gives to the rich. Real wages usually rise in deflation – as happened in Japan before the GFC. However, the road from today’s rising unfairness to the potential fairness of deflation will be very bumpy. Investors have been buying precious metals, especially gold, for three reasons. First, being no one’s liability, they provide valuable insurance against the credit risk inherent in today’s trashed balance sheets. Second, they provide liquidity in the midst of default and devaluation, yet decline less than long duration securities in a crisis and often recover more quickly. Third, gold has a latent monetary value. Thoroughly trashed balance sheets guarantee that continuing devaluations and rising defaults will eventually cause a banking crisis big enough to cause trigger a new monetary system. Gold has decoupled from its normal correlations, indicating rising perceptions of both ubiquitous credit risk and probabilities of gold playing a part in the new global monetary system. China, India, Russia and other EM in their orbits will be influential in designing the new monetary system. They’re aggressively accumulating gold, so physical gold trading has moved to the East
Appreciating gold The total removal of gold from the monetary system is now pushing the globe into deflation. Contrary to current monetary dogmatism, the classic gold standard’s automatic stabilizers restricted credit growth, especially to governments, so investing savings drove GDP growth. (American government spending was under 4% of GDP early in the last century.) Rising productivity pushed prices down, distributing productivity gains relatively fairly across the economy. After 1914, capitalism began to morph into ‘creditism’, whereby credit growth, not saving, drove GDP growth. Annual credit increases of less than 2% have signalled recession since WWII. America’s gross total debt was less than $1 trillion in 1963, but had soared to $53 trillion in 2008 when private credit growth reached its limit. This almost 10% annual growth rate required the 25% gold backing for dollars to be rescinded in 1968 and the gold window to be closed in 1971. The rapid credit growth raised inflation into the 1980s, then triggered rising fiscal, trade and current account deficits, which boosted global demand. Meanwhile globalization brought a billion workers into the global work force, exerting deflationary pressures on wages. Real median household incomes in DM peaked around the turn of the century. Despite declining interest rates, falling private sector incomes in America could no longer service the rapidly rising debt in 2008, causing the GFC. Since then, shrinking American fiscal, trade and current account deficits have impaired world growth, turning private sector inability to service its debts into a global problem. Many governments now must inflate to prevent the biggest ever credit bubble from collapsing into deflation, spawning currency wars that rival the 1930s trade wars’ ability to reduce real consumer incomes. Rising costs of imports, servicing foreign debt and travel abroad are more than offsetting the gains from currency depreciation, so global efforts to raise inflation have become strong deflationary forces.
Most people equate deflation to falling prices, but falling money supplies define deflation. Governments hate deflation because they need inflation to erode their excessive debt. Banks hate deflation because it erodes their profits. The 1% hate deflation because (in the absence of artificial means of raising prices such as tariffs) it allocates productivity gains across the economy fairly, unlike the current system that takes from the poor and
The Shanghai Gold Exchange, the prime market for physical gold, is trying to move into derivatives while the CME is inaugurating a gold futures contract based on prices and physical delivery in Hong Kong. Meanwhile, Western leased gold is dribbling back to the lenders and Germany could repatriate 85 tonnes of gold from New York and 35 tonnes from Paris in 2014 compared to 5 and 32 respectively in 2013. The myth of central bank omnipotence anchored financial markets for almost six years. The SNB unexpectedly revaluating the franc could have ended confidence in that myth. Indeed, making its announcement on Thursday (rather than on a weekend, when the majority of forex traders are flat), could have been interpreted as deliberately inflicting more market losses than necessary. However, market focus on the ECB’s coming inauguration of QE deflected attention from the SNB. Eurozone prospects, (January 19) explained that front running the ECB’s QE basically did what QE itself could do, so peak bond prices should occur in the next few weeks. Rising bond yields thereafter could torpedo the myth of central bank omnipotence and, therefore, stock prices. The sudden crash in oil prices shows how violently markets now react. Central banks have been experimenting for the last six years and loss of confidence in their omnipotence will set off fireworks. The timing remains uncertain, but those who aren’t prepared will suffer, so the value of gold’s insurance is rising, as is the prospect that gold may be revalued as a reflationary measure in the depression. The gold offered forward rate has turned positive again, indicating that the extreme shortage of physical gold for immediate delivery in the last quarter of 2014, perhaps due to delivery to Germany (see above), has been alleviated. Gold is near its long term trend and rallying. The ultra-low interest rates could raise it into the $1400s, but it has become expensive relative to commodities. Penetrating resistance at the 2012-13 floor of $1525 is unlikely and the coming banking crisis could push it below the recent $1140 low. Energy constitutes a big part of mining costs and the values of recoverable reserves have finally been written down to conservative levels, making gold mining stocks very cheap relative to gold. The TSX gold index has outperformed the metal in recent weeks, even though gold miners are taking advantage of the rising prices to raise much needed capital. The perpetual call on gold inherent in gold mine equities means they usually move later and further than gold in both directions. However, equities provide income while storing gold in a way that insures delivery upon demand is expensive, which may more than offset the greater market risk inherent in the equities. firstname.lastname@example.org
Although a new poster here I have been a holder of CNR since 2010, I just thought I would give my views on the state of play at the moment. I was at the presentation last Thursday & Mark confirmed my own thoughts for our near future. He quite clearly see’s this year as one to get as many as the loose ends tidied up as possible & has not immediate intention of going the production route. I think he believes we have a first class resource & when or if the gold price recovers we will be an attractive proposition for somebody looking for an excellent resource. Interestingly he did say at the presentation that we are too small for one of the top 10 players to buy us but he thought an mid-tier player would be interested, he also added a bet on CNR is a bet on the gold price. It’s just my opinion but this year will be unspectacular in share price terms if the gold price remains low but one which Mark & his team are working on making us more attractive to potential buyers which does require all the internal “housekeeping” to be in good order. After all once you attract interest you don’t want the deal to fail during the due diligence period. All of which is very sensible & possibly the only course of action open to us at the moment. So for the shareholders (Mark Child included) we sit, wait & watch the gold price & for market sentiment to change.
The activities related to exploration and exploitation of mineral resources are regulated in the Law 387and its Regulation Decree 11-2001.
Under this law, the holders of mining concessions are required to pay:
•Surface Rights, which is a progressive payment per hectare concession along the length of the mining concession.
•Right of extraction, set at three percent (3%) for all minerals, which is deductible from income tax applicable to the mining industry.
•In accordance with the Exploitation of Our Natural Wealth Law (316), grantees have the right, by prior compensation case, inside or outside the boundaries of the lands comprising the mining concession, provided that they were not national lands, to obtain easements of surface necessary for carrying out the exploration or exploitation granted. The mining authority will support the concessionaire in the constitution of the easement, in cases where it is not possible to reach a direct agreement with the owner of the property.
•In accordance with the Law 316, when a licensee considers that for the development of the work for which a concession has been granted, or for the execution of works, the granted easement of private or municipal property the necessary facilities or buildings are not enough, or proves uneconomical for payment of compensation, he may require the expropriation of property to the State
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