The Anglo Far-East Company

Get the Flash Player to see this player.

By Rob Delaney

Sept. 16 (Bloomberg) – Kinross Gold Corp., Canada’s third- largest producer of the precious metal, said the gold industry is facing a crisis of declining reserves as investor demand outpaces supply.

“We may be in the midst of a perfect storm in terms of price and industry dynamics,” Tye Burt, chief executive officer of the Toronto-based company, said at a conference in Denver today. “Globally production has been in decline since the peak of 81 million ounces in 2001 to 77 million ounces last year, and we see that decline continuing long term.”

Gold climbed to an 18-month high in New York and London today on concern that a global economic recovery may stoke inflation and on a drop by the dollar that boosted demand for the metal as an alternative investment. Gold for December delivery advanced as much as $17 to $1,023.30 an ounce on the New York Mercantile Exchange’s Comex division. The precious metal reached a record $1,033.90 an ounce on March 21, 2008.

Kinross said in June that it’s considering as many as 50 investments in all countries where the company has operations, including Russia. The company wants to acquire “development- stage” or “active” projects and is likely to take on local partners for any investments in Russia, Vice President James Crossland said in a June 4 interview.

Kinross rose 14 cents to C$24.74 at 4:15 p.m. in Toronto Stock Exchange trading. The shares have gained 10 percent this year.

Acquisitions

Kinross sold shares valued at $414.6 million in the first quarter to pay for acquisitions and take advantage of investors’ interest in gold as a haven from economic turmoil.

The company’s producing assets are distributed evenly in the U.S., Russia and South America, and the company wants to maintain that geographical balance, Crossland said in June.

Kinross and Barrick Gold Corp., the world’s largest gold producer, will conclude a study “very soon” on their Cerro Casale deposit, Burt said today. Cerro Casale may produce about 400,000 ounces a year if put into production, he said. Kinross assumed 50 percent control as part of its $3 billion acquisition of Bema Gold Corp. in 2007. Barrick owns the remainder.

In the first half of this year, gold-equivalent production, which includes silver output, rose 47 percent to 1.09 million ounces. For the full year, Kinross predicts 2.3 million to 2.4 million ounces of gold equivalent production, Burt said today.

To contact the reporter on this story: Rob Delaney in Toronto at robdelaney@bloomberg.net.

Original Article here

China Bank President tells it like it is (click here to view the video)
China can no longer afford to let gold or silver price slump
Chinese state endorsement of gold and silver as good investments means the country can no longer afford to let precious metals prices drop by any significant amount.
Author: Lawrence Williams
Posted: Wednesday , 09 Sep 2009

LONDON – With Chinese state institutions hawking gold and silver to the general populace as a good investment (see China pushes silver and gold investment to the masses) – the latest news on this front being that the biggest Chinese bank, the Industrial and Commercial Bank of China (ICBC), is setting up a special precious metals department to handle growing investor demand for gold and silver within the country, the corollary is that therefore the country cannot afford to let precious metals prices fall substantially and thus alienate millions of its citizens who have been taking state advice to buy them.
In a Reuters report the ICBC is quoted as saying “”China is the world’s largest gold producer and the second-biggest gold consumer, and Chinese always have a custom to keep gold as personal wealth. China’s gold market is growing rapidly and has a huge potential with the growth of individual incomes.” Surely yet another endorsement of gold as an investment by a Chinese state concern?
And China certainly has the power to manipulate the gold price in ways maybe not undreamt of by GATA which has long believed that there has been gold price suppression by western governments, central banks and financial institutions. This time the boot could be veritably on the other foot.
More…

* State-owned firms may default on commodity hedges – report

* Bankers dismayed, confused by report; seek more details

* Lawyers question legality of the move

* Traders suspect lurking losses may have prompted warning (Adds analysts comments)

*****

By Eadie Chen and Chen Aizhu

BEIJING, Aug 31 (Reuters) – A report that Chinese state-owned companies will be allowed to walk away from loss-making commodity derivative trades provoked anger and dismay among investment bankers on Monday as they feared it may set a damaging precedent.

