Dubai: The growth rate of foreign exchange (FX) trading is surging ahead in the Middle East according to Deutsche Bank, a leading global investment bank and the world's number one in FX trading and services.
FX trading volumes in the retail FX market in the Middle East has increased significantly since Deutsche Bank launched the Arabic version of its online FX trading service, dbFX.
"The increase in FX trading volumes on dbFX is already exceeding our expectations.
"We only launched the Arabic version of dbFX, dbfxarabic.com, in October last year and by January 2008 the level of interest from sophisticated investors in the region visiting the website has doubled," said Catherine Hardiman, head of dbFX sales EMEA at Deutsche Bank.
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Foreign exchange trading is becoming an important means of hedging and speculating for the portfolios of family offices and private investors in the region. It offers massive liquidity for investors, with over $3 trillion traded every day, more than 20 times the daily turnover of the New York Stock Exchange.
FX returns also offer very low correlation with bond or equity market returns, lower volatility and superior risk adjusted returns.
"Deutsche Bank's Currency Return Index, which tracks the performance of a diverse FX investment portfolio, indicates that FX generated higher annualised returns between 1980 and 2006 than either the S&P 500 and or the MSCI," she said.
Benefits
FX delivered annualised total returns of 11 per cent between 1980 and 2006. The consistent returns of FX compares favourably to total returns for bonds of nine per cent and 12 per cent for equities over the same period.
"Middle Eastern investors are rapidly discovering the benefits of online FX trading and we expect to see significant growth this year in the region," said Hardiman.
Tuesday, February 19, 2008
Will the IMF Gold sale plan work?
St. LOUIS (ResourceInvestor.com) -- On Saturday, the Group of Seven (G-7) approved the sale of gold by the International Monetary Fund (IMF) from April as part of a broad reform of its budget. But this isn’t the first time gold sales have been approved and subsequently blocked, which raises the question of how this proposal would be any different.
With an annual deficit of about $400 million and a looming global economic slowdown, it stands to reason why the IMF wants to sell some of its gold. The fund is spending $1 billion a year but only bringing in $600 million, while holding 103.4 million ounces (3,217 metric tonnes) of gold worth about $92 billion at current prices - up from $23 billion just 5 years ago.
Italian Economy Minister Tommaso Padoa-Schioppa, also the head of the IMF’s steering committee, said at the meeting between Britain, China, France, Germany, Italy, Japan and the U.S. that “there was an acceptance among the G-7 that resources should be raised by selling gold ... the current gold price means a flow of income can be ensured.”
He said the agreement would be finalised in April and would complement spending cuts being drawn up by the IMF under new Managing Director Dominique Strauss-Kahn. But any sales of the IMF's gold must be approved by 85% of the organization's total voting power.
The United States, as the largest single member nation, and the largest single contributed of the IMF's gold, holds a crucial 17% of that 85% voting power and can effective veto the proposal. The U.S. previously blocked an attempt to sell IMF gold to the market formally in 1999 and informally 2005.
Matt Turner, metals analyst for VM Group, said the G7 meeting basically implies that the administrations of the countries involved are happy with the plan, but the “U.S. Congress is yet to give its authorisation.”
“So it's not clear whether it will pass Congress - for various reasons they might not agree,” he added.
In 1999, for instance, the U.S. Congress blocked on-the-market gold sales for debt relief citing concerns about the impact on the gold price as well as a broad belief that the gold belonged to the members and any surplus should be returned to them. Some were even against any IMF funding, preferring the Fund to be slimmed down or closed entirely, according to Turner.
As a result, in December 1999, the Executive Board authorized off-market transactions in gold of up to 14 million ounces to help finance IMF participation in the Heavily Indebted Poor Countries Initiative. Off-market transactions involving a total of 12.9 million ounces of gold were carried out between the IMF and two member nations, Brazil and Mexico.
This weekend’s announcement follows a recommendation in late January by an esteemed group of eminent persons, including former Fed Chairman Alan Greenspan and current President of the European Central Bank Claude Trichet, advocating on-the-market sales of up to 400 tonnes of gold by the IMF as means to finance ongoing costs.
In a report submitted to the IMF Executive Board today, the Committee, headed by Bank of International Settlement head Sir Andrew Crockett, concluded that the IMF's current income model, which relies heavily on the interest it earns from loans to member nations, is “no longer appropriate.”
At that time, the fund estimated gains about $6.6 billion in revenue with the sale of 400 tonnes (12.9 million ounces) at $500/oz. Investment of the proceeds would yield approximately $195 million per year, assuming a real rate of return of 3%, according to the committee. At $900/oz gold, revenue would increase to about $11.5 billion.
However, the Committee made clear that it wanted the gold sales to be limited to 400 tonnes sold in a way that didn't disrupt the market, much like gold sold consistent with the European Central Bank Gold Agreement (EGA), which limits sales to 500 tonnes per year.
“So the assumption was that they would have a bit of Germany's unused quota, or it might spill over into another EGA,” said Turner.
So far in the fourth agreement year of the EGA, European signatories have reported sales of about 118.6 tonnes, although some January sales have yet to be posted. Current estimates suggest gold sales through January total a little more than 131 tonnes. But minus sales by Germany and Italy again this year, most analysts agree that banks will fall short of the 500-tonne quota.
Dennis Gartman, editor of The Gartman Letter, told subscribers in today’s Letter that the IMF needs the income and “we are not surprised by the announcement, although we suspect that others are.”
He noted that the agreement would not be finalized until April, “so the real pressure upon gold shall not come until then ... for the moment we have to report that the market has ‘taken’ this news very, very well indeed.”
This morning, New York spot gold prices opened only marginally lower, showing a $1.40 loss at $921.90 after having traded in a band of from $920 to $928 overnight. Currently, spot gold is trading down $1.60 at $921.60.
James Moore, precious metals analyst for TheBullionDesk.com, said in an e-mailed market update this morning that dip buying is expected to provide ongoing support in the market. He expects gold to challenge the metal’s $936.80 high, “although the approval of IMF gold sales by G7 members may dampen some of the metals bullishness.”
Jon Nadler, senior analyst for Kitco Bullion Dealers, said it is a bit too early to call the issue a win or a loss for gold since the precise size, timing and methodology of the disposals is still unknown.
“Opinion remains divided as to whether the proposed sale will or will not impact gold market prices and/or psychology at a time when the yellow metal is trading within $10 of its all-time peak,” said Nadler.
He suggested that readers continue to watch the U.S. dollar and equity markets as prime movers for the precious metal, however, added “we will not ignore the developments on the IMF front and consider them ‘case closed.’”
With an annual deficit of about $400 million and a looming global economic slowdown, it stands to reason why the IMF wants to sell some of its gold. The fund is spending $1 billion a year but only bringing in $600 million, while holding 103.4 million ounces (3,217 metric tonnes) of gold worth about $92 billion at current prices - up from $23 billion just 5 years ago.
Italian Economy Minister Tommaso Padoa-Schioppa, also the head of the IMF’s steering committee, said at the meeting between Britain, China, France, Germany, Italy, Japan and the U.S. that “there was an acceptance among the G-7 that resources should be raised by selling gold ... the current gold price means a flow of income can be ensured.”
He said the agreement would be finalised in April and would complement spending cuts being drawn up by the IMF under new Managing Director Dominique Strauss-Kahn. But any sales of the IMF's gold must be approved by 85% of the organization's total voting power.
The United States, as the largest single member nation, and the largest single contributed of the IMF's gold, holds a crucial 17% of that 85% voting power and can effective veto the proposal. The U.S. previously blocked an attempt to sell IMF gold to the market formally in 1999 and informally 2005.
Matt Turner, metals analyst for VM Group, said the G7 meeting basically implies that the administrations of the countries involved are happy with the plan, but the “U.S. Congress is yet to give its authorisation.”
“So it's not clear whether it will pass Congress - for various reasons they might not agree,” he added.
In 1999, for instance, the U.S. Congress blocked on-the-market gold sales for debt relief citing concerns about the impact on the gold price as well as a broad belief that the gold belonged to the members and any surplus should be returned to them. Some were even against any IMF funding, preferring the Fund to be slimmed down or closed entirely, according to Turner.
As a result, in December 1999, the Executive Board authorized off-market transactions in gold of up to 14 million ounces to help finance IMF participation in the Heavily Indebted Poor Countries Initiative. Off-market transactions involving a total of 12.9 million ounces of gold were carried out between the IMF and two member nations, Brazil and Mexico.
This weekend’s announcement follows a recommendation in late January by an esteemed group of eminent persons, including former Fed Chairman Alan Greenspan and current President of the European Central Bank Claude Trichet, advocating on-the-market sales of up to 400 tonnes of gold by the IMF as means to finance ongoing costs.
In a report submitted to the IMF Executive Board today, the Committee, headed by Bank of International Settlement head Sir Andrew Crockett, concluded that the IMF's current income model, which relies heavily on the interest it earns from loans to member nations, is “no longer appropriate.”
At that time, the fund estimated gains about $6.6 billion in revenue with the sale of 400 tonnes (12.9 million ounces) at $500/oz. Investment of the proceeds would yield approximately $195 million per year, assuming a real rate of return of 3%, according to the committee. At $900/oz gold, revenue would increase to about $11.5 billion.
However, the Committee made clear that it wanted the gold sales to be limited to 400 tonnes sold in a way that didn't disrupt the market, much like gold sold consistent with the European Central Bank Gold Agreement (EGA), which limits sales to 500 tonnes per year.
“So the assumption was that they would have a bit of Germany's unused quota, or it might spill over into another EGA,” said Turner.
So far in the fourth agreement year of the EGA, European signatories have reported sales of about 118.6 tonnes, although some January sales have yet to be posted. Current estimates suggest gold sales through January total a little more than 131 tonnes. But minus sales by Germany and Italy again this year, most analysts agree that banks will fall short of the 500-tonne quota.
Dennis Gartman, editor of The Gartman Letter, told subscribers in today’s Letter that the IMF needs the income and “we are not surprised by the announcement, although we suspect that others are.”
He noted that the agreement would not be finalized until April, “so the real pressure upon gold shall not come until then ... for the moment we have to report that the market has ‘taken’ this news very, very well indeed.”
This morning, New York spot gold prices opened only marginally lower, showing a $1.40 loss at $921.90 after having traded in a band of from $920 to $928 overnight. Currently, spot gold is trading down $1.60 at $921.60.
James Moore, precious metals analyst for TheBullionDesk.com, said in an e-mailed market update this morning that dip buying is expected to provide ongoing support in the market. He expects gold to challenge the metal’s $936.80 high, “although the approval of IMF gold sales by G7 members may dampen some of the metals bullishness.”
Jon Nadler, senior analyst for Kitco Bullion Dealers, said it is a bit too early to call the issue a win or a loss for gold since the precise size, timing and methodology of the disposals is still unknown.
“Opinion remains divided as to whether the proposed sale will or will not impact gold market prices and/or psychology at a time when the yellow metal is trading within $10 of its all-time peak,” said Nadler.
He suggested that readers continue to watch the U.S. dollar and equity markets as prime movers for the precious metal, however, added “we will not ignore the developments on the IMF front and consider them ‘case closed.’”
IMF Gold reserve is worth $92 billion...
