Iran-China Mega Deal | Game-changing Bargaining Chip for Iran

This partnership is going to act as a bargaining chip for Iran as it will get some much-needed wiggle room and breathing space, irrespective of the next occupant in the White House...

Read more:

https://www.moneycontrol.com/news/opinion/iran-china-mega-deal-game-changing-bargaining-chip-for-iran-5608951.html

COVID-19 | A Boon and Boost to the Surveillance State

Date of publication: April 25, 2020

Ultimately, democratic freedom is lost not by a sudden attack carried out by a larger force, but by attrition rooted in a cacophony of silence and a passive consent to oppression. By the time we realise the same, the strategic pressure points of democracy would have been compromised beyond repair and healing. It is mass testing for detecting the virus that is the answer, not mass-surveillance. The collective resources of the planet should be directed towards this end.

Read the complete article here at the MoneyControl.com portal: https://www.moneycontrol.com/news/politics/covid-19-a-boon-and-boost-to-the-surveillance-state-5188321.html

COVID-19: Why is it Still Unwise to Bet against America?

Date of publication: April 17, 2020

The issues faced by the US are so grim that many observers intuitively feel it is almost time to write off the United States of America, whatever that means. The US is on ventilator support, they feel. Perhaps, nothing could be farther from the truth. This is because many of them forget that the present corona pandemic in the US is not a crisis of capability but one characterised by utter negligence and zero preparation. The general characterisation and belief of the pandemic as, ‘this is just a seasonal flu; it will go away’ flew in the face of America. Millions of Americans got it wrong, just like the transatlantic people.

Read the complete article here at the website of Kochi based think-tank, Centre for Public Policy Research: https://www.cppr.in/centre-for-strategic-studies/covid-19-why-is-it-still-unwise-to-bet-against-america

India’s Lockdown: Partial Success is Total Failure

Date of publication: Friday, April 03, 2020

And in the times of corona pandemic, partial success is complete failure. It is like a total, all-out war. Win or lose, there is no halfway house. Because, even a single carrier of the virus can wreak havoc.

Read the complete article here at the blog of Kochi based think-tank, Centre for Public Policy Research:

https://cppr.blogspot.com/2020/04/indias-lockdown-partial-success-is.html

India-US relations and Iran Crude Oil: Chords of discord warrant polite chimes

12 Mar 2014
When he was the President elect in 2009, Barack Obama, as per reports planned to appoint Richard Holbrooke as a special envoy for India-Pakistan- Afghanistan region. The then Foreign Minister of India, and the current Indian President Pranab Mukherjee strongly opposed it and made it unequivocally clear that the move “smacks of interference and would be unacceptable [to India].”

Mukherjee was concerned that envoy with a mandate for the three nations would also take it on his part to “interfere” in Kashmir issue in which India has kept a third party away from meddling.

“Mukherjee was deeply concerned about any move toward an envoy with a broad regional mandate that could be interpreted to include Kashmir. Such a broad mandate would be viewed by India as risky and unpredictable, exposing issues of vital concern to India to the discretion of the individual appointed,” a Wikileaks cable noted.

Subsequent to intense lobbying by India, Hoolbrooke’s (who is no more) Job Description was devoid of India and thereby Kashmir.

In his second term, the Obama administration found itself on the defensive side when an Indian diplomat Devyani Khobragade was arrested and subjected to strip and cavity searches on charges of certain visa violations by authorities there, despite she was enjoying diplomatic immunity, according to India. India paid back to US in a different coin revoking certain diplomatic privileges enjoyed by its officials. Finally John Kerry expressed his regrets on the Devyani incident.

Since, then, the US-India relationship is teetering on the edge of an abyss. From snooping on India, to solar dispute, to pharma patent rows, to the civil nuclear liability issue, the chords of discord have been multiplying.

Iran Oil

On a latest note, US has ‘asked’ India to curtail oil imports from Iran to 1, 95,000 barrels as a part of the deal signed by Iran and six nations to which India is not a party.

A nuclear armed Iran is not in the interests of India. And past reports suggest that Iran, by undertaking certain enrichment efforts has violated Non Proliferation Treaty provisions to which it is a signatory. By supporting the deal and prodding for diplomatic solutions, India’s tune and tone has always been conducive for a peaceful solution.

Now take a look at this Reuters exclusive:

“India, with the increases already made in the January-March loading plans from Iran, has to cut its purchases of the crude to about 110,000 barrels per day (bpd) to drop its intake average to 195,000 bpd for the six months to July 20.