The State-owned Assets Supervision and Administration Commission, the regulator and nominal shareholder for state-owned enterprises (SOEs), told six foreign banks that SOEs reserved the right to default on contracts, Caijing magazine quoted an unnamed industry source as saying in an article published on Saturday.

While the details of the report could not be confirmed, it was Monday’s hot topic in financial circles from Shanghai to Singapore as commodity marketers feared that companies holding underwater price hedges could simply renege on the deals, costing banks millions of dollars in profit.

The warning from SASAC follows a series of measures from Beijing this year to crack down on the sale of derivative products by foreign banks to Chinese enterprises, principally big consumers, who bought protection against higher prices last year only to watch the market collapse — leaving them with losses.

While many companies including top airlines have come clean on the losses, some analysts fear another wave may follow.

“I wouldn’t be surprised if more state firms emerge with big derivatives trading losses, otherwise SASAC wouldn’t come out with such a radical move,” said a Hong Kong-based derivatives analyst, who like most other industry officials and bankers declined to be named due to the high sensitivity of the issue.

A SASAC media official said on Monday that he was waiting for the “relevant department’s” official comment before he can clarify to media. A government official said that the Bureau of Financial Supervision and Evaluation under SASAC was handling the issue. The official declined to be named and did not elaborate.

Spokespersons at Goldman Sachs (GS.N) and UBS (UBSN.VX) declined comment, and media officials at Morgan Stanley (MS.N) and JPMorgan (JPM.N) were not immediately available for comment. All are major global providers of commodity risk management.

No bank were named in the Caijing report. The SASAC media officer also declined to identify any specific banks.

“It’s a handful of companies who are being encouraged by regulators to re-negotiate,” said a second banking source. “It’s outrageous, but it’s China, so everyone is treading very carefully.”

Original Article here

“The Swiss have once again proven their sovereignty and respect for the financial privacy of individuals. This is a good day for the rule of law, and the protection of private property”. – Alex Stanczyk

—

Traditions die hard.

Since the founding of the Swiss Confederation in 1291, Switzerland has protected the privacy of its financial accounts. It may be the world’s most secretive banking jurisdiction, with a vaunted ability to protect its depositors from unwanted prying.

Switzerland converted this tradition to law in 1934, when it enacted its strict banking secrecy law. Revealing financial information without the client’s consent is prohibited.

For more than a year now, this tradition of bank secrecy, or financial privacy as the Swiss call it, has been under attack from one of the most powerful agencies in the world — the U.S. Internal Revenue Service. In July 2008, the IRS served a “John Doe” summons on UBS, seeking records that would identify U.S. taxpayers with accounts at UBS in Switzerland who have not reported these accounts to the IRS. UBS failed to comply with the summons.

So in February, the U.S. Department of Justice filed a petition to force the Swiss banking giant to turn over some 52,000 names of U.S. account holders the IRS suspects failed to pay taxes on earnings from those accounts, as required under U.S. law. UBS has continued to refuse to disclose the names, arguing that doing so would violate Swiss banking laws. It is a crime in Switzerland for bankers to provide information on client accounts to foreign tax authorities, and bankers who violate this law may be subject to criminal prosecution that includes the possibility of a prison sentence.

Fearing that UBS might, nevertheless, succumb to U.S. pressure, the Swiss government formally joined the fray in early July. The Swiss stated in a friend of the court brief that if a U.S. judge ordered UBS to turn over the account names, the government would seize UBS’ bank records, if necessary, to prevent UBS from divulging the information. Switzerland last took this type of action 25 years ago when it seized the accounts of tax fugitive Marc Rich.

The IRS countered, saying that while bank secrecy may be important in Switzerland, protecting that secrecy must be considered in the context of UBS actions. As the bank admitted earlier this year, UBS willfully assisted thousands of U.S. clients to evade hundreds of millions of dollars in taxes.

On the strength of information provided by former UBS private banker Bradley Birkenfeld on the bank’s tax practices, U.S. tax authorities were poised to tear down the wall of Swiss banking secrecy.
Yet, such an outcome now appears out of reach.

