Gold drops 2% as Fed reduces monthly bond purchases to $55 billion

The gold price extended its losses on Wednesday after the US Federal Reserve announced that it would cut its monthly bond purchases from $65 billion to $55 billion.

By late-afternoon the precious metal was trading at $1,329 per ounce, a 2% drop on the previous day, and its lowest point so far this month.

Following a meeting of the Federal Open Market Committee (FOMC) on Wednesday, the Fed wrote in a statement that since its last meeting in January "labor market indicators were mixed but on balance showed further improvement."

"The unemployment rate, however, remains elevated. Household spending and business fixed investment continued to advance, while the recovery in the housing sector remained slow. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. Inflation has been running below the Committee's longer-run objective, but longer-term inflation expectations have remained stable."

The gold price has been dropping over the past three days after the situation in Ukraine simmered, lowering demand for gold as a safe-haven asset.

This week's sharp drop is inconsistent with steady gains seen since the beginning of the year. And the precious metal is still doing much better today than it was at the end of 2013 when it fell below $1,200 an ounce.

Many traders were expecting the Fed to reduce stimulus spending this month, which is probably why the yellow metal didn't drop as much on Wednesday as it did when the Fed was just hinting at a possible tapering of its bond-buying program last summer.

The US government has been buying billions of dollars worth of mortgage-backed securities and longer-term Treasury securities each month since 2008 when the financial crisis hit. Gold soared as investors lost confidence in the US economy and dollar. But ever since the Fed announced last year that it would look at reducing its bond-buying program, the gold market has been unstable, shedding 28% of its value last year.

Unsteady gold prices pushes Goldplat dipper in the red

African miner Goldplat (LON:GDP) revealed Monday a widening of its half-year losses on the back of a steep revenue decline, as sales have been hit by weak gold prices.

The company reported an operating loss of almost US$1.2 million (£694,000) for the six months ended December 31, from a profit of US$3.4 million (£2.05) in the first half of the previous fiscal year.

Goldplat’s chairperson Brian Moritz said even achieving the same volume of gold sales registered in 2012, the firm would have lost income, as bullion traded at about $300 per ounce lower than in the prior fiscal year.

However, the group was more optimistic about the long-term future, revealing that the second half of the fiscal year was already performing more strongly and as such it expects, in line with market expectations, to return to profitability by the year-end.

The miner’s exposure to gold price fluctuations is eased by the fact that it can adjust the price of gold bearing material it buys, which puts it at an advantage compared with a mine reliant on a finite ore body. However, the group explained the effects of this mitigation are not immediate.

The company also said it continues to examine joint venture opportunities to redevelop its Kilimapesa mine in Kenya, subject to proposed legislation that is set to clarify rules for local participation.

The Kilimapesa mine has been operating at reduced levels to limit costs during the period, but Goldplat said it is talking to potential partners to carry certain capital costs for expansion at Kilimapesa.

Kilimapesa has a mineral resource of 8,715,291 tonnes at 2.40 grams per tonne of gold for 671,446 ounces of gold at a cut- off of 1 gram per tonne.

Goldplat shares were up 13% early Monday at 5.65 pence.

Gold scams revisited

Before Bear Stearns and Lehman collapsed, the market for physical gold was limited to a relatively small group of investors who understood the havoc inflation was wreaking on our savings and the US markets. As the financial crisis took hold, a flood of new and inexperienced buyers entered the market, creating an opportunity for unscrupulous metals dealers to swindle their way to massive profits. This is what drove me to launch my very own gold dealer, Euro Pacific Precious Metals, to provide a safe alternative for those who were taking my advice to diversify into sound money. In our first year of business, I released Classic Gold Scams and How to Avoid Getting Ripped Off, a free report that has saved countless investors from losing their shirts.

Fast forward several years and the markets look like a film on repeat. We are once again building toward a massive financial crisis – one that will make 2008 seem like the good old days. Unfortunately, the majority of investors are once again playing the US markets and shunning gold. I encourage my readers to consider diversifying into precious metals now, while the market is still distracted. To this end, and in preparation for the inevitable mad rush when conventional investors again flock to safety, I have updated and re-released my Classic Gold Scams report to help newcomers learn how to buy gold and silver the right way.

The Bait-and-Switch

The majority of precious metals scams revolve around a core tactic: the bait-and-switch.

First, the company lures you in with the promise of a good deal on a product you're genuinely interested in buying. Once they have you on the line, a fast-talking broker will try to convince you that a different product is a better match for your needs. This new product into which they've "switched" you is almost always a rip-off.