Under the November 24 agreement between Iran and six world powers, the OPEC member [Iran] was to hold oil exports at “current volumes” of about 1 million bpd, and a message delivered by a top U.S. energy policy official to Indian ministries in February was the first clear sign of low tolerance for any increases.”

While one cannot know of the content of the message or its tone the reply of an Indian official provides for enough clues that it was not a pleasant one.

"It is a fact that they (the United States) have asked us that Iran's exports to India should not exceed 195,000 bpd between January to July and we have said that we'll take care of that," said one of the government sources, all of whom requested anonymity because of the sensitivity of the issue.”

Taking into consideration the global stakes involved in this deal between Iran and world powers, energy strapped India should do everything it can to attain the necessary outcomes even if it means curtailing sourcing of crude from Iran.

By asking India (and not requesting) who is not a party to the deal, one would also doubt if US would use the same language when communicating with China, Japan and South Korea, who have also stepped up their oil imports from Iran since the interim deal was signed.

In the context of so many disputes proliferating between India and US, the authorities in US would do well if they show a bit more of politeness and discretion in approach when dealing with India.

This is a suggestion applicable for every other issue, present and future.

After all, arrogance is not American! (rakesh.neelakandan@gmail.com)

http://www.commodityonline.com/news/india-us-relations-and-iran-crude-oil-chords-of-discord-warrant-polite-chimes-58210-3-58211.html

Yu’e Bao or people’s money of China

12 Mar 2014
Imagine that you belong to a Chinese middle class family and is the mother of only child whose father is employed in a factory in some Chinese province. You have a sewing machine and therefore some neighbourhood business and you also own a smart phone. You have an account in a Chinese bank that returns you meagre interests. Then you hear of Alibaba and its Alipay providing you with Yu’e Bao, a financial product.

You have an account in Alipay—a Paypal like system-- and once you transfer the titbits of money you have with you from the State-owned bank’s account to Yu’e Bao, you start receiving 17 times interest compared to traditional savings opportunity! Besides, you can withdraw the money anytime you want from Yu’e Bao! At approximately 6% of annualised interest rates, your life changes all of a sudden. You can save more and shop more using the Alipay system from Alibaba’s e-commerce sites, if that be your choice.

Thus, suddenly you are in a wonderland!

Alibaba—world’s largest online Bazaar does more business in the e-commerce sector than Amazon and Ebay combined. It has Alipay service which in turn launched Yu’e Bao in June 2013.The fund takes deposits from laymen and businesses and funnels them to interbank market.

“Up to 90 percent of Yu’e Bao funds are invested in interbank deposits at 29 large banks, including the big state-owned ones,” notes IB Times in an article.

Given the size of deposits—Yu’e Bao raised $90 billion in 8 months—it can negotiate for better interest rates from banks unlike other customers.

However, behind the success of Yu’ e Bao lays some penchant realities in the Chinese banking sector.

The Chinese banks are primarily state-owned enterprises. Like any other banks, they take deposits from people and dishes out loan to the needy enterprises and individuals. But the banks are also tightly regulated in that the interest rates on deposits and loans are determined not by market forces, but by People’s Bank of China (PBoC), the Chinese equivalent of India’s Reserve Bank.

For decades, the state-owned banks were provided with a huge spread between interests on loans and deposits helping them to rake in gigantic amount in profits. The layman in China having no other avenues to save his precious money always resorted to deposit options provided by banks.

This meant they received just 0.35% interest in savings account and to secure a loan, had always had to attend to sky-high interest rates. Meanwhile the state-owned banks in China channelled this easy money from deposits—it stands somewhere around $12 trillion—to various state-owned enterprises and other industries.

Communist rate of growth

In a bid to keep the Communist growth rate of 8% for GDP, reckless lending measures ensued in China. In addition to legitimate lending, banks also opted for shadow lending as well. This phenomenon resulted in an excessive infrastructure boom. Buildings were built which were never occupied; malls were built where there were no footfalls.

All these resulted in a commodity consumption boom and along with trillions of Yuan in stimulus measures in the wake of Great Recession, assumed a ghastly dimension in terms of credit situation in China. Consequently, the past year in June saw a freezing of interbank lending in China.

The same month also witnessed the launching of Yu’e Bao!

In short, Yu’e Bao was derived from the financial arsenal of China to keep in check the liquidity crunch in the interbank lending using people’s money. By shooting this dart, China valiantly deployed the interbank credit freezing and resultant financial crisis risks on to broader shoulders of Chinese public.