On July 31, just three days before the parties were to go to trial, the U.S. and Swiss governments reached a tentative agreement in a civil case filed on Feb. 19. This agreement, which has not yet been finalized, means that UBS is not likely to give U.S. tax authorities the names of all 52,000 American clients the IRS suspects are evading taxes on some $15 billion held offshore in secret Swiss bank accounts. Neither the U.S. nor the Swiss government provided details on the number of names that would be provided. On August 7, U.S. District Judge Alan Gold, who is presiding over the civil case, approved a request from both parties for another teleconference Aug. 12. A related but separate criminal case has been settled.

Original Article Here

By Keith Fitz-Gerald
Investment Director
Money Morning/The Money Map Report

The U.S. news media has convinced many investors that oil consumption is falling because of the global recession. While that may be true, it’s a disservice to millions of investors because production is declining at a pace that’s actually three times faster.

And that suggests higher oil and gasoline prices in coming months – perhaps as much as 50% – 70% higher, or more – particularly if a U.S. economic recovery is truly in the offing.

To really see what I’m talking about, let’s start with a close look at consumption. I’m asked about this frequently in my global wanderings, most recently at the Las Vegas Money Show last week.

For months we’ve been hearing about a drop in global demand. It’s a popular story and one that sounds credible: After all, it seems logical to assume that during economic chaos, consumers and businesses alike will rethink their budgets and ratchet back their spending.

For consumers, the continued economic malaise will mean fewer trips to the store, less-ambitious vacations, and car-pooling to school or work . For businesses, the cutbacks by consumers will clearly translate into canceling trips where conference calls will suffice and using lower-cost shipping alternatives for the decreased sales volumes most U.S. companies will experience.

According to the U.S. Energy Information Administration, oil consumption fell by nearly 50,000 barrels a day throughout 2008. According to the latest figures, the EIA suggests that global oil demand may slump to 83.4 million barrels a day in 2009 – nearly 2.4 million barrels below 2008 consumption levels. On a percentage basis, that’s almost a 3% drop. I have my doubts that we’ll actually see a decline of this magnitude, but if it does occur, it will be the first time ever that consumption has declined for two straight years. That alone is pretty noteworthy in this era of cohesive and powerful global growth.

The reason I have my doubts about such a steep decline in demand is this: While overall consumption is dropping in such developed economies as the United States, Europe and Australia, it’s being at least partially offset by continued growth in China, the Middle East and Latin America. Because the data produced there is less than transparent, I can’t help but think that analysts are underestimating the growth we’ll be seeing in those markets, where consumption is accelerating strongly. And it’s entirely possible that growth in those markets will outstrip any fall here in the developed world.

Even if the growth in the emerging markets doesn’t quite offset the decline in their developed brethren, analysts seem to be forgetting that oil prices are a function of two variables – consumption and production. And it’s the change in production that’s going to catch a lot of people by surprise.

After a run of record high oil prices punctuated by frantic resources development, we’re now seeing the opposite scenario. The long period of lower than anticipated oil prices following oil’s meteoric rise last year means that the entire industry is no longer making the investments needed to sustain production capacity or actual production.

And not many folks recognize this fact.

For instance, direct project investment in drilling may be down as much as 20%, while the number of drill rigs in operation in America alone has dropped by more than 40%. Various estimates from the EIA and private sources suggest that actual U.S. production may fall by as much as 320,000 barrels a day. While the amount is a matter of debate, the fact that production is declining is not.

More than 20% of total U.S. oil production comes from tiny wells located in remote areas that were marginally profitable producers when crude oil was trading at $100 a barrel. With oil currently at about $61 a barrel, those producers are practically worthless now.  So the “mom-and-pop” shops that own them are actually abandoning entire fields and equipment without a moment’s thought.

To be fair, at least part of the drop in demand can be attributed to increased reliance on methanol, ethanol and other types of biofuel, but that’s hard to quantify at the moment because the long period of low oil prices has eroded the economic viability of alternative fuels – at least for now.

The story is much the same with new exploration projects being cancelled left, right and center. The trend is particularly apparent in the Canadian oil sands that were everybody’s fancy only 24 months ago. Now we’re seeing Royal Dutch Shell PLC (NYSE ADR: RDS.A, RDS.B), StatoilHydro ASA (NYSE ADR: STO) and Petro-Canada USA (NYSE: PCZ) each backing away from multi-million dollar investments that were to bring online an estimated 500,000 barrels a day.

