USA loses Burger King BKW & Petro Dollars first rouble oil shipment, Tim Hortons Merger Good For Loonie, gold demand

On August 27 rumblings of a Burger King corporate inversion made the headlines but its significance is far outweighed by another event that transpired the same day:  Russia's Gazprom OGZPY ships the first tanker of oil (80,000 barrels) ever to be sold internationally in a currency other than the US dollar.  The destination ? China via the Siberian Pacific Ocean pipeline connection.

A Sign Of Things To Come - veering away from Petro Dollars

In addition to this, two other shipments headed for Europe are also reported to involve roubles.  If you don't have roubles don't fret - Gazprom also accepts Chinese Yuan !  It's unclear as to whether or not this move was made in response to recent sanctions since China and Brazil are also attempting to do the same thing.

Russian Rouble forex rate falls to Record Low

On August 29 the rouble fell to 37:1 versus the US dollar, the lowest exchange rate seen since the Russian currency was restructured in 1998.

America Continues To Lose Big Name Companies - Burger King a Canadian Restaurant Chain ?

The second last weekend of the summer couldn't have ended soon enough for Burger King BKW and InterMune ITMN - mergers and acquisitions

California based InterMune a leader in therapies targeting lung conditions, was acquired by Switzerland's Roche RHHBY for $8.3 billion.
The same day it was also announced that Burger King is in talks to buy Tim Hortons THI in a corporate inversion - merged company uses the move to change country of domicile - New Canadian headquarters presumably will be in Oakville.

Oakville has the sixth-lowest business tax rate among two-dozen Greater Toronto Area municipalities, will be scouted as a potential location.  Last year, federal and state income taxes represented 34% of profits at Burger King.

One is acquiring the other for $11.4/$C12.5 billion ($3 billion in finance from Berkshire Hathaway gives it a preferred stake which pays a higher dividend yield) or $94.05 per share - $65.50 in cash and 0.8025 per share of the new company for each share they own

... however, Canadian taxes may not be the issue

Daniel Schwartz, Burger King’s C.E.O. added, “We don’t expect there to be meaningful tax savings, nor do we expect there to be meaningful changes to our tax rate.”  Last year Tim Hortons effective tax rate was virtually the same as the US rate of 27.5%.

Other reasons why the company is relocating - Two-thirds of the combined company's revenue will come from Canada, with 20% from the U.S. and 13% from the rest of the world.  Tim Hortons is underleveraged meaning they can borrow against those assets -> this will enable the new company to make even more acquisitions !  

What allows BKW to transfer its headquarters to Canada is this : under US tax law, if the US company transfers more than 20% of its shares to the foreign firm it can switch its tax jurisdiction.

The Canadian corporate tax rate of 26% compares favorably to the 35% rate stateside - last year Burger King paid a rate of 27%.  Canada has the second lowest tax rates in the G7.  "total tax costs are up to 40% lower in Canada versus the USA".   you see, overseas income is only taxed when it's brought back to the country of domicile.

Burger King is undergoing tremendous growth abroad, something that Tim Hortons has been trying to do over the last few years, unsuccessfully - 859 of the 879 non-Canadian locations are in the United States.
BKW is the larger of the two brands (13,000 restaurants vs 4600 Tim's) but the bulk of its restaurants are franchised, meaning corporate revenue isn't as strong as it is at Tim Hortons (for instance Burger King Canada is not even a part of the company ! it was sold by 3G Capital back in 2013).  Although BKW net earnings doubled last year (117.7-> 233.7 million) it has yet to match that of Tim Hortons ($424.37 million, up 5% in 2013).

After the deal is completed, Burger King can leverage Tim Hortons ability to tap the breakfast, coffee and snack market, making it more competitive with McDonald's.

Tim Hortons THI has always been a great investment - company brass have always been open to partnerships with other fast food industry players.  Previously they were involved Cold Stone Creamery and before that, Wendy's.   Some say that the ice cream partnership didn't work out (cost Tim's $19 million to terminate the deal but it did last a few years) however if done right, this one could actually work !
Brazil's 3G Capital will be the company's largest shareholder (51% of combined company; was 70%  pre-merger).  3G also controls iconic Canadian beer maker Labatt Breweries.

Gold Prices In Limbo, BlackBerry BBRY Gradual Trend Upwards, Heinz Takeover A Foreign Acquisition HNZ

A lot has happened since my last post so I'll be brief. 
Gold and silver price shows weakness despite a surge in demand.
The price of gold (and even moreso silver) has been weak despite

1) Record sales of silver eagles during the months of January and February
2) Increasing demand on the comex for both precious metals
3) Russia and China continuing their buying spree
4) Growing evidence that some of the popular gold and silver ETFs have only paper claims - which they can't physically backup.

