June 28, 2011

Fort Knox: What to Do with the US's gold

Fort Knox: What to Do with Old Yeller - The Curious Capitalist - TIME.com: "Fort Knox: What to Do with Old Yeller
Posted by ROYA WOLVERSON Tuesday, June 28, 2011 at 6:00 am
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Should the U.S. sell off its gold reserves to pay down debt? That's the latest idea being tossed around by gold bug Ron Paul. Not only would selling Old Yeller help the U.S. pay its bills, says libertarian Paul, but it would put more gold in the hands of the American people and pull back the reins on the Federal Reserve, which is printing money like mad and debasing the value of our currency. So insistent is Paul about this strategy that he challenged the government to a gold audit to make sure its stash of bullion at Fort Knox is really all there. (According to the Treasury's inspector general, it is.) So is selling it a good strategy, or is Paul just a crazy kook?"

The MasterMetals Blog

China family swoops on RAB funds

China family swoops on RAB funds
By Sam Jones in London

One of China’s wealthiest families has swooped to acquire funds from the wreckage of London-based RAB Capital in a move that will create one of the biggest new hedge fund startups this year.

The deal will catapult one of Asia’s biggest private conglomerates into the centre of the resurgent hedge fund industry and comes just days after RAB – once a posterchild for London’s hedge fund boom – was forced to delist from the UK Aim market because of client redemptions

China family swoops on RAB funds - FT.com:

The MasterMetals Blog

Paulson & Co the largest non-governmental owner of gold in the world

"Paulson & Co the largest non-governmental owner of gold in the world"
A rare mis-step for Paulson - FT.com:
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June 14, 2011

West Africa Rising: Liberia aims to tap riches, wean itself off aid by 2021 - CSMonitor.com

West Africa Rising: Liberia aims to tap riches, wean itself off aid by 2021
The Christian Science Monitor - CSMonitor.com

After guiding Liberia to stability after years of civil war, President Ellen Johnson-Sirleaf hopes to take advantage of the country's natural resources to transform it into a middle-income nation.


Liberian President Ellen Johnson-Sirleaf leaves a room after a meeting with former British Prime Minister Tony Blair in London as part of the Africa Governance Initiative's ongoing work to reduce long-term poverty, on June 14.
(Sang Tan/AP)
By Drew Hinshaw, Correspondent
posted June 14, 2011 at 12:55 pm EDT

Dakar, Senegal
• West Africa Rising is a weekly look at business, investment, and development trends.

In her six years in office, Liberian President Ellen Johnson-Sirleaf has restored relations with the western world, rebuilt tattered infrastructure, erased the country's external debt, and entered the race for the second term she long ago swore she'd never seek, but will likely win.

Last night, with 120 days ticking before ballot boxes open in Liberia, the president set another ambitious target for her little country that could: She wants Liberia to wean itself off aid by the decade's end.

"There's no reason why we cannot build upon the successes of today to ensure that ten years from now, Liberia should no longer require foreign assistance," she told a crowd of hundreds of Africa watchers in London.

It's hard to under-state the importance of that goal. An aid-recipient state since 1819 when James Monroe bankrolled its founding, Liberia has risen and fallen by the whims of donors, raking in 771 percent more aid than revenue in 2008.

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That is changing, as visibly in Liberia as elsewhere in the region. The rise of China, the proliferation of mobile phones, and an explosion in the trading rates for rocks readily found in Africa's mineral-rich soil has boosted Liberia from a failed state to a welterweight contender in Africa's economic rise.

"Liberia is moving from the first six years of stabilization to the next six years of sustained economic growth and development," Mrs. Johnson-Sirleaf said, estimating that by 2030, it could become a middle-income nation, like Brazil.

The way to get there, she added, "means harnessing our natural resources."

Rain forests

"With Liberia's natural resources and our relatively small population of 3.7 million, there is no reason that we cannot create a prosperous society," the president said.

She's certainly right about the country's resources.

