GOLD PRICES fell near 2-week lows for US and UK investors on Thursday and slid almost 2% against the Euro as Western stock markets recovered earlier losses following news of deflation in German consumer prices.

Germany’s consumer price index has fallen 0.3% from January last year, the Statistisches Bundesamt in Wiesbaden said, the heaviest reading since the two-decade record of 2009.

UK inflation will also turn “slightly negative” said Bank of England governor Mark Carney in a speech overnight.

UK government debt yields fell to new all-time lows on Thursday, dipping below 1.4% per year as bond prices rose, while neighboring Ireland raised 6-month loans from the bond market at 0% rates.

“Falling government bond yields were supporting gold because the opportunity costs decreased,” says precious-metals analyst Peter Fertig of QCR in Hainburg, Germany, writing in the new 2015 forecast survey from trade body the London Bullion Market Association.

Fertig was joint runner-up in the 2014 competition for gold price forecasts.

“However, once the ECB has implemented QE, profit-taking will probably set in,” Fertig now says, forecasting 4% lower gold prices on average in 2015 at $1216 per ounce.

Greek bond yields also fell sharply on Thursday, with debt prices rallying as shares in the country’s major banks bounced from yesterday’s plunge of up to 30%.

That knocked almost 2 percentage points off Athens’ 10-year yields, taking them back down to 8.2% – the level before last Sunday’s election victory for Syriza, which wants to write off some of Greece’s €300 billion loans from the “troika” of Eurozone partner states, the European Central Bank, and the International Monetary Fund.

“Haircutting IMF loans would inflict losses on many countries far poorer than Greece,” writes Reuters BreakingViews columnist Hugo Dixon in a letter to the Financial Times. “If the ECB accepted a haircut on its bonds, it would probably breach EU law.”

But “haircutting the Eurozone loans won’t provide much debt relief in the short term,” says Dixon, noting that those loans to Greece don’t need any repayment until 2022 and are charged at just 1% annual interest anyway.

“If Greece’s creditors capitulate,” says ex-UBS and now independent economist George Magnus in the UK’s Prospect magazine, “the floodgates will open for similar treatment elsewhere, causing huge anguish and discomfort in northern Europe.

“[But] if Greece backs down in the face of stern creditor resistance, the feeling of mistrust between north and south will become more corrosive and politically explosive.”

“Increasing geopolitical tensions, subdued growth, uncertainties in the Eurozone and possible greater stimulus will prevail in 2015,” says 2014 LBMA gold price forecast winner Frederic Panizzutti, head of Swiss refiner MKS Pamp’s Dubai operations.

Also writing in the new 2015 survey, and a four-times winner across gold, silver, platinum and palladium forecasts, Panizutti now predicts a 2.1% rise in gold’s Dollar average to $1292 this year.

To say that Zimbabwe has not had much luck in its recent, post Robert Mugabe-goes-berserk, history with fiat money is putting it lightly.
100 trillion_0_0

But did you know that with gold trading at prevailing depressed prices, driven over the past several years not by physical demand but by paper supply, Zimbabwe is about to have another “money” moment, only this time not with fiat but with real money.

The reason: the same one why every so often we show the gold cost curve: because some miners simply can not continue operating if the “market” price of gold, with or without central bank and BIS intervention, is below their blended cost.
gold cost curve_0

And while not shown explicitly on the chart above, unfortunately for the south African country, the cost curve of the entire Zimbabwe gold mining industry is on the wrong side of the gold price line.

According to Reuters, Zimbabwe’s gold mining firms are suffering huge losses due to low gold prices “and could collapse unless the government reduces royalties for producers, the Chamber of Mines said.”
zimbabwe gold_0
The problem for Zimbabwe is that after relying too much on paper printing, it is now all too reliant on gold mining: gold is the single largest export earner in the southern African country, whose economy is flatlining as a result of lack of investment, electricity shortages and high cost of capital. Losing the mining sector would likely result in another major economic and financial crisis, although the local population is quite used to these by now.

So while gold trades based entirely on where the Bank of International Settlements decides any given morning where it should close that day, physical gold production is about to lose a major source, something which in a normal world would result in a huge surge in the price and, as a reminder, is the entire premise behind Saudi Arabia’s strategy to crush the US shale industry:

More from Reuters:

In a report issued in December the mining chamber said that mines were making losses of up to $100 an ounce due to weak gold prices and high electricity charges.

