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Blanchard Economic Research Note

-- Posted Thursday, 21 June 2007 | Digg This ArticleDigg It!

Heading for a train wreck….

While the precious metals sector doesn't seem to be viewing the potential South African platinum and gold strikes with much interest currently, the rhetoric heading into the last week of negotiations is ramping up quickly.  The largest labor union rejected Impala Platinum's wage increase offer today and all three unions lodged complaints with the government, the first step in beginning a strike in the gold sector.  South Africa produces 11% of annual gold mine supply and 75-80% of annual platinum supplies.  The drop date for the current labor contract is June 30th.

Keep in mind another issue; the mining industry in any metal is not like turning on and off a garden hose.  If mine production shuts down for one to two weeks, it will take at least two weeks to get supplies and equipment back running at 100%, so even a brief respite in the pits can potentially have a much longer term affect on the supplies coming out of the country.

“The National Union of Mineworkers (NUM) refused the 7% and 6,5% offered by Implats last night with the contempt it deserves,” general secretary Frans Baleni said in an emailed statement.

"We find the actions of the companies astonishing. Refusing to make a wage offer to workers is asking for trouble. We seldom see employers entering into negotiations with the intention of forcing a strike. The parties yesterday committed themselves to prevent another strike like the one that paralysed the industry two years ago. While we were ostensibly candidly signifying our mutual commitment, the employers already knew that they were not going to make an offer," Hermann said.

While we appreciate the World Gold Council's efforts to weigh in on the Central Bank gold sales activity over the past few months yesterday, we are compelled to clarify some issues that were made in a research piece.

1.  Comparing gold sales on an annual basis when 90% of the annual sales have taken place in a three month period is being a bit coy about the issue.

2.  Sales by the Bank of Spain (sold 25% of gold reserves in 3 months), National Bank of Indonesia (sold 27% of gold reserves in 1 month), Bank of International Settlements (sold 15% of gold reserves in 1 month) and the return of the Bank of England to the gold sales market were completely and totally unexpected by the marketplace.  The BOE and BIS have still made no public comment about their recent reserves sales.

3.  We do strongly agree that central banks are a large factor in the gold supply component.  One that is continually misunderstood in the marketplace. 

Since the WGC has been compelled to write about the central bank sales activity over the past year, maybe now would be a good time to finally address the central bank loan and swap activity in the market?  Even the lowest estimates peg loan and swap activity as a much larger supply side impact in the market than central bank sales.  With numerous IMF changes taking place across all currency reporting requirements including gold, we would ask that the WGC take the lead in explaining how new reporting requirements by the IMF will finally add transparency to the loan and swap segment to the market.  It would seem to us that this is a natural fit for their charge as representatives of the entire gold investment industry. 

Certainly the first set of changes on how gold reserves are recorded on central bank books in several decades merits some discussion in the industry and we believe that the WGC should be the flag bearer of that discussion…if not, they should at least be compelled to answer to the general public they presume to represent as to why they will not discuss the new transparency regulations entering the gold market.  To date, the WGC has made no public statement about the IMF changes to currency reporting changes.  We do know that they are well aware of the issue.

IMF Adopts New Currency Rules
By Martin Crutsinger
Associated Press
Monday, June 18, 2007;_ylt=Aj9F_I...
WASHINGTON -- The International Monetary Fund announced Monday it had adopted new guidelines for how countries should conduct their foreign currency policies. The Bush administration had sought the change as a way of applying more pressure to China to reform its currency system.

IMF Managing Director Rodrigo de Rato announced the action in a speech in Montreal, saying it had been adopted by the agency's 24-member executive board last Friday.

"The change we are making is the first major revision in the surveillance framework in some 30 years and it is the first ever comprehensive policy statement on surveillance," Rato said in his remarks, copies of which were made available in Washington.


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 Thursday, 21 June 2007 | Digg This Article


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