China gold – positive news on all fronts

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gold export statistics by country of destination, plus China’s own gold output plus an allowance for scrap and from unpublished import data than the estimated Chinese consumption figures by the consultancies.

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

Chinese gold demand continues to rise yoy

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

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

China official gold reserves unchanged again as forex holdings dip

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

Market Update: China’s jewellery market – quietly improving

Advertisements

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

Article first published on Sharps Pixley website

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

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

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

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

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

My posts on Sharpspixley.com so far this month

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

Further thoughts on peak gold

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

Lawrence Williams

Peak gold according to Ian (Telfer)

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

Lawrence Williams

Mixed forecasts on platinum

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

Lawrence Williams

Gold ETF inflows up sharply in April – WGC

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

Lawrence Williams

China’s official gold reserves unchanged – again

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

Lawrence Williams

Chinese gold demand way up in April

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

Lawrence Williams

Q1 gold demand lowest for 10 years

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

Lawrence Williams

Chinese gold demand looks to have risen sharply in April

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

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

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

Table: SGE Monthly Gold Withdrawals (Tonnes)

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

Source: Shanghai Gold Exchange.  Lawrieongold.com

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

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

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

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

Randgold still investing in Malian gold

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

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

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

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

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

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

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

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

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

WGC: Q1 gold demand lowest for 10 years

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

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

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

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

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

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

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

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

Randgold’s Tongon to claw back lost Q1 gold production

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

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

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

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

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

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

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

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

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

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

 

 

Polymetal CEO, Vitaly Nesis, very bullish on silver

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Top 20 World Gold Producers 2017 – Countries and companies

A couple of tables from articles published on the Sharps Pixley website last week.

The first is from the article : World Top 20 Gold producing nations in 2017 – not peak gold yet!

Top 20 Gold Producing Nations 2016/2017 (Tonnes)

Rank Country 2017 Output 20 16 Output %  Change
1 China 429 464 -7.9%
2 Australia 289 288 +0.5%
3 Russia 272 253 +7.6%
4 USA 244 229 +6.3%
5 Canada 171 163 +5.0%
6 Peru 167 166 +0.3%
7 South Africa 157 163 -3.6%
8 Ghana 130 131 -0.8%
9 Mexico 122 128 -4.7%
10 Indonesia 114 109 +4.8%
11 Brazil 92 97 -5.1%
12 Uzbekistan 89 87 +2,6%
13 Argentina 65 58 +10.9%
14 Papua New Guinea 63 63 -0.1%
15 Kazakhstan 56 53 +7.1%
16 Mali 51 50 +1.2%
17 Tanzania 53.2 55.3 +4%
18 Colombia 49.2 51.8 +5%
19 Philippines 40 40 +0.6%
20 Sudan 40 37 +7.3%
Others 607 508 +3.1%
  Total 3,292 3,275 +0.5%

Source: Metals Focus

and the second looks at the world’s top producing gold miners: Top 20 Global Gold Miners – Newmont narrows the No. 1 gap

Top 20 Gold Mining Companies 2016/2017 (Tonnes) (1 tonne= 32150.7 troy ounces)

Rank Company 2017 Output 2016 Output %  Change
1 Barrick Gold 165.6 171.7 -4%
2 Newmont Mining 163.8 158.1 +4%
3 AngloGold Ashanti 116.8 112.8 +4%
4 Goldcorp 79.9 89.4 -11%
5 Kinross Gold 78.6 83.3 -6%
6 Navoi MMC (est) 75.5 75.5
7 Newcrest Mining 71.1 76.7 -7%
8 Polyus Gold 67.2 61.2 +10%
9 Gold Fields 62.6 63.0 -1%
10 Agnico Eagle Mines 53.3 51.7 +3%
11 Freeport McMoran 49.1 33.8 +45%
12 Shandong Gold 43.9 37.0 +19%
13 Sibanye Gold 43.6 47.0 -7%
14 China National Gold 42.4 42.0 +1%
15 Randgold Resources 40.9 39.0 +5%
16 Zijin Mining 35.8 42.6 -16%
17 Harmony Gold 34.0 33.2 +2%
18 Polymetal 33.5 27.7 +21%
19 Glencore 32.1 31.9 +1%
20 Yamana Gold 30.4 39.5 -23%