Mines are charged higher electricity tariffs to ensure continuous supplies but this is not always the case in a country that produces 1,200 MW against a peak demand of 2,200 MW.

In the report by the mining chamber seen by Reuters on Tuesday, the group said lower power tariffs and uninterrupted supplies would save gold mines up to $55 an ounce.

“The above measures would have ensured the gold mining companies operate on a cash break-even basis and avert gold industry from collapse,” the chamber said.

Chinamasa said in November the mining sector, which brings in more than half of Zimbabwe’s export earnings, shrank for the first time in five years in 2014 due to low metal prices.

The government has set an ambitious target of 28 tonnes of gold in the next five years, to match a record set in 1990. Chinamasa has forecast that gold output could rise to 16 tonnes this year from 14 tonnes in 2014.

“If no immediate measures are taken, the likelihood of production reaching 1990 levels is very slim and in the extreme mines will go under care and maintenance to preserve assets,” the mining chamber said.

And even though none of this is surprising, we certainly can’t wait to see the price of gold to plummet once the news that one of Africa’s largest producers of the yellow metal turns the lights of its gold miners out. Because when it comes to that metal most hated by central planners and bankers everywhere, the laws of supply and demand have long since become inverted.

Gold prices have tacked on to early gains and are trading solidly higher in late-morning dealings Tuesday. The yellow metal is boosted by safe-haven buying interest as the U.S. stock market sells off sharply in the wake of disappointing corporate earnings reports released earlier in the day. The solidly lower U.S. dollar index on the day is also working in favor of the gold market bulls. Technical buying is also evident as the near-term price trend in gold remains up. February Comex gold futures were last up $16.50 an ounce at $1,295.80.

NEW YORK (TheStreet) — Shares of Kinross Gold Corp. (KGC – Get Report) are down 0.76% to $3.29 today with gold prices seeing their sharpest drop in more than a year Thursday, as investors interpreted the Federal Reserve’s comments from a day before to be on the hawkish side, denting the case for owning the precious metal, the Wall Street Journal reports.

Gold futures for April delivery fell 2.32% to $1,257.30 a troy ounce at 3:26 p.m. on the COMEX division of the New York Mercantile Exchange.

The Federal Reserve signaled it would keep short-term interest rates near zero at least until midyear, the Journal noted.

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“Gold investors have had an unpleasant awakening,” RBC Capital Markets Global Futures SVP George Gero told the Journal, adding “the digestion of Wednesday’s statement tells you the Fed will be data driven, and that helps the hawkish cause.”

Separately, TheStreet Ratings team rates KINROSS GOLD CORP as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:

“We rate KINROSS GOLD CORP (KGC) a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company’s weaknesses can be seen in multiple areas, such as its unimpressive growth in net income, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share.”

Highlights from the analysis by TheStreet Ratings Team goes as follows:

Anyone who has been paying attention to the global economy the past years can agree with me our central bankers have conducted miserable monetary policy and have taken the insufficient measures to fight crises.
All major economies have embarked in printing unprecedented quantities of money, but the only thing they bought was time. Quantitative easing on such a scale is like kicking the can determined to reach the end of the road. The future looks anything but sanguine.
Where is this going? Are our leaders truly going to allow the international monetary system to implode?
Is there no plan B? And we are supposed to believe gold isn’t of any significance in economics?

Submitted by Koos Jansen, Bullionstar:

In our current highly unstable economic environment the price of gold is relatively low, according to gold proponents like me. In addition, we can see immense flows of physical gold going from West to East that are guaranteed not to return in the foreseeable future. If the price of gold isn’t suppressed, my previous two observations can only be explained as physical supply outstripping demand since April 2013 – when the price of gold declined substantially to its currentrelative low levels. But perhaps there is more than meets the eye.

I would like to share a theoretical explanation for the observations just mentioned, supported by historic diplomatic documents that provide some guidance through the present fog.

Let’s start just before gold was removed from the system:

In the sixties France stepped out of the London Gold Pool, as it didn’t want to waste any more gold on the war the US was waging against Vietnam. The London Gold Pool was a joint effort by the US, the Netherlands, France, Germany, Italy, Belgium, Switzerland and the UK to peg the price of gold at $35 an ounce. But because the US was printing dollars to finance the war in Vietnam – this devalued US dollars – a lot of gold was required to maintain the price at $35. Shortly after France left the Pool it collapsed in March 1968. From the IMF:

While the total number of U.S. dollars circulating in the United States and abroad steadily grew, the U.S. gold reserves backing those dollars steadily dwindled. International financial leaders suspected that the United States would be forced either to devalue the dollar or stop redeeming dollars for gold.