A wetland nation the size and shape of Tennessee – except with more Antebellum mansions – Liberia holds half of West Africa's remaining rain forests. Nearly half – forty-five percent – of the country is thicketed with dense woodlands cherished for timber, rubber, pharmaceuticals, and bio-fuels.

Timber alone once accounted for as much as a fifth of Liberia's total economy, but also constituted a vital funding source for militias fighting its 14-year civil war, which is why the United Nations long maintained sanctions on Liberian wood. Those sanctions were lifted five years ago; just last month, the government further relaxed restrictions by dropping all import taxes on equipment used for logging, agriculture, and mining.

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It seems to be working. The European Union last month signed a logging deal with Liberia that involves pasting bar codes to trees in the country's dense forests. ArcelorMittal, the world's biggest steelmaker, will start exporting iron ore from the country this month. A second iron digger, Sable Mining, says its found a "major" iron ore deposit, and Chevron plans to drill an exploratory well for oil.

"The hydrocarbons and gas are of interest, that sector was very evident last night," Chatham House Africa Analyst Alex Vines, who hosted Johnson-Sirleaf's speech, told the Monitor.

Mr. Vines was a UN sanctions inspector in the end days of dictator Charles Taylor's regime.

"My impression of the country is that it has greatly improved," he said. "You can move around. There's electricity in Monrovia. But the need to find employment, especially for the growing number of under- and unemployed youth is really critical. The demographic pattern of Liberia is just like anywhere else in Africa. They need to find more jobs for young people."
West Africa Rising: Liberia aims to tap riches, wean itself off aid by 2021 - CSMonitor.com

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June 10, 2011

June 7, 2011

China shops for Latin American Oil, Minerals & Food

China's Latin American Adventures

China shops for Latin American oil, food, minerals

China on Latin American buying spree to lock in long-term needs in oil, minerals, food 

ap
On Monday June 6, 2011, 12:01 am EDT

CARACAS, Venezuela (AP) -- Latin America is blessed with a wealth of natural resources such as oil, copper and soy, and seeks investment and loans to capitalize on them. China needs the commodities to keep its economy growing and has about $3 trillion in reserves to burn.

Those interests have come together in a burgeoning and unorthodox partnership, as China lends and invests tens of billions of dollars in countries around Latin America in return for a guaranteed flow of commodities, particularly oil.

Recent deals have made China a key financier to the governments of Venezuela and Argentina. At the same time, Chinese companies have secured a decade's worth of oil from Venezuela and Brazil, and steady supplies of wheat, soybeans and natural gas from Argentina.

China is breaking new ground by aggressively locking down commodities around Latin America through large loans, investments and other financial arrangements, said Orville Schell, director of the Center on U.S.-China Relations at the Asia Society in New York.

"I don't know of any other government which has done this sort of securing of rights for commodities and natural resources so systematically around the Third World as China, and they've used a whole host of new financial instruments to do this," Schell said.

"China's been very, very prolific in spreading its investments around Africa and Latin America, even though the terms aren't ideal."

Ernesto Fernandez Taboada, director of the Argentine-Chinese Chamber of Production, Industry and Commerce, said China is simply making sure it has the resources it needs to continue growing its economy, which, by some accounts, is projected to surpass the U.S.'s by 2020.

"For China, this is a strategic, long-term investment," Fernandez Taboada said. "They're thinking in the future, not just in the moment. These oil investments, for example, are for 15 to 20 years."

Some of the largest investments have gone to Brazil and Argentina, but China has extended even bigger loans to Venezuela, agreeing to provide more than $32 billion to President Hugo Chavez's government.

Venezuela will pay its debt in oil, and in increasing amounts of it during the next decade. The infusion of cash has swiftly made China Venezuela's biggest foreign lender, enabling Chavez to boost spending ahead of next year's presidential election.

"Viva China!" Chavez exclaimed during a televised meeting with business leaders from Beijing, thanking them for helping set up mobile phone factories and build railways and public housing in Venezuela. He gushed: "I'm in love with China."