Source: Metals Focus,

a third article published on Seeking Alpha looks specifically at the top North American gold mining companies with notes on their individual performance: Mixed Results And Prospects For North America’s Top Gold Miners

All fall down? Is the predicted crash starting to hit?

Edited and updated article which first appeared on the Sharps Pixley websire earlier i n the week

As I switched on my computer this morning I was faced with a sea of red ink!  Equity prices were down across the board – in the U.S., Asia and Europe and no doubt elsewhere too. Most major stock indices were down by between 1 and 3% yesterday and in early trade today with the NASDAQ being particularly hard hit.  The markets are currently mostly moving on whether a trade and tariff war between the U.S. and China is imminent or not and prospects and views on this are mixed.  Tech stocks too, which have been responsible for much of the peaking of the markets earlier this year, have also been falling out of favour.

Bitcoin (BTC) was this morning stuttering down below the $8,000 level (it has since fallen to the low 7,000s) – around 60% off its high point achieved only a month and a half ago – and if Ethereum is a pointer, with it down at $450 as I write, the next leg down for BTC could well be to around $6,000.  (When Bitcoin and Ethereum were at their respective peaks early in the year BTC was trading at about 14x the Ethereum price.)

In the precious metals, gold, silver and the pgms were all down as well, although perhaps not by nearly as much in percentage terms as the equity markets.  The dollar Index was one of the few positives showing a tiny gain but it was still stuttering well below the 90 level and thus around 13% lower against other currencies than it was when President Trump came into office some 14 months ago.  Obviously a strong dollar is not part of ‘making America great again’.

So what has changed?  The U.S. Fed seems to be committed to raising interest rates perhaps at a faster rate than had previously been anticipated with higher rate targets for 2019 and 2020.  Wall Street may not be liking this prospect.  But perhaps it is the sudden recent downturn in the FAANG stocks (Facebook, Apple, Amazon, Netflix, Google), following Facebook’s problems, which is a primary cause of the falls in the Dow, S&P and NASDAQ (in particular). High flyer Tesla is also a significant contributor to the Wall Street sell-off and when Wall Street falls equities worldwide tend to follow its lead.

Is this the start of the equities crash many commentators have been predicting – and if so how will it affect gold and the other precious metals?  It’s probably too early to say, but after almost nine years of virtually uninterrupted rises in the equities indices we suspect something will have to give – indeed it may already have started.  We’ve already seen the bitcoin bubble burst and, as noted above, we feel the cryptos may yet have further to fall until the bottom is reached.  Are equities next?

What will have changed with the latest downturns is investor sentiment.  Equity increases look to no longer be the ‘sure thing’ that they were, buoyed up by the Fed’s Quantitative Easing policy which poured increased liquidity into the markets.  Now the Fed’s policy is in reverse with what many observers now refer to as Quantitative Tightening.  If history is anything to go by, equities markets may well suffer as a consequence of a rising interest rate path, at least initially.

Precious metals have moved up from their lows, but down again from their subsequent interim peaks, with gold reaching around the $1,355 mark which has proved to provide strong resistance on the upside.  It has since fallen back to the low $1,320s and is still looking vulnerable, with silver following a somewhat similar pattern.  The pgms seem to be treading a slightly different path as befits their industrial metal status.  The gold:silver ratio (GSR) remains above 81 which usually suggests silver is a better buy than gold – the late Ian McAvity used to say buy silver if ratio above 80, but buy gold if ratio 40 or below which has proved to be pretty wise advice over the years, although the 40 level hasn’t been seen since 2011 when it touched 33.7.  We’d probably suggest a range of buying silver with a GSR of 80 and above and gold with a GSR of 60 and below as being good advice under more recent price patterns and with more modest expectations!

