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March 16, 2013
That Was The Week That Was ... In Australia
By Our Man in Oz

Minews. Good morning Australia. You seem to have had another difficult week.

Oz. It was, except for Friday when we clawed back some of the ground lost earlier. Despite a 1.1 per cent gain in the metals and mining index in the dying hours of trading, overall the index lost 2.4 per cent over the week, a performance which looked worse alongside a steady all ordinaries index and a modest 0.3 per cent slide in the gold index.

Minews. Is there a reason for what seems to be a steady decline of confidence in your mining sector?

Oz. The fall in metal prices over the past month is definitely a factor, but we are also cursed by a government which rapidly unravelling.

Last week there was a fresh outbreak of political uncertainty at a national and state level. In the background there are pressures building in all government budgets which will invariably lead to a fresh tax grab, a prospect making business very nervous.
...

Source >> www.minesite.com
*****
 
Thank you drillinto, for the wonderful insights you bring with this thread.

In the background there are pressures building in all government budgets which will invariably lead to a fresh tax grab, a prospect making business very nervous.
Click to expand...

These past months, I have been at a loss to understand.
Why is the AllOrds rising but not all boats are rising with the tide?
 
March 24, 2013
That Was The Week That Was … In Australia
By Our Man in Oz

Minews. Good morning Australia. What a strange week down your way, with a botched attack on your Prime Minister, and a bloodbath to follow. What did your market make of the political games?

Oz. Dismayed, in one sense, but also disinterested because the current government has passed its use-by date and a change in the September election is as close to a certainty as is possible to predict in politics.

Most share prices retreated last week, but that was more to do with global events such as the ongoing uncertainty over China’s economic growth rate, and Europe’s latest problem child, Cyprus.

Australia is a long way from what’s happening in Cyprus but the uncertainty flowing off that small island is causing anxiety in all markets, because of its potential to spread globally, especially if Europe cannot heal its north v south problems.

Minews. We’re acutely aware of what’s happening in our backyard. What’s happening in yours?

Oz. Civil war without shooting is one way of describing events at the highest level of the Australian Government last week, where the pressures of a hung Parliament and an internal split in the ruling Labor Party were on full display.

First came an attempt to dethrone the Prime Minister, Julia Gillard. The only problem was that the pretender and former PM, Kevin Rudd, declined to be nominated when Gillard called for a vote in the party room. Then came a day of long knives, with four senior Ministers quitting or being sacked for apparently supporting Rudd even though there wasn’t a vote.

For the next six months Australia will be a very divided country, but also one waiting for a chance to end the farce being played out in Canberra where good government seems to be the last thing on anybody’s mind.

Meanwhile, in the market, a different world is taking shape, as a rotation of capital puts pressure on mining stocks as funds are reallocated to industrial, retail, bank and construction stocks.

Minews. Exciting times for you, but let’s stick to the market we follow, the miners.

Oz. Not much good news there, unfortunately. The metals and mining index, weighed down by the majors such as BHP Billiton and Rio Tinto, dropped by 4.6 per cent, a somewhat faster pace than the all ordinaries which ended the week down by three per cent. The gold index, reflecting a higher price for the metal and the uncertainty surrounding Cyprus, rose by a modest 1.1 per cent, although all of that gain, and a bit more, came on Friday when the gold index added 1.8 per cent.

Unlike previous weeks when it has been possible to find a few stars to brighten the day for your readers there weren’t any stand-out performers from any of the sectors. A few stocks rose reasonably well, but not enough to offset a downward trend.
...

Source >> www.minesite.com
*****
 
March 25, 2013

Even Though The European Crisis Is A Drag On Demand, Commodities Remain Well Supported By Ongoing Capacity Constraints
By Rob Davies

The latest leg of the bull market in risk assets was precipitated in June 2012 when Mario Draghi, President of the European Central Bank, said “the ECB would do whatever it takes to preserve the euro”.

That triggered a massive surge in confidence in risk assets like equities and commodities.