Will the US Congress approve a sale of IMF gold to help shore up IMF finances? Gold prices now sit at all-time record highs. Whereas the International Monetary Fund (IMF) finds itself short of $400 million per year.
Can you guess what comes next? "The IMF is rich if it wants to be," says Stephen Jen at Morgan Stanley, recommending IMF gold sales just before the idea was agreed by leaders of the world's top seven economies on Feb. 9th.
IMF gold – the third largest hoard after the US and German government gold reserves – is now worth around $92 billion, reports Reuters, tripling in value since the start of this decade.
And if you were spending $1 billion a year but only bringing in $600m, as the IMF is today, wouldn't you want to sell a little of your 3,217 tonnes in Gold Bullion?
IMF Gold Sales: A Flow of Income
It's the simple solution, agreed leaders of the G7 wealthy nations in Tokyo. But will IMF gold sales happen – and would it matter to the Gold Market anyway?
"The current Gold Price means a flow of income can be ensured," said the head of the IMF's steering committee, Italian finance minister Tommaso Padoa-Schioppa.
Meeting with his US, Japanese, German, British, French and Canadian colleagues for the last time at the end of last week (he has to stand down after losing his government post in Italy to the collapse of Romaro Prodi's administration), Padoa-Schioppa led discussion of "stability and growth in our economies", the fast-approaching US recession, stock market volatility, and the losses caused by reckless investments in US subprime mortgages – losses which German finance minister Peer Steinbrueck now reckons could total $450 billion.
And gold sales or not, the IMF certainly needs all the extra cash it can claw back right now, as well.
New managing director Dominique Strauss-Kahn wants to save $100 million per year by cutting 15% of his staff, mostly middle management according to The Economist. He'd like most of those 380 job-cuts to be voluntary – but it's actually the IMF which is starting to look redundant.
IMF Gold Sales: Why Now?
Founded at the end of World War II with donations of cash and gold from its member nations, the IMF works at "crisis prevention" – monitoring and hoping to avoid policy mistakes that could lead to big financial problems.
Using the $338 billion or so in cash that it holds (but never the gold, which exists as a ballast of "fundamental strength" in all official wealth reserves, as the IMF explains), the IMF also lends to countries facing balance of payments problems. This is where the IMF earns its keep, charging interest on these short-terms loans.
The IMF also makes loans to low-income countries implementing poverty reduction programs, currently helping 23 countries from Afghanistan to Sierra Leone. But more famously, the IMF offers advice and technical expertise to help developing economies stabilize their exchange rate and re-structure government finances to get out of crisis.
Since the Argentine crisis of 2001, however – blamed on the IMF's advised policies (and coincidental with the start of gold's bull market) – new IMF lending, the source of its income, has shrunk dramatically. The world's developing economies have simply developed too fast; they don't need so many hand-outs from the IMF.
Indeed, many former clients are now so busy piling up foreign exchange reserves from the United States, you have to wonder why the IMF doesn't ask for help instead. Or the US, for that matter.
The world's largest economy is now running a trade deficit worth 6.5% of its annual turnover (economists get nervous about any figure above 3%). The US government has run up $9 trillion in debt, and the US Dollar has dropped one-third of its value in the last five years to reach all-time record lows against the rest of the world's currencies.
IMF Gold Sales: The 1970s Bull Market
Would selling some IMF gold help push the Gold Price lower – and by extension, help the US Dollar to recover? It's been tried before, and with little success.
Between 1976 and 1980, the IMF sold gold in a bid "to reduce the role of gold in the international monetary system," selling one-third of its total gold holdings – a massive 1,600 tonnes.
Well over 60% of the world's current annual gold-mining production today, half of that IMF gold was dumped onto member nations at just $35 per ounce – the old "fixed" Gold Price up until the US Dollar was finally cut free of gold in 1971. Mid-way through the 1970s bull market in gold, that was less than one-third the abiding Gold Market price.
The other half of that IMF gold was sold via auction, but the auctions were so well subscribed, the impact on Gold Prices was actually to forced them higher and the auctions were eventually suspended.
Come April 1978, the Second Amendment to the IMF's Articles of Agreement finally eliminated Gold Bullion "as the common denominator of the post-World War II exchange rate system," as the IMF explains on its website.
"It also abolished the official price of gold and abrogated the obligatory use of gold in transactions between the IMF and its members. It furthermore required that the IMF, when dealing in gold, avoid managing its price or establishing a fixed price."
But trying to cut gold out of the world's monetary system did nothing to stem the flight of investment cash into Gold Investment. By the completion of those IMF gold sales in 1980, the Gold Price had risen more than five times over on the open market.
From the end of the fixed Gold Price in 1971, gold rose 24 times over by its high point of Jan. 1980.
Fast forward to the gold bull market of this decade, and IMF gold sales have been repeatedly proposed and debated since the Gold Price turned higher in 2001. The last call came in Feb. 2007, when a panel of notable "worthies" recommended selling 400 tonnes of IMF gold to cover debt-relief in poorer nations.
That panel included former Fed chairman Alan Greenspan, infamous UK gold-seller Gordon Brown, Zhou Xiaochuan – governor of the People's Bank of China – plus Jean-Claude Trichet of the European Central Bank, Andrew Crockett of J.P.Morgan, and governors from the South African Reserve Bank, the Bank of Mexico and the Saudi Arabian Monetary Agency.
Their call for IMF gold sales came to naught however, while the Gold Price barely flickered when they announced their advice.
Twelve months later, the price of gold in Dollars, Euros, Pounds Sterling and most other major currencies has risen between one-third and one-half. So might this latest call for IMF gold sales actually come to something?
All seven members of the IMF's apparent boss – the G7 group of wealthy nations – agree the IMF should be allowed to decide for itself. But any sales of the IMF's gold must be approved by 85% of the organization's total voting power.
The United States, as the largest single member nation, holds a crucial 17% of that power – giving it an absolute veto over that 85% requirement. And the US, as the largest single member of the IMF, also contributed the largest single share of the IMF's gold.
Would Congress approve a sale of this "IMF gold" to help shore up IMF finances? The US blocked a previous attempt to sell IMF gold in 2005. And with an election now looming, albeit with Ron Paul firmly out of the running, the idea of selling "legacy gold" to cover a short-term funding gap might not appeal to US politicians amid the current debt-led recession.
IMF Gold Sales: The Revenge of Gold?
"Gold played a central role in the international monetary system until the collapse of the Bretton Woods system of fixed exchange rates in 1973," as the International Monetary Fund itself explains.
"Since then, the role of gold has been gradually reduced," the IMF claims. But that's only true for the official and government sectors. For many private individuals, Gold Investment has fast been regaining its monetary role ever since this bull market began in 2001.
Not gold as money that passes from hand to hand when you buy and sell. But gold as the perfect asset for meeting the second key requirement of money – a reliably rare and highly-prized asset that holds its value over time.
Any IMF gold sales in 2008 would at least avoid selling gold at the bottom, which is what Gordon Brown, then the UK chancellor, did in June 1999. His infamous 400-tonne sale knocked Gold Prices sharply lower when they were announced. But then, gold was in a bear market; it had been falling for nearly two decades.
Whereas any new IMF gold sales today would instead meet with a strong bid from anxious investors and private householders looking to defend their wealth.
If it sells gold now, the IMF looks very unlikely to dent Gold Prices. Indeed, "every time the IMF has sold gold it has actually triggered more buying interest," says Mario Innecco, a broker at MF Global in London, to Bloomberg.
"It will just make it easier for the big sovereign buyers" – the big central banks outside the G7 who want to build up their gold reserves – "to snap up cheap gold from the IMF."
Can you guess what comes next? "The IMF is rich if it wants to be," says Stephen Jen at Morgan Stanley, recommending IMF gold sales just before the idea was agreed by leaders of the world's top seven economies on Feb. 9th.
IMF gold – the third largest hoard after the US and German government gold reserves – is now worth around $92 billion, reports Reuters, tripling in value since the start of this decade.
And if you were spending $1 billion a year but only bringing in $600m, as the IMF is today, wouldn't you want to sell a little of your 3,217 tonnes in Gold Bullion?
IMF Gold Sales: A Flow of Income
It's the simple solution, agreed leaders of the G7 wealthy nations in Tokyo. But will IMF gold sales happen – and would it matter to the Gold Market anyway?
"The current Gold Price means a flow of income can be ensured," said the head of the IMF's steering committee, Italian finance minister Tommaso Padoa-Schioppa.
Meeting with his US, Japanese, German, British, French and Canadian colleagues for the last time at the end of last week (he has to stand down after losing his government post in Italy to the collapse of Romaro Prodi's administration), Padoa-Schioppa led discussion of "stability and growth in our economies", the fast-approaching US recession, stock market volatility, and the losses caused by reckless investments in US subprime mortgages – losses which German finance minister Peer Steinbrueck now reckons could total $450 billion.
And gold sales or not, the IMF certainly needs all the extra cash it can claw back right now, as well.
New managing director Dominique Strauss-Kahn wants to save $100 million per year by cutting 15% of his staff, mostly middle management according to The Economist. He'd like most of those 380 job-cuts to be voluntary – but it's actually the IMF which is starting to look redundant.
IMF Gold Sales: Why Now?
Founded at the end of World War II with donations of cash and gold from its member nations, the IMF works at "crisis prevention" – monitoring and hoping to avoid policy mistakes that could lead to big financial problems.
Using the $338 billion or so in cash that it holds (but never the gold, which exists as a ballast of "fundamental strength" in all official wealth reserves, as the IMF explains), the IMF also lends to countries facing balance of payments problems. This is where the IMF earns its keep, charging interest on these short-terms loans.
The IMF also makes loans to low-income countries implementing poverty reduction programs, currently helping 23 countries from Afghanistan to Sierra Leone. But more famously, the IMF offers advice and technical expertise to help developing economies stabilize their exchange rate and re-structure government finances to get out of crisis.
Since the Argentine crisis of 2001, however – blamed on the IMF's advised policies (and coincidental with the start of gold's bull market) – new IMF lending, the source of its income, has shrunk dramatically. The world's developing economies have simply developed too fast; they don't need so many hand-outs from the IMF.
Indeed, many former clients are now so busy piling up foreign exchange reserves from the United States, you have to wonder why the IMF doesn't ask for help instead. Or the US, for that matter.
The world's largest economy is now running a trade deficit worth 6.5% of its annual turnover (economists get nervous about any figure above 3%). The US government has run up $9 trillion in debt, and the US Dollar has dropped one-third of its value in the last five years to reach all-time record lows against the rest of the world's currencies.
IMF Gold Sales: The 1970s Bull Market
Would selling some IMF gold help push the Gold Price lower – and by extension, help the US Dollar to recover? It's been tried before, and with little success.
Between 1976 and 1980, the IMF sold gold in a bid "to reduce the role of gold in the international monetary system," selling one-third of its total gold holdings – a massive 1,600 tonnes.
Well over 60% of the world's current annual gold-mining production today, half of that IMF gold was dumped onto member nations at just $35 per ounce – the old "fixed" Gold Price up until the US Dollar was finally cut free of gold in 1971. Mid-way through the 1970s bull market in gold, that was less than one-third the abiding Gold Market price.
The other half of that IMF gold was sold via auction, but the auctions were so well subscribed, the impact on Gold Prices was actually to forced them higher and the auctions were eventually suspended.