The dollar problem was particularly troubling because of the mounting number of dollars held by foreign central banks and governments: In 1966, foreign central banks and governments held over 14 billion U.S. dollars. The United States had $13.2 billion in gold reserves, but only $3.2 billion of that was available to cover foreign dollar holdings. The rest was needed to cover domestic holdings. If governments and foreign central banks tried to convert even a quarter of their holdings at one time, the United States would not be able to honor its obligations.

The Incredible Shrinking Gold dollar IMF

The Incredible Shrinking Gold dollar IMF

And that is exactly what happened; in 1971 the US closed the gold window, no longer could foreign central banks convert dollars into gold (except on the open market). As I’ve written before: (i) Europe, most notably France was not amused and wanted to revalue gold, (ii) the US was very persistent to completely phase out gold from the monetary system in order to leverage the power of the US dollar hegemony.

I’ve found documents that connect the past with the present. On February 24, 1970, French President Pompidou met with US President Nixon in Washington DC. The oncoming quotes are from the US minutes of the meeting:

Turning to France, the President [Pompidou] said he wished to emphasize again that – as distinguished from the positions of some of his predecessors in this office – he would not comment on the independent French policy. He might have his own views but he felt that a strong independent France devoted to the same goals as we are is in the interest of the US. A strong Europe in the economic sense might seem not to be in the US interest, in the long term it was. What we need is a better balance in the West. It is not healthy to have just two superpowers; in such a situation there is more chance of a conflict than when there are more centers of power. Greater strength of the European economies, an independent French policy, and, in Asia, a stronger Japan, would eventually make for a more stable world. The position of the U. S. at the end of World War II was not healthy. Twenty-five years had passed and things were changed. This we regarded as a healthy development.

In the final analysis with three billion people on earth if civilization is to survive … this will be decided by the Soviet Union, by China, and eventually Japan, by Western Europe, by that he meant France, Britain and Germany and the United States. Africa is moving along, but it is a century away.

Latin America is also moving but it is fifty years or more away. In Asia, India and Pakistan will have enormous difficulty in simply keeping pace with their increase in population. We have a great responsibility to use the power we have to build the kind of a world that keeps the forces of expansion in check and thus give the forces of freedom a chance to grow in their own way and not like tin soldiers lined up behind the biggest one.

Pompidou’s idea was clearly to spread economic power across the globe for a more balanced, peaceful and prosperous world. We can also read the first signs of a unified Europe between the lines. Pompidou is one of the best forecasters I’ve ever read, what he said 45 years ago has more or less happened by now. However, Pompidou’s ideology could not coexist along the dollar hegemony. The US, therefor, embarked in divide and conquer, a notorious strategy to gain and maintain power. The next quotes are from a telephone conversation on March 14, 1973, between Henry Kissinger, National Security Advisor, and William Simon, Under Secretary of the Treasury:

K: … I’ve just been called to the President. Let me tell you — Shultz has sent me a copy of the cable that Volker gave him – that Volker sent him about the interventions, and he has asked for my views. I basically have only one view right now which is to do as much as we can to prevent a united European position without showing our hand.

S: Okay. Well, I interpret that as less intervention, which is a good idea, and I think George will be very happy with that comment. Do as much as we can to prevent a unified European position.

K: I don’t think a unified European monetary system is in our interest. I don’t know what you think for technical reasons, but these guys are now helping to put it to us.

S: Yes, sir.

K: I don’t know whether that’s true in the short term, but I’m convinced that that’s true in the long.

S: I just agree with you a thousand percent.

K: So I’d rather play with them individually. You know, if it were a question of supporting an individual currency, I’d be much more inclined to do that.

S: Yes, such as the mark.

K: That’s right.

S: Yes, sir.

K: Does that make sense to you?

S: Yes it does.

K: You understand, my reason’s entirely political, but I got an intelligence report of the discussions in the German Cabinet and when it became clear to me that all our enemies were for the European solution that pretty well decided me.

S: Yes, sir. Well, I pass. I’m going to be talking to George on the telephone.

K: Be careful. Everything in Bonn is tapped.

S: I promise you I will.

