Hedge Fund Bets Jump to 15-Month High on Bull Rally: #Commodities - Bloomberg

Bloomberg News reports,
Hedge Fund Bets Jump to 15-Month High on Bull Rally: Commodities

Hedge funds boosted bets on rising commodities to the highest in 15 months, driving prices into a bull market as the U.S. drought worsened and the Federal Reserve signaled it may take more steps to spur economic growth.
Money managers' net-long position across 18 U.S. raw materials rose 10 percent to 1.32 million futures and options in the week ended Aug. 21, U.S. Commodity Futures Trading Commission data show. Holdings doubled in two months to the highest since May 2011. Bets on corn are the most bullish in 15 months amid the worst U.S. drought in 56 years, while wagers on gold rebounded and platinum more than doubled.
The Standard & Poor's GSCI Spot Index of 24 raw materials ended the week up 20 percent from a June low, the common definition of a bull market. Minutes of the Fed's last meeting, released Aug. 22, showed many policy makers favored "additional monetary accommodation" soon unless growth strengthens. Purchases of new U.S. homes rose more than forecast in July, matching a two-year high. People's Bank of China Governor Zhou Xiaochuan said Aug. 23 that stimulus measures "can't be ruled out" in the world's second-largest economy.
"The economic situation globally has improved," said Adrian Day, the president of Adrian Day Asset Management in Annapolis, Maryland. "You have global growth, and prospects for added stimulus, and that's good for commodities."
Extending Rally
The S&P GSCI gained 0.4 percent last week, the fourth consecutive weekly gain, after touching a three-month high Aug. 23, and gained 0.9 percent today. The MSCI All-Country World Index of equities slid 0.4 percent, and the dollar lost 1.2 percent against a measure of six major trading partners. Treasuries gained 0.7 percent, a Bank of America Corp. index showed.
Fifteen commodities tracked by the gauge rose last week, led by metals and soybeans. Silver futures jumped 9.3 percent, the biggest weekly gain since October, and gold's 3.3 percent rally was the most since January. Bullion holdings in exchange- traded products backed by the precious metal rose to a record four times last week, reaching 2,448.64 metric tons on Aug. 24, data compiled by Bloomberg showed.
Evidence that the Fed stands ready to deliver additional growth measures "should be very good for markets," Warren Hogan, the chief economist at Australia & New Zealand Banking Group Ltd., said in a Bloomberg Television interview Aug. 23. Credit Suisse Group AG said in a report the same day that increased expectations for so-called quantitative easing by central banks will boost prices.
'Crazy Low'
Further easing in the U.S. isn't a good idea because interest rates are already "crazy low," said Jack Ablin, who helps oversee about $60 billion of assets as chief investment officer of BMO Harris Private Bank in Chicago. Stimulus measures "should be off the table," he said. "The super-cycle for commodities is going to flatline."
The peak of the resources boom will probably be within one to two years, Reserve Bank of Australia Governor Glenn Stevens told a parliamentary committee in Canberra on Aug. 24.
The S&P 500 Index of U.S. equities fell 0.8 percent on Aug. 23 after the government reported that the number of Americans filing applications for unemployment benefits climbed to a one- month high, showing little progress in the labor market. Jobless claims rose by 4,000 for a second week to reach 372,000 in the period ended Aug. 18, Labor Department figures showed. The median of 41 economists surveyed by Bloomberg was 365,000.
Adding Commodities
