These days some hedges on the books looks good: #Gold hedges reward #Australian #miners

A plunge in the price of gold this year has led to gains for Australian miners who struck hedging deals as protection against sharp price swings. - FT.com

Read the article online here: Gold hedges reward Australian miners - FT.com

What diverging #monetary policies signal- Xie

#Gold prices will top $3,000/oz in 5 years

Gold is likely to perform well in the second half of 2013

The growth outlook for Europe and Japan remains fragile. Their quantitative easing is likely to remain intact through 2013.

A limited crisis in emerging markets is still possible. As hot money is leaving them

What diverging monetary policies signal: Andy Xie

Commentary: Gold prices will top $3,000 per ounce in five years

By Andy Xie

BEIJING (Caixin Online) — The monetary policies of major economies are diverging for the first time since 2008. The euro zone, Britain and Japan are sustaining quantitative easing, while the United States, China and other major emerging economies are on a tightening path.

The divergence is creating trends in some markets, volatility and confusion in others.

The U.S. dollar DXY 0.00%  is on a strong trend, as the expectation of the Fed’s tightening is driving deleveraging of dollar-financed carry trades. On the other side of the strong dollar are a weak pound GBPUSD +0.01% , euro EURUSD -0.04%  and yen USDJPY +0.09% .

The decline of commodity currencies is the clearest trend. The Australian dollar AUDUSD -0.22% , Canadian dollar USDCAD +0.01%  and the currencies of several commodity-export-dependent emerging economies have declined sharply. The trend is likely to continue throughout the year.

Stocks will remain volatile on conflicting news regarding liquidity and growth. Fueled by asset inflation, the United States’ growth rate is picking up, and dollar liquidity is receding in anticipation of higher interest rates ahead.

The growth outlook for Europe and Japan remains fragile. Their quantitative easing is likely to remain intact through 2013. Most big companies are global in their sales and earnings. Hence, their stocks will fluctuate with mixed news on growth and liquidity.

A limited crisis in emerging markets is still possible. As hot money is leaving them, they are facing difficulties in adjusting to the tighter liquidity environment. The recent political disturbances in Brazil, Egypt and Turkey amplify the uncertainties.

Gold is likely to perform well in the second half of 2013. While the rising U.S. dollar keeps downward pressure on the price of gold, rising global uncertainties support its role as a safe haven. Further, gold pricing is shifting to the East from the West.

The Shanghai market is likely to overshadow London or New York within five years. Hence, the price of gold will increasingly track China’s monetary policy rather than that of the United States.

The dollar’s long shadow

A rising dollar is the most important trend in financial markets. Its importance is in the role of dollar liquidity in carry trades since 2008. Since 2008, the Fed has communicated its intentions clearly to the financial market. It decreased the risk to using the dollar to fund speculation.

Based on the surge in the forex reserves of emerging economies, it appears that trillions of dollars of hot money have flowed into emerging economies. A strong dollar is triggering a reversal. The full consequences are yet to be felt.

The U.S. economy is recovering. Without fiscal consolidation, it could be growing at 4% to 5% now. I believe asset inflation is driving the U.S. economy. Its current net household wealth has surged 45% to $70 trillion from the low of $48 trillion in 2009, and significantly above the pre-crisis peak of $63 trillion.

The Fed’s tightening is primarily to prevent a full-blown asset bubble. Its burst could bring another financial crisis.

As the global tide of hot money recedes, the chances are that the United States’ asset markets will be resilient. Much of the hot money will just vanish due to deleveraging. Some money will be reallocated to the U.S. market from others. Hence, the United States’ asset prices are better supported than others.

In the medium term, the U.S. dollar’s outlook hinges on the continuing rise of the U.S. stock market. It is a self-fulfilling expectation.

If most investors believe in the U.S. economy, the money will flow into the country’s stock market. Its rise creates enough wealth effect to sustain the economy. The strong economy justifies the optimism. The money keeps coming.

In the longer term, if the fundamentals improve sufficiently, the bubble element in the economy could be digested through flattening out asset prices while letting the economy grow. Energy and agriculture are bright spots for the U.S. economy.

They aren’t sufficient to carry the economy. The key to the U.S. dollar’s future, in my view, is in improving the quality of the U.S. labor force. Without major progress there, the dollar will collapse again.

Changing places

The United States’ virtuous cycle depends on lack of competition for money. The main alternative is China. Since China joined the World Trade Organization, global money flow has favored it. This was a major factor triggering the weak dollar between 2002 and 2012. After 2008, the flow to China at the expense of the United States accelerated.

When international money flows to an economy and is used to enhance its competitiveness, the optimism is validated, and the money inflow will receive its appropriate reward by sharing in the growth.