But the five per cent increase in commodities, as measured by the LME Index of base metal prices to 3311, lagged the 11 per cent gain in equities because of evidence of slower growth in China over that period.

Even so, the blank cheque that Draghi was promising Europe seemed a good enough reason to expect more stability, and hence growth, in Europe.

However, the crisis in Cyprus demonstrates the importance of reading his words carefully. Draghi was referring to the euro, not the European economy.

It is evident that the ECB, and the Germans in particular, are prepared to let individual countries suffer the ultimate humiliation of bankruptcy rather than do anything that prejudices the survival of the euro.

While that might be good news for Germany it is patently not such a welcome development for Cyprus and probably a lot more countries around the Mediterranean as well.

The bullish argument is that Cyprus is such a small part of the eurozone economy that its economic collapse will not have significant adverse consequences.

Bears, on the other hand, will note that the Germans have now drawn a line in the sand.

What is unclear is how bank depositors in other countries will react to the discovery that there is a limit to the largesse of the ECB.

If they start withdrawing cash and precipitate a run on their banks the consequences are hard to foresee, but will almost certainly be painful in the short term.

How that will play in capital markets is impossible to discern.

But it’s not all gloom and doom for commodity investors. What is of some comfort is another reminder of the importance of how capacity constraints in infrastructure are keeping prices up.

South Africa is facing another power shortage five years after the last one caused widespread production cuts in mines and smelters.

According to Bloomberg, Eskom, the state owned power company, only has spare capacity of 1.5 per cent and more power cuts are likely.

That will cause closures in the industry and act to limit the supply of raw and refined metals.

It is because so much of the mining industry is still operating at close to full availability that metals prices are still trading near to the full marginal costs of production.

Normally in recessionary times such as these it might be reasonable to expect metals to trade closer to the cash costs of production.

The industry is working hard to expand capacity. Schemes such as the reopening of a stretch of the Benguela railway after a hiatus of forty years will allow copper to be exported directly from Zambia to the west coast of Africa.

This is not really an expansion, just a restoration of productive capacity that used to be there nearly half a century ago.

Then the global copper industry was a fraction of the size of its current 20 million tonnes a year. It is the infrastructure to support a much bigger business that has failed to keep up.

The drama in Europe will not help commodity demand and indeed may well be a negative factor.

Against that must be set the supply side bottlenecks that still dominate the industry and will help to maintain prices at levels higher than many might expect at this point in the economic cycle.

Source >>> www.minesite.com
*****
 
March 29, 2013

That Was The Week That Was ... In Australia
By Our Man in Oz

Minews. Good morning Australia. It seems you went into the Easter holidays in a pretty gloomy mood.

Oz. Yes, it was a bad week, especially for shareholders in Australia’s biggest goldminer, Newcrest (NCM), which committed the sin of surprising the market with an unexpected production downgrade.

The forecast output cut is from 2.5 million ounces of gold this year to a maximum of 2.15 million ounces, which was enough to trigger a rush for the exits with sellers knocking A$1.82, or 8.3 per cent, off the stock on Friday alone.

Newcrest closed for the Easter break on Thursday at A$20.05, a 12-month low, with the fall for the week totalling A$1.94, or 8.8 per cent. And that drop reverberated through the entire gold sector, dragging the gold index on the ASX down by 6.8 per cent.

Minews. That is a heavy fall for a sector leader. Did it affect other gold stocks?

Oz. Hard to tell, there was a downward trend among the gold producers, but the same could be said for the rest of the Australian market, which has become increasingly influenced by the uncertainties swirling around the Australian government.

The last time we spoke there had just been a failed challenge against the Prime Minister, Julia Gillard. Since then the focus has switched to the prospects of a tough budget and the potential for higher taxes to paper over wasteful spending and rein in an unexpected increase in government borrowings.

Minews. Don’t tell me you’re going down the same path as Europe?

Oz. There is a danger of that, but only until September 14 when the current government goes to an election facing almost certain annihilation.