In the precious metals world, this usually involves an over-priced numismatic or "collectible" coin. The salesman will explain that the unique qualities of this coin make it even more valuable than its metal content. "Why just buy gold, when you could buy a piece of history?" Or so the argument goes.

The entire bait-and-switch technique is designed to confuse you. The dealer preys on your insecurities by making you feel like you don't have enough knowledge to make a choice for yourself.

Keep Gold Simple

Let me share a secret that these scammers don't want you to know: gold is gold is gold.

The majority of savvy investors like you and I are buying gold and silver as a hedge against inflation and the collapse of the US dollar. It doesn't matter what form our gold takes, as long as it is pure, easily recognized, and authentic.

Sure, there may be rare, historic coins for which well-educated collectors will pay good money. But you need a firm understanding of these coins' unique traits to correctly assess their value. Without this understanding, it is virtually impossible to select the proper coins to add to your collection or get a fair price when it is time to sell. For most of us, such coins are way beyond our expertise and carry far too much risk.

All we need to protect our wealth is pure gold bullion. Fortunately, the market for bullion is very simple and easy to understand. A complete list of common gold products is included in the Classic Gold Scams report.

That's the only secret to beating the bait-and-switch scammers: know exactly which product you're interested in buying ahead of time – and stick to your guns.

The Price Protection Racket

When gold started falling from its highs in 2011, an old-time scam re-emerged: the price protection racket. This tactic is extremely popular with some of the largest gold dealers out there.

In this scam, the dealer guarantees that if the price of gold falls within a certain timeframe, the investor can buy at the lower price. Usually the price protection lasts for about a week after placing your order.

On the surface, price protection sounds great. Who wouldn't want to be able to avoid short-term market fluctuations when buying precious metals?

Of course, there's a catch. These price protection programs rarely apply to the common bullion coins that carry the lowest premiums. Invariably, these schemes are only applied to overpriced numismatics or collectors' edition coins. That's the only way dealers can afford to offer such a sweet deal. The margins are already huge on collectors' coins, so allowing buyers to adjust their purchase price has a negligible effect on the dealer's bottom line.

What's more, the price protection program often includes an additional fee on top of the purchase price. This builds in an additional cushion to make sure the dealer always comes out ahead.

At the end of the day, price protection is just a scare tactic aimed at investors too concerned with short-term volatility. This fear actually reveals that they're buying gold for all the wrong reasons.

Buy Gold for Gold

The right reason for most investors to buy gold is as a long-term hedge against inflation and financial instability.

Gold is humanity's oldest form of money and wealth preservation. A hundred years ago, a gold coin could buy you a custom tailored suit. The same is true today. The purchasing power of gold remains relatively constant over the long-term.

On the other hand, fiat money has historically always failed. The US dollar has not been backed by gold since 1971, which means it has lasted more than four decades as a purely fiat currency. The history of great empires suggests that its time is almost up.

Each of the Federal Reserve's announcements of another program of money-printing brings that crash – which I have termed the "Real Crash" – closer to fruition.

Remember, if the US economy were really recovering, the Fed's manipulative policies would not be necessary. Also, gold wouldn't be seeing the dramatic recovery it has thus far enjoyed in 2014. It's up 13% since its December lows!

There's Still Time

If you missed out on the great gold rush of the '00s, don't let the next opportunity pass you by. I believe gold's bull market has a long way to run, and now is a great time to establish holdings or add to existing holdings.

But be aware that for most investors, the physical gold market is completely new and foreign. That has created an environment in which unscrupulous dealers are thriving. Before you buy, read my recently updated Classic Gold Scams report to learn how to tell a deal from a swindle. There is no need to learn these lessons the hard way, or to let fear of the unknown keep you from safeguarding your family's savings for future generations.

Peter Schiff is Chairman of Euro Pacific Precious Metals, a gold and silver dealer selling reputable, well-known bullion coins and bars at competitive prices.

Click here for a free subscription to Peter Schiff's Gold Letter, a monthly newsletter featuring the latest gold and silver market analysis from Peter Schiff, Casey Research, and other leading experts.

And now, investors can stay up-to-the-minute on precious metals news and Peter's latest thoughts by visiting Peter Schiff's Official Gold Blog.

www.europacmetals.com.

PDAC 2014: Sweden named top mining jurisdiction, while Kyrgyzstan called worst

Sweden has unseated Finland as the best place in the world for mining investment, while former darling Quebec has plummeted right out of the top 20.

