Gold & Precious Metals

“Patience thin” for Gold Investors on Worst Drop in 9 Mths

Posted by Adrian Ash - Bullion Vault

on Thursday, 28 February 2013 17:11

iStock 000022790305XSmall53-resize-380x300The price of gold slipped again below $1,600 per ounce on Thursday – a level first reached on the way up in July 2011 – to head for its worst one-month drop since May as world stock markets rose.

Broad commodity markets were little changed, while silver bullion crept back above $29 per ounce.

Down 4.5% in Dollar terms since the end of January at $1,590 per ounce, gold for Euro investors was headed for a 1.8% monthly drop at €1,212.50.

The Sterling price of investment gold was 0.9% lower at £1,049.

“Patience with gold seems to be wearing thin amongst many investors,” says a note from BNP Paribas, “as illustrated by the low positioning in Comex gold futures and outflows from ETF [trust fund] holdings.”

Exchange-traded trust funds backed by gold — a new vehicle for cash-price exposure when launched a decade ago — have seen their assets shrink by a record 100 tonnes this month to hit a five-month low of 2,508 tonnes according to Bloomberg.

“We have seen a massive reshuffling [in precious metals investment] in the past two months,” says Commerzbank’s daily note, pointing to the sharp rise in platinum and palladium ETF holdings so far in 2013. “The gold price is unlikely to make any significant gains for as long as outflows from the gold ETFs continue. Nonetheless, we do not believe the current weakness in the price of gold to be sustainable.”

Turning bearish on gold late in 2012, however, Credit Suisse analysts today write that “For the gold price to perform better than we expect, there needs to be not just an end to liquidation…but a return to net buying by exchange-traded fund investors…It is notable, we think, that the liquidation has been spread across funds listed in the USA, London and Zurich.”

European stock markets meantime rose Thursday morning, after the S&P 500 Index in New York closed last night above 1500 points — a level reached in Jan. 2000 and July 2007, but with near-50% drops in between.

The euro currency gained and then lost half-a-cent at $1.3100, but Italian bond yields eased back despite there being no progress in Rome building a new government after this week’s national elections.

“Inconclusive result is credit negative,” said the Moody’s rating agency yesterday, as anti-austerity comic Beppe Grille — winner of the popular vote, and speaking only to the BBC rather than Italian media — spurned the idea of dealing with either Democratic Party Chief Pier Luigi Bersani or former Prime Minister Silvio Berlusconi.

“Italy cannot but follow the European path,” said Italian president Giorgio Napolitano this morning on a visit to Berlin, “taking on its responsibilities and making its share of sacrifices.”

Napolitano set a date of March 15 for “possible consultations” on a coalition solution to begin.

Noting how Pope Benedict has addressed “ethical concerns” about economics during his eight years in the role, “Catholic Social Doctrine makes absolutely clear,” said European Central Bank president Mario Draghi yesterday, “that subsidiarity has to be paired with support…What binds these together is trust…Trust that each will put its own house in order — even if it is politically difficult.”

Pope Benedict was today set to be airlifted from the Vatican to the popes’ summer residence, where he will relinquish the Papal seal and retire as a monk.

Data revisions meantime showed Spain’s economy shrinking faster than first reported at the end of 2012, down by 1.9% in the final three months.

Spain’s inflation rate held at 2.8% this month, new data said. Across the 17-nation Eurozone however, consumer prices actually fell 1.0% in Jan. from Dec. according to the Eurostat agency.

Germany’s unemployment level fell this month to 6.9%.

“[In Spain] more than 50% of young people cannot currently find jobs,” said Draghi on Wednesday.

“But our answer — both to those who want [the ECB] to do less and to those who want us to do more — is the same: We will preserve price stability. This is our mandate.”

Spain’s giant Bankia group today reported a record €19 billion loss for 2012, when it also received €18bn in aid according to the BBC.

Speaking to the U.S. House Financial Services Committee meantime, Fed Chairman Ben Bernanke repeated his comments from Tuesday about the benefits of quantitative easing. But he also spoke at length about potential “exit strategies” from the policy.

