Category Archives: Investment

Zimbabwe’s sale of gold coins to fight inflation is missed opportunity to boost reserves, says IMF

(Kitco News) Zimbabwe’s plan to sell gold coins to tame inflation is a missed opportunity to build better gold reserves, according to the International Monetary Fund (IMF).
Over the summer, Zimbabwe’s central bank started selling gold coins to fight inflation. The idea was that gold coins would provide a store of value to the country’s plunging currency and give the population an alternative to the U.S. dollar.
The one troy-ounce 22-carat gold coins named ‘Mosi-Oa-Tunya,’ meaning “Smoke that Thunders” in reference to Victoria falls, have been very popular. After the first week of being launched, which was at the end of July, the country’s central bank sold 1,500 gold coins. 
Each gold coin has a serial number and can be bought with local currency, the U.S. dollar, and other foreign currencies. The price is set based on the international price of gold and production costs. As of this week, each gold coin was going for $1,755, according to the central bank’s website.
The owners of the coins can convert them into cash or make a trade-in whenever needed. The gold coins could also be used as legal tender to transact in or as a security for loans.
The goal is to lower the demand for U.S. dollars following the collapse of the Zimbabwe dollar. Earlier, Zimbabwe revealed plans to adopt the U.S. dollar as legal tender for the next five years to stabilize the country’s exchange rate. This is the second time in more than a decade that Zimbabwe is legalizing the greenback as legal tender.
Surging inflation and currency devaluation have made things difficult for Zimbabwe’s population. The country’s annual inflation accelerated by 285% in August. In response to the crisis, Zimbabwe’s central bank has more than doubled its policy rate from 80% to 200%, a new record.
But the IMF sees this as a missed opportunity on the gold reserves side. “The sale of gold coins has contributed to withdrawing Zimbabwe dollar liquidity from the market, though it represents an opportunity cost in terms of foregone reserves for the Reserve Bank of Zimbabwe,” Bloomberg quoted an IMF spokesperson as saying Thursday.
Earlier in the week, the IMF noted that Zimbabwe’s monetary policy moves were helping with currency devaluation. “The recent tightening of monetary policy and the contained budget deficits are policies in the right direction and have contributed to the narrowing of the parallel market exchange rate gap,” the IMF said Monday.
Due to the popularity of one-ounce gold coins, the country’s central bank is also working on releasing a tenth of an ounce coins.
The gold coin idea also inspired the country to try incentivizing the nation’s biggest gold miners to produce above the state-planned targets.
Large miners are being encouraged by the government to produce more gold. And those who exceed their targets can receive 80% of the payment for the additional output in foreign currency. The current payment plan is a 60-40 split between foreign and local currency payments. 
Zimbabwe’s gold output is already up 47% this year, with the government looking for gold mining to account for a third of 2023’s overall mining industry targeted $12 billion in revenue. Continue reading

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A Great Copper Squeeze Is Coming for the Global Economy

