U.S. backs protecting Yellowstone’s northern gateway from mining

By Reuters

New mining claims should be banned for 20 years on more than 30,000 acres north of Yellowstone National Park to preserve scenery, wildlife habitat, waterways and outdoor recreation that fuels tourism in nearby Montana towns, the U.S. Forest Service said Friday.

The recommendation to withdraw 30,370 acres of the Custer Gallatin National Forest from mineral development comes after two large gold-mining operations were proposed near Yellowstone, sparking opposition from conservationists and local businesses in an area known as Paradise Valley.

The controversial proposals were put on hold for at least two years in 2016 under the Obama administration, with officials saying more time was needed to conduct an environmental review. That study, released in May, supported continued restrictions on mining.

The original two-year moratorium is due to end Nov. 21. The Forest Service recommendation to protect the acreage for an additional two decades must be formally approved by U.S. Interior Secretary Ryan Zinke to go into effect. The proposed 20-year ban would not affect existing claims.

National forests fall under the jurisdiction of the U.S. Agriculture Department, but an Interior Department agency holds subsurface mineral rights to the area in question.

While Zinke, a former Montana congressman, has broadly promoted energy and mining activities on public lands since becoming interior secretary under President Donald Trump, he wrote on Twitter on Friday that he supported the mineral withdrawal in his home state.

“I’ve always said there are places where it is appropriate to mine and places where it isn’t,” he tweeted. “I’ve long fought to protect the Paradise Valley.”

Groups like the Yellowstone Gateway Business Coalition and the National Parks Conservation Association welcomed Friday’s announcement.

“The doorstep to the world’s first and one of its most beloved national parks is no place for industrial gold mining,” said the association’s Stephanie Adams.

The National Mining Association did not immediately respond to requests for comment.

(Reporting by Laura Zuckerman in Pinedale, Wyo.; Editing by Steve Gorman and Diane Craft).

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From:: Mining.com

Nevada Copper building first US copper mine in a decade

By Frik Els

Nevada Copper building first US copper mine in a decade

Pumpkin Hollow goes into production next year, but the underground mine is only the first phase of a planned Nevada copper operation four times the size

Sun shines on Pumpkin Hollow underground project set for production in a year.

For Yerington it’s been 40 years in the making.

The waste dumps left behind by Anaconda after shutting copper operations in 1978 still loom large over the small town in Nevada’s Mason Valley, not far from Lake Tahoe and California state lines.

There have been a few false dawns and dashed hopes of a revival during the interceding decades in this region of the Silver State where mining dates back to the late 1800s.

But next year the town of little over 3,000 souls – who are proud of the fact that it’s the only place in the world called Yerington – will see the opening of a new mine which within short five years could eclipse the heydays in both size and scope.

If this was 2011, Pumpkin Hollow may well have been a magnetite mine

Nevada Copper’s Pumpkin Hollow project sits 13km down a road lined by farms (row upon row of irrigated onions planted with what looks like down-to-the-centimetre precision) which sustained Lyon County during the lean years.

The deposit was first discovered by US Steel in 1960 and if this was 2011, Pumpkin Hollow may well have been a magnetite mine.

Toronto-listed Nevada Copper acquired the property in 2005 and after extensive study and drilling in the ensuing years came close, but never quite made the decision to build a mine, to the chagrin of the locals.

So what’s different this time around?

The copper price is trading today where it was in 2006 after all. And even seasoned industry watchers were unnerved by the metal’s precipitous drop this summer.

But Nevada Copper is a different entity and Pumpkin Hollow is in a new jurisdiction.

All aboard

Yerington is gearing up for influx of jobs and revenue

Nevada Copper has undergone a rapid transformation following a $380m recapitalization at the end of last year led by Pala Investments, the firm behind another recent high-profile reboot – Cobalt 27.

Other big mining finance names including JP Morgan, BlackRock, Capital Group, CIBC and Red Kite are also investors.

Nevada Copper has undergone a rapid transformation following a $380m recapitalization at the end of last year

In April, President and CEO Matt Gili was recruited from Barrick Gold to join Nevada Copper’s board. Gili was in charge of the gold giant’s Cortez complex in Nevada.

