Guns, butter and gold Rick Mills - Ahead of the Herd | March 23, 2022 https://www.mining.com/web/guns-butter-and-gold/ Stock image. Gold is among the safest of havens in times of war, or any other type of geopolitical instability. During the 1970s, which saw a number of upheavals in the Middle East including the Iranian Revolution, the Iran-Iraq War, and the Soviet invasion of Afghanistan, gold rose 23% in 1977, 37% in 1978, and 126% in 1979, the year of the Iranian hostage crisis. Gold also spiked when the US bombed Libya in 1986, when Iraq invaded Kuwait in 1990, after 9/11, and when the US attacked Iraq in 2003. More recently, in 2020 gold reached $2,034 an ounce on fears of the coronavirus spreading and causing economic devastation. While gold has since pulled back, on speculation that the US Federal Reserve would raise interest rates (last week it did, hiking the overnight lending rate by 0.25%) to tackle record-setting inflation (currently 7.9% in the US), the precious metal once again returned to safe-haven status following Russia’s invasion of Ukraine. After the US and the UK announced bans on Russian oil imports, on March 8 spot gold touched $2,051 per ounce, the highest since August 2020 when the metal reached its all-time peak of $2,072.50. Historical gold price. Source: Goldprice.org Guns vs butter The Russia-Ukraine war, unthinkable mere weeks ago, has alarmed NATO countries on Russia’s western flank, that one of them could be next. A Russian missile attack that killed 35 people in western Ukraine, just 15 miles from Poland, introduced the possibility of an errant missile or bomb landing on a NATO member (Poland, Romania, Hungary and Slovakia, all bordering Ukraine, are all part of NATO), thus widening the conflict. By NATO’s constitution, an attack on one member is an attack on the entire defensive alliance. Map of NATO member countries, in light blue. Source: North Atlantic Treaty Organization Days after Russia launched an invasion of its pro-Western neighbor, Vladimir Putin ordered his country’s nuclear forces be put on high alert. Suddenly the possibility of World War III seemed no longer far-fetched. Setting aside the apocalyptic scenario of a nuclear exchange, the threat of a prolonged conflict in Ukraine including Russia invading European countries (or former Soviet vassal states) has jolted NATO countries out of their post-1989 stupor, leading to a re-think of military spending and the age-old “guns versus butter” debate. The guns versus butter model portrays the relationship between a nation’s investment in defense and civilian goods. Because a country has finite resources, it must choose how much to spend on defense/ the military (guns), against the amount budgeted for items that are needed for non-defensive purposes (butter). Of course, it can also buy a combination of both. The United Kingdom is a good example of a country that is currently having this guns vs butter debate. The “peace dividend” from lower spending on defence over the past several years has allowed successive UK governments to pay for a growing welfare state. The country now spends a little over 2% of GDP annually on defense, but it wasn’t always this small. In the mid-1950s the UK spent 8%, falling to about 4% in 1980 and 3% in 1990. In comparison, government spending on the National Health Service rose from around 3% of GDP in the mid-1950s to over 7% by 2020. Source: The Conversation Will the Ukraine war force the UK government to re-order its priorities so that more is spent on the defence of Europe? The answer isn’t straight-forward. As The Conversation notes, Britain is already the second largest spender in NATO (US$73 billion in 2021) after the United States ($811 billion). In fact the constitutional monarchy is one of only a handful of countries to have consistently met the NATO pledge, that each member spend 2% of GDP. Recall President Trump’s beef with Germany that it wasn’t pulling its weight in NATO, by only spending 1.3% of GDP. Other European NATO members who have consistently under-contributed to the NATO target, include France (avg. 1.9%), Italy (1.2%) and Spain (0.9%). However, German Chancellor Olaf Scholtz has just promised to invest €100 billion in the German military and to spend at least 2% of GDP in every year going forward. Other countries including Denmark and Norway, are talking about following suit. If Germany succeeds in meeting its 2% of GDP target, for Britain to maintain its position in NATO as number 2 top spender, it needs to boost its own defense spending by about 20%. The Conversation calls that a substantial sum. If nothing else, Germany upping the ante will pressure the UK to cancel planned defense cuts over the next three years. Guns It’s worth delving a bit deeper into Germany’s increasing militarization, given the history. After World War II ended in Germany’s defeat, there was much debate about whether it should even be allowed to have armed forces. When the Budeswehr formed in the mid-1950s, its sole purpose was to defend West German territory, not to fight abroad. The latter has changed since re-unification, with Germany deploying troops overseas, but sensitivities remain. The BBC reminds us of an alleged cover-up in Afghanistan in 2009, after a military strike involving German forces caused civilian deaths. Two days after Russia invaded Ukraine, Germany reversed a historic policy of never sending weapons to conflict zones. The government said it would send 1,000 anti-tank weapons and 500 Stinger anti-aircraft defense systems to Ukraine, authorized the Netherlands to deploy 400 rocket-propelled grenade launchers, and told Estonia it would ship over nine howitzers. Last week Scholz went a step further, as mentioned promising to spend 100 billion euros on upgrading Germany’s military, including €44 billion for fighter jets and ammunition. The country has already ordered 35 American F-35 fighter jets made by Lockheed Martin, to replace its aging Tornado combat planes, Reuters said, adding that investment in more nuclear weapons is