Reserves now supposedly stand at 296 billion barrels of oil. Venezuela's new deposits were booked in the South American country's Orinoco extra heavy crude belt.
OPEC: Venezuela Now OPEC's Largest Oil Reserves Holder - CNBC
July 20, 2011
Australia left exposed by its mining boom
Tags:
Commodities,
Gold,
News
After the boom does come the bust. The question is how bad it will be, and when... Not just yet, but sooner than you may wish
Australia left exposed by its mining boom
BY WAYNE ARNOLD | REUTERS BREAKINGVIEWS
Australia has become a barometer for China's economy. While China was booming, investors piled in, turning Australia's credit markets into a proxy for its biggest trade partner. But the mining boom created by Chinese demand has taken a toll on the larger, nonmining sector. Now markets are flashing red on China, and Australia's 20-year run of economic expansion is at risk.
Government bond yields everywhere tend to move according to economic expectations. In Australia, they tend to move with those of China. Exports are equivalent to about a fifth of Australian gross domestic product; exports to China account for about a fifth of that. Nevertheless, the combination of nearly 5 percent yields and a rising currency is like catnip to foreigners, who pile in to Australian bonds at any sign of rising Chinese growth.
As a result, foreigners hold roughly 76 percent of Australian government bonds, making them a lightning rod for trends in global trade and investment. And Australia's $205 billion government bond market is tiny — only 5.5 percent of G.D.P., compared with 65 percent in the United States. So it does not take much speculation to have a big effect.
The mining boom has forced policy makers to choose one policy for two economies. The Reserve Bank of Australia has been slowly raising rates since late 2009 to curb inflation even as other developed economies keep their rates near zero. As a result, while soaring prices of coal and iron ore have helped keep overall unemployment low and stoked inflation in mining regions, manufacturers and retailers are hurting. The risk is that if China slows, Australia will go from standing on one leg to standing on none.
Markets worry. Since May, the price of insuring Australian bonds has risen and the Australian dollar has stalled.
In theory, a cooler China would be a relief to Australia's forlorn nonmining sector if it means policy makers can cut rates. But reality is rarely so neat. Even if China averts a dreaded hard landing, Australia may not.
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Interpreting rises in gold and copper
All confused at Reuters...
Inflation is not even considered...
From The International Herald Tribune:
Interpreting rises in gold and copper
BY CLYDE RUSSELL | REUTERS
It seems incongruous that gold and copper can be both rallying at the same time.
Buying gold is a bet that the world economy is in deep trouble and the debt problems in Europe and the United States will not be solved any time soon.
Buying copper is a bet that the Chinese economy will achieve a soft landing and continue to expand, driving demand for base metals.
Can both views be right?
On the surface, the answer has to be no. At some point, either Europe and the United States will sort out their problems, or they won't and the world will tip back into a recession that even China will feel.
If Europe and the United States can resolve their problems to the market's satisfaction, a major leg of the bullish gold story is removed.
Taking away demand for safer investments does not necessarily mean gold will lose its appeal, but it does mean any price gains will be more dependent on demand from central banks and for jewelry fabrication.
In this scenario, it is hard to see gold making strong gains above its current level, although valuing the precious metal has always been a little tricky.
Gold hit a new record high just above $1,600 an ounce Monday as investors sought a haven from the European debt crisis and from worries that the U.S. government might default.
However, it is still well below its inflation-adjusted peak of about $2,400 an ounce, according to Capital Economics. That was reached Jan. 18, 1980, at the height of the U.S.-Iran hostage crisis, the Russian invasion of Afghanistan and a slump in output from what was then the top producer, South Africa.
There is no slump in gold output currently; in fact, most forecasts focus on higher production next year.
However, there are heightened geopolitical tensions involving Iran again, this time over its nuclear program, and of course the United States is now the one involved in military action in Afghanistan.
Capital Economics also produces some other correlations on gold, pointing out that the precious metal averages 16 times the price of a barrel of Brent crude, but the current ratio is 13.5. Gold would be $1,870 an ounce if it were priced according to its long-run Brent ratio.
But gold is slightly overpriced against equities, Capital Economics says. The long-run average ratio of the Dow Jones industrial average to gold is 10, but the current ratio is only 8.
As for copper, there is of course more to the current price than just expectations of Chinese demand. Copper is up about 14 percent since its low this year of $8,504.50 a ton, reached in May, and is getting closer to its record high of $10,190, reached in February.
The industrial metal is vulnerable to supply disruptions, as shown by the recent strike at the Grasberg mine in Indonesia, owned by Freeport McMoRan, and rain disruptions in Chile, the world's biggest exporter.
While worries over supplies certainly contribute to constraints on the price of copper, it is the expected seasonal second-half demand from China that is driving bullish expectations.
The forecast is that the Chinese will once again turn to imports, having depleted inventories during the first half of the year, as construction and industrial activity increases.
An early indicator of this was data showing that China's imports in June rose 280,000 tons, up 9.9 percent from the same month a year earlier.
Whether that continues will be seen in the evolution of stocks held in warehouses linked to the London Metal Exchange, especially those in South Korea, from where China typically draws supplies.
It seems there are fairly solid reasons to be bullish on both copper and gold, at least for now. A graph of gold's correlation to copper since 2005 shows that while both can rise at the same time, copper normally outperforms gold unless there is a crisis of sorts.
The price trends of the two metals diverged quite markedly in the second half of 2008 and the first half of 2009 as the global recession struck. And in the good economic times of 2006 and 2007, copper did better than gold.
The current correlation is starting to weaken, but it is too early to tell whether that is because the world is heading for a repeat of the global downturn of 2008 or whether growth is about to accelerate.
Clyde Russell is a Reuters columnist. ◼
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