China Demands on Gold and Other Metals Will Change Dynamically

After a tough year for the Chinese economy, politicians seems to have a clearer panorama for upcoming seasons. While this country remains as the biggest gold buyers in the world, indicators could be changing due to the influence of local industries.

A recent announcement from the Chinese Ministry of Industry and Information Technology said that gold demand growth is expected to decrease to an annual average of 4 percent regarding the four upcoming years.

This still means that China will consume more gold than never before, only with a slowdown in growth. The same announcement shared with the media some estimates regarding consumed tons.

The Ministry expects to consume 1,200 tons in 2020, representing an increase in comparison with 2015, when 986 tons were consumed. The domestic output is also expected to increase, with an estimated included. In 2020, 520 tons are expected to be produced, in comparison with 450 tons during 2015.

Relevant Economy Changes

The same announcement from the Chinese government exhibit estimates not only for gold consumption but for others metals as well. The data includes copper, aluminum, lead, and zinc.

These changes come from a plan for non-ferrous metals’ needs, applying more control on what the country truly demands. This plan is a response to the wild backlashes suffered by the Chinese economy in previous years, linked to poor control on the productive mechanisms and slowing exportations.

Copper annual growth for the 2011-2015 period was at 8.9 percent. The new estimate for the upcoming five-year period is around 3.3 percent. For aluminum, annual growth will go down from 14.4 to 5.2 percent.

For lead, annual growth will go down from 0.8 percent to 0.6 when comparing 2011-2015 period with the upcoming 2016-2020 one. Zinc demand growth will cut down in half, going from 3.5 percent to 1.7.

What Does This Mean for the Markets?

Pessimist investors will see a tragedy here but there is nothing massive happening, actually. Demand is not decreasing, only its growth rate. China will require massive amounts of minerals, more than the country is requiring right now.

In fewer words, the Chinese industry will still have a growing demand in the upcoming five years, only slower in comparison with the actual one.

Gold and other metals prices will have the window same to keep raising if the investors have enough interest. The markets could receive this news as a bad one but notice that the domestic output will go down as well, making China buy more than before.

Numbers aren’t lying. The panorama remains very positive. With a decreasing production output and a still-growing demand, the country is headed to demand more metals during the five upcoming years.

The data at the beginning of this article is a valid proof. Domestic industry will have to demand more gold in comparison with previous years, where production was higher. This will directly influence commodities and mining stocks.

Investors also have to remember that China is suffering mineral shortages, partially caused by several mines’ closure. This is an important factor that will gain relevance in the upcoming years when the demand increases.

Golden Risks

Although gold investments can be regarded as one of the most tempting venues for investors to venture into with an aim to bump up their investment returns with a commodity that is largely considered safe, it is not exactly as solid and sure as most people think it is.

As a matter of fact, gold should not be even be considered as an investment, it is a hedge, and as a hedge it will always remain and the same goes to silver, platinum or even palladium. It is a hedge that provides a little relief against the risk of losses suffered from other asset classes which includes property, equities and bonds. Gold and other precious metals have always been utilised as a hedge against the pressures of inflation and that same thinking holds until today, despite markets being totally unpredictable and even senseless at times. Basically, owning gold, gives back people who own gold the purchasing power that they lose because of inflation and the truth is that in economics, inflation is a constant as money will continue to depreciate as more and more o it is printed.

The reason for this fear is largely due to the fiscal and monetary policies being executed by the federal reserve due to high federal deficits spending coupled with interest rates kept near zero value, which actually makes gold attractive as most other investments do not have the ability to keep up with inflation.

The simple equation behind this reasoning is when governments offer real interest rates that are negative, that will be exactly what investors will be earning based on those rates and if we were to remove the CPI numbers we end up with a deficit spending minus fiscal slashing causing gold’s value to increase based on that country’s currency. The reverse applies if at all the interest rates were set to 2 percent higher, because if that was affected, the inflation rate it would advocate a decrease in prices of gold.

However, these are just theoretically correct and although they seem to hold true in most instances, there are times when they just do not work as they are supposed to. Sometimes the increase in gold prices are driven by fear and would have nothing to do with interest rates, when the majority of people start having doubts about the direction of the financial system, they abandon most other commodities in favour of gold and the same can be said to happen when there are regional armed conflicts or even terrorist attacks.

Other factors that drive gold prices is demand and a lot depends on the economic conditions in China and India, who just happen to be the world’s biggest gold consumers. Any changes in demand from these two economies have a significant impact on the prices of gold. However, these demand pressures typically attract new supply and therefore even when demand is high, prices have the potential to go down due to new entrants into the market on the supply side.

For more information please see http://www.bankrate.com/finance/investing/pros-cons-investing-gold-1.aspx

The Agua Rica Gold Mine Project

The Canadian based gold producer Yamana Gold recently signed an Agreement with the provincial Government of Catamarca, Argentina which extends the 2014 MOU that allows the mining company to consolidate mining projects especially the Agua Rica project. According to credible reports the Agua Rica project mineral deposit is estimated to be at least 3 times larger than the most lucrative mine in the region which includes, Bajo de Alumbrera, which is located roughly 35 kilometres away from Agua Rica.