With surplus money in the interbank lending system courtesy of Yu’e Bao, China is in a position to manage credit risks better, one may think. Hold your breath.

News reports today said of a Chinese solar company defaulting on onshore corporate bonds; the bond market is regulated by PBoC since 1997. Unlike the presumed bailout it carried out in case of a trust company, this time around, nobody came to the rescue of Chaori Solar Energy Science and Technology Company. Obviously, Chinese banks are exposed to this credit default risk.

If more of such news follow, and banks grow more cautious in lending to each other, it would help Yu’e Bao to demand excessive interest rates by any standards which could be passed on to customers. The growth momentum of GDP fixed at 7.5% by Xi Jinping means China will have to continue moving on its growth trajectory. This would put pressure on banks to lend voraciously. But waves of default may make lending by Yu’e Bao run to dead end.

While the users of Yu’e Bao can withdraw money in a swish using their smart phones, Yu’e Bao may not be in a position to take out money with such speed as the same would be locked-in within the system. This means, the promoters of Alibaba may have to face the heat; it would possibly face severe financial crisis and in case of a Yu’e Bao default reckless public fury.

Given that Yu’e Bao can continue to grow for the time being, this risk may not emerge until the bubble pops. Chinese e-commerce companies like Baidu and WeChat are also on the move to aggressively promote products like Yu’ e Bao. When they assume a sizeable chunk of the economy the popping of the bubble can contribute to a nightmarish scenario: trigger a financial meltdown, spur an economic failure and spark a political crisis of lethal dimensions.

Perhaps, in a bid to avoid that mishap China is mulling the introduction of private banks on a trial basis which would address the credit requirements of individuals and SMEs. The authorities are also contemplating further de-regulation of the banking sector.

The sooner, better! (rakesh.neelakandan@gmail.com)

http://www.commodityonline.com/news/yue-bao-or-peoples-money-of-china-58205-3-58206.html 

Russian military, Gas prowess: Ukraine over, Poland and Belarus next?

If Russian President Vladimir Putin states that he has a dream, the ex-Soviet Republics would either have nightmares or have sleepless nights. Putin does have a dream and that dream is the resurgence of Soviet might, perhaps adjusted to current day realities. And Russian gas and oil have pivotal roles in helping him realise his dreams.

What he wants is not a centralised Soviet Union dominating the former Republics. That would be impossible to achieve in current day circumstances. But he can still maintain defacto control over former Soviet republics; Ukraine and especially Crimea is going to be an example in this regard.

Why Russia has decided to annex Crimea?

The Russian naval presence, its largest offshore, is a compelling reason for Russia to annex Crimea. Let us not nurse the illusion that Russian leader is interested in protecting the welfare of Russian speakers in Crimea.

If he has not heeded the calls of his own citizens in matters related to transparency and accountability of governance in Russia, how can he be deemed to represent Russian interests in Russian soil in a democratic sense? Now, if that be true, how can we ever expect the Russian President to represent and fight for Russian speaking Crimeans in foreign soil and that too, against the wishes and amid threats from international community?

Hence the argument that Russia is trying to protect the interests of Russian speaking Crimeans by annexing Crimea carries no weight.

Currently Crimea is an Autonomous Republic within Ukraine, a sovereign territory of Ukraine and therefore indivisible from Ukraine. However, according to an intergovernmental agreement between Russia and Ukraine, the latter had allowed Russian Navy at Sevastopol in Crimea with strict provisions that limit the soldiers from crossing a certain perimeter.

By annexing Crimea, Russia can use the base for its own ends—already the base is the largest one offshore Russia—with no restrictions, in other words like a blank cheque of significant strategic leverage.

This will have two dividends. Russia, depending on its strategic intentions, can go for a limitless troop surge and hardware augmentation in Crimea. Secondly, annexation can result in the dangling of a permanent sword hung over Ukraine, thereby forcing it to behave in line with commands in Russian.

Given the massive troop presence in Crimea, Ukraine would lose its strategic autonomy and its decisions on multiple policy fronts would be shaped by the Russian presence subconsciously. Crimea would thus be a valve that would allow Russia to step up pressure on Ukraine at its will and pleasure. By exercising sovereign control over Crimea, Russia can maintain defacto control over Ukraine.

The gas question

Russia is still the largest energy supplier to Europe. And many a pipeline network established in Soviet era passes through Ukraine and nations like Poland and Belarus. Russia has on different occasions turned off the gas to Ukraine and thereby Western Europe before. That was mainly due to conflicts arising out of pricing of gas. Recent reports suggest that if cash-strapped Ukraine were not to pay its dues on gas purchases, Gazprom—Russia’s monopoly on gas—would once again turn the valves off stepping up pressure on Ukraine. But this would have had its consequences, if not for pipelines—Nord Stream--extending to Western Europe underneath the Baltic Sea.

