July 28, 2015

Even the #LME is doing its part to bail out #China @WSJ


China’s Yuan Pushes Deeper Into Global Financial System

Chinese one-hundred yuan bank notes being counted. China’s currency is now the fifth most widely used in international payments as the currency takes its place alongside the U.S. dollar, the pound, the euro and the yen.                              ENLARGE
Chinese one-hundred yuan bank notes being counted. China’s currency is now the fifth most widely used in international payments as the currency takes its place alongside the U.S. dollar, the pound, the euro and the yen. Photo: Bloomberg News
By
China’s domestic stock market may be in turmoil but the country’s currency, known as the yuan or renminbi, is making a seemingly relentless push deeper into the global financial system.

The latest step: the London Metal Exchange, the world’s largest venue for trading metals where $15 trillion of metals was traded last year, is set to accept yuan as collateral for banks and brokers that trade on its platform. The Chinese currency joins the U.S. dollar, the euro, the British pound and Japan’s yen, which are all currently permissible as collateral on the LME’s platform.

“In the commodities area, it makes absolute sense to start providing renminbi-denominated services,” said Trevor Spanner, chief executive of the LME’s clearing house business. “The renminbi is on its way to becoming one of the world’s most widely used currencies” he said.

While largely a technical change, the LME move marks another milestone for China’s currency.

The yuan is now the fifth most used currency for international payments, ranking number seven a year ago, according to data from the Society for Worldwide Interbank Financial Telecommunication, a provider of payments services.

A Bank of England survey on Monday showed that trading in yuan rose 25% in London in the six months to April this year, even as trading volumes in other currencies fell by 8% on average over the same period.

Meanwhile, China, whose economy is a major driver of demand for a range of commodities, is also taking a greater role in metals markets specifically.

Last year, Hong Kong Exchanges and Clearing Limited, which owns the LME, launched yuan-denominated futures contracts for some industrial metals, while the LME signed agreements with two Chinese companies to explore ways of expanding use of the yuan.

In June this year, the London Bullion Market Association said that Bank of China Ltd. will become the first Chinese bank to participate in the daily process for setting the price of gold. China vies with India as the world’s largest consumer of gold, according to the World Gold Council.

The yuan’s gains in the global financial system come as investors turn cautious on China’s domestic markets, where stocks have been on a volatile ride of late. And international use of China’s currency remains tiny compared with the dollar, the euro and sterling.

David Clark, chairman of the U.K.-based Wholesale Markets Brokers Association, said global renminbi trading infrastructure is falling into place, but volumes will only really take off when China’s currency can be freely converted into dollars, euros or other foreign currencies.

“The renminbi is getting more and more important for global finance. But there is a big question mark: when it will be fully convertible?” he said.

Still, a number of major financial centers are racing to become a hub for the yuan, including London.

“The role of the renminbi in foreign exchange trading and cross-border payments has surged,” said Dan Marcus, CEO of London-based currency trading platform ParFX. The rise of China’s currency on global markets “is arguably the most significant development in currency trading since the introduction of the euro in 1999. Ten years from now, it will be challenging the top major currencies.”

Write to Chiara Albanese at chiara.albanese@wsj.com




July 25, 2015

Goldman Sachs lower #copper forecasts on the back of lower Chinese demand

Things don't look great for Dr. Copper 


 

July 24, 2015

Why Isn't #Gold Behaving Like Gold Right Now? http://archives.subscribermail.com/msg/6739935396e94df58eb5eb6f30de375e.htm

U.S. Global Investors' Frank Holmes comments on the gold market:

Gold Hits the Reset Button

Gold is universally recognized as a safe-haven investment, a go-to asset class when others look uncertain. Following the 2008 financial crisis, for instance, the metal's price surged, eventually topping out at $1,900 per ounce in August 2011.

But this week has been a particularly rocky one for the metal, even with Greece and Puerto Rico's debt dilemmas, not to mention the recent Shanghai stock market decline, fresh in investors' minds. Gold has traded down for 10 straight sessions to end the week at $1,099 per ounce, its lowest point in more than five years. Commodities in general have dropped to a 13-year low.

