results on August 3rd when Bristow himself will also deliver an update to London analysts and media on the company’s overall performance so far this year and its future prospects.  Randgold has, unlike most of the other large global gold miners, managed to keep itself debt free and cashflow positive through maintaing some very strict new mine investment criteria.

Six recent posts by Lawrie on sharpspixley.com

I’ve been a little lax about linking here to my articles published on the Sharps Pixley website but here are links to six I have published so far this month.  They look at the gold and silver markets as well as pgms.  Click on the titles to read the full articles.  To keep up with my thoughts on precious metals, and a whole host of other precious metals news stories from around the world, take a regular look at info.sharpspixley.com

Indian gold imports: High but ignore the hype!

13 Jul 2017 – Indian gold imports this year have already surpassed the full year 2016 level, but its probably best to ignore some of the year on year growth media hype given how low the figures were for H1 2016.

Implications for silver of Tahoe’s Escobal shutdown

12 Jul 2017 – Any impact on the supposedly temporary enforced closure of Tahoe Resources’ Escobal mine, the world’s second largest primary silver mine by Guatemala’s supreme court may only have a very limited impact on global silver fundamentals and the metal price.

Palladium closing gap on platinum – but neither great long term

11 Jul 2017 – In the past year the palladium price has moved up and platinum down and there is a real prospect of the former overtaking the latter in the near future.

So what’s happening to gold – and silver?

10 Jul 2017 – Gold, which had been showing signs of strength saw some huge trading volumes late last week which prompted a price slump, while silver fared even worse with the GSR rising to almost 80.

Gold overall H1 performance matches dollar index decline

04 Jul 2017 – H1 commodity price changes very positive for palladium while gold rise pretty well matches fall in dollar index. Silver disappoints. Iron ore worst performer.

 

Chinese gold demand up a little y-o-y but still well down on 2015

04 Jul 2017 – After a blip in May, Chinese gold demand as represented by Shanghai Gold Exchange withdrawals is now a little higher than at the same time a year ago, but still well down on the record 2015 figure.

 

 

Has Mineweb effectively disappeared as an international site?

Time was when Mineweb.com, based in South Africa and owned by South Africa’s Moneyweb, run by well known journalist Alec Hogg, was arguably the world’s top independent international mining industry website.  It was edited and managed by myself out of London and carried international mining sector coverage perhaps unequalled anywhere in the world at the time.  We had some great internationally-based writers and it was supported by advertising from mining and associated companies from several countries – and in at least one year its revenues were such that they were instrumental in keeping its parent company viable.  The bulk of its income came in in US and Canadian dollars which for a company domiciled in South Africa, with a depreciating domestic currency, was doubly valuable.

Recently, having been asked by several people what had happened to the site, I clicked on Mineweb.com to see how it was faring, to find it was nowadays only a subsection of its parent, Moneyweb.co.za, and was only publishing a handful of articles.  The first featured article on the Mineweb site’s homepage was a Reuters article on Anglo American’s 2016 performance, dated January 26th, almost 6 months earlier and the second featured article was also a Reuters story on Goldman Sachs’ copper price predictions for 2017 – which was even older!

Scrolling down through the site I did find a couple of articles written in the current month, both Reuters stories on Sibanye Gold’s Cooke Section problems, but it appears that original articles written by Mineweb reporters are nowadays effectively non-existent- or at least that is the way it appears.

So what happened to Mineweb?  The initial nail in its coffin was that Alec Hogg lost control of the parent company and was ousted from its board. (Alec has since set up, and runs, www.biznews.com – a direct competitor to Moneyweb in South Africa). I was still editor of Mineweb at the time, but was soon replaced in that position by Warren Dick in Johannesburg and became just a correspondent for the site.  Our key Reno-based writer, Dorothy Kosich was let go and my position gradually became untenable as the site became more and more South African focused and we agreed to part ways.  That left one directly employed internationally-based writer, Kip Keen in Canada, and eventually he was let go too.

Most of the mining based advertising had disappeared, along with our key advertising salesperson, Jan Chadwick, who resigned when she saw the direction the site was taking.  She is now semi-retired occasionally helping out her husband, John Chadwick on mining conferences for his own mining publication, International Mining, now probably the world’s top mining monthly magazine.

So Mineweb still exists, but only as a section on its Moneyweb parent site, and publishes little of its own material, relying primarily on the Reuters and Bloomberg services for its articles with occasional input from its parent company’s correspondents on South African mining matters – and even then, as with the Sibanye articles mentioned above it may well use one of the international wire services. That, in my opinion, is a great shame.  Its readership outside South Africa is a tiny fraction of what it used to be – there can now be few, if any, international readers who have Mineweb as their own initial go-to webpage, and its independent editorial coverage of the global mining sector is mostly long gone.  A cautionary tale about what happens to  a niche business when it is taken over by a much larger company which doesn’t see it as a core part of their operation!

Three gold articles just published on Sharps Pixley

Links to three of my articles published on the Sharps Pixley website over the past two days which readers of Lawrieongold may find of interest – particularly given the strong performance of the yellow metal over the past few days:

 Lewitt, Minsky, Williams and gold

06 Jun 2017 – Two very erudite newsletter writers give their uncompromising views on the direction of central bank policies and their conclusions are disturbing.