That is according to the Fraser Institute’s annual Survey of Mining Companies, which was released Monday during the PDAC conference. The Nordic countries Sweden and Finland finished first and second, largely because they are judged to have very strong political stability and infrastructure. That more than offsets their higher-than-average taxes on mining. Finland finished first last year, while Sweden was second.

Canadian provinces had mixed results in the survey. Alberta (third), New Brunswick (seventh) and Newfoundland and Labrador (ninth) all scored highly.  But the results were much worse for Quebec (21st), Ontario (28th), and British Columbia (32nd).

Quebec and Ontario were both in the top 20 last year, and Quebec in particular has experienced a stunning fall in the ranks. The province finished in first place every year from 2007 to 2010, and fell to 11th last year.

Until Quebec passed its new mining act in December, there had been persistent uncertainty for miners in the province on regulation. They have also faced tax hikes. 

Marine mining: Underwater gold rush sparks fears of ocean catastrophe

This is the last frontier: the ocean floor, 4,000 metres beneath the waters of the central Pacific, where mining companies are now exploring for the rich deposits of ores needed to keep industry humming and smartphones switched on.

The prospectof a race to the bottom of the ocean – a 21st-century high seas version of the Klondike gold rush – has alarmed scientists. The oceans, which make up 45% of the world's surface, are already degraded by overfishing, industrial waste, plastic debris and climate change, which is altering their chemistry. Now comes a new extractive industry – and scientists say governments are not prepared.

"It's like a land grab," said Sylvia Earle, an oceanographer and explorer-in-residence for National Geographic. "It's a handful of individuals who are giving away or letting disproportionate special interests have access to large parts of the planet that just happen to be under water."

The vast expanses of the central Pacific seabed being opened up for mining are still largely an unknown, she said. "What are we sacrificing by looking at the deep sea with dollar signs on the few tangible materials that we know are there? We haven't begun to truly explore the ocean before we have started aiming to exploit it."

But the warnings may arrive too late. The price of metals is rising. The ore content of the nodules of copper, manganese, cobalt and rare earths strewn across the ocean floor promise to be 10 times greater than the richest seams on land, making the cost of their retrieval from the extreme depths more attractive to companies.

Mining the ocean floor of the central Pacific on a commercial scale is five years away, but the beginnings of an underwater gold rush are under way The number of companies seeking to mine beneath international waters has tripled in the last three or four years. "We have already got a gold rush, in a way," said Michael Lodge, deputy secretary general of the International Seabed Authority, which regulates the use of the sea floor in international waters. "The amount of activity has expanded exponentially."

The Jamaica-based agency has granted 26 permits to date to explore an area the size of Mexico beneath the central Pacific that had been set aside for seabed mining – all but eight within the last three or four years.

Britain is leading the way in a project led by Lockheed Martin, but Russia, China, Japan, and South Korea all have projects in play. This year alone, companies from Brazil, Germany and the Cook Islands have obtained permits to explore tracts of up to 75,000 sq km on the ocean floor for copper, cobalt, nickel and manganese, and the rare earth metals that help power smartphones, tablets and other devices.

Other areas of the Pacific – outside international waters – are also opening up for mining. Papua New Guinea has granted permission to a Canadian firm, Nautilus Minerals, to explore a site 30km off its coast for copper, zinc and gold deposit worth potentially hundreds of millions of dollars.

Lodge expects the pace to continue, with rising demand for metals for emerging economies, and for technologies such as hybrid cars and smart phones. Extracting the metals will not require drilling. The ore deposits are in nodules strewn across the rolling plains of sediment that carpet the ocean floor. Oceanographers say they resemble knobbly black potatoes, ranging in size from a couple of centimetres to 30cm. Mining companies say it may be possible to scoop them up with giant tongs and then siphon them up to vessels waiting on the surface.

The problem is much remains unknown – not just about what exists on the ocean floor but how ocean systems operate to keep the planet habitable. The ocean floor was once thought to be a marine desert, but oceanographers say the sediment is rich in marine life, with thousands of species of invertebrates at a single site.

"It's tampering with ecosystems we hardly understand that are really at the frontier of our knowledge base," said Greg Stone, vice-president for Conservation International. "We are starting mining extracting operations in a place where we don't fully understand how it works yet. So that is our concern – disturbing the deep sea habitat."

Most of the models rely on being able to produce 1 million tonnes of ore a year. Stone said the seabed authority was putting systems in place to protect the ocean floor, but other scientists said there still remained enormous risks to the sediment and the creatures that live there.