There are only a few pipeline networks that carry gas from Russia to other parts of Europe. Until the Nord stream got online, the pipeline network to Western Europe was mainly through Ukraine. This meant that by turning off supplies to Ukraine, Russia would in turn and without intention, turned off supplies to Western Europe as well. But with the Nord Stream operational, Russia can afford to do that although it may involve ‘costs’ renting-in on the words of Obama.

By annexing Crimea and pumping gas to Western Europe through Nord Stream, Russia can virtually isolate Ukraine, Belarus and Poland. The latter two are also dependent on Russia for energy needs. Now, with South Stream gas supplies in the pipeline--yet another gas transit extravaganza underneath the Black Sea—Russia could supply gas to other parts of Europe while leaving Ukraine and other nations shiver in European winter and simmer in summer thereby exerting defacto control over Poland and Belarus.

Now one may ask how someone can control and derive strategic dividends from Poland using gas supplies as a tool. My humble suggestion to them would be to closely study the map of Europe.

Between Lithuania and Poland, Russia does have an exclave called Kaliningrad. It is the home of Russian Baltic Sea fleet, yet another strategic outpost. No wonder, states like Estonia, Latvia and Lithuania summoned NATO jets on spotting Russia overtures over the Baltic coast recently.

The long term issue

Annexation of Crimea under the pretext of defending Russian speaking Crimeans, is just the beginning. Putin does have an expansionist design when it comes to restoring Soviet glory. But he knows too well that territorially annexing the Baltic nations would be quite difficult, if not impossible. The only provision left is to maintain defacto control over these nations. And a mix of gas, diplomacy, military presence and masked soldiers sporting nil insignia would contribute to a new model. Putin is just running a test of the same in Crimea with text book precision.

However, in this context one should also note that this future of Soviet prowess is being portrayed assuming many other factors would remain static. But that is never going to be the case. For every action, there would be an equal and comparable reaction, although unpredictable. NATO would be there, so would be the Organisation of Security and Cooperation in Europe assessing, planning and responding to Russian actions.

But the Great Recession that kicked the US in its soft underbelly, not to speak of self-defeating Congressional tussles and debilitating military cuts would not be least helpful in contributing to a solution. In a sense, we would see the Cold War getting heated up, going forward.

The only bright spots are the US’ shale energy boom and the togetherness in the European Union; both achievements could play a pivotal role in shaping the multilateral equations.(rakesh.neelakandan@gmail.com)

http://www.commodityonline.com/news/russian-military-gas-prowess-ukraine-over-poland-and-belarus-next-58181-3-58182.html

Live another day: Gold can bounce back by 2014-end riding hyperinflation

Last Updated : 09 May 2013 at 12:35 IST

November 28, 2012 Wednesday: Gold for February delivery on the Comex shed weight, $26 dollars to be precise, as the session came to a close and settled at $1,718.80 an ounce. Spot gold, on the same day quoted down $25.20 at $1,717.25. Silver shed 1% and was seen at $33.725 an ounce.

From there, gold prices began to chart a downhill registering incremental losses.

April 12, 2013; Friday: With investors moving money out of gold and silver, the futures tumbled at a breathtaking speed on Friday night. Gold futures for delivery on June 13 closed at $1482.65 registering a loss of $82.25 or 5.26%. Silver for delivery on May 13 closed at $25.915 a loss of $1.782 or 6.43%.

The objective of this article is not to exhume the past. But it is worthwhile to think what took gold prices to astronomical heights way back in 2011 to $1900 levels and from where it fell miserably.

Clearly, it was some QE frenzy that caused the rise!

Quantitative Easing, in effect money printing, became a hit with central bankers around the world to such an extent that it led to bubble formations across various asset classes; especially commodities and real-estate. The easy money received by financial institutions were parked in asset classes like commodities.

And commodities include gold. As the money-printing machines began to work overtime, the fear of inflation and currencies losing their purchasing power became an apparition in its own right.

No wonder, gold assets were heavily sought after and herd mentality took over; gold zoomed. One has to note that with the commodities going up, manufacturers of commodities and goods found it a reason to start investing in facilities that would yield more commodities and more of money. This led to further investments and job creation. (Interest rates ruling at record lows ensured cheap loans that facilitated investments.)