The rich deposit site which was initially explored by Northern Orion and BHP Billiton more than 2 decades ago however has drawn flak from engaged mining companies as well as the local populace and hence the mine has yet to be productive. Although Yamana Gold Inc had been given the green light to start construction work, local communities, environmentalists and assemblies have successfully prevented mining activities from taking place despite heavy handed crackdowns from the authorities.

The violence had prompted international attention and as of 2010 any mining related activity was put on hold at Agua Rica. Most of the concerns to halt mining activities were centred on public health concerns that were related to air pollution, water supply and soil contamination as the mine’s location is approximately only 17 km from Andalagá city flanked by 3 rivers which is the main source of water supply to the communities in the region.
The mine is reported to hold vast reserves of copper and gold and the current situation has led the company to implement strategic frameworks to increase its value via a joint venture with XSTRATA and Goldcorp would collectively be paying Yamana using that theoretical spot price of $1,400 for gold enhancing their revenue streams which has caused the stock option for this company a gold mine in itself. Although the spot price component which has been incorporated into the deferred value of the company which may take a few more years to materialise, the potential for the company’s stock options to sky rocket is golden if not epic.

The company’s decision to monetize their holdings in Agua Rica is within the interest of its shareholders and thus the company has been careful about its strategic implementations pertaining to Agua Rica. Yaman would effectively be enjoying cost reductions with the proposed ventures due to 12.5 % stake and in retrospect the revenue stream would actually be enhanced as the mine reportedly holds a minimum of 6.56 million ounces of gold, which based on current spot gold prices multiplied by the percentage of holding and minus mining costs would increase the company’s net worth rather significantly.

The mine is also reported to hold a minimum of 102.2 million ounces of silver, 9.79 billion pounds of copper (largest on the planet), and 629 million pounds of molybdenum which are all governed by the same payout structure and processes. To find out more about how Yamana Gold Inc has structured its Agua Rica dealing please visit:  http://www.fool.com/investing/general/2011/03/09/the-biggest-gold-deal-of-2011.aspx

Gold Industry Is Getting Stronger Despite Low Prices

With a bearish gold market, investors are losing their nerves. Many already bet against the precious metal. But, some can see further than the negative (are pretty naive) forecasts that are pretty common on the internet. The low prices are just an effect of the investors taking odd decisions.

Surely you already hear or read that “gold is the preferred safe-haven during financial crises”. Well, there are several crises going on worldwide but, this time investors choose the growing United Stated Dollar. The usual behavior wasn’t followed. So, prices are dropping.

Despite all the drama produced by the falling gold prices, great things are occurring in the precious metal’s industry. Two countries are the main characters of the good news: Australia and India.

More Investments In The Search Of Effectiveness

With an everyday-stronger US Dollar and a dropping Australian currency, gold miners have found the perfect opportunity to boost their profits. By now, the taken decision was to make several investments. Investments seeking major efficiency and better opportunities. This money is now destined to expand their projects in a smart way, taking advantage of the actual low costs of exploration and technical studies.

Mr. Jake Klein, chairman of Evolution Mining, said to The Australian Financial Review that “in a strange way the tougher times get, the more opportunity presents itself.” Said that, many big miners are now buying promising projects with 150.000 – 250.000 ounces-per-year estimations.

If gold prices go up in the next months and the Australian Dollar remain low, domestic companies would get extremely high profits, allowing further purchases and technical improvements.

India’s Growing Importation

These days, India seems to be the gold’s savior. After China’s market collapse, Asian imports decreased in a relevant way but, the Hindu country still buy gold in big quantities and the demand keeps growing. In fact, it’s calculated that 400 metric tonnes were imported to the India since the start of the year. That represents an increase of 100 metric tonnes from the same period of time the past year.

What seems odd is that the demand keeps growing despite reports about massive inventories of the precious metal. Local experts declared to the international media that dealers and jewellers already have huge stockpiles of gold. Some think that is because the Hindu festival is coming and the merchants are preparing themselves to this season.

But dealers and jewellers have the minor representation on the demand scale. 60 per cent of the gold’s importations and consumption belongs to the farmers. Hindu farmers rarely have a comfortable access to the nation banking system. So, they use the precious metal to store their wealth in a way they see appropriate.

Back to the commerce topic, the Hindu festival season represents the most volatile period of gold consumption in India. Thanks to tradition and family rites, gold sales sky-rocket during this time of the year, which starts in September. That can be a good reason of why dealers and jewellers are demanding and hogging all the gold they can afford in times like these when gold consumption is low.

Metal’s Rising

As always, gold doesn’t remain low for many long. Yes, gold prices are falling. But, with severe financial problems in sight, investors will think again. By the other hand, the mining industry is getting more effective at the same time that cost is dropping. Australian miners can (and will) use that domestic surplus to take a step further is their business.