Come April 1978, the Second Amendment to the IMF's Articles of Agreement finally eliminated Gold Bullion "as the common denominator of the post-World War II exchange rate system," as the IMF explains on its website.
"It also abolished the official price of gold and abrogated the obligatory use of gold in transactions between the IMF and its members. It furthermore required that the IMF, when dealing in gold, avoid managing its price or establishing a fixed price."
But trying to cut gold out of the world's monetary system did nothing to stem the flight of investment cash into Gold Investment. By the completion of those IMF gold sales in 1980, the Gold Price had risen more than five times over on the open market.
From the end of the fixed Gold Price in 1971, gold rose 24 times over by its high point of Jan. 1980.
Fast forward to the gold bull market of this decade, and IMF gold sales have been repeatedly proposed and debated since the Gold Price turned higher in 2001. The last call came in Feb. 2007, when a panel of notable "worthies" recommended selling 400 tonnes of IMF gold to cover debt-relief in poorer nations.
That panel included former Fed chairman Alan Greenspan, infamous UK gold-seller Gordon Brown, Zhou Xiaochuan – governor of the People's Bank of China – plus Jean-Claude Trichet of the European Central Bank, Andrew Crockett of J.P.Morgan, and governors from the South African Reserve Bank, the Bank of Mexico and the Saudi Arabian Monetary Agency.
Their call for IMF gold sales came to naught however, while the Gold Price barely flickered when they announced their advice.
Twelve months later, the price of gold in Dollars, Euros, Pounds Sterling and most other major currencies has risen between one-third and one-half. So might this latest call for IMF gold sales actually come to something?
All seven members of the IMF's apparent boss – the G7 group of wealthy nations – agree the IMF should be allowed to decide for itself. But any sales of the IMF's gold must be approved by 85% of the organization's total voting power.
The United States, as the largest single member nation, holds a crucial 17% of that power – giving it an absolute veto over that 85% requirement. And the US, as the largest single member of the IMF, also contributed the largest single share of the IMF's gold.
Would Congress approve a sale of this "IMF gold" to help shore up IMF finances? The US blocked a previous attempt to sell IMF gold in 2005. And with an election now looming, albeit with Ron Paul firmly out of the running, the idea of selling "legacy gold" to cover a short-term funding gap might not appeal to US politicians amid the current debt-led recession.
IMF Gold Sales: The Revenge of Gold?
"Gold played a central role in the international monetary system until the collapse of the Bretton Woods system of fixed exchange rates in 1973," as the International Monetary Fund itself explains.
"Since then, the role of gold has been gradually reduced," the IMF claims. But that's only true for the official and government sectors. For many private individuals, Gold Investment has fast been regaining its monetary role ever since this bull market began in 2001.
Not gold as money that passes from hand to hand when you buy and sell. But gold as the perfect asset for meeting the second key requirement of money – a reliably rare and highly-prized asset that holds its value over time.
Any IMF gold sales in 2008 would at least avoid selling gold at the bottom, which is what Gordon Brown, then the UK chancellor, did in June 1999. His infamous 400-tonne sale knocked Gold Prices sharply lower when they were announced. But then, gold was in a bear market; it had been falling for nearly two decades.
Whereas any new IMF gold sales today would instead meet with a strong bid from anxious investors and private householders looking to defend their wealth.
If it sells gold now, the IMF looks very unlikely to dent Gold Prices. Indeed, "every time the IMF has sold gold it has actually triggered more buying interest," says Mario Innecco, a broker at MF Global in London, to Bloomberg.
"It will just make it easier for the big sovereign buyers" – the big central banks outside the G7 who want to build up their gold reserves – "to snap up cheap gold from the IMF."
Boom in Gold demand over, prices under pressure
MUMBAI: Is the crumbling stock market a bad omen for the booming bullion/gold market in India? It looks so, and analysts said on Wednesday that gold prices could come drastically down, if the current stock market mood is of any indication.
The Bombay Bullion Association said that gold sales in India--the world's largest consumer of the yellow metal--have fallen for the month of January, thanks to high prices and volatility in the stock markets.
According to the Association, gold imports to India in January came down to five tons from 62 tons a year earlier, as higher prices sapped demand.
Varun Mehta, a gold trader and analyst, said that the boom that the gold market has been witnessing in the last few months seems to be over. "Gold prices have been going up to such high levels that even people now find it difficult to buy the yellow metal even for auspicious functions like marriage," he said.
"Gold prices in India are under tremendous pressure. Traders feel gold prices would come down from these high levels," he said.
Analysts like Mehta feel that if gold prices crash in India, it would naturally hit the bullion prices global as India continues to the largest consumer for the yellow metal.
In a comment to Reuters, George Nickas, broker with FC Stone in New York, said that sharply reduced gold jewelry demand from India would weigh on bullion, although the market could be sustained by investors buying gold as a safe-haven investment.
"People who are buying gold are the high net-worth individuals, and people who are selling it are people who are trying to survive the (weaker) economy. It's unclear where gold is going to go in the near term," Nickas told the news service.
Gold fell to $907.70/908.50 by New York's last quote at 2:15 p.m. EST from $922.70/923.40 the previous day. It traded as high as $924.60 during the session.
The gold contract for April delivery at the COMEX division of the NYMEX saw losses accelerate and settled down $15.60 or 1.7 percent at $911.10 an ounce.
The Bombay Bullion Association said that gold sales in India--the world's largest consumer of the yellow metal--have fallen for the month of January, thanks to high prices and volatility in the stock markets.
According to the Association, gold imports to India in January came down to five tons from 62 tons a year earlier, as higher prices sapped demand.
Varun Mehta, a gold trader and analyst, said that the boom that the gold market has been witnessing in the last few months seems to be over. "Gold prices have been going up to such high levels that even people now find it difficult to buy the yellow metal even for auspicious functions like marriage," he said.
"Gold prices in India are under tremendous pressure. Traders feel gold prices would come down from these high levels," he said.
Analysts like Mehta feel that if gold prices crash in India, it would naturally hit the bullion prices global as India continues to the largest consumer for the yellow metal.
In a comment to Reuters, George Nickas, broker with FC Stone in New York, said that sharply reduced gold jewelry demand from India would weigh on bullion, although the market could be sustained by investors buying gold as a safe-haven investment.
"People who are buying gold are the high net-worth individuals, and people who are selling it are people who are trying to survive the (weaker) economy. It's unclear where gold is going to go in the near term," Nickas told the news service.
Gold fell to $907.70/908.50 by New York's last quote at 2:15 p.m. EST from $922.70/923.40 the previous day. It traded as high as $924.60 during the session.
The gold contract for April delivery at the COMEX division of the NYMEX saw losses accelerate and settled down $15.60 or 1.7 percent at $911.10 an ounce.
Gold Futures up in India thanks to global worries
MUMBAI: Gold futures in the Indian bullion market went up on Friday thanks to worries that global inflation rate is going up because of the economic slow down in the United States.
Open interest for April gold on MCX was at 10,869 lots, down from 10,913 on Thursday. Analysts said the April contract on the Multi Commodity Exchange of India Ltd to range within 11,530 rupees per 10 grams and 11,660 rupees.
Kiran Mehta, a bullion analyst in Mumbai said that to the gold prices surged thanks a World Gold Council report. It said the gold demand in India, the world's largest consumer of jewellery, declined sharply by 64 per cent to 83.9 tonnes during fourth quarter as compared to 230.1 tonnes during the same period previous year due to volatile price movement.
Gold prices during quarter also touched a record high of over Rs 10,000 per 10 gram. "The Q4 demand was the lowest fourth quarter in tonnage terms since the early 1990s, a point that serves to emphasise the importance of gold price stability to the Indian consumer," the WGC report noted.
It said the investment purchases of gold appear to have been more resilient to the price changes during the last quarter. However, the investment demand continues to be encouraged by the rising price of gold, which ge nerated returns of around 16 per cent in rupee terms last year.
The yellow metal traded overseas at $909 an ounce, up slightly from the previous day, but off its all time highs of $936.50 on Feb 1.
Open interest for April gold on MCX was at 10,869 lots, down from 10,913 on Thursday. Analysts said the April contract on the Multi Commodity Exchange of India Ltd to range within 11,530 rupees per 10 grams and 11,660 rupees.
Kiran Mehta, a bullion analyst in Mumbai said that to the gold prices surged thanks a World Gold Council report. It said the gold demand in India, the world's largest consumer of jewellery, declined sharply by 64 per cent to 83.9 tonnes during fourth quarter as compared to 230.1 tonnes during the same period previous year due to volatile price movement.
Gold prices during quarter also touched a record high of over Rs 10,000 per 10 gram. "The Q4 demand was the lowest fourth quarter in tonnage terms since the early 1990s, a point that serves to emphasise the importance of gold price stability to the Indian consumer," the WGC report noted.
It said the investment purchases of gold appear to have been more resilient to the price changes during the last quarter. However, the investment demand continues to be encouraged by the rising price of gold, which ge nerated returns of around 16 per cent in rupee terms last year.
The yellow metal traded overseas at $909 an ounce, up slightly from the previous day, but off its all time highs of $936.50 on Feb 1.
Selling Low and Buying High
Today is Presidents’ Day, which means the markets are taking a rare break. Hopefully, you’ve been able to enjoy the long weekend, too.
Today I’d like to share an old trading tale I think you’ll enjoy. It’s a true story. (Seems like the best ones always are.) I first wrote it up in April of 2007, along with some extended thoughts on gold. The story is still fresh and the gold thoughts still apply. So without further ado, here it is.
Ed. Note: this piece was originally written in April of 2007. At that time gold was $200 to $300 lower, the dollar was 5-10% higher, and Gordon Brown was not yet prime minister. Also, subprime woes had not yet materialized like a skunk at the garden party. Other than that, all arguments still apply -- perhaps now more than ever.
Memorable birthday presents are always nice. One of the best presents your humble editor ever received came from European central bankers.
In late summer 1999, nearly eight years ago now, yours truly and a friend put some money in a special joint trading account. The plan was to speculate a little in the precious metals and perhaps turn a profit from the Y2K complications ahead.
Gold was about as down in the dumps as it had ever been. Stocks like CMGI and Qualcomm were all the rage. It was almost the total reverse of what we have now. “Dot com” was a heroic and inspirational suffix, rather than the punch line to a joke. Hard assets were seen as the musty leftovers of an antiquated age.
With gold in the $260-$280 range, and volatility having ticked down to nothing, my trading partner and I felt that things were seriously out of whack.
Confident that something would have to give, the joint trading account was loaded up with call options on gold futures. We bought super-cheap call options at a strike price of $330 -- more than $50 out of the money in a low volatility market -- with an expiration date nine to 12 months out.
We were prepared to wait. But as it turns out, we didn’t have to wait too long.
In September of 1999 -- within days of the aforementioned birthday -- more than a dozen European central banks announced a moratorium on future gold sales. The signatories agreed to limit their gold sales to a maximum 400 tons per year over the next five years.
The news hit the gold pit like scalding hot water on a sleeping cat. The yellow metal exploded, posting the biggest single-day rally in 20 years. The joint futures trading account went from $10,000 to $60,000 (give or take) in the space of a week.
No, you don’t see birthday presents like that one very often. Fifty grand rarely comes so easy.