Let’s start with a little quiz. See how many you get right:

Who holds the majority of U.S government debt?

a) China
b) Japan
c) USA

What percentage of products consumed in the U.S. are produced in the U.S.?

a) 25.3%
b) 58.6%
c) 88.5%

What percentage of products consumed in the U.S. are produced in China?

a) 78.6%
b) 23.8%
c) 2.7%

Richard Poulden posed these questions in his annual letter. I met Richard for lunch at the Blue Rain restaurant at the Ritz-Carlton in Dubai last week. He is an ace at turning nothing into something in the mining world. Richard built up Sirius Exploration, a potash concern, from a mere $3 million to a company worth over $460 million. Investors made over 800%. Today, he is trying to do it all over again as the founder and executive chairman of Wishbone Gold.

Richard is one of those entrepreneurial characters that one seems to find often in Dubai. My friend Peter Cooper, whom I like to call “our man in Dubai” and who edits ArabianMoney, made the introduction. All three of us sat at a table behind a glass wall situated behind the hotel’s 10-story waterfall and enjoyed excellent Thai food as we talked about the markets.

Poulden has a definite point of view on the markets, which is worth sharing. And that brings us back round to those questions.

The answer is c) in every case.

“China actually holds only around 7.5% of U.S. debt,” Richard writes, anticipating surprise that China isn’t the answer to the first question. “The vast majority is held by U.S. institutions and individuals.”

……read more HERE

 

Gold & Silver: ” I Continue To Suggest a Sidelines Approach

Posted by Peter Grandich - Grandich.com

on Tuesday, 26 February 2013 15:11

Peter addresses Gold, Silver, Real Estate, Gold Exploration & your Children (From “Things” on Peter’s Grandich.com Website – Ed)
 
1. I continue to suggest a sidelines approach to gold until further notice. The bears are on offense and while the bulls defense has
    stopped them in the pass, that was then and this is now (and Bill Murphy is not Ray Lewis-lol).
 
 
3. Donald Coxe: Total Disconnect in Gold Exploration Funding 
    BMO advisor Don Coxe has coined the expression “Weakness is Strength” to  
    describe the current economic situation.
 
 
 
 

Attention American and Canadian Readers

by Peter Grandich

I’ve often spoken about the belief that traditional financial planning (what 99% of all investors use some version of) is a flawed process and can’t end up working in the long run for most.

I touch on this in my book “Confessions of a Wall Street Whiz Kid” in chapter 12. Here’s a link to a free pdf copy of the book.

Another hot-button topic of mine is about retirement and the illusion the financial industry has created about it in order to capture your assets under their supposed “care” to make your latter years nothing but joy. You may not like what I’m about to say but I find it to be 100% true – THERE’S LITTLE OR NO GOLD IN THE GOLDEN YEARS! And much of the strategies used by the financial services industry are very much more likely to benefit them far more than you!

If you’re a resident of North America, I may be able to assist you in a process that’s best suited for household incomes of $150,000+ a year and (or) a net worth of $1M+

We’re about to enter a period unlike any other and besides death and taxes being a sure thing, I know in my heart the masses will be seriously impacted by it. If I’m right and you’re doing what the masses are doing thanks to the financial industry north and south of the border, what does that say about your future?

Please email me at peter@grandich.com to learn more about a process that offers increased wealth, with less risk and no sacrifice to lifestyle. Please note American or Canadian resident.

 

Henk Krasenberg, founder of the European Gold Centre, is back from the INDABA Mining Conference in South Africa with plenty to report. He has seen a sea change in mining in Africa over the last few years; countries are growing more confident and have a greater awareness of mining’s potential. In this interview with The Gold Report, Krasenberg provides a European perspective on a whole slew of miners working in Africa, as well as in all corners of the world.

The Gold Report: Where’s the rally for gold?

Henk Krasenberg: The general investment public is not in the right mood for resource stocks. Those who own them are not happy with their performance, and those who don’t own them are not convinced that they should own them. Only 2% of all investment capital is in gold, other metals and related vehicles. I believe that gold is not as high as most people think. I relate it to the all-time high of $850/ounce ($850/oz) in 1980 and if you correct that to today’s standards, that would equal $2,400–$2,500/oz. So we are well below the real historical high. Further, the market for resource shares has not been very stimulating. Resource shares are greatly undervalued in my opinion. That surprises me. Several producers are reporting record production and record earnings and project further increases for the next few years. Also, the results that exploration companies report are generally very encouraging.