Russian, Saudi and Mexican producers are reporting the biggest production drops seen in 50 years. Even Venezuelan leader President Hugo Chavez – the perennial motor mouth and longtime U.S. critic – is eating crow. He’s begrudgingly invited (read that to mean “is begging”) the oil companies whose assets he nationalized only a year ago to “come back” into the market.

He has no choice. Venezuela’s oil production is already below its 1997 levels, and many analysts say that output could fall even more since Chavez has done such a thorough job of alienating the big foreign oil companies that actually possess the technology needed to extract crude oil from that country’s hard-to-reach reserves.

Chavez’s Chavez’s government seized the assets of 60 foreign and domestic oil service companies after conflict erupted over nearly $14 billion in debt owed by the country’s state-owned energy company, Petroleos de Venezuela (PDVSA). PDVSA accumulated the debt as oil prices took a dramatic slide from over $147 a barrel last July to less than $35 a barrel in February.

Then there’s simple shrinkage. This is an oil industry term for declining output. The EIA recently released data suggesting that production at more than 800 oil fields around the world is going to decline by about 9.1%. It doesn’t matter whether the decline is prompted by depletion, war, or simple neglect. The fact is that this shrinkage will take an estimated 7.6 million barrels per day out of the system.

I could go on but I think you get the picture.

Now imagine what could happen to oil-and-gasoline prices when normalized demand resumes. Not only will there be less oil in storage, but virtually the entire industry – exploration, production, refining and sales – is going to be caught sitting on its heels when the world needs it to be zooming along in high gear. And that means the companies that make up this industry will have to ramp up again to meet the newly increased consumption demands.

This whole process could take two years – or even longer – to play out.

As for prices, history is replete with examples of what happens when there are major shortages of key commodities.

In the Energy Crisis of 1973-74, for example, I can still remember the numbingly long gas lines and waiting in the car for hours to get a fill-up. My father and grandfather vividly remember that prices quadrupled in a matter of months. I’m sure you do, too.

Only a few years later, in 1979, we got another oil shock when prices quadrupled again. Because it was coupled with stagnant economic growth and virulent inflation (stagflation), this period was an economic disaster for the United States.

For those who had learned from the earlier crisis, however, it was a mondo- profit opportunity.

The same can be said for 2007-2008, when the huge spike in oil prices that I predicted contributed to the bear market in stocks, tight credit and recessionary conditions that led to the current malaise that continues to grip the U.S. economy. As much as anything else, high oil prices contributed to the carnage we’ve seen in the auto-making and airline industries, and to the financial crisis that started here before spanning the globe.
Which brings us full circle.

Many investors will refuse to believe we’ve arrived at this new energy nexus, especially given all the hype we’ve seen surrounding alternative fuels, hybrid vehicles and the new “green” mentality that’s taken hold here in this country. If you listen to some of the real believers, they’ll tell you that we could be living in a petroleum-free Nirvana – as early as tomorrow.

While I personally would like that, too, it’s a misleading argument if for no other reason than there are millions of consumer items we use – from plastic bags to makeup – still created using petroleum. And there are still more than 60,000 manufacturing processes that depend on petroleum, and even the most aggressive estimates suggest that it will take the world decades to shift away from them.

We’re in much the same situation when it comes to hybrid vehicles. There isn’t a mass-produced electric vehicle available today that could offset the coming rise in recovery-driven demand for oil and gasoline. There’s a strong effort underway, but I’m not aware of a single company ready to field the solution in cost-affordable quantities by 2010 – which is when most analysts say a recovering economy will stoke demand for oil.

Of course, U.S. President Barack Obama’s much-lauded efficiency and greenhouse-gas-standards mandate will help significantly, but that’s like bolting the barn door after the horses have run for the fields. The irony of watching auto executives “applaud” his press conference was almost too much to watch with a straight face. But that’s a story for another time.

The bottom line is this: Our society will be highly dependent on oil for many years to come and investors should plan accordingly.

If governments around the world really want to get serious, they could collectively work to eliminate the fuel subsidies that are part of the price paid for gasoline in Asia or sugarcane ethanol in Brazil. We could also stop our own energy pork barreling. But given the complete lack of transparency that surrounds this issue – not to mention the influence wielded by vested industry interests, and the scores of well-paid lobbyists that patrol the halls of power in our nation’s capital – I don’t think we’ll see any big changes anytime soon.