(Bloomberg) — The price of copper — used in everything from computer chips and toasters to power systems and air conditioners — has fallen by nearly a third since March. Investors are selling on fears that a global recession will stunt demand for a metal that’s synonymous with growth and expansion.Most Read from BloombergYou wouldn’t know it from looking at the market today, but some of the largest miners and metals traders are warning that in just a couple of years’ time, a massive shortfall will emerge for the world’s most critical metal — one that could itself hold back global growth, stoke inflation by raising manufacturing costs and throw global climate goals off course. The recent downturn and the under-investment that ensues only threatens to make it worse.“We’ll look back at 2022 and think, ‘Oops,’” said John LaForge, head of real asset strategy at Wells Fargo. “The market is just reflecting the immediate concerns. But if you really thought about the future, you can see the world is clearly changing. It’s going to be electrified, and it’s going to need a lot of copper.”Inventories tracked by trading exchanges are near historical lows. And the latest price volatility means that new mine output — already projected to start petering out in 2024 — could become even tighter in the near future. Just days ago, mining giant Newmont Corp. shelved plans for a $2 billion gold and copper project in Peru. Freeport-McMoRan Inc., the world’s biggest publicly traded copper supplier, has warned that prices are now “insufficient” to support new investments.Commodities experts have been warning of a potential copper crunch for months, if not years. And the latest market downturn stands to exacerbate future supply problems — by offering a false sense of security, choking off cash flow and chilling investments. It takes at least 10 years to develop a new mine and get it running, which means that the decisions producers are making today will help determine supplies for at least a decade.“Significant investment in copper does require a good price, or at least a good perceived longer-term copper price,” Rio Tinto Group Chief Executive Officer Jakob Stausholm said in an interview this week in New York.Why Is Copper Important?Copper is essential to modern life. There’s about 65 pounds (30 kilograms) in the average car, and more than 400 pounds go into a single-family home.The metal, considered the benchmark for conducting electricity, is also key to a greener world. While much of the attention has been focused on lithium — a key component in today’s batteries — the energy transition will be powered by a variety of raw materials, including nickel, cobalt and steel. When it comes to copper, millions of feet of copper wiring will be crucial to strengthening the world’s power grids, and tons upon tons will be needed to build wind and solar farms. Electric vehicles use more than twice as much copper as gasoline-powered cars, according to the Copper Alliance.How Big Will the Shortage Get?As the world goes electric, net-zero emission goals will double demand for the metal to 50 million metric tons annually by 2035, according to an industry-funded study from S&P Global. While that forecast is largely hypothetical given all that copper can’t be consumed if it isn’t available, other analyses also point to the potential for a surge. BloombergNEF estimates that demand will increase by more than 50% from 2022 to 2040.Meanwhile, mine supply growth will peak by around 2024, with a dearth of new projects in the works and as existing sources dry up. That’s setting up a scenario where the world could see a historic deficit of as much as 10 million tons in 2035, according to the S&P Global research. Goldman Sachs Group Inc. estimates that miners need to spend about $150 billion in the next decade to solve an 8 million-ton deficit, according to a report published this month. BloombergNEF predicts that by 2040 the mined-output gap could reach 14 million tons, which would have to be filled by recycling metal.To put in perspective just how massive that shortage would be, consider that in 2021 the global deficit came in at 441,000 tons, equivalent to less than 2% of demand for the refined metal, according to the International Copper Study Group. That was enough to send prices jumping about 25% that year. Current worst-case projections from S&P Global show that 2035’s shortfall will be equivalent to about 20% of consumption.As for what that means for prices?“It’s going to get extreme,” said Mike Jones, who has spent more than three decades in the metal industry and is now the CEO of Los Andes Copper, a mining exploration and development company.Where Are Prices Heading?Goldman Sachs forecasts that the benchmark London Metal Exchange price will almost double to an annual average of $15,000 a ton in 2025. On Wednesday, copper settled at $7,690 a ton on the LME.