Where are we now?  If I were an investor in U.S. equities or in bitcoin I’d be nervous and with global markets tending to follow Wall Street that nervousness would tend to extend to any major global markets.  Watch U.S./China trade negotiations and don’t necessarily trust either side to keep to any promises made to the other.  I would prefer gold and silver as safer investments than equities and see bitcoin as pure speculation with the potential to crash much further than it has already.  Precious metals may well see some falls but these are unlikely to be of the kind of magnitude which could befall equities so we’d continue with the theme of using gold, and perhaps silver, as wealth insurance.  They may not see major gains if equities collapse, but they shouldn’t see major falls either and, as in 2009 in the aftermath of the last big financial meltdown, they will probably recover far faster.

Gold hit lowest level ytd – will it recover?

March has been a pretty bleak month for investors in almost all asset classes.  Equity investment, which had been a such a sure thing for the past few years, has been wavering and stocks in general are well off their highs and looking vulnerable to further falls, bitcoin has seen its bubble burst and has halved in value – and we think there could be more pain yet to come for the past year’s speculative investment star, and even precious metals have come down with gold languishing at the time of writing at around $1.312 (spot gold had fallen to around $1,307 an ounce at one stage yesterday morning) and could well breach that on the downside this week although it has made a small recovery since.

The bond market is also weaker on the prospect of continuing Fed interest rate rises.

The only positive spot seems to be the U.S. dollar, but people have short memories.  The dollar index did see a small recovery to sit back above the 90 level  but has been under pressure again and it is still around 12% below the level it was when President Trump took office only 15 months ago.  While there now seems to be a consensus that the dollar could continue to see a short term rise, along with whatever decision the FOMC meeting next week makes on U.S. interest rates, there are still many commentators who feel that a rising dollar is not sustainable long term and that it could quickly start coming down again.  If so that is certainly gold positive – at least in dollar terms

As for gold and the other precious metals we have noted before that they are facing headwinds, but perhaps not insuperable ones.  Global demand – particularly in the Middle East and Asia in general – remains relatively positive and there is the distinct impression that global new mined gold production has at last peaked and may be beginning to turn down, albeit at a pretty marginal rate.

Some commentators sing the praises of silver as perhaps the best speculative bet, with a current gold:silver ratio of over 80.  They feel the ratio is too high and recent pricing history tells us it is likely to come down from this level thus enhancing the percentage growth prospects for silver over gold.

Of the other precious metals, although it has some adherents, platinum tends to follow the ups and downs in the gold price to an extent, while palladium, for the time being at least, looks to be in a better fundamental position due to a perceived production deficit and stronger industrial demand in the autocatalyst sector.

So gold could fall back further – much will depend on whether the FOMC meeting seems to be suggesting a further two, three or even four more rate hikes this year, although given that equity and bond markets are looking vulnerable to more than the generally expected two more rate increases this year, we suspect that discretion may prove to be the better part of valour in this respect.  Certainly if the Fed looks at the historical effects of a rising rate scenario, caution may well reign.  Under such circumstances gold could see something of a recovery back to the $1,350s by the mid-year – but don’t put your shirt on it!

The above article is a lightly edited version of an article posted a day earlier to the Sharps Pixley website

Paul Burton R.I.P. updated with funeral details

We are sad to report the passing of Paul Burton, Camborne School of Mines graduate, erstwhile colleague, long time presenter and moderator at many gold conferences and specialist on gold and gold stocks.  Paul passed away in Cornwall UK on March 15th, after a long term battle with cancer which had returned aggressively after a period of remission.

