Gold replacing German bonds as a safe haven?

Gold replacing German bonds as a safe haven?

Yesterday, for the first time, the Swiss 5-year bond yield was bid into negative yield. The Swiss safety deposit box grows in duration – Figure 1. ·         Importantly, other "safe-haven" bonds, such as German bunds and U.S. Treasuries are not following suit. o    German bund yields are actually soaring. §  And that is with this morning's 10-year auction that, according to initial reports, saw "decent" demand. o    Rising treasury yields are very near and dear to our hearts. The fit of the moves between the S&P 500 and U.S. 10-year Treasuries is now an impressive (or not really if your job is to argue why equity fundamentals matter) 77% - Figure 2.  §  Rising Yields = Rising Equities

·         Back to bonds: ·         The sell-off in German bunds coincides with a deterioration of creditworthiness of Germany versus Switzerland – Figure 3. o    One is a Target 2 creditor, which could get paid back in a euro-lite currency. The other is not. ·         The sell-off in Treasuries contains no such fuse, and thus one should expect no such fire behind the move. This is a key point (back to Figure 2). ·         You can't go to Switzerland without mentioning gold – Figure 4.

 

Figure 1: Swiss Bond Yields: 2 to 20-year Bonds

Inflation-adjusted commodities price performances #Gold #oil

Inflation-adjusted commodities price performances 

Outlook for oil, copper, gold, silver, and platinum

Below is an excerpt from a commentary originally posted at www.speculative-investor.com on June 10, 2012.

To paraphrase Einstein, not everything worth measuring is measurable and not everything measurable is worth measuring. The purchasing power of money falls into the former category. It is worth measuring, in that it would be useful to have a single number that consistently reflected the economy-wide purchasing power of money. However, such a number doesn't exist.

Such a number doesn't exist because a sensible result cannot be arrived at by summing or averaging the prices of disparate items. For example, it makes no sense to average the prices of a car, a haircut, an apple, a dental checkup, a gallon of gasoline and an airline ticket. And yet, that is effectively what the government does -- in a complicated way designed to make the end result lower than it would otherwise be -- when it determines the CPI.

The government concocts economic statistics for propaganda purposes, but our point here is that even the most honest and rigorous attempt to use price data to determine a single number that consistently paints an accurate picture of money purchasing power will fail. It will necessarily fail because it is an attempt to do the impossible.

The goal of determining real (inflation-adjusted) performance is not completely hopeless, though, because we know what causes long-term changes in money purchasing power and we can roughly estimate the long-term effects of these causes. In particular, we know that the purchasing power of money falls due to increased money supply and rises due to increased population and productivity. By using the known rates of increase in the money supply and the population and a 'guesstimate' of the rate of increase in labour productivity we can arrive at a theoretical rate of change for the purchasing power of money. This theoretical rate of purchasing-power change will tend to be inaccurate over periods of a year or less but should approximate the actual rate of purchasing-power change over periods of five years or more.

We've been using the theoretical rate of purchasing power change, calculated as outlined above, to construct long-term inflation-adjusted (IA) charts for almost two years now. Here are the updated versions of some of these charts, based on data as at the end of May.
1. In current dollar terms, the oil price peaked at just under $200/barrel in 2008 and at around $170/barrel in 1980. It is now only slightly above its 40-year average.

We doubt that oil will ever again trade below $50/barrel in nominal dollar terms. Also, the 2008 peak was almost certainly the secular variety, so we probably won't see the IA oil price trade above its 2008 peak any time this decade. If oil does make a new high in IA terms within the next few years it will be because of a major Middle East conflagration that greatly reduces the global supply of oil, not because of rising demand or geological limitations on supply.



2. As is the case with oil, in IA terms the copper price probably made a secular peak in 2008. As is also the case with oil, the IA copper price is now only slightly above its 40-year average.

Falling demand due to a global recession over the next 12 months could cause the copper price to drop back to $2.00, but we doubt that it would stay that low for long because economic weakness always prompts central banks to boost the money supply. However, future rounds of QE (or whatever other name they give to the money pumping) probably won't do anywhere near as much for the IA copper price as the earlier rounds did. Another way of saying this is that copper probably won't be one of the main beneficiaries of future monetary inflation. One reason is that China's construction boom is turning to bust. Another is that the high prices of the past six years have increased the current and future supplies of this metal.
In 2012 dollar terms we think a copper price in the $2.50-$3.50 range is about right. We would therefore steer clear of copper mining projects that required a copper price of much above $3.00/pound to be economically robust and we would be wary of low-grade copper projects with unknown economics.