Commodities-Drop-to-a-13-Year-Low
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Gold stocks, as expressed by the XAU, have also tumbled.

gold-stocks-slide-to-a-multi-year-low
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The selloff was given a huge push last Friday when China, for the first time in six years, revealed the amount of gold its central bank holds. Although the number jumped nearly 60 percent since 2009 to 1,658 tonnes, markets were underwhelmed, as they had expected to see double the amount.

Then in the early hours on Monday, gold experienced a "mini flash-crash" after five tonnes appeared on the Asian market. Initially this might not sound like a lot, but five tonnes equates to 176,370 ounces, or about $2.7 billion. It also represents about a fifth of a normal day's trading volume. Suffice it to say, price discovery was effectively disrupted. In a matter of seconds, gold fell 4 percent before bouncing back somewhat.

Reflecting on the trading session, widely-respected market analyst Keith Fitz-Gerald noted: "Far from being a one-day crash, this could represent one of the best gold-buying opportunities of the year."

The last time the metal descended this quickly was 18 months ago, on January 6, 2014, when someone brought a massive gold sell order on the market before retracting it in a high-frequency trading tactic called "quote stuffing." Last month I shared with you that we now know who might have been responsible for the action—and many others that preceded it—and pointed out that the accused party's penalty of $200,000 was grossly inadequate. On Monday I told Daniela Cambone during this week's Gold Game Film that such downward price manipulation seems to result in little more than a slap on the wrist. But if manipulation is done on the upside, traders could get into serious trouble.

Besides apparent price manipulation, other factors are affecting gold's behavior right now, three in particular.

1. Strong U.S. Dollar

Like crude oil, gold around the world is priced in U.S. dollars. This means that when the greenback gains in strength, the yellow metal becomes more expensive for overseas buyers. With the U.S. economy on the mend after the recession, the dollar index remains steady at a 12-year high.

It's important to recognize, though, that gold is still strong in other world currencies, including the Canadian dollar. As such, our precious metals funds have hedged Canadian dollar exposure for Canadian gold stocks, which has benefited our overall performance.

2. Interest Rates on the Rise?

Federal Reserve Chair Janet Yellen continues to hint that interest rates might be hiked sometime this year, perhaps even as early as September. When rates move higher, non-yielding assets such as gold often take a hit.

As you can see, the 10-year Treasury bond yield and gold have an inverse relationship. When the yield starts to rise, investors might find bonds a more attractive asset class.

Inverse-Relationship-Between-Gold-and-the-10-Year-Treasury-Bond-Yield
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3. Slowing Manufacturing Activity

Earlier this month I wrote about the downtrend in manufacturing activity across the globe. As many loyal readers are well aware, we closely monitor the global purchasing manager's index (PMI) because, as our research has shown, when the one-month reading has fallen below the three-month moving average, select commodity prices have receded six months later.

Global-Manufacturing-PMI-Continues-Its-Downtrend
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China is the 800-pound commodity gorilla, and its own PMI has remained below the important 50 threshold for the last three months, indicating contraction. The preliminary flash PMI, released today, reveals that manufacturing has dipped to 48.2, a 15-month low. For gold and other commodities to recover, it's crucial that China jumpstart its economy.

In the meantime, we're encouraged by news that the slump in prices has accelerated retail demand in both China and India, which, when combined, account for half of the world's gold consumption.

Battening Down the Hatches

They say that a smooth sea never made a skillful sailor. No one embodies this more than Ralph Aldis, portfolio manager of our precious metals funds. He and our talented team of analysts are doing a commendable job weathering this storm. We're invested in strong, reliable companies, and when commodities eventually turn around, we should be in a good position to catch the wind.

We look forward to the second half of the year, when gold prices have historically seen a bump in anticipation of Diwali, which falls on November 11 this year, and the Chinese New Year. As you can see, average monthly gold performance has ramped up starting in September.

Average-Monthly-Gold-Performance
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 "Gold is down 15 to 25 percent below production levels," Ralph says. "That might cause some companies to halt production."

And, in so doing, help prices find firmer footing.

After my San Francisco experience it only seems fitting that I traveled to Colorado, one of the first states to legalize cannabis for recreational use. It was only a coincidence that Julia Guth chose to retreat to the state's beautiful mountains for the Oxford Club's educational seminar. It was a privilege to present to two assemblies of curious investors like yourself.  I enjoy meeting many of you when I'm on the road.

