Will South Africa Nationalize its Gold and Platinum Mines?

From Mineweb:

The possibility of possible nationalization of South Africa's key mining sector rumbles on. Is this likely to happen? Julian Phillips looks at the politics behind the rhetoric.

Author: Julian Phillips
Posted: Thursday , 07 Oct 2010

BENONI (SOUTH AFRICA) -

The argument that South African mines will be nationalized stems from Julius Malema, the head of the Youth League of the ANC. It has been rumbling on for some time now. Mrs. Shabangu the Mines Minister previously stated that it would not happen in her lifetime. This was ignored by the Youth League who held to their position. At that time it was not on the Agenda of the ANC and was treated with a measure of derision by the ANC. Then the ANC conference happened and the ANC placed the issue on the Agenda to be discussed in 2012.

As in most countries internal national issues rise in importance far above international ones. The issue of whether the "previously disadvantaged classes" in South Africa are getting their ‘fair' portion of the country's wealth has been a burning issue since 1994 and is unlikely to go away.

THIS IS AFRICA

The quote from the film "Blood Diamonds" - "T. I. S. -This is Africa, is often used to highlight that thinking is different in Africa to the rest of the world. The developed world concepts that laws rule governments, good economic sense will prevail, education and understanding of western capitalism pervade all walks of economic life, do not apply in Africa, as history amply demonstrates. So, before taking this issue further in this article, readers must factor in certain sub-Saharan cultural differences that they are unaware of when it comes to such discussions.

Glance at the history of sub-Saharan history and you will see an overriding description of rulership by individual tribal leaders. Names like Robert Mugabe, Mobutu Sese-Seko, Hastings Banda, Idi Amin and in the past Shaka Zulu spring to mind. How did they get so much power? In that part of the world, an African chief is considered the father of the tribe. He has the right to everything and as a father, he is expected to look after his children. As such, it is deemed right that he should own everything. His word is law and that law may change from time to time, according to the situation he finds. Any Cabinet he may surround himself with is there to advise him, for he makes the decisions, not the Cabinet or party. In South Africa and Zambia's case this outlook has been modified to some extent, for in Zambia the government is a mixture of several tribes. In South Africa, while the Xhosa tribe is dominant, politics via the Unions has diluted the sole leader's power. Nevertheless, even there, government reflects the pressures of power and sees legislation as subject to those pressures. Government can alter legislation any time in these almost one-party nations. It is against this background that mining legislation should be seen.

The author experience this attitude first hand in Mozambique, when he quoted a regulation agreed with the World Bank on Debt Conversion. He pointed out to officials of that central bank that particular regulation, whereupon he got the reply, "Oh, that's only what's written". The top official in charge of the application, made it clear that his opinion at that time would override any such regulations.

As we have all seen repeatedly, since Robert Mugabe took the reins in Zimbabwe, the desire to control and own the wealth of their own country by the current leaders has been relentless, oblivious to the destruction of their own people's wealth and welfare, a repeat of what happened in Angola, the Congo, Rwanda and so on and on.

SOUTH AFRICA

With this in mind one looks at South Africa, which to its credit has seen the reins of power held in ANC hands since 1994 and the overall shape of the economy is still much the same as it was prior to 1994. In that time there has been the pervasive policy of "Black Empowerment" steadily creeping into all walks of life. To date this has not sprinted to its objectives too quickly, in the hopes that the economic engine will run at the pace it did before 1994. The intention of the government there has been that the city should come to the village, but slowly we've seen the village come to the city. It is this process that will dictate the future of South Africa.

In South Africa. the fattest goose has always been the mining sector and the object of avaricious government eyes. But this goose has thinned tremendously in the past decade, as a rising Rand has choked off new growth in the gold sector and the tonnage produced has fallen from a peak of over 1,000 tonnes of gold to the present around 170 tonnes. Shallow mining of platinum is faring much better, so just as vulnerable.

The underlying belief in the heart of the Unions, that workers should get a bigger share of the profits through wages [rising faster than inflation] will see costs rising at an accelerating pace, making future growth in gold mining slow continuously.