Thus, the easing measures indirectly kick started money flow and some activity in the economy. Once again the world economy 'recovered' in official parlance.

But all these unconventional tools do have their limitations. The money printing cannot go on forever. Interest rates cannot remain low forever. It has to stop/rise somewhere, it will have to.

Because, at one point in time, the hydra-headed inflation would begin to bite; what you have seen as of now is just inflation in teens. The fact that it has not bitten yet shows the acute severity of the Great Recession. At some point in time, probably by the end of 2014, this scenario would change and chances of a hyper-inflationary environment taking a firm hold on the global economy would emerge.

“By 2014 end, or in 2015-16, we may see inflation climbing across the board,” said V.K Vijayakumar, Chief Investment Strategist, Geojit BNP Paribas, Kochi, South India.

This would once again create the potential for gold to be potent investment and hedge against inflation.

The rest would be history!

As published here: http://www.commodityonline.com/news/live-another-day-gold-can-bounce-back-by-2014-end-riding-hyperinflation-54338-3-54339.html

Israel Syria attack: Why current surge in Crude Oil could be short lived

Last Updated : 06 May 2013 at 06:15 IST

Israel has attacked Syria on Friday last week as well as Sunday this week in an apparent bid to stop the Iran-made Fateh-110 precision missiles from getting into the hands of Lebanon’s Hezbollah. While Israeli officials on condition of anonymity have confirmed the attack, no political leader in Israel would do the same.

Israel had launched a similar attack in January as well; at that time to block the SA 17 anti-aircraft missiles from falling into the hands of Hezbollah. 

This attack was met with sound and fury, but the consequences were muted. The scenario could not be different this time as well as Assad may want the words to be louder than actions this time too as his position is severely compromised and his regime is deeply mired in the civil war against rebels who seek to oust him.

The Financial Times reports: 

Speaking to CNN, Faisal al Mekdad, Syria’s deputy foreign minister, described the attack as a “declaration of war” and said it would retaliate in its own time and way. Syria had the right “to defend its people by all available means”, said Omran al Zoubi, information minister, adding that the attacks were a “flagrant violation of international law” and made the Middle East “more dangerous”.

No wonder, crude oil prices have climbed on the Globex platform of NYMEX.

As of 05.53 AM IST, WTI crude oil for delivery on June 13 was seen trading at $96.88 registering a gain of $1.27 or 1.33%. Brent crude oil on the same platform for the same date was spotted trading at $105.35 a barrel, providing for a gain of $1.22 or 1.17% as of 05.56 AM.

The futures began to climb on Friday when the US jobs data said hiring by firms in US picked up in April more than anticipated and unemployment rates dwindled.

So, will there be a war?

The same Financial Times report adds: “analysts said that, while escalation was possible, neither side had much interest in launching a full-scale war against the other. A broader conflict with Israel would open a dangerous new front for the Assad regime at a time when it is already stretched by a two-year-old armed rebellion”

Chances are miniscule that Syrian rebels would join Assad in a fight against a foreign enemy that is Israel:

“We call on the Syrian people to hold steadfast onto the revolution, and to reject the regime’s consistent aggression against the interests of the country and its people. We ask the Syrian people to continue working towards our goal of ridding the country of the destruction and chaos created by the Assad ruling family, who has consistently allowed its interests to take precedent over national interests,” statement released by Syrian Coalition Media Office , the media wing of Syrian rebels said, subseqent to the attacks. 

While Middle East ideologically has become more dangerous and the scenarios there much more uncertain, on a functional level, the status quo would be maintained as an otherwise-scenario would be chaotic to the core. In times of uncertainty chaos is at best avoided and nobody knows this better than Israel helping them take a calculated risk.

The current fillip to the crude oil futures could thus be short lived. The futures would be much more sensitive to data from Eurozone and Europe in the days ahead at least in the medium term. 

As published here: http://www.commodityonline.com/news/israel-syria-attack-why-current-surge-in-crude-oil-could-be-short-lived-54277-3-54278.html 

Who cares: Gold may ask the US non-farm pay rolls data release for Friday

Last Updated : 03 May 2013 at 06:10 IST

Traditionally, gold has been sensitive to data releases. But today gold may remain 'indifferent' to US non-farm pay rolls data scheduled at 7.00 PM IST. Let me explain.

The data pertaining to US non-farm pay rolls pegged at 145000 for the past month would define the future of Quantitative Easing measures carried out by the US Federal Reserve; it has been for a while.

