Forget gold, IRON ORE is the story of the decade - MINING.com

The last comment is the most telling, though...:

It’s not all good news however. New supply coming on stream from 2014 – BHP and Rio’s output plans for Pilbara alone are a staggering 750 million Mtpa and just this week BHP committed another $14 billion to expand its port – must impact prices. Rio’s chief Tom Albanese in December said he sees one more year of $120-plus iron ore – then it’s over.

Forget gold, IRON ORE is the story of the decade

On the last day of Roundup, Vancouver’s mining showcase, Sandy Chim CEO of Canada’s Century Iron Mines, flashed a few slides about China, India and the iron ore market over the last decade that would make gold bugs green with envy.
BHP, Vale and Rio Tinto control nearly 70% of the 1 billion tonne annual iron ore seaborne trade and pretty much all contract pricing depend on their say so. The price of 62% iron ore never strayed from $10 – 14/tonne for more than 20 years (1991 was a banner year – miners got all of $15.03 for their haul). The state of affairs was due to secretive negotiations and annual contracts.
Then at the end of 2004 all hell (for Chinese steelmakers that is) broke loose. The Big 3 decided enough is enough and put up the price 72%, marking the start of a supercycle and the beginning of the end of the old pricing system:

Although October last year constituted a mini-crash with spot declining from a record high of $180 to $116, on Friday it was back up above $140. Reuters reports futures prices of nearby months remained at a premium, “reflecting widespread anticipation of an improvement in spot ore prices once Chinese buyers return from the week-long break,” according to reference price provider Steel Index.
Chim points out that the dramatic rise since the beginning of 2008 were into the teeth of the financial crisis and despite prices that went up four-fold in four years, Chinese steelmakers continued to buy. China now imports 60% – 70% of its needs, up from $35%, because of low grade domestic stock from expensive underground mining. Iron ore producers also benefit from industry concentration and pricing power compared to a highly fragmented steelmaking industry.
Steel production is closely correlated to economic growth and personal incomes. Using that metric China’s citizens have to increase their personal incomes almost 10-fold to catch up with the US where GDP per capita income is $48 000. Given the firepower the Chinese government still has to stimulate the economy – the country’s reserves are more than $3 trillion and 20 times that of the US – and its ambitious infrastructure programs (among others 36 million new housing units), it still has some way to grow:

Chim also provides interesting stats for those who believe the China boom is coming to a close. There is plenty of opportunity left in the region. India is where China was 20 years ago while the other Asian economies that are doing well – Indonesia, Vietnam, Thailand, Philippines and others – constitute a 500 million population pool:

And for those who think iron ore is only an Australian story, Canada’s miners have attracted $10 billion in the past year through acquisitions, investments and expansions:

It’s not all good news however. New supply coming on stream from 2014 – BHP and Rio’s output plans for Pilbara alone are a staggering 750 million Mtpa and just this week BHP committed another $14 billion to expand its port – must impact prices. Rio’s chief Tom Albanese in December said he sees one more year of $120-plus iron ore – then it’s over.
Thanks to their economies of scale the Big 3 have been flooding the market by concentrating on building market share rather than maximizing prices. This way the giants drive high-cost producers out of the business. The Big 3 can handle a price well below $120; smaller players may become collateral damage as peak profitability in the sector passes.
Click here for MINING.com’s dedicated page for popular iron ore pricing posts.

See the whole article online here: Forget gold, IRON ORE is the story of the decade - MINING.com

The how, when and why of gold confiscation by governments - POLITICAL ECONOMY | Mineweb

The how, when and why of gold confiscation by governments

In another article on gold confiscation, Julian Phillips reckons that this could become a reality as the decline in currency confidence makes such action inevitable.

Author: Julian D. W. Phillips
Posted: Saturday , 21 Jan 2012

BENONI -

Gold and Liquidity

The issues facing the developed world's financial systems are ones of liquidity and solvency, among others. The assumptions of liquidity levels proved horribly incorrect! The request from the IMF to lift its resources from $380 billion to $980 billion and the currency swaps between the U.S. and Eurozone confirm that (these may still prove inadequate).

Many markets, which reserve managers had considered to be deep and liquid, proved to be the exact opposite with assets-selling only at a large discount. This was even true of some AAA-rated assets, showing that credit ratings offered no effective guide to liquidity. Many central banks had to rely on bi-lateral currency agreements with other central banks, principally the US Federal Reserve.

The situation is heading for even stormier waters on both sides of the Atlantic. But true to history, the gold market remained liquid throughout the financial crisis. This was the case even at the height of liquidity strains in other markets -a reflection of the size, low market concentration, and flight to quality tendencies of gold. As we said earlier: the Swedish Riksbank used its gold reserves at the height of the crisis to finance temporary liquidity assistance.

A look at what we have said so far in a number of articles answers the question that gold confiscation can really happen, but the question of when and under what specific conditions remain. We look at this now...

