Tag Archives: Gold

Gold Standard Approved for Islamic Finance, Opening New Market

Bloomberg, Dec 5, 2016

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* Standard is ‘ground-breaking initiative’: World Gold Council
* SPDR Gold Trust, biggest ETF backed by gold, may qualify

Gold is acceptable for the first time as an investment in Islamic finance after the group that sets standards for the industry adopted Shariah-compliant rules for trading the metal.

The rules approved Nov. 19 allow gold to be used in the $1.88 trillion Islamic finance business, the Accounting and Auditing Organization for Islamic Financial Institutions said Monday in a statement. The AAOIFI developed the standards with help from the producer-funded World Gold Council, which has said the new rules could spur demand for “hundreds of tons” of gold.

The SPDR Gold Trust, the biggest exchange-traded fund backed by bullion traded under stock symbol GLD, will probably qualify, and the standard may open new demand to central banks, Mohd Daud Bakar, a Shariah scholar, said at a press conference in Dubai Monday. Comex gold futures wouldn’t qualify because of a physical backing requirement, he said.

“We fully expect to announce imminently that GLD does qualify,” Natalie Dempster, a managing director of the World Gold Council, said at the conference. Physical gold bars and coins may also qualify, she said. The rules require that a bank selling gold has to offer same-day settlement or has to demonstrate it can provide the exact gold being sold within one day, Dempster said. The standard also applies to silver, according to Hamed Hassan Merah, AAOIFI secretary general.“This is a ground-breaking initiative for Islamic investors and for the gold industry at large,” Aram Shishmanian, chief executive officer of the World Gold Council, said in the joint statement. “We are delighted that there is now definitive Shariah guidance on the permissability of investing in gold.”

Gold joins equities, real estate, Islamic bonds (sukuk) and takaful (insurance) as vehicles approved for Islamic finance, according to the Bahrain-based AAOIFI. Sukuk volume slipped 1.4 percent in 2015 after the Malaysian central bank terminated its short-term sukuk issuance program, the AAOIFI said.

“The time has come for gold instruments in Islamic finance,” Mark Mobius, executive chairman of Templeton Emerging Markets Group, said Monday in a World Gold Council report accompanying the statement. The report didn’t say if Templeton plans to invest in the product.

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Soros More Than Doubles Stake in Barrick Gold as Shares Drop

Bloomberg, Nov 15, 2016

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* Holdings in miner climb by 1.78 million shares to 2.85 million
* Investor rebuilds stake during quarter when stock declined 16%

After selling most of his stock in Barrick Gold Corp. in the second quarter, billionaire investor George Soros more than doubled his remaining holding in the mining company.

Soros Fund Management LLC bought 1.78 million Barrick shares in the third quarter, taking total holdings to 2.85 million, according to a regulatory filing. The fund rebuilt its stake in Barrick, one of the world’s two largest gold producers, after selling 94 percent of its holdings in the second quarter to cash in on the stock’s best first-half performance ever.

The billionaire investor’s purchase comes after Barrick began steps to cut costs and sell assets to lower its debt. The Toronto-based producer reported third-quarter earnings that topped analysts’ estimates even as gold prices posted their first quarterly decline this year.

Barrick shares have fallen to a seven-month low of C$19.86 as haven demand for gold wanes amid prospects of rising U.S. interest rates. Bullion has slipped more than 7 percent since June, in part because of speculation that U.S. President-elect Donald Trump’s pledge to increase infrastructure spending will widen the deficit and boost yields, hurting the appeal of non-interest bearing gold.

“The Barrick train keeps chugging as the company’s continual focus on lowering the cost per ounce of gold produced is paying off, positioning it well for the long term,”  Bloomberg Intelligence analysts Kenneth Hoffman and Sean Gilmartin said in an Oct. 27 report.

Barrick has lowered its net debt to below $6 billion for the first time since 2011, according to the BI note.

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Gold Imports by China Increase for First Time in Four Months

Bloomberg, Oct 27, 2016

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* Worries over weakening yuan, property market may spur demand
* Swiss gold shipments to China rose by almost 80% in September

China, the world’s biggest gold consumer, raised bullion imports from Hong Kong in September for the first time in four months as investors sought to diversify their assets on prospects for a weakening yuan.

Net purchases were 44.9 metric tons from 41.9 tons in August and 96.6 tons in the same month last year, according to data from the Hong Kong Census and Statistics Department compiled by Bloomberg. The mainland bought 64.8 tons compared with 55.2 tons in August, while exports were 19.9 tons from 13.2 tons. Mainland China doesn’t publish the data.

The higher Chinese imports came in a month when global prices and holdings in gold-backed exchange-traded funds rose only 0.5 percent as investors weighed comments from Federal Reserve officials on a possible U.S. interest rate increase. Further weakness in China’s currency and investors’ concerns over the outlook for the nation’s property market may spur gold demand, according to Goldman Sachs Group Inc. 