Though I maintain that over the long run, you're safest investment route is in physical gold and silver, over the short term, prices might trend lower ... much lower.
In fact Goldman Sachs thinks that gold is on its way down to $1200 an ounce - a fall of almost 30% from current levels, pushed down by US interest rates which are on their way up (whether the economy stabilizes or not, interest rates can't get any lower than they are now).

I can both agree and disagree with their assessment.  Higher interest rates can depress prices but I think that other factors will eventually come into play that will counteract the effect.  The fiscal cliff is just starting to kick in which will eventually create a need for more quantitative easing: QE3, followed by QE4, QE5, ... etc.  The US trade deficit remains only marginally lower than it was in 2011 ($540.4b vs $559.9b) despite big jumps in fuel sales to overseas buyers/crude output reaching 766,000 bpd which is a 15 year high, so imagine what would happen if oil production and fuel sales declined, which John Kerry's policies appear to favor.

But with the Chinese yuan renminbi continuing to depreciate against the American dollar, there's no reason to expect the trade gap with China to alter significantly anytime soon.
What about China ?  The world's second largest economy and key purchaser of US and European debt (electric grid in Portugal now owned by Chinese company) is facing new problems of its own some geopolitical others domestic.  Foxconn (Hon Hai Precision Industry) which is the leading supplier of components for America's biggest company Apple Inc (AAPL), has stopped hiring new workers - a stock selloff ensued as investors took that to mean that sales of Apple's products are falling off.  However, at the same time Foxconn expressed an interest in opening new manufacturing centers overseas (suggesting that perhaps the problem is with China/ Apple wants more American workers).
For January 2013, foreign direct investment (FDI) into China was down 7.3% to $9.3 billion which is a four year low, in fact it's the largest decline since November 2009 (-9.9%)

Interest in BlackBerry is Growing and it's not just from Business Clients

                    This month, BlackBerry launched the first in a line of QNX powered smartphones running on the totally redesigned blackberry 10 platform.  I spent a lot of time last year defending RIM's strategy, technology and reputation and so it's refreshing to finally see the company get credit for all the R&D that went into developing their current products (the Z10 is groundbreaking and that's just what RIM needed to keep detractors at bay, otherwise, attacking them would be very easy to do considering BlackBerry's US market share remains quite low). 

The company took quite a beating the last two years for sticking to its own platform (and apps) while remaining steadfast in their dedication to security and to serving the needs of corporate clients.  Though the PlayBook remains a work in progress (sales steady but only because the market is growing) the new line of handheld devices are proving popular among both business and non business clients, giving shareholders more reason to be optistic.  Investors take note ! - The new BlackBerry Z10 was first released in the UK followed by Canada (February) then finally the United States (March) meaning that sales figures won't fully show up in quarterly reports until the summer (next results will be released in March followed by June).  Over the last 3 months BlackBerry (Nasdaq : BBRY) is up +23.6% which outperforms other techstocks Nokia (+18.93%), Apple (-23.96%) and even Google (+19.24%). 

Demand for the BlackBerry Z10 must be solid given that RIM has already increased  production capacity.

According to CEO Thorsten Heins

"we still have an installed base of 79 million subscribers. And BlackBerry 10 offers something that Windows Phone cannot, namely, the strict separation of business and personal information. The Microsoft operating system cannot imitate times just between evening news and weather reports". 

Heinz Gets Acquired But Who's Really In Control ? Brazil's 3G Capital or Omaha's Buffet ?

                   And finally, Heinz Ketchup gets taken over by investment firms Berkshire Hathaway, 3G Capital.  It's $23 billion in cash with the rest of the $28 billion figure stemming from Heinz's $5 billion debt load ($4.1 billion long term).  What's notable about this takeover is that 3G Capital, the foreign company involved is actually the company receiving a controlling interest not Berkshire Hathaway.  Former shareholders are obviously happy with the 20% premium they received but what about the employees in Pittsburgh, who will now have to accept that most important decisions concerning the company will be made in Brazil.

Gold Update Seabridge Gold SA, Kinross Gold KGC, World Gold Production Up & Oil; 2012 Will Be A Volatile Year For Stocks Hecla Mining HL, Airline Stocks

     If the first two months are any indication, 2012 will be a very busy year for investors. Just when you think you're ahead of the game some external, unaccounted-for factor changes everything. It can be reassuring though, knowing that everyone has to adjust their portfolios accordingly. Take for example the airline industry;

Over the last month (Feb - Mar) the price of WTI oil shot up 11% from just under $99/bbl to $109/bbl. Consequently, brent crude hit a 43-month high of $128.40/bbl on March 1, 2012.  How did that affect airline stocks? They were BATTERED more than the fish at Red Lobster! Over the last month United Continental Holdings Inc (nyse:UAL) was -16%, Delta Air Lines (DAL) -14%, Lufthansa (DLAKY) -7%, negatives across the board all because of the price of oil. What's more, oil could soar even higher if Iran chooses to close the Strait of Hormuz because the Strait is used to transport 7% of the world's oil; Closure of the Strait of Hormuz is entirely possible now given that Europe has implemented an embargo on Iranian oil (supplied 4% of Europe's demand last year) and that it's already dealing with the toughest sanctions the West can impose on it (Iran is now demanding payment for its oil in gold). sidenote: India is one of a few countries that still imports oil from Iran.