NATIONALIZATION - A SOCIALIST POLICY OR AN AFRICAN ONE?

Please note that African Communism has little to do with Russian or Chinese Communism. Hence the above question. You have to blend the above attitudes to ownership with the unionism of the largest labor union in South Africa COSATU. The government has to rely to a great extent on COSATU's support to continue to rule unchallenged. There have been signs of deep discord between the two of late, for Black Empowerment appears to follow the traditions of tribal Africa more than it does Socialism, much to the annoyance of the Unions. The number of newly empowered Africans [and often related to political leaders] is very few, with the principles of the process broken repeatedly as a small number of nepotisticly linked individuals have gained great wealth while the poor majority remain as poor as ever.

[There is the tale of Wisdom Mbutu and Happy Boy Mtwetwe digging holes in the road and Happy Boy turns to Wisdom and says, "after the revolution the bosses will dig the holes in the road". Ten years later and after the ANC had power for many years, there they are, both still digging the holes and Wisdom says to Happy Boy, "I thought you said the bosses would be digging the roads after the revolution" to which Happy Boy replies, "We are!"]

The driving force behind the discussion on nationalization is the Black Empowerment process. However, as the efficiency of the system declines [you saw that in electricity and it's coming in hospitals, water and a host of state run or para-state run enterprises] it is clear to all, including the ANC, that such a step would mean a disaster for production and profits. It would also mean the end of foreign investments in South Africa. The nation cannot grow without foreign investments in the country. Despite all this, the issue is now on the agenda. It is the political shape of the country that will dictate whether nationalization will happen. We cannot rule it out as we felt we could a month ago. With BEE already demanding the 26% of South African mining be handed [almost free] to black ‘investors', there is a distinct possibility that nationalization could happen!

The conclusion of the discussion may well be two years away still, but the fact that it is on the Agenda of the ANC then will delay or deter foreign investment on a broad front in South Africa. Should it become a reality thereafter you will see South Africa slide down a very steep slope towards the state that Zimbabwe is in now. The lower prices South African shares have relative to their U.S. and Canadian counterparts, reflects this possibility.

India's rich throng to gold

From Mineweb:

As concerned investors look for a hedge against inflation and a weakening dollar, even slight dips in the high price of the yellow metal are being seen as a buy signal.

Author: Shivom Seth
Posted: Thursday , 07 Oct 2010

MUMBAI -

It is a gold rush the likes of which the country has not witnessed in a long time. Fears of double dip recession in the US and the subsequent global fallout of such an event has caused high net-worth individuals in India thronging to precious metal counters.

"The way this class (read wealthy investors) responds to a fear situation is by buying bars and kilos of gold,'' said A L Adjaniawala, precious metals analyst at KJMC Capital, a Mumbai-based research firm. "Given the firming up of bank deposit rates in India, consumers in the world's biggest buyer of the precious metal are keen to increase the share of gold in their investment portfolio to 20%-25% over the following year, from the current 10%-12%,'' he added.

Last year, bullion gained 34% and investors in India had realised the benefits of holding the yellow metal. With investors currently seeking a hedge against inflation and a weakening dollar, even a slight price drop is an opportunity that cannot be missed.

On Tuesday, Comex gold soared to an all-time high against a weakening dollar. Last Friday, the dollar fell to the lowest level since January, against a basket of currencies, partly on speculation that the Federal Reserve would ease the monetary policy to stimulate the US economy.

Data had showed that growth in US manufacturing had slowed. Inflation too was subdued; reason enough to spike the Indian market.

"Not just the richie-rich, even small investors have started buying gold coins. Most of them say they collect it for their children,'' said Harmesh Arora, director of NIBR Bullion, a Mumbai-based gold refinery that sells coins.

He adds, the corporate sector too has started gifting coins to their staff and dealers, "Knowing its intrinsic value, many retail stores are giving a gold coin as a free gift with the purchase of high value products, especially in the forthcoming festive season.''