Investors added $1.47 billion to commodity funds in the week ended Aug. 22, the third inflow of money in the past four weeks, according to data from Cambridge, Massachusetts-based EPFR Global. Precious metals including gold, silver, platinum and palladium accounted for $1.26 billion of the inflows, said Cameron Brandt, the director of research.
"I interpret that as meaning the Fed will come through for some" with regard to the "long-anticipated QE3," said Brad Durham, a managing director for EPFR.
Bank of China's Zhou said Aug. 23 that adjustments to borrowing costs and lenders' reserve requirements are possible. The central bank lowered interest rates in June and July for the first time since 2008 and made three cuts in banks' reserve requirements starting in November. China is the world's biggest consumer of everything from copper to pork to soybeans, and the U.S. is the largest user of crude oil and corn.
Gold Bulls
Speculator holdings in gold futures and options jumped 35 percent in the week ended Aug. 22, the first increase in three weeks, to 110,623 contracts, the most since May 1, CFTC data show. Traders were the most bullish in nine months, with 29 of 35 analysts surveyed by Bloomberg expecting prices to rise this week. Three were bearish, and three were neutral, making the proportion of bulls the highest since Nov. 11.
Investors bought 53.26 metric tons of the precious metal valued at about $2.77 billion through gold-backed exchange- traded products this month, the most since November, overtaking France as the world's fourth-largest hoard when compared with national reserves.
Bullish platinum wagers more than doubled to 15,365 contracts, CFTC data show. Prices rallied 5.5 percent last week, the most since January, on concern that clashes between police and striking miners will spread in South Africa, the biggest producer of the metal. Police killed 34 striking workers at Lonmin Plc's Marikana mine Aug. 16.
Oil Bets
Investors raised bullish oil bets by 18 percent to 179,526 contracts, the most since early May, CFTC data show. Prices advanced 0.1 percent last week to $96.15 a barrel in New York, the fourth consecutive gain, amid speculation that European leaders will make progress in resolving the debt crisis and central banks will spur economic growth. The commodity touched a 15-week high of $98.29 on Aug. 23, and gained 0.9 percent today to $96.98.
A measure of 11 U.S. farm goods showed speculators increased bullish bets in agricultural commodities by 7.1 percent to an 11-month high of 912,186 contracts, the 10th gain in 11 weeks.
Money managers raised corn holdings by 13 percent to 342,893 contracts, the most since the end of April 2011. Wagers have increased for 11 consecutive weeks, the longest stretch of gains since at least June 2006, when the data starts.
Corn surged 60 percent since June 15, reaching a record $8.49 a bushel on Aug. 10, as the drought parched millions of acres. Soybeans gained 33 percent since mid-June and reached a record $17.605 a bushel today.
Crop Yields
Yields from this year's corn harvest probably will drop to 120.25 bushels an acre, down 18 percent from 2011 and less than forecast Aug. 10 by the U.S. Department of Agriculture, the Professional Farmers of America said Aug. 24 after a weeklong sampling of fields in seven states. Soybean growers may harvest 34.8 bushels an acre, down 16 percent, the farmers said.
"The stage is set for commodities to continue higher," said Jason Votruba, the co-manager for small-cap equities at Scout Investment Advisors in Kansas City, Missouri, which manages about $22 billion of assets. "If we get more stimulus in the U.S., that's going to be bullish."
To contact the reporter on this story: Tony C. Dreibus in Chicago at tdreibus@bloomberg.net
To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