However, the money could be used to finance an asset bubble. It creates paper gains for the capital inflow in the short term. The optimism is validated too, which encourages more inflow. But, this is an unsustainable dynamic. When the bubble peaks, everyone realizes that the optimism is misplaced. Capital flight follows, and with it the bubble bursts.

China’s economy was mismanaged after 2008. Instead of learning from the bubble disaster of the United States and embarking on structural reforms to improve competitiveness, China merely used fiscal and monetary stimulus to amplify an existing bubble, creating a feeding frenzy of getting rich overnight. As the U.S. economy improves and attracts more money, China’s bubble bursts.

To reverse the situation, China must embark on structural reforms to improve competitiveness. It has a major advantage over the United States. With per capita income of $6,000, its growth potential is far greater. If the reforms can convince the market that China’s potential can be realized, the money will return.

The competition between China and the United States for money is a key global dynamic. The yo-yo dynamic between the two will dominate the global economy for decades. It amplifies the up-and-down cycle in either.

As the composition of growth is quite different between the two, other economies will float up or down depending on their relationships with either.

Commodity currencies

The yo-yo dynamic now is in favor of the United States. Hence, the economies that have benefited from China’s boom are suffering. Commodity exporters are the most exposed. Their currencies are adjusting to reflect the new reality.

The Australian dollar has declined nearly one-fifth from its peak. There is much more to come. The most vulnerable commodities to China’s down cycle are industrial minerals.

Since China joined the World Trade Organization, the price of iron ore rose nearly ten times. Australia has benefited enormously from the trend. It suffers most on the way down too. The Australian dollar’s adjustment is not half done, in my view.

I thought that oil would be resilient compared to industrial minerals because it cannot be recycled. It has performed even better than I expected.

China’s electricity production has slowed two-thirds. The price of oil should have halved. But Brent crude remains above $100 per barrel, down less than 20% from the last year’s peak. Its strength is probably due to Saudi Arabia managing supply and the turmoil in the Middle East.

The uniqueness of the energy story suggests that the currencies of energy exporters like Canada and Russia perform better than that of mineral exporters like Australia and Brazil.

Emerging economies as a whole are facing difficulties. They suffer declining export prices and hot money leaving. To stop a vicious spiral of currency depreciation and inflation, they have to tighten monetary policy in an economic downturn.

If they try to protect growth by easing monetary policy, the vicious spiral could lead to another emerging market crisis like in 1998.

Gold moves East

There is a negative correlation between the U.S. dollar and gold in recent history. In light of the strong dollar, huge amounts of short positions have been built up in gold and gold stocks. I suspect that the correlation won’t work in the second half, and such short trades will turn out badly.

At the beginning of the year, I expected that a strong U.S. dollar would pressure the price of gold in the first half. But it would perform better in the second half as the U.S. stock market slows, diverging less money away from gold.

A new factor strengthens the case for gold. The physical demand has been extraordinarily strong in response to the slide in the price of gold. This could be a turning point in gold history. The pricing of gold may move permanently to the East from the West.

China and India account for roughly two-thirds of global demand for gold. Other emerging economies account for most of the rest. But, the price of gold is fixed in London or New York and driven by U.S. monetary policy. This is obviously wrong. But inertia is a powerful force. Financial markets continue with what has worked in the past.

The tension between where gold is priced and where demand is located is manifesting itself in two ways: first, gold shops in Asia have no physical gold to meet demand; and second, the price of gold set in Shanghai is consistently higher than in London or New York.

Physical gold is likely to flow from the West to the East due to the pricing gap. It is only a matter of time before the warehouses of London and New York are emptied.

When the stock is all shifted to the East, the price fixed in Shanghai will become the real price. The gold exchanges in the West will wither.

China lost gold to the West from the mid-19th century onwards. Domestic uncertainties drove waves of immigration financed by gold. The trend has reversed over the past decade. And the trend is likely to accelerate in the coming decades.

India has the most gold in the world. The Fed has the most gold reserves among all central banks. China is likely to surpass both in the coming decade.

Gold is a substitute for money. Gold production is about 3,500 tons per year and is worth $154 billion or 951 billion yuan ($154.9 billion) USDCNY +0.01% . China’s M2 is likely to rise by 14 trillion yuan or 16 times the gold supply.

Within five years, China’s M2 could rise by 2 trillion yuan per month, while the supply of gold will remain the same. Gold should trade with China’s money supply, not with that of the United States.

In addition to China, India will remain the second largest source of demand. Even if its economy grows at 5% per year, proportionally, its gold demand will increase by 28% in five years.