The offshore yuan sank to a record this week as Chinese policy makers signaled they are willing to allow greater currency flexibility amid a slump in exports and rise in the greenback.

Shipments of gold from Switzerland to China increased to 35.5 tons last month from 19.9 tons in August while exports to Hong Kong declined to 11.5 tons from 24 tons, according to figures from the website of Swiss Federal Customs Administration. The European country is a major bullion-trading center and home to several refineries.

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Gold’s on a Roll, Courtesy of the Fed

Bloomberg, Sep 23, 2016

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* Bullion set for biggest weekly gain since July as Fed on hold
* ‘Inaction by the Fed revived investor appetite,’ ANZ says

Gold’s on a roll, courtesy of the Federal Reserve. The precious metal is heading for the biggest weekly advance since July after U.S. central bankers opted once again to leave interest rates unchanged while reining in their outlook for future increases.

Bullion for immediate delivery traded little changed at $1,336.72 an ounce at 11:05 a.m. in London after capping a fourth day of gains on Thursday, according to Bloomberg generic pricing. The metal has climbed 2 percent this week, the most since the period to July 29, as the dollar fell and investors boosted holdings in bullion-backed exchange-traded funds.

Silver, platinum and palladium are also set for weekly advances.

Gold is headed for a third quarterly gain in what would be the longest rally since 2011, when prices rose to a record. This week, the Fed scaled back tightening plans and the Bank of Japan tweaked its stimulus focus, fueling bets European policy makers will keep their easing stance. Efforts by central banks to bolster weak growth, including with low or negative rates and asset purchases are driving demand for bullion as a store of value.

‘Revived’ Appetite

“The inaction by the Fed revived investor appetite for gold,” Australia & New Zealand Banking Group Ltd. wrote in a note. “While a cut in the Fed’s outlook for rates and the weaker U.S. dollar no doubt played a part, the continued efforts by Bank of Japan to bolster economic stimulus also helped.”

The Bloomberg Dollar Spot Index tracking the currency against 10 major peers has lost 0.8 percent this week. While Fed officials signaled they still expect one quarter-point rate rise this year, they now see only two hikes next year, down from a June median projection of three.

Bullion has plenty of backers. Among the bulls, Old Mutual Global Investors’ Diego Parrilla told Bloomberg this month that in a world of monetary policy “without limits,” where low or negative rates prevail, prices will likely soar to a record within five years.

Gold assets in ETFs have expanded every month this year apart from a dip in April, when they lost less than 1 percent. After the Fed’s decision, they rose by about 7 metric tons to almost 2,031 tons, the highest in more than two weeks, data compiled by Bloomberg show.

Spot platinum is up 4.2 percent this week, heading for its first weekly gain since the end of July. Palladium climbed 2.9 percent and silver 5.6 percent.

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Deeper Gets Deadly for Workers in Aging South Africa Gold Mines

Bloomberg, Sep 8, 2016

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* Fatalities up 20%, first rise since 2008, most in two decades
* Mine shutdowns ruffle industry that sees regulator overreach

Finding minerals in South Africa after more than a century of digging often means going deeper than ever before. Now, it’s also becoming deadlier.

In a country that remains one of the biggest producers of gold, platinum and diamonds, 60 mining deaths this year through August was 20 percent higher than the same period in 2015, according to the Chamber of Mines, an industry group. The annual tally is heading for its first increase in nine years and the biggest in at least two decades, escalating concerns by both workers and mining executives.

Many of those killed labored in the searing heat of gold mines that can be more than two miles under ground and traditionally are among the most deadly in South Africa. Various causes have been cited, from falling rock to miners failing to obey safety protocols. But in all cases, that means losses for producers when they are forced to shut mines until government investigations are completed.

“You would expect the response from the regulator would be a strong one, and that’s what we are seeing,” said Srinivasan Venkatakrishnan, the chief executive officer at AngloGold Ashanti Ltd., South Africa’s biggest producer of the metal.

Mineral Resources Minister Mosebenzi Zwane has expressed concern about the industry’s poor safety performance this year and urged companies to step up their efforts, especially because injuries and deaths tend to increase in the second half of the year when there are more work days and higher output. Zwane said on July 14 that his department will investigate the surge in fatalities, which had been dropping over the previous two decades.

Dangerous Work

Since 1994, when South Africa held its first democratic elections after more than a century of whites-only rule, the number of deaths has plummeted by more than 90 percent, with the fewest ever last year at 77, the data show. That reflects improved safety measures and a contraction in the industry’s labor force. During the latter years of apartheid, miners were killed at an average rate of about 800 a year, according to the Department of Mineral Resources.

