QE3 Discussion "Will Push Gold Prices Higher", Eurozone Problems "Have Not Disappeared"

Gold Prices traded just above $1660 per ounce Tuesday morning in London, a few Dollars down on last week's close, while stocks and commodities were also broadly flat on the day and US Treasuries gained.

Silver Prices rallied to nearly $31 per ounce, having fallen back through that level a day earlier, before easing back towards lunchtime.

"Although in an uptrend, gold does not appear as technically strong as silver," reckon technical analysts at Scotia Mocatta, a bullion bank.

On the currency markets, the Euro climbed back above $1.25, having dropped below that level during Tuesday's Asian trading, with analysts continuing to speculate on the prospects for a third round of quantitative easing (QE3) from the Federal Reserve.

Over the weekend, the leaders of France and Germany, the Eurozone's two largest economies, both said they wish to see Greece remain in the Euro.

"For me, the question should no longer be asked," said French president Francois Hollande, following Saturday's meeting with Greek prime minister Antonis Samaras.
"Greece is in the Eurozone."

"I want Greece to remain a part of the Eurozone," said German chancellor Angela Merkel a day earlier.

"We expect from Greece that the promises that were made are implemented, that actions follow words."

Greece is asking for a two-year extension to meet its commitments to austerity measures, and has proposed issuing short-term T-bills to cover the estimated €18 billion funding gap this would create.
Representatives of the 'troika' of lenders – the European Central Bank, European Commission and International Monetary Fund – are due to visit Greece next month to report on the government's progress towards its commitments, although their report may not be published until October, a Commission spokesman said Monday.

"It's not in German interests to kick Greece out of the Eurozone," says ING economist Carsten Brzeski in Brussels, speaking to Bloomberg.

"Everyone realizes that it's in the German interest to solve the crisis. At the same time, [Germany has] become weak enough to show them that they're not an economic island anymore."
"The Eurozone has been quiet of late, but that doesn't mean the problems have disappeared," adds Jeffrey Rhodes, global head of precious metals at INTL FCStone.

"The US economy has been sluggish and there is a growing belief that there is going to be QE3 soon. This anticipation is driving the market."

"We expect the Fed to ease policy further in September," agrees Steve Barrow, head of G10 research at Standard Bank, adding that easing could take one of various forms, such as QE, cutting rates interest rates on banks' excess reserves, or extending the length of time the Fed says it expects rates to stay at historic lows.

Fed chairman Ben Bernanke is due on Friday to give a speech on 'Monetary Policy Since the Crisis' at the annual Jackson Hole conference of central bankers. It was at this even two years ago that Bernanke hinted at a second round of quantitative easing, which the Fed implemented a few weeks later.

"We expect there to be QE3 by September and gold will move substantially higher," says Philip Klapwijk, global head of metals analytics at consultancy Thomson Reuters GFMS.
"More cash is coming into the market from investors...ETF demand has picked up and will continue to grow as prices rise."

Last week saw the world's largest Gold ETF, the SPDR Gold Trust (GLD), add nearly 12 tonnes of Gold Bullion, taking the total to 1286.5 tonnes, the highest level since April.

On New York's Comex meantime the difference between bullish and bearish contracts held by Gold Futures and options traders – known as the speculative net long position – jumped by nearly a fifth in the week ended last Tuesday, according to weekly data published by the Commodity Futures Trading Commission.

Russia's central bank added 18.6 tonnes of gold to its reserves in July, according to IMF data published last week. Kazakhstan, Kyrgyz Republic and Ukraine also opted to Buy Gold, while Guatemala and Mexico reduced their holdings.

Turkey, whose reported official reserves includes gold held at the central bank by commercial banks, saw its gold reserves grow by 18% in July, the IMF data show.

"There's a lot of talk of gold coming back as a safe-haven asset," says Bernard Sin, head of currency and metal trading at Swiss refiner MKS.

"As long as the QE3 discussion is on the table, gold will continue to trade higher."

Australian Mining Boom Peak Years Away

THE government's efforts to talk up the longevity of the mining boom will be boosted today by an influential report that predicts mining industry investment is still several years away from peaking. 

And the report by economic forecaster BIS Shrapnel predicts other sectors of the economy will lift to fill the gap when the mining sector inevitably slows.

