The Sky's The Limit For Oil and Gold war peace money currency trade

Never has the threat of world war been more imminent than right now.
Most of the world's infrastructure continues to rely on outdated technology powered by oil and gas.
History proves no country is immune to the devastating effects war has on currency reevaluation.
This makes hard assets highly desirable - gold and oil being the two most coveted.  more demand means more liquid (easier to trade).

Take into account the widespread demand, as well as the scarcity of these commodities - and you have the perfect storm.

Gold Has Not Peaked Yuan Renminbi Will Replace The Dollar currency crisis

According to a spokesperson at Canada's largest bank RBC, the current gold price has no legitimate support because they say, it stems from record breaking investor demand in gold ETF 's and a reshuffling of asset positions at Comex.  It sounds as if even the bank's are running low on excuses to justify their bearish positions on gold - They say that without a new risk off event the price should fall back to a long term outlook level of around $1240.

Seraphim's opinion - You want risks ? You got'em !  How about a 180 degree change in the relationship with Russia ? or an admittance that the United States is fighting an entirely different war in the middle east than what's been publicly declared ? or how about a new trade war with China ?  This is just the tip of the iceberg of what awaits the US in the coming year if Donald Trump becomes president as the polls have already tipped in his favor.

At a time when investor confidence is not just low but non-existent, money printing continues unabated, and the US dollar remains overvalued (even if just because every other currency is being devalued so as to boost gdp) 2017 is on track to be the riskiest year of the millennium.
Historically, gold's role proved to be irreplaceable - in protecting national economic security during times of financial crisis, geopolitical crisis, currency crisis.

China Will Use Gold's Unique Position to Elevate Itself

China has long sought to replace the dollar in foreign transactions with its own currency, and that started happening this year - even Canada is on board with its own Yuan clearing bank set up in Toronto.
The ultimate goal however is to usurp the dollar's position in global finance.  The only time that could happen is during a time of collapse in currency markets - even if it is just temporary gold will become the default currency of choice.  If China is the only country capable of supporting its currency with gold (aka the yuan renminbi is gold backed) then the yuan will have won !

Why Gold Will Outperform Silver During the Next Economic Crisis price ratio

In times of crises historically, precious metals have been the preferred store of wealth.  Even though silver does have intrinsic value; by being the best store of value a preference for gold inevitably develops - this is especially true if the crisis leads to massive inflation and the rise of radical groups both of which occurred in weimar Germany and tsarist Russia.

There are benefits to owning physical gold but if you're going to buy stocks consider these precious metal companies

Isis, Greece and the confiscation of wealth

As has happened in Cyprus, would've happened happened in Greece if the 2015 summer bailout didn't materialize and is happening in Iraq and other Isis strongholds, the confiscation of wealth makes portability important.  At 75 the current gold silver ratio gives gold the upper hand - being able to move your wealth more easily makes it less likely to be discovered and thus confiscated.

Hyperinflation

if the US dollar - which is by far the world's most relied upon currency - is ever forced to prove its value the way every other currency does (ie the money supply, possibility of insolvency/national debt levels) - rapid inflation the likes of which has never been seen in history definitely could happen.

US dollar losing precedence in international trade

- in 2006 127 countries called the United States their largest trading partner .. that number has since fallen to 76.  In just five years China displaced the US in 51 nations.

- When forming new economic partnerships with countries China is emphasizing the need to bypass the dollar.  Traditionally all trade is done first by converting into dollars, but China has developed new ways of avoiding this.

America's shaky relationship with Saudi Arabia as of late will affect the petro dollar 's unique status.

International trade by central banks

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 Looks Good In 2014 Despite Fed Tapering, Canadian Oil Price Differential Under $20 Into 2016 pipelines

Key things to note this first month of 2014:  From December 31, 2013 to January 29, 2014 spot gold gained US$85 to close at just under $1270 but keep in mind that if your currency isn't the US dollar then gold got even more expensive thanks to i) ongoing currency crises in emerging markets ii) Canadian dollar drops to 4-year low versus the greenback; country decides not to raise interest rates. iii) fiscal liquidity problem developing in China.  But don't get too excited just yet - At $1255 the April futures gold price remains lower than spot.  Osisko is suing Goldcorp - alleges misuse of confidential information.  I guess that puts an end to Goldcorp's $2.6 billion hostile bid for Osisko.