Whats Driving Gold

Domestic Equity Market

WTI Crude Oil Breaks Down
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Strengths

  • Consumer discretionary was the best performing sector in the S&P 500 Index this week as investors moved out of areas with a large degree of foreign and/or commodity exposure. The S&P 500 Consumer Discretionary Sector Index fell 0.46 percent this week.
  • Existing home sales in the U.S. climbed to the highest rate since February 2007. The housing market has been gaining strength over the last few months.

US-Home-Sales-Reach-Eight-Year-High
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  • Initial jobless claims fell to the lowest level in over 40 years, highlighting the tightening labor market in the U.S.

Weaknesses

  • Materials got hammered this week as precious metals stocks declined over concerns of a September rate hike, while base metals stocks fell on concerns over a slowdown in the Chinese economy. The S&P 500 Materials Sector Index fell 5.47 percent this week.
  • Energy slumped this week as crude oil prices continue to fall, testing the lows seen earlier this year. The S&P 500 Energy Sector Index fell 4.07 percent this week.
  • Industrials underperformed given the lack of faith in Chinese growth as well as a depressed energy market. The S&P 500 Industrials Sector Index fell 3.81 percent this week.

Opportunities

  • The Markit U.S. manufacturing purchasing managers' index (PMI) remains well above the 50 mark, with the most preliminary reading for June coming in at 53.8.
  • The Conference Board U.S. Leading Index, comprised of economic variables that tend to move before changes in the overall economy, rose by 0.6 percent from the prior month, exceeding analysts' estimates.
  • After contracting in the first quarter, the United States economy is expected to have grown by 2.6 percent in the second quarter, according to a Bloomberg survey of economists.

Threats

  • Inflationary pressures should start becoming more prevalent in the economy as the labor market continues to tighten and wages rise. If there is a noticeable positive shift in inflation it would only strengthen the Federal Reserve's decision to raise rates in September, which could cause equities to retreat.
  • Commodities are in trouble. The Bloomberg Commodities Index reached its lowest point since 2002, surpassing the lows seen during the financial crisis. With no trend shift in sight, commodity-sensitive plays could remain vulnerable in the near future.

Bloomberg-Commodities-Index-Hits-Lowest-Point-Since-2002
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  • The Conference Board Consumer Confidence Index is expected to decline next week, which could weigh on retailers as well as other discretionary plays. 

July 23, 2015

#NuLegacy #Gold Is First In Line To Benefit From #Barrick's Renewed Focus On Core Assets - NuLegacy Gold Corporation (OTCMKTS:NULGF) | Seeking Alpha

NuLegacy is on the verge of a major turning point.  Today's excellent results only confirms the desirability of the Iceberg deposit. 
This from SeekingAlpha:
When we asked about the remaining earn-in obligations, CEO Mr. Anderson assured us that only $700,000 remains to be spent, and the earn-in will be completed by October 15 this year. Not long after that a meeting with Barrick Gold will be called to discuss the future working arrangements for the Iceberg project. NuLegacy Gold currently holds approximately $3.2M in cash and marketable securities, more than enough to fund the company well beyond the October 15 dead line.

(Goldrush across the valley from Iceberg. Source: Company presentation)

Beyond The Earn-In

Barrick Gold will have 90 days to decide on how it wishes to proceed once the earn-in has been confirmed. According to the agreement between the two companies, the major can either earn back a 70% stake by spending $15M on further exploration; or remain a 30% minority partner.
If Barrick decides to spend $15M on further exploration and development of the Iceberg project in order to earn back a 70% stake, then NuLegacy Gold's ultimate 30% stake will also be carried to production without further dilution. This means that Barrick Gold would be responsible for funding Iceberg until production, and NuLegacy Gold will pay back its 30% share of development costs from cash flow once the mine is operational. In essence, NuLegacy Gold will own an asset very similar to a royalty on Barrick Gold's next mine in Nevada, and that will be worth a lot of money to any of the larger streaming or royalty companies.
And if Barrick Gold decides to remain a 30% minority partner, then NuLegacy Gold has a 70% stake in the next deposit down the road from Goldrush on the Cortez trend. Plenty of mid-tier miners are currently trying to find a footing in desirable jurisdictions and Iceberg is prime real estate in this context.
Importantly, this is not an endless exploration play with multiple cap raises and years of uncertainty. To the contrary, the time frame for the NuLegacy Gold story is very limited. The earn-in will be completed shortly after October 15, and Barrick Gold will need to make its choice by early Q1 2016. In fact, this limited time line is an important point we would like to emphasize about this particular play.