Quantitative Easing as underway in US—the fourth round-- is a monthly Treasury plus Mortgage Backed Securities repurchase programme initiated by Ben Bernanke, the US Federal Reserve Chairman and his team. US non-farm pay roll data is a measure of jobs added by the US economy in the non-farm sector.

The reason why this data is important is this:

The US Federal Reserve has a dual mandate: 

"The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates."

While ensuring that employment figures rule at a maximum, or unemployment at a minimal level, the Federal Reserve is also supposed to maintain stable prices. In other words, while job growth should be robust, the inflation should be healthy!

Now, the Ben Bernanke team has initiated the money printing process, as sceptics call it, to achieve the first objective mainly. But, when you run the Mint virtually on a 24x7 basis, it so happens that the money supply in the economy would climb effectively raising inflation; or that is the possibility.

But with demand subdued in a recessionary ambience, the US Federal Reserve has modest rate of inflation.

This, coupled with prevailing rates of high unemployment has led the Fed to run the Mint in nitro mode. Notionally, the US Federal Reserve is not supposed to stop this process until and unless employment rates climb.

To put it in a different manner, the QE process is tethered to job market recovery.

Now, the picture is clear: if the US Federal Reserve gets a positive indication that unemployment rate is coming down, it may choose to phase out the QE measures. This may further erode the current price levels in gold. (To see how gold and QE are linked, click here)

On a positive note for the economy, US initial jobless claims for the past week has come down way below the expected levels. (Initial Jobless Claims is the data that measures the number of individuals who filed for unemployment insurance for the first time during the said time period.)

Now, if the data of US non-farm pay rolls is also positive, then gold may drop further. But given the fact that the prices are just some $200 short of the figure that requires to be maintained so as to cover the production of gold (it takes around $1200-$1300/oz to mine gold), it is unlikely that gold would tank much.

If the data is negative, which means US unemployment rates have climbed; with ETP outflows at record highs, gold may not climb high beyond a point.

(Gold ETFs are intended to mirror the per-ounce price of gold. The idea is that when investors buy shares of the ETF, the ETF adds gold; and when investors sell shares of the ETF, the ETF sells gold. This way, shares of the ETF should move in tandem with the price of gold—and as people buy or sell shares of the ETF, this should move the price of gold up or down accordingly.)

The persisting news flow from the Eurozone which portrays the headwinds in the region in doldrums ensures that gold would find some support. But the possible lacking of bad news from US would keep gold on a shaky platform.

More or less, gold would behave as if nothing much of significance has occurred.

As published here: http://www.commodityonline.com/news/who-cares-gold-may-ask-the-us-non-farm-pay-rolls-data-release-for-friday-54246-3-54247.html

Comex Silver at $19.5/oz depends on breaches at $24.8 & $22.40: Expert

Last Updated : 30 April 2013 at 14:05 IST

Comex Silver at $19.5/oz is a possibility that cannot be ruled out, given certain conditions.

Going by the words of Manoj Kumar Jain, President Commodity & Forex Business, India Nivesh Commodities Pvt. Ltd, “for silver, the level of $24.8 is a crucial one. If it fails to close above the level on a weekly basis, chances are more that it would go down to $22.40 -$22.50. And subsequently, on breaching the same, would could go down to as much as $19.5.”

In terms of INR, this means silver can go down to as much as 39000 levels.

As of 01.36 PM, silver for May delivery on India's MCX was seen trading at Rs.45213/kg, a loss of 0.11% as of 01.25 PM IST. Silver on the Comex for delivery om July 13 was seen trading at $24.305/oz, a gain of $0.139 or 0.58% as of 01.38 PM

Silver physical shortage?

In yet another piece of information, Rick Rule, President of Sprott Asset Management USA, Inc. outlined that there is a physical shortage in retail denominations of gold and silver even as there exists no reported shortage of silver or gold in bullion bars.

“I think we are in a physical shortage in retail denominations (of gold and silver). There’s no shortage of kilo bars. There is a shortage of coin rounds and strips, which are used to make coins.”

This, however comes with a caveat: Rule has said that there could be shortages in the wholesale bar market as they begin to get converted to smaller denominations.

Currently, many dealers are charging 20-25% premiums when it comes to retail sale, which could eventually kill the retail markets.

Inventory depletion

From 60,000 ounces in silver holdings to just 54 ounces in two and a half week's time: it happened with Silver Bullion Pte, one of Singapore's leading suppliers of coins and bars of bullion as they saw heightened physical demand taking toll on inventories. Delivery time has now almost doubled.