Canadian WCS oil price:  Canadian oil price differential expected to remain under $20 for the foreseeable future, well into 2016.  A couple reasons for this

• Enbridge is expanding the capacity of a key pipeline in Wisconsin:  from 400,000 bpd to 1.2 million bpd.  That will have a positive effect on the oil and gas industry in the US NW (three-fifths of oil output in ND is shipped by rail).  Enbridge has also proposed the Sandpiper Pipeline which will add 225,000 bpd to Minnesotia plus another 375,000 bpd to Wisconsin.
• BP and Marathon refineries in the US are being upgraded to handle more heavy crude from Alberta.
•  Glut of supply in Wisconsin may be relieved when portions of the Keystone pipeline come online (southern leg of Keystone running through Cushing, Oklahoma became operational January 22).
• Trans Mountain pipeline from Edmonton to Burnaby tripled capacity from 300th to 890th barrels per day.

Despite several factors working in its favor, over the last few weeks the price of gold hasn't really moved in either direction, as investors were anticipating a tapering to the Fed's $80 billion monthly bond buying program (put downward pressure on commodity prices).  When it finally happened on January 29 ($10b/mo) gold went up as is to be expected (no more tapering in the short term).  I have some concerns about Fed tapering.. The Fed claims that economic activity picked up in recent months -> this should cause money to flow out of commodities and into equities... however that doesn't appear to be happening (soft jobs growth in December).  If you're concerned about interest rates rising in response to Fed tapering don't be:  The Fed has explicitly stated that it will maintain a policy of record low interest rates (gold does well when interest rates go down).

Counteracting this and lifting the price of gold is

• Currency crisis in emerging markets specifically Turkey, South Africa, Argentina - safe haven investing favors gold, US security notes
• Financial liquidity problem developing in China; banks aren't lending and that's making it worse
• Less US monetary stimulus is wreaking havoc on currencies in South Africa and Turkey where account deficit problems are forcing interest rate hikes.

Gold Price Ratio Suggests Recession Looming, Target TGT Underperforms & Growth Stocks Nasdaq AFCE, ALXN

Relative to the United States, Canada has higher wages, higher fuel prices, stronger unions, and higher distribution costs and that often leads to higher retail prices.  Target Canada will open its first 124 stores in 2013 but it won't be an easy transition; The Canadian dollar is at a low right now (95.0c US) which compounds the problems Target will face in adjusting its prices to Canadian expectations.  Since launching in select markets earlier this year a new problem has cropped up :  consumer satisfaction dipped below 30% in August (vs May).

Target (nyse:tgt) Underperforming

Latest quarterly profit -13% weighed down by Canadian operations (expansion costs).  As of quarter-end Canada is home to 68 locations with another 56 to open by year-end.  Canada accounted for $275 million of the company's $17,120m sales this quarter but Canadian performance still not up to par.  Total North American sales were suppose to be up 2% this quarter not the realized 1.2%.  Earnings at 96 cents a share ($611m vs $704m last year) a cent below expectations.

Recession Looming ?

Signs certainly suggested it on Friday when growth in silver and gold prices contrasted with next to no change for the primarily industrially used platinum group metals. 

So far in August (1-20) investors extracted $30.3 billion from US bond mutual funds which amounts to the highest monthly outflow in 19 years.  Markets both domestic and international have benefited from the US Fed bond buying program which was originally instituted to help keep mortgage interest rates down, however what the Fed is now saying is that, even after its eventual exit from the program, short term rates shouldn't go up even though long term rates will.