Aligned with miners’ desire, Hindu traditions take relevance again (according to local observers), which can make India the biggest gold importer in the world in a few years in the future. The financial world must remember: gold always survives.

Is Gold Against Western Central Banks?

There is still obstinacy against the concept of the gold as one of the safest investments. Many economists and politicians are loath to accept the gold as the right way to composite the nation reserves and backup the currency. They just consider it as a nice way of saving that can be used by investors. Why is that happening yet?

Central banks and institutions are constantly making a gain through the fiat currencies and their fragile structure and behavior. Fiat currency can suffer severe inflation or deflation situations, due to its non-existant intrinsic value. That happens really often, and during that process, many countries and organizations profit.

The whole image adopted by the gold through media manipulation has modified the mindset of many investors. The market put the precious metals in the commodities sector, making people forget its evident and strong relationship with monetary and currency affairs.

One of the main aspect that everyone has known and remember on the daily basis is that the gold can’t be devaluated by a Central Bank’s policies and decisions. In that way, savings and investments are independent of financial and political measures. So the assets remain safe against possible manipulations or misguided judgment by public officers.

Now China is about to suffer a Great Depression-like crisis due its recent stock market crash. Thanks to the important loss of relevance in the gold reserve subject, they Yuan will suffer and there is going to be a deflation process. The Chinese economic machine will take care of delivering deflation to other countries through the pressure applied to commodities.

The import of cheaper commodities into the United States from China will strengthen the Dollar even more, creating displeasure inside the Federal Reserve. There are several proposals from the FED to devaluate the currency to create stimulation in the domestic manufacturing sector and boost exports. With an even stronger Dollar, this intention is clearly frustrated.

Smart investors will look gold closer and stay away from unstable currencies. The China’s purpose were established the Yuan as an alternative and viable reserve currency for investors and countries, so this situation represents a mishap. By the other hand, there are some investors who are thinking about China and a possible selling of its gold holdings between the market collapse panic.

The People’s Bank of China (the Chinese Central Bank) has already taken many measures to counteract many of the recent crash’s effects. Experts stated that the applied policies were well oriented and are going to have relevant results anytime soon. Now a gold revaluation is mentioned widely. It can work to make stable the economy and help against the actual crisis.

But that kind of revaluation means a threat to the US monetary interests. The Yuan gold price can rise up in any moment as a viable measure to fight the damages inflicted by the stock market crash. Also can greatly help with the Chinese intention of strength the Yuan’s image in front of the US Dollar at the international currency markets. For the Chinese Government, sooner or later, the Yuan will become a reserve currency.

Thanks to that and the conversations between the PBOC and the International Monetary Fund (IMF), China release its first gold reserves number since 2009, showing to the world that they have 1658 tonnes. The forecasts were much more optimistic than that, but those numbers still represent a great improvement of almost 60% of the increase.

Neither China nor the US are going to have a serious discussion about the subject. Powerful Central Banks around the world will keep alive their fight against the gold and its relevance inside monetary affairs. But China needs a domestic change to ease the upcoming impacts.

Gold Mining Companies – A Basic Guide for New Investors

There are numerous gold mining companies out there ranging from independent family run mining companies to mega corporations that make billions of dollars annually. However, how gold companies are ranked is dependent on a few different gauging methods. Primarily most companies are ranked based on their annual production; however this may not be the best criteria to gauge a company’s stability or market positions as many companies are known to manipulate the production figures based on gold spot prices.

The best method for gauging a gold mining’s company is to assess their overhead cost to produce a single ounce of gold. This is due to the fact that the prices of gold are standardized worldwide and thus, the lesser their cost for mining an ounce of gold, the more profit they make. Another common approach to assess a gold mining company’s stability is to evaluate the total capital holdings of that company and compare that to other companies of similar size. This is very important as a larger company would look much better when placed beside a smaller company in terms of figures, when the actual fact would be that the smaller company would be more profitable.

If it so happens that you would like to compare companies that are of different sizes (for example a large company against a SME) then the best method to approach the assessment is via using financial ratios such as ROI (Return on Investment), ROE (Return on Equity), Liquidity Ratio and ROA (Return on Assets). However there are 3 giants among the mining companies of the world and they are Fresnillo, Buenaventura and Freeport-McMoran, however they are more dependent on mining other precious metals such as silver more than they are on gold.

The low price of gold is starting to affect gold mining companies worldwide due to the increasing cost of production and the stagnant price of gold. Many analysts attribute the decline in gold production by 50 tons to this fact. Even Barrick Gold has been sluggish over the past few quarters – as sluggish as the price of gold.
Based on these factors, it would actually be a good time to invest in gold as analysts are predicting that the recent changes in Indian law that allows the import of Gold into India and China would stir demand and when the law of demand and supply takes over coupled with the increased cost of production, gold prices are bound to rally.

So, in plain words, if ever there was a time to invest in gold or gold related industries – the time is now!