A series of cabinet ministers insisted yesterday the mining boom had further to run, in an attempt to counter fears of a slowdown after BHP Billiton's decision last week to shelve its $30 billion Olympic Dam expansion and Resource Minister Martin Ferguson's controversial declaration that the boom was over.

Against a dreary outlook for the prices of Australia's key exports, BIS Shrapnel believes the value of contracted resource projects means mining investment would not peak until 2014, with Queensland and Western Australia tied up with major projects for three to five years.

"After that, non-mining investment will stabilise and start to pick up, taking over as the engine of growth and smoothing the transition," says the BIS report, to be released today.

It suggests lower interest rates will boost retail spending, which had been held back by low confidence and weak demand rather than the Australian dollar.

"Over time, capacity constraints outside mining, such as those already evident in the construction sector, will prompt a broadening of investment beyond mining," it says.

Frank Gelber, chief economist at BIS Shrapnel, said the realisation that the investment mining boom was finite would cause people to "overreact on the pessimistic side".

"All of a sudden, the glass seems to have become one-quarter full, but nothing has changed," he told The Australian in a reference to Reserve Bank governor Glenn Stevens's optimistic glass-half-full depiction of Australia's economy.

"Our report aims to dispel some of the panicky discussion about the end of the boom," Mr Gelber said, predicting economic growth of 3 per cent this year and next.

BIS Shrapnel believes continued strong commodity prices will keep the Australian dollar high "for a few more years", putting pressure on other trade-exposed industries.

Trade Minister Craig Emerson said yesterday the mining boom was not even halfway through, while Workplace Relations Minister Bill Shorten noted that his department was projecting that another 100,000 jobs would be created in the mining industry over the next five years.

"Mr Ferguson is right: we might have reached the peak in prices, but volumes are still increasing and there are still plenty of projects," Mr Shorten said, attempting to paper over any divisions in cabinet.
"I don't think that the contribution that mining is going to make in jobs and economic output for Australia has at all peaked." Wayne Swan said the mining boom was better understood "as a series of booms - a boom in prices, a boom in investment and a boom in exports".

The Treasurer said that while the price boom had passed its peak, "the investment boom still has some way to run" and the Bureau of Resources and Energy Economics had forecast commodity export earnings to reach a record $209 billion this financial year as higher volumes offset lower prices.

JPMorgan chief China economist Haibin Zhu, visiting Sydney last week, told Sky Business's Australian Business on Friday night Chinese demand for Australia's resources would slow but remain at a very high level over the next five to 10 years.

"What follows the recent boom is going to be far from a bust," he said, pointing out the Chinese government was intent on stabilising the country's growth at a lower but more stable level.
He warned that China's one-child policy would sap its potential economic growth rate by about one-quarter within the next five to 10 years.

"The share of working-age people in the population is shrinking and the number of workers will start to decline in the next few years," he said.

Mr Gelber also dismissed the impact of the carbon tax on BHP's decision to shelve its Olympic Dam copper, gold and uranium mine expansion, arguing it would go ahead once construction costs eased. "Such a long-term project means it is hard to predict ultimate prices and demand," he said.

Mr Swan said he was "pleased" to see discussion about the longevity of the mining boom. "But behaving as if the investment pipeline has suddenly run dry is not only false, it's irresponsible," he said, pointing out the Reserve Bank governor had said mining investment would not peak for a few years yet.

Aussie Banks Worth More Than Europe's Combined

FOR the first time in history the value of Australian banks are now worth more than the Eurozone. 
 
The Commonwealth Bank made a net profit of almost $7.1 billion, the biggest ever reported by an Australian bank. That boils down to a daily profit of almost $19.5 million or more than $13,000 a minute.

 ANZ  posted a $4.4 billion profit for the nine months to June, an increase of 10 per cent.

CBA chief executive Ian Narev told the Adelaide Advertiser that he is “proud and not embarrassed” by the massive profit surge. He said the results boil down to strong Australian economy and the confidence of their shareholders.

“The people who own this group. . . 60 per cent of them are Australian households directly, that's 800,000 Australian families, “Another 20 per cent of our shareholders are Australians who own them directly through their pension funds.

“So the shareholders who we are doing well for are millions and millions of Australian households,” said Mr Narev.

