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Wednesday, October 9, 2013

Noontime news, including yet more comment on India, and Pierre Lassonde


Sorry this is late. If you must know, some clown decided just today to bung a great bloody ditch through something that I'd already designed, gotten stamped, and handed off to the contractor 2 years ago. So I was busy working on fixing that mess, until I realized that since they had two years to screw it up, I should give myself more than one day to fix it.

So anyway, here's some news:


Bespoke - S&P 500 at most oversold since June. They suggest it can get more oversold, though - perhaps to around 1630.

Reuters - China's makeover plan in progress. The argument is that no matter what comes out of the November plenum, it's going to be disappointing for some; the point is, though, that this is a major strategy document and the implementation will occur over years.

FT beyond brics - EM headwinds to sweep through Q3 earnings season. Do the outflows begin anew when Americans, watching the earnings reports, see that EM earnings are dropping?

Reuters - Indian gold demand in Q4 could reach 300 tons. Quote:
Some market participants say the excess demand could be met by smuggled gold, which has risen substantially after import curbs were imposed.

More "auspicious" days, when people buy gold, is seen helping to boost demand.

"There are 20 percent more auspicious days and also there is pent-up demand from last quarter. Monsoon has also been good, so all indications are demand will be robust," said Somasundaram PR, World Gold Council's (WGC) India managing director.

However, the WGC does not expect a repeat of April and May, when imports soared.

[...]

Demand for gold is likely to be sustained as more people are expected to demand gold in absence of a bank account in rural areas, which contribute to about 60-70 percent of the demand.

"As we see population growth, as we see more people get out of the poverty line... demand will grow," Somasundaram said.

The federal government has been asking consumers to refrain from buying gold and estimates gold imports to be at 750-800 tonnes in the year to March 2014.

Gold has always been an integral part of Indian culture and is given as an endowment for marriages and for other auspicious and religious reasons.

According to government estimates, about 137 million households have been lifted out of poverty since 2004-05, leaving more disposable income in the hands of consumers.

"The first thing a person does when the come out of poverty is buy gold. ATM card and bank account comes much later," Somasundaram said.
Mineweb - are gold equity premiums a thing of the past? Among other things, this article has a link to a Pierre Lassonde interview, which is probably something I'm going to want to listen to later. Here's a very interesting snippet quoted in the article:
[...] in his view, the major reason why gold companies are not getting a premium these days is because there is no Contango and that’s because the price of money is mispriced because we have zero interest rate.

"Don’t forget that gold is the only commodity that trades at a higher price tomorrow than today on a normal day, because it has a Contango. So back in the days where you had 3% or 4% interest rates the Contango would be 3.5% or 4.5% and then if the gold price today is $1300, well in 10 years’ time that gold price was $2000. Okay, well when you start to do the PV on that, it’s worth a heck of a lot more than if you do a copper company which trades in backwardation. It’s worth less tomorrow than it’s worth today... so when you do your PV you get a different answer and that is why the gold companies in a normal interest rate environment will always be worth more than a normal company."
Um... Pierre? Do banks value gold miners this way, when setting price targets? I have never seen a PV calc for a mining property that assumed an escalating gold price. Even when gold was at $1700, the base case used was $1400 gold, declining down over time to the banks' analysts' assumed long-term average future price.

Yes, a positive future outlook for gold prices would raise miners' price targets. But that's just a vacuous truism - positive outlook generates a higher multiple.

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