Gili joins other industry heavyweights including Chairman Stephen Gill from Pala, Tom Albanese, former Rio Tinto CEO, Capital Group’s Ernie Nutter and Raffaele Genovese, ex-Glencore, who all came on board in the past year.

It’s not difficult to see what attracted Gili to Nevada Copper. Opportunities to build and operate major new mines in the US are hard to come by.

The last new copper mine in the country to go into into production – Freeport’s Safford mine in Arizona – was over a decade ago. As for Nevada, you have to go back to 2004 when Poland’s KGHM restarted the historic Robinson mine.

Renovation

“The number one success factor for a new mine is the involvement of executives and management on site. You don’t build a mine within budget and on time from a remote corporate head office,” Gili tells MINING.com.

Before Barrick, Gili served as COO of Rio Tinto’s Oyu Tolgoi mine in Mongolia which is set to become the world’s third largest copper mine.

You only have to listen to him recounting his years in Mongolia and the long drives across the desert and the many feasts of boiled mutton and camel’s milk he enjoyed to know that Gili is a hands-on guy.

Not that Nevada is nearly as unforgiving as the Gobi Desert. And in a labour market in the US which is the tightest in generations that’s important.

Reno is little more than an hour’s drive from Pumpkin Hollow and is fast shaking its reputation as Las Vegas’s poor cousin thanks to an influx of tech workers escaping Silicon Valley’s cost of living and a massive new industrial hub anchored by carmaker Tesla’s so-called gigafactory.

Nevada Copper building first US copper mine in a decade

President and CEO Matt Gili joined Nevada Copper in April

Cut red tape, not corners

A recovering copper price helps, but it was a unique agreement with the local community that laid much of the groundwork for Pumpkin Hollow.

The mine is being built on private land. In 2015 after a four-year process, just over 10,000 acres of Federal Land was transferred to the City of Yerington and subsequently sold to Nevada Copper.

That enabled the company to operate under the auspices of the Nevada Division of Minerals, speeding up the permitting process and at the same time giving Yerington direct benefits under the state’s profit share scheme.

The innovative arrangement was the brainchild of Nevada Copper’s VP for environment and external relations Timothy Dyhr and Yerington’s city managers.

“With EPCs the upfront negotiations are brutal, but after you shake hands, you execute together.”

Dyhr, who’s worked all over the world including as BHP’s environment chief for copper, says approvals and permit decisions that would take six months plus making its way through the federal system now takes weeks.

“The project still adheres to all environmental regulations – we’re cutting red tape, not corners,” Dyhr tells MINING.com.

Price fixing

Another innovation Gili is bringing to construction of Pumpkin Hollow is the use of EPC (Engineering, Procurement and Construction) contracts.

With EPC agreements the contractor is responsible for final completion of a project at a fixed cost and is used extensively in Africa, Australia and other parts of the mining world. With investor concern over budget blowouts and delays growing, it is gaining traction in the Americas.

“With EPCs the upfront negotiations are brutal, but after you shake hands, you execute together. With EPCMs negotiation is the easy part, and the fighting is during execution,” Gili …read more

From:: Mining.com

Gold exodus to reverse

By Zeal LLC

Investors have pulled much capital out of gold in recent months in a major mass exodus. Their sentiment waxed very bearish as gold was pounded lower by extreme record gold-futures short selling. The latest record stock-market highs also suppressed the perceived need for diversifying portfolios with gold. But this heavy investment gold selling is slowing, and should reverse sharply once stock markets roll over again.

Not too long ago in mid-June, gold was trading at $1302. It looked fairly strong for the summer doldrums, its weakest time of the year seasonally. But selling would soon return with a vengeance, pummeling gold 9.9% lower over the next 2.1 months into mid-August. That major slide leading into a late-summer low of $1174 certainly cast a dark pall over psychology, fueling surging bearishness that remains ubiquitous today.

While investment selling wasn’t the primary driver, it ultimately contributed in a big way. This gold selloff that started normal before snowballing to anomalous proportions was initially sparked by a sharp rally in the US Dollar Index. It rocketed 1.3% higher in mid-June on a major European Central Bank decision. It announced it was finally ending its massive quantitative-easing campaign at year-end, as widely expected.

But the ever-cunning ECB officials led by Mario Draghi sought to soften that hawkish blow with a side promise not to hike rates “at least through the summer of 2019”. The euro plunged 1.8% on that, goosing the US dollar. American gold-futures speculators took note, as they often make trading decisions cueing off of short-term dollar action. So they sold aggressively overnight, hammering gold 1.7% lower the next day.