So I’m left with one inescapable conclusion, at least in the intermediate term. Every investor needs to have at least some sort of energy strategy – preferably one that includes a range of drillers, producers and suppliers to cover the spectrum from wellhead to consumer.

That way, we can profit from an increase in energy prices that we can only hope rise fast enough to jump-start the oil industry’s production arm but not so fast that it snuffs out the badly needed economic recovery.

______________________

Original Article Here: http://www.moneymorning.com/2009/05/21/oil-prices-10/

By Ambrose Evans-Pritchard
The Telegraph, London
Monday, April 20, 2009

The aggressive monetary policy of central banks around the world is playing havoc with the structure of the bullion market, creating a chronic shortage of gold that may soon push the metal to fresh records above $1,500 an ounce.

Charles Gibson, a gold expert at Edison Investment Research, argues in a new report that negative real interest rates (below inflation) in the US and beyond has upset the “leasing” machinery in the gold industry and led to a sustained market squeeze.

This is what occurred in the late 1970s, driving gold prices to $850 and ounce — roughly $1,560 in today’s terms. Gold finished last week at $870.

Mr Gibson said the powerful dynamic could lead to a second leg of this gold bull market, even though the metal has already enjoyed a torrid run over the last eight years.

In normal times, gold mining companies sell — or “hedge” — a chunk of their output in advance through bullion banks. These banks cover their positions by leasing gold from central banks. This bread-and-butter trade created excess supply of 500 tonnes each year until the start of this decade.

Low real interest rates have caused the process to reverse, creating a shortfall of about 500 tonnes. The process accelerates as rates turn negative, leading to a scramble by market players to find physical gold.

There are already reports that gold bars are becoming scarce, partly due to fears that futures contracts and other forms of paper gold may not prove reliable if there is a serious breakdown in the global financial system. Pure metal — whether Krugerrands, Maple Leaf coins, or the “five tael biscuit” favoured by the Chinese — entail no counterparty risk.
Mr Gibson says the Fed’s monetary blitz will end in another burst of inflation akin to the late 1970s. That is a disputed claim as deflationary forces tighten on the global economy. Some of the big global banks are already calling the start of a bear market. Rarely has the gold fraternity been so schizophrenic.

Original Article here: http://www.telegraph.co.uk/finance/news…

By Moming Zhou, MarketWatch.

Leaders from the Group of 20 nations Thursday endorsed the International Monetary Fund’s plan to sell 403 tons of gold to raise funds to support the world’s poorest countries.

The announcement from G20 leaders helped add pressures to Thursday’s gold trading. Gold futures fell $20.30, or 2.2%, to $905.80 an ounce in recent trading on the Comex division of the New York Mercantile Exchange.

The G20 vowed in its statement to “use the additional resources from agreed IMF gold sales for concessional finance for the poorest countries.” The endorsement suggests that the IMF’s gold sales plan is likely to be approved by its member countries later this year.

The IMF has been planning to sell gold since as early as 2007 to diversify its revenues and strengthen its balance sheet. But the plan needs to be approved by an 85% majority vote from its 185 members.

The U.S., which has 17% voting power in the fund, essentially holds veto power. The U.S. government has informed the IMF that Congressional authorization by law is required before it is able to support the plan.

The U.S. Treasury announced last year that it will seek authority from Congress. The U.S. administration has seemed supportive, both for expanding the IMF’s role as well as helping its long-term funding challenges. This makes the proposed IMF gold sales much more likely.
Hussein Allidina, an analyst at Morgan Stanley, said in a note Thursday that he expects the IMF to implement the sales over the next few years, “but do not believe that this presents a strong negative risk to gold prices – as it will be ‘orderly’ and maybe even off market.”

Minimize market impact

The IMF, which holds more than 3,200 tons of gold, is the third-largest holder in the world after the U.S. and Germany.