TGR: A lot of people would say that the market pretty much has these companies right where they should be. Why do you believe they are undervalued?

HK: If you talk about production companies, what is not reflected in their prices is their potential. Of course, that doesn’t count for everybody. It is very difficult for the major companies to achieve substantial increases in their production, but several of the emerging and midtier producers are looking at a great future.

TGR: When the rally does happen, how high could that percentage get?

HK: That depends a lot on the nature of the frenzy that gives reason for a rally and whether the institutions will come in — the regular investment capital of pension funds and insurance companies, regular shareholding companies. If gold investment moves from 2% to 4% of the total investments, we are talking about a lot of new capital coming to the market.

TGR: You recently attended the annual INDABA Mining Conference in Cape Town, South Africa. What were two or three takeaways from that conference?

HK: I was impressed with the confidence that people have in the future. So many things are happening in Africa that are different from even just five years ago. I noticed that the governments of the presenting countries show more dedication and a more realistic and constructive attitude; it seems that they are now viewing mining more as a blessing than as a curse. They seem to be more aware of their potential and the possible benefits. The countries expressed awareness of and willingness about the need to work together with the companies.

Also remarkable were the questions that people asked about the risk of resources being nationalized and about indigenization. Countries want their local investors to have a certain percentage of ownership, but they often do not have money to pay for it. In Zimbabwe, for example, it is all paper deals. Kenya wants to apply a rule that 35% of every company should be owned by national people. If they indeed pay for that, it could also be a positive factor. All the companies need money for their progress, so if they can raise 35% of their requirements within those countries, that would be welcome.

Also remarkable was that newer countries are coming into the game: After Tanzania, Burkina Faso, Mali and Guinea, Eritrea, Ethiopia and Mauritania have joined the ranks of mining countries. Now, former mining nations like Zambia, Liberia, Sierra Leone and Zimbabwe are re-emerging and a new generation of countries that you hardly ever thought of for their resource potential, like Mozambique, Gabon, Senegal, Uganda and Malawi, were at the conference. Some were mainly known for diamonds, but now they are also working on gold, copper and other metals.

TGR: So mostly Central and West Africa?

HK: There weren’t too many countries presenting from the eastern part, but in the second half of last year, I wrote a report on East Africa, and I think that is a much underexplored area. Interesting things are happening there too, but not yet as widely as in West Africa.

TGR: You note in a recent edition of your GOLDVIEW newsletter that developing countries are buying a lot more gold than developed nations. Is that reflective of growing global fear about U.S. and Europe economic stability?

HK: The developing countries never were in a position to be able to buy gold. Now they are doing better and are getting some money, and they see all this turmoil in the world. They finally have reached the point that they can afford to buy gold, so they will. Most of the countries that used to have big gold reserves have sold part of their gold, and in most cases that happened at a time when the gold price had not even started its real rise. If you sold gold at $250–$400/oz in the past, as did the U.K., the Netherlands and Canada, it is not easy to be buying it at $1,600–$1,700/oz. It would take a lot of courage, and I am sure that they would receive push back from the public. Despite the current setback of the gold price, I think there may come a time when they will seriously regret not having bought it back at $1,600/oz. This may very well be the last opportunity to buy it at these levels.

TGR: Germany recently announced that it wanted to repatriate part of the gold that it has in foreign banks. What did you make of that announcement and that it’s not going to fully happen until 2020?

HK: I’m puzzled that not more people are concerned about this because most of the foreign gold is with the Federal Reserve in New York. First there was a 30-year deal, and now it is to take them seven years to deliver that gold to Germany. That scares me because what does that mean? Is the gold not there, as some people believe? But the seven-year stretch most probably suggests or indicates that they used the gold, which was deposited by the central banks, to lend it out and/or to secure loans. Some people say gold is the only asset without a liability. True, if you buy gold with your own money, but not with a loan. If it indeed turns out that the Fed has put all kinds of obligations on the foreign gold, we have a serious problem. If this scenario is true, the Fed has every reason not to let the gold price move up to over $2,000/oz because sooner or later it has to cover its possible shortfall.