Shwetambur Shah of Choksi Vimalkumar, a jeweller in Mumbai's Kalbadevi area noted that Indians traditionally buy gold jewellery during festival time. "It is the most common gift during religious events and an essential wedding present, but buyers are becoming increasingly aware of the benefits of holding gold in other forms too. So, from coins to bars, several people are now coming in asking for larger quantities of gold,'' he added.

However, the high price is playing spoilsport in some areas. An official of Riddisiddhi Bullions, a large wholesaler in Mumbai, said sales may fall slightly before they pick up again. "Usually by this time, most of our stocks get lifted. This year, people are nervous about the high price,'' he added.

In the April to June quarter, India's investment demand for gold was at 41.5 tonnes, up 7% year-on-year, while jewellery demand stood at 123 tonnes, down 2% year-on-year, data from the World Gold Council has shown. Sunil Solanki of M H Karbawala & Co said the retail rate of gold jewellery at Rs 19,700 was too high for the normal consumer to jump in. "It is a wait and watch policy that is being adopted by most people. We do receive enquiry sales practically every hour on whether the rate has reduced, which would entice people to come in and buy some jewellery for the Navratri festive season ahead,'' he added.

Gold surges to record 1,356.50 US US dollars an ounce

From the Sydney Morning Herald:

Gold surged to a record 1,356.50 US US dollars an ounce in Hong Kong trade on Thursday.

The precious metal is well up from Wednesday's 1,349.80 US dollars reached in New York trade. It opened at 1,347.00.

Dealers are buying as the dollar remains under pressure amid concerns over the global economy and as dealers look to invest in the safe haven in times of uncertainty.

The dollar fetched 82.84 yen in Tokyo trade, close to a 15-year low 82.75 hit briefly in New York on Wednesday and below the level at which Japan intervened for the first time since 2004 on September 15.

The euro was trading at a near eight-month high 1.3921 US dollars.

Comex gold punches through $1,350/OZ on currency instability

By Tom Jennemann of Fast Markets:

New York 06/10/2010 - Gold on the Comex division of the New York Mercantile Exchange touched an all-time record of $1,351 an ounce on Wednesday as the dollar wobbled and a Federal Reserve official suggested that additional monetary stimulus is needed to curb unemployment.

Gold futures for December delivery closed Wednesday at $1347.70, up $7.40, for the day. The yellow metal traded in a range of $1,340.00 to $1,351.00, which was a new lifetime record.

"You're starting to hear that $1,400 is within reach now that we've taken out $1,350, where there was some resistance from a Fibonacci basis," Tom Pawlicki, an analyst at MF Global Holdings Ltd. in Chicago, said.

"The main focus is still on currency weakness and prospect that the Fed will conduct quantitative easing on Nov. 3," he added.

The dollar fell to a fresh eight-month low of 1.3947 against the euro on the back of a lacklustre jobs report.

Payroll processing company ADP reported that private US employers shed 39,000 jobs during September, after gaining a revised 10,000 in August. Estimates were for an increase of 23,000 new jobs.

The dollar also reacted negatively to comments made by Chicago Federal Reserve Bank President Charles Evans, who said he favours "much more accommodation than we've put in place."

"In the last several months I've stared at our unemployment forecast and come to the conclusion that it's just not coming down nearly as quickly as it should...This is a far grimmer forecast than we ought to have," Evans said in an interview with the Wall Street Journal.

Evens added that Fed should push interest rates down in order to move inflation higher and to even tolerate inflation above target of 2 percent to make up for lost ground.

"Until the Fed moves away from QE and towards a more normalized interest rate policy, gold is going to rally," Pawlicki said.

MKS Finance SA said in a note that currency-hedge buying continued today with long-term macro concerns lending support to gold.

"The outlook still seemed bullish considering the already high prices. Nevertheless, one should remain cautious ahead of numbers awaited tomorrow and Friday regarding Band and England and European Central Bank rate decision and non-farm payrolls in the US. Should the numbers add to speculation on further quantitative easing by the FED gold could fly to the moon and beyond," MKS said.