But that’s not the most curious part of the story. The intriguing question is how gold had gotten so low in the first place.
Earlier that same year (1999), gold had been languishing a bit below $300. The yellow metal had been stuck in a sideways funk for more than a year, after steadily trekking downward from its 1996 peak. It seemed things were gloomy as could be for gold bugs… but they were about to get much worse.
In May of 1999, the British government announced plans to sell half of its existing gold reserves. Proceeds from the sale were to be invested in government bonds (issued by the U.S., Europe and Japan).
It was an awfully timed surprise for gold. What’s worse, the auction-style plan for selling the reserves seemed the height of idiocy.
When you have a large quantity of anything to sell on the open market, you normally do it as quietly as possible so as not to run the price down if you are selling (or up if you are buying). It was almost as if the British government wanted to hammer gold through the floor, rather than seeking the best price possible for Her Majesty’s assets.
Gold futures gapped down huge on news of Britain’s plan. All hope seemed lost. Central bankers had apparently gone insane, and they were going to sell all the gold they owned for nothing.
The yellow metal relentlessly down-ticked from that point on, to its ultimate bottom in the fall of 1999. Shortly after that the timely (and lucky) purchase of $330 call options ensued, and Europe’s non-British bankers did the rest.
More ancient history. But now the question becomes more pointed. Why, oh why did Britain do something so foolish?
We now have an answer of sorts: Because Gordon Brown is an idiot.
Gordon Brown is Britain’s all-but-anointed prime minister in waiting, for those who don’t follow British politics (and who can blame you). Back in ‘99, Brown was displaying a taste for boneheadedness in his job running the UK treasury. It is only now that the full scope of things comes to light.
In a long-overdue expose titled “Goldfinger Brown’s £2 billion blunder in the bullion market,” the Sunday Times tells the tale:
GATHERED around a table in one of the Bank of England’s grand meeting rooms, the select group of Britain’s top gold traders could not believe what they were being told.
Gordon Brown had decided to sell off more than half of the country’s centuries-old gold reserves and the chancellor was intending to announce his plan later that day.
It was May 1999 and the gold price had stagnated for much of the decade. The traders present — including senior executives from at least two big investment banks — warned that Brown, who was not at the meeting, could barely have chosen a worse moment.
…“The timing of the decision was ludicrous.
We told them you are going to push the gold price down before you sell,” said Peter Fava, then head of precious metal dealing at HSBC who was present at the meeting. “We thought it was a disastrous decision; we couldn’t understand it. We brought up a lot of potential problems at the meeting.”
…The decision to sell 400 tons of gold is seen in City circles as a financial bungle on the scale of the Tories’ “Black Wednesday” that cost the taxpayer £3.3 billion, according to Treasury estimates.
Dominic Hall, a former gold dealer who now runs thebulliondesk.com, a website for the gold market, said: “Brown was keen to throw mud at the opposition over Black Wednesday but this was a financial disaster on a similar scale.”
Fascinating. Based on these and other details, it appears that the decision to dump half of Britain’s reserves -- ultimately at the cost of billions -- was made by a single uninformed dolt and his group of doltish cronies. The Sunday Times adds more to the story:
According to other sources… Bank of England officials told those present they had “little say” about what was going to happen and that they were “doing what they were told.” This was a decision made by Brown and his inner circle, who appeared uninterested in their expert advice.
It’s the classic libertarian’s lament: What can you do with government? You’re damned if you do, damned if you don’t.
It is highly unsettling to realize that momentous decisions are taken by pigheaded men -- and it is still mostly men -- with far more arrogance than sense. Sadly, the thought of government by committee is no less appalling. Many a terrible plan has arisen from gutless, mealy-mouthed consensus.
Unfortunately, as long as there are men like Gordon Brown in government -- and the world is rife with them, for they are the type attracted to public service in the first place -- governments will continue to do exceedingly dumb things.
It is a natural temptation to respect the trappings of power -- or, at the very least, to respect the logistical decision-making mechanisms of power. This may be a mistake. Many first-world countries, it seems, are run with less regard for logic and common sense than your average corner grocery.
Here is the moneymaking part of the equation, at least as far as gold goes.
By deciding to dump gold at the worst possible time, Gordon “Goldfinger” Brown has shown us how spectacularly stupid governments can be at selling low. When push comes to shove, we may find that governments are equally spectacular at buying high.
Consider the lay of the land in terms of dollars and gold reserves. The asset boom we are experiencing right now [circa April 2007], the rising tide of liquidity that has fueled a buyout mania and lifted so many boats, is being fueled by dollars. Dollars, dollars, dollars.
The Federal Reserve prints reams of dollars. Consumers and businesses spend these dollars, gorging on credit. Investors multiply these dollars, bidding up everything with leverage. Asia and the commodity-exporting / oil-exporting countries rake these dollars in by the truckload… and then print truckloads of their own local currency in return, to keep exchange rates favorable.
It used to be said that China was exporting deflation via the proliferation of lower cost goods in the world. But now, as wages and costs in China and India rise, it is more accurate to say that emerging market countries are importing inflation from the West, both directly and indirectly, as paper floods their economies and investors bid up assets with abandon.
China and her emerging market brethren are sitting on a mountain of dollars -- a veritable Everest that grows by the day if not the hour. For instance, it is estimated that China took in $136 billion worth of surplus greenbacks in the first quarter of 2007 alone. (Just more paper to throw on the $1.2 trillion dollar pile.)
At present levels, the dollar is flirting with 12-year lows. When the downside rush ultimately accelerates, the bagholders, er, dollar-holders will experience tremendous pain. (Imagine having a trillion bucks invested in tech and telecom stocks circa 2001. Get the picture?)
Gold is the ultimate safe haven in all this -- the other side of the “debt liquidation trade,” as we have written before. It is the ultimate safeguard against fiscal collapse and inflationary outbreak.
Unfortunately for them, the BRIC countries (Brazil, Russia, India and China) are all “dollar-heavy” and “gold light” to an insane degree. They don’t have anywhere near enough gold in their coffers to ensure against the dollar debacle that is coming. And they know this.
Consider this: According to statistics from the World Gold Council, China has approximately 1.2% of its total reserves invested in gold (600 tons). Contrast that with the strong likelihood that two-thirds or more of China’s pile is tied up in dollar-denominated assets.
Russia is a little bit better off. They have approximately 2.8% of their total reserves invested in gold. India is at 4.1%. And Brazil? A laughable 0.3%. [All stats are taken from WGC data circa April 2007.]
All those numbers are laughable, of course. And those are only four countries. Most of the world’s up-and-coming economies have immense dollar risk linked to minuscule holdings of gold. It is the equivalent of owning a multimillion-dollar home and only insuring the mailbox.
With a situation this dire, where do you think gold is going to go? We already know where the dollar is going to go. The playbook has all but been spelled out. Is anything going to change? Yes… it is going to change for the worse.
Things don’t get much simpler than supply and demand. When government really gets its sell-low-and-buy-high groove on, you could see gold trading at thousands of dollars per ounce. The only way this does not happen is if human nature changes, or some absolute miracle otherwise intervenes, and more than five centuries’ worth of economic and political history is repealed.
This is why your editor remains unconcerned by the recent weakness in gold.
It doesn’t much matter that the yellow metal is taking its sweet time below $700, or that gold stocks are looking beat-up and sluggish once again, or that whispers of a new era are coming back around. When you have underlying conditions on your side, you can afford to be relaxed. Let the other guys chase and sweat. Better to be a little early and do things with style.
Most everyone in the market right now [April 2007] is crowded around the punch bowl. Investors are in a high-fiving, backslapping, self-congratulatory mood… yet few of them are thinking about what’s coming down the road.
When it comes time for governments to buy high with a vengeance, they’ll have to do it on a scale never before seen. As the great J.J. Cale (and Clapton, too) once sang, After midnight, we’re gonna let it all hang out.
Justice Litle is Editorial Director of Taipan Publishing Group
Courtesy: http://www.taipanpublishinggroup.com
Today I’d like to share an old trading tale I think you’ll enjoy. It’s a true story. (Seems like the best ones always are.) I first wrote it up in April of 2007, along with some extended thoughts on gold. The story is still fresh and the gold thoughts still apply. So without further ado, here it is.
Ed. Note: this piece was originally written in April of 2007. At that time gold was $200 to $300 lower, the dollar was 5-10% higher, and Gordon Brown was not yet prime minister. Also, subprime woes had not yet materialized like a skunk at the garden party. Other than that, all arguments still apply -- perhaps now more than ever.
Memorable birthday presents are always nice. One of the best presents your humble editor ever received came from European central bankers.
In late summer 1999, nearly eight years ago now, yours truly and a friend put some money in a special joint trading account. The plan was to speculate a little in the precious metals and perhaps turn a profit from the Y2K complications ahead.
Gold was about as down in the dumps as it had ever been. Stocks like CMGI and Qualcomm were all the rage. It was almost the total reverse of what we have now. “Dot com” was a heroic and inspirational suffix, rather than the punch line to a joke. Hard assets were seen as the musty leftovers of an antiquated age.
With gold in the $260-$280 range, and volatility having ticked down to nothing, my trading partner and I felt that things were seriously out of whack.
Confident that something would have to give, the joint trading account was loaded up with call options on gold futures. We bought super-cheap call options at a strike price of $330 -- more than $50 out of the money in a low volatility market -- with an expiration date nine to 12 months out.
We were prepared to wait. But as it turns out, we didn’t have to wait too long.
In September of 1999 -- within days of the aforementioned birthday -- more than a dozen European central banks announced a moratorium on future gold sales. The signatories agreed to limit their gold sales to a maximum 400 tons per year over the next five years.
The news hit the gold pit like scalding hot water on a sleeping cat. The yellow metal exploded, posting the biggest single-day rally in 20 years. The joint futures trading account went from $10,000 to $60,000 (give or take) in the space of a week.
No, you don’t see birthday presents like that one very often. Fifty grand rarely comes so easy.
But that’s not the most curious part of the story. The intriguing question is how gold had gotten so low in the first place.
Earlier that same year (1999), gold had been languishing a bit below $300. The yellow metal had been stuck in a sideways funk for more than a year, after steadily trekking downward from its 1996 peak. It seemed things were gloomy as could be for gold bugs… but they were about to get much worse.
In May of 1999, the British government announced plans to sell half of its existing gold reserves. Proceeds from the sale were to be invested in government bonds (issued by the U.S., Europe and Japan).
It was an awfully timed surprise for gold. What’s worse, the auction-style plan for selling the reserves seemed the height of idiocy.
When you have a large quantity of anything to sell on the open market, you normally do it as quietly as possible so as not to run the price down if you are selling (or up if you are buying). It was almost as if the British government wanted to hammer gold through the floor, rather than seeking the best price possible for Her Majesty’s assets.
Gold futures gapped down huge on news of Britain’s plan. All hope seemed lost. Central bankers had apparently gone insane, and they were going to sell all the gold they owned for nothing.
The yellow metal relentlessly down-ticked from that point on, to its ultimate bottom in the fall of 1999. Shortly after that the timely (and lucky) purchase of $330 call options ensued, and Europe’s non-British bankers did the rest.
More ancient history. But now the question becomes more pointed. Why, oh why did Britain do something so foolish?
We now have an answer of sorts: Because Gordon Brown is an idiot.