likely. Poland and the UK are also in the mix of new defense spenders, with the former planning to buy MQ-9 Reaper drones and Britain budgeting $700 million on a US defense system. Jefferies analysts quoted by Reuters say that NATO needs to shell out an additional €62 billion per year, just to meet its 2% of GDP spending requirement. Scholz’s decision more than doubles Germany’s defense budget, which was only €47B in 2021. Still, it’s a long way from what the US spends. According to Breakingviews, via Reuters, the United States as top military power spends 10% of its budget on defense and has 2.3 million personnel, amounting to 0.7% of its population. The German ratio is just 0.25%. Bringing that into line with America would require an extra €14B, assuming an average salary of €37,000. In 2020 the US spent $778 billion ( does not include costs for its nuclear force or veteran benefits) on military spending, more than the next nine countries combined. Defense spending reportedly accounts for more than 10% of all federal spending and nearly half of discretionary spending. According to World Population Review, the 10 countries with the highest military expenditures are: United States ($778 billion) China ($252 billion [estimated]) India ($72.9 billion) Russia ($61.7 billion) United Kingdom ($59.2 billion) Saudi Arabia ($57.5 billion [estimated]) Germany ($52.8 billion) France ($52.7 billion) Japan ($49.1 billion) South Korea ($45.7 billion) Source: Visual Capitalist However, the US military is not the world’s largest; its 1.388 million active personnel are outnumbered by India’s 1.455 million and China’s 2.185 million. Another 1.037 million are in the National Guard and reserves. Active and reserve US military force personnel numbers in 2020, by service branch and reserve component. Source: Statista That bring up another interesting statistic. When reserves or paramilitary service members are counted, the American military falls to seventh place in the world. The countries with the highest number of military personnel, are, in order, Vietnam (10.5 million), North Korea (7.7M), South Korea (6.7M), India (5.1M), China (4.0M), Russia (3.5M), and the US (2.1M). While the United States and the rest of the North Atlantic Treaty Organization have refused to impose a no-fly zone over Ukraine, which would require them to shoot down Russian warplanes, the US hasn’t shied away from providing military aid to Ukraine. Notably, even before the war began, President Joe Biden asked Congress for a US defense budget exceeding $770 billion for fiscal 2022-23, an amount higher than the budget requests by former President Trump. As Commander in Chief of the armed forces, Biden on March 17 announced $800 million in military equipment would be transferred directly to Ukraine, bringing total US military aid since the Russian invasion began to $1 billion. His administration previously approved another $1 billion in aid before the invasion. The latest package includes anti-aircraft, anti-tank weapons and drones. Specifically, there are 800 Stinger anti-aircraft systems that can be used to defend against helicopters and low-flying aircraft using infrared sensors; 2,000 Javelin shoulder-mounted weapons guided by computers to hit tanks; 100 Tactical Unmanned Aerial Systems (drones); and a multitude of lighter weapons including 100 grenade launchers, 5,000 rifles, 1,000 pistols, 400 machine guns, 400 shotguns, along with body armor, helmets and ammunition, Al Jazeera reported. It’s interesting to note, as the Wall Street Journal did Monday, that Washington is also sending to Ukraine, some Soviet-era air defense equipment it secretly acquired decades ago. The Ukrainian military already has such equipment but it needs more of it. According to WSJ, The shoulder-fired Stinger missiles that the U.S. and NATO nations are providing to Ukraine are only effective against helicopters and low-flying aircraft. The U.S. is hoping that the provision of additional air defenses will enable Ukraine to create a de facto no-fly zone, since the U.S. and its NATO allies have rebuffed Ukraine’s appeals that the alliance establish one. So far, the war has shown the fortitude of Ukraine’s military, many of whose soldiers have been battle-hardened fighting Russians in eastern Ukraine. Realistically though, their chance of success is low, considering the extent to which Russia outspends and outnumbers them. Ukraine’s military spending in 2020 was just $6 billion, about a tenth of Russia’s $62 billion. There are 900,000 active Russian military personnel compared to Ukraine’s 209,000, and Russia can call upon an additional two million reservists, versus Ukraine’s 900,000. The Russian army has quadruple the number of tanks as Ukraine, and there is an even greater imbalance in term of armored vehicles and artillery. Russia has over 500 attack helicopters and 1,500 fighter jets, compared to Ukraine’s 34 attack helicopters and 98 jets. In a piece published immediately after the invasion, the National Post states, [t]he military strategic context has also changed in just the past five years, as a survey of military capability shows. The very fact that Russian President Vladimir Putin can deploy more than 100,000 troops to the Ukraine border regions, and 30,000 in the allied former Soviet state Belarus, marks the fruition of Russian military investment over the last 15 years or so, since Russia’s war in Georgia to reclaim influence over Abkhazia and South Ossetia. During the hottest moments of the last Russian war on Ukraine in 2015, there were approximately 12 Russian battalion tactical groups in action around southeast Ukraine. Today, there are well more than 100 involved in a full-scale invasion from Russia and Belarus, which is close to Ukraine’s capital Kyiv. How about the world’s second and third-biggest military spenders? China began building up its military in the mid-1990s, with the goal of keeping its enemies at bay in the waters off the Chinese coast. Long seen to be inferior to the powerful US Navy, including the