|
As a general rule, the most successful man in life is the man who has the best
information
The history of fiat money has always
been one of failure - every
fiat currency since the
Romans started diluting
the silver content of their
denarius has ended in devaluation and eventual
collapse of both the currency
and of that particular economy. Most paper money economies downfall can be linked
to the costs of financing
out of control military growth
and its wars.
For the very first time in our history, all money, all currencies,
are now fiat - the US dollar use to be gold backed and it was the rock all the worlds currencies were anchored to - when the US dollar became fiat,
all the worlds currencies
became fiat.
According to House Speaker John Boehner and Senate majority leader Harry Reid the budget compromise reached between the White House
and Congress in April of this
year included an "historic amount of cuts". President
Obama gushed it was "the
largest annual spending cut in our history”.
Mainstream media called the cuts sweeping and across-the-board.
Unfortunately not a single penny of
the spending cuts will come from the Pentagon's coffers.
Defense spending
in 2011 is actually going to increase, by a reported $5
billion over 2010 levels to $513 billion. The $513B
doesn't actually include the cost of ongoing overseas contingency operations, these would be
the wars in Iraq and Afghanistan (the Fiscal Year budget requests for US military spending do not include combat figures which
are supplemental requests
that Congress approves separately) – if
those costs were included U.S. military spending in 2011 will exceed $700 billion.
Also not included,
even in the $700B, are nuclear
weapons spending, black ops, interest on the defense portion of the debt and
ongoing military
obligations to veterans. The budget for nuclear weapons falls under the Department of Energy, other military expenses - care for veterans, health care, military training,
aid and secret operations
– are put under other
departments or are accounted
for separately.
The US numbers are eye opening - they amount to more than half of all government discretionary spending and represent, at the very least, an astounding 43%
of total military spending
on the planet.
Neither Obama's
2012 budget proposal nor Representative Paul Ryan's
"Path to Prosperity"
signal a major decrease in military
spending - Ryan's budget
projection calls for nearly $8 trillion in military spending over the next decade.
“Of
all the enemies to public liberty war is, perhaps,
the most to be dreaded because it comprises and develops the germ of every other. War is
the parent of armies; from
these proceed debts and taxes … known
instruments for bringing the many
under the domination of the few.…
No nation could preserve its freedom in the midst of continual warfare.” James Madison, Political
Observations, 1795
The Chinese love their gold…
“Chinese appetite for
gold has increased rapidly
over the past few years.
In March 2010, we predicted
that gold demand in China
would double by 2020, however,
we believe that this doubling
may in fact be achieved sooner.
Increasing prosperity in
the world’s most populous country coupled with their high
affinity for gold will
serve to drive demand in the long-term. Near term inflationary
expectations are likely to support the investment case for gold.” Albert Cheng, Managing Director, Far East at the World Gold Council
So too do Indians…
“Gold demand
in India, the world’s
largest user of the bullion,
may increase to more than 1,200 metric tons by 2020
as economic growth boosts incomes and household savings. Indian households hold more than 18,000 tons of
gold, the largest stockpile
of bullion in the world. Gold purchases
by India accounted for 32
percent of total global sales in 2010.”
World Gold Council
India’s
total demand exceeded China’s by 383.5 tons in
2011. GFMS Ltd. and INTL FCStone said in March that Chinese consumption of gold may soon climb
to rival that of India. Could it be
that the Chinese, and Indians, long ago caught onto something we here in the west are just now slowly figuring
out?