(BN) One-Fifth of World’s #Platinum Output Idled After Killings

(BN) One-Fifth of World's #Platinum Output Idled After Killings

Bloomberg News reports, 

One-Fifth of World's Platinum Output Idled After Killings

About a fifth of global platinum production capacity was idled in South Africa today as the nation held a day of mourning for 44 miners and policemen killed in the deadliest police violence since apartheid ended.

Impala Platinum Holdings Ltd. (IMP), the second-largest producer, has suspended work for a day at the Rustenburg operation to let workers to attend memorial services, it said in a statement. Rustenburg and Lonmin Plc (LMI)'s Marikana mine, where police killed 34 protesters on Aug. 16, both tap the world's richest platinum reserves, northwest of Johannesburg. More than 1,000 workers from Royal Bafokeng Platinum Ltd. (RBP)'s Rasimone mine returned today after a stoppage yesterday, the National Union of Mineworkers said in an e-mailed statement.

The police shootings occurred after 10 people, including two police officers, died in fighting among workers and union members during an illegal strike by drillers that started on Aug. 10. President Jacob Zuma declared a week of mourning and agreed to set up a judicial commission of inquiry after police fired on protesting workers armed with machetes and pistols.

"It is not acceptable for people to die where talks can be held," Zuma told more than 1,000 striking miners yesterday, about 250 meters (820 feet) from the outcrop where the killings took place.

Burial Rituals

About 6,000 people attended a memorial service at Marikana today, where groups of crying family members of those killed performed burial rituals in the field where the miners were shot. Strike leaders led the crowd in war songs and vowed to keep to demands for wage increases. More services will be held throughout the country.

"Even you murderers, we welcome you here," said Zolani Bhodlani, a Lonmin worker representative, referring to police in a speech. "As long as you're not wearing that uniform." There was no visible police presence at the ceremony.

Zuma will name the members of a commission of inquiry in the shootings today, his office said in an e-mailed statement.

The violence highlighted investor concern about law and order in an economy that relies on mining for almost two-thirds of its exports. Producers of platinum in South Africa, which has the world's largest reserves, have cut spending and idled mines following above-inflation cost increases and lower prices for the metal, used in jewelry and anti-pollution devices.

Hurt Image

The violence may harm the image of platinum as a luxury jewelry product, Credit Suisse AG (CSGN) analysts including Nihal Shah and Liam Fitzpatrick said in a note yesterday.

"It seems possible, if not probable, that the scenes reported from South Africa will have at least a temporary effect on the appeal of platinum to certain sectors of the market," they wrote.

The rock-drill operators are demanding that Lonmin increase their pay to 12,500 rand a month ($1,504). The protests turned violent because of rivalry between the emerging Association of Mineworkers and Construction Union and the dominant NUM, according to Lonmin. The operators will earn a basic wage of 5,891.89 rand next month, when an increase comes into effect from a previous agreement, and a total package with medical, housing and other allowances, of 10,512 rand, Johannesburg-based New Age newspaper reported, citing Solidarity labor union.

Strikes Spread

Worker discontent spread to a nearby mine owned by Royal Bafokeng yesterday, with operations interrupted at the company's North shaft, it said in a statement. Police said employees were demanding higher pay.

Anglo American Plc (AAL)'s platinum unit, the world's largest producer of the metal, said workers in South Africa made demands directly to the company on Aug. 17.

Lonmin has the capacity to produce about 750,000 ounces a year, mostly at its Marikana mine. Impala's Rustenburg mine produced the same amount in its last financial year after production was slashed by a strike.

Platinum has gained as much as 12 percent to $1,561.50 an ounce since the shooting. It was trading at $1,539.24 an ounce at 12:30 p.m. in London.

To contact the reporters on this story: Carli Cooke in Johannesburg at clourens@bloomberg.net; Sikonathi Mantshantsha in Johannesburg at sikonathim@bloomberg.net

To contact the editors responsible for this story: Amanda Jordan at ajordan11@bloomberg.net; Kenneth Wong at kwong11@bloomberg.net

What Happens to the Gold World when Greece Exits the Eurozone by Julian D. W. Phillips

Today’s Value of Gold · The very fact that the B.I.S. undertook over 500 tonnes of currency/gold swaps two years ago, testifies to it ability to facilitate and support the global monetary system as we know it now. · The continuation of the acquisition of gold by emerging nations also testifies to its current and future value as a support for the monetary system. · The discussions going on in banking circles on rerating gold from a Tier II asset on bank balance sheets to Tier I (equal to U.S. Treasuries in status) further testifies to its value as bedrock money. This value goes well beyond its market price. See the whole article here:

What Happens to the Gold World when Greece Exits the Eurozone by Julian D. W. Phillips

The MasterMetals Blog

Going for #Gold ... in Pictures

Gathered here are images of people extracting, processing, refining, buying, selling, celebrating… all of them going for gold.