That startling drop kicked off a self-feeding chain reaction that cascaded for a couple months. Extreme short selling of gold futures by speculators forced gold lower. The weaker prices convinced these same traders to keep piling on more shorts, which pushed gold lower still. This vicious circle of leveraged short selling ultimately catapulted speculators’ total shorts to a series of new crazy-extreme all-time record highs.

All gold investors and speculators need to understand this dynamic, and I explored it in depth in an essay just a couple weeks ago. That wildly-unprecedented gold-futures shorting is the primary reason gold fell so sharply from mid-June to mid-August. But it had an unfortunate side effect of spooking investors, so they too soon started selling in sympathy. Those heavy investment outflows exacerbated gold’s decline.

The resulting gold selloff was very anomalous even for the summer doldrums. This first chart is updated from my early-June essay warning about these then-imminent summer doldrums. It reveals how gold has performed during the summers of every modern bull-market year, from 2001 to 2012 and 2016 to 2018. To keep differing price levels comparable, every year is individually indexed to 100 as of May’s final close.

With all gold action recast off that common base, this year’s huge divergence from norms is very evident. The yellow lines show individual-year indexed gold action, which tended to drift in a +/-5% range from the last pre-summer close. All those yellow lines are averaged together in the red line. That shows gold is usually weakest in June, recovers in July, and then starts powering higher in its strong seasonal autumn rally.

But that usual summer script sure didn’t play out this year! The gold action was sideways like usual into mid-June, but then deteriorated sharply. Thanks to the extreme record gold-futures shorting on that dollar rally along with the investment selling it spawned, gold plunged 3.5% in June. That was far worse than the 0.2% average slide in June in these modern bull-market years. That heavily tainted sentiment in gold-land.

As selling fueled even more selling gold fell another 2.3% in July, also way behind its typical 0.9% gain that month. And the carnage didn’t end in August despite gold carving a mid-month capitulation low as speculators’ epic record gold-futures-shorting binge climaxed. Gold shed another 2.0% last month, way behind its 2.2% average August gain. So summer 2018 challenged 2008’s for the worst of this modern era!

There are two key points here. First, this recent action was incredibly anomalous even by gold’s weak standards in the summer doldrums. It’s not often that gold-futures speculators short sell at extremes that history had never before shown were even possible. And to have that epic shorting orgy coincide with new stock-market record highs was rotten luck. The resulting investment selling was very abnormal too.

Second, this frenzy of heavy gold selling opened up a huge divergence between where gold is now and where it ought to be this time of the year. Normally gold’s major autumn rally is well underway by mid-September. The farther any market is dragged from norms by extreme unsustainable action, the greater the odds of an imminent mean reversion. Gold should surge fast as the recent wild selling inevitably reverses.

The primary driver of gold’s coming snap-back rally will be record gold-futures short-covering buying that is proportional to recent months’ record-extreme shorting. And investment buying will bolster and amplify that, just like investor selling did on the way down. The more gold rallies, the more investors are attracted to deploy capital back into it. The near-term upside alone is big given the huge seasonal divergence now.

Normally in bull-market years, gold is trading 4.9% above its final pre-summer close by this week. But this year it’s a whopping 7.3% under May’s exiting level now. To fully close this gap, gold would have to surge 13.1% higher from here to $1362! And the coming rally ought to unfold rapidly. Gold-futures short covering out of extremes can quickly mushroom into full-blown short squeezes due to futures’ extreme leverage.

Gold’s investment situation today isn’t as crazy as those epic record gold-futures shorts, but it is still way lower than …read more

From:: Mining.com

South Africa’s NUM union signs wage deal with AngloGold

By Reuters

JOHANNESBURG, Sept 21 (Reuters) – South Africa’s National Union of Mineworkers (NUM) signed a three-year wage deal with AngloGold Ashanti on Friday, inking the same agreement that other unions reached with the company earlier in the week.

The agreement will mean an effective pay hike of over 12 percent for entry-level underground workers in the first year, over double the inflation rate, an industry trend in recent years that has hit margins and made many shafts unprofitable.