Japan-based 7th Fleet, the People’s Liberation Army is now the largest navy in the world, its submarines capable of launching nuclear missiles. Shipyards in China recently launched the navy’s first two Type 075 amphibious assault ships, which will play a role similar to that of the US Marine Corps, giving them the ability, with supporting weapons, to fight in distant conflicts. The 40,000-tonne ships are like a small aircraft carrier with accommodation for up to 900 troops, heavy equipment and landing craft. First renditions will carry up to 30 helicopters, with later versions expected to accommodate fighter jets like the US F-35B. A third Type 075 in November embarked on its maiden voyage and the navy could eventually have seven or more of these ships, according to China’s official military press. China is also expanding its marine forces, estimated at between 25,000 and 30,000 troops, compared to just 10,000 in 2017. The Pentagon and other Western military experts however say the PLA marines are less capable that the 186,000-strong US Marine Corps, which has extensive experience in amphibious and land operations. While China has established dominance close to its coast, the United States is considered to have more powerful ships and maintains an overall advantage at sea. For example, China’s 360 ships outnumber the US but they are mostly smaller vessels. The PLAN only has two aircraft carriers and a third under construction, whereas the US Navy has 11 carriers, the most of any country. On land, the PLA’s ground force has traditionally been China’s foundation for asserting regional power. Its 915,000 active soldiers are nearly double America’s 486,000, according to the latest Pentagon China Military Power Report, cited by Al Jazeera. The army has been stocking its arsenal with high-tech weapons including the DF-41 intercontinental ballistic missile, which experts say could hit any corner of the globe, and the DF-17 hypersonic missile. China’s air force is now the largest in the Asia-Pacific region and the third biggest in the world, Al Jazeera reports, with more than 2,500 aircraft and roughly 2,000 combat aircraft, according to an annual report by the US’s Office of Secretary of Defense published last year. Most notably, the air force now possesses a fleet of stealth fighter jets, including the J-20, China’s most advanced warplane. It was independently developed and designed to compete with the US-made F-22. China is also one of the world’s leading exporters of unmanned aerial vehicles (drones), especially to the Middle East. Its customers include the UAE and Saudi Arabia. India, meanwhile, is shoring up its military with a 10% increase in expenditures. According to Defense News, this year’s defense budget is $54.2 billion, including $7.4 billion for new weapons purchases, $6.3 billion for the Navy and $4.2 billion for the Army. Among the top line items: The Indian Air Force will spend most of its budget honoring existing commitments for French Rafael fighters, Russian S-400 air defense systems, Apache and Chinook helicopters, and Israeli medium-range surface-to-air missile systems. The Navy will use its funds to pay for one aircraft carrier, destroyers, stealth frigates and multirole helicopters. The Army will use its funds to pay for T-90 and Arjun MK1A battle tanks, BMP-2/2K infantry combat vehicles, Dhanush artillery guns, Akash air defense missiles, Konkurs-M and Milan-2T anti-tank guided missiles, and multiple types of ammunition. Of course we can’t forget China’s naval rival, Japan, which has been quietly beefing up its military, too. In October, the Japanese Cabinet approved what Forbes is calling an unprecedented 773.8 billion yen (about $6.8B) in additional military spending. The investments include $861 million to intercept and destroy North Korea and Chinese missiles and bombers; $389 million to procure US-built PAC-3 MSE (Patriot) air defense missiles; $106M on new domestic surface to air missiles, $74 million for vertical missile launch systems for two new frigates; $580 million for three P-1 patrol planes, designed for hunting submarines, plus $192M for additional anti-submarine weapons including torpedoes and rockets; $224.4M on 13 Subaru-Bell UH-2 utility helicopters; and finally, $36M for faster deployment of missiles close to Taiwan. If you build it, they will come. To paraphrase “If you build it, you will use it.” Gold As the world’s top militaries receive more funds from their respective governments, who have been scared into opening the defense purse strings by the volatility of global events, and now the reality of a full-blown war in central Europe, the gold price has been rising. As most investors know, the price of gold is determined by a number of factors, including the value of the US dollar (the dollar and gold move in opposite directions), interest rates (typically the yield on 10- and 30-year Treasury notes), negative real interest rates (determined by subtracting the rate of inflation from the yield), geopolitical uncertainty, demand for physical gold, i.e. bars, coins and jewelry, and demand for gold ETFs, measured by flows of stored gold. One of the most prevalent themes in the gold market right now is the amount of gold being purchased by central banks. The majority of gold and silver is traded on the Comex, a global derivatives market where precious metals are traded in futures contracts. Over the past several months Comex vaults have been steadily depleted (signaling more selling than buying), however, 1.6 million ounces have showed up since March 1, according to a March 18 column by Peter Schiff titled ‘Banks are restocking gold at fastest pace in years.’ Schiff, a gold bug, states“This is the largest inflow since October 2020 and we are only halfway through March!” before coming to the conclusion that “The Comex gold market has been flashing warning signs since early January. This continues to be the case. The latest influx of metal further supports the notion that banks are preparing for higher delivery volume and potentially higher prices.” Recent monthly stock change. Source: Schiffgold.com Going back further, the trend of central bank gold buying is even more clearly defined. In 2021, the gold that CBs held in foreign exchange reserves rose to a 31-year high. According to the World Gold Council, via Nikkei Asia, central banks have built up their gold reserves by more than 4,500 tons over the past decade. As of last September, reserves totaled around 36,000 tons, the most since 1990 and up 15% from a decade earlier. Thailand was the top gold purchaser during the first nine months of last year, at 90 tons, followed by India (70 tons) and Brazil (60 tons). Nikkei Asia identified an interesting gold-buying sub-trend. While large gold purchases have previously been limited to countries like Russia and Turkey, that were (and are) trying to reduce their dependence on US dollars, recently the banks of emerging economies and smaller Eastern European countries have seen the appeal of bullion. These countries are buying gold to avoid being exposed to steep plunges in the value of their currencies. For example Kazakhstan, faced with persistent currency depreciation, sharply raised the ratio of gold to foreign exchange reserves. The chart below shows other countries that have done the same, including Hungary, which a year ago trebled its gold reserves to more than 90 tons. Conclusion Is there a connection between increasing global conflict, and higher military spending, on gold? We see two points of contact. First, gold is a safe haven in times of political or economic uncertainty. The second is that military spending feeds debt. Defense is the largest portion of the US federal budget behind Social Security. These two items are increasing the debt exponentially, adding deficit after deficit to the mounting pile, which, when combined with covid-related government spending, sits at a jaw-dropping $30 trillion. We know from a previous article that gold closely tracks the debt to GDP ratio, arrived at by dividing a country’s total GDP by its total debt. The US debt to GDP ratio has been rising steadily since 2010. It currently sits at 125.6%. As the debt-to-GDP-ratio rises, either because of a drop in GDP due to a recession, or a jump in government borrowing that piles up debt, or both, the gold price reacts. President Biden’s budget for full year 2022 totals $6 trillion, more than any other previous budget. The US government estimates that for FY 2022, revenues will again fall short of expenditures, leaving a $1.8 trillion deficit. Better than the projected $3 trillion deficit for 2021 — almost the same as last year’s $3T — but it still means nearly $2 trillion will be added to the national debt. (CNBC notes the budgetary shortfall this year is equivalent to 13.4% of GDP, the second-largest level since 1945 and exceeded only by 2020 spending) According to The Balance, The massive deficit threatens other national spending in areas of healthcare, education, infrastructure, as well as long-standing welfare programs like social security, which at the current pace is set to run out in the years between 2034-2037. Recall our guns versus butter model. A country must decide how much to spend on defense/ the military (guns), against the amount budgeted for items that are needed for non-defensive purposes (butter). For the United States to remain the “world’s cop”, it will have to maintain its strong military. There can be no letting up. This obviously comes at a major cost. When defense spending isn’t matched by social spending to address certain inequalities, the effects can be incendiary, especially in the current high-inflation environment, as we pointed out in a previous article. More immediately, as investors we should pay attention to what is happening around us. Military spending is on the rise globally, and central banks are hoarding gold like it’s going out of style. In these uncertain times, perhaps it would be wise to follow the smart money and do the same. At AOTH, we continue to buy physical gold and silver on the dips and to invest in quality junior resource companies, which historically offer the greatest leverage to rising metals prices. (By Richard Mills)
Analysis Why sanctions won’t stop your watch having Russian gold Russia has the world’s fifth-biggest stockpile of gold and can evade sanctions because jewellers don’t ask or don’t tell where they get the shiny stuff from, experts say. Matthew Cranston United States correspondent Mar 25, 2022 https://www.afr.com/world/north-ame...our-watch-having-russian-gold-20220323-p5a6zz Washington | Of the record 7000 sanctions so far slapped on Russia for its invasion of Ukraine, one that is proving perhaps the most difficult to enforce is the sale of gold. The upshot is that even the most ardent anti-Putinist could end up with the shiny stuff from Russia on their wrist or finger or around their neck. Customers browse gold jewellery in the window of a store in the Grand Bazaar in Istanbul, Turkey. Bloomberg According to the Bank of Russia’s June 2021 statement, the country is sitting on 2300 tonnes of gold, worth $US156 billion based on Wednesday’s spot price of just over $US1922 an ounce. It is the world’s fifth-biggest stockpile, and Russia wants to sell the gold to support its troubled rouble. The two main metals exchanges – the London Metals Exchange and the Chicago Mercantile Exchange – have suspended output from Russia’s gold refineries from accredited lists, amounting to a ban on new Russian gold entering London and America. On Thursday (Friday AEDT), G7 leaders and the European Union said they would continue to work jointly to blunt Russia’s ability to deploy its international reserves, including by making clear that any transaction involving gold related to the Central Bank of the Russian Federation is covered by existing sanctions. US Treasury Secretary Janet Yellen met with a group of bipartisan US senators who also want to impose secondary sanctions on any American entities knowingly buying or selling Russian gold. A bill introducing the