In the meantime, we look like having five very unstable months. In response the metals and mining index lost 2.4 per cent last week, and the all ordinaries drifted lower, but closed about where it started.

Given that we know most of the usual suspects will have lost ground, this week we’ll start with the positive news by looking at stocks went against the trend, which might provide readers with fresh ideas.

Minews. That sounds acceptable but don’t overemphasise the good news, as we need to get an accurate picture.

Oz. You’ll get that, but first it’s worth looking at a couple of the more interesting upward movers. We’ll start with Azimuth Resources (AZI), a company that has been flying beneath most radars, except that of Troy Resources (TRY) which has just stitched up a friendly merger that will allow Troy apply its South American gold mining expertise to the West Omai project of Azimuth in Guyana.

Azimuth shareholders love the terms of the share swap merger, pitched at one Troy share for every 5.695 Azimuth shares, valuing the target at A$188 million, and boosting the Azimuth share price by A12 cents to A34.5 cents. Existing Troy shareholders might not be so happy because Troy’s share price fell by A21 cents to A$2.17.

Minews. An interesting move for Troy, which might make it more appealing as a takeover target itself.

Oz. That could happen. Meanwhile, let’s consider a few more interesting moves. Among the iron ore stocks, Crusader (CAS) announced first cash flow from its Posse project in Brazil, news that lifted the stock by A11 cents to A35 cents. Southern Hemisphere (SUH) announced fresh drill results from its Llahuin copper project in Chile, lifting it by A4 cents to A14 cents. And Breaker Resources (BRB), a gold explorer which has kept a low profile, said it might be on to a big gold system at its Dexter project in Western Australia, a report which boosted the stock by A6 cents to A41 cents.

Among the coal stocks, Atrum (ATU) continued its strong upward move, adding another A16 cents to A$1.02, while Talga (TLG) was the best of the graphite stocks after announcing fresh drilling success at its Swedish projects, rising by a modest A1.5 cents to A25 cents, reversing three weeks of decline.

Minews. Thanks for the good news, it’s time now for the call of the card, starting with gold.

Oz. After Newcrest, Troy and Azimuth it was a mixed bag with a downward trend. Some of the stocks to rise, though not by much, included Alacer (AQG), up A20 cents to A$3.92, Gryphon (GRY), up A1.5 cents to A35 cents, Sumatra (SUM), up A1 cent to A21 cents, Ampella (AMX), also up A1 cent to A25 cents, Stratum (SXT), up A3.5 cents to A31 cents, and Intrepid (IAU), up half-a-cent to A25 cents.

Gold stocks to lose ground included: Northern Star (NST), down A3 cents to A$1.04, Kingsrose (KRM), down A5 cents to A64.5 cents, Kingsgate (KCN), down A25 cents to A$3.89, Resolute (RSG), down A4 cents to A$1.33, Medusa (MML), down A15 cents to A$4.30, Endeavour (EVR), down A6 cents to A$1.46, Tanami (TAM), down A1 cent to A16 cents, Silver Lake (SLR), down A9 cents to A$2.11, and Papillon (PIR), down A5 cents to A$1.30.

Minews. Base metals next, please, as the copper sector seems to have been rather weak.

Oz. There were a few heavy copper falls from some of the favourites but there were also a number of reasonable rises. Heaviest fall was posted by Sandfire (SFR), which shed A32 cents to A$6.02. Ivanhoe (IVA) lost A3.5 cents to A26.5 cents, and OZ Minerals (OZL), slipped a modest A2 cents to A$5.33. Having said that, Oz has now lost A$2.39 since mid-February. Other copper moves included: Hot Chili (HCH) down A5 cents to A62 cents, Peel (PEX), up A7 cents to A70 cents, Blackthorn (BTR), up A5.5 cents to A$1.00, and Talisman (TLM), down A1 cent to a 12-month low of A13 cents.