Canadian bank stocks proving their value once again !  The two largest by size, Royal Bank of Canada (RBC) and Toronto-Dominion Bank (TD) raised dividends despite profits being lower.  At RBC the dividend increase was 5.6% bringing it up to 0.57/share in the latest quarter (eps was down 4.7% to $1.21/share).  At TD, the 1Q2012 showed mixed results.  Though TD earnings dropped marginally (-0.01/share to $1.55) revenue grew 3.3% to $5.64B.  Though profits did not grow the bank continued to hand out larger dividends (+4c quarterly to 0.72).

Also making news is SNC-Lavalin.  Partnered with Aecon, SNC won a $600M contract to refurbish Ontario, Canada's Darlington nuclear station.  That pushed the stock up 2.2% in just the last day helping it to climb over the $6B level of capitalization.  Prior to the news, the stock was reeling (lost $1.6B about 1/5th of its market cap in just the last couple days) because of reports of undocumented payments unrelated to company projects eroding away at 2011 profits.

The World is Producing More Gold but also Consuming More (led by China, Germany and Thailand)
     In 2011, 11 of the world's 14 leading gold producing regions raised their output according to the US Geological Survey's 2012 Mineral Commodity Summaries, which isn't surprising considering the 28% jump in gold price (and cash costs, accordingly).  On the year, world primary production was up 5.5% to 2700 tons (86.4M ounces).  The world's 14 major producers accounted for 76.7% of output down from 78.2% in 2010.  Although production in China was higher, the growth was not as great as it had been over the last couple years (+2.9% compared to +22.0% for #8 Ghana, +20.9% for #7 Canada and +16.4% for #11 Mexico).  South Africa is home to 11.8% of the world's gold reserves (2nd overall behind Australia) but was the source of only 7% of production in 2011 bringing its overall rank down to 5 from 1 in 2007.  Why the drop for South Africa?  Because of ridiculously high production costs; South Africa has the unfavorable distinction of being the most expensive country to produce in (among major producing regions).
When investing in gold mining companies be sure to have companies with projects in Australia high on you list (ie BHP Billiton - Olympic Dam).  Australia was the source of only 10% of global production last year but is home to 15% of reserves meaning growth will happen.  Production costs (South Africa) and barriers to entry (China) are also not as problematic in Australia.  In late 2011 China began drafting new standards for the gold industry which could have a significant effect on both investment and production in the country.

Most of China's gold output comes from small companies but the new standards will eliminate some of them while at the same time, making it more difficult for new companies to enter the industry.
With regards to the United States, the gold supply and demand situation there is not as dire as one would expect.  In 2011 GOLD CONSUMPTION ACTUALLY FELL -17% to 194.9 tonnes (2nd consecutive year that US gold demand dropped).  That's in stark contrast to China (+22% to 811.2 tonnes) and Germany (+26% to 159.3 tonnes). Global consumption of gold in 2011 was 4067.1 tonnes, highest since 1997. Interestingly in Thailand (#7 consumer) where total consumption grew +57% to 108.9 tonnes, jewelry only accounted for 3.8% of the total (fell 34% on the year) but bar and coin demand +66% to 104.8 tonnes. The top six consumers remained the same,

Investing in gold: Mining Companies
Did you know? Mining companies are actually LOSING CAPITAL TO ETF'S !  According to Bank of Montreal analyst Peter Miller ETF's are a "hoover of capital and competition for the gold companies".  To regain investor confidence (and capital) many producers are hiking up dividends.  I think that mining stocks present a unique opportunity for investors at the moment.  Yamana is raising quarterly dividends by 10%.

With regards to gold producers, 2011 wasn't as profitable as one would expect.  At Newmont Mining and Goldcorp, 2 of the 4 largest by market cap, net earnings were lower despite record breaking revenue.  Part of the reason has to do with rising cash costs; +12.5% to $460 at Barrick Gold, +20.5% to $591/oz at Goldcorp (though lower from $270 to $223 when by products are taken into account), +40% at Australia's Newcrest, since 2009 +29.7% at Yamana Gold.  Higher mining costs are atributable to increasing equipment, labor and raw material costs. Higher gold and silver prices buffered the effects of higher costs however companies need to do more to translate sales growth into earnings growth. The higher gold price allowed even AngloGold Ashanti to add to reserves; Anglogold's reserves went up 4.4M ounces bringing the total to 75.6M ounces; 3.7M of the 4.4M oz added came due to higher prices making extraction from ore at Vaal River economically viable (3.2M oz) and 0.5M oz attributable to improved ore reserve price at Geita.