TGR: What about some of the recent rhetoric from Mario Draghi, the head of the European Central Bank?

HK: People like him cannot say what they think. They are in a political function. They have a responsibility toward the nations, to the public. They have to lie, to put it bluntly, and they do. They will never say they don’t have the gold or they don’t have enough gold or they used it. If it ever comes out that not all the gold is where we think it is, we could see crazy days with gold prices of $10,000/oz, $20,000/oz or whatever.

TGR: What are you seeing for a trading range for gold in 2013?

HK: I’m confident that we will see higher prices. It does not take that much to get it over $1,700/oz, although what happened in the last two weeks with the gold price may make us wonder. But if you ask me whether it will be $2,000/oz, $3,000/oz or $5,000/oz, that will largely depend on the situations that arise. There are enough ghosts in the closet.

TGR: Gold went up 6.2% in 2012. Do you think it will beat that percentage in 2013?

HK: It doesn’t take much to beat that.

TGR: Where does that leave silver?

HK: The fact that there is already not enough silver to make the coins that people want tells me a lot. On the other hand, nobody seems to panic. I think silver has extra potential because there is an actual shortage looming while the demand for silver coins and other uses is strong. But the old dogma is still valid: If and when gold jumps, silver will jump too.

TGR: Were people particularly bullish on platinum, perhaps copper?

HK: Not surprisingly, copper was widely mentioned at the conference because China has a large appetite for it. Copper is not a glamorous metal but a daily necessity.

One presenter on platinum said mining platinum is tough. It’s so different from gold. It is a hard business to be in. At the moment, platinum is struggling. There may be a very significant shortage in platinum, in particular because of lower output of the mines in South Africa. Zimbabwe could benefit from that situation.

TGR: Tell us the difference between the average European precious metals investor and one from North America.

HK: North American investors are much more opportunistic. They have a better and longer history of metals and even more of mining than Europeans have. In North America it is easier to meet people who have invested in resources. When North American investors have gold shares and they hear that uranium is hot, they jump easily into uranium and then into tantalum, graphite, graphene, and so on. They follow the trend. Here in Europe only the fairly sophisticated or adventurous investors will do so. Once we commit, we tend to stick with it. We take a longer-term approach.

TGR: What are some European mining stories?

HK: We have over 300 companies that are active in the European resources, and we never hear about them. The media hardly ever talk about them. Most people don’t even know we have an industry like that. Even in investment circles information is scarce. When the European Union is talking about resources, about mining, they are talking about industrial minerals like cement and stone; that is what they call their mining industry. If the industry will move forward and we will have more production stories, they will be more appealing to the people.

There are a few companies now producing gold in Sweden. Nordic Mines AB (NOMI:ST; NOM:OSLO) is producing nicely. In Spain we have Orvana Minerals Corp. (ORV:TSX), which just became a client of mine. Astur Gold Corp. (AST:TSX.V) is relaunching its mine in Asturias, Spain.Global Minerals Ltd. (CTG:TSX.V; DPF:FSE) is reviving a former copper-silver producer in Slovakia and aims to become the first real silver producer in Europe.

TGR: AsturGold is trying to bring the Salave gold project back into production. Where is it on that path?

HK: It has had some hurdles. There are environmental protests. The company recently made some changes in its plans because it is pretty close to the sea. Rather than producing the gold itself with the use of cyanide, it has decided to make a concentrate and send it to a smelter. That has taken the wind out of the sails of the environmentalists and the government officials. Now the government has issued its latest list of requirements, which is still an extensive list. The company has to comply with about 30 points, and CEO Cary Pinkowski is confident that he can meet those.

A good example of how the production of crushed ore and concentrates could work is Excellon Resources Inc. (EXN:TSX) in Mexico. I have always said that it was the most profitable trucking company because it crushed the ore and shipped it to a smelter, and it got the money back. That was a fairly nice and clean operation. Now Excellon is adding its own mill.

TGR: As far as Global Minerals goes, do you think the share price will get an uptick with the recent increase in copper prices?