Nickel stocks were mixed, trending down. Sirius (SIR), the speculator’s favourite, continued its retreat, losing another A33 cents to A$3.75. Western Areas (WSA) lost A18 cents to A$3.41. Mincor (MCR) was A2.5 cents weaker at A73 cents, and Independence (IGO) fell by A14 cents to A$3.97. Nickel stocks to gain ground included: Panoramic (PAN), up A1.5 cents to A37 cents, and Poseidon (POS), up half-a-cent to A20.5 cents.

Minews. Iron ore next, please.

Oz. After Crusader it was mixed with rises and falls effectively cancelling each other out. Moves included: Fortescue (FMG), up A13 cents to A$3.94, Atlas (AGO), down A6 cents to A$1.11, Gindalbie (GBG), up A1 cent to A21 cents, Mt Gibson (MGX), down half-a-cent to A52 cent, Iron Ore Holdings (IOH), down A9 cents to A96 cents, and BC Iron (BCI), down A6 cents to A$3.25. Sundance (SDL) remained suspended while a proposed takeover bid from China’s Hanlong looked less and less likely

Minews. Coal and uranium next, please.

Oz. Both were mixed, with a few bright spots in generally weak trading. Atrum, as mentioned, was the best of the coal stocks. Other upward moves came from: New Hope (NHC), up A6 cents to A$3.97, and International Coal (ICX), up A3.5 cents to A16 cents. Falls were posted by Whitehaven (WHC), down A7 cents to A$2.12, Coalspur (CPL), down A4 cents to A51.5 cents, and Bathurst (BTU), down A1.5 cents to A31 cents.

Paladin (PDN) was one of the stronger uranium stocks, though its rise of A1 cent to A99 cents shows just how flat the uranium market was last week. Other moves, either way, included: Uranex (UNX), down A1.1 cent to A6.9 cents, Greenland (GGG), down A2 cents to A30 cents, Bannerman (BMN), down A0.2 of a cent to A8.1 cents, and Berkeley (BKY), up half-a-cent to A39 cents.

Minews. Minor metals to close, please.

Oz. Talga, as mentioned, was the best of the graphite stocks. Syrah (SYR), the graphite leader, lost A26 cents to A$2.75, and Archer (AXE) slipped A1.5 cents lower to A21.5 cents.

Galaxy (GXY), the lithium leader, continued its decline, shedding another A4 cents to A29 cents, although fellow lithium explorer Orocobre (ORE) added A1 cent to A$1.35.

Tin and tungsten stocks weakened. Venture (VMS) fell by A1.5 cents to A18 cents, and Wolf Minerals (WLF), slipped half-a-cent lower to A29 cents.

Rare earth stocks weakened. Lynas (LYC) by A3.5 cents to A56 cents, and Alkane (ALK), by A2 cents to A58 cents.

Zinc stocks were mixed. Perilya (PEM) added A1.5 cents to A25 cents, and Balamara (BMB) put on A1.2 cents to A11 cents. Ironbark (IBG), lost A0.8 of a cent to A5.6 cents, and Terramin (TZN) slipped by another A0.3 of a cent to close at a 12-month low of A1.6 cents.

Minews. Thanks Oz.

Source >>> www.minesite.com
*****
 
April 02, 2013
China Is The Only Game In Town, But Is Struggling Nonetheless
By Rob Davies

It is difficult to underestimate the importance of China not just to commodities but to the global economy as a whole.

In the wake of the financial crash of 2008 China created a massive economic stimulus.

This boost to growth as other economies cratered meant that Chain’s share of world merchandise exports surged from four per cent in 2000 to 10 per cent in 2011 according to Lombard Street Research.

As a consequence, mainland China now accounts for 30 per cent of world exports of office and telecoms equipment, and textiles.

It also means that capital spending now makes up 48 per cent of GDP.

This increase in economic power has made its Asian neighbours even more dependent on China.

Even former behemoths like Japan have relied on the upstart rival across the sea for 30 per cent of its albeit lacklustre, growth.

The effect is felt as far away as Germany, where China is now the third largest export destination and makes up seven per cent of its exports.