Gordon Brown is Britain’s all-but-anointed prime minister in waiting, for those who don’t follow British politics (and who can blame you). Back in ‘99, Brown was displaying a taste for boneheadedness in his job running the UK treasury. It is only now that the full scope of things comes to light.
In a long-overdue expose titled “Goldfinger Brown’s £2 billion blunder in the bullion market,” the Sunday Times tells the tale:
GATHERED around a table in one of the Bank of England’s grand meeting rooms, the select group of Britain’s top gold traders could not believe what they were being told.
Gordon Brown had decided to sell off more than half of the country’s centuries-old gold reserves and the chancellor was intending to announce his plan later that day.
It was May 1999 and the gold price had stagnated for much of the decade. The traders present — including senior executives from at least two big investment banks — warned that Brown, who was not at the meeting, could barely have chosen a worse moment.
…“The timing of the decision was ludicrous.
We told them you are going to push the gold price down before you sell,” said Peter Fava, then head of precious metal dealing at HSBC who was present at the meeting. “We thought it was a disastrous decision; we couldn’t understand it. We brought up a lot of potential problems at the meeting.”
…The decision to sell 400 tons of gold is seen in City circles as a financial bungle on the scale of the Tories’ “Black Wednesday” that cost the taxpayer £3.3 billion, according to Treasury estimates.
Dominic Hall, a former gold dealer who now runs thebulliondesk.com, a website for the gold market, said: “Brown was keen to throw mud at the opposition over Black Wednesday but this was a financial disaster on a similar scale.”
Fascinating. Based on these and other details, it appears that the decision to dump half of Britain’s reserves -- ultimately at the cost of billions -- was made by a single uninformed dolt and his group of doltish cronies. The Sunday Times adds more to the story:
According to other sources… Bank of England officials told those present they had “little say” about what was going to happen and that they were “doing what they were told.” This was a decision made by Brown and his inner circle, who appeared uninterested in their expert advice.
It’s the classic libertarian’s lament: What can you do with government? You’re damned if you do, damned if you don’t.
It is highly unsettling to realize that momentous decisions are taken by pigheaded men -- and it is still mostly men -- with far more arrogance than sense. Sadly, the thought of government by committee is no less appalling. Many a terrible plan has arisen from gutless, mealy-mouthed consensus.
Unfortunately, as long as there are men like Gordon Brown in government -- and the world is rife with them, for they are the type attracted to public service in the first place -- governments will continue to do exceedingly dumb things.
It is a natural temptation to respect the trappings of power -- or, at the very least, to respect the logistical decision-making mechanisms of power. This may be a mistake. Many first-world countries, it seems, are run with less regard for logic and common sense than your average corner grocery.
Here is the moneymaking part of the equation, at least as far as gold goes.
By deciding to dump gold at the worst possible time, Gordon “Goldfinger” Brown has shown us how spectacularly stupid governments can be at selling low. When push comes to shove, we may find that governments are equally spectacular at buying high.
Consider the lay of the land in terms of dollars and gold reserves. The asset boom we are experiencing right now [circa April 2007], the rising tide of liquidity that has fueled a buyout mania and lifted so many boats, is being fueled by dollars. Dollars, dollars, dollars.
The Federal Reserve prints reams of dollars. Consumers and businesses spend these dollars, gorging on credit. Investors multiply these dollars, bidding up everything with leverage. Asia and the commodity-exporting / oil-exporting countries rake these dollars in by the truckload… and then print truckloads of their own local currency in return, to keep exchange rates favorable.
It used to be said that China was exporting deflation via the proliferation of lower cost goods in the world. But now, as wages and costs in China and India rise, it is more accurate to say that emerging market countries are importing inflation from the West, both directly and indirectly, as paper floods their economies and investors bid up assets with abandon.
China and her emerging market brethren are sitting on a mountain of dollars -- a veritable Everest that grows by the day if not the hour. For instance, it is estimated that China took in $136 billion worth of surplus greenbacks in the first quarter of 2007 alone. (Just more paper to throw on the $1.2 trillion dollar pile.)
At present levels, the dollar is flirting with 12-year lows. When the downside rush ultimately accelerates, the bagholders, er, dollar-holders will experience tremendous pain. (Imagine having a trillion bucks invested in tech and telecom stocks circa 2001. Get the picture?)
Gold is the ultimate safe haven in all this -- the other side of the “debt liquidation trade,” as we have written before. It is the ultimate safeguard against fiscal collapse and inflationary outbreak.
Unfortunately for them, the BRIC countries (Brazil, Russia, India and China) are all “dollar-heavy” and “gold light” to an insane degree. They don’t have anywhere near enough gold in their coffers to ensure against the dollar debacle that is coming. And they know this.
Consider this: According to statistics from the World Gold Council, China has approximately 1.2% of its total reserves invested in gold (600 tons). Contrast that with the strong likelihood that two-thirds or more of China’s pile is tied up in dollar-denominated assets.
Russia is a little bit better off. They have approximately 2.8% of their total reserves invested in gold. India is at 4.1%. And Brazil? A laughable 0.3%. [All stats are taken from WGC data circa April 2007.]
All those numbers are laughable, of course. And those are only four countries. Most of the world’s up-and-coming economies have immense dollar risk linked to minuscule holdings of gold. It is the equivalent of owning a multimillion-dollar home and only insuring the mailbox.
With a situation this dire, where do you think gold is going to go? We already know where the dollar is going to go. The playbook has all but been spelled out. Is anything going to change? Yes… it is going to change for the worse.
Things don’t get much simpler than supply and demand. When government really gets its sell-low-and-buy-high groove on, you could see gold trading at thousands of dollars per ounce. The only way this does not happen is if human nature changes, or some absolute miracle otherwise intervenes, and more than five centuries’ worth of economic and political history is repealed.
This is why your editor remains unconcerned by the recent weakness in gold.
It doesn’t much matter that the yellow metal is taking its sweet time below $700, or that gold stocks are looking beat-up and sluggish once again, or that whispers of a new era are coming back around. When you have underlying conditions on your side, you can afford to be relaxed. Let the other guys chase and sweat. Better to be a little early and do things with style.
Most everyone in the market right now [April 2007] is crowded around the punch bowl. Investors are in a high-fiving, backslapping, self-congratulatory mood… yet few of them are thinking about what’s coming down the road.
When it comes time for governments to buy high with a vengeance, they’ll have to do it on a scale never before seen. As the great J.J. Cale (and Clapton, too) once sang, After midnight, we’re gonna let it all hang out.
Justice Litle is Editorial Director of Taipan Publishing Group
Courtesy: http://www.taipanpublishinggroup.com
Dollar up in thin trade
The dollar was slightly firmer Monday in quiet trade, recovering some of the ground lost last week after a series of weak US economic data. With US markets closed for a public holiday Monday, there was little incentive to take aggressive positions, especially with more US figures to come as players try to get a line on the economic outlook.
The euro has come under pressure on expectations the European Central Bank will lower interest rates this year. European Central Bank (ECB) Governing Council member Christian Noyer said in an interview released on Sunday euro zone growth might be weaker than hoped as a result of market turmoil but he saw no big setback.
The dollar was finding some support on gains in Asian stock markets as well as hopes that the Federal Reserve's rate cuts and the newly enacted fiscal stimulus package could rekindle U.S. economic growth later this year.
Trading activity was slow on Monday, with U.S. financial markets closed for the Presidents Day holiday. Economic data due this week includes the U.S. consumer price index and housing starts on Wednesday.
The dollar slid on Friday after data showed U.S. consumer sentiment fell to a 16-year low, reviving fears that the economy was slipping into a recession while reinforcing expectations for more Fed rate cuts.
Concern about more fallout from credit market turmoil and bigger losses at financial firms have hurt the U.S. currency, driving it back near a record low hit against the euro last year.
According to a survey released on Friday, the consumer sentiment index fell to 69.6 in mid-February from 78.4 in January, the lowest since February 1992.
Meanwhile, the US Trade Deficit narrowed in 2007, for the first time in six years, to 711.6 billion dollars from 758.5 billion in 2006, according to the Commerce Department.
Also, report from the US Labor Department showed initial claims for state unemployment benefits dropped by 9,000 to 348,000. However, the four-week moving average of new claims increased 12,000 to reach 347,250.
An unexpected rise in US retail sales had pushed up the dollar on Wednesday. The release by US Commerce Department showed retail sales rose 0.3 % in January.
Billionaire investor Warren Buffett had offered to reinsure 800 billion dollars in municipal bonds backed by three insurers hard hit by the US mortgage and credit crunch, a move that might help ease the recent credit market turmoil.
But the National Federation of Independent Business index of small-business optimism fell by 2.8 points to 91.8 in January, the lowest since January 1991.
The Bank of England had cut its benchmark interest rate by 25 basis points as expected, and the European Central Bank held rates steady on Feb 7th.
The G7 statement offered no significant changes from the group's October statement regarding currencies, but has warned that the global economy faces risks due to the US housing market, tight credit markets and high oil and commodity prices.
Annual euro-zone inflation remained at 3.2% in January, above the ECB's medium-term target of around 2%.
Data from the US Labor Department released last week indicated productivity growth of US non-farm businesses slowed significantly, to a 1.8% annual rate in the fourth quarter from a 6% rate in the third quarter, which dampened the sentiments of investors in the dollar.
In a grave effort to prevent a global market meltdown in financial markets and a possible recession in the US economy, the Fed had lowered its lending rate by 75 basis points to 3.50% - a rare move between formal meetings of the central bank's policymakers in January; and again lowered the rate to 3 percent January 30th. The 75 basis point has been the largest cut in the fed funds rate since 1990.
The fear of economic slowdown spreading to other nations most of the policy makers are closely watching the economy.
Medium Term Outlook Active trading above 1.4510 is the sign of weakness in dollar. Supports are 1.4630, 1.4755, 1.4788, 1.4966 and 1.5052. Resistances are 1.4450, 1.4320 and 1.4277. More weakness can be expected above 1.4968
In spot, dollar closed at 1.4657(1.4678) against the euro, after trading in the range 1.4690 – 1.4609.
The euro has come under pressure on expectations the European Central Bank will lower interest rates this year. European Central Bank (ECB) Governing Council member Christian Noyer said in an interview released on Sunday euro zone growth might be weaker than hoped as a result of market turmoil but he saw no big setback.
The dollar was finding some support on gains in Asian stock markets as well as hopes that the Federal Reserve's rate cuts and the newly enacted fiscal stimulus package could rekindle U.S. economic growth later this year.
Trading activity was slow on Monday, with U.S. financial markets closed for the Presidents Day holiday. Economic data due this week includes the U.S. consumer price index and housing starts on Wednesday.
The dollar slid on Friday after data showed U.S. consumer sentiment fell to a 16-year low, reviving fears that the economy was slipping into a recession while reinforcing expectations for more Fed rate cuts.
Concern about more fallout from credit market turmoil and bigger losses at financial firms have hurt the U.S. currency, driving it back near a record low hit against the euro last year.
According to a survey released on Friday, the consumer sentiment index fell to 69.6 in mid-February from 78.4 in January, the lowest since February 1992.
Meanwhile, the US Trade Deficit narrowed in 2007, for the first time in six years, to 711.6 billion dollars from 758.5 billion in 2006, according to the Commerce Department.