The relationship is driven in part by Chavez's eagerness to form alliances that exclude the U.S. But it's also good business for Chinese companies: Venezuela says it has been exporting to China about 460,000 barrels a day, about 20 percent of its oil exports, according to official figures. It hopes to double that soon.

"Venezuela has what we need," said Chen Ping, political counselor at the Chinese Embassy in Caracas. "And we also have what they need, for example technology ... Therefore we can help each other mutually."

The loans are typically secured against revenues from oil sales to Chinese companies, purportedly at market prices, though there could be discounts in some cases, said Erica Downs, an expert at the Brookings Institution think tank in Washington. She wrote a March report on the China Development Bank's energy deals worldwide.

In many cases, financing is being channeled through the state-controlled China Development Bank, which has worked with Chinese companies to lock in commodity supplies.

Downs said such loans give Chinese state oil companies an edge by allowing them special access to local projects. In some cases, she said, such as in Venezuela and Argentina, the loans appear tied to hiring Chinese companies that carry out public works projects for the borrowing government.

China's financing has also been unique, she said, in that in recent years "virtually no other financial institutions were willing to lend such large amounts of capital for such long terms."

Countries such as Venezuela and Ecuador would otherwise have few options for obtaining such large lines of credit, in part due to their presidents' hostility toward traditional lenders such as the World Bank and the International Monetary Fund, Downs said.

The China Development Bank has become a convenient "lender of last resort," Downs said, and Venezuela's government, in fact, has become the bank's biggest foreign borrower.

In Ecuador, the Chinese oil company PetroChina agreed in 2009 to lend $1 billion to state company PetroEcuador in exchange for oil deliveries. The China Development Bank also agreed to lend $1 billion last year to Ecuador's government, to be repaid through oil shipments.

The Chinese stake appears set to grow exponentially.

Direct Chinese investments totaled more than $15 billion in Latin America and the Caribbean last year -- 9 percent of the region's foreign direct investment, according to a May report by the U.N. Economic Commission for Latin America and the Caribbean.

The report said that while the U.S. is still Latin America's largest investment source, China has climbed to third place, behind the Netherlands.

In Argentina, Chinese companies have even replaced U.S. and British corporations in controlling lucrative natural gas and oil resources.

Last year, the state-owned Chinese oil company CNOOC entered into a 50-50 joint venture with Bridas Energy Holdings Ltd., a family owned Argentine company. The joint venture then bought out British company BP's shares in Argentina-based Pan American Energy, giving it 18 percent of Argentina's oil and natural gas production. This year, the venture also purchased U.S.-based Exxon Mobil Corp.'s interests in Argentina, Paraguay and Uruguay, including a refinery and more than 700 service stations.

"Clearly, the U.S. remains the significant actor in Latin America and will remain so for the foreseeable future," said Eric Farnsworth, vice president of the Council of the Americas, a U.S.-based business group. "But China's a huge part of the scene now. It was commodities exports to China over the last five years that allowed Latin America to weather the economic turmoil."

One Chinese company not only locked in a long-term supply of commodities, but also set a more stable price for years to come and circumvented market rates, which have soared in part because of Chinese demand.

China and Chile created a $2 billion sales, finance and investment joint venture in 2005 that guaranteed China 836,250 metric tons of copper over 15 years, at rates partially fixed on what was then the market price of $2.07 a pound. Chile's state-owned Codelco mining company had to put up its entire 49 percent interest in the venture as collateral, and give China Minmetals Corp. an option to purchase 100 percent of one of the world's most promising copper mines.

Chileans criticized the deal as a threat to their patrimony as they became aware of its details and copper prices soared. Both sides backed off the Chinese purchase option in 2008 to fend off the criticism, but with copper now trading above $4 a pound, Chile's top client is still getting thousands of tons of copper at far below market prices.

China also controls 50 percent of Argentina's largest oil field, Cerro Dragon, and all the oil and gas reserves in the far southern Argentine province of Santa Cruz over the next 40 years, deals that became anti-government campaign issues in provincial elections.