sanctions could pass as soon as this week. However, there are other channels through which the gold can make its way to market. A lot of Russian gold is sold in China and India, neither of which has agreed to the same sanctions and where 90 per cent of the world’s jewellery is made. Nor has Turkey, the world’s third-largest gold jewellery manufacturer, signed up to sanctions. The jewellers know what’s going on. Many top-level Western jewellery sellers either do not know where their manufactured gold inputs come from or refuse to disclose it, says Christina Miller, a director of Amazon Aid’s Cleaner Gold Network who advises jewellery businesses on responsible supply chains and practices. “Russia material could flow through those countries and other significant manufacturing hubs for jewellery that makes its way to America and Europe,” she says. “And keep in mind every major jewellery brand in the world is manufacturing in either China or India since labour arbitrage took hold in the industry in the late ’90s. “When gold flows into China and India, they go into a central gold market, and it’s all mixed together. So, there’s historically not been an ability to know where that gold came from.” The Global Gold Transparency Initiative – a collective of experts, non-profit organisations, companies and individuals – recently published an open letter highlighting the jewellery industry’s vulnerability to exploitation if the Russian government uses gold supply chains as a tool to evade sanctions. The US State Department, US Treasury, the FBI, the OECD, and the Global Initiative Against Transnational Organised Crime were among organisations that had input on the letter. Consultant Andrea Hill, chief executive of Chicago-based StrategyWerx, says “the jewellers know what’s going on”. “It is so likely this is happening that, even though we couldn’t validate that it was happening, it merited raising the alarm and trying to get a lot of attention on the issue because it’s simply so easy for Russia to convert that gold into cash,” she says. Industry intelligence in the diamond market reacted the same way when the Biden administration placed sanctions on the purchase of diamonds from Russia, she says. “In the week and a half before that executive order from Biden, jewellery businesses were heard to be saying: ‘Well, India’s already said they’ll be able to get all the diamonds so that that won’t stop the diamond supply; we’ll just get the diamonds from India.’ Well, those are the same, exact channels that are moving gold.” Where does watchmakers’ gold come from? The Australian Financial Review contacted seven global watchmakers about their gold sourcing and whether they could rule out Russian product from their pieces. A spokeswoman for Rolex – a watch brand known to be worn by US President Joe Biden – said the company does not disclose the identity of its gold suppliers for reasons of confidentiality. “With regard to the gold that [Rolex] uses to manufacture its watches, the brand has put in place its own system of traceability – from mine to final product – guaranteed by an independent office. All the flows of traced gold that Rolex uses are certified by external audits. “The brand has exclusive traceability with each of its suppliers, precluding all risk to its reputation and image in this respect.” Swatch Group, which owns brands such as Omega and Longines, said less than 1 per cent of the gold it uses comes from suppliers that do not adhere to Responsible Jewellery Council certification. “Swatch Group uses different precious metals, particularly gold, silver, palladium and platinum, with gold accounting for the largest proportion. Primary gold is sourced exclusively from industrial mines in the US, Canada and Australia,” a spokeswoman said. Japan’s Seiko Group, whose watches are also worn by the US President, said none of the materials in its timepieces were sourced directly from Russia. “As for our supply chain, as far as we have investigated, we do not use any Russian materials, and we will continue to investigate further and discuss with our suppliers to ensure not to use Russian materials,” a spokesman said.
ASX’s biggest IPO Chrysos gets lift from gold price Simon Evans Senior Reporter Apr 14, 2022 https://www.afr.com/companies/minin...sos-gets-lift-from-gold-price-20220411-p5acl6 Gold samples testing disrupter Chrysos Corporation says it has contracts to deliver an additional 25 of its high-tech PhotonAssay machines out to 2024 for installation and deployment at mine sites or testing laboratories. Chrysos is raising $183.5 million in capital at $6.50 a share and aims to begin trading on the ASX on May 6 in a deal valuing it at $535 million on an enterprise value basis, and which gives it an indicative sharemarket capitalisation $637 million at the issue price. The company officially lodged its prospectus on Thursday for what will be the largest initial public offering in Australia so far this year, in a market where uncertainty and volatility arising from Russia’s invasion of Ukraine has resulted in caution from other float aspirants. The largest shareholder, the CSIRO, which spent 15 years commercialising the technology until 2016, will trim its stake from 22.6 per cent to 20.4 per cent in the IPO. Chrysos chief executive Dirk Treasure will hold 1.2 per cent of the company. Chrysos Corporation chief executive Dirk Treasure at Intertek’s site in Perth where one of the gold testing machines is installed. The Chrysos process uses high-powered X-rays to bombard rock samples and activate atoms of gold and other metals. A detector can determine their concentrations in minutes. The large testing units are about the size of three shipping containers, positioned side-by-side. Large samples of up to 500 grams can be assessed using the technology, without being destroyed as they are in the traditional process, which involves sending samples away to a laboratory and heating to 1200 degrees to discover how much gold the samples contain. That traditional process takes more than 24 