2013 Outlook for Gold, Silver

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Central banks, especially from emerging market nations, have been acquiring gold as a means of diversifying their reserve holdings. The yellow metal functions as an insurance policy against the day they will be forced to fire up the printing presses (this could be said of virtually all central banks). Demand from central banks is expected to top 500 tons in 2013, up from an estimated 465 tons this year.
Retail investors in gold either view the yellow metal as a hedge against inflation, a safe haven if the whole world goes crazy, or as just another asset class in which to invest. These investors can choose between exchange-traded funds (ETFs) backed by physical gold or gold-mining stocks that are substantially exposed to gold prices.
Funds backed by physical piles of gold run a close second to central banks when it comes to gold demand. The SPDR Gold Shares Trust and the iShares Gold Trust both offer shares backed by physical gold and both have demonstrated lackluster performance this year, with GLD up 1.3 percent and IAU down more than 6 percent.
The news report of US third-quarter GDP growth rising to 3.1 percent punished the gold funds. All gold ETFs worldwide currently hold a record total of 2,630 tons of the yellow metal.
The iShares Silver Trust, backed by physical silver, held nearly 19,000 tons at the end of November.
The precious metals sector that looks to be in for the worst time in 2013 is mining. Rising costs, labor unrest and deteriorating ore concentrations made profits hard to come by in 2012 and may get worse next year.
Gold miners Barrick Gold Corp., Goldcorp Inc., Kinross Gold Corp. and Newmont Mining Co. are down 27 percent, 20 percent, 19 percent and 28 percent, respectively, since the beginning of 2012. Only Yamana Gold Inc. is showing a gain, up nearly 12 percent.
Costs will continue their inexorable rise as ore quality declines cause production to slow. Labor troubles only contribute more to the unsavory equation.

Market Prospects
Silver miners Coeur d’Alene Mines Corp. and Silver Wheaton Inc. are down 5.5 percent and up 18.5 percent, respectively, so far this year.
Silver is far more widely used as an industrial metal than is gold, but if the global economy slows down next year, industrial demand for the metal will likely fall.
Investors are expected to purchase 300 tons of silver in 2013, but the physical surplus is not expected to be soaked up by industrial users even if the economy is robust. That means silver prices could experience only a very modest gain next year.
The mining ETFs also have been pummeled this year. The Market Vectors Gold Miners ETF is down 13.5 percent so far and the Market Vectors Junior Gold Miners ETF is down more than 18.5 percent.
The Global X Silver Miners ETF is up 4.9 percent for the year, largely on the strength of Silver Wheaton and Mexico’s two silver mining giants, Fresnillo PLC and Industrias Peñoles.
Another large holding, Pan American Silver Corp., is down more than 19 percent for the year so far.
So, there are some outside observations as well. Bank of America sees $2,000 gold in 2013. Jefferies came up with a way to pair gold against the gold miners in 2013. Also, there is a list of the central banks that are still buying up gold.
For 2013, mining stocks appear to carry the biggest risk. Physical gold is at risk either as an asset class if the US should tumble off the fiscal cliff or as a safe haven if the cliff is somehow avoided.
Silver faces the same risks as gold, but to a lesser degree, owing to its industrial uses. Investors looking for hard assets might want to look hard at silver and then decide if they can live with the volatility of the devil’s metal.

Highest PGCC Inflation in Saudi Arabia

Inflation in Saudi Arabia remained the highest in Persian Gulf oil producing states at around 5 percent in 2011 and is expected to remain high in 2013 despite slowing rent rates, a key investment firm in the Persian Gulf kingdom said.
In October 2012, the weighted average inflation rate in the six-nation Persian Gulf Cooperation Council (PGCC) stood at as low as 2.6 percent year-on-year mainly because of ongoing housing market correction in some member-states and large base-effects in others, the Riyadh-based Jadwa Investments said in its monthly inflation report, Emirates 24/7 wrote.
Inflation in Saudi Arabia remains the highest in the PGCC, according to the Central Department for Statistics and Information, Saudi Arabia’s inflation rate for November slightly increased to 3.9 percent year-on-year from 3.8 percent in the previous month. While food prices rose slightly to 4.8 percent year-on-year, rent and housing-related services maintained their gradual downward trend to reach 6.5 percent, compared with 6.7 percent in the previous month.
The Saudi measure of core inflation trended up to 2.2 percent in November compared with 1.8 percent in October.
The report showed rent and housing-related services inflation fell to its lowest level in five years, though it remains the main source of inflation, adding 1.5 percentage point (ppt) to the overall inflation.
The main source of price increase in this group is the rental inflation that registered a 7.2-percent rise year-on-year in November, it said.
While it maintains the view that rental inflation is likely to remain one of the main sources of inflation in the kingdom, the growing activity in the local construction sector and introduction of new rental regulations is expected to maintain the gradual downward path for such prices.
Jadwa projected inflation in Saudi Arabia, the largest Arab economy, at around 4.5 percent, slightly lower than in 2011 and 2010, when the rate stood at 5.2 and 5.4 percent respectively. Saudi Arabia reeled under its highest annual inflation rate of 9.9 percent in 2008 because of a surge in food prices and rents, strong domestic demand and a weakening in the US dollar, to which the riyal is pegged.
Jadwa’s report, citing government estimates, showed food inflation hit a record 14.1 percent in 2008 before dipping to 5.2 percent in 2011.
It projected the rate at 4.4 percent in 2012. Housing inflation was also as high as 17.5 percent before climbing down to around 7.8 percent in 2011. The report expected the rate to be 8 percent in 2012.

