America’s trade deficit is shrinking. Thank fracking.

Some news Tuesday morning about America's trade deficit bodes well for growth. And there may be bigger lessons about the global economy working its way toward a more sustainable balance.

The United Stated imported only $34.3 billion more in goods and services than it exported in November, down 13 percent from October. It is the lowest monthly trade deficit in more than four years. It was strong enough to lead forecasters to dramatically upgrade their expectations of how fast the U.S. economy grew in the fourth quarter. Macroeconomic Advisers, one leading firm, bumped its estimate of GDP growth to 3.5 percent, up from 2.6 percent before the trade announcement!

The big question for the future is whether this is a onetime blip in the (always-volatile) trade data, or something that will recur. Even more important, does it signal progress toward a more sustainable, balanced global economy in which the United States isn't just the buyer of last resort for all the world's goods?

The improvement in the trade balance came via a slight increase in exports ($1.7 billion) and a larger decrease in imports ($3.4 billion). Most of the decline in imports came about because of a $2.5 billion drop in the value of imported crude oil. That's not just a one-month trend. Through the first 11 months of 2013, crude oil imports were down almost $40 billion, a 13.7 percent drop. There were also large drops in other petroleum products (liquified petroleum gas imports, down $2.2 billion, other petroleum products down $1.6 billion).

So, the domestic energy boom is translating pretty clearly into a more favorable trade balance for the United States, which in turn means stronger overall growth. That may not create as many new jobs as one might hope (see an exploration of that questionhere). But what does it mean for the longer-term project of making a more sustainable global economic order?

The United States was running consistently large current account deficits in the years before the crisis, very likely a contributor to the imbalances that made the financial system vulnerable to the near-collapse in 2008. In short, we bought more stuff from other countries than we sold to them (particularly from Asian exporters of consumer goods and Middle Eastern oil exporters). The money those other countries made from selling us all that stuff was recycled into U.S. financial assets (think anything from the Abu Dhabi sovereign wealth fund to an Indonesian billionaire's holdings of Treasury bonds). That inflow of money into U.S. financial assets pushed interest rates down artificially and encouraged the most interest-rate-sensitive sectors of the economy, particularly housing, to get into a massive bubble.

The broadest measure of whether that kind of imbalance is still a problem is the nations' current account. And there the news is also pretty good. In the third quarter, the country's current account deficit was 2.2 percent of GDP, the lowest level since the start of 2008.

Chevron to clear more land on Barrow Island

Western Australia's Environmental Protection Authority has given Chevron permission to use an extra 10 per cent of A-class land on Barrow Island as the company pushes to finish its Gorgon LNG project.

The company will expand its footprint on the island in a plan that will see the clearing of a further 32ha of land in addition to the 300ha that it was already permitted to disturb.

EPA Chairman Paul Vogel said the proposal was assessed to determine if the existing conditions on the development could be applied to the revised footprint.

"The EPA concluded that the conditions set out in the original approval are effective in managing impacts and should be implemented for the additional development,” Vogel said.

An extra condition of the approval means Chevron will be required to extend a "threatened species translocation and reintroduction program" at the island from 12 years to 14 years.

The extra space will be used for additional laydown and logistical support, with Chevron and its partners hoping it will improve efficiencies at the site.

Logistics on the island have been an issue as strict rules and quarantine requirements that come with working on an A-class nature reserve proving one of the projects biggest challenges.

High labour costs and a strong Australian dollar have also proved testing with the project experiencing massive cost blowouts.

It is now estimated to cost $US54 billion, up from the previous forecast of $US52 billion and is not due to be completed until mid-2015.

Originally the project was supposed to cost $US39 billion and begin shipping LNG in 2014.

Chevron vice chairman George Kirkland has previously said the economics of the project remain attractive.

“We continue to make steady progress against key project milestones and are applying lessons learned to our Wheatstone development which is almost 25 per cent complete,” he said.

One year later, more public hearings for Baffinland

It’s been a year sinceBaffinland Iron Mines announced changes to its Mary River project. Now a regulatory hurdle that the company had hoped to pass six months ago has evolved into another set of public hearings.

The Nunavut Planning Commission plans to hold oral hearings next week in Clyde River, Grise Fiord, Resolute Bay, Arctic Bay and Pond Inlet.