3. In early 2008, the combination of fear that electrical power shortages in South Africa would severely disrupt the global platinum supply and fear of Fed-sponsored dollar depreciation drove the IA platinum price above $3000/oz (about $2300/oz at the time, which is the equivalent of just over $3000/oz in terms of today's dollar). This will probably turn out to be a secular peak for the IA platinum price, although platinum stands a better chance than either oil or copper of exceeding its 2008 peak in IA dollars. There are two reasons for this. First, platinum supply is more concentrated and therefore more vulnerable to disruption than oil or copper supply. Second, we expect that platinum will benefit from the continuing upward trend in the IA gold price.
We may be interested in buying platinum if it drops to $1200/oz.

4. The IA gold price continued its long-term upward trend following a normal intermediate-term correction during the 2008 crisis. It is yet to experience a major upside blow-off like it did in the lead-up to its January-1980 peak and like the oil, copper and platinum markets did leading up to their 2008 peaks.

5. In nominal dollar terms, silver's April-2011 peak was a test of its January-1980 peak. In IA terms, however, silver's highest price in April of 2011 was only slightly more than one-third of its 1980 peak.
Silver's January-1980 peak was so extraordinary that it will possibly never be exceeded or even seriously challenged in IA terms, but there's a high probability that silver will handily exceed last year's peak in IA terms before its long-term bull market comes to an end. This is largely because although industrial demand plays a much bigger role in the silver market than in the gold market, investment demand is still the primary driver of silver's long-term bull market. Furthermore, the same factors that should continue to boost the investment demand for gold (government and central bank stupidity in all its forms) are likely to do the same for silver.

6. Because the official "inflation" indices chronically understate the reduction in currency purchasing power, using these indices to calculate inflation-adjusted performance overstates the performance. That's why Malthusians such as Jeremy Grantham are able to use CPI-adjusted charts of the CRB Index to support their theories that the world is about to run short of valuable agricultural and industrial commodities. These CPI-adjusted charts suggest that the ultra-long-term downward trend in "real" commodity prices has ended, an implication being that commodity supply is now in a long-term downward trend relative to real commodity demand.
The picture is very different if our preferred method is used to adjust for the effects of inflation. As illustrated by the following chart, the IA CRB Index made a new all-time low in 2001 and then peaked in 2008 at well below its 1974 and 1980 highs. There is no evidence that its long-term downward trend has ended.



Inflation-adjusted commodities price performances

The MasterMetals Blog

South African Oligarch Beats Oleg Deripaska To The Pot In Guinea - Business Insider

South African Oligarch Beats Oleg Deripaska To The Pot In Guinea - Business Insider

