Gold - The Weekly Global Perspective
HIGHLIGHTS in "Global Watch -
The Gold Forecaster"
- Silver - COT, Gold : Silver Ratio EDR.V, SSRI, PAAS, SIL, HL, CDE / Platinum.
- SHARES: HUI, NEM, FCX, GFI, HMY, DROOY, NG, VGZ, GSS
- Market Action / Short-term forecasts across the Board!
- Comex positions/ Commercial Shorts Help Indicate Price Movements
- The CBGA signatories have agreed to stop selling until September 26
- Country risk when investing - Zimbabwe
- Commodity diversification paves the way for gold
- An Oil price above $60 is here tostay!
- Prospects for the U.S. $/ Prospects for the US $ Short & Long-Term
- DJIA / 10-Year Bond / CRB / Gold : Oil Ratio - Record Lows.
- Summary: The present Gold Price Drivers.
- Technical Analysis of the Gold Price: Long/Short term in the U.S. $
- International Gold Markets / Focus on Euro, Euro Gold Price.
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Excepts from the "Global Watch - The Gold Forecaster": -
The Central Bank Gold Agreement signatories - Have agreed to stop selling until the 26th September!
But will they?
We have been reporting closely on this agreement throughout its life, realising that a great deal is at stake for the gold market and for the future of gold as a Reserve Asset. We are fully aware that gold should be an asset that should behave in a manner consistent with a reserve asset. But does that mean it must not reflect the volatility of currencies or demonstrate a market condition that reflects a loss of confidence in currencies to any extent? Should the gold market be managed, so as to point to gold being subservient to paper currencies? Currently, the agreement is under test. Just how solid is it?
This week came reports from the European Central Bank that they have crossed the line [500 tonnes] defined in the Agreement by 6.3 tonnes!
The agreement set a 'ceiling', a limit, of 500 tonnes, with a total for the 5 years of 2500. It is reasonable to expect such august institutions to keep to their agreement and to cease selling from now on until the end of their year, which began on September 26th 2004 and finishes on the 26th of September this year. That is if they want to retain their credibility and avoid accusations of 'managing' the market.
Granted the sale that caused a crossing of the line was between banks [The French and the Bank for International Settlements] but a sale is still a sale. Some may assume that they meant sales into the open market? But the agreement did not specify this.
It does make far more sense for a Central Bank to sell its holdings to a willing Central Bank buyer [Russia or China perhaps?], rather than into the open market because the sale will not affect the market price, but they don't. Why not?
With the funds holding large positions and Indian demand absent from the gold market, the gold price in both the € and the $ will reflect any further sales. If they do not sell for the next five weeks, you can be sure that the gold price will spike at some point. Too many fundamentals are positive for the gold price right now. However, if the signatories do sell, the gold price should take a 'dip'. What price integrity?
Country risk when Investing - Zimbabwe
Platinum is a commodity hovering in equilibrium between demand and supply. Now above $900, some believe it will benefit from the commodity aspects of the market in the metal and the jewellery scene in China. Little expansion is expected in South African production until the Rand is somewhat weaker.
This makes the huge deposits in Zimbabwe particularly attractive and a place where Implats is poised to dive into the deep end. The Platinum mines operating there currently are Implats [through its company Zimplats], Mimosa Platinum, and Aquarium Platinum. [Other groups operating there include Anglo America, Rio Tinto, of which the Zimbabwe holdings are a tiny proportion of their total assets.]. We are amazed to read the following report from Implats: -
"Impala Platinum Mines intends to expand its operations in the country to produce at least 1,000,000 ounces of Platinum by 2020, through its two subsidiaries Zimplats and Mimosa. Impala intends to follow a staggered development at Zimplats to produce 450,000 ounces of platinum per year within 5 to 10 years. Thereafter this production capacity is envisaged to more than double within the next 10 to 15 years, when it is projected that Zimplats, which has the largest known reserves of unexploited platinum group metals (PGM) in the world, would be producing 1,000,000 ounces per year.
Mimosa, with a current production capacity of 70,000 ounces of platinum per year, would more than double this to 150,000 ounces a year."