It’s the first time the NPC will play a lead role in a major environmental review.

"NPC has a very similar role to the one they played before, but they are being a little more active,” says Baffinland’s Greg Missal. “And you know, we'll work with them as much as we possibly can to make sure they get the information they need to fulfill their mandate"

The Nunavut Impact Review Board won't be part of next week's public hearings.

Board officials decided to sit out, after complaining about the planning commission's process, and a lack of communication. But beyond next week's hearings, the NIRB is part of the ongoing review.

NPC process “deviating significantly”: NIRB

While the Nunavut Impact Review Board is responsible for environmental reviews, it’s the job of the Nunavut Planning Commission to first determine whether projects fit with any land use plans in place.

A Nunavut-wide land use plan has been in the works for over a decade, but there is a plan for the North Baffin region that's been in use since 2000.

Five years ago, the Nunavut Planning Commission agreed that the original Mary River project fit within that plan, but they've yet to issue a decision on whether the altered project does.

This summer, Baffinland provided details on its latest plans to the NPC, and requested a timely decision, suggesting June 28 as a suitable date. In a June 28 letter to NIRB, the commission wrote only that "the NPC timeline is not one that other parties are able to influence."

The NPC made several more requests for information from Baffinland before announcing in November, without consulting with NIRB, that it would hold oral hearings into the issue under a new set of its own rules and procedures.

That’s when NIRB announced in a letter that it would not take part in the hearings.

"The board is concerned that the current joint review process is deviating significantly from the previous joint review process for the Mary River project, with no supporting rationale,” wrote NIRB’s executive director, Ryan Barry, in a Nov. 22 letter.

He called the development “regrettable,” noting that, “with no prior discussion, no consultation and no notice the Board has been left in the untenable position of being approached by participants" seeking “explanations regarding the basis and rationale for these significant deviations from the communication process... which the board is unable to provide."

In recent weeks, the NPC has been involved in a flurry of correspondence, part of which involves gathering information previously collected and made public by NIRB.

2014 gold price rally builds against record bearish bets

The gold price enjoyed a second day of double digit gains, adding 1% on Friday to reach a near 3-week high and notching up its best performance since October.

On the Comex division of the New York Mercantile Exchange gold for February delivery added as much as $13 an ounce to a day high $1,238.30 in early afternoon trade.

Gold's fightback from last year's lows of $1,187 which was again tested on the last trading day of 2013 has put the record number of short sellers in the market on the back foot .

Short positions – bets that the price will go down – held by large investors or so-called managed money climbed to a record to 82,765 lots or 8,276,500 ounces in the week to December 24 according to the delayed Commodity Futures Trading Commission data released yesterday.

So many big players short of gold could translate into further upside for the metal as commercial traders and hedge funds are forced to cover their positions should gold go higher from here.

Gold has also been boosted by increased demand from Asia. The premium paid for taking immediate delivery of gold in Shanghai has risen to $23 an ounce, up from zero in November and a 4-month high.

Demand from world number two importer of the metal could also be boosted this year.

The Reserve Bank of India  lifted some import restrictions on December 31 which was responsible for a plunge in imports  on the subcontinent of between 250–300 tonnes in 2013 from a peak above 1,000 tonnes in 2011.

A negative in the market remains continued outflows from gold-backed exchange traded funds.

Holdings of the world’s largest gold ETF – SPDR Gold Shares (NYSEARCA:GLD) – dropped 3.5 tonnes yesterday after a 45 tonne decline in December.  At 794.6 tonnes GLD holdings are at the lowest level since January 2009.

Overall, the more than a hundred gold-ETFs traded around the world saw net selling last year of 869 tonnes with the bulk of the selling – 586 tonnes – occurring in the first half of 2013.

The price of of gold ended 2013 down 28% at a shade over $1,200 an ounce, bringing a 12-year bull run that took it from around $270 an ounce at the end of 2000 to a record high above $1,900 in September 2011 to a decisive end.

Canada to liquidate first gold coins

After more than 75 years of sitting in bags inside the Bank of Canada vault, the country’s first gold coins went on sale this year as part of a government’s scheme to save taxpayers some money and help balance the books.

First announced in November 2012, the sale includes a plan to melt more than 200,000 gold produced by the Mint between 1912 to 1914, when Ottawa suspended the gold standard.