Comex silver for December delivery added 31 cents, or 1.4 percent, to close at $23.04 an ounce. Earlier in the day, the grey metal posted a fresh 30-year high of $23.09.

Going for gold: how a 'strange' investment is now mainstream

From the Sydney Morning Herald:

A stampede of the super rich is under way as they snap up gold to secure their wealth as the economies of the world wobble.

"The most we've sold in the last couple of weeks for a customer's own vault was $5 million [in bullion], about 100 kilograms," Janie Simpson of the Australian Bullion Company said.

The number of transactions have stepped up in recent months, she said.

"It just keeps getting bigger and bigger. We had to put on a new staff member this month to cope with the volume.

"Three years ago, if you said you held physical gold in your investment portfolio, people might [have thought] it's almost a bit strange.

"But now, people are holding physical precious metals in their portfolio. It's mainstream."

In Geneva, UBS executive Josef Stadler told a private banking summit this week that his Swiss firm even had a couple buying "over a tonne of gold ... and carrying it to another place", Reuters reported.

At today's prices, that amount of gold would be worth about $US42 million.

Investors who want to buy gold would usually buy it through exchange-traded funds on the Australian Stock Exchange.

But recently, some have turned to buying gold bars and coins, resources expert Greg Canavan said.

"Now there is a lot of concern about whether the gold [that] a lot of these funds say they hold - whether that's actually the case," Mr Canavan, founder of Sound Investments, said.

"The reason [that] physical ownership is becoming so popular is [that] there is no counterparty risk with owning physical gold. So it's no one else's liability.

"In the paper money world ... and one in which central banks are creating more and more paper liabilities and paper assets, people are turning to gold to get out of the financial system and get out of the risk that the financial system poses."

Perth Mint, one of the leading sellers of physical gold in Australia, said that, while its sales were highest during the global financial crisis, demand for precious metals remained high and sales were "strong and steady".

In the 2008/9 financial year, Perth Mint sold about 2.7 million coins, a total of 7.8 million ounces of pure gold, silver and platinum, public relations manager Alexandra Lucchesis said.

For 2009/10, it sold about 2.7 million coins, bars and medallions, consisting of 10.13 tonnes of gold, 218.5 tonnes of silver and almost 10 kilograms of platinum. The rising price of gold - spot gold hit a fresh all-time high of $US1344.10 an ounce today before easing to $US1342.70 - has also led to an increase in gold sales, pawnbroker Cash Converters said.

"We buy old gold and it can come in any form [besides jewellery]," marketing manager Glenn Donaldson said.

"Some of our stores are buying three to four times the volume that they were buying 12 months ago."

According to the World Gold Council's gold demand trends report for the second quarter of 2010, physical gold bar demand - largely covering the non-Western markets - rose 29 per cent from the second quarter of 2009 to 96.3 tonnes.

The "Uneducated" Know more about Gold and Silver

I have seen many times in my travels through Asia it is those people with the least formal education that are able to understand the wealth protection aspects of owning gold and silver the best. Such people shun debt, even consider debt a social stigma, and save their wealth in gold and silver, not as volatile zeroes and ones on a bank's hard drive.

Have a close look at the photo in this story below about a new language being "discovered" in a very isolated valley in northeast India. Notice the silver that both the speaker and her companion are wearing. Silver coins and silver purses. This custom can also be seen in the golden triangle area of Thailand, Burma & China. South East Asian tribes, such as the Karen & Hmong use old French silver coins as adornment and as savings. Actually looking at the speaker she seems to have very similar facial features to those SE Asia tribes, more so than classic Indian features. Maybe several thousand years of trading goods and silver has combined the genetics of these disparate groups.

From the Wall St Journal:

Rare Find: a New Language

By ROBERT LEE HOTZ

A Koro speaker talks to National Geographic Fellow Gregory Anderson in Arunachal Pradesh, India, as he makes a recording of the language.

In the foothills of the Himalayas, two field linguists have uncovered a find as rare as any endangered species—a language completely new to science.

