Roundup 2011: Exploration & Commodities Notes
Copper
The 2011 copper market – according to a Roundup 2011 presentation – would present a 1.5 Mt deficit. The picture would change in 2013 when production would exceed market demand but still the surplus would be easily swallowed by investment demand. In the 2011-2015 interval some 66 new copper mining projects would come online. In 2020 new applications would take 1 Mt of copper off the market.
On a shorter term (2010-2015) consumption would continue to slightly decline in Western countries but China would experience an increase in demand.
On the investment side around 80% of the exchange stocks are short hedged by their owners – i.e. financial institutions. These investors (longs) initially create higher copper prices but in the longer term end up creating higher above the ground stocks – i.e. presenter’s opinion.
New market trends include the sequestration of copper stocks by organizations that want to launch copper ETFs.
The speaker’s warning: From 2013 copper prices would come down no matter how successful the ETFs really are.
His price forecast: $3.50 to $6.80 per lb for the 2011-2012 interval. The long term equilibrium price was considered to be $2.50 per pound.
Gold
The gold presentation was delivered by Dundee Wealth Economics and let me tell you that they were definitely bullish on gold.
They have presented many bullish arguments and I would deliver some of them:
1. Baby boomers are retiring and that is going to put a huge stress on the system (that and the recession; plus the debt of the European countries).
The US government deficit is huge 1,500 billion – similar to war times deficits. So what are the US government’s options?
- To renege on their promises (pensions)? That they can’t;
- To cut some services – likely, but not enough;
- To raise taxes – unlikely;
- Or, to print more money?
It looks like they’re good at printing money, so gold would go up every time that liquidity goes up.
At the same time the US trade deficit with China is unsustainable. China massively devalued their currency in the ‘90s to be able to export cheaper than anybody else. Their RMB is a rising currency, no doubt about that.
2. Foreign exchange reserves in USD:
- China: 2,850 billion dollars;
- Japan: 1,042 billion dollars;
- Saudi Arabia: 449.6 billion dollars;
- Russia: 438.2 billion dollars;
- Taiwan: 383.8 billion dollars;
- Korea: 288.7 billion dollars;
- India: 269.1 billion dollars, etc.
China holds a huge amount of US dollars but what are their options? Buy US bonds? Bad alternative. But what if the Chinese start buying Euro? Doesn’t sound good at all if they change their focus and switch from one currency to another.
But what would be the most viable alternative to all their worries? Well, buying gold of course. And it is already happening: China increased their gold reserves from 600 tonnes to 1,054 tonnes. At the same time China is buying gold mines, gold reserves to make sure that it would still have access to the precious metal in the near future. In 2010, India also bought some 200 tonnes of gold from IMF.
3. Supply (bullish arguments):
- Difficult governments around the world – e.g. Venezuela;
- Governments that need money and impose more taxes on mining – e.g. Chile, Australia;
- Environmental hurdles – See Gulf of Mexico oil spill;
- Peak gold or oil: the low hanging fruit picked already.
4. Investment Demand (bullish as well):
- Central Banks buy gold;
- Investors worried about currency debasement;
- Investors discover that gold has portfolio attributes;
- Gold is morphing in an ‘investment asset class’;
- Private & Central Banks demand was historically more dominant than jewelry demand;
- Asian gold markets are undergoing seismic changes and deregulation.
A correction in the price of gold won’t exceed 15% but if it would happen than that would be only a short interruption on the gold’s upward trend.
And finally their price forecast: The average gold price would be $1,529/oz for 2011, and $1,627/oz for 2012.
Gold price scenarios for the end of 2011: A. $1,070; B. $1,500; and C. $1,628.
Note: Middle East turmoil would also have a bearing on the price of gold because of the gold’s perceived safe haven status.
By Dan Oancea
The 2011 copper market – according to a Roundup 2011 presentation – would present a 1.5 Mt deficit. The picture would change in 2013 when production would exceed market demand but still the surplus would be easily swallowed by investment demand. In the 2011-2015 interval some 66 new copper mining projects would come online. In 2020 new applications would take 1 Mt of copper off the market.
On a shorter term (2010-2015) consumption would continue to slightly decline in Western countries but China would experience an increase in demand.
On the investment side around 80% of the exchange stocks are short hedged by their owners – i.e. financial institutions. These investors (longs) initially create higher copper prices but in the longer term end up creating higher above the ground stocks – i.e. presenter’s opinion.
New market trends include the sequestration of copper stocks by organizations that want to launch copper ETFs.
The speaker’s warning: From 2013 copper prices would come down no matter how successful the ETFs really are.
His price forecast: $3.50 to $6.80 per lb for the 2011-2012 interval. The long term equilibrium price was considered to be $2.50 per pound.
Gold
The gold presentation was delivered by Dundee Wealth Economics and let me tell you that they were definitely bullish on gold.
They have presented many bullish arguments and I would deliver some of them:
1. Baby boomers are retiring and that is going to put a huge stress on the system (that and the recession; plus the debt of the European countries).
The US government deficit is huge 1,500 billion – similar to war times deficits. So what are the US government’s options?
- To renege on their promises (pensions)? That they can’t;
- To cut some services – likely, but not enough;
- To raise taxes – unlikely;
- Or, to print more money?
It looks like they’re good at printing money, so gold would go up every time that liquidity goes up.
At the same time the US trade deficit with China is unsustainable. China massively devalued their currency in the ‘90s to be able to export cheaper than anybody else. Their RMB is a rising currency, no doubt about that.
2. Foreign exchange reserves in USD:
- China: 2,850 billion dollars;
- Japan: 1,042 billion dollars;
- Saudi Arabia: 449.6 billion dollars;
- Russia: 438.2 billion dollars;
- Taiwan: 383.8 billion dollars;
- Korea: 288.7 billion dollars;
- India: 269.1 billion dollars, etc.
China holds a huge amount of US dollars but what are their options? Buy US bonds? Bad alternative. But what if the Chinese start buying Euro? Doesn’t sound good at all if they change their focus and switch from one currency to another.
But what would be the most viable alternative to all their worries? Well, buying gold of course. And it is already happening: China increased their gold reserves from 600 tonnes to 1,054 tonnes. At the same time China is buying gold mines, gold reserves to make sure that it would still have access to the precious metal in the near future. In 2010, India also bought some 200 tonnes of gold from IMF.
3. Supply (bullish arguments):
- Difficult governments around the world – e.g. Venezuela;
- Governments that need money and impose more taxes on mining – e.g. Chile, Australia;
- Environmental hurdles – See Gulf of Mexico oil spill;
- Peak gold or oil: the low hanging fruit picked already.
4. Investment Demand (bullish as well):
- Central Banks buy gold;
- Investors worried about currency debasement;
- Investors discover that gold has portfolio attributes;
- Gold is morphing in an ‘investment asset class’;
- Private & Central Banks demand was historically more dominant than jewelry demand;
- Asian gold markets are undergoing seismic changes and deregulation.
A correction in the price of gold won’t exceed 15% but if it would happen than that would be only a short interruption on the gold’s upward trend.
And finally their price forecast: The average gold price would be $1,529/oz for 2011, and $1,627/oz for 2012.
Gold price scenarios for the end of 2011: A. $1,070; B. $1,500; and C. $1,628.
Note: Middle East turmoil would also have a bearing on the price of gold because of the gold’s perceived safe haven status.
By Dan Oancea
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