South America increasingly important to major gold miners - Gold Fields will get 20% of its 2015 gold production from that region, up from 10% in 2011, 2% in 2008.  In 2011 Gold Fields produced 3.697m ounces of gold which is 4.0% less than in 2010 (3.851m ounces) but it did receive 28.6% more for each ounce of gold ($1569 vs $1220).  Barrick Gold's huge project Pascua Lama is in Argentina.  Goldcorp's largest venture is the Penasquito mine in Mexico.

Undervalued Mining Companies

Seabridge Gold (tsx: SEA) - In February released its 2012 Operations Overview and the new data is impressive to say the least (maybe that's why the stock is UP +8% since February 13, still down though over 20% last 6 months because of increased volatility in metal prices (even Barrick Gold is down 10% over six months).  Its flagship project, KSM has 2P reserves of 38.5M ounces for gold, 9.985B pounds for copper, 214M ounces of silver and 257M pounds of molybdenum;  That means it has more gold than world renown projects Pueblo Viego, Penasquito and possibly even Ivanhoe Mine's mega project Oyu Tolgoi (46.4M ounces of gold) if KSM reserves are increased in April which is likely given the successful M&I drilling results reported by the company on February 8, 2012.  Reserves in situ value is about 15% greater than Goldcorp's Penasquito and Seabridge's enterprise value per ounce of reserves is only $21 ! which is ridiculously low considering it's $1200 at Canada's other major gold junior-mid cap company AuRico.  At Detour Gold and Osisko Mining enterprise value/oz is around $400.  Don't forget that KSM isn't the only major Seabridge project, there's also Courageous Lake (8M oz M&I 16 year mine life). Because reserve grade is relatively low the company will benefit from rising metal prices moreso than say Yamana Gold.

The same month, on February 8, 2012 measured and indicated resources at KSM improved by 3.7 million ounces for gold (to 49.0 million ounces) meaning that drill results continue to be successful.  What it also means is that the company's next report on proven and probable reserves (April 2012) will likely indicate further increases in 2P reserves, past the current estimate.  In the February report, Seabridge Gold estimates annual production at KSM will be 854,000 ounces (gold), 166 million pounds (copper), 2.9 million ounces (silver), 1.1 million pounds (molybdenum) for the first seven years (the mine has a 52 year mine life, molybdenum production will actually grow after the first seven years).  Base cash cost will be $231/oz which is even lower than Goldcorp ($300).

This company screams undervalued.  How does a company with 40M ounces of 2P gold reserves (more than Yamana Gold, Agnico-Eagle Mines) at just one of its projects have a market cap under $1 billion ?  Royal Gold has shown confidence in the company's numbers (invested $100m in Seabridge last year).  The construction costs remain quite high but I think that $2000 gold (when it happens) will open up more financing options (like Eldorado Gold recently got from Qatar Holdings).  Consider this:  2 years ago when gold prices were a lot lower, Barrick Gold paid Kinross Gold $475m ($455m cash) for 25% interest in the Cerro Casale gold copper project which has only 60% as much gold as KSM.  That would value KSM at over 3X Seabridge Gold's market cap at present.

Hecla Mining Company (nyse: HL) - On January 11, 2012 Hecla announced that the Lucky Friday Mine in Idaho which produced 31.5% of the company's 9,498,337 ounces of silver in 2011, will be shut down for the entire 2012 year.  The day of the announcement the stock fell 18.7% from $5.67 --> $4.61.  All this because of a December 2011 accident at Lucky Friday in which a number of employees were injured when the mine collapsed (including a couple fatalities).  You can be sure that whatever structural problems caused the collapse will be dealt with quickly (only two months was needed to fix the problem, the 12 month closure is due to new inspections and safety procedures required by federal regulators;  A group of shareholders even tried to sue the government over the closure).  Hecla wasn't the only miner that suffered fatalaties last quarter, 6 people died in accidents at three AngloGold Ashanti mines.

Though Lucky Friday is the source of only 31% of silver output (0% for gold) and 30% of 2P silver reserves, it's Hecla's only source of proven silver reserves (~21 million ounces);  In 2011 it was the source of all of Hecla's total increase in 2P silver reserves (+7 million ounces), so it remains a significant growth project for the company.  Lucky Friday also makes the company more diversified, being home to three-quarters of its 1.5 million ton lead resource.  The other operating mine, Green's Creek was purchased from Rio Tinto in 2008.

