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Quantitive easing removes quality of money

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Dark clouds and a golden sky
▬ scenario is unfolding and it doesn’t look nice ▬

Henk J. Krasenberg - European Gold Centre

Henk J. Krasenberg

Although it seems that daily life is just proceeding as if there are not any problems around, it is becoming more and more obvious that in reality, the factors that determine the quality of our lives are further deteriorating. In almost every country, economic and fiscal restraint programs are implemented to cut spending, both on the government and the private levels. Companies are striving for more effective production and lay off parts of their employment force, all levels of government are reorganizing and also sacrifice people, the number of bankruptcies are rising by the day, creating more unemployment and just look around in your own environment, it is frightening how many offices and shops are closed and closing, the empty shops and for rent signs are all over the place.

That in itself is remarkable, on one hand the crises are the result of not having enough money around, on the other hand we know that Quantitative Easing is the new name for creating more and more money. A few months ago, I attended a presentation by our Dutch gold specialist Willem Middelkoop in which he clearly explained and showed slides that virtually every country in the world is increasing their money supply in almost identical curves. Obviously, the dust has come off the printing presses, they are running full steam, even in China where you would think they have no shortage of money whatsoever. His new book will come out this or next month, I hope there will be an English edition too so that you can learn about his always appreciated views.

On the economic front, Europe is still coping with its serious problems. It may seem that the politicians and the ECB have reached all kinds of agreements with individual countries that “solved” the worst of the monetary crises, but the truth of the reality shows that, as I said before, the solutions turn out to have been nothing more than putting some band-aids on the patients, rather than give them enough medicines to cure them. Greece and Spain continue to battle with difficulties on their country levels.

Greece succeeded to negotiate more than 11 billion euros in spending cuts which is not enough to fill their budget deficit of about € 20 billion…. The Greeks reacted with tens of thousands of protesters and a strike of doctors, teachers, tax workers, ferry operators and air traffic controllers to oppose the proposed spending cuts…. The EC, ECB and IMF report on Greece’s debt, which is the basis for decisions to grant Greece the next € 31 billion tranche of aid, may be delayed until after the U.S. presidential election to avoid too much commotion…. Unemployment reached 25.1% in July, up from 17.8% last year….

The Eurozone explained

Spain rejected Catalonia’s bid for fiscal independence and clearly stated this to be totally non-negotiable…. Instead, it will activate an € 18 billion liquidity fund to help regional governments finance their debts…. Catalonia reacted by calling for an early election in order to enforce its incremented autonomy wishes…. The Castilla-La Mancha region announced to seek € 800 million from the liquidity fund…. From August to September, the number of unemployed rose by 1.7% and now stands at 4.7 million. Since September 2011, unemployment has increased by 11.3%…. The Canarias region will seek € 757 million from the liquidity fund to repay maturing debt and finance its deficit…. and finally the most recent news: Standard and Poor’s downgraded Spain’s sovereign debt to one notch above junk status. The decision pushed yields on Spanish debt further down to near 6%….

But also in other European countries, the deteriorating circumstances lead to general worries and unrest. For instance, Sweden has said not to allow taxpayers to bail out “ill-managed” banks in other European countries, calling the structure of Europe’s proposed banking union “unreasonable” because it gives the ECB automatic majority…. Finland, the only Nordic Eurozone member, reported increased unemployment figures and an estimated 0.8% economic growth in 2013, lowering the previous forecast of 2.3%…. The United Kingdom’s Prime Minister David Cameron said he would not allow “outrageous” attempts to increase the EU budget during upcoming negotiations on EU spending for the 2014-2020 period and threatened to veto the budget if it was not in British interest. This clearly reflects the general anti-EU sentiment that has been apparent ever since the creation of the EU….

