Editorial: US debt swells, gold soars

A pillar of the gold bug’s argument for continued strength in the decade-long bull run for gold is the world-weary prediction that most of the U.S. political class will keep showing abject cowardice or wilful ignorance in dealing with the country’s increasingly grave national debt problem.

July and August put this cowardice and ignorance on display for the whole world to see, as U.S. lawmakers agreed to raise the national debt limit to US$16 trillion and failed yet again to prevent the country from going much deeper into debt, let alone set out a plan to reduce the US$14.6-trillion national debt, which stands at US$46,708 per U.S. citizen (Canada’s debt is $16,457 per citizen).

In a best-case scenario, the agreement forged by Republicans and Democrats will add US$7 trillion to the national debt over the next 10 years, for a 48% debt increase. There isn’t even a pretence that the U.S. Congress intends to balance the federal budget at any time over the next decade.

If you hear talk of US$2.1 trillion in “cuts” that were negotiated, this is only a reduction in the US$9.1 trillion that was originally slated to be borrowed over the next 10 years. And even these minor “cuts” are back loaded to later this decade, so virtually no new spending restraint is occurring right now.

The political class in Washington, with the exception of the Tea Party favourites, may be deluding itself that it’s starting to make the tough decisions our times demand, but the global markets aren’t buying it. 

One thing they are buying is gold. After the debt-ceiling agreement was announced, spot gold prices powered their way up from US$1,615 per oz. to another all-time nominal high of US$1,674 per oz. It’s astonishing: spot gold prices are up US$179 per oz., or 12%, in the last month, and US$483 per oz., or 41%, in the past 52 weeks. So much for the rule of thumb that gold prices are sluggish in July and August before strengthening in September and October.

• Miners of all commodities are enjoying record profits as commodity prices stay high. The knock-on effect of all this has been a steep rise in strikes in the mining powerhouses of South Africa and Chile.

South Africa has recently seen some of its largest-ever strikes and strike threats in the mining, petroleum and energy sectors, with the National Union of Mineworkers and Solidarity unions representing workers across a spectrum of companies and industries.

Some 200,000 striking gold miners employed by AngloGold Ashanti, Gold Fields, Harmony Gold and Rand Uranium are going back to work after having won a two-year deal that will see wages rise 7.5-10% in 2011. That’s not as generous as it may sound, though, as the country’s inflation rate is around 8% this year, and miners argue that real wages have declined over the past decade.

A similar-scale strike by coal miners employed at Anglo American Thermal Coal, Delmas Coal, Exxaro Coal Mpumalanga, Kangra Coal, Optimum Coal and Xstrata Coal also saw swift resolution, with wage increases of 8-10.5% in 2011 and 2012, and a suite of concessions ranging from improved medical coverage to higher living allowances.

Talks are ongoing with 26,000 striking platinum miners at Impala Platinum where, again, the number one issue is wages. The workers rejected Impala’s latest offer of 7.5-8% wage hikes, but a final agreement looks close at hand.

There have also been strikes in the country’s diamond mines and steel industry.

Eskom, the country’s state-owned power company, set the bar last year when gave its workers a 9% pay rise, plus new housing allowances, in order to head off a strike during the World Cup of soccer. The National Union of Mineworkers is currently negotiating a new round of wage and benefit increases for Eskom workers.

Next up are negotiations for the country’s 220,000 unionized municipal workers, who are threatening to strike if they don’t get double-digit pay increases.

In Chile, unionized workers at state-owned Codelco staged a one-day work stoppage to show their displeasure at any talk by management and the right-leaning national government of privatizing or restructuring the company, which remains the world’s largest copper miner. Another muscle-flexing, one-day strike happened at Chile’s Collahuasi copper mine.

A strike is ongoing at BHP Billiton’s Escondida copper mine, where wages and bonuses are the sticking points. The mine produces 7% of the world’s copper, so any strike automatically puts a dent in global copper supply, with some 40,000 tonnes of copper production already lost after less than two weeks of downed tools.