July 21, 2015

#Gold stocks trading 30% below 200 day MA



From Shortsideoflong

Remarkably, 76% of the index posted 52 week new lows. Moreover, as we can see in the chart below, Gold & Silver mining index is currently trading 30% below its 200 day moving average. When we take into consideration all of the above, such kind of a selling pressure has only occurred a handful of times over the last two decades, and usually signals we are close to the selling exhuastion.

Chart Of The Day: Gold miners are currently trading 30% away from its 200 MA!

Source: Short Side Of Long

 

July 20, 2015

Resource Maven: It's ugly out there. #MiningStocks #Gold

What to do with your mining stocks?

This from the "Resource Maven":

I outlined my investing outlook to Maven subscribers mid-last week. The first point was: A crash might be coming. That was validated within 24 hours.

     Another directive: Don’t try to catch a falling knife. I do not know what gold is going to do. Forced to guess, I would say there is more pain on the horizon. Chartists and technical analysts generally agree that, once it broke below $1,142, gold had another $100 to lose easily, perhaps more. Sentiment is negative; momentum is to the downside.
     The only significant support I see for gold comes, ironically, from those seeking to profit off its slide: the shorts. Short selling positions are massive right now, in gold and in gold miners. 
     All those shorts create downward price pressure, to be sure – but only until prices slide enough that the betters get nervous.
     Short selling is a very exposed gamble. The faster the price of gold falls the harder it will be for shorters to stick to their guns. The more gold declines the more pressure will build on shorters to buy gold to cover their bets.
     So that’s positive for gold in the short term, albeit once the price weakens even more. The bigger the resulting bounce, the more confidence it will create for contrarian investors that this truly is the bottom.
     After almost five years of pain, I think the mining bear market is throwing its final punches. This last leg down might last a few days, a few weeks, or a few months. Wish I knew, but I don’t.
     What I do know is that, until it is over, things are going to be ugly for those of us left in mining. Then it will get better.
     So hold on. Perhaps don’t bother checking on your mining stocks this week. Don’t let yourself check the price of gold too often. The bleeding will gradually slow, then stop, and then it will be time to average down on favorite holdings and establish positions in quality stocks that you have long eyed.
     But no rush.


Resource Maven: It's ugly out there.






July 9, 2015

The Power of the Patient Investor #Gold #MiningStocks #Uranium

Value investing has been out of favor in recent years, but patient long-term investors can still find bargains in unloved sectors of the market.

From Institutional Investor, the author likes these resource plays:

Another opportunity afforded the patient investor exists in
the gold mining industry. Conjuring incremental money takes no
time at all, if by money we are referring to fiat currencies.
Digital trillions require merely a key stroke; patience has
been neither required nor exhibited. Conversely, producing an
incremental gold coin requires rigorous effort, a lot of
capital investment and the patience of a saint. New gold mines
generally take more than a decade to find, drill, assess,
permit, finance (and divvy the economics among owners,
government and other stakeholders), build and begin to operate.
There is a reason only a few major mines have been constructed
over the past 30 years.


Entering the gold mining business is arguably crazy. Yet a
patient investor need not be exposed to the anguish and
expense. Here, too, the valuable product of successful
exploration — years of toil, fruitful negotiation and
massive capital investment — is periodically wholesaled on
Wall Street for cents on the dollar. Names that we like in this
space are many: Barrick Gold Corp., Centerra Gold, Dundee
Precious Metals, Gabriel Resources, Goldcorp, Kinross Gold
Corp., Kirkland Lake Gold, Lundin Gold, Newcrest Mining,
Northern Dynasty Minerals, NovaGold Resources and Turquoise
Hill Resources.


Uranium is next on our list of valuable yet unloved
commodities that can result in investing opportunity. Like
hydro, uranium is used to produce electricity at an extremely
low variable cost and without air pollution or greenhouse
gases. Unfortunately (fortunately, for investors?), uranium is
relatively scarce and getting more scarce. Consumption has been
exceeding mine supply for the past 20 years. According to
energy expert Marin Katusa, the annual deficit could be 55
million pounds by 2020. New mines take many years to develop
and generally would require much higher uranium prices to
justify the investment. How odd, yet fortuitous, that
Canada’s Cameco Corp., owner of the world’s best
uranium mines, has had its shares smacked by the market,
bouncing along at the lowest price levels seen since 2004.

