Eastern Europe’s gold rush just getting started

Monday, 2 December 2019
Adelaide, Australia
By Bernd Struben

  • Party like it’s 1949!
  • Not quite fake news

Eastern European countries are increasingly joining the global gold rush. Though not in the same way Australia is.

Here in Australia new technologies are opening the door to uncovering new gold deposits. And to extracting a higher percentage of those deposits at lower costs than ever before. That should prove a boon for Aussie miners holding the right claims.

Eastern European countries, on the other hand, are largely purchasing gold for the rainy days they see ahead. And they’re increasingly demanding the return of their foreign held gold reserves.

Along with massive bullion purchases by China and Russia, the increased demand — with almost flat supply growth — saw prices hit US$1,522 per ounce back in August. That was up from US$1,222 a year ago:



chart image
Source: Kitco
Click to enlarge

From Bloomberg:

Central banks, including those of Hungary and Serbia, loaded up on gold in the first half of 2019, helping push total bullion demand to a three-year high, according to the World Gold Council.

The gold price has pulled back a bit from its August highs, currently trading for US$1,464 per ounce. While it could slide further from here, the outlook remains bullish as a growing group of nations looks to diversify away from the US dollar.

And demand from Eastern Europe should continue to help support the price.

Poland’s central bank, for example, bought 126 tons of gold in 2018 and so far in 2019. That brings the nation’s gold reserves to over 228 tons.

Poland’s also joined a growing group of nations asking for its foreign stored gold back.

As Bloomberg reports:

Poland brought about 100 tons of gold home from the Bank of England in a bid to demonstrate the strength of nation’s $586 billion economy, central bank Governor Adam Glapinski said.’

And then there’s Slovakia:

Slovakia’s former premier said parliament should force the central bank to bring back the nation’s gold stored in the U.K. as history has shown that allies “can hardly” be trusted.

Slovakia has 31.7 metric tonnes of gold. I’m not sure how much of that is stored in the UK. But clearly some of their pollies would be more comfortable having the precious metal in their own vaults.

How and where to best store your bullion isn’t an issue unique to sovereign states.

In fact, it’s one of the most common questions our gold analysts get from readers.

There are a lot of facets to consider. No one answer will suit everyone.

But in his latest book, A New Case for Gold, global strategist Jim Rickards explains why you should never store gold in a bank, storage unit or in your home. In fact, Jim writes, there’s only one place you should store your gold.

Jim’s book is packed with useful and actionable insights into all things gold. And our friends over at Fat Tail Media still have some hard copies available at a discounted price for Port Phillip Publishing’s readers. You can find out more here.

If you’re looking for ways to potentially make many times the gains in the gold price, you’ll want to consider investing in gold miners. Gold miners are heavily leveraged to the price of gold. Meaning if gold performs in 2020 as it did in 2019, the best performing gold miners could see shareholders double their money…or more.

For Greg Canavan’s top ASX-listed gold plays, click here.

Now, to the markets…

Markets

Over the weekend, the Dow Jones Industrial Average closed down 112.59 points, or 0.40%.

The S&P 500 closed down 12.65 points, or 0.40%.

In Europe the Euro Stoxx 50 index closed down 0.90 points, or 0.02%. Meanwhile, the FTSE 100 lost 0.94% and Germany’s DAX closed down 9.20 points, or 0.07%.

In Asian markets Japan’s Nikkei 225 is up 249.26 points, or 1.07%. China’s CSI 300 is up 0.50%.

The S&P/ASX 200 is up 39.00 points, or 0.57%.

West Texas Intermediate crude oil is US$55.83 per barrel. Brent crude is US$61.09 per barrel.

That’s a 4.8% fall in WTI and 4.4% drop for Brent since this time on Friday. If you read Friday’s Port Phillip Insider, that shouldn’t come as a surprise. (If not, check your inbox!) We’ll take a quick look at the reasons for the latest price slump below…

Turning to gold, the yellow metal is trading for US$1,463.97 (AU$2,164.36) per troy ounce. Silver is US$16.97 (AU$25.09) per troy ounce.

One bitcoin is worth US$7,409.61. That’s virtually unchanged since Friday.

The Aussie dollar is worth 67.64 US cents.

Party like it’s 1949!

As you saw in the market section above, crude oil dropped over the weekend. WTI crude is down 4.8% since Friday.

Long time readers will know I’ve been bearish on oil since the shale revolution began to see US production nearing…and then exceeding…record levels.

In 2018, when many pundits were forecasting a return to US$100 per barrel oil, I called that nonsense. Even as WTI topped US$74 per barrel in October last year I forecast a range of US$50­–60 for 2019.

And looking ahead to 2020, I see crude retreating another 15–20% from today’s prices.

The reasons remain the same. The world is awash in oil.

As noted in Friday’s Insider, even ‘OPEC can’t hold back this tide’.

OPEC+ (which includes Russia) meets in Vienna at the end of this week. The cartel hopes to reach a consensus on its current production cuts, which expire at the end of March.

The odds of the members agreeing to increased cuts are long. Even the current agreement has seen the Saudis do most of the heavy lifting in trying to stem the tide of oil reaching the markets.

Russia, on the other hand, has exceeded its agreed to limits on eight months already. And Russian Energy Minister Alexander Novak is already waffling ahead of this week’s meeting. On Friday he indicated it may be better to postpone any decisions on output cuts until closer to their March end date.