See More Pictures here: Gold

Endeavour Mining to buy #Avion Gold for C$389m - Mineweb $AVR #Gold

Endeavour Mining Corp said it will buy Avion Gold Corp for C$389 million in an all-stock deal as it looks to expand in West Africa.
The deal value of 88 Canadian cents per share, based on Tuesday's close of Endeavour's stock, represents a premium of 57 percent to Avion's Tuesday close.

See the whole article here: Correction: Endeavour Mining to buy Avion Gold for C$389m - FAST NEWS - Mineweb.com Mineweb

The Race for Resources

San Antonio, 5 August 2012
The world watched in awe as American swimmer Michael Phelps became the most decorated Olympian of all time. I’ve read he’s been training in the pool for an average of 6 hours a day, 6 days per week, which equates to about 30,000 hours since age 13 and about 10,000 calories burned during a training day. It’s inspiring to see the incredible results of his tremendous sacrifice and commitment - By Frank Holmes, U.S. Global Investors.
Investing in global markets requires the same sort of stamina, especially at times like this week, when the month’s reading on the manufacturing industry was not encouraging. The J.P. Morgan Global Manufacturing PMI of 48.4 for July was the lowest since June 2009.
However, I believe there are encouraging pockets of strength to energize and inspire investors.
For example, we’re coming up on the anniversary of the first stimulus move that kicked off the global easing cycle. On August 31, 2011, Brazil unexpectedly cut rates by 50 basis points, and since then, ISI says 228 stimulative monetary and fiscal policy moves have been initiated across several countries, including the Philippines, China, France, and Colombia.
In June and July alone, there were nearly 70 moves—the most since the world began this massive easing.
Generally, by the time central banks make a fiscal or monetary easing move, economic deterioration has already occurred. Even with these moves, it still takes several months for the stimulative measures to take effect and work their way through.
But while the world wades in the shallow end of the pool waiting for the economy to warm up, Asia has taken a deep dive into the energy space as they’ve recently announced acquisitions of Canadian resources companies.
In my presentations, I’ve discussed how resources companies have significantly underperformed their underlying commodities. During 2009 and most of 2010, the performance between oil and the S&P 500 Oil & Gas Exploration and Production Index was closely correlated. By the middle of 2011, oil and oil stocks started to separate, with crude continuing to rise while stocks deteriorated. Even with the recent drop in oil prices, oil stocks have continued to lag.

I’ve also discussed the strikingly similar trend occurring between gold and gold stocks. There’s been a spectacular pop in gold stocks recently, but it hasn’t been enough to catch up to gold’s performance.

The disparities mean that the cheapest resources are not found in the ground—they’re listed, and it’s been confirmed by recent energy company acquisitions.
Chinese oil company CNOOC put in a bid of $15 billion to purchase Canada’s Nexen. This was at a 61 percent premium to Nexen’s share price on July 20, according to Bloomberg. As you can see below, not only did the takeout announcement close the gap, now the company is outperforming the price of oil.

If CNOOC’s deal is approved, the state-run oil giant gets even bigger, gaining access to significant energy stores in several areas of the world, including Canada, the Gulf of Mexico, Colombia and West Africa, as shown below.

With a rapidly growing middle class and rising urbanization, Chinese leaders know they need to fill their country’s tremendous energy demands and are continually finding innovative ways to keep their country powered. CNOOC’s acquisition is one way China continues to acquire not only the resources needed to power the country, but also the technological innovations that come from countries with free markets and lower barriers to entry. According to The New York Times, China “has been garnering advanced production technologies to better draw oil and gas from nontraditional areas like deepwater fields and hardened rock formations.”
The other announcement came from Malaysia’s state-owned and natural-gas giant Petronas, which will purchase Canada’s Progress Energy Resources Corp. Petronas is one of the largest producers and shippers of supercooled LNG fuel in the world. According to the Vancouver Sun, the company is “anxious to increase its market share in Asia, where analysts expect demand to surge 75 percent by the end of the decade.”
After Petronas’ original bid was announced, Progress increased 74 percent—a record gain for the company, says Bloomberg. As shown below, Progress now dramatically outperforms the underlying commodity.

