Chart of the Week: #India Declares War on #Gold Sprott

Chart of the Week: India Declares War on Gold



David Franklin


Sprott Asset Management LP





With the Indian rupee plumbing new lows against the US dollar and the country’s current account deficit at record levels, the Reserve Bank of India (RBI) is taking the easiest route to tackle both; it has declared a war on gold. Our Chart of the Week shows the Indian current account deficit from 1970 to the end of 2012. As you can see, it has hit a record deficit level and continues to weaken. Put simply, a current account deficit occurs when a country's total imports of goods is greater than its total export of goods; this situation makes a country a net debtor to the rest of the world. India is the largest consumer of gold, almost all of which is imported and is a significant contributor to this deficit.


The RBI has drawn the battle lines and targeted gold imports as the main culprit. The central bank has announced a series of measures over the past month, including restraining lending against gold-backed assets, and restricting gold imports. The hike in gold import duty to 8% this month is the most recent announcement in this drive and doubles the duty that was applied at the beginning of this year.1 The RBI has asked bank trading houses not to import gold on a consignment basis for domestic sales, further insisting on 100% cash margin for letters of credit. The restrictions were invoked after imports soared to 162 tonnes in May from 142 tonnes in April on the back of weak international prices. In their campaign against gold imports the Indian finance minister P. Chidambaram has even urged banks to advise their customers not to invest in gold. “I think the Reserve Bank has advised banks that they should not sell gold coins,” said Chidambaram, while speaking at an event in Mumbai.2


Gold is synonymous with savings and security for many of India's 1.24 billion people. Only about 36,000 of India's 650,000 villages have a bank branch, which mean the working class hold much of their assets in gold coins and jewelry. Further increasing demand is gold’s cultural significance which makes it essential for weddings and other ceremonies. We suspect that there is very little the RBI can do to supress the consumption of gold and the central bank’s efforts will serve only to push the gold trade underground through smuggling and off-shore trading centres.






Source: Bloomberg, Sprott Asset Management LP









1 http://timesofindia.indiatimes.com/business/india-business/Government-raises-import-duty-on-gold-to-8/articleshow/20452631.cms


2 http://www.reuters.com/article/2013/06/06/india-gold-idUSD8N0E900920130606






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Chart of the Week: India Declares War on Gold Sprott

#BMO: #Kinross #Gold: Development of Fruta del Norte Ceased

Kinross announced today that it would not proceed with the development of the 100%-owned Fruta del Norte (FDN) project in Ecuador, after being unable to reach an agreement with the Ecuadorian government following more than two years of negotiations.

Development of Fruta del Norte Ceased

 

 

 

Impact

 

Potentially Positive

 

 

 

Details & Analysis

 

Kinross announced today that it would not proceed with the development of the 100%-owned Fruta del Norte (FDN) project in Ecuador, after being unable to reach an agreement with the Ecuadorian government following more than two years of negotiations. BMO Research assumptions for FDN's development were already tentative, with FDN representing ~5.5% of KGC's project NPV10% at spot prices. BMO Research considers the event as potentially positive for Kinross as it introduces savings in capital expenditures of ~US$1.4B over the project's life of mine and strengthens the company's focus on its key assets, including the development of Dvoinoye in H2/13 and the expansion of Tasiast from 2017. The government indicated that it would not support efforts by the company to sale the project or find a new partner, despite the fact that Ecuadorian law permits an extension of the economic evaluation phase for up to 18 months (beyond the Aug'13 deadline). Therefore, on August 1, 2013, the entire FDN mineral resource should return to the government, triggering a write-down of ~US$720M that will be impacting Q2/13 results; including a ~US$700M non-cash charge against the net carrying value and ~US$20M for accrued severance and closure costs. Kinross is trading at 2.0x estimated NPV (10% discount rate, spot prices), compared to 1.8x for the senior producers average

Daily #chart: #Commodities Prices since 1950

The price of commodities "in the ground" have boomed while resources that can be grown have trended downwards

Daily chart

Vital ingredients

Jun 7th 2013, 13:35 by Economist.com

 

IN HIS 1968 book “The Population Bomb”, Paul Ehrlich, a biologist, argued that rising populations would inevitably exhaust natural resources, sending prices soaring and condemning people to hunger. In a new paper David Jacks, an economist at Simon Fraser University, assembles figures on inflation-adjusted prices for 30 commodities over 160 years. It turns out Mr Ehrlich was not entirely off the mark. Over the very long run commodity prices display a marked upward trend, having risen by 192% since 1950, and by 252% since 1900. But that upward trend has clearly not translated into global famine, and not all commodities are alike. Long-run rises have been most pronounced for commodities that are “in the ground”, like minerals and natural gas. Energy commodities especially have boomed, soaring by roughly 300% since 1950. In contrast, prices for resources that can be grown have fallen. The inflation-adjusted prices of rice, corn and wheat are lower now than they were in 1950. Although the global population is 2.8 times above its 1950 level, world grain production is 3.6 times higher. See full article.

Daily chart: Vital ingredients | The Economist