Lawrence Williams

Gold – Scenarios from $700 to $5,000

05 Jun 2017 – The latest In Gold We Trust magnum opus comes up with pricing scenarios ranging from a low of $700 to a high of $5,000, and levels in between but the report’s authors put the probability at the higher levels.

Lawrence Williams

Could gold hit $1,300 this week?

05 Jun 2017 – Potential Black Swan events are lining up which could drive the gold price through $1,300. None of these are in any way certainties but in combination they could contribute to the kind of unease which could restimulate safe haven investment.

Lawrence Williams

Abitibi Royalties – A gold royalty company with unusual growth possibilities

In a presentation in London, Abitibi Royalties(TSXV:  President and CEO Ian Ball put forward an ambitious slogan – To Build the Best gold company – not the biggest, Abitibi Royalties will never be that, but the Best in terms of stock appreciation, and it has a good track record of so doing since its inception as a spin-off from Golden Valley Mines back in 2011, although has been mostly underperforming its peer, and larger, royalty companies in the current year.  It has a strong core asset in a 3% net smelter return (NSR) royalty on the eastern portion of the Canadian Malartic mine (owned and operated by Agnico Eagle and Yamana Gold), which includes the Barnat Extension and Jeffrey gold deposits. The NSR also includes the exciting new Odyssey North discovery that was announced in 2014 which gives it some good growth potential assuming these extensions to the Canadian Malartic property pan out as anticipated as the mine progresses from a large scale open pit to an equally large scale underground bulk mining operation as the pit section is depleted.

Ball describes the changes ahead as a ‘paradigm shift’ which may just be CEO talk, but with Agnico Eagle (which has some existing  bulk underground mining expertise) the main driving force behind the change could just be an apt description.  The new sections of Canadian Malartic, Canada‘s largest gold mine certainly have potential but whether they offer the paradigm shift Ball talks about is, as yet, unproven.

While the royalties in and around the Canadian Malartic property do underpin Abitibi Royalties’ earnings prospects, it also has an unusual (among royalty companies) policy of buying low cost royalties on ground held adjacent to known high potential deposits – mostly in Canada, but also a royalty in a big ground holding which almost surrounds Eldorado’s Efemcukuru gold mine in Turkey.  The Canadian near-mine royalties include ground close to the Red Lake and Rainy River deposits.  These royalties have been picked up at extremely low cost and even if only one of them comes good then that would be a potentially good investment.

Ball, a former associate of Rob McEwen, who himself is a major shareholder in Abitibi Royalties, says he does not take a salary from the company, but ploughs any earnings into buying additional stock, and also says he has no intention of widening the share base – currently around 11.3 million shares outstanding – indeed currently plans to reduce it by buying back stock with a target of bringing it down to 10 million shares outstanding over a three year buy back programme.  Abitibi Royalties has a strong balance sheet with Can$7.7 million in cash and no debt.  Its market cap is currently around Can$100 million, with a stock price of a little over Can$9 at the time of writing.

Royalty companies tend to be a relatively low risk way of investing in mining and Abitibi Royalties is no exception with its big underlying Canadian Malartic net smelter royalty underpinning earnings.  It does have potential in terms of improving shareholder value, but remains perhaps more speculative than most of its royalty company peers due to unknowns in the tenor of some of the areas for potential royalty growth.  A strong gold price should see it grow regardless, but there remains a downside risk from a weakening gold price – and if none of its prospective royalty growth areas pan out.  But adding an additional risk element to a royalty company with strong baseline earnings could well have an appeal to less risk averse investors.

SGE revises 2017 gold withdrawals downwards

We had previously noted some anomalies in the reported figures for China’s gold withdrawals from the Shanghai Gold Exchange (SGE) and are pleased to note that a recheck has shown that the monthly and cumulative figures as announced by the SGE have been revised and now tally.  Earlier the announced cumulative total appeared to have been substantially adrift from that suggested by the monyh-by-month reported figures.The principal change is a sharp downwards revision of the gold withdrawal figures for February – a month where figures tend to be somewhat anomalous anyway because of the Chinese New Year holiday.  February figures have been revised downwards sharply from 179.24 tonnes to 148.24 tonnes, while the initially reported April figure of 171.17 tonnes has been adjusted downwards to 165.78 tonnes.  This brings the cumulative total for the year to date to 690.68 tonnes –only marginally higher than at the same time a year ago, and well down on the record 2015 figure.

Table: Revised SGE Monthly Gold Withdrawals (Tonnes)

Month 2017 2016 2015 % change 2016-2017 % change 2015-2017
January 184.41 225.08 255.42 – 18.1%  -27.8%
February* 148.24 107.60 156.36 +37.8% -5.2%
March  192.25 183.24 213.35  +4.9%  -9.9%
April  165.78 171.40 195.45  -3.3%  -15.2%
May   147.28 162.15    
June   138.51 195.67    
July   117.58 285.50    
August   144.44 265.27    
September   170.90 259.98    
October    153.25 176.29    
November    214.72 202.71    
December    196.37 228.21    
Year to date 690.68 687.02 820.58 +0.5% – 15.8%
Full Year    1,970.37 2,596.37    

Source: Shanghai Gold Exchange, Lawrieongold.com

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China’s SGE revises gold withdrawals lower