hours. Chrysos states in the prospectus that at February 2022, the company had total contracted value of $448 million under its 33 existing contracts for the machines, with 25 of those still coming down the pipeline. Chrysos chairman Robert Adamson said there is a solid order book. “The funds raised by Chrysos under the offer will be used to support capital expenditure that underpins the company’s growth ambitions, including the manufacture of additional PhotonAssay units to meet the company’s sales pipeline, which includes commitments extending into 2024,” he said. The company said the strength in the gold price had resulted in more demand from gold mining companies. “The gold price has traded higher over recent years. This has led to higher margins and helped to expand production in the gold mining sector, supporting demand for assay services”. But the company warns of “various risks in relation to its supply chain” because it relies heavily on suppliers in China for the manufacture of its machines. Authorities in China have enforced lockdowns in Shanghai in an attempt to control the latest wave of COVID-19. Chrysos won’t be paying out any dividends to shareholders upon listing, signalling it will be investing for growth. The company is forecasting revenues of $13.6 million in 2021-22, rising to $26.6 million in 2022-23. It is forecasting bottom line losses for both of those years, with the loss expected to be $2.94 million in 2021-22 and $4.74 million the following year. Chrysos completed a $50 million fundraising in early September which at the time valued the company at about $450 million. Chrysos doesn’t sell its PhotonAssay units outright to customers, but leases them in a one-stop shop arrangement for five years, with a five-year option, that also includes regular maintenance and servicing. This delivers a regular earnings stream and ensures the units are kept in pristine condition. The company takes its name from the Greek word for gold.
Does Your Name Determine Your Destiny? https://www.livescience.com/13477-names-life-decisions-career-choices.html
Fed reloads gold stocks Adam Hamilton - Zeal Intelligence | June 3, 2022 | 10:12 am Markets USA Gold https://www.mining.com/web/fed-reloads-gold-stocks/ Image courtesy of Kurtis Garbutt, Flickr Commons. The gold miners’ stocks collapsed into mid-May, exasperating contrarian traders. Plunging gold stocks were amplifying a sharp gold selloff, which was driven by heavy gold-futures selling fueled by a monster US-dollar rally. That anomalous carnage gutted sentiment, leaving this sector grinding along near lower support and mired in herd bearishness. But that major drawdown reloaded the gold stocks for big upside. While deeply out of favor now, the gold miners’ stocks were faring well and gaining popularity before that recent drubbing. That was readily evident in the GDX VanEck Gold Miners ETF, which has long been this sector’s leading benchmark and trading vehicle. The gold stocks were thriving into mid-April, with GDX up a strong 27.6% year-to-date. That trounced the flagship S&P 500 stock index, which fell 7.9% in that span. Those excellent 2022 gains were part of a larger GDX bull-market upleg, which extended to +41.4% over 6.6 months. Yet that was still small compared to GDX’s previous five uplegs during this secular bull, which averaged awesome 85.0% gains! This latest young upleg had lots of room to run, buttressed by strong spring-rally seasonals into late May. But then everything went pear-shaped, utterly derailing that upleg. Vexed traders capitulated and fled, abandoning this high-potential sector. But the causal chain of market events slamming gold stocks was exceedingly-unusual, has fully run its course, and was so unique that it can’t be repeated. So that anomalous sector setback has created fantastic buying opportunities in now-battered gold stocks. The Federal Reserve was the culprit behind GDX plunging 26.2% in just 18 trading days! The Fed just executed its most-extreme policy shift ever in its century-plus history! Back in March 2020 the S&P 500 plummeted 33.9% in just over a month, in a full-blown stock panic over pandemic-lockdown fears. Dreading a resulting economic depression, Fed officials freaked out. Their Federal Open Market Committee slammed its federal-funds rate to zero, and redlined its monetary printing presses to crazy extremes. The Fed kept that zero-interest-rate policy in place until mid-March 2022, when it launched a new rate-hike cycle. Way more importantly, the Fed also ballooned its balance sheet by an insane 115.6% or $4,807b over just 25.5 months into mid-April 2022! Effectively more than doubling the US monetary base in just a couple years, that radically-unprecedented quantitative easing spawned today’s raging inflation. Vastly-more money conjured out of thin air was injected into the system, which soon started chasing and bidding up the prices on far-slower-growing goods and services. Legendary American economist Milton Friedman warned in 1963 that “Inflation is always and everywhere a monetary phenomenon.” Last year as reported headline inflation mounted and grew red-hot, Fed officials realized they had to reverse course hard. So they started jawboning about a coming rate-hike cycle and slowing QE4’s epic money printing. Their tightening talk has only grown more aggressive this year, peaking between mid-April to mid-May when the gold stocks plunged. It has profoundly impacted the entire financial markets, nearly bludgeoning the S&P 500 itself into a new bear. The US stock markets plunged 18.7% at worst from early January to mid-May! Just two days after hitting an all-time high as 2022 dawned, heavy selling erupted after minutes from the FOMC’s mid-December meeting. They revealed Fed officials were already discussing soon ramping up quantitative tightening to destroy some of QE4’s vast torrents of money printing. Removing the majority of that from the system is probably the only way to stake this inflation beast, but bearish for QE4-levitated stocks. Fed officials’ hawkish