Some years ago, when I was MD of Mining Journal, we hired Paul as editor of our gold publications and he quickly made his mark as an important contributor/expert on gold mining and gold companies worldwide setting him on course for his subsequent career.  He took the publications with him as part of a severance package and the then World Gold Analyst and World Gold – which had developed from Mining Journals’ Quarterly Review of Gold Stocks, and the International Gold Mining Newsletter (originally started by yours truly!) – were important and relevant reading within the global gold community.

After a spell with GFMS as one of their gold experts (he was managing Director of GFMS World Gold) and following the take-over by Thomson Reuters, Paul became an independent analyst, setting up his own company, Piran Mining Research With his own company, he conducted specialist research, mostly on gold, for a number of companies as well as continuing to publish World Gold Analyst which continued to  provide independent, online research on, and evaluations of,  selected gold companies worldwide.

Paul will be sadly missed within the global gold community.

Funeral is at Penryn Chapel, Penryn, Cornwall on April 4th at 11.30 am

Snakes and Ladders – Market Karma, Gold and Commodities

My latest posting on the sharpspixley.com website

Of the various regular publications which I receive in my inbox, one of the most thought provoking is always Grant Williams’ ‘Things that make you go hmm..’ (www.ttmygh.com) newsletter, published roughly fortnightly.  Grant always develops a theme for his exceedingly comprehensive commentaries – how he has the time and the imagination to do this to this degree of depth alongside his other work and interests I do not know – but his insights into aspects of the global economic picture are perhaps unsurpassed.  His newsletters are always inclusive of a large number of illustrative charts and are backed up with excerpts of articles from, and interviews with, some other key commentators.

Grant is also much in demand as a speaker at conferences and his presentations should not be missed – they are filled with remarkable insights into global finance and always presented with a degree of humour sadly lacking from many of the other financial speeches at these events.

Grant’s latest newsletter is over 60 pages long and he takes the ‘Snakes and Ladders’ board game as his inspiration.  According to the newsletter’s introduction, the game is one of the oldest board games known to man and has its origins in pre-Colonial India where it was called Moksha Patamu.

The game centres around the Hindu philosophy of Karma which is the spiritual principle of cause and effect whereby actions taken today will determine the nature of tomorrow’s consequential ramifications.  Grant applies this philosophy to the various supposedly ‘economy-supportive’ programmes implemented by the U.S. Federal Reserve, and other central banks, over the past four decades where successive Fed chairmen have taken interest rates on a continuous downward path and are only now trying to redress the balance, but in the meantime have built up staggering volumes of debt.  The problem with taking interest rates down to near zero is that that leaves the Fed with little interest rate lowering leeway should the economy teeter into the next almost inevitable financial crisis – hence the pressure to try and normalize rates before the next crisis strikes.

As Grant puts it though “For investors, the last 9 years has been one long, mostly pleasant climb up a nice, shallow ladder, however we’ve reached the point where the chances of stepping on a snake have reached a level which demands precautions be taken.”

Other commentators point to the fact that equity market investors represent only a small part of the population – the ‘already haves’ – but the years of investor prosperity have largely passed the general public by.  The rich and the Wall Street elite have been getting richer, while the average person in the street remains relatively unaffected financially and continues to struggle and may even be persuaded to spend money they don’t have by optimistic media reporting, bordering on the euphoric, that the economy is extremely strong!  It isn’t.

He also reckons that the new Fed Chairman, Jay Powell, has taken over and is ripe for what rugby players call a ‘hospital pass’.  While Powell in the past has expressed opinions on Fed policy which Grant strongly agrees with, he may well also have inherited a situation under which he may have little immediate control given the scenario which has already been set in motion.

So how does one protect oneself from this particular snake should markets peak and start to slide. Equity markets, as is bitcoin, are essentially speculative, and have had a very good run, but have to be considered vulnerable to a major reversal.  (Bitcoin has already seen such a move, halving in value, and, in our view, there could well be further pain ahead for bitcoin investors).