As for the Saudis, their patience could be wearing thin. From Bloomberg:

Saudi Arabia probably will indicate to the cartel… that it’s no longer willing to compensate for excessive production by others, according to people familiar with the kingdom’s thinking.

The graph below gives you an idea of just what OPEC is up against. And why crude is likely to slide hard in 2020:



chart image
Sources: IEA / Bloomberg
Click to enlarge

Now it’s not just the US that’s sitting on an ocean of oil. But the Americans are leading the fracking revolution and pumping without limits, causing OPEC’s biggest headache.

That headache could soon reach full blown migraine proportions. The latest data shows September was the first full month in 70 years that the US was a net exporter of crude.

As Bloomberg notes:

The U.S. solidified its status as an energy producer by posting the first full month as a net exporter of crude and petroleum products since government records began in 1949.

The nation exported 89,000 barrels a day more than it imported in September, according to data from the Energy Information Administration Friday.

To be clear, there’ve been a few weeks this past year where the US reached the milestone of being a net oil exporter. But never, since government began keeping records, has it done so for an entire month.

The takeaway?

Crude may bounce a bit higher if the trade war recedes and global growth picks up. But the supply side of this picture should continue to dominate.

If crude does head lower, as I expect, it should offer a nice lift to the airlines.

For example, in the second half of 2018, Qantas spent $2 billion just on fuel. According to ABC News, that was up $416 million on the first half of the year due to rising fuel costs.

If the price of fuel keeps sliding, Qantas and the other airlines could save billions of dollars. And you’d expect some of that to be reflected in their share prices.

Not quite fake news

Before I hand you over to Alpha Wave Trader’s Murray Dawes, the agenda driven media ‘news’ keeps on coming.

I’ve cautioned on this before. So I’ll keep it brief today.

When a mainstream media outlet trumpets new findings that mesh with its own editorial ideology…always consider the bias behind any cited reports.

Today’s case study, an article in this mornings The Age.

Now I’ve been reading The Age off and on since moving to Australia in 2010. It’s a fine paper if you can identify its decidedly left leaning slants. Among its biases, the editorial board leans strongly in favour of increased public transport. And strongly away from travel by car.

That’s a fine opinion to hold. You may agree. Or not…

The problems arise when readers take headlines and media soundbites at face value. And then pass them on to others as undisputed facts.

Without further ado, here’s the headline in question, ‘Survey sets meter ticking on shopping strip parking as foot traffic tops expectations’.

The article continues:

While traders associations insist they can’t afford to lose any parking spots, an analysis of Melbourne shopping strips has found a greater focus on pedestrian amenities, such as improving walkways and building pedestrian plazas, could increase shopper numbers.’

They add some survey statistics that sound convincing. And if you’ve ever been to Melbourne you’ll know both the streets and walkways can be shoulder to shoulder or bumper to bumper much of the day.

So who provided the analysis spruiking more pedestrian amenities?

Advocacy group Victoria Walks…of course.

Moving on…

Alpha Wave Trader

As part of our regular Monday feature, below veteran stock trader Murray Dawes share’s this week’s trading tips and insights.

In his premium advisory service, Alpha Wave Trader, Murray uses his proprietary ‘slingshot method’ to hunt down rapid fire profits from stocks while minimising risk.

You can scroll down and click on the image below to watch Murray’s latest video now.

Get all the details on the Alpha Wave Trader advisory service here.

Cheers,
Bernd


Hazer Process a Game Changer

 

 

[Click on the picture to watch Murray analyse a stock that could be in the right place at the right time with a process to turn biogas into hydrogen and graphite.]

As the world marches towards a greener economy there are more conversations happening about the possibility of using hydrogen as a fuel.

Dr Alan Finkel released the National Hydrogen Strategy earlier this year and state and federal energy ministers adopted the strategy a few weeks ago.

This is a story that will slowly develop over the next decade rather than the next few weeks. But if you were interested in laying a few bets on the direction things could go you could consider Hazer Group Ltd [ASX:HZR] as a high risk high reward investment.

They have a process that uses methane from biogas to create hydrogen and carbon. The carbon takes the form of graphite with a high purity of 80–95%. They can purify it to >99% with usual methods.

They use low cost iron ore as the catalyst.

A couple of pilot plants have been completed and they are in the early stages of developing a commercial scale plant.

The commercial plant should be operational by December 2020 and will be an important step in proving to the market that their technology works. The commercial plant will be located at the Woodman Point wastewater treatment plant using waste biogas as feedstock.

They also have a collaboration with Mineral Resources Ltd [ASX:MIN], which means they have a well-capitalised backer. The plan is to develop a 10,000 tpa synthetic graphite facility in WA. HZR will earn royalties and MIN will fund all stages of commercial development.

The technical situation is quite compelling because the stock has shaken out early investors over the last few years but has turned back up this year, rallying from 21 cents to a high of 52 cents.

The stock is currently trading around 39 cents and I have a few key levels where I will be keen to enter the stock.

I give you a detailed analysis of the stock in the video above and you will also learn about key bars and how I use them to calculate entry, stop-loss and targets.

Regards,

Murray Dawes,
Editor, Alpha Wave Trader