jawboning grew more extreme as 2022 marched on, crescendoing in that mid-April-to-mid-May timeframe when gold stocks were gutted. After hiking the FFR just 25 basis points off ZIRP in mid-March, Fed officials wanted to convince traders that hiking pace needed to accelerate dramatically to fight red-hot inflation. So they increasingly forecast bigger 50bp hikes, and markets feared huge 75bp ones! The FOMC indeed hiked a half-point at its next meeting in early May, its first 50bp rate hike dared since May 2000 which helped burst the dot-com bubble. In his subsequent press conference, the Fed chair warned “there’s a broad sense on the Committee that additional 50-basis-point increases should be on the table for the next couple of meetings.” This tightening cycle is shaping up to be the fastest since the late-1980s! Piling on the epic hawkishness, QT jawboning was extreme too. In early April the Fed vice-chair gave a speech calling for bigger-and-faster QT, “I expect the balance sheet to shrink considerably more rapidly than in the previous recovery, with significantly-larger caps and a much-shorter period to phase in the maximum caps.” The Fed’s original QT1 gradually ramped from $10b per month to $50b over an entire year. At that same wildly-hawkish early-May FOMC meeting where the Fed hiked 50bp and promised a couple more half-point jumps soon, it revealed QT2. That would start at $47.5b of monthly bond runoffs in this current June, and double to $95b monthly just three months later in September! QT has never before been attempted at this scale, and QT1 was prematurely killed soon after hitting terminal velocity in Q4’18. The Fed caved on unwinding QE1, QE2, and QE3 with QT1 because the S&P 500 plunged 19.8% to the verge of a new bear market. QT1 only unwound 22.8% of those earlier QE money-printing campaigns, a far cry from the half-unwind Fed whisperers predicted when QT1 launched. But with inflation raging, the Fed pegged QT2 at nearly-double QT1’s final monthly pace blasting to full-steam in just a quarter of the time! The crucial takeaway for gold stocks is the Fed has never before done such an uber-hawkish hard pivot in its entire century-plus history! A big FFR hike with more promised soon combined with big QT monetary destruction at wildly-unprecedented levels is something never before witnessed. And Fed officials can’t repeat the extreme shock of rapidly transitioning from ZIRP and QE4 to this new tight monetary regime again. This recent epic Fed hawkishness didn’t directly hammer gold stocks lower, as they really don’t care what the FOMC is doing. All that matters to the gold miners is the price of gold, which is influenced by the Fed’s machinations. The primary driver of gold’s short-term price action is leveraged gold-futures trading. Low margin requirements enable huge leverage around 25x+, which is crazy-risky necessitating a myopic focus. As gold has been the ultimate global currency for millennia, gold-futures speculators watch the fortunes of the US dollar for their main trading cues. When the dollar rallies, they usually sell gold futures which has an outsized impact on gold’s price due to their extreme leverage. The US dollar in turn is heavily affected by the FOMC’s monetary-policy direction, as interest-rate differentials are important in world currency trading. So gold stocks follow gold, which is often slaved to leveraged gold-futures trading, which usually runs inverse to the US dollar, which is very dependent on what the Fed is doing! This casual mechanism is the sole reason gold stocks were eviscerated in that month between mid-April to mid-May. This multi-year GDX chart for perspective and scale really illuminates how violent that Fed-spawned gold-stock plunge proved. The leading US Dollar Index benchmark for this world reserve currency started marching higher in mid-January as new-rate-hike-cycle Fedspeak mounted. The USDX shot up again into early March on safe-haven buying after Russia invaded Ukraine, but stalled for the rest of that month consolidating its gains. Then the USDX started rallying solidly again in early April, but not fast enough to shake loose gold-futures selling. Although the USDX surged a strong 5.3% higher between mid-January to mid-April, that didn’t faze the gold-futures speculators. Goosed by Russia’s war against Ukraine, gold surged 8.5% higher during that exact span! The major gold stocks dominating GDX amplified that mightily to a hefty 30.2% gain! That made for great 3.6x upside leverage to gold, better than GDX’s usual 2x-to-3x range on material gold moves. Everything was awesome in contrarian-land until a catalytic inflation report in mid-April. That latest March print of the US Consumer Price Index came in up a red-hot 8.5% year-over-year! That was its fastest rise since December 1981, a scary 40.3-year high underscoring the first inflation super-spike since the 1970s is underway. The next day the wholesale Producer Price Index shot up a record-for-this-iteration 11.2% YoY! So market-implied rate-hike expectations started to soar, and Fed officials upped the hawkishness of their jawboning. The USDX started nearly shooting parabolic that day, as gold closed at $1,977 while GDX neared its $40.87 upleg high. Over the next month between mid-April to mid-May, the USDX rocketed another incredible 4.9% higher! That’s a monster surge in the usually-glacial world of major currencies. That huge dollar rally peaked at an extraordinary 19.4-year USDX secular high in mid-May! How often does the US dollar rocket vertically on the most-extreme Fed-tightening pivot ever? Only once, this event was unique in market history. With the dollar blasting stratospheric, those hyper-leveraged gold-futures speculators ran for the exits dumping huge amounts of long contracts while ramping up their downside bets. Their aggregate trading is only reported weekly in the famous Commitments-of-Traders reports, which are current to Tuesday closes. Over five CoT weeks from mid-April to mid-May, speculators sold a massive 59.8k long contracts