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Blanchard Economic Research Note

-- Posted Friday, 11 May 2007 | Digg This ArticleDigg It!

The PPI index was announced this morning for April at .7% increase showing a reduction from March figures, but the index still came in above analyst expectations of .6%, due nearly entirely to energy input costs.  With gasoline prices having continued to trend higher, there should be little expectation that future PPI numbers will moderate in the coming months.

Retail sales figures were reported for April coming it at -.2%, well off an expected .4% increase.  As we said yesterday, the US consumer is one of the main props holding up this economy.  On the plus side, sales figures for March were revised higher, showing that the picture is not quite that clear yet on which direction retail sales are heading.  Should we see more information like this showing a retraction of consumer spending, the economy will hit a particularly rough patch.  This is kicking off a new round of rate cut speculation today on Wall Street.

Sir Alan Greenspan continued his post Fed career goodbye tour by stating to Merrill Lynch analysts that he believed there was a 1 in 3 chance of a US recession beginning this year.  His public comments on the economy continue to fly in the face of those being made by current Fed Chairman Ben Bernanke. 


The Bank of Spain announced yesterday on their website that they have sold 2.6 million ounces of gold into the market over the past two months, giving no update on if those sales were expected to continue or not.  This figure means that Spain has sold off 20%(!) of their total gold holdings.  The motivation behind or timing of the sales are not important.  What is important is that we have this data now which gives a firm explanation of why the market is having trouble moving higher.  Unfortunately, the market will continue to come under this supply increase pressure until it becomes clear that the selling has slowed down.   The real positive to take away from these increased sales is that the market is struggling to consume the additional physical supply, but it's not breaking underneath this pressure.  May of 2006, the market broke under less pressure.  We're not seeing that at present.  Below is a quote from Bill O'Neill at Logic Advisors from an article yesterday about the increased sales. 

Sales by central banks in Europe in the second quarter have kept gold from breaching $700, O'Neill said.

``I don't think they're going to violate their agreement,'' O'Neill said. ``Their selling has put a little bit of a top on the market in front of $700.''

Goldcorp reported earnings this morning, the final senior producer to do so.  Their numbers were quite impressive across the board (a sharp change from other numbers presented by senior mining companies this quarter), but more important for the physical side of the market is that their expected production for the year has been revised lower by 100,000 ounces.

Freeport McMoRan's gold production is going to fall considerably in the second half of the year as the company is expected to producer less gold in the final three quarters of the year than they did in the first quarter; Newmont and Barrick are expected to have lower production figures moving into the second half of the year from the first half. 

Following up more on the supply side of the market from miners are the comments below from Gold Fields CEO, Ian Cockerill.  Cockerill expects South African gold production, which represents 12% of annual mine supply to continue tapering off or being flat in the best case scenario with output currently at 85 year lows.  Peruvian, South African and Canadian gold production has fallen nearly 30% in the last five years.  These three countries represent 25% of annual mine supply.  Again, these are not one off, isolated scenarios.  These are the flagship mining countries showing irreversible production declines that began a decade ago.   (Editor's note:  Blanchard uses GFMS research which confirms the above trends).

SA gold supply to continue falling
David McKay
Posted: Fri, 11 May 2007
[] -- NEWLY mined gold from South Africa would continue to decline or level off at best, said Ian Cockerill, CEO of Gold Fields which derives about 2.52 million oz/year from the country, equal to 60% of production.

South Africa, which comprised about 66% of world production in the 1970s, produced 275 tonnes in 2006, a 7.5% year-on-year reduction, and the lowest output since the General Strike in 1922.


Blanchard and Company, Inc. is the largest and most respected retailer of American rare coins and precious metals in the United States, serving more than 450,000 people with expert consultation and assistance in the acquisition of American numismatic rarities and gold, silver and platinum bullion. The Blanchard Economic Research Unit is a key source of precious metals market analysis and continues to be an important resource for financial and consumer media throughout the United States. Blanchard and its predecessor companies have called the New Orleans area home for more than 30 years. For more information about the company, visit or call the company toll free at 1-800-880-4653.

-- Posted Friday, 11 May 2007 | Digg This Article


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