"It is going to damage vast areas of the sea floor," said Craig Smith, an oceanographer at the University of Hawaii who served as an adviser to the International Seabed Authority. "I just don't see any way [in] mining one of these claims that whole areas won't be heavily damaged."

Earle expressed fears about how mining companies will deal with waste in the high seas. "Mining is possible," she said. "But the 20,000ft question is what do you do with the tailings? All of the proposals involved dumping the tailings at sea with profound impacts on the water column and the sea floor below. The Seabed Authority initially proposed to set aside 1.6m sq km of the ocean floor as protected areas, or about 20% of its territory. But those reserves are under review. As economic pressures rise, there are fears that commercial operations would begin to erode those protected areas.

"I think it is certain that within a year or two there will be more claims covering these areas and there won't be enough room left to develop these scientifically defensible protected areas," Smith said.

Some have argued that with all the unknowns there should be no mining at all – and that the high seas should remain out of bounds for mineral extraction and for shipping.

José María Figueres, a former president of Costa Rica and co-chair with the former British foreign secretary, David Miliband, of the Global Ocean Commission, an independent entity charged with developing ideas for ocean reform, suggested leaving all of the high seas as a no-go area for commercial exploitation (apart from shipping).

"Do we know enough about the seabed to go ahead and mine it?" said Figueres. "Do we understand enough about the interconnection between the seabed, the column of water, the 50% of the oxygen that the ocean produces for the world, the 25% of the carbon that it fixes in order to go in and disrupt the seabed in way that we would if we went in and started mining? I don't think so, not until we have scientific backing to determine whether this is something good or bad for the planet."

World leaders are now mobilising to address concerns, not just about seabed mining, but about how to safeguard ocean systems which are increasingly recognised as critical to global food security and a healthy planet.

US secretary of state John Kerry, in a video address delivered to a high-level ocean summit hosted by the Economist and National Geographic last week, invited leaders to a two-day summit in Washington that will seek ways of protecting fishing stocks from overexploitation and protecting the ocean from industrial pollution, plastic debris and the ravages of climate change.

The stakes have never been higher, scientists said. The oceans are becoming increasingly important to global food security. Each year more than a million commercial fishing vessels extract more than 80m metric tonnes of fish and seafood from the ocean. Up to three billion people rely on the sea for a large share of their protein, especially in the developing world.

Those demands are only projected to grow. "If you look at where food security has to go between now and 2030 we have to start looking at the ocean. We have to start looking at the proteins coming from the sea," said Valerie Hickey, an environmental scientist at the World Bank.

That makes it all the more crucial to crack down on illegal and unregulated fishing, which is sabotaging efforts to build sustainable seafood industries. Two-thirds of the fish taken on the high seas are from stocks that are already dangerous depleted – far more so than in those parts of the ocean that lie within 200 miles of the shore and are under direct national control.

Estimates of the unreported and illegal catch on the high seas range between $10bn and $24bn a year, overwhelming government efforts to track or apprehend the illegal fishing boats. The illegal fishing also hurts responsible fishing crews.

Figueres and Miliband suggested fitting all the vessels operating on the high seas with transponders to track their movements. That would single out rogue fishing vessels, making it easier for authorities to apprehend the vessels and their catch. It's not a perfect solution. A diplomat who has negotiated international agreements to control illegal fishing said captains – already cagey about revealing their favourite fishing routes – would simply flip off the transponders.

United Nations officials were also sceptical of the idea of a high-seas police force. "It sounds a little bit like science fiction for me at this particular moment," said Irina Bokova, the director general of Unesco, which manages 46 marine sites. "What kind of police? Who is going to monitor? How is it founded? It's a very complicated issue."

But the debate was a sign of growing momentum in an international effort to protect the oceans – before it's too late.

When it comes to the ocean floor, that process is at the very early stages. But given the multiple disasters humans have made with the ocean so far, the stakes are high for getting it right.

"There is no doubt there are huge mineral resources to be extracted at some point in the future," Lodge said. "It's also true we don't know enough about the impact on biodiversity and the impact on marine life once the mining takes place."

As the ultimate custodian, said Michael Lodge, the International Seabed Authority had two responsibilities; making sure companies access that vast mineral wealth in an environmentally responsible way, and then sharing it out equitably. "We have a huge challenge to devise a fiscal regime so that humankind as a whole gets a fair share. That's an enormous challenge, he said. "If we end up giving it away to industry, then we have failed in our missions."

And the costs of such a failure are already becoming painfully evident in the greater ocean.