The Fed purchases $85 billion worth of bonds each month - half mortgage bonds half treasury notes, as a sort of quantitative easing.  Because the Fed isn't being clear on when it will stop buying mortgage bonds, interest rates are gradually moving up consquently people wanting to buy homes are doing so before the expected spike in rates (July sales of existing homes +17.2% versus last year).  30-year fixed rates - May 1 : 3.35% ; August 23 : 4.58% highest since July 2011 ; 15-year rate @ 3.6%.
Unemployment remains a problem, it was as high as 8.2% in July.  Also, jobs numbers (+170th last month) are weak - most of the new jobs are part time and not specialized;  In June for example 400,000 people with college degrees lost jobs while 250,000 people without college degrees got jobs.  Another sign pointing to a weak economy - average age of vehicles on the road now 11.1 years, the highest on record.

Investing In Bullion, Make Gold A Priority (silver price, platinum)

                      Though it's true that for much of history the gold to silver ratio was 12, that trend ended more than half a century ago at a time when gold and silver prices were a lot lower than they are today.  In recent history the ratio has been somewhat erratic ranging from a low of just over 30 (April 2011 gold avg $1474, silver avg $42) to a high of 85 in 2008;  During this period there was a lot of downward pressure on both ironically coming from one of its biggest buyers central banks - rising interest rates cause money to flow out of gold and into other sectors of the economy but gold still stood out, maintaining a price at least 75% of its high, silver however presently trades at only 40% of it's 2011 high of $50.

During the last recession the price of platinum fell below the price of gold, an occurrence that usually only happens during crises  - the last time it happened was in the 1970's when the world's main economic drivers, the US and Europe were going through recessionary periods of low growth, high unemployment, high debt levels and oil prices.

The more recent inverse relationship between gold and platinum dominated the period of August 9, 2011 to January 2013.  Prior to that, since 1986 the price of platinum always exceeded gold with the exception of very few brief periods but even then the difference was marginal.  What this means is that the current economic climate is not as rosy as it's made out to be - the factors now driving gold closer to platinum are the same ones that come into play during times of economic uncertainty (central bank buying, inflation leads to lower confidence in the dollar, causing people to jump onto the bullion bandwagon).

Platinum versus Gold

For bullion buyers, the platinum group metals (pt, pd, rh) provide an interesting alternative to gold but a couple other key factors to consider may make gold the safer option.  In 2008 when rhodium hit $10,000 an ounce before hitting rock bottom a year later (2009 average $1500) investors lost interest in the white metal.  In a healthy economy, demand for platinum and palladium will still be there since both rely on industrial (catalytic converters) and high end markets (white gold plating, platinum jewelry);  however, yearly demand in general is not nearly as high as it is for silver or gold;  2012 platinum demand was about 6 million ounces, 7 million ounces for palladium which is only a fraction of the 155.4m ounces of gold, 1.16b ounces of silver consumed.

2012 exit year - Global reserves of platinum group metals total 2.328 billion ounces (2013 Mineral Commodity Summaries: 66m kg, annual production represents 0.6% of this) versus 1.799 billion ounces for gold (annual production represents 5% of this).  This doesn't sit well with me given that production of gold is some eight times greater than all platinum group metals combined.  As an investor what this tells you is that it's a lot easier to raise mine output to either match higher demand /or to put downward pressure on the price, than it is for gold.  At current prices, gold is just as rare as the platinum group metals but demand remains many times greater.  This is precisely why the rhodium crash of 2008 could never happen to gold (rhodium supply increased substantially as miners saw an opportunity to sell at higher prices but it turned out that demand was not nearly as strong as anticipated).  Platinum may be brighter but from an investment perspective gold still outshines it. 

Demand for platinum has a shiny future - light vehicle production is expected to increase by 13.6% over the next three years, with each vehicle needing a catalytic converter containing four grams of platinum and palladium what that amounts to is an additional 1.54 million ounces of pt/pd demanded.

Grocery Stocks On The Move Carrefour Group CA, Sysco SYY, Sobeys

Food stocks Sysco syy, Carrefour Group and Empire Company Limited provide opportunity for investors at a time when there's not much to be enthusiastic about. 

In Canada a weaker dollar is akin to an interest rate cut discouraging spending in that country.
In the mining industry, weaker gold and silver prices cut into profit margins last year, leading to weaker results (eight of the world's tens largest gold companies reported a drop in earnings last year).