During recent visits to Brazil, Schell said he has heard wariness from businesspeople about a system in which "Brazil sends their natural resources and China sends their flip-flops and consumer goods."

Rubens Barbosa, Brazilian ambassador to the U.S. from 1999 to 2004 and now a business consultant, said Brazilian officials have complained that cheap Chinese exports have destroyed domestic industries such as shoe and textile manufacturers. Brazil this year imposed antidumping tariffs on imports of some Chinese fibers within months of China becoming Brazil's biggest trading partner.

"With trade, we have a problem because the aggressiveness of Chinese companies is very strong," Barbosa said. "But the government still has a lot of interest in these relations with China. China is now the principal partner of Brazil."

China's commercial ties with Brazil continue to grow. About 14 percent of the South American country's oil production went to China in 2009, and that portion is expected to expand because Brazilian oil company Petrobras signed a 10-year deal with Chinese-owned Unipec Asia to export 150,000 barrels of oil a day in the first year. The deal calls for exports of 200,000 barrels a day for the next nine years. At the same time, Petrobras secured a $10 billion, 10-year loan from the China Development Bank.

Petrobras says the deals were separate and that the oil is not being used to pay back the loan. Still, the agreements ensure Chinese access to Brazil's booming oil production, which promises to skyrocket after vast offshore reserves discovered in 2008 come online.

China has also been active across Argentina. The China Development Bank has offered a $2.6 billion, 10-year loan to revive a freight train system connecting Buenos Aires to much of Argentina's central heartland. In the country's Rio Negro province, the Metallurgical Corporation of China has invested $80 million to reactivate an iron ore mine, and China's Beidahuang Group company has promised $1.4 billion in irrigation infrastructure in exchange for a 20-year contract to grow corn, wheat, soy and dairy on otherwise dry land for Chinese consumers.

And in remote southern Tierra del Fuego, near the tip of South America, Chinese companies are investing $1 billion, not only to produce fertilizer, but to build an energy plant, for which Argentina has promised China natural gas for 25 years.

"Two weeks ago, the Chinese commerce minister visited us with 60 business executives, and they showed great interest in investing in other sectors," Fernandez Taboada said. "There is a fundamental expansion of China in Latin America. In all the countries, from Mexico on south."

According to Schell, China is just getting started.

"This is a real tipping point moment, of which the Chinese investments in commodities and extractive resources of Latin America is just the opening bell," he said. "Who's got the money? And it's not the United States any longer. It's China. This is the next great pool of (foreign investment) that the world is going to reckon with in myriad ways."

Associated Press writers Michael Warren in Buenos Aires, Argentina, Bradley Brooks in Sao Paulo, Jack Chang in Mexico City and Jorge Rueda in Caracas contributed to this report.

June 3, 2011

Gold as Collateral - a major step for the gold market



 
very interesting...

Gold as Collateral – a major step for the gold market

The implications of the acceptance of gold as collateral are seen as extremely significant - particularly in the context of the Eurozone debt crises.

Author: Julian Phillips
Posted:  Friday , 03 Jun 2011

BENONI - 

If gold were generally accepted as collateral in global monetary dealings, would we see it used as such? Strangely enough -No!  In certain transactions, however, where no other collateral -whether currencies, government bonds and the like-is used, gold may be used, as a last resort.  

There has been a very long history of gold being sought as collateral, but only the most desperate of debtors has allowed their gold to be used as such. Government bonds are easier to produce and are limited only by market confidence. Moreover they remain in the jurisdiction of the issuer, leaving the issuer in control of them. Gold is different and can only be used once, held outside of the owner's jurisdiction. Control is therefore lost. It cannot be printed and becomes a complete commitment by the owner to honor his obligations.

So why is gold as collateral such an important step for gold in the global monetary system?

THE LATEST MOVES

Last week, the European Parliament's Committee on Economic and Monetary Affairs agreed to allow central counterparties to accept gold as collateral. Once ratified, we would see gold redefined as a highly liquid asset under the Capital Requirements IV Directive, due in June from the European Commission.