I can easily imagine that so many people within and outside of Europe are very much concerned whether we will ever get out of this situation and enjoy more prosperous times of economic strength and growth and financial and social well-being for the population. I am confident that will happen sometime in the future but it is very likely that the strenuous situation of today will last for several years to come and is almost sure to be bound for getting even worse. But of course, it is not only Europe that has to tighten the belts. Did we ever think that Japan would be in the situation that it is in today? And the United States, once the economic leader of the world with their bright minds, working and purchasing power, their not-to-crack optimism and its strong and world-recognized dollar. And not to forget, the nation with the world’s largest gold reserves! But, as to all good things do come to an end, that was once……

President Obama and president-elect Romney both want us to believe that they can steer America back to their previous position of the strongest economic, political and monetary driver of the world. We already know that politics are mainly resting on promises which sounds strong in times of election but which turn out to be hollow and without merit when the elections are over. This time, it will be the same as ever. The proud wish of Obama to revive the image of “Made in America” will mainly be applicable to the huge debt situation and all those obscure financial products that were invented by Lehman Brothers and their Wall Street pals and which were so greedily welcomed by their European counterparts. And then you have to consider that many of the persons responsible for that financial tsunami, are still serving in the Obama government. I do like Obama as a person and stimulator, despite everything I favour him as a President but I have to add that I usually say that he has a heart but he didn’t have the balls to get rid of the Wall Street gang…. And about Romney, yes what can I say about Romney, he doesn’t seem to have a clue about what is going on in the world and certainly not about what it needs to get the world in quieter, safer and better waters. No matter who will be the next President, the precarious economic and financial future will also be difficult for the United States with its debt-ridden society and quantitative easings…..

Of course, the above are not the only problems of the world. With all the wars, conflicts and international threats, in and from the Middle East, Asia and between the religions (love thy neighbour seems to be outdated too…..), the world is facing more fires to come with no proper and reasonable solutions in sight.

Now, what does this all for our world of resources, metals, exploration and mining? The search for metals and minerals has not diminished or weakened. On the contrary, the search to find and win them, has spread virtually over the whole world and despite all economic perils, the world’s metals and mineral prices have risen to very viable and economically feasible levels. The producing companies are reporting record production figures and profits, exploration companies report very encouraging drill results although in general no new world class discoveries are made.

My regular readers know that I have been consequently positive about the development of the gold price since 2002. I am still positive about the gold price as I think it will develop over the next few years. But as I often mention in my writings, personal conversations and presentations at mining investment conferences, I am not advocating that investors should invest in the metals and even better, in mining and exploration shares, just because the metal prices will go higher. The current prices are good enough where they currently are, to justify applying a solid part of almost every investor’s portfolio in resource stocks. The industry is enjoying healthy margins but what is more important, is the distinct possibility that other industries don’t have, seeing the prevailing profit margins increase significantly and possibly even multiplying!

Don’t ask me how high the price of gold will go. I just don’t know, like everybody else. In several past issues, I wrote about several of my appreciated colleagues and friends who predicted higher gold prices like $3,000, $5,000 and $8,000, to be topped in December 2011 when I told you about Shayne McGuire who was the first one to mention the possibility of $10,000 gold. I always said, until very recently, that I would not be in favour of such a price level because it would mean that we would be living in very bad and concerning living circumstances.

But in the last few weeks, the scenario as it is unfolding now and pretty rapidly too, is worrying me. Murphy’s law says that when it turns bad, all things will go bad. If that would indeed happen in the next two years, I think that the function of gold will become different and more special than most of us expect. Then, where the gold price will go, will be as good as anyone’s guess. The quantitative easings, the worldwide money printing, are affecting and ultimately removing the quality of money. Which other standard of value than gold will be there to come to rescue?

To me, the case for gold is clear. And when I say gold, I do mean all the PGM’s and silver too. But as I have explained and stressed before, the most flexible way to participate in the metals, is to invest in mining and exploration shares. They are ridiculously undervalued at the moment! Many good investment candidates can be found. In last month’s issue, I gave many names that would look fine in your portfolio. But start by studying the SUPPORTING COMPANIES. Several of them have reached the production status and look forward to impressive growth over the next two years, others are in decisive stages of development to come into production in due time, and the explorers can come to surprise us any moment with their discoveries. In the forthcoming issues of GOLDVIEW, MINING IN AFRICA, MINING IN EUROPE and MINING IN MEXICO, I will review these companies. As I said in my most recent presentation in Nairobi, Kenya two weeks ago, you cannot afford not to be in the resources markets!