Not only is China important but so are its economic satellites, and this is what makes it so crucial to commodities.

In 2001 energy and metal imports into China accounted for 1.3 per cent of GDP.

This increased to a peak of five per cent in 2008 before the crises plunged the figure down to 3.5 per cent in 2009.

Since then it has recovered to 5.3 per cent. In practical terms this means China’s share of global metal imports is 26 per cent, but if its’ total share of imports of manufactured goods are included as well must be much higher.

Even if the secondary effect is ignored China is still Australia’s largest trading partner making up 28 per cent of its exports and five per cent of its GDP.

That is fine when China is growing at 10 per cent a year, as it has done over the last three decades.

Much of that growth has been driven by exports and investments. But the experts at Lombard do not believe that putting 48 per cent of GDP into capital spending is sustainable, nor is the 29 per cent going into exports.

Its view is that consumer spending at only 35 per cent of GDP is too low and will have to grow at the expense of the other two components. This, it thinks, will drag down economic growth down to five per cent a year over the next three to five years.

That might sound pretty good to voters in the developed world who are becoming hardened to years of little or anaemic growth, but it will have a major impact on the metals and mining market in two ways.

First, it will reduce demand for hard commodities in China itself as the economy moves away from building ever more infrastructure.

Secondly, the knock-on effect of slower growth in China will further reduce economic activity from Germany to Japan. After China and the US these are the world’s biggest consumers of metals so the impact will be compounded.

So, while there are still many positive factors for the metals and mining industry the report from Lombard is a sobering reminder of just how important China has been over the last decade, both directly and indirectly.

Source >> www.minesite.com
*****
 
April 04, 2013
Gunson’s Joint Venture Collapses And Shareholders Call For The Resignation Of The Managing Director
By Our Man in Oz

Tough times at Gunson Resources just got a lot tougher. A week after the Australian titanium and zircon project developer was hit by the withdrawal of a Korean syndicate from its proposed Coburn mine development, a consortium of angry shareholders demanded the resignation of Gunson’s chief executive, David Harley.

No-one at the company is saying whether the two events are connected but, to an outsider, there is a straight line between what happened at 1.30pm on Thursday last week, just before business closed for the Easter break, and what happened at 9.30am in Australia on Thursday 4th April, when a formal request was filed for a meeting of shareholders with one item on the agenda, the removal of David as managing director.

According to the notice lodged at the Australian stock exchange the group seeking David’s removal holds 12.4 per cent of the stock, a big position in a business where there is no dominant shareholder, where the board holds just 1.8 per cent, and David personally speaks for 1.5 per cent of the board stake.

The meeting, according to corporate rules, must be held with two months of the request being lodged. Gunson told the stock exchange that a notice convening the meeting would be sent out within the next 21 days.

For Gunson and David the past week has been a turning point in a decade-long effort to develop Coburn, a classic “beach sands” deposit on the west Australian coast.

Re-designed over the past six months to meet the demands of a Korean syndicate led by the big steel-maker, Posco, Coburn has the potential to produce up to 49,000 tonnes of zircon a year as its major cash-generating product, plus 109,000 tonnes of ilmenite and 23,500 tonnes of an upgraded titanium product called Hi Ti90.

Just six weeks ago David was confident that he had taken Coburn to the point where a go-ahead decision could be made with the Koreans, working through a joint venture called Posco SPV. The idea was that they would earn a 40 per cent stake by making a payment of A$28 million, as well as providing a major share of the estimated A$192 million capital cost.

But, just as Gunson failed to secure a deal with a Chinese syndicate that came close to investing in Coburn some three years ago, so did the Koreans find the terms too expensive given the weak state of the zircon and titanium market.

David, in announcing the ending of negotiations with the Koreans, described the outcome as disappointing, especially after 18 months of due diligence, engineering and optimisation studies had resulted in making Coburn considerably more robust. But not good enough to overcome the significant deterioration in the zircon market over the past six months.