Thus, those with the wherewithal to do so might look at alternative perhaps more stable assets like gold, though to protect themselves should Karma strike and overbought markets lose ground substantially as many are predicting.  This is particularly so as we appear to be transitioning from Quantitative Easing (QE) to Fed-implemented Quantitative Tightening (QT).  That could be seen as a significant game-changer and trend reverser for the markets.

Grant goes one step further though in recommending gold stocks over physical gold and looking at commodities in general which he feels have been heavily oversold.

So his initial recommendations are go long gold mining stocks against physical metal (as represented by GLD) and against general equities which he sees as ripe for a major downwards correction (the next snake).  He notes that the HUI Index of gold miners is at the same level it was in October 2000, when gold was trading at $265 and that with a current gold price of over $1,300 an ounce, and with the drastic improvements miners have been forced to make to their operations in the last 7 years, he expects gold miners to outperform the metal significantly.  It’s not that he doesn’t rate physical gold investment positively, but that he feels that, for now, gold mining stocks have an even better growth potential.

He also feels that commodities in general have been underpriced.  He thus suggests a thematic investment in the commodities sector could be well worthwhile thus capturing the overall thrust of his thinking revolving around a weak dollar in the long term, rising inflation and a Fed which will be forced to either hike rates to choke off inflation or embark on another round of monetary profligacy in the face of a recession triggered by its own policies.

He does have a caveat, though, in that the dollar may try to move swiftly higher in the short-term, but that he doesn’t see this continuing for long and, utilising the words of ice hockey player Wayne Gretsky feels that this positions him for where the puck is going – not necessarily where it is today.

Lawrieongold: Gold/silver articles published on other sites

As readers of lawrieongold will know I also publish articles on other websites.  A couple of recent ones are linked below:

Metals Focus sees strength in Chinese gold demand in 2018

 

SGE gold withdrawals down in Feb but up YTD

Both the above articles were published on www.sharpspixley.com.

However, I also write occasional articles for U.S. site – www.usgoldbureau.com, but this site is blocked for access from outside North America unless one uses a browser, like Tor, which can be set to mimic access from other countries.  So for North American readers, or Tor users, a link to my latest article on this site follows:

Equities and Bitcoin Looking Vulnerable, Put Your Trust in Precious Metals

Peak gold maybe but Australian and Russian output still rising

Article first posted today on sharpspixley.com

Now March is with us we are beginning to receive reasonably accurate figures on 2017 gold production around the world and the bi g question is is peak gold here or not.  The answer is maybe.  According to the World Gold Council’s figures, global gold output actually increased in 2017, but by such a small margin that it should probably be considered flat at 3,267 tonnes – as compared with 3,260 tonnes a year earlier – a tiny 0.2% increase and with global output continuing to trend downwards we can probably assume that 2017 was indeed the year of peak gold.

But, there is much variation between national outputs.  While the world’s largest gold producer – China – is estimated to have seen its gold output fall by 9-10%, the world’s second, third and fourth largest miners – Australia, Russia and the USA have reportedly seen their annual gold production increase, but perhaps by not as much in combination as the fall in Chinese output.

As to the actual figures it all comes down to the accuracy of those reporting.  China’s output reportedly fell to 430 tonnes from over 460 tonnes in 2017.

There is an argument ongoing as to which nation is currently the world’s second largest gold producer.  In 2016 it was Australia with 287 tonnes while Russia was in 3rd place with 274 tonnes.  Australian consultancy, Surbiton Associate which tends to produce very accurate figures on Australia reports 2017 Australian production at 301 tonnes, a good increase on 2016, and avers Australia remains the world’s second largest producer of gold.  However, as we reported here three weeks ago (See:  Russia may now be World No. 2 Gold Miner), the Russian Finance Ministry stated that Russian gold output in 2017 was a little over 306 tonnes which would put it ahead of Australia as the World No.2.  Reports also suggest that gold output from other top producers Canada and Peru grew in 2017, while that of the former No.1 gold miner, South Africa continued to fall by nearly 4% last year according to that country’s Bureau of Statistics.