The researchers encountered it for the first time along the western ridges of Arunachal Pradesh, India's northeastern-most state, where more than 120 languages are spoken. There, isolated by craggy slopes and rushing rivers, the hunters and subsistence farmers who speak this rare tongue live in a dozen or so villages of bamboo houses built on stilts......read on

Gold Mania? Not Quite

After 20 years of only allowing straight price or mostly negative gold reports, the WSJ has finally realised what the really smart money has known for 10+yrs. Gold beats stocks when volatility is high. Gold is up over 400% in the last 10yrs where as the DOW and SP500 have gone nowhere, and this has been achieved without any significant retail investor demand. The end price for gold is not even in sight.

From the Wall Street Journal:

Associated Press

The conventional wisdom on Wall Street is that the gold bubble is about to pop.

After all, people will tell you, the little guy is now totally on this bandwagon. Ordinary Mom and Pop investors from Bakersfield to Boston have dumped their stocks and poured their money into gold coins and bullion funds. It's a mania–just like Nasdaq '99, real estate '04, gold '10. Look at all the TV commercials. Look at these new gold coin vending machines. Everybody knows that when the ordinary public get into a boom, the smart money gets out. Right?

I decided to check out the facts on this urban legend. And they may surprise you.

How much have ordinary Americans actually invested in gold this year?

According to Financial Research Corp., a Boston firm which tracks the data, investors poured $7.4 billion into gold bullion through exchange-traded funds from the start of the year through the end of July. Nearly all of that went into State Street's SPDR Gold Trust.

But a lot of that money came from big institutions like pension funds, hedge funds and mutual funds. According to State Street, these account for at least 45% of the investment in GLD these days.

So individual members of the public probably accounted for only about half the new investment, or $3.7 billion.

The public has also been buying gold coins and bars. According to GFMS, Ltd., the London-based consultancy that produces the most authoritative figures, U.S. investors bought about 45 metric tons of gold bars and coins in the first half of this year. This is less than they bought last year.

Based on prices in the first half, that maybe accounted for another $1.7 billion or so of investment.

Grand total: The public bought about $5.4 billion worth of gold.

But the story doesn't end there. At the same time, others were selling gold. Lots of it. I was walking through the mall on Saturday when a young woman came up to me, thrust a plastic bag and leaflet under my nose, and asked me if I had any old gold jewelry to sell. The company she worked for would do a deal on the spot.

This is a new twist on a well-established business. In every major town there are stores that do a busy trade buying and selling gold. As the price of gold has risen, more and more people have been ringing the bell. In an economy like this, where so many people are struggling, it is a tempting offer.

How much has been sold? Nobody knows for certain. But GFMS says the figures so far are about 10% to 20% higher than last year. Some very rough numbers suggest sales through the first half may have come to about 70 metric tons or so–worth maybe $2.7 billion.

So if individualsbought $5.4 billion worth of gold, and sold about $2.7 billion, their total net investment comes to $2.7 billion. These are the figures through early summer: July for the bullion funds, end of June for the physical gold.

Are these bubble levels? Is the mania near its peak?

Try this. Through the end of July, according to FRC, investors poured $22 billion into emerging markets mutual funds. And a remarkable $155 billion into bond funds. Compared to these figures, the amount invested into gold is chickenfeed.

But it's a tiny share of retail investment this year. It's hard to call it a public mania.

And what about more recently, as the gold price has surged? Once again, the figures are surprising. The total ounces of gold held by the GLD has risen just a couple of percentage points since July. GFMS says that gold coin sales had a weak third quarter here in the U.S.

What this means next for gold is another matter. I'll repeat my own views on this. While I am deeply skeptical of gold as a long-term investment, I recognize that it is in a secular bull market and I suspect it may be the next fully-fledged mania. Currency debasement is a theme unlikely to go away any time soon.

I keep hearing everyone tell me gold is so over. But I don't know many people who actually hold much in their own portfolio. I'd find it easier to believe gold was totally over if no one was saying it and everyone was bragging about all the gold coins they held.

Where does this leave you, the investor?