But with the tally rising again this year, that means increased profit risk for companies as shutdowns become more frequent and costly.

When accidents occur, the Department of Mineral Resources can shut down the affected area or even an entire mine while it investigates. AngloGold and Sibanye Gold Ltd., the country’s biggest producers, weren’t able to extract about $112 million of bullion in the first half of the year due to closures after accidents, while Anglo American Platinum Ltd. couldn’t mine about $33 million of metal, the companies reported.

Costly Shutdowns

“It’s very difficult to shut these assets down in a hard stop,” said Richard Hatch, a London-based mining analyst at RBC Capital Markets. “In some cases, hundreds if not thousands of people need to be removed from a mine, then retrained. Heavy equipment takes time to start back up. Mistakes can be made which increases the risk of more accidents.”

Shares of AngloGold, the world’s third-largest gold producer, have dropped 9.3 percent since Aug. 15, when the company told investors of its three fatalities and 77 safety stoppages in the first half. Over that same period, the precious metal was little changed. Sibanye, which had eight fatalities in the period compared with four the previous year, has declined 19 percent since its results were posted on Aug. 25.

Most fatalities occur in South Africa’s gold mines, which are the deepest on Earth. After the precious metal was discovered in 1886, the country quickly became the biggest producer until 2007. As ore grades declined, so has output, which ranked sixth in the world last year at 168 metric tons, according to the World Gold Council. At its peak, it mined 1,000 tons in 1970.

Going Deeper

With reserves depleted, mining companies have chosen to dig deeper, which can mean more risk. AngloGold’s Mponeng is the world’s deepest mine, extracting gold from 3.9 kilometers (2.4 miles) below ground, equivalent to the height of almost nine Empire State Buildings.

Within a 50 kilometer stretch of the N12 highway west of Johannesburg, there are five other mines — Tau Tona, Driefontein, Kloof, South Deep and Kusasalethu — producing from at least 3 kilometers below the surface. Rock temperatures can reach 60 degrees Celsius (140 degrees Fahrenheit), enough to fry an egg.

At that depth, there is higher risk of mini earthquakes and rockfalls. It also takes longer to bring an injured person to the surface. Two people were killed at AngloGold’s Tau Tona in the first half, which the company attributed to a seismic event.

The industry and government have taken steps to improve safety, including more training, tighter regulations and new equipment such as nets to catch falling rocks.

Safety Signals

“Mines have made huge strides over the last few years in improving safety,” said Andrew Lapping, the chief investment officer at Cape Town-based Allan Gray Ltd., which manages about $34 billion. “Safety and productivity are heavily correlated in mining. A well-run operation is probably going to be a safe one.”

While everyone agrees that many of the government-imposed shutdowns were warranted, some executives say the regulators are being heavy handed in cases where entire mine operations have been halted. Stoppages “should be better targeted at the offending area rather than bringing a large underground mine to a standstill for a protracted period of time,” AngloGold’s Venkatakrishnan said.

Christopher Griffith, the chief executive officer of Anglo American Platinum, the world’s biggest producer of the metal, said last month that the department’s decisions on when to issue full-closure notices are often inconsistent.

Such comments prompted an angry response from the government. In an Aug. 23 statement, the Department of Mineral Resources blasted the companies for “appalling behavior” at a time when more miners are dying at work. “Health and safety in the mining sector under the democratic government is non-negotiable,” the agency said. “These are human lives.”

Various Causes

The evidence so far doesn’t point to any dominant reason for the accidents, or one major corporate culprit. Rock falls killed workers at Sibanye and Impala Platinum Ltd. mines, while Anglo Platinum blamed a “winch-related incident” on two deaths on April 26. Winches haul rock and people to the surface.

South African companies have been cutting costs to stay afloat as output drops. While executives say those reductions don’t compromise safety, union leaders say risks have increased.

“When there’s restructuring, there’s uncertainty, and uncertainty results in people losing focus,” said Eric Gcilitshana, head of safety at the National Union of Mineworkers, which represents about 195,000 miners. “Companies are committed to producing more with less, forcing employees to take shortcuts.”

AngloGold’s Venkatakrishnan denies any loss of focus on safety, which he said has a bigger impact on a mine manager’s bonus than productivity. A fatality can mean reduced compensation for the manager, he said.

More Training

Part of the problem may be that mines are employing younger workers with less experience and therefore a higher appetite for risk, which may mean they need better training, according to Sibanye CEO Neal Froneman.

“I’m not blaming anyone, I’m saying this is a new paradigm we need to understand better,” Froneman said. “The younger generation asks why we do things a lot more. They want to be more participative in decision making. That’s a good thing, but we need to change some of our behaviors as managers to incorporate that.”

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