There are many reasons to like Hecla Mining

* The price of silver jumped 74.2% in 2011, single handedly causing Helca's profit to grow 286% to $150.6M.  Revenue reached a record high of $477M even though it sold 13.3% less silver; in fact sales of all four metal types were down (-17.5% for gold, -16.6% for lead, -12.4% for zinc).  The company's stock value is down -50% from a year ago even though revenue and profit is up significantly;  Even considering the 30% drop in silver production, next year company profits probably won't be less than they were in 2010 with high commodity prices a mainstay.
* The company has no debt and nearly $290M in cash and cash equivalents.
* Lucky Friday structural damage only needs two months to fix.
* Hecla Mining has three other significant projects at San Sebastien, San Juan and Noonday.  Company's valuation at present definitely isn't giving any of those projects respect.

Thompson Creek Metals (tsx: TCM) - The stock has been in selloff mode for the better part of a week after the company reported that the Mt. Milligan project will cost more than previously thought.  That prompted TD Bank to downgrade it.

Barrick Gold - Pueblo Viejo (60%) and Pascua Lama mines will begin producing in 2012/2013.  When fully operational (2016) the mines will add 1.5 million ounces of annual output to Barrick Gold's current production of 7.68 million ounces.  Pueblo Viejo is 90% complete.  Barrick profited 25% more in 2011 than it did last year ($4.48 billion, $$4.67 billion adjusted).  In February Barrick exited Russia when it sold off its last remaining asset there (25% interest in Highland Gold).

Goldcorp - 2011 production was 2.5147 million ounces.  By 2016 production will rise to 4.2 million ounces.  Revenue grew by 43% in 2011 more than any other top 10 gold miner.  El Morro in Chile ($3.9b project) is one of the reasons for the higher output projection.

Newcrest Mining - 515,000 oz of gold in 2011 came from the Telfer mine representing about 20% of company total (Telfer is home to 14.9% of its 79.1M oz of reserves, 7.7% of the 8.36M tonnes of copper reserves).  Total company production in the 2Q2012 FY (ending December 2011) was 579,023 oz down 19.9% qoq, the quarter before that 1Q2012 output was down 16% to 587,296 oz.  Over the last two quarters production from Telfer was down 50,000 oz.  2011 calendar year production increase comes entirely from the Lihir Gold acquisition.

Kinross Gold - Yes it was hit with a $2.94 billion impairment charge stemming from an unexpected writedown on its Tasiast mine in Mauritania absorbed during the fourth quarter of 2011.  That effectively more than wiped out any profit the company was on track to make in 2011 (ended up losing just over $2B on the year).  But keep in mind the company's revenue (+31%), gold production (+13.0% to 2.6M oz), and cost of sales (+28% even though production up more than 30%, production cost of sales up 17.7% to $596/oz which is comparable to its peers in the industry).  Another telling statistic: cash margins up 32% to $906/oz ($965 in 4Q +23%), margins were also up 32% at America's largest gold miner Newmont Mining (Newmont's stock is up 16% last 12 months, Kinross is down -32% even though Newmont also suffered from a bad fourth quarter; -$1B losses at Newmont in 4Q2011 brining total profit for the year down to $366m).  Also to consider; Agnico-Eagle Mines took on a $644.9m writedown on its Meadowbank mine in the 4Q giving the company a net loss of $601.4m in the 4Q.  The mine plan had to be changed because of its 'high cost nature'.
Also, annual dividend was up 10% to record high 11 cents a share (though none was paid in the problematic 4th quarter).     The company was valued at $19B as recently as May 2011 which is almost 60% more than it is today.  That brings its market value per ounce of reserve to a near industry low $130/oz (compare that to Goldcorp's $618/oz at, $708/oz at Yamana Gold).  Cash flow from operating activities +40.3% to $1.8093b on the year, convinced yet?  Then consider the possible takeover offers.  European Goldfields which isn't even producing yet and has only a fraction as much gold as Kinross, recently got $2.5B from Eldorado Gold.  Kinross has low cash costs, lucrative projects (Cerro Casale) and a growing revenue stream and that makes it a lot more valuable in a M&A scenario.  CAPEX was +163% to $1.6515.
Don't forget that Kinross's current market cap of about $12B is about the same as it was before it acquired $7B Red Back Mining.

Eldorado Gold (nyse: EGO) - Coming off a record year for gold production (+4% to 658,652 oz), revenue (+33% to $1.042b) and even profit (eps +41.5% to 58c) while dividends more than doubled from 5c a share to 11c. Operating cash flow was also strong, up 40%. AND unlike the other major gold producers total cash costs only went up marginally ($382 --> $405). The European Goldfields acquisition will make it the biggest gold producer in Europe by 2015 (1.5m ounces a year) which couldn't come at a better time; European demand for gold is stronger than ever as is the price of gold.

New Gold (tsx: NGD) - In June 2012 its fourth operating mine will open.  That will push company production over 400,000 ounces for the first time.  Goldcorp's El Morrow (New Gold's interest is 30%) will reach full production in 2018 which should give the company an additional 150,000 ounces annually.