Next, from Wikileaks, a report of a meeting held by all European Ministers of Finance about gold, written to the American Ministry Of Foreign Affairs on April 23, 1974 (Europe and the US were debating this issue for a few years):

MADE IN A WIDER INTERNATIONAL CONTEXT, WHAT CAME OUT OF ZEIST WAS A CONSENSUS ON CERTAIN SUBSTANTIVE PROPOSITIONS THAT ARE TO BE FURTHER EXPLORED BEFORE THEY ARE SUBMITTED TO A NEXT MEETING OF THE COUNCIL OF MINISTERS OF THE EEC [EU]. IF AT A LATER STAGE THE COUNCIL REACHES AGREEMENT ON A CERTAIN POSITION, THE FURTHER PROCEDURE COULD BE THAT THE EUROPEAN COMMUNITY FORMULATES A FORMAL PROPOSAL ON HOW TO DEAL WITH THE PROBLEM OF GOLD IN THE PERIOD BEFORE THE REFORM OF THE INTERNATIONAL MONETARY SYSTEM.

IN ZEIST, MINISTERS HAVE AGREED ON TWO GENERAL PROPOSITIONS. FIRST, THEY HAVE RE-ASSERTED THAT THE SDR SHOULD BECOME THE PRINCIPAL RESERVE ASSET IN THE FUTURE SYSTEM, AND THAT ARRANGEMENTS FOR GOLD IN THE INTERIM PERIOD SHOULD NOT BE INCONSISTENT WITH THAT GOAL. SECOND, THEY HAVE AGREED THAT SUCH INTERIM ARRANGEMENTS SHOULD ENABLE MONETARY AUTHORITIES TO EFFECTIVELY UTILIZE THE MONETARY GOLD STOCKS AS INSTRUMENTS OF INTERNATIONAL SETTLEMENT.

THERE WAS A CONSENSUS AMONG MINISTERS THAT AN INCREASE OF THE OFFICIAL GOLD PRICE, ALTHOUGH IT MIGHT SERVE THE SECOND OBJECTIVE, WOULD BE INCONSISTENT WITH THE FIRST. IN ORDER TO MOBILIZE MONETARY GOLD AS AN INTERNATIONAL RESERVE ASSET, THEY HAVE AGREED THAT:

1) MONETARY AUTHORITIES SHOULD BE PERMITTED TO BUY AND TO SELL GOLD BOTH AMONG THEMSELVES, AT A MARKED-RELATED PRICE, AND ON THE FREE MARKET. THE MONETARY AUTHORITIES WOULD HAVE COMPLETE FREEDOM TO BUY OR TO SELL GOLD, AND WOULD HAVE NO OBLIGATION WHATEVER TO ENTER INTO ANY PARTICULAR TRANSACTION.

2) CERTAIN DELEGATIONS ARE OF THE OPINION THAT GOLD TRANSACTIONS WITH THE FREE MARKET SHOULD NOT, OVER A CERTAIN PERIOD OF TIME, LEAD TO A NET INCREASE OF THE COMBINED OFFICIAL GOLD STOCKS.

3) IN ORDER TO APPLY THESE PRINCIPLES, VARIOUS PRACTICAL SOLUTIONS CAN BE ENVISAGED. TWO WERE MENTIONED IN PARTICULAR. ONE IS THAT MONETARY AUTHORITIES PERIODICALLY FIX A MINIMUM AND A MAXIMUM PRICE BELOW OR ABOVE WHICH THEY WOULD NOT SELL OR BUY ON THE MARKET. THE OTHER CONSISTS IN CREATING A BUFFER STOCK TO BE MANAGED BY AN AGENT WHO WOULD BE CHARGED BY THE MONETARY AUTHORITIES TO INTERVENE ON THE MARKET SUCH AS TO ENSURE ORDERLY CONDITIONS ON THE FREE MARKET FOR GOLD.

Now we know what Europe was planning in seventies, this explains a lot better what occurred later on. Remember theWashington Agreement On Gold? Just before the euro was introduced in 1999, all European central banks collaborated in a program called the Central Bank Gold Agreements (CBGA), or the Washington Agreement On Gold, to jointly manage gold sales. (note, Eurozone aggregated gold reserves currently still transcend US reserves)

Central Bank Largest Sellers

In 1991 the Dutch central bank (DNB) held 1,700 tonnes in official gold reserves, currently it holds 613 tonnes. When the Dutch Minister Of Finance, J.C. de Jager, was questioned about these sales in 2011 he answered:

Question 6: Can you confirm that since 1991 DNB has sold 1,100 tonnes of the 1,700 tonnes it owned…

Answer 6: Since 1991 DNB sold 1,100 tonnes. At the time DNB determined that from an international perspective it owned a lot of gold proportionally. It decided to equalize its gold holdings relative to other important gold holding nations.

