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Morning Market Roundup: China Buying Massive Amounts Of Gold, Eurozone Bailout Fund Final

January 31, 2012 by · Leave a Comment 

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The Blaze
By Becket Adams
January 31, 2012

Here’s what’s important in the financial world this morning:

China: China has been keeping itself busy buying up enormous amounts of gold, according to a recent Forbes report. This month alone, China has “imported 102,779 kilograms of gold from Hong Kong in November, an increase from October’s 86,299 kilograms.”

Given that Beijing does not release gold trade figures, the Hong Kong numbers are the best indicator anyone has to go on. Analysts believe China bought as much as 490 tons of gold in 2011, double the estimated 245 tons in 2010, according to Forbes.

EU: The eurozone finalized its bailout fund on Monday after 25 of 27 EU member states signed off on a €500 billion permanent European Stability Mechanism rescue fund. The U.K. and the Czech Republic did not sign it.

The European Central Bank was pleased by the agreement after expressing its desire for the euro governments to get their finances in order.

“It is the first step towards a fiscal union. It certainly will strengthen confidence in the euro area,” ECB President Mario Draghi said.

Japan: Japan’s industrial production rose higher than expected in December to 4 percent. Continuous gains are unlikely with the declining global demand and a strengthening yen. Other surprising increases included a 0.5 percent rise in household spending and unemployment, which increased to 4.6 percent from November’s 4.5 percent.

Honda’s fiscal quarter three operating profit dropped 65 percent to ¥44.3 billion ($580 million), falling short of ¥81.2 billion expectations. For the year, the company sees its full-year operating profit also dropping 65 percent to ¥200 billion vs. a ¥283 billion estimate. This is the lowest level the company has seen in three years and they attributed it to the natural disasters in Japan and Thailand and the strong yen.

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Gold Prices Track Euro Higher (Update 2)

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The Street
By Alix Steel
January 31, 2012

NEW YORK (TheStreet ) — Gold prices were moving higher Tuesday along with the euro as investors cheered a tighter fiscal pact from the European Union.

Gold for February delivery was up $15 at $1,746 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,747.70 and as low as $1,729.50 an ounce while the spot price was adding $14, according to Kitco’s gold index.

Silver prices were rising 44 cents at $33.97 an ounce while the U.S. dollar index was down 0.1% at $79.05.

Momentum traders were piling into gold, says George Gero, senior vice president for RBC Capital Markets. “Traders [are] seeing higher moving averages and higher open interest for the month.”

Gold was also tracking the euro higher as 25 of the 27 nations in the European Union signed onto a tighter fiscal union. The European Court of Justice would be able to impose fines on countries who didn’t stick to their budget deficits. All countries will be required to shrink their debt to 60% of Gross Domestic Product. These guidelines had been in place earlier, but the fine represents a big step towards being able to enforce the rules. The Financial Times also reported that European banks might tap the European Central Bank for almost 1 trillion euros in its next auction, more than double what banks accessed in December.

The European Central Bank has already seen its balance sheet expand 27% since September, and these big three-year loans at low interest rates will continue to ramp up the money supply in the system. The euro was moving higher, however, as these steps helped calm investors’ worries over short term funding needs.

Longer term, any inflation expectations should be good for gold as the hard asset does well as paper currencies lose value. The question is whether or not the money is making it out into the actual money supply.

The M2 supply in the U.S. for example — money in circulation plus checking, savings and travelers checks — has grown 28% since the beginning of 2008 but banks are still keeping $1.5 trillion in excess reserves stashed at the Fed, which explains the lack of inflation in the U.S.

“Ultimately it can matter,” says Leo Larkin, metals and mining analyst at S&P Capital IQ, “if the economy gets better and the money starts to be lent.” Larkin has not changed his price target for gold in 2012 despite the Federal Reserve’s recent action of keeping rates low until the end of 2014.

Larkin thinks a spike to $1,900 an ounce is a possibility but that gold could head sideways for most of the year to work off any overbought conditions. “Gold is up 11% and we are barely through the first month of the year … [it] has to come up for air.” His more conservative price target of $1,900 compared to other analysts is still a 21% increase from where prices started the year.

The game changer for Larkin, where he would revise his target higher, would be an “acceleration in growth of the monetary base more than we have seen,” meaning that if the economy gets better, banks will start lending their excess cash and the velocity of money in the U.S. will pick up. The result could damage the U.S. dollar and lead investors into the safety of gold. “Gold is a hedge against what [investors] think will be continued depreciation of currency.” As investors lose faith, Larkin says they will turn to gold.

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EU Leaders Back Fiscal Pact, Bigger Firewall

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CNN Money
By Ben Rooney
January 30, 2012

NEW YORK (CNNMoney) — European Union leaders agreed Monday to strengthen a financial firewall and most members of the 27-nation group will sign a new fiscal compact. But the first summit of the year ended without new solutions for the debt crisis in Greece.

The leaders of all but two members the 27-nation EU agreed to sign a pact designed to prevent governments from running excessive deficits and racking up unsustainable debts.