This is not the first time gold has been accepted as collateral. Late in 2010 ICE Clear Europe, a leading European derivatives clearing house became the first clearing house in Europe to accept gold as collateral. In February of this year JP Morgan became the first bank to accept gold bullion as collateral. The Chicago Mercantile Exchange is now accepting gold as collateral for certain trades and the London-based clearing house LCH Clearnet has said it also plans to start accepting gold as collateral later this year subject to regulatory approval.

WHY NOW?

Despite comforting words from the U.S. the Eurozone, government debt is being regarded with somewhat less enthusiasm than in the past. Both monetary zones are experiencing awful problems regarding their debt, particularly on the international front. A look at the Mediterranean members of the E.U. shows nations either unable to repay their debts or on the brink. This makes their debt dubious collateral. The sight of the E.U. wanting to control taxation -sell state owned assets on condition that more funds are poured into the country-is really what happens when an individual is liquidated (sequestrated). It's nothing short of that. Will Greece accept this without some dramatic moves? If Greece had lost a war, then this is what the spoils would be. That is certainly how the Greek people will see it.

ARE DEBTOR OBLIGATIONS MORE IMPORTANT THAN NATIONAL SOVEREIGNTY?  

The answer to this big question is not as apparent as it seems....

If they are at the very least social unrest is likely, which in turn will further damage one of their main sources of revenues, tourism. But Greek voters are aware (as much as their government is aware) that Greece retains jurisdiction over Greek assets in Greece. It is their decision, not the E.U.'s.

Other potential reactions may include...

  • A refusal to accept anything but a 50% write-off of debt and leave the banks to sort themselves out.  
  • Leave the E.U. with the obligations unmet or a massive extension to the maturity dates made by the Greek government.
  • The reinstatement of the Drachma and make holidays in Greece very cheap, as inflation takes off, euro prices drop and Greece experiences a boom in Tourism.

No doubt the Greeks are weighing up all these options and will do what serves Greek interest best in the end.   Let's glance at the dominant principles that will guide the process in the days and weeks ahead.

On the banking side, the concept of debt re-scheduling is unacceptable because it would reduce the asset base of the banks and undermine their solvency. The extension of debt and lowering of interest rates would overcome that problem, but it is paramount that the debt be repaid eventually, in a manner that an impoverished Greece can bear. The sell-off of state-owned assets will reduce state revenues and likely cause a tremendous amount of employment cutting (as the operations are made profitable) which will exacerbate the situation. The severity of a new debt package will hurt Greece and ensure that its economic woes last for up to a generation.

On the Greek side the principles of democracy demand that Greek government act in the interest of the voting public. This means that they must assess whether the solutions are acceptable to the Greek public. If they lead to the nation's impoverishment for a generation then the Greek public will not accept them. A pragmatic assessment of the worst of the two situations must be made, an onerous set of repayments, or

The loss of financial credibility in the E.U. and the ejection of Greece from the E.U. (might be the lesser evil)

Such an isolation of the country may raise employment and improve tourism just as sanctions in relatively developed nations often produce a boom. Whatever the outcome you can be sure that politicians will follow voter's first, ahead of banking requirements.

Whatever happens, it will prove very bad for the E.U. and the euro. Would you accept their debt as collateral? Unlikely! What's worse is that any attempt to seize Greek assets without their approval may see Greece take itself out of the Eurozone. Would the E.U. actually invade to take Greek assets in payment of unpaid debts? A write-off of a good portion of what's owed may be a disaster, but it may well be the only option left.  

This may well prove to be a battle of 'bankers' against democracy!

GREEK GOLD

Of critical interest to the gold markets is the sight of Greek gold. Greece currently owns 111.5 tonnes of gold in its reserves [79.3% of its reserves] which can be taken out of its reach and into the hands of creditors. The sale of its government-owned assets to private hands under the pressure of distressed finances may well not achieve anywhere near their value. Would the Greek government pay the proceeds across to creditors immediately? Their gold has far more value than its current market price.  