“All the signs on supply are pointing to a fairly rocky road if producers don’t start building mines,” said Piotr Kulas, a senior base metals analysts at CRU Group, a research firm.Of course, all those mega-demand forecasts are predicated on the idea that governments will keep pushing forward with the net-zero targets desperately needed to combat climate change. But the political landscape could change, and that would mean a very different scenario for metals use (and the planet).And there’s also a common adage in commodity markets that could come into play: high prices are the cure for high prices. While copper has dropped from the March record, it’s still trading about 15% above its 10-year average. If prices keep climbing, that will eventually push clean-energy industries to engineer ways to reduce metals consumption or even seek alternatives, according to Ken Hoffman, the co-head of the EV battery materials research group at McKinsey & Co.Scrap supply can help fill mine-production gaps, especially as prices rise, which will “drive more recycled metals to appear in the market,” said Sung Choi, an analyst at BloombergNEF. S&P Global points to the fact that as more copper is used in the energy transition, that will also open more “opportunities for recycling,” such as when EVs are scrapped. Recycled production will come to represent about 22% of the total refined copper market by 2035, up from about 16% in 2021, S&P Global estimates.The current global economic malaise also underscores why the chief economist for BHP Group, the world’s biggest miner, just this month said copper has a “bumpy” path ahead because of demand concerns. Citigroup Inc. sees copper falling in the coming months on a recession, particularly driven by Europe. The bank has a forecast for $6,600 in the first quarter of 2023.And the outlook for demand from China, the world’s biggest metals consumer, will also be a key driver.If China’s property sector shrinks significantly, “that’s structurally less copper demand,” said Timna Tanners, an analyst at Wolfe Research. “To me, that’s just an important offset” to the consumption forecasts based on net-zero goals, she said.But even a recession will only mean a “delay” for demand, and it won’t “significantly dent” the consumption projections going into 2040, according to a presentation from BloombergNEF dated Aug. 31. That’s because so much of future demand is being “legislated in,” through governments’ focus on green goals, which makes copper less dependent on the broader global economy than it used to be, said LaForge of Wells Fargo.Plus, there’s little wiggle room on the supply side of the equation. The physical copper market is already so tight that despite the slump in futures prices, the premiums paid for immediately delivery of the metal have been moving higher.What’s Holding Back Supplies?Just take a look at what’s happening in Chile, the legendary mining nation that’s long been the world’s largest supplier of the metal. Revenue from copper exports is falling because of production struggles.At mature mines, the quality of ore is deteriorating, meaning output either slips or more rock has to be processed to produce the same amount. And meanwhile the industry’s pipeline of committed projects is running dry. New deposits are getting trickier and pricier to both find and develop. In Peru and Chile, which together account for more than a third of global output, some mining investments have stalled, partly amid regulatory uncertainty as politicians seek a greater portion of profits to resolve economic inequalities.Soaring inflation is also driving up the cost of production. That means the average incentive price, or the value needed to make mining attractive, is now roughly 30% higher than it was 2018 at about $9,000 a ton, according to Goldman Sachs.Globally, supplies are already so tight that producers are trying to squeeze tiny nuggets out of junky waste rocks. In the US, companies are running into permitting roadblocks. While in the Congo, weak infrastructure is limiting growth potential for major deposits.Read More: Biggest US Copper Mine Stalled Over Sacred Ground DisputeAnd then there’s this great contradiction when it comes to copper: The metal is essential to a greener world, but digging it out of the earth can be a pretty dirty process. At a time when everyone from local communities to global supply chain managers are heightening their scrutiny of environmental and social issues, getting approvals for new projects is getting much harder.The cyclical nature of commodity industries also means producers are facing pressure to keep their balance sheet strong and reward investors rather than aggressively embark on growth.“The incentive to use cash flows for capital returns rather than for investment in new mines is a key factor leading to a shortage of the raw materials that the world needs to decarbonize,” analysts at Jefferies Group LLC said in a report this month.Even if producers switch gears and suddenly start pouring money into new projects, the long lead time for mines means that the supply outlook is pretty much locked in for the next decade.“The short-term situation is contributing to the stronger outlook longer term because it’s having an impact on supply development,” Richard Adkerson, CEO of Freeport-McMoRan, said in an interview. And in the meantime, “the world is becoming more electrified everywhere you look,” he said, which inevitably brings “a new era of demand.”Most Read from Bloomberg Businessweek©2022 Bloomberg L.P. Continue reading