According to the World Gold
Council investor demand
for gold ownership - in the form of bars, coins and jewelry
- is climbing, while at the same time production at existing mines is grinding down, re-cycled gold
sales are dropping and central banks
are increasingly gold buyers
not sellers:
- Global gold demand
in the first quarter of 2011 totaled 981.3
tonnes (US$43.7bn), up 11% year-on-year from 881.0 tonnes
(US$31.4bn) in the first quarter of 2010. The increase
was largely attributed to a widespread
rise in demand for
bars and coins and increased jewelry demand - demand for physical bars
and coins was up 52% at
366.4 tonnes while jewelry
demand in the first quarter of 2011 registered a gain of 7% year-on-year to reach 556.9
tonnes. India
and China are the two largest
markets for gold jewelry
and together accounted
for 349.1 tonnes of gold jewelry demand or 63% of the total - US$16bn. China’s jewelry demand reached a new quarterly record of 142.9 tonnes, up 21%, from 118.2 tonnes
- In the first quarter
of 2011 investment demand
grew by 26% to 310.5 tonnes
- ETFs and other
similar products witnessed net outflows of
56 tonnes (mostly concentrated
in January). The collective volume of gold held by these products at the end of the
quarter was still over 2,100 tonnes
- In Q1 2011, gold supply declined by 4% year-on-year to 872.2
tonnes from 912.1 tonnes in the first quarter
of 2010 - this against
an increase in mine production of 44 tonnes (a growth rate of 7%)
- The decline
in total supply was because of two reasons: firstly recycled gold was down 6%
on year earlier levels to 347.5 tonnes from
369.3 tonnes and secondly a sharp increase in net purchasing by the official sector
- central bank purchases
jumped to 129 tonnes in the quarter, exceeding the combined
total of net purchases during
the first three quarters
of 2010
ABN Amro Bank,
VM Group and Haliburton Mineral Services recently published a report providing details on rising gold mining production costs. Cash costs include:
- Direct mining
and processing expenses
- Other onsite
charges
- Third party smelting
and refining charges
- Royalties and taxes net of by-product credits
In the first
quarter of 2011, the average cash cost of production rose from
$609 oz to $620 oz.
While production costs were rising,
so too were margins - from $758 oz to $767oz.
The Gold Demand Trends report for Q1 2011 states demand for gold will be driven by a number of key factors:
- Continued uncertainty
over the US economy and the dollar
- Ongoing European
sovereign debt concerns
- Global inflationary
pressures
- Continued tensions in the Middle East and North Africa
- Chinese and Indian
jewelry demand
- Net purchasing
by central banks
Conclusion
www.dani2989.com
2001 Gold Production Peak
If I was looking for superior investment vehicles to take advantage of what I think I know regarding the
future for precious metals
I’d be looking at junior producers, near term producers and companies that are in the post discovery resource definition stage with the occasional green field
exploration play thrown into the mix.
I believe junior resource companies offer the greatest leverage to increased demand and rising prices for commodities. There is also a very real and increasing trend for Mergers
and Acquisitions (M&A) in one of the few bright
spots available for investors
- resources.
Juniors, not
majors, own the worlds
future mines and juniors are the ones most adept at
finding these future
mines. They already own, and find, what the world’s larger mining companies need to replace reserves and grow their asset base.
The following factors will drive the growing M&A
trend:
- Consolidation to achieve economies of scale and pricing power
- Scarcity of large producing
assets
- High demand
in industrialized nations for metals and minerals
- V shaped
recoveries in developing
countries
- Expansion into
new geographies
- Diversification of resource bases
- Looser bank
lending
- Higher commodity
prices and better company cost management = larger operating cash flow
Using history
as our guide we know that the greatest leverage to precious metals, the most profitable rewarding way to get involved in precious metals, is to own
the shares of junior precious
metal companies - our gold junior resource
companies, the same ones who today
are so oversold and undervalued, are the present owners of the world’s
future gold supply.
Gold miners are showing some pretty healthy
profits and their coffers
are overflowing with
cash. Investors are starting
to pay attention. Ahead
of the herd investors realize the attention being paid to the world’s major
and few remaining mid-tier
miners will soon trickle down to the
juniors developing precious
metal projects.
Junior gold
stocks should be on every investors radar screen. Are they on yours?
If not, maybe they should
be.
Richard Mills
Aheadoftheherd.com
If you're
interested in learning more about the junior resource market please come and
visit Richard at www.aheadoftheherd.com. Membership is free, no credit card or personal
information is asked for.
|