HK: It will be a contributing factor but I think Global Mineral’s share price will be more dependent on the company’s continuous drilling and testing and coming closer to a production decision. The impact of the silver prices will be greater than that of copper.

TGR: Is the financing in place now to bring Strieborná into production?

HK: It is on its way. I think that there are good possibilities to get the financing in Europe.

TGR: What’s happening with Orvana?

HK: Orvana is an interesting company. Its CEO, Bill Williams, is also producing in Bolivia. He says, “I don’t explore; I only find mines.” It’s different from the typical exploration company that turns into a production company after a long period of exploration.

TGR: France has joined with the Malian army to drive Muslim extremists out of the country’s northern territory. Has this changed your view of Mali or perhaps even West Africa as a jurisdiction in which to invest?

HK: Not really, because there’s always a basis for conflict within African countries. But in Mali, when forces both from outside Africa and inside Africa teamed up, things started to be solved. Mali was at INDABA. When I asked, the representatives shrugged their shoulders and said they will solve it. Mining and exploration in the artisanal way is a mode of daily life more than anywhere else, so I’m not concerned that much.

TGR: Are there any West African plays that remain compelling to you?

HK: Gold Fields Ltd. (GFI:NYSE), African Rainbow Minerals Ltd. (ARI:JSE), Randgold Resources Ltd. (GOLD:NASDAQ; RRS:LSE), Resolute Mining Ltd. (RSG:ASX) and Endeavour Mining Corp. (EDV:TSX; EVR:ASX) made excellent presentations at the conference. Tembo Gold Corp. (TEM:TSX.V; TBGPF:OTCQX) has been achieving very nice drill results recently. CEO David Scott was walking around with a big smile on his face. It had almost 23 grams per ton (g/t) gold over 15 meters (15m) from 299m down hole.

TGR: How would you compare that to similar plays, such as when Barrick Gold Corp. (ABX:TSX; ABX:NYSE) discovered Bulyanhulu?

HK: David Scott is convinced that Tembo Gold is on to something similar, and it is pretty much adjacent to African Barrick Gold Plc’s (ABG:LSE) Bulyanhulu.

TGR: Any others?

HK: I like my client New Dawn Mining Corp. (ND:TSX) in Zimbabwe. It is busy with indigenization and is producing 35,000 oz (35 Koz) and expecting to bring it up to over 100 Koz in the next two years provided that a better sentiment toward Zimbabwe develops, which would make raising money easier.

Centamin Plc (CEE:TSX; CNT:ASX, CEY:LSE) is successfully producing gold in Egypt. I was impressed with the management. I met my former client Helio Resource Corp. (HRC:TSX.V) when I was in Tanzania and Namibia. It has open-pit and underground potential. Another company that I like is in Burkina Faso. It’s an Australian company, Ampella Mining Ltd. (AMX:ASX). The man in charge of that project is very knowledgeable, has a lot of experience in Africa and only has the responsibility of bringing the project forward and into production. Other corporate duties are being taken care of at the company’s head office in Australia.

African Gold Group Inc. (AGG:TSX.V) is also a former client. It is selling off its interest in Ghana to Newmont Mining Corp. (NEM:NYSE), so it gets a nice amount of cash and will continue to focus on Mali. Merrex Gold Inc. (MXI:TSX.V; MXGIF:OTCQX) is also in Mali and has a joint venture with IAMGOLD Corp. (IMG:TSX; IAG:NYSE). It has been doing well. Castle Peak Mining Ltd. (CAP:TSX.V) is a typical example of a company that had good drill results, and it became public at $0.35/share not too long ago. Shares are selling at $0.06/share despite good results and good management. I’ve always liked Sunridge Gold Corp. (SGC:TSX.V); it used to have a connection with Nevsun Resources Ltd. (NSU:TSX; NSU:NYSE.MKT). Teranga Gold Corp. (TGZ:TSX; TGZ:ASX) looks very interesting.

