Gold $1,519/oz – prices looking up as investors worry about US growth
• US dollar continues to fall. Expectation for poor retail sales figures in the US worrying markets
• Eurozone - ongoing sovereign debt concerns
• Inflation in China (5.5% in May) and India (wholesales prices rose 9.06% in May)
5th century Athens (480BC-404BC) was a period of economic growth and relative political stability known as the Golden Age of Athens. 2415 yrs is a long time but it now appears safe to say that things have gone full circle.
• Yesterday evening S&P cut the country’s long term sovereign debt rating by 3 steps to triple C, close to default, sending 10yr bond yields close to euro era highs.
• Greece is now the lowest rated sovereign in the world.
• Gold is up as a result coupled with increasing inflationary concerns.
• The markets this morning are feeding off the positive industrial production figures from China.
• Focus will turn to US retail sales figures released at 13.30.
Economic News
China – Inflation accelerated at the fastest pace since 2008 in May – 5.5% inline with expectations on the back of climbing industrial production.
• Industrial production rose 13.3% more than the 13.1% initially forecast.
• Retail sales rose 16.9% last month suggested that internal growth is still relatively strong.
• Expect further rate rises. China has raised rates 4 times since September.
• Fixed asset investment, excluding rural households grew 25.8% from January to May.
• The country’s worst power shortage in 7 years is leading to price hikes being passed onto consumers from industries such as farmers exacerbating inflation.
• The National Energy Administration has announced that there is no immediate end in sight as power supply will likely remain tight during the peak summer months.
• Failing curbs – May home sales transaction value rose 17% from April a considerable increase despite the fact that it was coming from a depressed base.
• Investment in real estate rose 35% to 1.87 trillion yuan in the first five months of the year.
• Reports are emerging that Riot police have been deployed in the southern city of Zencheng on the back of protests that started after security guards set upon a pregnant woman protesting over high food prices.
Japan- BOJ has announced a new lending program to help companies and breath new life into the economy struggling to recover from the Earthquake in March. Officials announced a plan to make US$6bn of loans available at a 0.1% rate for 2 yrs.
• Industrial production rose by 1.6% last month.
• Benchmark overnight rate has been left unchanged in a range of 0-0.1%.
• Corporate confidence report will be released later today.
• The Bank also stated that it expects the economy to return to moderate recovery by the second half of the fiscal year 2012.
US – Forecasts ahead of the retail sales report today suggest that sales fell 0.5% in May.
UK – Inflation figures released today at 9.30. yoy expectations are for 4.5%
India – Figures released today show that wholesales prices rose 9.06% in May from a year earlier. Estimates compiled by Bloomberg forecast a rise of 8.74%.
• The Organisation for Economic Cooperation and Development has stated that India must ease rules for foreign investment in retail and financial services if economic growth is to accelerate to 10%.
• According to the World Bank India is at the wrong end of the country rankings for ease of doing business.
• The government has previously committed to spending twice as much on roads, ports and power over the next 5 years. (circa US$1trillion)
Chile – Declining inflation expectations and moderating economic growth is prompting expectations that the Central Bank will slow the pace of interest rate increases today. Forecasts suggest that rates will rise to 5.25%.
• Inflation expectations for the year are 4.2%.
Peru – The operator of the country’s exchange has announced that it will delay the merger with its Columbian counter part until they have had a chance to present the details of the merger to the new government in Peru.
Libya – As the fighting continues – with no end in sight – US secretary of State, Hillary Clinton has issued a directive to leaders in the region to cut all ties with the Gaddafi regime.
Syria – The UN Security council remains deadlocked over the draft resolution that reportedly would condemn the actions of the Syrian regime. Officials have stated though that Syria has conducted “horrific attacks” against its own population.
Yemen – Reports are emerging that leaders of the opposition have met with Yemen’s vice President for the first time since violence broke out throughout the country. Both sides have come under increasing pressure from the US and Saudi Arabia to bring about change and move to end the violence.
South Africa – The Chamber of Mines has announced that it will respond to pay demands from Labour unions for the gold miners on the 20th of June.
Currency – The Aussie dollar rose this morning on the back of the industrial production figures emerging from China boosting demand prospects for Australia’s natural resources.
• The yen and the dollar both fell today as risk aversion reduced on the back of signs of robust growth in China in the face of government curbs.
• The swiss franc is marginally off this morning having climbed to a record against the euro yesterday – it not unrealistic to see the franc potentially reaching parity with the euro if uncertainty persists over the debt crisis.
• Malaysia’s ringgit is up this morning on the back of Chinese figures boosting export prospect for the country.
US$/1.445eur vs $1.434/eur yesterday. Yen80.34/$ vs 80.37/$, SAr6.754/$ vs 6.789/$ $1.641/GBP vs 1.625/GB
Commodity News
Precious:
Gold US$1,522/oz vs US$1,530/oz yesterday – Gold increased from yesterdays’ close of US$1516.10/oz as China and India reported increasing inflation and Greece’s sovereign debt crisis deteriorated.