But hold on, we say! A key part to any share analysis is the assessment of country risk and currency risk, before you even consider the target company in that country.
Many people are not fully aware of the dangers that the country and currency risk pose to Zimbabwe mining operations. These are the greatest dangers to mining we have seen in the world since Bouganville in Papua New Guinea and include:
- A government controlled exchange rate through which companies receive their income.
- A limited facility exchange rate though which they may purchase machinery and other imported equipment. Should foreign exchange not be available through this source, companies will have no choice but to access the 'Black market' for extra forex, at twice or more the Auction rate [currently at Z$18,500.41:U.S.$1 up on last month Z$9,000:U.S.$1]
- A depreciation of the exchange rate that has now accelerated to an exponential rate [hyperinflation induced].
- Overnight interest rate of 180% a Repo rate of 202.9%. Government reported inflation of 164% [real inflation 255%] Y-on-Y, 18.1% M-on-M. We do not regard these figures as reliable, but they are the only ones available
- A government whose destructive policies appears to know no limits. This is only exceeded by incompetence and the inadequacies of their bureaucracy. The present controls on mines will worsen as they remain the only "golden goose" left there.
As if this were not sufficient to discourage all Investors from placing hard won assets under the control of that country, the government now intends the following: -
"In order to increase participation and ownership by historically disadvantaged persons in the mining industry, companies shall achieve 30% ownership of the industry assets in 10 years of which 20% shall be achieved in two years, 25% in seven years and 30% in 10 years from the date on which these regulations take effect. Mining companies shall give historically disadvantaged persons a preferred supplier status, where possible, in all three levels of procurement, namely capital goods; services; and consumables. Mining companies will now have to apply to the mining department when they want to import capital goods, services or consumables and justify their actions."
These are the problems facing the application of this in Zimbabwe: -
- Zimbabwe's deficit is 8.7% of G.D.P.
- The country is in such dire straits that it is seeking a loan from South Africa to provide the basics for living [food, petrol, etc] of close to $154 million [I billion Rand]. It needs $356 million to achieve the supply of the basics for living and stop starvation from growing any worse. This situation came about when the land seizure of white owned farms was implemented and the country turned from an exporter to an importer of food.
- As a result it has no foreign exchange whatsoever, with which to purchase these shareholdings. The only alternative to this is to pay in Zimbabwe dollars [see below].
- Zimbabwean Pension funds are required to invest 30% of their holdings in [prescribed assets] Government Bonds at market value. The government has ordered them to assess this 30% at book value, a considerably higher figure, which will entail the funds to sell their equities to the extent necessary to fund these purchases. With all funds doing that at the same time and the Zimbabwe Stock Exchange turnovers so low, this could bring the Zimbabwe Stock Exchange to its knees, whilst threatening the solvency of the funds themselves, but pouring the additional funds into government coffers.
- Failure to accept the government's terms with regard to the foreign shareholdings in the mines, could see a repeat of the invasion of the banks by the police to forcibly seize the shares. President Robert Mugabe has often threatened forced company takeovers. A few years ago Mugabe's supporters invaded companies' premises, trying to take them over by force.
- Applications to the mining department for imports with which to functions as mines, will be mired in delays commonplace amongst the Zimbabwean civil service, which will for sure cripple the industry.
- The new regulations will place the mines effectively under the control of the government, who would tell the mines who their suppliers should be and will be and even who they should employ and have as shareholders.
The last time foreign shares were appropriated was in 1984, when the government raided the banks to seize nominee held shares and paid with 4% government bonds for these shares. Had anybody been sufficiently unwise to retain these bonds, their present value is around Z$2.5 from the original 100 and the U.S.$ value has dropped from U.S$100 to 0.0135U.S.cents. So if you had U.S.$1,000,000 I Zimbabwe at the time of the forced acquisition of the last foreign owned shares, they would be worth U.S.$135 only now, at the "Official" rate, which is half that or less, at the 'black market' rate [which is the only way you could get cash out of the country].
So a potential Zimbabwean Investor would have to ask himself, just how masochistic am I?
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