Premier African Minerals Ltd. (PREM:LSE) is in Zimbabwe and Togo. I didn’t even know Togo had any minerals, but there’s quite some mineralization there, so I’m looking into those new areas. For instance, Liberia used to have political problems, but it’s quiet now. It used to be famous for its diamonds. Now it’s looking into gold and other minerals, and there are several companies active in Liberia. I am looking at Amlib Holdings Plc (privately held), a very interesting situation, and some other companies.

TGR: Why haven’t those companies that have had solid, if not record, years had better share price performance?

HK: In a market that is struggling and depressed, it’s not easy to do well despite good results, but if you look at their share prices, they haven’t done badly. They are all selling at levels not too far below their former highs. Argonaut Gold Inc. (AR:TSX), Aurcana Corporation (AUN:TSX.V; AUNFF:OTCQX), Great Panther Silver Ltd. (GPR:TSX; GPL:NYSE.MKT), Scorpio Gold Corp. (SGN:TSX.V), SilverCrest Mines Inc. (SVL:TSX.V; SVLC:NYSE.MKT) and Timmins Gold Corp. (TMM:TSX; TGD:NYSE.MKT) are all doing great and are looking at even better results in the next few years.

SilverCrest has remarkable growth potential; it will be doubling its production in the next three years.

Argonaut Gold is digesting the recent takeover of the Magino mine in Ontario, which upon coming to production can double its current output. Argonaut Gold just had warrants converted, and has over $117 million ($117M) in the treasury, so it is well financed.

Timmins Gold is on the right track. The potential at its one project is great and it has the cash flow to do it. Also Great Panther, which was struggling a little bit, had a great fourth quarter last year.

TGR: Argonaut’s stated goal on the website is to produce 300–500 Koz gold over the next few years, but it’s currently producing about 120–140 Koz. Magino is going to add to the production profile, but it’s not going to get Argonaut there on its own.

HK: Argonaut has more than Magino—such as San Antonio, El Castillo and La Colorado. It is undertaking to define the potential of the Magino because it would like to see the mine happen first—the company just acquired it. It would like to find out whether it is as big as the former management said it was. Do not underestimate Argonaut’s management; it is a pretty serious and determined team. I like the team and I think it will succeed in reaching its goal.

TGR: Great Panther produced 454 Koz in Q4/12 versus 371 Koz in Q3/12. Can investors realistically expect it to continue that kind of growth?

HK: Great Panther has been having some problems with maintaining its cost and production levels. However, the fourth quarter was a nice sign. I have great admiration for Great Panther. Bob Archer is a great entrepreneur and a very intelligent operator. He’s the kind of CEO that investors like to see.

TGR: And Scorpio Gold?

HK: CEO Peter Hawley is a modest but very intelligent and reliable person. I believe that Nevada will be one of the great mining areas sometime in the next few years. I would not be surprised if we see Scorpio Gold strengthening its position in Nevada.

TGR: What are your parting thoughts on this space?

HK: There is a new generation of companies coming in general but also in Mexico, one of my favorite mining countries. Argonaut, SilverCrest and Timmins Gold—my top three picks—were not in production five years ago, not even three years ago. But there are still some good old ones;MAG Silver Corp. (MAG:TSX; MVG:NYSE) and Canasil Resources Inc. (CLZ:TSX.V) are old favorites.

Other companies that I know from the past are finally coming to the limelight: Northair, nowInternational Northair Mines Ltd. (INM:TSX.V), is reporting excellent results from its La Cigarra silver project in Mexico. The same is true for Kimber Resources Inc. (KBR:TSX; KBX:NYSE.MKT)with its Monterde project in Mexico. Paramount Gold and Silver Corp. (PZG:NYSE.MKT; PZG:TSX) is progressing at its San Miguel project and at its Sleeper mine in Nevada. All these companies are potential production candidates.

TGR: Thank you for your time.

Henk J. Krasenberg is the founder of the European Gold Centre, which analyzes and comments on gold, other metals and minerals and international mining and exploration companies in perspective to the rapidly changing world of economics, finance and investments. The organization publishes GOLDVIEW, Mining in Africa, Mining in Europe and Mining in Mexico, allavailable at no cost to investors. Krasenberg’s career has included security analysis, investment advisory, portfolio management and investment banking.