But the actual league table of producers is probably immaterial – it is the overall figure which counts and that does suggest that global gold production has, at the very least, plateaued. Cutbacks on gold exploration and big new capital projects, as the lower gold prices after the 2012 peak caused the big mining companies to rethink their expansion plans and capital expenditures, are taking their toll.  Most of the big miners are predicting short term  production falls after a number of years of ‘growth at any cost’.

Back to Australia and the latest Surbiton Associates assessment though: Australian gold mine production in calendar 2017 resultedin the highest annual output since 1999.  Total gold mine output in 2017 reached 301 tonnes or almost 9.7 million ounces, up three tonnes on calendar 2016. Production in the December quarter 2017 totalled some 80 tonnes, up six tonnes on the previous quarter.

“At the average gold price for 2017, the 301 tonnes was worth almost A$16 billion,” said Dr Sandra Close, a Surbiton Associates’ director. “Australian gold production is still trending upwards and the next few years look promising.”

“The higher output in the December quarter was due to a number of factors including the strong recovery at Newcrest’s Cadia East mine near Orange, NSW which was almost 60,000 ounces higher,” Dr Close said. “Other operations with higher output included the Super Pit’s increase of 28,000 ounces, Peak up 21,000 ounces and Tropicana up 19,000 ounces.

“Further out, development of the Gold Fields and Gold Road Resources’ Gruyere joint venture in WA is one-third complete, with the start of mining scheduled for late this year,” Dr Close said. “The operation will commence in early 2019 at a rate of around 270,000 ounces of gold per year when in full production.”

The only closure of note was Doray Minerals’ Andy Well mine. It commenced production in 2013 and was placed on care and maintenance in early November, after producing about 40,000 ounces in 2017.

“Given the number of projects coming on stream and with few closures anticipated, it would not be surprising to see another 20 tonnes of production added to Australia’s annual output,” Dr Close said. “This suggests that Australia’s all-time record annual gold production of 314 tonnes recorded in 1997 might well be exceeded.”

She said however, that despite the generally upward trend anticipated, production will probably decline in the March quarter 2018 due to wet weather in Western Australia which is a common occurrence early in the year.

As noted above, Surbiton estimates thst Australia remains the world’s second largest gold producer behind China which produced an estimated 4300 tonnes in 2017.

Australia’s largest gold producers for the 2017 year were:

Operation Ounces Owner
Boddington 787,000 Newmont Mining Corp
Super Pit – JV 738,000 Newmont Mining Corp 50%, Barrick Gold Corp 50%
Cadia Valley* 545,869 Newcrest Mining Ltd
Tropicana 461,704 AngloGold 50%, Independence Group NL 50%
Tanami 419,000 Newmont Mining Corp

 

 

Gold demand growing as supply starts to fall

Article firsT posted on sharpSpixley.com

Gold investors should be looking at gold for the long term.  Demand growth fundamentals are looking positive to this writer, while there is, in parallel, the prospect of diminishing supply.  It is the combination of these factors that makes gold so appealing in the medium and long term.  Even in the short term the general consensus among many analysts is that the gold price will likely rise as well – perhaps not by much but many are predicting a $1,400 gold price, or higher, by the year end.  The recent price drop is seen as a blip in an overall upwards path for the yellow metal.

The big factor to take into account is the sustained move into the middle class earnings category in the world’s biggest population nations – China and India – both of which currently have around 1.3 billion people.  By contrast the USA only has a population of some 320 million and is currently experiencing very slow population growth.

By contrast, China, currently the world’s largest gold consumer, is seeing huge growth in numbers entering the middle class classification.  Total population is estimated at over four times that of the USA.  Major, and well respected, consultancy McKinsey recently went on record as predicting that by 2022, 76% of China’s urban population will have moved into the middle class bracket.  That nation’s urban population numbers around 750 million, so 76% represents around 570 million people in what McKinsey describes as the middle class earnings bracket – more than one and three quarter times the total population of the USA.  McKinsey, however, classifies the Chinese middle class as urban households earning between US$9,000 and US$34,000 annually – which may seem low by U.S. standards, but purchasing priorities tend to be hugely different with many Chinese middle class families, even at the lower end of this income bracket, buying small amounts of gold on a regular basis as their prime savings mechanism.   The Chinese banks make this an easy process.