Weak jobs numbers in the United States affects the world's biggest consumer market, making companies involved in the clothing industry riskier investments, and now bank stocks could be hit as a result of ongoing uncertainty in Cyprus.  Confiscating people's bank accounts will undoubtedly cause many in Europe to keep their money out of banks since many of Europe's largest financial institutions are based in Italy and Spain, two countries that could follow Cyprus's example if the Troika's new bailout rules are instituted elsewhere.  Will banks like Banco Santander allow money from client account to be taken in order to pay down national debts ?

 But Grocery Stocks Are Different!

People don't have a choice when it comes to eating.  Stockpiling food isn't something most will be considering either since people are increasingly health concious which makes them reliable on perishable foods (since the alternative is food that's loaded with unhealthy preservatives). 

Grocery stocks have grown nicely over the last year despite the inability of many to hike prices in step with price inflation (Tesco for example reported +1.8% increase in same-store sales for the three months ended January 5, 2013 despite lower market share and lower sales of frozen food).  Also in the UK: grocery industry market growth +3.7% lags general inflation +4.3%.

This month, Empire Company Limited (emp.a) reported a drop in gross profit margin (24% to 23%) and a 32% decline in cash equivalents as well as 6% decline in net earnings but the stock remained in positive terroritory despite that (+12% last three months). The food division, Sobeys profited 8% more but that was because the food division includes gas stations (236 Shell gas stations purchased last year). Sobeys is the second largest grocery retailer in Canada but third largest in Canada's biggest market, Ontario.


Carrefour Group (euronext:ca) is another example of a solid growth stock.  In 2012 the food retailer profited 3.3 times more than the previous year (€1.233 billion) despite a sales increase of just 0.5% and a decline in ebit of -1.6%.  It turns out the company's assets are more valuable that people think !  CEO Georges Plassat has been been busy steering the company in a more profitable direction.  He thought that operating in 30 countries was too demanding and so Carrefour started selling off assets, starting with Greece.  Competition in the countries Carrefour has been exiting is high and that makes its businesses attractive to potential buyers.  Colombian operations were sold for $2.5 billion which represents 20 times enterprise value/ebitda, investors liked the return and the stock moved higher.  In 2012 Carrefour pulled out of five countries.  The money from the asset sales helped the company pay down net debt (€6.9 billion to €4.3 billion).  The next country Carrefour is contemplating leaving is Turkey and you be sure the return it will get for assets there will be at a premium.
Carrefour also has an insurance division that has exposure to South America (35% of 1b net banking income is from Argentina and Brazil).  Carrefour stock price +10.85% last three months, +32.31% last six months.

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.

Performance of Gold Mining Stocks not Necessarily Correlated with the Price of Gold (last 2 months gold price is up over 14% but a basket of large/mid cap gold stocks is down 7%)

Gold stocks have decreased in value by about 7% over the last 2 months even though the price of gold has risen 14%. (Maison Placements Canada Inc.) Goldcorp and Kinross Gold both fell 4% in July 2011 even though the price of gold increased 14% (in Canada the S&P gold index only increased 8% during that time even though it hit a near term low prior to that). (globeandmail: Gold stocks still lag surging bullion price) Gold companies are playing catchup for a number reasons; Many of the established companies have dwindling reserves (annual production exceeds reserve replacement) which is one of the reasons behind declining global output (China is one of only a handful of countries that can be relied on for growth); Prior to the more recent spike in the price of gold (before 2009) gold production worldwide fell each year, from 2005 to 2009 consecutively meaning that record high gold prices are needed just to keep production steady (higher gold prices make new mine production easier to accomplish because cash costs don't need to be low for healthy margins to be realized) (Goldsheet - Historical World Gold Production) Over the long term, production has also been down in the established mining districts of South Africa and Canada. (Gold News:Gold Mining Decline) In September 2010 all of the world's gold stocks had a combined market value of US$ 360 billion, that compares to US$ 19 billion in 2000 (increase is due mostly to new mining companies entering the market; higher gold prices make even the highest cash cost operations economically viable).