Subsequent to the slump in silver and gold prices, the physical demand of bullion rose, especially in Asia and particularly in India and China.

Reports from sources say that at the height of shopping frenzy, a few jewellers in India even chose to shut shop as demand was over whelming.

Perth Mint works at weekend 

Meanwhile demand for coins--Maple Leaf gold and silver coins brought out by the Ottawa-based Royal Canadian Mint and Australia's Perth Mint-- have soared strong.

“The Perth Mint is meeting the surge in demand for physical silver and gold by ramping up productivity as quickly as possible to ensure lead times are kept to an absolute minimum,” Ron Currie, sales and marketing director, said in an e-mailed response to questions by Bloomberg.

The Mint is learned to be working at weekend as well.

As published here: http://www.commodityonline.com/news/comex-silver-at-$195oz-depends-on-breaches-at-$248--$2240-expert-54200-3-54201.html

Akshaya Tritiya: Gold may witness further correction post India's buying spree

Last Updated : 30 April 2013 at 11:50 IST

Come May 13 and the occasion of Akhsaya Tritiya is here!

Indians in general consider this to be a very auspicious opportunity to purchase gold. Now that gold prices are relatively subdued, the upcoming occasion may support the futures until then.

“When gold prices dipped a fortnight back, the physical demand shot up. One has to note that, on the Comex, futures shed as much as 300-350 dollars in a relatively short span.” said Manoj Kumar Jain, President Commodity & Forex Business, IndiaNivesh Commodities Pvt. Ltd.

The physical demand during Akshaya Tritiya as well as during the run up to the said day is likely to promote enhanced buying in India. This would support gold prices to a major extent, noted Jain.

And subsequently?

“See, if the futures fail to close above the $1485 levels on the Comex on a weekly basis, then prices are most likely to witness levels at 1340-50,” Jain added.

Traders on MCX can sell futures at around 27400-500 for the stop loss of 27800 for target near 26500-600. The scenario looks least encouraging for gold prices.

Currency is also a factor that may help the futures to the downside.

“We expect the Reserve Bank of India to cut rates by at least 50 basis points. Such a move can take Rupee to 53.5 against US Dollar," Jain noted. This too can prompt a downtrend in gold. 

On the macro front, the US and Europe data as well as data from China would drive the futures. “The current lack of strength exhibited by the USD is supporting gold by a major degree,” said Martin Patrick, an economist based out of South India's Kochi.

“The weakness in crude oil is also a dampening factor,” he added. It may take one month before further indications on this front would arrive, he added.

Gold prices recovered last week, ending the week above the $1450/oz level, after hitting their lowest level since February 2011 the week prior.

Although ETP outflows continued to put pressure on prices, a surge in coin sales at various Mints, coupled with strong physical demand from both China and India, persisted in response to the lower price environment.

Investors cut gold-backed ETP holdings to 2,283.6 metric tons on April 26 even as hedge funds fielded bets against gold in a record way. Reports suggest that there had been 69,726 so-called short contracts as of April 23.

Meanwhile reports from Bloomberg quoting a technical analyst said Gold price on the Comex may dip by 11% and can come down to as low as $1300/oz. The metal has been unable to close above the 20-day moving average of $1480 and this may facilitate the drop. 

As published here: http://www.commodityonline.com/news/akshaya-tritiya-gold-may-witness-further-correction-post-indias-buying-spree-54197-3-54198.html

The QE Cocaine: Commodity bulls begin to snort

Last Updated : 30 April 2013 at 05:25 IST

Quantitative Easing is deemed the holy grail of monetary policy. Unconventional, out-of-the-box, revolutionary and least of all evolutionary, the QE measures are something that everybody looks forward to these days; investors, traders, hedge funds, in short all market participants.

The markets have become QE fetish to such an extent that QE is now deemed the new-normal in monetary policy. It has become an addiction: QE is the market version of cocaine! No QE, no feel good.

Now we also know there is a widespread consensus that politicians are a lazy lot. They always seem to find the populist DNA of things that would significantly contribute to their account balance in electoral banks.

Building and constructing one’s way out of a recession is tough and warrants industrious days and sleepless nights from the people (and hence the least populist), but floating a QE and creating a feel good is easier. You just have to keep the Mints busy, as simple as that!

In a QE measure, the governments often buy back the debts they have issued. These debts are often borne by the financial behemoths in the first place. They often happen to be banks. What they are supposed to do with the money is to enhance lending.