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Comex Stock Report: The Vaults are Still Bleeding

September 20, 2022  by SchiffGold  0   0This analysis focuses on gold and silver within the Comex/CME futures exchange. See the article What is the Comex? for more detail. The charts and tables below specifically analyze the physical stock/inventory data at the Comex to show the physical movement of metal into and out of Comex vaults.Registered = Warrant assigned and can be used for Comex delivery, Eligible = No warrant attached – owner has not made it available for delivery.Current TrendsGoldIt’s been four months of a relentless decrease in gold holdings at the Comex. This was highlighted last month and the momentum has continued into September. Since May, almost $9M ounces of gold have left Comex vaults.Figure: 1 Recent Monthly Stock ChangeOver the last 30 days, Registered has seen a fall of 1.47M ounces with Eligible losing 170k. As shown below, nearly every day shows a net loss in metal.Figure: 2 Recent Monthly Stock ChangeSilverSilver is slightly different than gold. The action has been focused primarily on Registered metal (metal available for delivery). Only one month (March) has seen an increase in Registered since December of last year. In fact, since March of last year, Registered has only seen a meaningful increase in inventory in two months.Figure: 3 Recent Monthly Stock ChangeThe bleed-out of Registered can be seen below with consistent movement out throughout the last 30 days. Nearly 11M ounces have left Registered during this time.Figure: 4 Recent Monthly Stock ChangeThe table below summarizes the movement activity over several time periods to better demonstrate the magnitude of the current move.GoldOver the last month, gold has seen Registered fall by 10.2%, or 1.4M ouncesCombined with the outflow in Eligible, total inventories dropped 5.7% or 1.6MIn the last week, the action has been Registered moving to EligibleInventory is down over the past year by 20%Eligible is down 11% and Registered down almost 30%!SilverSilver Registered is down by almost 20% in the last monthRegistered silver is down an incredible 56% in the last year and 69% over three yearsEligible is nearly flat over the month, with a fall of 1.2%Combined, inventory has dropped 4% in the last month, but the fall in Registered is clearly acceleratingAt the current pace, Registered silver could be fully depleted by January!Figure: 5 Stock Change SummaryThe next table shows the activity by bank/Holder. It details the numbers above to see the movement specific to vaults.GoldEvery vault has seen inventories fall over the last year with 5 vaults seeing supply fall by more than 30%Over the last month, 5 of 8 vaults lost gold with only meager gains seen in Delaware Depository and HSBCSilverSilver has seen massive outflows MoM with 3 vaults seeing almost 10% or more reduction. 2 other vaults saw 5%+ reductions.Over the last year, only Delaware and Malca have seen increases in silver, with 7 vaults seeing sizable reductions (+10%)Figure: 6 Stock Change DetailHistorical PerspectiveZooming out and looking at the inventory for gold and silver shows just how massive the current move has been. The decline has been swift and steep, with losses seen in both Eligible and Registered.Figure: 7 Historical Eligible and RegisteredSilver has seen a massive move down in Registered as a % of the total (black line). In September 2020, Registered made up 40% of total Comex inventories. The number has crashed to 13.8%, which is now the lowest level since at least Jan 2015.Figure: 8 Historical Eligible and RegisteredThe chart below focuses just on Registered to show the steepness of the current fall. In Feb 2021, there were 152M ounces of Registered. That number now sits at 44M, which is a net fall of 108M ounces. Considering the recent acceleration, total holdings could fall below 2016 levels within a few months.Figure: 9 Historical RegisteredComex is not the only vault seeing big moves out of silver. Below shows the LBMA holdings of silver. It should be noted that much of the holdings shown below are allocated to ETFs. Regardless, total inventories have fallen every single month since November. Holdings fell below 1B ounces in June and now sit just above 900M as of August.Figure: 10 LBMA Holdings of SilverAvailable supply for potential demandThese falls in inventory have had a major impact on the coverage of Comex against the paper contracts held. There are now 3.4 paper contracts for each ounce of Registered gold within the Comex vaults. The coverage would actually be far worse if the total open interest had not plummeted in recent weeks.Figure: 11 Open Interest/Stock RatioCoverage in silver is far weaker than gold with 15 paper contracts for each ounce of Registered silver. This is the worst coverage since June of 2018 when total open interest was almost 61% higher.Figure: 12 Open Interest/Stock RatioWrapping UpThe physical demand for gold and silver has been voracious. While the price is still being controlled by the paper market, it’s clear that something in the physical market could trigger a major shift. As supplies continue to dwindle, it’s only a matter of time before shorts will get stuck without being able to deliver. At the current pace, this is not something that will happen in a few years. It could be a few months!The price action in gold and silver does not suggest that supplies are starting to run thin, but the data is ringing the alarm bell for anyone who wants to listen. Physical is in demand and investors want it now! Prices will catch-up. Make sure you are positioned before they do.Data Source: https://www.cmegroup.com/Data Updated: Daily around 3PM EasternLast Updated: Sep 19, 2022Gold and Silver interactive charts and graphs can always be found on the Exploring Finance dashboard: https://exploringfinance.shinyapps.io/goldsilver/Get Peter Schiff’s key gold headlines in your inbox every week – click here – for a free subscription to his exclusive weekly email updates.Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today! Continue reading

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