CONFISCATION OF CITIZEN'S GOLD

To get the issue in perspective, gold as a financial asset -providing liquidity as cash should do but doing so globally-is strongly on the rise, irrespective of its price. A look forward into 2012 points to deeper and more confidence-destructive financial crises, if not worse than we have seen in 2011.

With the problems being structural and so far inadequately addressed, expect to see some deep damage done to the developed world's financial system and most likely its banking system. Gold as a financial asset may provide a safety net as well as the means to repair national currencies.

All the world's currencies are interlinked, and banking systems are telling us that gold has already swung into action to provide financial relief. But it will need to see a very large expansion of this role if it is to defer or rectify these crises.

In a crisis the price of gold becomes irrelevant, it is the number of ounces you have that counts!

That's why the surplus earning world's central banks are buying gold at the expense of currencies, particularly the U.S. dollar. We would go so far as to say that all the world's central banks are very aware of the need to continue to use gold in the monetary system and more pertinently, that that role is growing, much as they hate that prospect.

Should the crises continue to grow this way, we have no doubt whatsoever that governments will consider confiscating their citizen's gold. There's a point in a decline in currency confidence where this is inevitable! Expect that developed world, central bankers have laid down contingency plans for just such an event.

Should they do so, it will likely be done at a weekend when markets are closed and when their citizens will not have time to take action to prevent such a confiscation. It will be overnight, and gold will be gone. As in 1933, the penalties for not handing over personally owned gold will be draconian. Gold held within a nation confiscating their citizen's gold in the country's banks will be handed over without reference to the clients themselves first.

Julian Phillips for the Gold and Silver Forecasters - www.goldforecaster.com and www.silverforecaster.com

SUBSCRIBE to Mineweb.com's free daily newsletter now.

SHARE THIS ARTICLE

Disclaimer

MINEWEB is an interactive publication, with rolling deadlines through each day, commencing in the Sydney morning, and concluding, 24 hours later, in the Vancouver evening. If you believe your side of an issue deserves inclusion, but has failed to meet one of our deadlines, you are invited to notify the Editor in Chief in Johannesburg, and we will include you in our editing and expanding on our stories. Email him at alechogg@gmail.com

Mineweb.com - The world's premier mining and mining investment website The how, when and why of gold confiscation by governments - POLITICAL ECONOMY | Mineweb

The MasterMetals Blog

Sprott bearish on base metals, positive on gold, oil

Sprott bearish on base metals, positive on gold, oil

Prominent Canadian fund manager Eric Sprott said this week he was bearish on cyclical commodities such as industrial metals because of the economic slowdown, though he remained positive on gold and crude oil.

Sprott, a long-time gold bull who last week filed to launch a platinum and palladium product allowing investors to redeem the physical metals, said he expects that business to grow in the wake of MF Global's collapse.

"I am not bullish on cyclical commodities such as iron ore, coal, steel, lead and zinc because I am worried about this economic contraction that everybody is talking about," Sprott told Reuters in a phone interview from his Toronto office.

He expects gold to hit a record above $2 000/oz this year, with silver also rallying to an all-time high at more than $50/oz. On Wednesday, gold traded at $1 660/oz and silver at $30.50.

Sprott, whose parent company Sprott Inc manages around C$9-billion in assets, has been bearish on cyclical commodities since the 2008 global economic crisis, and has maintained the gold and silver forecasts throughout last year.

"I think there is more upside to the gold-mining stocks. Last year, the stocks were absolutely crushed when the price of gold went down. But when gold goes back up, the stocks will provide a better return."

Bullion lost 10% in December and briefly entered a bear market, as it struggled to regain its safe-haven appeal even though investors questioned the viability of the euro.

Year to date, spot gold was up 6 percent, largely tracking equity markets' gains. It posted a 10% gain in 2011 that sealed its 11th consecutive year of gains.

Sprott cited strong physical gold demand, indicated by encouraging imports by China and Turkey late last year.

In addition, he was positive on the outlook of the energy market because of relatively inelastic demand and depleting output.

"It's getting tougher and more expensive all the time to produce energy. I think that's a pretty good foundation for the oil prices hanging in there."

SELL SHARES, REDEEM METAL

On Friday, Sprott filed regulatory papers for a planned launch of a physical platinum and palladium trust initially worth $115-million on the New York Stock Exchange and the Toronto Stock Exchange. The firm already runs two physical gold and silver trusts.

Investors in Sprott's funds have the option to redeem physical metals, something that not all ETFs offer.

"A lot of people thought they owned gold and silver before MF Global went bankrupt. And all of a sudden they found out that they didn't own anything at all," he said.

"We like people who own the units to know that they have the ability of getting the physical gold and silver."

Sprott said investors rarely redeem physical metals, but that could change if economic conditions worsen.

"In certain circumstances, we could see a lot of redemption. I am talking about financial meltdown circumstances. So, hypothetically it could happen," he said.

Edited by: Reuters

Read the story online here: Sprott bearish on base metals, positive on gold, oil

The MasterMetals Blog