As the Bank of Japan targets 2% inflation, the Japanese have become a force in gold demand too. Looking beyond the shadow of the strong U.S. dollar, gold has a very bright future. I believe that the price of gold will top $3,000 per ounce in five years.

What diverging monetary policies signal: Andy Xie - Caixin Online - MarketWatch

More trouble for Eike #Batista

Since 2010, he has presided over the loss of $50 billion of shareholder value in EBX Group stock

As if he did not have enough problems, now this.

The massive Port of Açu is being dogged by scientists' claims that its construction is polluting the surrounding lowlands ecosystem with salt.

Ecological risks may spell trouble for Eike Batista's port

Author: Jeb Blount - Reuters
Posted: Thursday , 11 Jul 2013

SÃO JOÃO DA BARRA, Brazil (Reuters) -
As Brazilian billionaire Eike Batista breaks up his crumbling EBX Group industrial empire to pay off debt, one of the few assets he's expected to keep is port-development company LLX Logística SA.
But raising the more than $600 million needed to finish LLX's only project, the massive $2 billion Port of Açu north of Rio de Janeiro, may be a struggle. One-and-a-half times the size of Manhattan, Açu is designed to ease delays caused by Brazil's overcrowded ports and serve a booming offshore oil industry. It's also being dogged by scientists' claims that its construction is polluting the surrounding lowlands ecosystem with salt.
Raising money for anything associated with Batista, a serial entrepreneur who once boasted he would become the world's richest man, won't be easy. Since 2010, he has presided over the loss of $50 billion of shareholder value in EBX Group stock. EBX controls LLX and five other traded companies, all branded by Batista with an "X" to signify "the multiplication of wealth."
And while there are strong business reasons to invest in a giant port that eases some of the transportation bottlenecks holding back Brazil's commodities-led exports, some investors may not want exposure to a company facing possible ecological liabilities and potentially costly lawsuits.
Eduardo Santos de Oliveira, an aggressive federal prosecutor, has already launched a case against the port to determine civil liability for alleged environmental damage. Oliveira, the prosecutor in Campos de Goytacazes, the largest city near the port, has previously drawn global attention for launching Brazil's largest-ever environmental lawsuit.
That case sought nearly $20 billion from Chevron Corp and rig contractor Transocean Ltd over an 2011 oil spill. And while criminal charges were eventually dropped in February, and actual civil damages are expected to be a tiny fraction of Oliveira's request, the case sent a chill through the entire Brazilian oil industry.
"I am by no means an environmental specialist," said Will Landers, who manages $6.5 billion of Latin American investments for Blackrock Inc, the world's largest asset manager. "But the fact that you need to be one to invest in this type of project should limit significantly the pool of investors that may one day be willing to entertain giving fresh capital to any company from the EBX group" the São Paulo-born Landers said.
How much environmental damage has occurred is a matter of fierce debate. Officials for LLX and OSX Brasil SA - the EBX company building a shipyard at the port - deny that a "temporary" leak of salt-water into surrounding marshes in late 2012 caused lasting ecological harm to the delta of the Paraíba do Sul River, one of the last large, undeveloped coastal lowlands on Brazil's southeast coast.
Yet scientists at Northern Rio de Janeiro-State University (UENF) in Campos de Goytacazes, a 40-minute drive from Açu, say there is growing evidence that the port's construction threatens a sensitive ecosystem.
While the UENF researchers are careful to say they don't have conclusive proof of long-term damage, they say Açu's surrounding marshes, pastures, lagoons and fields, along with crops and cattle, face a serious threat.
"Preliminary data show salinity could lead to the permanent contamination of the soil," said Carlos Rezende, professor of bio-geochemistry and ecology at UENF. "We also have anecdotal evidence that the ecosystem around Açu is being harmed."
LLX and OSX declined to make Batista or other senior executives available for interviews about the port or the salinity issue.
UENF, LLX, OSX and INEA, Rio de Janeiro's state environmental protection agency agree on at least one point: that water in the Quitingute Channel, which gets run-off from the port, became brackish, or partly salty, in late 2012, documents in the court case show. The salination began after the world's largest dredging ship began digging up beach, dunes and marsh to build 13 kilometers (8 miles) of docks and ship channels.
The salt came from dredging waste saturated with sea water. Deposited in dumps to dry, the sandy soil was then spread on the surrounding lowlands, raising the land as much as 5 meters (16 feet) above the floodplain, Ivo Dworschack, the manager of the OSX shipyard said during a March visit.
"Based on statements presented by INEA, LLX and OSX is it incontrovertible that there was an increase in the salinity of the Quitingute Channel as a result of that (dredging) work," Federal Judge Vinícius Vieira Indarte wrote in a February 15 ruling.
The ruling on prosecutor Oliveira's initial filing accepted that the court had grounds to rule on the case and that the prosecutor had grounds to investigate potential civil liability for salination. The judge, though, denied Oliveira's request to stop work at the port.
The port's iron ore terminal, part owned by global miner Anglo American Plc. and the OSX shipyard were supposed to be open by now. Most things at LLX are months or years behind schedule. Some companies who had planned to build facilities within the complex, such as China's Wuhan Iron and Steel Co, have pulled out.
OSX, once expected to be LLX's biggest tenant, will likely be restructured as part of Batista's efforts to slim down the EBX group and pay down debt, selling the vessels owned by its ship leasing business and shuttering the yard before it has built a single ship, a source with knowledge of Batista's plans told Reuters. EBX declined to comment on the restructuring plans.