Most of the IMF’s gold holdings come from the fund’s member countries, which are required to commit 25% of their quota in gold. The fund can’t sell those holdings into the markets.
But an additional 403.3 tons of gold the fund acquired through off-market transactions in 1999 and 2000 – such as interest payment from countries that received IMF loans – are not subject to the restriction.

If member countries approved the gold sales, the IMF can find ready buyers in countries with low gold reserves, especially Russia and some Asian countries such as China, Taiwan, and India.

China, with less than 1% of its $2 trillion reserves held in gold, has expressed interest in buying more gold, crude oil, and other strategic commodities.
According to the IMF’s plan, the gold selling will be implemented in coordination with major central banks to minimize the impact on the market.

The European Central Bank said Wednesday it had completed the sale of 35.5 tons of gold.
The gold sales were in full conformity with the second Central Banks Gold Agreement, which was signed in 2004 by the ECB and other European major official gold holders.

The second CBGA, which caps total gold sales of the signatories at 500 tons a year, expires in September. Some analysts expect a third CBGA to be signed before September.

Original Article here:
http://www.marketwatch.com/news/story/g20-supports-imf-plan-raise/story.aspx?guid={5ABAE8F2-060D-44BC-9905-EB79665AEACE}&dist=msr_1

With regard to whether Chinese advisors and experts think the US government is creating a dangerous and unstable Treasuries bubble, note this statement:

“Buying US government bonds amid an economic downturn, [a purchase] that is not based on the sound performance of the US economy itself, indicates a huge bubble,” said Zuo Xiaolei, chief economist of China Galaxy Securities. [italics added]

Chinese officials express mounting alarm at the likely negative near-to-medium term effects upon the dollar, and upon their huge reserves, of the spend-spend-spend policy emanating from Washington:

The huge deficit would not immediately lead to inflation, since banks were likely to curb lending as the financial system remained weak, Zuo said. “It might be two or three years before the huge deficit leads to serious inflation.” Analysts noted that if the stimulus plan didn’t accomplish its goal of restarting growth, the US government would have to ease its large fiscal burden by borrowing more and issuing more dollars, instead of relying on economic growth.

Huge Treasury bond issues would exacerbate the depreciation of the US dollar and world wealth. Such developments would be more catastrophic than the global financial crisis, according to Zhang Yansheng, head of the International Economic Research Institute under the National Development and Reform Commission, the chief economic planning body in China.

A weaker US dollar would hurt that currency’s international status, he said, which would “not be in the interests of the United States and other countries and would exacerbate the crisis.” Said Zuo: “US dollar depreciation is inevitable in the long run. China should prepare and reduce its holdings of US Treasuries to a proper size.”

In a strong hint that China’s central bank won’t be adding to its holdings of Treasuries at anywhere near the rate it did in 2008, that it may already have clandestinely achieved more diversification out of the dollar than is widely known, and may well find ways to further decrease its holdings without explicitly telegraphing its moves, note this statement:

Fang Shangpu, deputy director of the State Administration of Foreign Exchange, noted Wednesday that the report released by the US Treasury of the amount of government bonds held by China included not only the investment from the reserves, but also from other financial institutions. It might be a hint that Chinese government is not holding as much US government bonds. [Italics added.]

China is managing its foreign exchange reserves with a long-term and strategic view, Fang told a press briefing. “Whether China is to purchase, and to buy how much of the US government bonds, will be decided according to China’s need,” Fang said. “We will make judgment based on the principle of ensuring safety and the value of the reserves,” Fang said.

The foregoing quotes beg the following questions:

· What about the widely held view, which is even at times recited by Chinese central bank officials themselves, that says China has no choice but to maintain its holdings of Treasuries and to keep buying more, lest any significant slowdown in its rate of purchases risk triggering a global dollar panic?

· Is that view correct, or does China’s central bank actually have other viable options, as Luo Ping and other officials insist that it does?

· What might those other options be, are they really viable, and what might happen to the dollar if China’s central bank began to exercise its professed “other options”?

· What kind of scenario might prompt China’s central bank to attempt to do so?

· Could its enactment of “other options” be carried out in a way that would be difficult to trace, so that China would avoid triggering a dollar panic while it steadily reduced its exposure to the dollar over the coming months?

Continues– Complete Article here: http://www.atimes.com/atimes/China_Business/KC17Cb03.html