DISCLOSURE: 
1) Brian Sylvester conducted this interview for The Gold Report and provides services to The Gold Report as an employee or as an independent contractor. He or his family own shares of the following companies mentioned in this interview: None. 
2) The following companies mentioned in the interview are sponsors of The Gold Report: Orvana Minerals Corp., Global Minerals Ltd., Sunridge Gold Corp., Teranga Gold Corp., Argonaut Gold Inc., Great Panther Silver Ltd., SilverCrest Mines Inc., Timmins Gold Corp. and MAG Silver Corp. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.
3) Henk Krasenberg: I or my family own shares of the following companies mentioned in this interview: None. I personally or my family am paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: Argonaut Gold Inc., Aurcana Corporation, Great Panther Silver Inc., New Dawn Mining Corp., Orvana Minerals Corp., Scorpio Gold Corp., SilverCrest Mines Inc., Timmins Gold Corp., Canasil Resources Inc., Tembo Gold Corp., Astur Gold Corp. and Paramount Gold and Silver Corp. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview. 
4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts’ statements without their consent. 
5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. 
6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.

Emerging nations do not view the West as partners…

IN THE LAST five years, we have seen the start of the decline of the developed world and the real impact of the economic rise of China on that world, writes Julian Phillips at GoldForecaster.

What lies ahead? James Wolfensohn, the ex-president of the World Bank, has given a short lecture in which he forecasts what the world’s cash flows would be like in 2030: 

  • For the last century and far more, 80% of the cash flow of the world flowed to what we know as the developed world where 20% of the people lived. Twenty percent of the cash flow went to the underdeveloped world where 80% of the world’s population lived.
  • By 2030 these numbers will have changed dramatically, with 35% of the cash flow of the world going to the developed world and 65% of the world’s cash flow going to the ’emerging’ world, primarily China and India.
  • In addition, he says that there will be 1 billion middle class people in China by 2050 –a figure we had previously put at 300 million. This is more than the total population of the USA and the Eurozone put together. Worldwide there will be 3 billion people in the middle classes with two thirds of them in Asia.

Think for a moment what this will mean to you individually and the world in which you live. Unless one tries to understand them, we will become a victim of the changes. The ramifications are vast; they become almost impossible to detail in advance. We can forecast principal and principle changes but will almost certainly be wrong in specific details. We then look at the changes that will affect the precious metal worlds, but even here we can only make broad sweeps.

We can be absolutely sure that man cannot weather these changes without uncertainty and instability on a scale not seen since the World Wars. This is the first ingredient that we must factor into the future and man’s way of coping. 

The fact that the prime minister of Britain has taken a huge delegation this week to India shows that the developed world is starting to try to adapt to these coming changes. Britain is even minting gold sovereigns, a coin with emotional connotations in India. 

But we do not see Asia turning to the developed world as partners in the future. The pattern to date has been to mimic the developed world’s skills, and then do it cheaper at home, exporting the products back to the people who taught them at a lower price! So the wealth and power of the developed world seeps across to the East and will continue to do so until emerging world income rises to the same level as developed world income or developed world income fall to that of the emerging world.

It’s clear that Asia is not an ally of the developed world nor are they committed to helping the developed world. The saying is true that nations have interests, not friends. This will be the case between the two sides of the world. Asia sees its first priority in lifting itself up and using developed world markets to help do that.

The developed world may see only flat growth in the medium-term, reminiscent of the postwar-era when Britain, with its outdated equipment, was quickly overtaken by Japan, where after the war everything was built new, from scratch. Both China and India are in a similar position now. As a result, manufacturing will continue to go east.

As the pressure grows on the developed world, the developed world may be pressured into protectionism to survive. The initiation of the US/European Free Trade Zone this month is the start of such survival techniques. Consequently, economic pressures will escalate into tension between East and West in global trade. The arrival of the Yuan onto the global stage will exacerbate these.

But the direct point of impact of these growing pressures will be in the monetary world. This was highlighted last week in the G-7 and G-20 meetings where quantitative easing was justified and its direct impact on the exchange rates minimized. This attitude directly undermines stability in foreign exchanges and, worse still, makes acceptable the undermining of the foreign exchange rate system itself and the need for currencies to be reliable measures of value. We have no doubt that the self-interested positions that this demonstrates will continue to grow and worsen to the detriment of the global economy. After these statements, we’re seeing sterling continue to fall. Expect to see the Yen fall to 100+ against the USD.