SALT IS 'FOREVER'

The leak was serious enough for INEA on February 1 to levy more than 3.3 million reais ($1.45 million) of fines on OSX. INEA said levels in the Quitingute Channel were four times higher than those in fresh water. They've since returned to normal, INEA said in an e-mail.
INEA ordered compensation for farmers, credited UENF with alerting it to the problem and promised a joint INEA-UENF study. It did not explain why it fined OSX and not LLX. OSX is appealing the fine.
The study, though, was never done, and farmers have not been compensated, and salt levels are not normal in the Channel, Rezende's group at UENF said.
On January 29, Rezende's colleague Marina Satika Suzuki, a professor of inland-water-studies, measured salt levels at nearly 16 times the level Brazil's agricultural research agency, Embrapa, considers safe for irrigation. Levels above the limit can permanently damage farmland.
On May 14, those levels were still nearly 6 times higher.
"What does permanent salt build-up mean?" Suzuki asked. "Have you heard of Carthage? The Romans salted the land and destroyed the agriculture. If salt levels are high enough you can basically ruin it forever."
While salinity appears to be falling in surface water - which may be partly explained by a tapering off of dredging in recent months - soil and plants are still being exposed to dangerous salt levels, she said. She has no data for subterranean water and some of the pollution may have migrated into the earth only to be spread further afield, Suzuki said.
UENF's work is not without critics. State-owned water company Cedae challenged UENF's finding of unhealthy salt levels in artesian wells used for drinking water, saying they were too deep to be contaminated by work at Açu.
And Rio de Janeiro's State Agricultural University said its tests found water around Açu to be safe for irrigation after the initial spikes, but those tests are not as recent as UENF's.

SICK CATTLE, DEAD PINEAPPLES

The Quitingute Channel runs through the land of Durval Ribeiro Alvarengo, 59, a tall, wiry and leather-skinned farmer and cattle rancher.
Late last year, Alvarengo told Reuters, he noticed his dairy cattle had diarrhea and their grassy fodder was dying. As milk production plummeted, he had to slaughter most of his herd.
The loss of 150,000 pineapple plants cost him 300,000 reais ($137,743), he said. Many fish, birds and other small wildlife also disappeared from the area, he added.
His story is repeated on nearby farms.
"You can see how my crops have been ruined with your own eyes," said Alvarengo's neighbor, Jose Roberto de Almeida, 51, as he ripped up crackly, dried-out plants from the ground.
Ricardo Hirota, director of the Subterranean Water Center at the University of São Paulo, is conducting two studies for LLX on the impact of dredging.
One examines ways to control the impact of future dredging. The second is assessing the impact of the original waste dumps to prevent a repeat of the salt pollution problem in late 2012.
Hirota suggests that the company has learned from its experience at Açu. "The area is very sensitive and there are many links between surface and underground water," he said. "We're learning a lot. The good thing is they're better prepared than in the past."
He declined to share any data, citing an LLX confidentiality agreement.
"I think you can appreciate how sensitive this is," he said. "The company has been under a lot of pressure."
Much may depend on the case launched by Oliveira. Even if he loses - and courts have often rejected his claims - a Brazilian prosecutors' near-complete independence, coupled with a legal system that encourages multiple appeals, can stretch even flimsy prosecutions into decade-long ordeals.
A senior official in the prosecutor's office said it expects public hearings by the end of August. The official declined to be identified.
"Eike needs to be very careful; Brazilians like to kick you when you're down," said Wilen Manteli, president of Brazil's private port association. "An environmental problem, even if unfounded, can be a lightning rod for a range of attacks. It would be a pity if this port does not get built."
($1 = 2.27 Brazilian reals)
(Additional reporting by Sergio Queiroz; Editing by Martin Howell and Leslie Gevirtz)

Ecological risks may spell trouble for Eike Batista`s port - FAST NEWS - Mineweb.com Mineweb