• SPDR gold trust holdings decreased from 1,200.96 (38.612moz) to 1,200.05 (38.583moz) value US$58.876bn
Platinum US$1.807oz vs US$1.824/oz yesterday
• Northam Platinum, mid-tier South African platinum mine to market producer, plans to list its ADRs in New York.
Palladium US$801/oz vs US$809/oz yesterday
Silver US$34.95/oz vs US$35.83/oz yesterday
Rhodium US$2,020 vs US$2,100/oz yesterday
Base metals:
Copper US$8,910t vs US$8,920t yesterday – Copper prices were supported today by more-than-expected increase in China’s industrial production that amounted to 13.3% in May. Copper products output increased 20% y-o-y in China in May. Production amounts to 7% rise compared to April.
• Codelco, world’s largest copper company, said protests are continuing at El Teniente mine in Chile bringing more production disruptions for a third week now. The 404ktpa mine was operating at 73% of capacity on Monday according to company statement.
• Hindustan Copper, a monopoly metal miner in India, plans to form a venture with National Aluminium Co. to increase mines capacity three times. Joint venture expects to upgrade and develop Malanjkhand copper mines in the central Indian state of Madhya Pradesh. Hindustan expects to boost its capacity to 12.4mt in the next 5 years.
Aluminium US$2,577/t vs US$2,620/t yesterday – Aluminium traded lower this morning as China reported an 8.7% production increase y-o-y to 1.54mt in May. Output rise may be attributed to highest market quotes since August 2008 and worries about power supplies this summer. Metal inventories dropped for a thirteenth time last week to 308,635t, the lowest reading since January 2010 according to Shanghai Futures Exchange. China’s aluminium products output increased 34% y-o-y to 2.45mt in May.
Nickel US$22,144t vs US$22,780/t yesterday
Zinc US$2,245/t vs US$2,263/t yesterday –
Lead US$2,535/t vs US$2,540/t yesterday –
Tin US$24,650/t vs US$25,489/t yesterday – New estimates b y Societe General suggest that that the market will be balanced this year rather than in deficit. China is expected to produce close to 180,000t if it maintains the growth of around 13% seen in the first 4 months of the year.
Energy:
Oil US$119.16/bbl vs US$118.61/bbl yesterday - Oil prices are off this morning on the back of speculation that the US will continue to be cautious on the demand front.
Natural Gas US$4.645/mmbut vs US$4.763/mmbtu
Uranium – US$56.00/lb vs $56.00 last week –
Coal - New measures from the Australian government to control carbon emissions by charging miners is prompting speculation that a number of mines will close – 18 over the next 10 years according to the Energy Minister.
Other:
Rare Earths – The country’s Industry Minister has announced that he will “strike hard” against illegal mining, exporting and smuggling of rare earths as the country continues its drive to control the sector. China has cut export quotas by 35% in H1 2011.
Steel – An increase in construction demand has caused steel production in China to rise to the highest level on record last month. Crude steel production rose 7.8% to 60.25 million tons in May from a year earlier. Construction of new properties has climbed by 24% in the first 5 months of the year.
Company News:
Shanta Gold* (LON:SHG) – Luika prospect infill drilling shows >1oz/t (31g/t) grades at New Luika
http://www.shantagold.com/
• Shanta Gold has done it again. Infill drilling from the Luika prospect at the New Luika gold mine is showing some significant results. The Luika prospect is just 450m from Bauhinia Creek and is the second orebody in the Chunya project mining schedule.
• Notes to this latest set of drill results show gold assays of around and over >1oz per tonne of gold over a number of 1m intersections. These are contained within longer intersections of lower grade gold and do show the potential for higher grade portions of the orebody to raise future gold production.
• The results are encouraging and relate to previous resource estimation at the near by Bauhinia Creek site.
• Two deeper holes were drilled on direction of the local geological team and intersected gold at 80m. The pit shell is down to 150m with the orebody seen as open to depth. Better placed drilling is expected to confirm deeper extensions to the gold mineralisation.
• Good lateral continuity is expected by the geological team again indicating potential to expand the gold resource along strike as well as to greater depth.
• We expect to see updated details of the new mine plan shortly.
• The New Luika gold mine is currently scheduled for first gold production in Q4 this year at a rate of just 28,000ozpa. The purchase of larger mills last December enables management to significantly expand the gold production rate of the new mine using the higher grades at Bauhinia Creek and in the longer term potentially using better grades at the Luika prospect is added to the present mine plan.
• Updated pictures of the construction of the New Luika Gold mine are available on the company website within the photo gallery and a new presentation is being prepared for investors. The most recent pictures show the initial pit sites prepared for mining.
http://www.shantagold.com/im/gallery.asp
Conclusion: Shanta Gold continue to report high gold grades from its Bauhinia Creek infill drill program. This suggests that other sections of the project area may have similar potential for high grade gold raising the potential return and reducing the payback time if bank finance is used for finance.
* Fairfax IS plc acts a nomad and broker to Shanta Gold
Mining this week:
Baobab Resources* (LON:BAO) – Exploration update at Tete and Muande projects