Also, report from the US Labor Department showed initial claims for state unemployment benefits dropped by 9,000 to 348,000. However, the four-week moving average of new claims increased 12,000 to reach 347,250.
An unexpected rise in US retail sales had pushed up the dollar on Wednesday. The release by US Commerce Department showed retail sales rose 0.3 % in January.
Billionaire investor Warren Buffett had offered to reinsure 800 billion dollars in municipal bonds backed by three insurers hard hit by the US mortgage and credit crunch, a move that might help ease the recent credit market turmoil.
But the National Federation of Independent Business index of small-business optimism fell by 2.8 points to 91.8 in January, the lowest since January 1991.
The Bank of England had cut its benchmark interest rate by 25 basis points as expected, and the European Central Bank held rates steady on Feb 7th.
The G7 statement offered no significant changes from the group's October statement regarding currencies, but has warned that the global economy faces risks due to the US housing market, tight credit markets and high oil and commodity prices.
Annual euro-zone inflation remained at 3.2% in January, above the ECB's medium-term target of around 2%.
Data from the US Labor Department released last week indicated productivity growth of US non-farm businesses slowed significantly, to a 1.8% annual rate in the fourth quarter from a 6% rate in the third quarter, which dampened the sentiments of investors in the dollar.
In a grave effort to prevent a global market meltdown in financial markets and a possible recession in the US economy, the Fed had lowered its lending rate by 75 basis points to 3.50% - a rare move between formal meetings of the central bank's policymakers in January; and again lowered the rate to 3 percent January 30th. The 75 basis point has been the largest cut in the fed funds rate since 1990.
The fear of economic slowdown spreading to other nations most of the policy makers are closely watching the economy.
Medium Term Outlook Active trading above 1.4510 is the sign of weakness in dollar. Supports are 1.4630, 1.4755, 1.4788, 1.4966 and 1.5052. Resistances are 1.4450, 1.4320 and 1.4277. More weakness can be expected above 1.4968
In spot, dollar closed at 1.4657(1.4678) against the euro, after trading in the range 1.4690 – 1.4609.
Why is IMF selling its Gold reserves?
Joining the dots between gold investment, the IMF, and South Africa's fast-falling mining output. "Gold falls on IMF sales concerns," read a headline at the BBC news page.
The IMF has about 3,217 tonnes of Gold Bullion. Why would it sell it?
"By revaluing its holdings, the IMF may be able to sell billions of dollars of gold and use the cash to cancel debts owed by the world's poorest nations," the BBC explains.
"The plan was put forward by G7 finance ministers over the weekend. The price of gold fell to $413.50 an ounce in Asia, before rebounding slightly in early European trading..."
But wait...Isn't the Gold Price trading around $900 per ounce? Why does the BBC say $413.50...?
Oh yes, but of course! That BBC article was written back in 2005. And for whatever reason, whenever the price of Gold hits some technical resistance, someone trots out the idea of central bank or IMF sales to swamp the market and keep the Gold Price down.
Or so it seems. Just keep in mind that central banks and the IMF have about 28,500 thousand tonnes of gold between them. Private investors, including Asia's jewelry owners – who view the metal as an investment as much as an adornment – have about 128,000 tonnes. So the idea that central banks can flood the Gold Market to depress the price is a bit rich. Real gold manipulation is far more complex.
Still, it might make sense for the IMF today. The fund spends about $1 billion a year in loans to the developing world, but only makes about $600 million in loan repayments. Talk about a bad business!
The market value of the 103 million ounces of gold held by the IMF is considerably higher today than it was five years ago, up to about $92 billion from $23 billion. What's more, the plan floated at last weekend's G7 meeting was to sell just 400 tonnes of IMF gold, or about 12.9 million ounces.
That would generate about $11.5 billion in revenue at an average gold price of $900.
Granted, lending to the developing world is a bad business. But you have to assume the IMF would not flood the market with gold, only to lower Gold Prices and the money the fund would receive from any planned gold sales, not to mention lowering the value of the rest of its gold. Even if that was what Gordon Brown's famous gold sales did for the United Kingdom.
We think it's safe to assume that when you factor in declining gold mining output in South Africa, the addition of 400 tonnes of IMF gold on to the market is not going to crash the price of Investment Gold. It probably just means gold investors can increase their holdings by, say 400 tonnes.
What exactly is going on in South African gold mining output? We know the state power company, Eskom, has called for a 10% reduction in industrial and commercial usage indefinitely. It says the rationing of electricity may not be far off, and that the crisis will last at least six months.
Coal stockpiles to run South Africa's generating facilities are low. And in the gold mining industry, a 10% reduction in power means a 20% reduction in output owing to all the systems (ventilation, pumping) that must be in operation for a mine to operate. Platinum group metals, of which South Africa is a major producer, should continue to benefit, as should gold.
It remains the No.2 producer, now behind China. But what in the world will happen to South Africa as an economy and a country? Will it need to call on the IMF for help, not least if the Gold Price turns tail...?
The IMF has about 3,217 tonnes of Gold Bullion. Why would it sell it?
"By revaluing its holdings, the IMF may be able to sell billions of dollars of gold and use the cash to cancel debts owed by the world's poorest nations," the BBC explains.
"The plan was put forward by G7 finance ministers over the weekend. The price of gold fell to $413.50 an ounce in Asia, before rebounding slightly in early European trading..."
But wait...Isn't the Gold Price trading around $900 per ounce? Why does the BBC say $413.50...?
Oh yes, but of course! That BBC article was written back in 2005. And for whatever reason, whenever the price of Gold hits some technical resistance, someone trots out the idea of central bank or IMF sales to swamp the market and keep the Gold Price down.
Or so it seems. Just keep in mind that central banks and the IMF have about 28,500 thousand tonnes of gold between them. Private investors, including Asia's jewelry owners – who view the metal as an investment as much as an adornment – have about 128,000 tonnes. So the idea that central banks can flood the Gold Market to depress the price is a bit rich. Real gold manipulation is far more complex.
Still, it might make sense for the IMF today. The fund spends about $1 billion a year in loans to the developing world, but only makes about $600 million in loan repayments. Talk about a bad business!
The market value of the 103 million ounces of gold held by the IMF is considerably higher today than it was five years ago, up to about $92 billion from $23 billion. What's more, the plan floated at last weekend's G7 meeting was to sell just 400 tonnes of IMF gold, or about 12.9 million ounces.
That would generate about $11.5 billion in revenue at an average gold price of $900.
Granted, lending to the developing world is a bad business. But you have to assume the IMF would not flood the market with gold, only to lower Gold Prices and the money the fund would receive from any planned gold sales, not to mention lowering the value of the rest of its gold. Even if that was what Gordon Brown's famous gold sales did for the United Kingdom.
We think it's safe to assume that when you factor in declining gold mining output in South Africa, the addition of 400 tonnes of IMF gold on to the market is not going to crash the price of Investment Gold. It probably just means gold investors can increase their holdings by, say 400 tonnes.
What exactly is going on in South African gold mining output? We know the state power company, Eskom, has called for a 10% reduction in industrial and commercial usage indefinitely. It says the rationing of electricity may not be far off, and that the crisis will last at least six months.
Coal stockpiles to run South Africa's generating facilities are low. And in the gold mining industry, a 10% reduction in power means a 20% reduction in output owing to all the systems (ventilation, pumping) that must be in operation for a mine to operate. Platinum group metals, of which South Africa is a major producer, should continue to benefit, as should gold.
It remains the No.2 producer, now behind China. But what in the world will happen to South Africa as an economy and a country? Will it need to call on the IMF for help, not least if the Gold Price turns tail...?
Bullion market: Gold price linked to Dollar volatility
St. LOUIS (ResourceInvestor.com) -- Not surprisingly, gold demand in 2007 was much like the gold price: mostly steady in the first eight months before seeing a sharp turn and experiencing some extreme bouts of volatility in the final quarter.
According to the World Gold Council’s (WGC) “Gold Demand Trend” for the full year and fourth quarter of 2007, dollar demand for gold rose to a record high of $79.2 billion in 2007 - its fourth annual record in a row. In tonnage terms, identifiable gold demand increased by 4% over 2006 to 3,547 tonnes.
But when considering the fourth quarter alone, gold’s record-breaking run to $850 and severe volatility actually caused identifiable demand to fall by 17% in tonnage terms from the fourth quarter in 2006. Because of gold’s high price, however, 2007’s fourth quarter identifiable demand in dollar terms rose 7% to hit $21.3 billion - a new quarterly record.
“On a yearly basis we have a seen a 4% tonnage rise in identifiable demand for gold and record levels of demand in dollar terms, which is pleasing,” said WGC chief executive James Burton in a statement. “However, high and volatile gold prices in recent months have meant we have now entered a period of challenging trading conditions in the gold market, which have heavily impacted consumer demand for gold especially in the jewellery and retail investment sectors.”
Challenging Conditions?
Jewellery demand was hardest hit by rising gold prices and volatiltiy. In India, the world’s top gold consuming nation, total demand fell 64% year-on-year in the fourth quarter - despite 40% growth in the first three quarters of 2007. Demand in the fourth quarter totalled just 83.9 tonnes, down from the 230.1-tonne level achieved in the fourth quarter of 2006 following a fall in the gold price.
Indian investors are known for being quite sensitive to volatility in the gold market, which subsequently affected jewellery demand, as jewellery consumption made up 72% of India’s total gold demand in 2007.
“Consumers in India pay more attention to the stability of the gold price than the outright price and may delay purchases until the price has settled down, even if it stabilises at a higher level,” the WGC said in its report.
Indian jewellery demand in the fourth quarter of 2007 amounted to 54 tonnes, down 67% year-on-year from 164.5 tonnes in Q4 2006.
In addition to high prices, the weakening economy led to a 14% drop in U.S. jewellery demand for the whole year in 2007. This fall in demand allowed China, which recorded jewellery demand of 302.2 tonnes in 2007, to overtake the U.S. as the second largest gold jewellery consumer in the world behind India.
These “challenging trading conditions” for consumer demand - rising gold prices, extreme volatility and a possible recession in the U.S. - are likely to continue characterizing the gold market for at least the first quarter of 2008, the WGC reported.
“Given that gold price volatility has escalated during the opening weeks of 2008, the outlook is for consumer demand, and jewellery demand in particular, to remain subdued during the first quarter of the coming year,” the council said in its report.
“However, sentiment among consumers remains strong, particularly given rising income levels, and solid buying is likely to emerge on any short term corrections in the gold price.”
Investment Demand - Down for the Quarter, Up for the Year
Investment demand felt a similar reaction to volatility and the upward trend in the gold price in the fourth quarter, though not as extreme as consumer demand.
In dollar terms, net investment in the fourth quarter of 2007 hit a record high of $8 billion, thanks to the high gold price. But in tonnage terms, the picture wasn’t as rosy.
Although it was up 2% year-on-year in 2007, net retail investment in the forms of bars and coins was down 39% at 67 tonnes in the fourth quarter compared to the same time in 2006. In addition, exchange-traded fund demand, which was at a record high in the third quarter at 139 tonnes (see RI coverage here), tumbled to 78 tonnes in the fourth quarter. For the year, total ETF demand in 2007 was down 4% from 2006 at 251 tonnes.