Gold producers have argued that above-inflation wage hikes have added to the cost burden in the bullion industry, which has also been hit by depressed prices, labour unrest and declining grades at depths of up to 4 kms (2-1/2 miles).

Harmony Gold, Sibanye-Stillwater and smaller producer Village Main Reef have yet to sign wage agreements with unions.

(By Ed Stoddard; Editing by Adrian Croft)

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From:: Mining.com

Philippines halts quarry operations after deadly landslide

By Reuters

MANILA, Sept 21 (Reuters) – The Philippines on Friday temporarily suspended all quarrying operations in seven regions following a landslide near a limestone quarry that killed at least 29 people, with dozens more feared trapped under the rubble.

As search, rescue and retrieval operations continued at the landslide site in Naga City on the central island of Cebu, Environment and Natural Resources Secretary Roy Cimatu announced the 15-day suspension pending safety assessments at other quarrying areas.

The landslide, one of several incidents from Sept. 15 to 20 in the country, was triggered by heavy rains early morning on Thursday, burying around two dozen houses and the people inside.

Authorities put the death toll at 29 as of Friday, with rescuers still digging for possibly more than 50 people believed to have been buried alive.

“It could also happen in other quarries all over the country,” Cimatu said during a media briefing in Naga City. “I ordered the review and assessment of all quarry operations all over the country to determine the safety of the quarry operations.”

He ordered the Mines and Geosciences Bureau (MGB), the state regulator for mining and quarrying industries, to conduct the safety assessments specifically in seven regions where large quarry operations are located.

MGB Director Wilfredo Moncano told Reuters he expects the impact of the suspension on the industry’s output to be “minimal”, without giving any estimate.

Philippine President Rodrigo Duterte repeated his call on Monday to shut all mines in the country following deadly landslides triggered by heavy rains caused by Typhoon Mangkhut, which struck the country on Sept 15.

Cimatu also ordered a halt to all small-scale mining in the mountainous, gold-rich Cordillera region, where most of the landslides occurred, and ordered a review of more than 100 proposals for small-scale mining sites across the country.

(By Enrico de la Cruz; Editing by Christian Schmollinger)

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From:: Mining.com

Paulson joined by 15 investors in council to oversee gold miners

By Bloomberg News

After almost a year of behind-the-scenes work, billionaire hedge-fund manager John Paulson has formed a coalition with 15 other founding members aimed at curbing years of what his hedge fund has called value destruction in the gold sector.

John Hathaway — who is a general partner at Tocqueville Asset Management LP — and activist fund Livermore Partners are among those who have agreed to join the group, according to an emailed statement from the newly formed Shareholders’ Gold Council. The idea for the group was first floated by Paulson & Co. during the Denver Gold Forum last September.

“Since last year, the gold price has crept lower and shareholder returns have been poor,” Marcelo Kim, a partner at Paulson, said in a separate email. “Interest in the sector has continued to languish, and you have seen capital leave the space and notable fund closures.”

Gold was trading around $1,300 an ounce, about $90 higher than current spot prices, when Paulson announced plans to unite big institutional gold investors around common issues.

He has formed a coalition with 15 other founding members aimed at curbing years of what his hedge fund has called value destruction in the gold sector.

Since then, there has been no noticeable improvement in behavior, said Kim, who delivered a blistering presentation to investors at the 2017 Denver Gold Forum. He had cited almost a decade of mismanagement by gold miners and called for institutional investors to exert more influence on issues like executive pay, board appointments and merger activity. The sector had incurred $85 billion of write-offs since 2010, he said at the time, while continuing to reward executives.

The Shareholders’ Gold Council will be headed by Christian Godin, a former senior vice president at Montrusco Bolton Investments. Launching it took longer than expected because of compliance issues and housekeeping challenges dealing with 16 institutions and back-office teams, Godin said by email.

The group intends to ensure the management and boards of mining companies are aligned with shareholder interests, he said. The group will meet periodically to address a number of issues and will be funded by members.

Sprott Inc. is not named on the list, which includes four anonymous members. Rick Rule, chief executive officer of the Sprott U.S. Holdings Inc. unit, had previously said he would recommend Sprott join the group.