Spain Unemployment Behind Loss of Housing

Unemployment is the main reason that caused Spanish people to lose their homes in Spain in 2012, according to a report published by the Spanish National Institute of Statistics (INE).
The INE said 45 percent of people who lost their homes in 2012 did not have a job, while other reasons noted by the INE included expensive housing price and separation and divorce, Xinhua reported.
The INE emphasized that half of those homeless had children, adding that 44.5 percent of them had been without accommodation for more than three years.
More than half of these people (57.7 percent) are less than 45 years old, while those above 64 years old represent 3.9 percent.
Regarding nationality, 54.2 percent are Spanish and 45.8 percent foreigners, of which 56.6 percent are from Africa.
The European Commission will propose giving Spain, France and several other eurozone states more time to cut their public deficits below the target limit of 3 percent of GDP, newspaper El Pais said.
Citing senior Spanish and European Union sources, the Madrid-based daily said France could get an extra year, allowing it to narrow its fiscal gap by 2014, while Spain would be given one or two more years beyond that date.
“Spain’s fiscal targets are to be reassessed in February,” EU Economic and Monetary Affairs Commissioner Olli Rehn said last month.

S&P Downgrades Cyprus

The Cyprus government has vowed to do what is needed to finalize a bailout agreement with international lenders after ratings agency Standard & Poor’s downgraded Cyprus further into junk status amid concerns that the country could default on its debts.
The US agency said that the two-notch downgrade to CCC+ was due to a “considerable and rising” risk that the country, one of the 17 European Union countries that use the euro, may default.
It also maintained its negative outlook on the country, meaning that further downgrades are possible, AP reported.
S&P said it went ahead with the downgrade because the Cypriot government is running out of money while uncertainty remains over the terms of a bailout that the country is trying to negotiate with international lenders and its euro partners. The rescue loans will be used to salvage the country’s banks, which are heavily exposed to Greece.
With the government’s financing options increasingly limited--coupled with what the agency views as the hesitant attitude of Cyprus’ eurozone partners toward sharing the cost of a severe banking crisis--the risk of a sovereign debt default is considerable and rising, S&P said.
Unable to borrow from international markets for more than a year, the Cypriot government this week had to tap the pension funds of the country’s top three state-owned companies to cover salaries and benefits up until March when it’s hoped the first batch of bailout cash will arrive.

Economic Ties With S. Korea Enter New Phase

Iran and South Korea have entered into a new phase in economic relations.
Incil Aei, the head of South Korea Economic Studies Association (AKES), made the statement on the occasion of the 50th year of economic ties between the two countries in a meeting in Isfahan Chamber of Commerce, Industry, Mines and Agriculture on Saturday.
Aei said small- and medium-sized companies hold special importance in South Korean economy and have contributed a great deal to economic development, IRNA wrote.
“With the help of these companies, trade and export of South Korea have surpassed the country’s gross domestic product,” he said.
Director of International Economy Department at Isfahan University Kamal Tayyebi called for holding the conference of AKES in Iran next year and said this conference will play an important role in future Iranian-South Korea economic ties.
He added that the association has 3,000 active members in the world and a large number of economic articles in the world are written by its members.

New Markets Boost Tea Prospects

In November, the Consultative Committee of Plantation Associations (CCPA), the apex body of tea producers’ associations in India, along with the Tea Board of India organized a three-day India International Tea Convention (IITC) in Goa.
The meet focused on issues relating to production, marketing and branding of Indian tea, as well as new avenues available to producers, including sale through supermarket chains, Mydigitalfc.com wrote.
At present, only 3 percent of tea are sold through supermarkets in India, compared with 95 percent in the UK.
The convention was attended by delegates from other tea producing countries like Bangladesh, Sri Lanka, Kenya and Tanzania, as well as tea consuming countries such as the US, Canada, Germany, Austria, Spain, Russia, Kazakhstan, UAE, Iran, Egypt and Tanzania.
A special tea drinking session consisting of 13 unique teas from different parts of India was expected to go a long way in promoting and finding the right market for Indian tea in these countries.
Although final figures are yet to be compiled, a recent industry study conducted by ImaCS suggests a weak global growth outlook and continuing high prices.
The recent sharp decline in coffee prices is also likely to result in a marginal fall in India’s tea exports, from 193 million kg to 180 million kg in 2012.

Iranian Non-Oil Exports Hit $28b

Iran’s non-oil exports yielded $28 billion in the past eight months of the Iranian year (started March 21(.
Reza Towfiqi Zavareh, the deputy head of Trade Promotion Organization of Iran (TPOI) for marketing, also said on Saturday the exports included gas condensates.
Zavareh said excluding the gas condensates, the revenues stood at about $22 billion, IRNA reported.
He noted that since 2006, Iran has been holding 25 percent of Afghan market.
“The worth of Iran’s exports to Afghanistan was about $500 million in 2006, which reached $2.18 billion this year,” he said.
Zavareh pointed to Iran’s border trade with 15 countries and said the opportunity should be used for the export of high-quality non-oil products
Meanwhile, Farhad Mojalali, the head of the Department of Commerce with Afghanistan of Trade Promotion Organization of Iran (TPOI), said Iran exported $1.823 billion worth of products to Afghanistan in the first eight months of the Iranian year.
Mojalali said that in this period, Iran imported $5 million worth of goods from Afghanistan.
Food products, construction material, detergents and medicines were the major items exported to Afghanistan in the period.

China Policies

China’s economic performance in 2013 needs pro-growth policies and speedier reforms to boost domestic demand in the face of uncertainty in the global environment.