“When consumers see a parabolic rise in prices, driven by bad news that eventually has some anticipated resolution, they become skittish on the issue of sustainability in values and hold back from the market,” explained analyst Jon Nadler of Kitco Bullion Dealers.
Industrial demand, however, was the shining star of the fourth quarter. It rose 2% year-on-year in both the fourth quarter and the whole year in 2007. Total demand was 77.4 tonnes in Q4 2007 for a total of 465 tonnes for the year.
Will Demand Continue to Lose its Lustre?
As a possible recession continues to hang over the U.S. economy - a recession that is likely to slow down the rest of the world economically as a result - investor demand is likely to remain high in dollar terms, the WGC said.
Jewellery demand, on the other hand, will probably stay weak while gold prices adjust to dollar volatility and threats of inflation. “The combination of record prices and high volatility is a deterrent to jewellery buying by both the trade and consumers,” the council said. “This form of demand will not therefore be strong in the first quarter of 2008 and will remain under pressure while prices remain volatile.”
But bright spots remain for gold demand worldwide. Russia’s jewellery demand rose 11% in 2007 compared to the year prior, and the country’s fourth quarter demand was almost 25% higher than Q4 2006, making it the fastest growing gold consuming country in the fourth quarter last year. In addition, China recorded a 26% growth in demand in 2007 compared to 2006, consuming a total of 326 tonnes. And if China can decouple from a U.S. recession - and many analysts are saying that is increasingly possible - then gold demand could be in for a big rise in the country.
According to the World Gold Council’s (WGC) “Gold Demand Trend” for the full year and fourth quarter of 2007, dollar demand for gold rose to a record high of $79.2 billion in 2007 - its fourth annual record in a row. In tonnage terms, identifiable gold demand increased by 4% over 2006 to 3,547 tonnes.
But when considering the fourth quarter alone, gold’s record-breaking run to $850 and severe volatility actually caused identifiable demand to fall by 17% in tonnage terms from the fourth quarter in 2006. Because of gold’s high price, however, 2007’s fourth quarter identifiable demand in dollar terms rose 7% to hit $21.3 billion - a new quarterly record.
“On a yearly basis we have a seen a 4% tonnage rise in identifiable demand for gold and record levels of demand in dollar terms, which is pleasing,” said WGC chief executive James Burton in a statement. “However, high and volatile gold prices in recent months have meant we have now entered a period of challenging trading conditions in the gold market, which have heavily impacted consumer demand for gold especially in the jewellery and retail investment sectors.”
Challenging Conditions?
Jewellery demand was hardest hit by rising gold prices and volatiltiy. In India, the world’s top gold consuming nation, total demand fell 64% year-on-year in the fourth quarter - despite 40% growth in the first three quarters of 2007. Demand in the fourth quarter totalled just 83.9 tonnes, down from the 230.1-tonne level achieved in the fourth quarter of 2006 following a fall in the gold price.
Indian investors are known for being quite sensitive to volatility in the gold market, which subsequently affected jewellery demand, as jewellery consumption made up 72% of India’s total gold demand in 2007.
“Consumers in India pay more attention to the stability of the gold price than the outright price and may delay purchases until the price has settled down, even if it stabilises at a higher level,” the WGC said in its report.
Indian jewellery demand in the fourth quarter of 2007 amounted to 54 tonnes, down 67% year-on-year from 164.5 tonnes in Q4 2006.
In addition to high prices, the weakening economy led to a 14% drop in U.S. jewellery demand for the whole year in 2007. This fall in demand allowed China, which recorded jewellery demand of 302.2 tonnes in 2007, to overtake the U.S. as the second largest gold jewellery consumer in the world behind India.
These “challenging trading conditions” for consumer demand - rising gold prices, extreme volatility and a possible recession in the U.S. - are likely to continue characterizing the gold market for at least the first quarter of 2008, the WGC reported.
“Given that gold price volatility has escalated during the opening weeks of 2008, the outlook is for consumer demand, and jewellery demand in particular, to remain subdued during the first quarter of the coming year,” the council said in its report.
“However, sentiment among consumers remains strong, particularly given rising income levels, and solid buying is likely to emerge on any short term corrections in the gold price.”
Investment Demand - Down for the Quarter, Up for the Year
Investment demand felt a similar reaction to volatility and the upward trend in the gold price in the fourth quarter, though not as extreme as consumer demand.
In dollar terms, net investment in the fourth quarter of 2007 hit a record high of $8 billion, thanks to the high gold price. But in tonnage terms, the picture wasn’t as rosy.
Although it was up 2% year-on-year in 2007, net retail investment in the forms of bars and coins was down 39% at 67 tonnes in the fourth quarter compared to the same time in 2006. In addition, exchange-traded fund demand, which was at a record high in the third quarter at 139 tonnes (see RI coverage here), tumbled to 78 tonnes in the fourth quarter. For the year, total ETF demand in 2007 was down 4% from 2006 at 251 tonnes.
“When consumers see a parabolic rise in prices, driven by bad news that eventually has some anticipated resolution, they become skittish on the issue of sustainability in values and hold back from the market,” explained analyst Jon Nadler of Kitco Bullion Dealers.
Industrial demand, however, was the shining star of the fourth quarter. It rose 2% year-on-year in both the fourth quarter and the whole year in 2007. Total demand was 77.4 tonnes in Q4 2007 for a total of 465 tonnes for the year.
Will Demand Continue to Lose its Lustre?
As a possible recession continues to hang over the U.S. economy - a recession that is likely to slow down the rest of the world economically as a result - investor demand is likely to remain high in dollar terms, the WGC said.
Jewellery demand, on the other hand, will probably stay weak while gold prices adjust to dollar volatility and threats of inflation. “The combination of record prices and high volatility is a deterrent to jewellery buying by both the trade and consumers,” the council said. “This form of demand will not therefore be strong in the first quarter of 2008 and will remain under pressure while prices remain volatile.”
But bright spots remain for gold demand worldwide. Russia’s jewellery demand rose 11% in 2007 compared to the year prior, and the country’s fourth quarter demand was almost 25% higher than Q4 2006, making it the fastest growing gold consuming country in the fourth quarter last year. In addition, China recorded a 26% growth in demand in 2007 compared to 2006, consuming a total of 326 tonnes. And if China can decouple from a U.S. recession - and many analysts are saying that is increasingly possible - then gold demand could be in for a big rise in the country.
Gold is rising in all currencies
profound broad gold rally is underway. It is occurring in almost every single major currency.
Unsure about Zimbabwe though. In the last article, two major forecasts were made, both hit squarely. The euro fell, heading toward the 143 stated target forecasted. Talk circulates about the Euro Central Bank eventually cutting interest rates. Pressure will grow enormously.
The Germans are isolated in wanting a hard line against price inflation. A Latin Bloc has formed, urging a rate cut as the southern nations of France, Italy, Spain, Portugal, and Greece suffer from housing declines. Even Ireland has joined that bloc.
A compromise will be worked out, more like a gang-up against the Germans. In my view, the 143 target is still on the board, as the euro 20-week moving average serves as a few logs on the roadway. In time, a cleared path down a little more.
Much of the euro rise has been predicated in the last year or more upon continued rate hikes. Not only will they not happen, but rate cuts will be more the norm.
The Competing Currency War ensures it. The US Federal Reserve has exported its monetary ease policy. Foreign currencies simply cannot fight it.
Unsure about Zimbabwe though. In the last article, two major forecasts were made, both hit squarely. The euro fell, heading toward the 143 stated target forecasted. Talk circulates about the Euro Central Bank eventually cutting interest rates. Pressure will grow enormously.
The Germans are isolated in wanting a hard line against price inflation. A Latin Bloc has formed, urging a rate cut as the southern nations of France, Italy, Spain, Portugal, and Greece suffer from housing declines. Even Ireland has joined that bloc.
A compromise will be worked out, more like a gang-up against the Germans. In my view, the 143 target is still on the board, as the euro 20-week moving average serves as a few logs on the roadway. In time, a cleared path down a little more.
Much of the euro rise has been predicated in the last year or more upon continued rate hikes. Not only will they not happen, but rate cuts will be more the norm.
The Competing Currency War ensures it. The US Federal Reserve has exported its monetary ease policy. Foreign currencies simply cannot fight it.
Platinum futures remain bullish
Platinum group metals continued to soar Friday in an ongoing reaction to electrical-supply problems in South Africa, with platinum futures hitting a record high for the 12th trading day in a row.
Gold futures declined on profit-taking in volatile trading, however.
April platinum soared $57.80 to finish at $2,063.70 an ounce, after hitting a New York Mercantile Exchange record high of $2,079.90 in screen trading shortly after the open-outcry close.
The mines in South Africa, source of about three-quarters of the world's platinum, haven't been able to keep pace with soaring demand over the past six years, as demand skyrockets from jewelers, auto makers and new investment products like the American Proof and Mint State Platinum Eagles that many people are putting in to their IRA plans. Investment in pair of still-young platinum exchange-traded funds in Europe is further adding to the demand for the metal.
In other metals trading, March palladium settled $10.55 higher at $451.70 an ounce, after hitting a contract high of $456. Some of this metal also comes from South Africa, although global supplies are not as heavily dependent on the country as in platinum, with Russia instead the top palladium producer.
April gold finished $4.70 lower at $906.10 an ounce on the Comex division of the Nymex, March silver fell 13.7 cents to $17.118 an ounce, but March copper contract settled 3.50 cents higher at $3.5230 a pound.
Gold futures declined on profit-taking in volatile trading, however.
April platinum soared $57.80 to finish at $2,063.70 an ounce, after hitting a New York Mercantile Exchange record high of $2,079.90 in screen trading shortly after the open-outcry close.
The mines in South Africa, source of about three-quarters of the world's platinum, haven't been able to keep pace with soaring demand over the past six years, as demand skyrockets from jewelers, auto makers and new investment products like the American Proof and Mint State Platinum Eagles that many people are putting in to their IRA plans. Investment in pair of still-young platinum exchange-traded funds in Europe is further adding to the demand for the metal.
In other metals trading, March palladium settled $10.55 higher at $451.70 an ounce, after hitting a contract high of $456. Some of this metal also comes from South Africa, although global supplies are not as heavily dependent on the country as in platinum, with Russia instead the top palladium producer.
April gold finished $4.70 lower at $906.10 an ounce on the Comex division of the Nymex, March silver fell 13.7 cents to $17.118 an ounce, but March copper contract settled 3.50 cents higher at $3.5230 a pound.
Future Shocks: Indian Rupee in 2010
Most of us might have forgotten what are the recommendations of the Tarapore Committee, which was headed by Tarapore, the then Deputy Governor of Reserve Bank of India (I had the opportunity to hear him speak on one occasion and must say, he is a great thinker). The committee recommended a roadmap for Capital Account Convertibility in three years (by 2000).
Most of its recommendations have been put in place, though belatedly. Inflation is within 3.5% as targeted. Gross NPAs (Non-Performing Assets) of the public sector banks have been drastically brought down (though credit should go to the 'new generation' private sector banks, who brought in the best from their public sector counterparts, by sheer competition). There has been phased liberalisation of capital controls. So on and so forth. But still our currency is not fully convertible.