MOSCOW—A group of South Africans, led by Tokyo Sexwale, has devised a scheme to take over mineral assets and mining concessions in the west African republic of Guinea, which the government plans to renationalize after revoking deals struck by previous Guinean governments. The Sexwale scheme is a growing threat to Oleg Deripaska’s Rusal in Guinea, as the offers Deripaska has proposed to Guinean President Alpha Conde and his family miss their mark.
On the eve of Rusal’s annual general meeting of shareholders in Hong Kong, due on June 15, there has been no fresh warning to Rusal shareholders that their Guinean bauxite mines and alumina refinery are facing confiscation, and transfer to a state mining company controlled, indirectly, by the South Africans. These Guinean assets account for more than half of Rusal’s global bauxite reserves. On last year’s production results, the Guinea bauxite mines represent 36% of Rusal’s annual bauxite production of 13.5 million tonnes; 7% of Rusal’s alumina output of 8.2 million tonnes. Both totals were down below past-year volumes.
In its latest challenge, the Guinean government charges Rusal with fraudulent under-reporting of output figures. A billion-dollar claim by the Guinean government dating back to 2009 accuses Rusal of under-counting the volume of its bauxite and alumina exports, and under-paying on taxes.
The only reference Rusal has made to the potential losses is this line in the annual financial report for 2011: “Operations in these countries involve risks that typically do not exist in other markets, including reconsideration of privatisation terms in certain countries where the Group operates following changes in governing political powers.” In its May 2012 financial report, Rusal also claims that the government’s position in the Guinean courts “has no merit and the risk of any cash outflow in connection with this claim is low and therefore no provision has been recorded in this regard in these consolidated financial statements.”
The collapse of Rusal’s position in Guinea this year is one of the targets for legal challenges against Deripaska’s management by shareholding partners, Victor Vekselberg, Len Blavatnik, and Mikhail Prokhorov.
Rusal’s share price is currently fixing in the Hong Kong market at an all-time low of between HK$4.20 and HK$4.60 (54 and 59 US cents). At US$9 billion, the company’s value in the market is $2 billion less than its bank debts. The Russian government’s official and unofficial stake in the company is now worth about $2.6 billion, two and a half times less than it was worth when the Kremlin agreed to bail Rusal out of insolvency and default in November 2008; then underwrite Deripaska’s initial public offering of shares on the Hong Kong Stock Exchange in January of 2010.
Sexwale is one of South Africa’s wealthiest black leaders, with substantial holdings in the minerals and mining sector through his Mvelaphanda Group . He is also the Minister for Human Settlements (slums) in the current South African government, a critic of President Jacob Zuma, and a potent challenger at the next presidential election in 2014.
According to sources in Johannesberg, Sexwale is discussing with Eurasian National Resources Corporation (ENRC) a plan to buy into mining interests in Guinea. London-listed ENRC is one of Kazakhstan’s dominant mining companies, producing iron-ore, ferro-alloys, copper, coal, bauxite and alumina. Although ENRC is smaller than Rusal as a global bauxite and alumina producer, if Sexwale manages to oust Deripaska from Guinea, that would change dramatically. Currently, ENRC’s market capitalization is $8.1 billion.
Sexwale is believed to be the power behind two obscure British Virgin Island vehicles, one called Palladino Holdings and another called Floras Bell, which are managed by Olaf Walter Hennig. An investigation by David Gleason in Business Day of Johannesberg reports that a year ago Hennig arranged for a loan of US$25 million to finance the start-up of a new Guinean state mining company. The new mining code, drafted by Conde’s advisors, would grant that new state entity a free 15% stake in the country’s mining projects, and the option to buy another 20%.
Behind Hennig and the $25 million loan, according to Gleason and confirmed independently by sources in Conakry, the Guinean capital, are Sexwale; Mark Willcox, the chief executive of Mvelaphanda, and several other businessmen of South African, Polish, and British extraction. One of them reported by Gleason is Ian Hannam, a City of London financier who tried to arrange Rusal’s float on the London Stock Exchange in 2007, but failed.
Guinean sources say Sexwale, Willcox and Hennig are the control shareholders of the BVI entities. A report in the Sunday Times of London in May claimed that Hennig was a “shadowy middleman”, and that the Palladino loan had been signed in April 2011 by the Guinean finance minister and a local proxy for Palladino. The terms look as if they were copied out of the Russian loans-for-shares book. If the Guinean state entity defaults on repayment of the Palladino loan, Sexwale and his pals would be eligible to convert the debt into a 30% stake in the state mining company and its assets.
A senior Guinean official says this is one of several non-transparent deals arranged by President Conde which have convinced BHP Billiton to withdraw from concessions they currently hold in Guinean bauxite and iron-ore. Rusal’s concessions are a target, the source adds, because of the personal falling-out between Conde and Deripaska chronicled here.
Guinean officials who have tried to persuaded Conde to continue the reforms initiated by former Mining Minister Mahmoud Thiam had hoped the new code would establish a transparent foundation for renegotiation of many of the Guinean resource deals. Those have enriched the country’s rulers, deprived the country of taxes and investment, and left its resources in the ground. The reformers suspect Conde of appearing to endorse the public goals while secretly bargaining for private gains to be channelled through newly created entities backed by fresh alliances. Sexwale, said a Conakry source, “and the South African gang were [President Conde’s] business partners through the ANC [African National Congress, the ruling South African political party] from before he became president. There is that trust and an agreement to do business that predates everything.”
Other Guinean sources contend the Palladino loan is illegal, because it hasn’t been ratified by the Guinean parliament; because violations of US and UK anti-corruption laws are suspected, and because the government in Conakry has pledged that in return for debt relief from the Club of Paris government creditors, the World Bank and the International Monetary Fund (IMF), it cannot pledge or transfer national resource assets bilaterally.
“The [share] pledge made in this [Palladino loan] agreement by the Government cannot be implemented. Under Guinea’s procurement and asset disposal law, any transaction with state-owned assets with a value exceeding 800 million Guinea francs ($120,000) has to be made through a public tender process. [The Palladino loan] also violates Article 150 of the new mining code which says the same things. Perhaps the [Palladino] consortium, aware of the provisions of the mining code, part of which they may even have drafted, secured their agreement five months ahead of the release of the mining code in the hope the new law would not be retroactive. Too bad! The public procurement law overrides the mining code.”
A high Guinean source describes the Palladino scheme an “an attempt to seize the assets of the Guinean Government by the back door, on the cheap and risk free. Essentially, whoever is behind Paladino has found it easy to penetrate the higher echelons of the new Guinean administration. The $25 million loan, far from being a loan, can actually be perceived as ‘entry ticket’ or ‘signature bonus’. All the consortium has to do is bide their time seat and wait.”
An advisor in Conakry says that for Rusal to wait for Conde’s relationship with Deripaska to improve plays into the South Africans’ hands now. “Deripaska and Conde had a marriage of convenience that worked in the beginning and each side thought it would extract maximum value for very little in return. Neither was able to deliver to the other’s expectations.”

Read more: http://johnhelmer.net/?p=7526#ixzz1xfnfeOIe

South African Oligarch Beats Oleg Deripaska To The Pot In Guinea - Business Insider