Newmont Mining - Gold reserves grew 9% in 2011 to 99M ounces a third of which is in Nevada, 17% in Africa.  Reserves were 93.5M one year earlier and 91.8M oz December 2009.  Biggest source of attraction at Newmont right now are the dividends, 4Q2011 quarterly dividend up 133% to 0.35 a share.

Also of interest:
-On March 1, 2012 Newcrest Mining, Australia's largest pureplay gold company began trading on the Toronto Stock Exchange.  It will be the 4th largest mining company with a listing in Toronto.
-USA has 3rd highest corporate tax rate in the world.

Euro zone leaders reach debt deal; Gold, Silver demand up/price up $100/oz on week

   In Brussels, European leaders alongside the IMF negotiated with the financial institutions that own Greek debt in the form of bonds. They struck a number of key agreements the main one being a reduction in the value of Greek bond debt by half (banks take on the 50% loss on the nominal value of those bonds) wiping out $100B worth of debt commitments, bringing debt to a more managable level (120% of GDP down from 160%). Some of the insurers affected such as France's Groupama (wrote 2 billion euro worth of CDS) could bear an even greater burden due to their issuance of credit default swaps (CDS contracts) which they'd have to honour if it's determined that a credit event has taken place (unlikely though given that the deal was not forced on either party). CDS contracts on Greek debt stand at $75 billion up 50% since 2009. To woo insurance companies, the EU made available to it a €30B+ credit. Also helping Greece; Government crackdown on corruption which could increase tax revenue by as much as €1.2B in 2011 (will force more businesses to collect taxes on sales).

Just because Greece was taken care of doesn't mean the European situtation has stabilized; Italian bond rates are currently at 6.5% (November 2011, was 5.867% on Oct 27) up from 4.6% in June 2011 meaning that Italy needs to raise €600 billion from private investors over the next three years just to finance its current debt level. In comparison, it was when the ten year Greek bond yield initially hit 8% that Greek debt became unmanageable. To deal with that problem the European Financial Stability Facility (EFSF) increased its available funds from €440 billion to €1.0 trillion euros (US$1.4 trillion) giving more security to Spain and Italy at least for the next couple years. Problems at the negotiating table remain an issue due to differences between Germany and France. News of the deal pushed the euro to a 7 week high against the US dollar ($1.42). Update: On November 3rd the yield on Greece's 2 year bond topped 100% for the first time.
2010 deficit to gdp ratio by country: UK: 10.4% (government debt is 80% of gdp), Spain 9.2% (Spain's unemployment rate suprassed 20% in 2010, total government debt to gdp ratio is 60%), France 7% (gov debt 81% of gdp), Italy 4.6% (gov debt 119% of gdp, austerity has included cutting back on public holidays). (CBC: TSX, loonie, soar on Europe crisis plan) The budget deficits in most of those countries is a direct result of deflation due to prices being too high/governments of the weak economies having no control over the currency (monetary policy). Also during the week, the EU approved another €130B bailout package.
Here is where Greece is coming from, Last year they had 800,000 civil servents collecting $48,000 annually in full pensions, those pensioners became eligible for that at age 52. New austerity measures are likey to impact those people significantly. European banks typically leverage about 80 times (debt used to acquire additional assets), that puts the EU in a more preciarious situation than the United States (40 times leverage). More info Buyers of Greek Bonds Choose only 1 of 4

Update - A new problem has since been acknowledged: The European Stability Fund is having a difficult time attracting investors. Canada has already said no to investment while China has "no concrete plans". The Fund recently delayed a €3B bond sale citing market conditions.

Gold is up again! Gold soared by 1.4% to $1,747.70 (after reaching a one month high of $1,728.11/oz, up half a percent before the day even began) as demand remains strong in China (high inflation, economic uncertainty, real estate bubble) and the rest of the world where many still view the EU's most recent deal as only a temporary fix that doesn't solve the root of the problem. SPDR Gold Shares added 16.645 tonnes over the last three sessions. Silver was up 5.77% or $1.80. There's also a temporary slowdown in demand from India (Diwali festival of lights festivities are ongoing; Diwali is a five day festival however the entire event including other festivities runs from the middle of October to the middle of November, most of its gold demand came in preparation for the festival) and Thailand (recovering from the worst floods in fifty years). In India, gold trades on the Multi Commodity Exchange (MCX) where the price is commonly listed per 10 grams. Indian gold demand was up 38% in the second quarter of 2011 and 29% in the last 12 months. Just to give you an idea of how unprecedented the price of gold is today; Over history, the last bull market high was $850/oz.