See the whole article on the Institutional Investor site here:  The Power of the Patient Investor:

July 8, 2015

#Uranium: Denison & Fission to merge consolidating the #Athabasca Basin $DML & $FCU

See the comments below from Cantor Fitzgerald's Rob Chang

DML & FCU - Betting that size matters: Denison and Fission to combine

Interesting transaction in the uranium space as Denison Mines and Fission Uranium have agreed to merge.  Details and our first thoughts below.
Rob Chang
Denison Mines | BUY | Target: C$1.80 | DML-T C$0.88 | DNN-N US$0.70 | MktCap C$456M
Fission Uranium | BUY | Target: C$2.10 | FCU-T C$0.97 | MktCap C$375M
Analyst: Rob Chang    Associate: Michael Wichterle
Betting that size matters: Denison and Fission to combine
Event: Denison Mines and Fission Uranium have announced the execution of a binding letter agreement to merge the two companies.
Bottom Line: Neutral.  The combined company will be appealing to acquirers that are looking to sweep up a large portfolio of quality assets in the Athabasca Basin. Moreover, the combined company will sport a larger valuation that will be more attractive to institutional investors with minimum market capitalization constraints. On the other hand, the merger does not seem to have many obvious synergies as DML's eastern Athabasca assets and FCU's western basin assets are too far apart to share many costs meaningfully.
  • According to the terms of the agreement, FCU shareholders will receive 1.26 common shares of DML as well as a cash payment of $0.0001 for every share of FCU.
    • The Transaction will require shareholder approval from two thirds of the votes cast by the holders of Fission common shares, plus any majority of the minority approvals of Fission Shareholders that may be required by Multilateral Instrument 61-101 as well as approval of 50% plus 1 of the votes cast by the Denison shareholders.
    • Based on yesterday's closing prices, this translates into a $1.11/share value for each FCU share, or a 14% premium
      • FCU last traded at $1.11/share on June 15th. However we do note this is a merger of equals valuation and not a takeout valuation. Indeed the management team of FCU is effectively taking control of DML by assuming the CEO and COO positions.
    • The transaction value translates into a $4.04/lb. multiple for FCU. This is roughly in-line with the average transaction multiple of $3.95/lb. post-Fukushima (see Takeout $/lb. exhibit below).

#Dollar/ #Loonie may have a date with six-year high as crude #oil's collapse continues | Futures Magazine

 

Dollar/Loonie may have a date with six-year high as crude’s collapse continues

        
Global traders remain hyper-focused on the latest Greece-related rhetoric from such influential luminaries as Latvia’s Central Bank Governor, Lithuania’s Finance Minister, and even the Finance Minister of Malta, but perhaps investors should be focusing just as much energy on the collapse in the price of: Energy.
In particular, oil has gone off the boil, with WTI falling nearly 8% in yesterday’s trade alone. Beyond an last week’s surprising increase in U.S. oil rigs and the ongoing Greek debt drama, the primary catalyst for the drop in oil has been optimism about a nuclear deal with Iran that could eventually bring up to 1 million barrels per day of the country’s oil back to the global market. Over the weekend, Russia’s Foreign Minister said that a deal with Iran “is about 90%” complete and suggested that the remaining issues were more procedural than political.
Combined with last week’s technical breakdown below 57.00, traders took these comments as a green light to drive WTI down to a low near 52.00 so far. “Black gold” is now testing the 50% Fibonacci retracement of its entire Q2 rally at 52.30, but if that level gives way, a continuation down toward the 61.8% retracement near the psychologically-significant $50 level could be next.

About the Author

Senior Technical Analyst for FOREX.com. Matt has actively traded various financial instruments including stocks, options, and forex since 2005. Each day, Matt creates research reports focusing on technical analysis of the forex, equity, and commodity markets. In his research, he utilizes candlestick patterns, classic technical indicators, and Fibonacci analysis to predict market moves. Matt is a Chartered Market Technician (CMT) and a member of the Market Technicians Association. You can reach Matt directly via e-mail (mweller@gaincapital.com) or on twitter (@MWellerFX).