The gold price has had a great run in the past few weeks - ever since Ben Bernanke warned he might print dollars to buy up more government bonds. And the latest news from the options and futures market suggest it may be due for a pullback: According to Kasper Kirkegaard, a commodities analyst at Danske Bank, speculative betting on a price rise is now near record levels. That usually precedes some kind of reversal. Proceed with caution–as usual.

If you want to play this bubble and you think it has a long way to run, but you want to minimize your risks, one smart way is to buy "out of the money" call options. They're like a long-odds bet on a price jump. That gives you plenty of upside in a boom with small risk. Building positions in stages, instead of jumping all-in at once, remains the way to go.

Gartman Sees Further Gains for Gold

From Bloomberg:

Dennis Gartman, a fund manager and the editor of the Gartman Letter, said his worst investment this year was a bet on grain before a U.S. Department of Agriculture report last week that showed an unexpected jump in corn supplies.

Bullish on Gold

Gartman remains bullish on gold after the metal jumped to a record $1,351 an ounce today in New York.

“You should still be in gold,” he said. “The funds that I run, I am still long of gold. I am less long than I was. That’s about the only thing that I can say.”

Gold has surged 23 percent this year, heading for a 10th straight annual gain. Prices reached a record in 13 sessions since Sept. 14.

“When you have this kind of euphoria, this kind of excitement, you usually get corrections,” he said. “I wouldn’t be surprised if it fell $100 from here. Am I bearish of gold? No. I’m still bullish. I just think too many people have gotten involved.”

Currency Wars

From Bloomberg:

Treasury Secretary Timothy F. Geithner said a “damaging dynamic” of large economies keeping their currencies undervalued can cause inflation and asset bubbles, and called on countries to coordinate their policies.

“More and more countries face stronger pressure to lean against the market forces pushing up the value of their currencies,” Geithner said in a speech today at the Brookings Institution in Washington. He said currencies are “inherently a multilateral issue. It’s much easier to solve if countries come together and do things to complement each other.”

Global exchange-rate policies are a source of contention ahead of this week’s meeting in Washington of the International Monetary Fund, World Bank and Group of 20 officials. Brazil’s Finance Minister Guido Mantega last week warned of a “currency war.”

“It is very important to see more progress by the major emerging economies to more flexible, more market-oriented exchange-rate systems,” Geithner said, without mentioning any specific country. “This is particularly important for those countries whose currencies are significantly undervalued.”

Geithner’s comments echoed calls by the IMF for greater currency flexibility as part of an effort to encourage more balanced global growth, with emerging nations relying less on exports and developed countries curbing their appetite for imported goods.

Blanchard Comments

“Many emerging-market economies continue to run large current-account surpluses and to respond to capital inflows primarily through reserve accumulation rather than exchange-rate appreciation,” the IMF’s chief economist, Olivier Blanchard, wrote in a report released today. “International reserves are higher than they have ever been and continue to increase.”

Geithner said last month the Obama administration will use every available tool to urge China to let its currency rise more quickly. China has capped the yuan’s gain at 2 percent since relaxing a dollar peg in June, leading to criticism that it is stunting the recovery in the industrial world by shielding its market from U.S. and European imports.

Chinese Premier Wen Jiabao said today a rapid increase of the yuan would hobble China’s economy, dealing a fresh rebuke to U.S. and European calls for a higher exchange rate.

Wen’s Warning

“If the yuan isn’t stable, it will bring disaster to China and the world,” Wen told a business conference before a Europe- China summit in Brussels. “If we increase the yuan by 20 percent-40 percent as some people are calling for, many of our factories will shut down and society will be in turmoil. If China’s economy goes down, it’s not good for the world economy.”

On Europe, Geithner said not all the continent’s nations face the same obstacles.

“I think you have to distinguish the challenges faced by Greece, by Spain, Portugal, Ireland,” Geithner said in response to questions. Those countries need “to move very, very aggressively to bring their commitments more in line with their resources. That is the essential path for policy in those countries.”

Geithner also said the “greatest risk to the world economy today is that the largest economies underachieve on growth.”