If, as many suggest, the People's Republic of China lets the RMB increase in value relative to the USD, that will weaken demand for gold in the short term as investors see the new exchange rate as a sign of economic stability but in the long run, the stronger RMB will increase Chinese demand for Gold due to its greater purchasing power. Also, a stronger RMB will raise Chinese import demand, indirectly increasing Gold demand from abroad too.
Platinum group metals increase Platinum was up 2.77% ($44.2/oz) by the end of the trading day Thursday to $1,641.4/oz. Platinum, used in everything from surgical equipment to white gold plating to catalytic converters, is produced at a rate of only 5-6M ounces a year (5-10% as much as gold). South Africa produces 80% of the world's platinum. Spot palladium up 2.78% to $665/oz reaching another one month high (also recorded one month high the day before). Palladium began the year around $799.5/oz but since then has dropped 20%, platinum began the year at around $1770/oz but has dropped 7.8% since.

Other Notes: In the July-September 2011 period the US economy grew 2.5% up from the 2.3% estimate.
Total EU-Canada (ex UK) trade is $50 billion (6% of total Canadian trade). News of the Greek debt deal boosted the exchange rates of a number of currencies against the American dollar however not versus the Chinese Yuan or Japan's Yen (Euro up 2% to US$1.42, Canadian dollar up 1.5 cents to above parity at US$101.02). Many non US currencies actually strengthened versus the euro and dollar (US & Cdn).
Sony buys out its partnership with Ericsson for $1.5B giving Sony complete control over its smartphone business, allowing it integrate more of its products and software. Ericsson will now be able to focus more on its wireless technologies. Total world debt represents about 5X total GNP.

Since 2001 The Price of Gold Is Up 600% linked To Central Bank Purchases & Investment Related Demand, overall Net Hedging by Mining Companies Up Only Twice in Last Five Years (quarterly)

   Since April 10, 2001 when the price of gold hit a low of about $256/oz it has been steadily increasing on the back of higher investment related demand (represented 37% of total demand in 2010 up from just 4% in 2000), higher overall demand (3,812.2 tonnes 9% higher than 2009), and greater interest shown in the yellow metal by Asia (China's demand for bars and coins accounted for 13.5% of all gold demand by value, that's up 70% in just one year). (World Gold Council) Jewelry accounts for roughly 50% of gold demand down from 85% in 2000 but up from 43% in 2009. In the first quarter of 2011 Chinese demand for gold (25% of all gold demand) exceeded demand from Indians (23% of global gold demand) who were previous to that the largest consumers of gold (90.9 metric tons compared to India's 85.6 metric tons, China's represented a doubling over the previous year) (China Is Now Top Gold Bug); In 2010 consumer demand in India led all countries, it accounted for 25% (963.1 tonnes) of all global demand for gold, that's up from 16.6% the year before. In other countries like Greece, economic turmoil is causing demand for bullion to spike. (Financial Times: Greek savers rush for gold)

China: If, as many suggest, the People's Republic of China lets the RMB increase in value relative to the USD, that will weaken demand for gold in the short term as investors see the new exchange rate as a sign of economic stability but in the long run, the stronger RMB will increase Chinese demand for Gold due to its greater purchasing power. Also, a stronger RMB will raise Chinese import demand, indirectly propping up gold demand abroad too.

Because of weakened global reserve currencies (euro/usd) and a low portion of portfolios (1% but begining to show growth) and central bank reserves in gold (central banks sold much of their holdings in the early 2000's/since 2009 they have become net buyers) gold prices are in the midst of a long term upward trend. (Pierre Lassonde, Franco-Nevada) In 2009 central banks held 17.5% of all gold estimated to exist above ground (940M out of 5.5B ounces). As recently as 2005 central banks gold selling contributed as much as 14% of the gold supply. (Seeking Alpha: Gold Soars on Falling Supply and Rising Demand) In early to mid 2011, the central banks of Mexico (99.1 tonnes), Russia (41.8 tonnes), South Korea (25 tonnes) and Thailand (just over 9 tonnes) were among the largest buyers of physical gold. As of 2011 the world's largest exchange traded fund, SPDR Gold Shares ranks 6th among all entities in terms of its gold reserves, it owns 1213.9M tonnes of gold which is 4.5% more than China (1161.6M), 30.96% more than Russia (926.9M) and 97.5% more than India (614.6M). SPDR has just over half of all the gold held by gold etf's. (cnbc: The World's Biggest Gold Reserves)

While gold demand is rising from all areas (consumer, jewelry, central banks, industry: total up 9%) total supply is not (up only 2% in 2010) and that's putting even more pressure on the price. (http://www.gold.org/download/pub_archive/pdf/GDT_Q4_2010.pdf) Output from gold mining makes up about 60% of the supply (gold output from mining declined in the seven years leading up to 2008). Another reason to expect higher prices; Companies are closing their hedge books (Barrick Gold led the charge in 2009 it cost them $5.6B, AngloGold Ashanti in October 2010 after it raised $1.58B to close it, Kinross Gold removed 90,000 ounces hedged in the first quarter of 2011 however it was the only major company to do that in 2011). Total gold hedged by miners amounts to 4.88 million ounces (1Q 2011); The first quarter of 2011 was just the second of 21 quarters since 2006 to show any increase in net hedging. (Gold miners hedge in Q1, big sales unlikely: report) Also to consider, the ceo's of Newmont Mining and AngloGold Ashanti the second and third biggest gold producing companies, predict that gold will exceed $2,200 an ounce by 2012. (reuters: Mining CEOs expect gold prices to keep rising)