The $10 coins sold for either $1,000 or $1,750 each, reports The Globe and Mail, depending on whether they were “premium” quality or not.

Courtesy of Mint.ca.

The objective od the sale, which ended recently, was to improve the liquidity of the government’s assets, provide a piece of Canadian history to coin collectors and to “extract value from coin sales for the government and taxpayers,” according tolast year’s statement.

When it opened its doors for business in January 1908 as the Canadian branch of Britain's Royal Mint, the Mint's Ottawa facility was mandated to produce Canada's circulation coinage as well as convert Canada's growing gold resources into dollar-denominated gold circulation coins.  From 1912 to 1914, the Mint therefore produced $5 and $10 coins of 90% pure Canadian gold and proudly displaying national symbols.

While official numbers won’t be known until the spring, an insider confirmed The Globe they came very close to selling all the coins.

Supply worries cloud 2014 mining outlook

            2013 was a horrible year for commodities. The Dow Jones-UBS Commodity Index, which tracks 22 commodities traded in London and on US markets, fell 9.6% in 2013, the third consecutive annual loss. The Standard & Poor’s GSCI Spot Index of 24 raw materials showed a more modest 2.2% decline this year, but it was the fifth year in a row of losses. Corn fell by the most last year with a 40% retreat on the back of a record US harvest, while gold's 28% plunge was the worst performance in three decades and silver dropped 36%. Data released by Barclays Capital in December showed that total global commodity asset values fell by a record $88 billion to $332 billion in the first 11 months of the year as investors  withdrew $36.3 billion from the sector.

          The value of precious metals assets under management fell by $78 billion compared to 2012 to total $119 billion, but December's continued slide would make those numbers even uglier. The contrast between the performance of commodities and equities is startling. The S&P 500 rose 29.6% in 2013, the biggest annual gain since 1997, while the Dow Industrial Index notched up its 52nd record close of the year on Tuesday. The blue chip index climbed 26.5% in 2013, the best performance since 1995. The tech-laden Nasdaq Composite ended the year its highest level since September 2000 after rising 38% over the course of 2013. Going into 2014 few are predicting a strong rebound in the price of gold in the absence of a strong catalyst like a fresh financial or geopolitical crisis and industrial demand for silver has not been enough to support prices, but commodities as a whole could find favour again as record-setting stock markets begin to look bubbly. 

          This 50-year chart of the gold price vs the S&P 500 shows just how overvalued stocks in particularly the US has become.Bloomberg quotes Jeremy Baker, commodity strategist at Harcourt Investment Consulting in Zurich as saying on top of concerns about China’s slowing growth “perceptions of improving supply and supply overhangs pressured commodities" in 2013. The Wall Street Journal quotes Kevin Norrish, managing director of commodity research with Barclays in London as saying "commodities are more likely to trade based on each market's own supply-and-demand dynamics rather than investor views on the sector as a whole." A glut in copper and iron ore is predicted for 2014 as South American copper giants bring new mines on stream and Australia's iron ore output continues to grow rapidly. While demand for copper have remained stronger than previously predicted for 2013 helping to contain the slump in the price to 7.4% for the year, the red metal is expected to come under pressure as massive new supply starts hitting the market. For the past seven years annual supply growth has been essentially static falling to as lows as 0.4% a year in 2010 to 2011, but growth in copper mine supply should accelerate further in 2014. Greenfield projects led by the massive new Ministro Hales mine in Chile coming on stream should see supply top 6% this year and average over 4% through 2016. 

             The iron ore supply-demand picture is possible even more damaging to the price of the steelmaking raw material, which ended 2013 surprisingly strong at $134 a tonne, up sharply from lows of the year of $110 struck mid-year. While Chinese iron ore imports will grow 7.4% next year, the world's top exporter Australia will increase cargoes a whopping 22.1% to 709 million tonnes as projects by Rio Tinto (LON:RIO), Fortescue Metals Group (ASX:FMG) and BHP Billiton (LON, ASX: BHP) come on stream. Brazil, led by world number one iron ore miner Vale (NYSE:VALE), is set to up exports 9.1% to 352 million tonnes. India, which has seen exports fall from 120 million tonnes to close to just 11 million tonnes this year, will also re-enter the market as a self-imposed ban on exports expire and stockpiles are sold on. Other metals are looking better for 2014. 