For now, the Czech Republic could not sign up, while Britain already rejected the treaty, which was first announced in October.

The leaders also agreed to implement the European Stability Mechanism, a permanent rescue fund, in July. The €500 billion ESM was originally set to enter into force next year, when a temporary bailout fund expires.

“The early entry into force of this permanent firewall will prevent contagion in the euro area and further restore confidence,” said European Council president Herman Van Rompuy.

But the leaders did not propose any new measures aimed at resolving the situation in Greece, the nation at the center of the debt crisis in Europe.

Van Rompuy welcomed the progress that has been made in talks between Greece and its private sector creditors, saying a deal could be reached in the coming days.

He also called for a quick agreement on the terms of a second bailout for Greece, which is being negotiated with the EU, International Monetary Fund and European Central Bank.

Greek anxiety drags down world markets

Greece and its private sector creditors have yet to agree on a plan to write down the nation’s debt by 50% as part of a debt exchange. Athens needs to seal the deal soon to secure additional bailout funds and avoid an all-but-certain default on bonds due in March.

At the same time, there are signs Greece may need more bailout money than previously expected. EU leaders agreed in October to provide a second €130 rescue program for Greece, but analysts say the nation may need up to €145 billion given its deteriorating economy.

Germany, the richest eurozone economy, remains cool to backing additional support for Greece. The German Finance Ministry has proposed giving EU authorities veto power over Greek budget policies as a condition of more bailout money, which Athens rejected as an infringement of national sovereignty.

Can ‘Super Mario’ save Europe and America?

Still, borrowing costs for Italy and Spain have come down over the last few weeks and both nations have been able to successfully sell short-term bonds. The improvement in Italian and Spanish bond markets coincided with aggressive moves by the European Central bank, which poured nearly€500 billion into the banking system in December.

EU leaders have been hoping to move beyond the crisis talks that dominated last year’s summits to focus on larger economic and political challenges. But ongoing concerns about a default by Greece and renewed worries about Portugal this year have served as a potent reminder that the crisis is far from resolved.

“We need discipline but we also need growth,” said Jose Barroso, president of the European Commission. “We have a strategy and we are staying the course.”

The leaders also outlined a series of relatively modest measures aimed at reviving economic growth, including steps to boost youth employment and help small businesses grow.

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Coalspur completes BFS on Vista coal project in Canada

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Coalspur Mines has completed a bankable feasibility study (BFS) at its Vista Coal Project in Alberta, Canada.

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L&L to acquire 51% stake in the Weishe coal mine

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US-based L&L Energy has acquired a 51% stake in the Weishe coal mine located in China’s Guizhou province for a total consideration of $16.2m.

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Aquarius CEO slams safety stoppages as output falls

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World number-four platinum miner Aquarius Platinum CEO Stuart Murray has criticised the increasing number of safety stoppages in South Africa and said the country has become a “difficult place” to operate in.

The ASX-, LSE- and JSE-listed miner reported a 4% quarter-on-quarter drop in its attributable production to 105 629 oz of platinum-group metals (PGMs) in the three months to the end of December , which Murray partly blamed on the “widespread and sometimes unjustified” application of Section 54 stoppages.

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Goodlace a ‘good choice’ for Implats

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Platinum mining company Impala Platinum’s (Implats’) choice of Terence Goodlace, from Metorex, as CEO and executive director was described as a ‘good’ appointment by company watchers on Tuesday.

Vestact analyst Sasha Naryshkine told Mining Weekly Online that, considering current anxiety levels over who would succeed David Brown, Goodlace’s experience and background, as well as the fact that he was well known and respected, should help to ease tensions.

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CoAL starts Vele production, finds Holfontein buyer

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JSE, ASX- and Aim-listed Coal of Africa Limited (CoAL) has completed construction and started mining at its Vele colliery, following the reinstatement of its integrated water use licence.

The Vele coking coal mine in Limpopo, where construction activities were halted last year amid environmental concerns, started production in December, producing 188 000 m3 of overburden and 3 200 t of run-of-mine (ROM) coal to date.

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Great Basin says Burnstone progressing well

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Gold miner Great Basin Gold’s (GBG’s) development plan at the Burnstone mine, in Mpumalanga, was progressing well, despite production falling short of its targeted 14 000 oz of gold in the third quarter of 2011.

The implementation of a long hole stoping (LHS) mining method, which partly stunted production, was complete, resulting in a progressive upward trend in development, reaching 2 500 m a month, and a steady build up in production, said Burnstone GM Doons van Staden during an analyst and media visit to the mine this week.

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Gold One to more than double output to 300 000 oz in 2012

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Dual-listed Gold One, which owns mines and projects in South Africa, is targeting gold production of 300 000 oz in 2012, CEO Neal Froneman said on Tuesday.

The miner, which has set a stated target of becoming an one-million-ounce producer, said its flagship Modder East operation would produce 150 000 oz this year, with its Cooke underground mine and its Randfontein surface operations contributing 118 000 oz and 32 000 oz, respectively.

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