There is optimism regarding production though. In Australia, Olympic Dam (BHP Billiton's trillion dollar gold/copper/silver project), Super Pit, Newcrest Mining's Cadia Hill (33 million oz of gold reserves) are well on their way to producing in the near future while in other countries that have exhibited falling production rates in the 2000's (Canada specifically), new projects at Detour Lake, Malartic, Kerr-Sulphurets Mitchell and Snowfield/Bruceback (88 exploration projects in British Columbia alone in 2010 with capex spending the sixth highest since 1991) have investors optimistic. (Mineweb: Officials believe one of the largest gold resources in the world lies within BC) Canada's biggest gold project, Kerr-Sulphurets-Mitchell (reserves at 39 million ounces for gold and 214 million ounces for silver) is estimated to have cash costs of only $105 for the first seven years, that's four times less than Goldcorp's cash cost which has the lowest among tier 1 gold companies; also four times lower than Yamana Gold's cash costs !

The reason for the 7% drop in gold stocks at a time when gold prices increased by double digits (%) is simple: Companies with declining reserves are looking to mine in high cash cost regions out of desperation (higher cash cost=smaller margins=market value of each ounce goes down). Newmont Mining is an example; though reserves have maintained growth the increases have been smaller [only about 1.6% growth in 2P reserves in 2010, 93.5 million from 92 million ounces versus 7 million between 2008 and 2009 (85 mil in 2008/92 mil in 2009], established companies like AngloGold and Goldfields have decreasing production rates while other companies like Kinross Gold have taken on lots of debt to make questionable acquisitions (by issuing paper, other examples are Barrick Gold's acquisition of Equinox Minerals). Smaller potential for cash cost improvements/production rates by established companies means the junior, relatively new players (like Eldorado Gold, Detour Gold, Osisko Mining) and others like Yamana Gold (undervalued because of past risks which have proven to be not a problem for the company, Yamana was up 13% in the month of July, being one of the only major gold players to record significant growth over that time (Newmont was flat while Barrick Gold was only 3.5% higher, Goldcorp and Kinross were flat) is where the highest growth rates (PEG Ratio, P/E ratio) will come from. In 2008 though, things were different; For most of 2008 when gold prices started their overall upward trend, it was the large cap companies that outperformed the small cap; the opposite was true in the summer of 2011 when gold prices broke through new levels, the change in behavior might simply be the result of a much higher support level for gold prices making high production costs less of an issue for startup companies (many more juniors entered the market in 2011 than in 2008). Goldcorp's largest gold producing mine Red Lake, is nearing the end of its mine life (about 700,000 ounces/year gone), but Goldcorp production will be maintained due to many other mines commencing (Penasquito, Mexico reached commercial production in late 2010; Pueblo Viejo, Dominican Republic; Cerro Del Negro, Argentina).

Another thing to consider is that there are some factors unrelated to stocks, which affect spot prices; For example in early August of 2011 (when there was a lot of economic uncertainty) gold and silver spot prices declined at the same time major stock indices fell by their largest margin since the 2008 recession, the commodities selloff was sparked by a margin call (temporary selloff due to traders being required to meet call options). On August 8, 2011 when stocks performed poorly, gold spiked again (gold is the first thing central banks/banks/investors hoard when they want a stable investment medium, also when banks realize they might have to fulfill their significant short positions) but don't be concerned about the more gradual silver increase (historically, silver has lagged gold (time) when increases occur; the reason is that banks and large investors tend to wait until gold gets too expensive before buying the white metal); also, when gold becomes more costly, jewelers and industrials turn to alternatives and silver is one of them. Also consider the gold/silver ratio which is 44 (August 8, 2011), much higher than the historic ratio of under 20.

Some interesting facts about gold: 3/4 of all the gold ever extracted from the earth was mined after 1910. South Africa was the largest producer in most years since that time. Switzerland was the last country to tie its currency to the price of gold (1999). Until May 2009, all the gold ever extracted amounted to 5,835,876,025.6 ounces or about 85% of an ounce per person (165,446 tonnes). Gold weighs 19.3 times as much as water, is even more rare than diamonds, never oxidizes (maintains its shine), and in its more natural form, is one of the softest metals. Web Directories