Henk J. Krasenberg

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European Gold Centre

European Gold Centre analyzes and comments on gold, other metals & minerals and international mining and exploration companies in perspective to the rapidly changing world of economics, finance and investments. Through its publications, The Centre informs international investors, both institutional and private, primarily in Europe but also worldwide, who have an interest in natural resources and investing in resource companies.

The Centre also provides assistance to international mining and exploration companies in building and expanding their European investor following and shareholdership.

Henk J. Krasenberg

After my professional career in security analysis, investment advisory, porfolio management and investment banking, I made the decision to concentrate on and specialize in the world of metals, minerals and mining finance. From 1983 to 1992, I have been writing and consulting about gold, other metals and minerals and resource companies.

The depressed metal markets of the early 1990’s led me to a temporary shift. I pursued one of my other hobbies and started an art gallery in contemporary abstracts, awaiting a new cycle in metals and mining. That started to come in the early 2000’s and I returned to metals and mining in 2002 with the European Gold Centre.

With my GOLDVIEW reports, I have built an extensive institutional investor following in Europe and more of a private investor following in the rest of the world. In 2007, I introduced my MINING IN AFRICA publication, to be followed by MINING IN EUROPE in 2010 and MINING IN MEXICO in 2012.

For more information: www.europeangoldcentre.com

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Stigande kakaopriser får bönderna i Latinamerika att byta gröda

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Kakao i närbild

Produktionen av den kakao expanderar utanför det huvudsakliga odlingsområdet i Västafrika, eftersom bönder på platser som Brasilien, Ecuador och Colombia ser potential i grödan. Stigande kakaopriser får bönderna att byta gröda. Att allt mer kakao nu kommer odlas innebär att denna gröda kommer tillbaka till sitt ursprung eftersom det var i dessa länder som kakao först odlades. Prisuppgången till den högsta nivån på nästan 50 år stärker den trenden, vilket kan lindra den rådande låga utbudet på den globala kakaomarknaden. Det utgör också ett hot mot försörjningen för småbönder i Afrika eftersom nyligen planterade fruktträdgårdar som de i Sydamerika är mer produktiva, vilket minskar den totala produktionskostnaden.

När miljöhänsyn ökar globalt gör det faktum att kakao är en inhemsk art från Amazonas att plantera den i Sydamerika till en typ av återplantering av skog, medan inhemska skogar i Afrika raseras till öppna utrymmen för kakaoträdgårdar.

Brasilien, den främsta globala exportören av soja, majs, kaffe och socker, har sett kakaoplantager spridas över förstörda betesmarker i Amazonasregionen, såväl som på stora gårdar i det högutvecklade spannmålsbältet.

Landet var en gång näst störst efter Elfenbenskusten i kakaoproduktion, men en förödande svamp på 1980-talet känd som Witches’ Broom minskade produktionen kraftigt. Nästan fyra decennier senare återhämtar sig skördarna.

Brasiliens regering prognostisterar att produktionen kan växa till 300 000 ton år 2025 och till 400 000 ton år 2030, från cirka 200 000 ton för närvarande, vilket skulle göra landet från en nettoimportör till en exportör av råvaran.

I Ecuador har den årliga produktionen stigit till mellan 400 000 och 430 000 ton under 2022-2023 (okt-sept) från 287 000 ton för fem år sedan, enligt uppskattningar från Internationella kakaoorganisationen (ICCO) och Ecuadors exportgrupp Anecacao.

Ecuador har blivit den tredje största globala odlaren, efter Ghana som producerar cirka 750 000 ton. Toppodlaren är Elfenbenskusten med 2,2 miljoner ton.

Anecacao uppskattar att produktionen kan fortsätta att växa till så mycket som 800 000 ton år 2030.