In the West gold is mostly seen as a tradable asset and is perhaps more readily sold as and when the price rises.  There are some in the West, notably large investors, who may see gold as a safe haven form of wealth protection, but in China that tends to be the norm rather than the exception and gold holdings there tend to be, consequently, in firmer hands than in the West and only released back into the market in cases of dire need.  Gold may also be held as jewellery and artefacts which, again in the East, tends to be a realistic option because price mark-ups are very low.

The gold purchase pattern in India, the world’s No. 2 gold consumer, somewhat mirrors that of China, although probably coming from a lower base.  But the birth rate is higher and the total population is set to exceed that of China in the next year or so – it may already have – and continue to grow at a significant rate.  Gold hoarding is an integral part of the Indian psyche, perhaps more so than anywhere else in the world, so it wouldn’t surprise us to see Indian gold demand move back above that of China in the next few years, despite the government’s attempts to thwart this because gold imports are a substantial component of the country’s current account deficit!  This year we have already seen a recovery in Indian gold imports to over 900 tonnes after an exceptional low of just over 580 tonnes in 2016.  The 2017 figure is still below those of 2010-2012 and 2015, but is indicative of a possible return to the old higher levels.

As a proxy for gold flows from West to East we only have to look at Swiss gold export figures with around 80% of these gold exports tending to be destined for Asia and the Middle East.  The Swiss figures are particularly significant because the Swiss gold refineries provide the key conduit for converting doré (impure) bullion, received from mines around the world, and large gold bars (mostly imported from the UK) into the small bar and wafer sizes in demand in the East.  Overall, Swiss refineries currently process a volume equivalent to around two-thirds of global new-mined global gold output annually.  These huge gold flow percentages are indicative of the total gold flows leaving depositories in the West for stronger hands in the East.  Sooner or later these will generate a shortage in the West which will ultimately positively impact prices beyond the capabilities of the powers-that-be to hold them down.

Asian and Middle Eastern demand alone would seem to be more than sufficient to keep the gold train rolling, but it is all in addition to some still decent gold demand throughout the rest of the world.  When the gold price came down from its 2012 peak, supply was boosted by huge liquidations of gold out of the big gold ETFs, but this source of supply has dried up and, if anything, gold is beginning to flow back into the ETFs – perhaps not at a high rate but the overall flow has very definitely seen a reversal to the positivel.

At the same time, the volume of new mined gold supply at around 3,200 metric tons a year, may well be beginning to fall .  Peak gold may well be with us.  The drop in the gold price following its 2012 peak led to cutbacks in capital projects and gold exploration around the world.  While any output decline may be very slow at the moment, with some countries like Russia, Australia and Canada still seeing growing new mined supplies, the overall global trend is definitely downwards.  It will take the industry some time – and probably much higher prices – to recover from this downtrend in output, particularly given the long lead times in bringing a new mine into production from scratch.

So, the twin effects of continuing high demand (in the East in particular) driven by the growth in the middle classes in the high population countries like China and India, coupled with a decline in new mined gold production – seen as likely to accelerate – are likely to increasingly put a strain on the supply/demand balance.  This may not initially lead to a big price boost for gold, but it should keep prices rising at least gradually over the years ahead.  Should the equities markets and bitcoin collapse, as many experts are predicting, then this could drive more investment into perceived safe havens like gold.

Looking at these gold fundamentals, the prospects for gold over the next few years look good – and given gold’s propensity to react positively to disruptive global geopolitical and geo-economic events we could even see much bigger increases than the general picture, as noted above, might suggest.