ALREADY GONE?

But has it already been used as collateral in a Bank of International Settlement deal where it was swapped for foreign currencies? Last year the B.I.S. undertook many gold/currency swaps in mysterious, undisclosed situations. Were they tied to the bailouts? There will be no more devastating a blow to Greece's financial credibility than a disclosure that the gold has already gone. It's equivalent to the family jewels being sold off. And that is gold's value, not its market price!

The current gold price is irrelevant to the repayment of debt. 111.5 tonnes is worth only $5.5 billion, which barely scratches the surface of Greece's $350 billion debt. In a situation where monetary values are collapsing (the U.N. has just issued a report in which they state their fears of a U.S. dollar collapse) the gold price will leap to levels where national debt becomes relatively easy to repay and certainly worth all the promises a government can make at that time. Gold in extreme situations adds considerable credibility and value to any debt situations, way beyond its market price.

If the gold is there, then Greece would feel that it is the one asset which they can use when all credibility is lost. That's why central banks hold so much gold in the first place! If Greece were to leave the Eurozone then Greece might have a chance, with their gold, to transition into a more prosperous country.

OTHER COUNTRIES IN DISTRESS

A look at the other debt-distressed nations that have received a bailout or may want a bailout...

  • Ireland has only 6 tonnes of gold in its reserves, which (in current prices) is worth only $296 million.   Ireland needs far more to solve its debt problems. The gold would be symbolic of the nation's family jewels. The cleverest move Ireland has made was to insist on its low Corporation Taxes being maintained because this will allow much higher revenues to be achieved.
  • Portugal is in a different category. It has 382.5 tonnes of gold in its reserves which has a current market value of $18.9 billion, which would make a significant contribution to their debt situation.
  • Spain has 281.6 tonnes, whose value at current prices is worth $13.9 billion which again would make a significant contribution to its debt repayment.
  • Belgium has 227.5 tonnes with a current market value of $11.2 billion.  
  • The U.K. has 310.3 tonnes of gold remaining in its vaults. This is worth $15.3 billion.
  • Italy which has just come under the ratings agency's spotlight holds 2,541.8 tonnes of gold in its reserves.   This is worth $121 billion at current values.
  • With the U.N. placing the U.S. dollar in the potential collapse category a glance at the published level of gold reserves shows that it holds 8,133.5 tonnes of gold, worth $4.01 trillion at current prices.
  • What if the crisis spread and the E.U. gold reserves at the E.C.B. came under threat? Its gold is 502.1 tonnes valued at today's prices at $24.78 billion.  

Having showed these figures to you, we must stress that such gold reserves will only be used if there are no alternatives. It is a last resort asset, which when gone leaves the nation (almost) out of the international arena and in an (almost) isolated position. In some cases this may prove a good thing. An extreme example of this was seen when Rhodesia had international sanctions placed against it. It thrived, as all the imports had to be substituted for the local equivalents. South Africa, in the face of sanctions, also thrived. So you can be sure that some nations will be tempted to default rather than sacrifice their gold reserves.

As we said above, they may well have been pledged already via the gold/currency swaps last year and the current acceptance of gold as collateral is simply preparing the way for the publication of deals after the event.

Julian Phillips is a long time specialist analyst of the gold and silver markets and is the principal contributor to the Gold Forecaster - www.goldforecaster.com - and Silver Forecaster- www.silverforecaster.com - websites and newsletters


Mining boom makes Gina Rinehart the first woman to top rich list with $10.3bn | The Australian

"Mining boom makes Gina Rinehart the first woman to top rich list with $10.3bn
From: AAP May 25, 2011 3:38PM

GINA Rinehart has become the first woman to top the BRW rich list, with the iron ore magnate's fortune doubling over the past year to $10.3 billion.

In second place is Glencore chief executive Ivan Glasenberg, who until recently had little public profile in Australia."