            While nickel oversupply that has persisted for years has not translated into significant cuts in production – global output is forecast to rise for the first time to over 2m tonnes in 2015, up from 1.4m tonnes in 2007 – a ban on ore exports from top producer Indonesia could turn the market on its head. Three-months nickel on the LME fell almost 20% in 2013 to around $14,000 this week from opening levels of $17,450 a tonne but Indonesia dominates the nickel export business, accounting for 28% of global supply, and should the ban come into effect as planned from January 1 prices could rise significantly. Zinc, lead and tin could also fare better this year as mine closures ease years of oversupply and industrial demand in developed markets recover. Platinum group metals and specifically palladium could also benefit from an improved vehicle market in Europe and elsewhere.

Is LNG fracking worth its weight in water?

More than seven billion litres of water were used for fracking in B.C. last year. If the government’s liquefied natural gas sector takes off, the water needed to get shale gas out of the ground in the northeast corner of the province will likely increase by 500 per cent, or more.

Much of that water is consumed with only minimal regulation. A new law set to be introduced in the spring would, for the first time in B.C., impose fees for the use of groundwater and allow for government to restrict water use in times of scarcity. But it’s not likely to rein in the practise of hydraulic fracturing, which is critical to the development of LNG.

Lana Lowe is the director of the Fort Nelson First Nation’s department of land and resources. The water taken out of the band’s territory has already increased 12-fold in the past two years. Sitting in on an environmental appeal board hearing in Victoria in late December, where the Fort Nelson are trying to stop just one of the many applications for a fracking project in their backyard, Ms. Lowe senses that they are trying to stand in the way of a locomotive.

“There is a gold rush on our water resources,” she said, during a break in the hearing, which has already run on for weeks. The band’s chief is not attending because she is at the Site C dam hearings – the resources of this band of 800 members are stretched thin.

At issue in the appeal board hearing is Nexen Inc.’s licence to divert water from North Tsea Lake, north of Fort Nelson – up to 2.5 billion litres per year. The company stores the water for fracking. The Fort Nelson First Nation says this is in the core of their traditional territory and it infringes on their treaty rights, which grant them the right to hunt and fish as they did before they signed their treaty in 1899.

This is just one of many such projects in their territory, and the cumulative impact has transformed the north, now cross-hatched by clearings for seismic readings, the most visible mark on the landscape.

But below, the water table is changing too. Ms. Lowe recalls her grandmother used to drink straight out of the muskeg. “Our elders didn’t have to bring water when they went out on the land. … Now everyone packs water. They are afraid of contamination.”

Environment Minister Mary Polak is planning to bring in the new Water Sustainability Act in the spring, applying some regulation to the allocation of water rights. She said in an interview this should address some of the fears around fracking. Water used for fracking is currently sourced from both surface and groundwater – the latter source is largely unregulated. The act would require that environmental flows be considered by decision-makers before authorizing water use. Which is not to say that the government would shut off the taps.

“This act will allow us to have tighter control because we’ll have better understanding, better monitoring, better reporting and the capacity to step in if there is a risk to environmental flows,” Ms. Polak said. Will it bestow a social licence on fracking – something that is increasingly in question? “I think increasing transparency will be a huge part in creating that trust. We have made good strides but there is more we can do. The more information people have, the more confidence they can feel in our regulatory regime.”

However, she does not see the need for a dramatic change in practices: “We don’t have any evidence of drinking water contamination in our history of fracking.” Then again, that is still under study. The Ministry of Health is conducting a Human Health Risk Assessment of the oil and gas sector in the region. The study is expected to be complete by the spring.

Ms. Lowe, who has reviewed the proposed changes to water regulations, doesn’t take much comfort from Ms. Polak’s assurances. “This new Water Act looks like they are going to make it easier for companies to get what they want for shale gas. We are getting in front of that, and it is a really tough position to be in. There is so much pressure to get this done.”

Ms. Polak acknowledges that her legislation is unlikely to satisfy everyone. The new Water Sustainability Act is bound, she said, to “get people’s dander up.” But she accepts that as inevitable, falling back to a quote attributed to Mark Twain to describe the path ahead: “Whiskey is for drinking, water is for fighting over.”