and short-sold another 21.4k! That added up to enormous gold-equivalent selling of 252.6 metric tons, far too much for markets to absorb so fast. That pummeled gold prices sharply-lower. Gold dropping 8.4% to $1,811 in that single wild month scared gold investors, who are mainly momentum players. So they soon started selling in sympathy, as evident in the combined holdings of the dominant GLD and IAU gold ETFs which are the best high-resolution proxy for global investment demand. From mid-April to mid-May those holdings shrunk 3.6%, which spewed another 59.1t of gold into world markets. All that heavy gold-futures and gold-ETF-share selling hammering the yellow metal is the sole reason GDX plunged 26.2% within that same month-long span. That was a brutal kick in the teeth for gold-stock speculators and investors, slamming the miners’ stocks low enough to trigger a frustrating mass-stopping in mid-May. Cascading capitulation-like selling tripped even loose trailing stops, forcing out most traders. While gold’s 200-day moving average which is major bull-market support largely held, GDX knifed down right through its own 200dma. The gold stocks didn’t find their own support until a lower zone extending from a big technical chart formation they broke out above earlier this year. That serious drawdown was challenging to weather psychologically, but it was bound to be short-lived. Market extremes never last long. Once they set expectations for a series of consecutive big 50bp rate hikes and the biggest-and-fastest-ramping quantitative tightening ever attempted, Fed officials had to have hit peak-hawkishness. The lower their aggressive tightening batters stock markets into serious bear territory, the greater the odds the resulting negative wealth effect will spawn a severe recession or even a devastating full-blown depression. And that wildly-overbought US Dollar Index can’t shoot parabolic to multi-decade highs for long. In fact it already started rolling over hard since cresting in mid-May. And despite their extreme leverage, the gold-futures speculators’ capital firepower is limited and finite. They can only do so much selling before they exhaust their longs to dump. Their heavy selling already reversed to buying in the latest CoT into late May. The gold bounce that fueled already turned around identifiable investment-capital flows since mid-May as well. Those combined GLD+IAU gold-ETF holdings surged 21.7t higher in one week, already unwinding 3/8ths of their big mid-April-to-mid-May draw. And if gold is poised to mean revert higher and resume its interrupted upleg with the Fed’s hawkish shock passed, the gold stocks will follow it up amplifying its gains. The gold miners’ fundamentals remain strong, making their anomalously-pummeled stock prices major bargains today. In mid-May as gold and gold stocks were bottoming, I analyzed the new Q1’22 operational and financial results they just reported. The GDX-top-25 gold miners dominating this sector earned hefty profits. Those should surge even higher later this year on expected better production and lower costs. Gold’s own outlook remains incredibly-bullish too. Thanks to this profligate Fed’s extreme QE4 money printing, we are already in the first inflation super-spike since the 1970s which suffered two of them. Gold soared 196.6% higher during the first, which ran 30.0 months into a 12.3%-YoY CPI peak in December 1974! Then gold skyrocketed 322.4% in the second, that crested at a 14.8% CPI in March 1980 after 40.0 months! Gold ought to at least double in today’s inflation super-spike after the Fed more than doubled the US money supply. And contrary to gold-futures speculators’ irrational paranoia, Fed-rate-hike cycles have actually proven bullish for gold. There have been a dozen before today’s in this modern monetary era since 1971. Through the exact spans of all twelve prior ones, gold averaged impressive 29.2% gains! In eight of those where gold rallied after entering them relatively-low, its average gains soared to 49.0%! And in the other four where gold fell, its average losses were an asymmetrically-small 10.5%. Gold tends to thrive during Fed-rate-hike cycles because they are so darned bearish for stock markets. Sustained selling in bears naturally boosts gold investment demand for prudently diversifying stock-heavy portfolios. So that anomalous gold-stock plunge from mid-April to mid-May effectively reloaded gold stocks for more big upside! Their prices were battered back down to major support from which their last prematurely-truncated upleg launched. That offers traders a rare second chance to deploy in this high-potential sector before it powers much higher. Raging inflation and a Fed-tightening-driven stock bear are super-bullish for gold! The bottom line is the Fed just reloaded gold stocks for another big run higher. Their latest bull upleg was interrupted by the Fed’s most-extreme hawkish pivot ever witnessed. Fed officials transitioned into a big-and-fast new rate-hike cycle, and launched the most-aggressive QT monetary destruction ever attempted! That ignited a monster US-dollar rally which unleashed heavy gold-futures selling, slamming gold sharply-lower. But that anomalous market event is already reversing, with the dollar rolling over and gold recovering on resuming buying from both gold-futures speculators and investors. The Fed’s shock-and-awe tightening jawboning has passed. Higher gold prices are very bullish for these battered gold stocks, which already have great fundamentals. So they are likely to rebound strongly as gold resumes powering higher on balance. (By Adam Hamilton)
It's do or die time for GDX. Clearing 33.20 will make way for a move to 35.30. A close below 31.50 clears way for a move down to a test of 30. ymmv, lol.
Hamilton has been peddling this shite for years. He calls himself a contrarian but loser might be more apt. The only thing he is an expert at is writing copious amounts of BS. Like all gold bugs, one day he'll be right but only like a broken clock is right twice a day.