ANZ's Australian, New Zealand and Asian operations, chief executive Mike Smith told news.com.au the group attributes their success to effective management of ongoing funding and competitive pressures. He also said ANZ had picked up market share in deposits, mortgages and business lending

Other financial analysts have said the massive profits can be explained by the fact that unlike European and American banks, Australia have not loaded up on subprime debt, bad real estate loans or “piles of dodgy foreign debt”.

China's New Gold Rush

China may have overtaken India as the world's top consumer of gold in the first quarter of 2012, but the country is not resting on its laurels. By buying gold mines, and accumulating the produced gold before it hits the international market, China is able to purchase gold below the spot gold price.

In the first successful example of a Chinese company taking over a large-sized gold mine that is in production, Zijin Mining Group Co, China's top gold producer by output, said a subsidiary has bought more than 50% of Australia-listed Norton Gold Fields.

Jinyu International Mining, the fully owned subsidiary of Zijin Group, made a $190 million cash takeover offer in May for the Australian gold mine and then set about obtaining approval from Australian regulators.

In a statement, the company said the acquisition was in line with its international development strategies. Last month, news agencies in China announced that the company had received a notice from Australia's Foreign Investment Review Board that it had no objections to the purchase by Zijin or its subsidiaries of all issued shares of Norton Gold.

Zijing has also obtained approval for the deal from China's National Development and Reform Commission, which is one of the country's top regulatory bodies.

Zijin already holds 16.98% of Norton Gold Fields, which has mining rights covering an area of 693 square kilometers with total gold reserves of 185 tonnes. Last year, it produced 4.7 tonnes of gold.

From its open cut and underground operations at Paddington, near Kalgoorlie in Western Australia, Norton reportedly produced 152,000 ounces of gold. Recently, it added two new mining operations, the Homestead underground mine and the Navajo Chief open cut, to supply ore to its processing facility.

Zijin, which is listed in Shanghai and Hong Kong, has a market capitalisation of over $12 billion and has interests across commodities including gold, copper, zinc, lead, tungsten and iron ore. The company is likely to refine 50 metric tonnes of gold in 2012.

In 2011, Zijin bought 60% of Kazakhstan-based miner Altynken, which has access to a gold mine in Kyrgyzstan.

Not all have been success stories though. Zijin shelved a proposed $545 million offer for Australia-based Indophil Resources, following delays in approval from the Chinese government.

On its part, Zijin has moved the country a step closer to cementing its position in the world market as a top consumer. Though China and India together make up about 54% of the world's gold purchases, the latter has long been number one. The dynamics are set to change this year.

While gold demand in China is set to jump by as much as 30%, to between 900 and 1,000 metric tons in 2012 from 769.8 metric tonnes last year, India's usage may fall to 700 to 800 metric tonnes, from 933.4 metric tonnes.

In the first three months, demand in China totalled a record 255.2 tonnes as compared to 232.5 tonnes a year ago. China actually replaced India as the world's top gold consumer at the end of 2011.

In the first 2 quarters of 2012, China's gold inflows from Hong Kong also increased six times. China's gold imports from Hong Kong were 65% higher in April than March, the third consecutive monthly rise according to Commerzbank.

Data also suggests China's new rich are turning to gold to protect their wealth amidst worries over property market curbs. Though China's inflation dipped to a 30-month low in July, as reported on August 9, inflation has slowed dramatically, freeing China's central bank to do more to stimulate the economy.

Gold buying is clearly set to surge in the Asian country.

Most Major World Economies Slowing: OECD

MOST of the major world economies are slowing, with Britain the only country to see tentative signs of a pick-up, the OECD says.  
  

The Organisation for Economic Cooperation and Development said on Thursday its composite leading indicators continued to point to "an easing of economic activity in most major OECD economies and slowdowns in most major non-OECD economies".

The individual indicators for Japan and the United States "show signs of a fading growth momentum," the Paris-based OECD, which groups the world's most developed countries, said in its latest report.

The signs from the eurozone, Germany and France "continue to point to weak growth", except in Italy where they point "more strongly to a slowdown".
Data for Britain, however, shows "tentative signs of a pick-up in economic activity", making it the only country to show improvement.

In Canada they point to "continued weak growth".
In the emerging markets of China, India and Russia, the indicators "continue to point to a slowdown" while in Brazil they suggest "a more moderate pick-up in economic activity than in last month's assessment".

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