What really killed the interest of the Koreans was a forecast of continued weakness in the zircon and titanium minerals price, including the latest gloomy outlook from TZMI, the world’s top research firm specialising in zircon and titanium.

“This resulted in Posco SPV’s returns being below their required level after allowing for their A$28 million earn-in payment,” David told the ASX.

David indicated that a discounted entry price was offered. But, he added, “Gunson was unable to successfully engage with Posco SPV in relation to whether an acceptable return could be achieved by them with a reduction to the earn-in payment”.

The problem for Gunson worsened when it found that the gloomy outlook for the zircon price made it difficult for it to raise its own share of the funding for Coburn.

“Previous term sheets for debt facilities could not be progressed without zircon offtake agreements with adequate floor prices, which could not be secured in the current market, and many potential large equity investors wanted to see some clarity on the market before making any commitments”, David said.

Gunson is now in a difficult situation. The collapse of the Korean deal follows a significant shortfall in a capital raising which, in turn, was designed to supplement a thin bank balance. Back in December, Gunson’s cash stood at just A$405,000. A share purchase plan designed to raise A$1.5 million attracted just A$859,500, with an additional A$195,000 raised by placing three million shares at A6.5 cents each.

On the market, Gunson shares were today sold down to a 12-month low of A2.3 cents, before recovering modestly to A2.5 cents, a price which values the company at a lowly A$6.4 million.

The board of Gunson wants time to work out a “what next” plan, and has appointed the Australian corporate advisory firm, Azure Capital, to help with the preparation of a strategic review, not just of the Coburn project, but Gunson itself.

David said the Coburn project remains a valuable asset, being well located, and well advanced in terms of engineering and planning. It would be able to produce high quality products with low impurities in a high-value concentrate.

Corporate events, however, will now dictate the future of Gunson. The strategic review is now underway, and will include an analysis of the future structure of the company, “including the size and composition of the board and its executive management team, as well as the possible introduction of a strategic shareholder”.

Gunson said the brief handed to Azure had started immediately after Easter, with a report due to be received at the end of April.

That timetable designed by management has to accommodate the demands of shareholders who speak for at least 12.4 per cent of the company, and who want David removed as managing director.

The clock, as they say, is ticking.

Source >> www.minesite.com
*****
 
Lundin on gold (5 April, 2013)

“With the speculators shorting gold and pulling money out of the gold ETFs, the bears are winning the battles right now,” said Brien Lundin, editor of Gold Newsletter.

Lundin said he expects gold to post a “very sharp, albeit brief rally off of the bottom it’s now establishing.” Gold may then correct into June and July, and establish another “interim bottom” around the end of July, he said. The typical strong period of the fall may kick in after that, and the market could see gold post a broad rally into the end of the year.

That said, he suggests that investors and traders “act quickly once it appears that gold is rallying off of the current bottom, then to focus any further buying around mid-summer.”
 
April 06, 2013
That Was The Week That Was … In Australia
By Our Man in Oz

Minews. Good morning Australia. The tough weeks just keep coming! Are we close to the bottom in this downward phase of the cycle?

Oz. You would hope so, because it has been a torrid start to 2013, with last week’s falls by Australian-listed mining stocks taking the metals and mining index on the ASX to within sight of being declared an official bear market. The gold index is already officially in a bear market.

Minews. You had best explain what a bear market means.

Oz. Any asset class that falls by 20 per cent is classified as being in a bear market, and last week the metals index lost another 3.7 per cent, taking the fall since the start of 2013 to 15 per cent. The gold index crashed back by eight per cent, following another heavy fall by the sector leader, Newcrest (NCM), taking the gold index decline since the start of 2013 to 21 per cent.

Minews. Newcrest is certainly doing a lot of damage to sentiment in your gold market. What went wrong last week?