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Citigroup sticker ut hakan – tror Brentoljan sjunker till strax över 70 USD nästa år

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Priset på Brentolja är 93 USD efter att ha sett en uppgång då OPEC+ under en längre tid har begränsat utbudet. Det har fått många, som ofta fäster sig vid att Kina börjar återhämta sig från sin ekonomiska nedgång, att prata om ett oljepris på 100 USD. Spekulanter är också till största del positionerade för ett högt och stigande oljepris.

Citigroup vågar dock sticka ut hakan och skriver i en analysuppdatering att man förväntar sig att Brentoljan sjunker tillbaka till strax över 70 USD under 2024. Banken förväntar sig att utbudet kommer att öka så att marknaden blir välförsedd. ”Högre priser på kort sikt kan skapa mer nedsida för priserna nästa år” skriver Ed Morse och övriga analytiker i teamet.

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Den globala sockerbristen är på väg att lätta tack vare ett ökat utbud av majs

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Sockerrör

Den sockerkris som drev sockerpriset till den högsta nivån på elva år ser ut att gå mot sitt slut. Orsaken är ett ökat utbud av majs, en gröda som vid första anblicken förefaller helt orelaterad till socker. Det har under senare tid kommit nyheter som visar att produktionen av majs ökar i Brasilien, vilket gör det mer lönsamt att använda denna gröda för att producera etanol. 

Fallande sockerpriser skulle vara en välkommen respit för konsumenter som kämpar mot den skenande matinflationen. 

Majs tar en större andel av etanolmarknaden i Brasilien, som näst efter USA är den största producenten av biobränsle. Etanol från majs kommer att stå för nästan en femtedel av all produktion av bränslet denna säsong, från att ha varit nästan noll för fem år sedan. År 2033 kan dess andel stiga till så mycket som en tredjedel av det totala utbudet, förutspår konsultföretaget Datagro.

En stigande majsproduktion i Brasilien möjliggör större vinster från etanol eftersom försäljningen av biprodukter som djurfoder till största delen täcker kostnaden för spannmålen. Sockerbruken däremot, ser krympande marginaler från etanol. Kostnaden för att tillverka etanol från majs var 16 procent lägre jämfört med att producera biobränsle från sockerrör under de senaste två åren, sa analytikerna på banken BTG Pactual i en rapport.

Efterfrågan på etanol har dock släpat efter eftersom förare föredragit den billigare bensinen. Priserna för biobränslet kan sjunka till så lågt som 65 till 68 procent av priset på bensin på lång sikt, enligt Willian Hernandes, en partner på konsultföretaget FG/A. Ett fall under 70 procent kommer enligt honom att övertyga fler förare att byta till etanol, men det kommer också att begränsa kvarnarnas vinster från att tillverka biobränslet.

Sockerindustrins djupa politiska band i Brasilien kan dock i slutändan bidra till att öka dess etanolmarginaler. President Lula da Silvas regering stöder ett lagförslag som kommer att öka andelen etanol som blandas med bensin.

Majsbaserad etanol står också inför vissa hinder. Bruk som använder majs förlitar sig mest på biomassa från flis som energikälla. Jus nu minskar virkesförsörjningen i Brasilien i takt med en växande massa- och pappersproduktion. Det kan innebära minskade incitament att odla majs till etanolförsörjning utöver vad som redan är planerat, säger Ana Zancaner, analytiker på Czapp, som ägs av råvaruhandlaren Czarnikow Group.

Men konsensus är att majsetanol kommer att se ytterligare några år av expansion. Brasilien har åtta majsetanolfabriker som lägger till kapacitet, medan andra sju nya kvarnar är under uppbyggnad, skrev analytiker vid Itau BBA i sin septemberrapport. Tillgången på råvaran är också riklig. Analytikerna uppskattar att Brasilien kommer att konsumera rekordstora 13 miljoner ton majs för att producera etanol denna säsong, ungefär en tiondel av det totala utbudet.

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