According to the statement, the 16 founding members are: Adrian Day Asset Management Apogee Global Advisors AMG Fondsverwaltung AG Delbrook Capital Advisors Equinox Partners LP Equity Management Associates John Hathaway Kopernik Global Investors LLC Livermore Partners La Mancha Paulson & Co. Sun Valley Gold LP 4 anonymous membersPaulson is currently involved in a heated battle with Detour Gold Corp.’s management. That issue is entirely separate from the gold council, which isn’t involved in any way, Godin said.

Today Paulson & Co. manages about $8.7 billion. In January 2010, Paulson, 62, started a fund that invested in mining companies and gold-related derivatives with about $250 million of his own money.

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From:: Mining.com

Central bank demand for gold reaches 3-year high

By Amanda Stutt

Central banks’ demand for gold reached a three year high, rising 8% during the first half of 2018 compared to the same period last year, according to a World Gold Council market update on central bank buying activity released today.

Data reveals that 2018 H1 marks the strongest year for central bank gold buying since 2015 ­– a total of 193.3 tonnes of gold have been added to central bank reserves so far, compared to 178.6 tonnes during the same period in 2017.

Emerging market central banks have played a key role, with Russia, Turkey and Kazakhstan accounting for 86% of central bank purchases in the first half of 2018.

An IMF Financial Statistics Report reveals that Egypt recently bought gold for the first time since 1978, and that India, Indonesia, Thailand and the Philippines have re-entered the gold market after years-long absences. Egypt recently bought gold for the first time since 1978, and that India, Indonesia, Thailand and the Philippines have re-entered the gold market after years-long absences And Bloomberg reported that the Bank of Mongolia has purchased 12.2 tonnes of gold so far this year.

The World Gold Council believes that many emerging market central banks are turning their attention to gold as after years of exposure to the U.S. dollar, and as a natural currency hedge against other reserve currencies.

“Other reserve currencies continue to deal with significant issues: the euro faces both political and economic challenges across several member states, the renminbi remains relatively restricted and sterling continues to grapple with Brexit uncertainty,” the World Gold Council writes.

The report maintains that gold is a strategic asset that can help central banks meet tactical objectives, as the international monetary system gradually shifts away from a U.S. dollar-dominated system towards a multipolar one.

“The World Gold Council believes that central bank demand will remain buoyant as diversification will be an important driver of demand, as well as the transition to a multipolar currency reserve system over the coming years,” Brett Philbin, VP, Financial Communications & Capital Markets at Edelman stated in an email.

Read the full report here.

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From:: Mining.com

Three dead, several injured after attack at Continental Gold site in Colombia

By Cecilia Jamasmie

Canada’s Continental Gold (TSX:CNL) said Thursday three of its workers in Colombia died and several others were injured after a residence that housed exploration geologists and contractors was attacked overnight.

This is the second time in two weeks the Toronto-based miner mourns the death of staff members in the South American country. The recent incident took place in the village of Ochali within the boundaries of Continental’s Berlin exploration project.

This is the second time in September Continental Gold mourns the death of staff members in the South American country.

Earlier this month, two of the company’s mining engineers were attacked by two armed individuals in the Town of Buriticá, near the company’s flagship gold project. One of them died.

Local paper El Colombiano reports (in Spanish) that Thursday’s charge is believed to have been conducted by ex-FARC dissident members that operate in the area.

In a statement, Continental Gold confirmed those rumours, noting details related to the severity of the assault were still unclear. “But the worst is feared,” the miner said.

The FARC or People’s Army was a guerrilla movement involved in Colombia’s armed conflict from 1964 to 2017.

Continental’s Buritica gold project has attracted the interest of major miners, including Newmont Mining (NYSE: NEM), which last year plunked down $109 million for a 19.9% stake in the company to get a piece of the junior’s high-grade, fully permitted project, which is expected to pour its first gold in early 202,.

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From:: Mining.com

Mining industry’s adoption of blockchain not a question of if, but when — report

By Cecilia Jamasmie

Mining industry' adoption of blockchain not a question of if, but when — report

By cutting out paper, improving tracking and allowing data sharing, blockchain is set to revolutionize mining as we know it. (Image: Autonomous truck at Rio Tinto’s
Pilbara operations Rio Tinto | Flickr.
)

Blockchain technology and the smart contracts it enables are the next step in the evolution of the mining and metals global supply chain, according to a paper published Thursday by global law firm White & Case.