Right, so since the seventies Europe wanted to spread economic power across the globe, replace the dollar as the world reserve currency and sold parts of its official gold reserves “to equalize its gold holdings relative to other important gold holding nations”. These types of plans aren’t realized overnight; it can take decades, it can even take more decades than estimated. Who knows? We can be in the final stage right now.

Not so long ago I published a Wikileaks cable from 1976 wherein China expresses its particular interest in gold and SDR’s. Of course this is all just a theory, but it seems as if the redistribution of the chips, physical gold flowing form West to East, is all part of orchestrated preparations for the next international monetary system, anchored by gold. This system would require gold to be spread among the major economic power-blocks proportionally.

Chinese mining 1949-2014 x

Total Estimated Chinese Gold Reserves 1995 - 2014

Jean-Claude Trichet, former president of the European Central Bank, said on November 4, 2014:

The global economy and global finance is at the turning point in a way, …new rules have been discussed not only inside the advanced economies, but with all emerging economies, including the most important emerging economies, namely, China.

Gold world

(h/t Freegold)

historic documents:

1970 February 24, Washington DC, US. Pompidou and Nixon.

1971, October 28. Phone call between Nixon and Kissinger on gold.

1971, December 13 & 14, Azores. Negotiations between Kissinger and Pompidou about the value of currencies and gold.

1973, March 14, Kissinger and Simon telephone conversation.

1973, May 18, Paris, France. Meeting Kissinger And Pompidou on value of gold.

1974, March 6, Washington, US. Note From the Deputy Assistant Secretary of State for International Finance and Development (Weintraub) to the Under Secretary of the Treasury for Monetary Affairs (Volcker): GOLD AND THE MONETARY SYSTEM: POTENTIAL US–EU CONFLICT.

1974, April 22 & 23, Zeist, The Netherlands. Meeting European Ministers Of Finance On Gold.

1974, April 25. Minutes of Secretary of State Kissinger’s Principals and Regionals Staff Meeting on gold.

Koos Jansen

Australian small cap gold producers are running hot having doubled during the past two months as investors seek exposure to a gold price rebounding from its lows and a weaker Australian dollar.

The shares of producers including Under the Radar favourites, Northern Star Resources (NST) and Doray Minerals (DRM), as well as Silver Lake Resources (SLR) and Evolution Mining (EVN) have all doubled in the past couple of months or so. The question is, can they keep going?

“Yes,” according to one resources specialist, David Coates of the research house CIMB. “Investors are jumping into these stocks because there are very few specialised Australian producers, plus there are more positive catalysts on the way. December quarter results are looking good and March quarterlies will likely be even better.”

Let’s look at what’s happened. Over the past two months, gold has bounced almost 14 per cent from multi-year lows to trade at US$1300 an ounce, as global uncertainty about monetary policy increases. But just as important from the Australian producers’ perspective, is the Australian dollar’s 14 per cent fall against the US dollar in the past six months. The Australian dollar gold price has climbed about 18 per cent from mid-November to trade at about $1580 an ounce.

This means it is cheaper for these companies to produce gold in Australian dollars than it is for their offshore competitors, whose costs are based on US dollars.
Just look at Northern Star Resources, whose stock was 96 cents at the start of December and now trades at $2.16. This gold producer owns the famed Paulsens Mine in Western Australia, but has also taken advantage of low valuations in the sector and purchased a number of other projects. Its production is headed towards 600,000 ounces a year; it has very little debt; and its production is growing. Because it is fully exposed to the depreciation of the Australian dollar, it is differentiated to most ASX listed multi-mine producers.

Moreover, Northern Star’s profit margins have gone from somewhere between 0 and $50 an ounce to $250 an ounce, which is also the case with the other producers listed above.

Another factor that should help gold stocks is the Swiss National Bank’s decision to remove the cap on the value of its currency against the Euro, sending the value of its Franc rocketing upwards. This is because it undermines confidence in the fiat currency system as a whole, according to Under the Radar’s portfolio manager, “The Idle Speculator”:

“The currency’s value is stronger than ever, as is its Central Bank’s reputation for maintaining a poker-face. But reliable and predictable it is not. And if the Central Bank responsible for the strongest currency can’t be trusted, what trust or faith can third parties have in other Central Banks?”

You can be sure that Under the Radar will be combing the earth for more Australian gold producers in the coming weeks and months.

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