If, as Franco-Nevada suggests, Asian central banks increase their minimum weighting in gold to 15% another 17,000 tonnes would be added to demand over the next few years. Gold ETF's could hoard more gold too with interest in physical gold higher than at any point in their history (in the USA they only date back to November 18, 2004, StreetTracks Gold Trust exchange-traded fund but since then they accounted for 2,300 tonnes of net demand). Gold companies for the most part have wide profit margins making them popular among both institutional investors and others.

Trends In The Gold to Silver Ratio Point To Lower Ratio In Bull Markets (gold & silver standard)

   The gold to silver ratio was 16 in 1980 when silver reached $50/oz but it was only there momentarily, for most of the next two decades it was over 65 (when gold ranged in price from $250 to $500), between 2000 and 2003 it was 60 to 80 before falling to 47 to 55 in 2005-2008 which is notable since that coincided with gold's rise from $425/oz to $1000/oz. In the ensuing years (2008-2010) the ratio nudged higher, remaining between 50 and 70 at the same time gold went from $800/oz to $1250-$1300 per ounce (about 4X greater than it was during any of the previous 25 years);

However following that period the ratio experienced one of its biggest declines to date going from 70 in February 2010 to 33 in April 2011, subsequently gold broke into new territory, gold was $1540/oz in April 2011 when silver reached $49/oz (end of month) signifying that over the long term, the ratio decreases when gold prices reach higher support levels. In February 2011 in the midst of a commodities bull market the gold:silver ratio reached its lowest level in 13 years,

Meanwhile gold reached parity with platinum on August 8, 2011, an unusual occurrence but not surprising given that concerns over platinum demand coincided with gold investment peaking due to economic uncertainty. Prior to that, the 20 year high was 0.93, attained in October 1992. Platinum was worth 24% more than gold at the start of 2011, by August 23, 2011 the difference fell to only 1.8% even though Jan-Aug platinum production was 12X less than gold production. (Long-Term Decline In Gold/Silver Ratio To Favor Silver) 2nd Graph: Gold to Platinum Ratio 2007-2011

The gold to silver ratio averaged 59 from 1976 through February 2011 but the average in the earlier years was much lower, the ratio average was 49.1 in the 1980's, 31.3 in the 1970's, 78.5 from 1990-1997 then 53.8 from 1998-2000; the current average of 44.5 (January through August 2011, update: as of Nov 19 the ratio is 53.2 which is about at the 1 year high of 54.24, average Jan-Nov is about 47) is still a lot higher than the 16:1 ratio that held up for more than 160 years from 1700 until the 1860's (was 16 during the US Coinage Act of 1873), in the 1930's was when things started to change but there was a new driving force there: China stopped using the silver standard spilling a lot of excess silver onto the open market, much more than industrial demand. In 19th century Britain, numismatically (coins were predominantly made of gold and silver) the gold to silver ratio was 14.29 as per the monetary law established in 1816 (20 schillings (silver) equaled 1 sovereign (gold). In France the ratio was set at 15.5 in 1803 the same ratio used the United States to determine the monetary relationship between gold and silver coins. Then, around 1870 the gold standard slowly replaced the gold-silver standard (silver was still used but fewer countries linked a coin's monetary value to the amount of silver it had (silver supply skyrocketed with higher US production rates while Germany and Scandanavian countries dumped silver onto the markets due to their abandonment of the silver standard). The ratio rose to a high of 30 by 1894. (Energy & Mining: The ratio gold and silver from 1800 to 1900)

Presently, the lower long term ratio has numerous causes: gold has few alternatives especially with regards to its biggest consumer (jewelery) and silver being much more affordable becomes a more attractive option. The price difference also makes silver a more attractive investment option (in January 2011 the US Mint recorded a one month silver coin sales record of 6.422 million ounces). Alternatively, the short term rise in the ratio is because the biggest investors in bullion (countries, banks, billionaires) favor gold and because a short term price correction always happens when silver rises too fast due to traders erring on the side of caution (if silver rises too fast traders begin to put more emphasis on technical data). In the year leading up to September 2010, gold soared 28% while silver grew only 4%, but in 2011 silver grew at a slightly faster pace showing once again that there's a time lag between silver and gold at the beginning of a commodities bull market. Production of silver is only about 9.5X greater than that of gold, another reason to consider the current price ratio of 43 to be too high.