What are the reasons for such a policy decision? Initially, the fear was that the Indian rupee would weaken, as there could be capital flight from the country. There was talk all around of possible hit the national pride would take, along with the rupee slide. A certain political party observed in the Times of India : “... It will also increase the risks of a currency crisis, since along with non-residents like the FIIs, Indian residents would also be able to take large amounts of money out of the economy without any restrictions.” But to everybody's surprise no such thing has happened.
The RBI, by (very) prudent policies as well as immaculate foresight saw to it that there isn't any capital flight. So much so that, our worry now was that the rupee is getting stronger, and not weaker as feared.
Well, what is my purpose in this prelude? Each policy maker has his own logic in pursuing a certain line of thinking, more so in the finance sector. It's foolish to doubt the sincerity of any finance minister, insofar as the policies framed by them are, to their best of thinking, for the good of the country. But, it's also critical that there is continuity in approaches, a convergence in thoughts, a will to achieve a common goal, come what may.
It is one thing to appoint a learned committee, and it's another not to follow the roadmap. At the moment, even the layman knows, with the India growth story going strong for last so many years, the inflows to the country's capital markets have been tremendous. And he knows that these inflows are being absorbed by the RBI to arrest the rise in the Indian rupee. In the process, the country's foreign exchange reserves are ballooning. The policy makers are wary of spending a large chunk of it on infrastructure development, lest the FIIs, who are the major players, withdraw from the market.
But how long this will continue? Is this our policy to sterilise the flows to stem the rise in rupee? See the other side of the story. The US dollar is getting beaten in the markets due to factors gone out of control of the federal reserve. The picture on the sub-prime is still not clear. Are we done? Are more to follow? How many billions more will now be written off? Does anybody know? I think, and most would agree with me, the worst is yet to come. Where does that take us, in India? Do we really see sub-39 in the Indian rupee?
There are two scenarios. One, overseas investors, who have funds crunch, would have no money to invest in the emerging markets. In which case, fewer flows would be there. But here, the domestic investors' involvement will see to it that the stock markets are not affected; though, there may not be any cause for rupee appreciation, other than through genuine 'market-related' movements. In the second scenario, the foreign investors who still would have survived the impending US recession would be too willing to continue their presence in markets like India.
In the first case, we abandon our view of higher rupee, but stick to a steady rupee; and definitely not a weaker one. In the second case, we vehemently stick to the higher rupee if you want to predict in round 5s 35 to a dollar. In the early 90s, when the greenback was being shunned by all and sundry, there appeared a cartoon in a German daily, where a beggar says to the person giving him a one-dollar coin 'bitte, keine dollar' meaning 'no dollars, please'. I think we might see the same scene sometime in 2/3 years. Shall we put it, by 2010? Between 30-35 to a dollar? Go long rupee.
As a fall-out of the so-called 'licence-permit' raj, the per capita level of corruption, fraud, cheating etc was outnumbering the genuine transactions by the genuine stake-holders in various spheres of economic activity. The PTB's (Powers-That-Be) were, quite understandably, suspicious of anybody coming in for any approval/permission. Then as we slowly got into the phase, where the post-independent born started taking junior positions in the government and elsewhere, fresh thinking started to seep the corridors of power.
The Indian bureaucrats were exposed to the outside world through various postings in UN and other agencies. I would call this the precursor of liberalisation. To cut the story short, whenever there were new ideas thrown in by well-intentioned people, it was initially either rejected, or viewed with apprehension, if not suspicion. We have, however, seen waves of technology-driven tools being introduced in various financial markets, in tune with those in advanced countries.
In some cases, the Indians were way ahead of their European/American counterparts. Does anyone know that State Bank of India, Singapore and Frankfurt branches introduced Reuters Deal Matching platform, much before most of the European banks did?
Let's talk of a new (new, in the Indian context) concept. If you visit any site which has some relation with currency markets, you would observe, the site offers a platform for trading in currencies. It assumes that the individual can trade in currencies at market (interbank) rate; and that these traders have been individually assessed and limits given to them. While individuals, in India, can trade in the stock market, buying/selling even one share of a company, and at, what is more important, a rate which is market-related and real-time; one does not understand the logic behind not allowing the individuals to trade in currencies.
The argument about the complexity of the currency market does not hold water, when you view this against the Indian stock markets where till now none of the forecasts has come good; how does one otherwise explain the move from 10000 to 20000 in hardly any time? Put two and two. Let's have proper trading platforms available for individuals. Let's allow them to trade in currencies.
Most of its recommendations have been put in place, though belatedly. Inflation is within 3.5% as targeted. Gross NPAs (Non-Performing Assets) of the public sector banks have been drastically brought down (though credit should go to the 'new generation' private sector banks, who brought in the best from their public sector counterparts, by sheer competition). There has been phased liberalisation of capital controls. So on and so forth. But still our currency is not fully convertible.
What are the reasons for such a policy decision? Initially, the fear was that the Indian rupee would weaken, as there could be capital flight from the country. There was talk all around of possible hit the national pride would take, along with the rupee slide. A certain political party observed in the Times of India : “... It will also increase the risks of a currency crisis, since along with non-residents like the FIIs, Indian residents would also be able to take large amounts of money out of the economy without any restrictions.” But to everybody's surprise no such thing has happened.
The RBI, by (very) prudent policies as well as immaculate foresight saw to it that there isn't any capital flight. So much so that, our worry now was that the rupee is getting stronger, and not weaker as feared.
Well, what is my purpose in this prelude? Each policy maker has his own logic in pursuing a certain line of thinking, more so in the finance sector. It's foolish to doubt the sincerity of any finance minister, insofar as the policies framed by them are, to their best of thinking, for the good of the country. But, it's also critical that there is continuity in approaches, a convergence in thoughts, a will to achieve a common goal, come what may.
It is one thing to appoint a learned committee, and it's another not to follow the roadmap. At the moment, even the layman knows, with the India growth story going strong for last so many years, the inflows to the country's capital markets have been tremendous. And he knows that these inflows are being absorbed by the RBI to arrest the rise in the Indian rupee. In the process, the country's foreign exchange reserves are ballooning. The policy makers are wary of spending a large chunk of it on infrastructure development, lest the FIIs, who are the major players, withdraw from the market.
But how long this will continue? Is this our policy to sterilise the flows to stem the rise in rupee? See the other side of the story. The US dollar is getting beaten in the markets due to factors gone out of control of the federal reserve. The picture on the sub-prime is still not clear. Are we done? Are more to follow? How many billions more will now be written off? Does anybody know? I think, and most would agree with me, the worst is yet to come. Where does that take us, in India? Do we really see sub-39 in the Indian rupee?
There are two scenarios. One, overseas investors, who have funds crunch, would have no money to invest in the emerging markets. In which case, fewer flows would be there. But here, the domestic investors' involvement will see to it that the stock markets are not affected; though, there may not be any cause for rupee appreciation, other than through genuine 'market-related' movements. In the second scenario, the foreign investors who still would have survived the impending US recession would be too willing to continue their presence in markets like India.
In the first case, we abandon our view of higher rupee, but stick to a steady rupee; and definitely not a weaker one. In the second case, we vehemently stick to the higher rupee if you want to predict in round 5s 35 to a dollar. In the early 90s, when the greenback was being shunned by all and sundry, there appeared a cartoon in a German daily, where a beggar says to the person giving him a one-dollar coin 'bitte, keine dollar' meaning 'no dollars, please'. I think we might see the same scene sometime in 2/3 years. Shall we put it, by 2010? Between 30-35 to a dollar? Go long rupee.
As a fall-out of the so-called 'licence-permit' raj, the per capita level of corruption, fraud, cheating etc was outnumbering the genuine transactions by the genuine stake-holders in various spheres of economic activity. The PTB's (Powers-That-Be) were, quite understandably, suspicious of anybody coming in for any approval/permission. Then as we slowly got into the phase, where the post-independent born started taking junior positions in the government and elsewhere, fresh thinking started to seep the corridors of power.
The Indian bureaucrats were exposed to the outside world through various postings in UN and other agencies. I would call this the precursor of liberalisation. To cut the story short, whenever there were new ideas thrown in by well-intentioned people, it was initially either rejected, or viewed with apprehension, if not suspicion. We have, however, seen waves of technology-driven tools being introduced in various financial markets, in tune with those in advanced countries.
In some cases, the Indians were way ahead of their European/American counterparts. Does anyone know that State Bank of India, Singapore and Frankfurt branches introduced Reuters Deal Matching platform, much before most of the European banks did?
Let's talk of a new (new, in the Indian context) concept. If you visit any site which has some relation with currency markets, you would observe, the site offers a platform for trading in currencies. It assumes that the individual can trade in currencies at market (interbank) rate; and that these traders have been individually assessed and limits given to them. While individuals, in India, can trade in the stock market, buying/selling even one share of a company, and at, what is more important, a rate which is market-related and real-time; one does not understand the logic behind not allowing the individuals to trade in currencies.
The argument about the complexity of the currency market does not hold water, when you view this against the Indian stock markets where till now none of the forecasts has come good; how does one otherwise explain the move from 10000 to 20000 in hardly any time? Put two and two. Let's have proper trading platforms available for individuals. Let's allow them to trade in currencies.
Gold prices to scale new heights this year
LONDON: Gold prices the world over is all set to scale new heights this year as spot gold prices in London rose to $ 907.70 on Tuesday.
Number of factors including record crude oil price, volatile stock markets and a struggling U.S. dollar would keep gold’s surge throughout the year, analysts said.
Indian gold futures also opened higher on Tuesday in tune with foreign Markets where the metal extended gains and a weak rupee.
Jewelry consumption rose to 558 tons in India, the world's largest gold buyer, in 2007 from 526 tons in 2006, although fourth-quarter demand dropped more than 60 percent to 54 tons from 165.4 tons year-on-year.
Sky-high gold prices did little to curb demand for jewelry in India, China and some other Asia countries in 2007, suggesting that buyers recovered from initial shocks sparked by persistent rallies in bullion.
Gold jewelry is the most common gift during religious events in India and forms an essential part of a dowry basket. Annual investment demand in India rose to 215 tons last year from 196 tons in 2006.
In China, jewelry consumption jumped to 302 tons in 2007 from 245 tons in 2006, while investment demand firmed to 24 tons from 15 tons. While fourth quarter demands for jewelry declined in some key consumer areas in Asia last year, China showed an increase of 18 percent to 77 tons.
Number of factors including record crude oil price, volatile stock markets and a struggling U.S. dollar would keep gold’s surge throughout the year, analysts said.
Indian gold futures also opened higher on Tuesday in tune with foreign Markets where the metal extended gains and a weak rupee.
Jewelry consumption rose to 558 tons in India, the world's largest gold buyer, in 2007 from 526 tons in 2006, although fourth-quarter demand dropped more than 60 percent to 54 tons from 165.4 tons year-on-year.
Sky-high gold prices did little to curb demand for jewelry in India, China and some other Asia countries in 2007, suggesting that buyers recovered from initial shocks sparked by persistent rallies in bullion.
Gold jewelry is the most common gift during religious events in India and forms an essential part of a dowry basket. Annual investment demand in India rose to 215 tons last year from 196 tons in 2006.
In China, jewelry consumption jumped to 302 tons in 2007 from 245 tons in 2006, while investment demand firmed to 24 tons from 15 tons. While fourth quarter demands for jewelry declined in some key consumer areas in Asia last year, China showed an increase of 18 percent to 77 tons.
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