Since the last war the developed world has interlinked with the US in a tight knit monetary system based on the Dollar, the only currency with which to buy oil. With Asia rising and with the Yuan shortly to make its appearance on the global reserve currency table, the Dollar will lose a great deal of its control over both oil and the global monetary system. It will retain its hold over OPEC but not over Russia and if it agrees on a defined trading range between the Euro and the Dollar will ensure Europe pays for its non-European oil in Dollars still. It’s likely, however, that Russian sales of oil and gas to Europe will be made in Rubles or Euros, not Dollars. Therefore, there will be a loosening of both the US grip over oil supplies and the Dollar’s grip over the monetary world. 

We cannot see the developed world willingly cooperating with any demands made by rising Asia as this will probably be at the expense of the West’s influence and power over the monetary system. 

For instance, in order for Asia to get the voting power it would warrant in line with its rising power, it would request that it get a good chunk of the voting power. It would also request that the IMF lower the number of votes needed to pass a resolution from 85% to say, 70% with it getting a similar number of votes as the US Its alternative is to set up an equivalent body to the World Bank and the IMF –a process it has already started.

Overall expect to see the world fragment into a series of blocs with their trading partners reliant on them. This would inevitably lead to more protectionism and monetary fragmentation.

Alongside this and to reinforce the fragmentation and consolidation of self-interest in these groups, another worldwide development will begin. Both these blocs and all the nations left out in the cold will have to turn to capital and currency controls to hold on to their country’s capital. The ‘carry trade’ of borrowers in low interest currencies and lenders into high interest rate nations would be controlled to prevent the probable tsunamis of capital sloshing between the blocs.

The capital controls that are seen in Iceland at the moment are the consequences of such crises. These will become increasingly common across the world.

But the most life-changing facet of these changes for the developed monetary world will be that the damage done to the credibility of the leading currencies, the Dollar and the Euro. They will lose their current percentages of global reserves, being replaced to some extent by the Yuan and possibly other Asian currencies.

The current weakening of the Yen, Sterling and Swiss Franc are making this point right now. This process has to continue as nations, in the cause of growth, will progressively weaken their currencies and provoke retaliation from the nations who lose their advantage because of such moves. 

The process of fragmentation will create currency volatility that undermines confidence in the entire monetary system. The current discussion of a currency war will morph into a revolution against the corporation we saw in the past and see to a large extent now. We reiterate that this entire process will be exacerbated by the arrival and growth of the Yuan as an increasingly important global reserve currency.

In turn, there will be a rising need for non-national, liquid, internationally acceptable assets that would support global currencies when used internationally. We know of only one at the moment and that is gold.

Looking to buy gold at the lowest price possible? Visit BullionVault…

Julian D.W. Phillips, 25 Feb ’13
 

JULIAN PHILLIPS – one half of the highly respected team at GoldForecaster.com – began his career in the financial markets back in 1970, when he left the British Army after serving as an Officer in the Light Infantry in Malaya, Mauritius, and Belfast.

First he worked in Timber Management and then joined the London Stock Exchange, qualifying as a member and specializing from the beginning in currencies, gold and the “Dollar Premium”. On moving to South Africa, Julian was appointed a macro-economist for the Electricity Supply Commission – guiding currency decisions on the multi-billion foreign Loan Portfolio – before joining Chase Manhattan and the UK Merchant Bank, Hill Samuel, in Johannesburg.

There he specialized in gold, before moving to Capetown, where he established the Fund Management department of the Board of Executors. Julian returned to the “Gold World” over two years ago, contributing his exceptional experience and insights toGlobal Watch: The Gold Forecaster.

Legal Notice/Disclaimer: This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Gold Forecaster/Julian D.W. Phillips have based this document on information obtained from sources they believe to be reliable but which it has not independently verified; they make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Gold Forecaster/Julian D.W. Phillips only and are subject to change without notice. They assume no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, they assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information, provided within this report.