The industry’s adoption of the technology behind cryptocurrency Bitcoin, viewed by many as a solution to trade and settlement inefficiencies, is a matter of “when, not if” says Rebecca Campbell, one of the authors of the paper and White & Case’s partner.

“With today’s pressured margins, inflationary costs and murmurs that the hard-won productivity gains of recent times may be eroding mining companies are looking for ways to improve efficiencies,” Campbell says.

The platform could also help miners to increase market transparency and reduce the risk of fraud.

Blockchain’s role in the green energy space and broader sustainable and transparent supply chains could be a game-changer, the reports says, thanks to its ability to promote trackability, transparency and security.

This type of distributed ledger technology (DLT) uses a shared database that updates in real-time and can process and settle transactions in minutes without the need for third-party verification.

Blockchain’s role in the green energy space and broader sustainable and transparent supply chains could be a game-changer.

There already are some examples of the use of blockchain in the mining industry, with world’s No. 1 diamond producer by value De Beers testing a recently developed platform that allows to tracks gemstones throughout the entire value chain — from mine to buyer.

With Tracr, to soon be made available to the whole diamond sector, De Beers can now both verify the authenticity of its diamonds and ensure they are not from conflict zones where gems may be used to finance violence.

BHP, the world’s largest miner, is using blockchain with its vendors, including recording movements of wellbore rock and fluid samples and securing real-time data generated during production. And Barrick, the world’s No. 1 gold producer, has committed to invest $75 million this year in digital systems that aim to reduce operating costs and increase productivity.

Fewer errors, improved safety

Another key selling point of blockchains and their potential benefits for the mining and metals global supply chain is the ability to run “smart contracts” on them. A smart contract, the authors of the paper explain, is a computer program stored in a blockchain that automatically moves digital assets between accounts when conditions encoded in the program are met.

Digitizing individual mined parcels of ore as assets that can be traded on a blockchain platform could open new investing and trading opportunities, the authors say. This, because the platform would enable individuals to participate in previously closed negotiations, tailoring their purchases to the precise product grades currently available in the market.

Mining industry' adoption of blockchain not a question of if, but when — report

Taken from “Digitalising the mining & metals global supply chain: Rise of blockchain and the smart contract.”Courtesy of White & Case.

Empowering miners to trade more directly with customers has potentially profound implications for trading houses, although so far the various digital platforms do not seem to have had major impacts on the role of the trading houses in the global supply chain.

When looking toward the future of the mining industry and how blockchain may fit within it, there are still challenges to overcome, from whether smart contracts would be drafted by lawyers or coders, to how to deal with different ownership/rights laws, the paper concludes.

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From:: Mining.com

Is gold strength imminent as commercial buyers get long?

By Sprott Asset Management

It finally happened!

The CFTC (Commodity Futures Trading Commission) reported (9/4/18) that for the first time in 17 years commercial participants in gold futures flipped their COMEX positioning to net long.

As shown in Figure 1, this does not mean commercial activity boasts infallible predictive value. Throughout gold’s two-year advance to September 2011 highs, for example, commercials-maintained record short exposures. Such is the nature of the predominantly hedging role played by commercial players in gold markets. However, at least since the waning months of gold’s 20-year bear market which ended in 2001, on each occasion commercials have abandoned their hedging posture almost entirely, strength in the gold price has proved imminent.

Figure 1: Top – Spot Gold (1/1/00-9/12/18) | Bottom – COMEX Gold Futures Positioning (1/1/00-9/4/18)
Red Bars = Large Speculators | Blue Bars = Commercials

Source: Ned Laird; Sharelynx

In the zero-sum framework of COMEX contracts, gold commercials have achieved their rare net-long position by absorbing an onslaught of fresh shorts from the speculator community, in the process, choosing collectively to retire their own short posture. As we outlined in our August report (Summer Test) specs have built an (equally rare) net-short position by way of a literal explosion in their gross shorts, which quadrupled from 55,678 contracts on 3/27/18 (and a post-2001 average of 57,000 contracts) to an 8/21/18 peak of 222,210 contracts.

Figure 2 demonstrates that the 8/21/18 peak in spec shorts was not only a new all-time high, but it also exceeded the prior 2015 record by 40%. While we recognize anything is possible, it seems improbable that hedge-fund specs are about to pick-off the entire commercial community with such an unprecedented bearish bet.