Ready to be a Buyer like Asia?
If you’re contrarian investor, there may be an additional reason to jump into the market today. According to research from J.P. Morgan, institutional investors have become extremely negative, as hedge funds “essentially short the market,” meaning that their expectation is that stocks will fall.
J.P. Morgan looked at the rolling 21-day beta of macro fund returns compared to the S&P 500 Index returns and found that the ratio is at an extreme level of -0.26. Research shows that the last two times the ratio fell this low—in September 2010 and February 2012—stocks rallied. In 2010, the S&P 500 climbed 26 percent in five months; in 2012, stocks rose 8 percent in two months.

These signs the market is sending out make it an especially attractive time to “mine” for investment opportunity. In July, we began to see energy stocks and oil get recharged, as the energy sector in the S&P 500 was the second best performer, increasing 4.17 percent and crude oil rose 3.68 percent. Unlike the start of an Olympic race, in investing, there isn’t a signal sounded to let you know when to dive off the starting block into the markets. Just make sure your portfolio is poised to participate in the race for resources.
Ends --

---

By Frank Holmes, CEO and Chief Investment Officer, U.S. Global Investors
Read the article online here:  The Race for Resources

Gold miners need to think differently about costs - Holland - #GOLD

Mineweb reports,


Gold miners need to think differently about costs - Holland

In a remarkable speech to the Melbourne Mining Club, Gold Fields CEO, Nick Holland, questions the manner in which the industry reports costs.

Posted: Thursday , 02 Aug 2012 

GRONINGEN (MINEWEB) - 

In the movie Jerry Maguire, Tom Cruise is a sports agent who, tired of all the BS that goes with ever more demanding bottom lines in the sports management industry, has a moment of clarity.

In the wee hours of the morning, wrapped in a blanket he writes a mission statement that contains the motto "fewer clients, less money".

In the unlikely event that they make a movie about the current state of the gold mining sector, Nick Holland's keynote address to the Melbourne Mining Club could provide a very similar moment.

In a fascinating 35-page long speech the CEO of gold major, Gold Fields looks at all the things that gold miners have been getting wrong over the last decade and looks at a few ways to solve some of them. Among them is a page dedicated to the manner in which much of the industry reports costs - something about which Holland is clearly passionate.

He points out that while the gold price has gone up at a compound annual growth rate of 21% from 2006 to 2011, all-in costs, what Gold Fields refers to as Notional Cash Expenditure, as risen 16%.

"In five years that means costs have doubled. We've lost a lot of the upside!" But, he says, while this may be the case, "At investor conferences the industry often extols its cash cost performance - that we are making significant operating cash flow margins - sometimes in excess of $1,000 an ounce.

"Who are we trying to kid? We don't kid the investors because they know how much cash we really generate after everything is accounted for. The sell-side also understands this. The only people we're kidding are governments and communities who, not surprisingly, say, okay, you're making super profits, please pay up. And before we know it we have windfall taxes, higher royalties and so on."

Holland compares the current situation to a footballer scoring an own goal every time he or she plays and being proud of it.

"We've got to change the lens through which we and the world view this industry, and start talking about what it really costs to produce an ounce of gold. I don't care if we call it NCE or something else, but to talk about cash costs only is not telling the full story."