Oz. Surprise production downgrades at the company’s Lihir, Gosowong and Telfer mines had investors heading for the exits. That stampede knocked A$1.25 off Newcrest’s price which closed on Friday at A$18.80, but did trade down to a 12-month low of A$18.46 on Thursday. Since the start of the year the shares have dropped A$3.38 (15 per cent).

Minews. The rest of the gold sector doesn’t seem to have done much better.

Oz. Nearly all down, but that was the case across all sectors, with the Korean crisis weighing on sentiment, along with those persistent worries about Europe and the latest government money-printing exercise, this time from Japan.
...

Source >> www.minesite.com
 
April 08, 2013
"Japanese Money Printing Bodes Ill For The Global Economy"
By Rob Davies

Japan is the third largest economy in the world and has had no meaningful economic growth for two decades.

That has significant effects on all sorts of markets, not least in commodities, and the announcement last week that the Bank of Japan has taken the radical measure of buying in US$78 billion of government bonds a month to kick start the economy is big news.

It's the cornerstone of new prime minister Shinzo Abe's economic policy.

News of its implementation boosted the stock market by 3.5 per cent but pushed the yen down from Y93 to Y97 against the dollar.

This is only the latest stumble from the peak of Y78 reached in September last year.

More importantly for the locals, it has depressed yields on thirty year bonds to 0.9 per cent.

Now that has to be a bargain for somebody, and a worry to others. If you can’t make money when your opportunity cost is that low something has to be really wrong.

Unfortunately, it is not just Japan that has deep seated issues.

The US only added 88,000 new jobs last month, half what was expected. That was the cue for a 1.6 per cent decline on Wall Street and was probably the dominant factor in the 2.1 per cent drop in the LME Index over the week to 3,193.

Low growth translates itself into weaker demand for metals and is one reason that the Bloomberg consensus forecast now expects the copper market to have s surplus of about 102,000 tonnes this year.

That isn’t much in a 20 million tonne market, but it is a sign that the fundamentals of even the best placed base metal are now starting to turn.

Copper inventories on the LME only amount to 579,600 tonnes so that surplus will be warmly welcomed.

Although they are very different countries the message is the same: economic growth is proving to be very hard to create in two of the world’ three largest economies.

Both countries suffer from high sovereign debt, but in the case of Japan it is eye-watering at 240 per cent of GDP.

Since 93 per cent of this debt is held domestically it does not yet present a problem for global capital markets.

However, since debt service costs now account of 50 per cent of tax revenue the size of this bet is staggering.

Effectively the Bank of Japan is now playing double or quits to solve the problem. When it goes wrong, as simple logic suggests it inevitably will, the scale of the disaster will make the 2008 banking crisis look like a tea party.

The last serious attempt to solve the problems of imbalanced global capital flows after a major crisis was the Bretton Woods agreement of 1944.

It was an attempt by central planners in the Roosevelt administration to replace sterling and gold as reserve currencies with the dollar. Its deception was to conflate the dollar and gold.

Using exchange rates fixed to the dollar it sought to impose the dollar as the new world reserve currency and escape from the straightjacket imposed by gold.

It also provided the mechanism to deliver the fatal blow to the UK economy drained by two World Wars that enriched the US at the expense of all the combatants.

Within three years the problems this generated were exposed when the UK was forced to devalue.

It struggled on until the whole system collapsed in 1971 when President Nixon was forced to devalue the dollar against gold.

Europeans appear to have learnt nothing from this history when they invented the euro.

Now, each major currency block is engaged in a race to the bottom to see who can print money the fastest in order to generate economic growth in their own currency area.

It is impossible to foretell how it will end. But it is hard to escape the feeling that these desperate measures cannot end well.

Source >>>>> www.minesite.com
*****
 
The Japanese quantitative easing program is US$1.4 trillion over two years which will double their money supply. Yet it's not getting that much attention compared to what the US QEs got.

http://www.guardian.co.uk/business/2013/apr/04/japan-quantitative-easing-70bn

So the question is, which commodities will be the best investment against the backdrop of Japanese money printing? Precious metals - which ones? Copper, iron ore?
 

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