Stay tuned!

Figure 2: Gold Large Spec Gross Short Positions COMEX (9/18/07-9/4/18)

Source: Bloomberg

Strong US dollar continues to dampen precious metals

The mid-2018 decline in precious metals sentiment has clearly run hand-in-hand with rekindled enthusiasm for the U.S. dollar. As we mentioned in August, the DSI1 sentiment reading for the U.S. dollar touched 96% bullish on 8/14/18, eclipsing all but five days in the Index’s 7,966-trading-day-history.

What has been the predictive value of recent extremes in DSI dollar sentiment and COMEX gold positioning? Well, on the dollar side of the equation, not much! In fact, the 9/13/18 close for the DXY Dollar Index2 of 94.52 was statistically flat with its 94.42 close some 3½ months earlier on 5/28/18. Come to think of it, as shown in Figure 3, the DXY’s 9/13/18 close was also flat with its 94.31 close 14 months earlier on 7/20/17, not to mention the fact that the DXY is still down a steep 9.0% from its 1/3/17 high of 103.82!

With all due respect to U.S. dollar bulls, can the dollar’s recent performance really be characterized as “strong,” given the 255 basis point premium of 10-year Treasuries over German bunds (9/13/18), the hawkish tenor of Fed jawboning, and YTD emerging markets (EM) currency collapses in Argentina (52%), Turkey (38%), Brazil (20%), South Africa (16%) and Russia (15%)? No market sentiment of the past several years has been more of a straw hat than U.S. dollar bullishness. Sorry folks, but it just hasn’t happened.

Figure 3: DXY U.S. Dollar Index (9/14/15-9/14/18)

Source: Bloomberg.

Gold continues to battle challenging fundamentals

On the gold side of the mix, we would suggest the jury is also still out. In reflexive similarity to the U.S. dollar, gold has faced a recent spate of challenging fundamentals, such as fresh highs for equity averages, hawkish Fed jawboning, perky 10-year U.S. Treasury yields and the never-ending strong-dollar narrative.

We suspect that the spec funds now short 21 million ounces of gold are scratching their heads as to why spot gold has not declined any further than $1,201.49 (9/13/18). Indeed, it increasingly appears that gold’s mid-April through mid-August swoon (Figure 4) may have been precipitated at least in part by the very same hedge-fund shorting quantified in Figure 2 and memorialized by purple circles in Figure 4. What are spec shorts going to do for an encore?

Figure 4: Spot Gold (9/13/16-9/13/18)

Source: Bloomberg.

Gold’s $1,200 floor

Since early 2017, $1,200 has served as an effective floor for spot gold (red line in Figure 4). Indeed, ever since mid-2013, $1,200 appears to have been a line in the sand below which gold’s prominent physical markets begin draining western sellers (in the case of India, after adding roughly $150 of import duties to the prevailing global spot price). Without delving too deeply into paper-versus-physical dynamics of gold markets, suffice it to say that western investors are woefully uninformed about the economic and cultural status of physical gold around the globe. Especially in the United States, investors typically scoff at the suggestion that gold equates to real money. Contrary to U.S. consensus, however, there are billions of people around the world who actually view gold as preferred money.

Briefly, the World Gold Council (WGC) estimates that 2017 supply and demand for physical gold balanced around 4,400 metric tons (tonnes) with global mine production totaling 3,305 tonnes. Of the 4,400-tonne total, WGC calculates that global consumer demand measured 3,224 tonnes or 72% of global demand and 98% of global mine production. China and India together accounted for fully 55% of total consumer demand (1,776 tonnes). By comparison, U.S. consumer demand totaled a mere 160 tonnes in 2017, or less than 5% of the global total.

Now here’s the fun fact. Despite negligible U.S. participation in physical gold markets, COMEX traded 73 million papergold contracts in 2017, equivalent to 227,053 tonnes of gold, or roughly 70 times global mine production. Why are these statistics of interest? Because any economy, market or society representing less than 5% of physical consumption of any product or commodity, which simultaneously traffics paper claims measuring 7,000% of that product’s global production is prone to missing a few subtleties about that product’s true supply/demand characteristics.

Figure 5 offers the 2018 vintage of bearish COMEX …read more

From:: Mining.com