Gold miners need to think differently about costs - Holland - GOLD ANALYSIS - Mineweb.com Mineweb

The MasterMetals Blog

Bullion is Now Being Priced for Collapse | Resource Investor #Gold

Bullion is Now Being Priced for Collapse

Where is the gold price today? If you're like many Americans, you have no idea whether it went up, down, or sideways. Fortunately, I know my readers to be more informed – you likely know that after falling from almost $1,900, gold has been trapped around $1,600 since early May. But you may still be curious why despite continued money-printing and abysmal US economic reports, gold hasn't been able to hit new highs.
Here's the truth: gold is currently priced for collapse. Many investors believe the yellow metal has topped out and are selling into every rally.
Nerves of Tin
Being a gold investor is tough business. The last thing any government or corrupt big bank wants is to have a bunch of people putting their savings into hard assets – and gold is one of the hardest of all. So we're constantly up against tides of propaganda saying that gold has no value or is the refuge of doomsayers.
The effect of this is that even heavy gold investors are always waiting for the other shoe to drop. When house prices were rising, no one was worried that the market had peaked or prices were unsustainable. No one was asking whether all the thin-walled McMansions going up would actually be worth anything in a generation. But for gold, Wall Street has been shorting it all the way up!
Nowhere is this pessimism more evident that in gold mining stocks. Rising inflation has driven production costs higher, but the mistaken belief that inflation is contained and Treasuries are a safer haven is keeping a lid on gold prices. As such, many of the major producers have missed their earnings projections, and their share prices have been punished. This has placed a cloud over the entire sector. In fact, the P/E ratios of major gold miners are near record lows. Stock prices reflect future earning expectations, and judging by the low P/Es, Wall Street expects future earnings to plummet. This likely reflects their bearish outlook for gold, which is generally viewed as a bubble about to pop.
Chronic Memory Loss
Unfortunately, there is no public validation for those who have proved the gold doubters wrong. A couple of years ago, I predicted gold would cross $1,500 and even my own staff thought the call was too risky, too extreme. But I knew then, as I know now, that at the end of the day the gold price is not a mystery – it's a proxy for dollar weakness.
Since most investors do not truly understand gold's economic role, they assume the 10-year bull market must be a mania. But manias show parabolic growth detached from any fundamental driver. The definition of a mania is the bidding up of an asset quickly and beyond all long-term justification.
Gold, however, has grown steadily in inverse correlation with real interest rates, as explained by Jeff Clark and Mark Motive in past issues of this newsletter. As a reminder, here's a chart detailing the correlation:

 

(Click to enlarge)  

 

The Opportunity of the Decade
After spending the previous fall and winter testing new nominal highs above $1,800, future investors may come to view spring and summer 2012 as the opportunity of the decade. Gold has shown its strength and retreated. While most investors will take that as a signal that the market has topped, some will take advantage of the general trepidation to add to their positions at hundreds of dollars off the highs.

While I think gold is a bargain at $1,900 considering today's circumstances, the market phobia of a price collapse is allowing us to buy at well under established highs. It's as if you already wanted to go swimming, but you found out when you got there that the pool was heated.
What Happens Next
I've seen markets like this before, and by making some reasonable inferences, I have a good picture of how this could play out. Gold will continue testing the $1,600 barrier until it surprises to the upside. This could be spurred by the announcement of QE III, a calming of fears in Europe, or any shock to the Treasury market. Treasuries have temporarily overtaken gold as the primary safe-haven asset. Once that dynamic is broken, I believe the counterflow into gold will be tremendous.
Right now, there is a haze over investors. Frightful news from Europe and a slowdown in Asia have shaken confidence in any asset that doesn't have the steady track record of US debt. But as I often remind my clients, past performance doesn't guarantee future results. Any news that wakes investors up to the coming collapse of the Treasury market will likely trigger a rush into the one asset with a track record as long as civilization itself.
Prepare For Collapse
The key to this market is to understand that a price collapse is coming – but not for gold. Instead, the market for US dollars and dollar-denominated debt is headed off a cliff, which will send the price of precious metals soaring.
Now is a time for uncommon confidence. Everyone knows Treasuries to be safe, just as they knew house prices would always rise. Then as now, gold's value and utility are doubted. But my readers know better.

read the article online here: Bullion is Now Being Priced for Collapse | Resource Investor