But, in a crisis that has been sparked by reckless lending, these banks would find it prohibitive to lend. Besides, it is easy money that they have got in their kitty as the central bank would have bought back the debt paying a premium so as to incentivise a debt sale by these financial institutions.

In other words, the price you have to pay to own some debt would have significantly gone up in the market place when Bernanke, or for that matter any other central bank chief, begins to discuss this initiative.

What these banks do is, they invest this cheap money in equities and commodities and whatever other lucrative investments they can put their hands on.

When billions in money hit the markets, markets invariably go up; there is a feel-good everywhere. Bulls go for their victory lap and bears retreat. Everybody makes a kill.

Not bad!

But the feel good has a dangerous political side to it. When people mistakenly feel that a single dose of QE is capable to address their issues, the issue on the other hand remains unaddressed. It would lie dormant for a while or simply changes its status to stealth mode.

Hence, once the first round of QE waves subside, it so happens that the market loses momentum. The core reason behind the financial crisis once again tumbles out of the closet. And that is ugly. So there is clamour for the next round of shot. And governments dance to the tune. QE2 follows!

This serial killing or slow poisoning continues until the economy would turn hyper inflationary.

Now that the price of gold has come down significantly along with all other commodities, except for agriculture commodities, there are hopes of QE measures to be maintained by the markets. But the said need is not presented in the way people would understand.

It reads like this: “futures on the Comex climbed on speculation that the US Federal Reserve would continue to maintain aggressive buying of bonds and securities…” we know the language; we have been here before. We know that another shot is necessary, we crave for it, and we are just infants who want to be spoon-fed.

The bulls who snort.

What a pity! 

As published here: http://www.commodityonline.com/news/the-qe-cocaine-commodity-bulls-begin-to-snort-54193-3-54194.html

'Insider information' on India's South West Monsoon

Last Updated : 27 April 2013 at 10:00 IST

Indian Meteorological Department, India's official weather agency has said yesterday that the South-West monsoon is most likely to be normal. That is a good news for all the people of India.

“I have very good news for the farmers as well as others. Monsoon rainfall for the country as a whole is most likely to be normal this year,” said S. Jaipal Reddy, Minister for Science and Technology, announcing IMD’s predictions.

“We are not giving any region-wise prediction at this point in time,” said L. S. Rathore, Director-General, IMD. Meanwhile, parts of Maharashtra and Karnataka already under the firm grip of droughts may see relief as rains are expected to be better there than last year.

“But we will have to wait till June for a clearer picture to emerge,” Rathore said.

Now, take a look at this Hindu Business Line report:

Interestingly, on Friday morning, ahead of IMD forecast, Food Minister K. V. Thomas had said, “the overall monsoon is expected to be satisfactory, except that in the southern tip of Kerala, Karnataka and Tamil Nadu, it may be delayed or less than normal”. Asked to comment on Thomas’ observations, Rathore said: “Ours is the official version and the monsoon this year is most likely to be normal”.

If one goes into the details and re-read the media reports, one can see that the IMD's prediction of normal monsoons is in sync with what Minister has said.

The minister has chosen to comment laying stress on the regional aspect of monsoon even as the IMD stuck to the national aspect; IMD has said that it is not providing any region-wise prediction at this point in time. But the minister has arguably given some or the other sort of 'insider information', probably inadvertently and has said that in the southern tip of Kerala, Karnataka and Tamil Nadu, monsoon may be delayed or less than normal. He too agrees that the overall monsoon is expected to be satisfactory. 

Have the agri futures markets taken note of this? 

As published here: http://www.commodityonline.com/news/insider-information-on-indias-south-west-monsoon-54161-3-54162.html

US, China Monetary Easing measures may be ruled out; not Eurozone

Last Updated : 24 April 2013 at 15:00 IST

It is greed and fear that drives the markets. But what drives the economy is hope. When it comes to economics of commodities, the ultimate hope is the hope of Quantitative Easing.

We know it all started with the Great Recession.

Unconventional monetary tools were suddenly deployed to create a new normal with a hope to draw some sanity from them. US, Europe, China, Japan, India...the list of regions and nations that employed stimulus measures goes endless.

Now, the sudden spurt in gold, silver and copper prices is attributed to a new round of hope of monetary easing. This hope has arrived because the economic activity around the world is exhibiting signs of slowdown.

Just go through the recent numbers:

Factory activity in the US for April--preliminary, factory purchasing managers' index fell to 52.0 this month from 54.6 in March--expanded at its slowest pace in six months. But the housing sales data at their second-highest level in 3 years provided some anchor.

HSBC Flash China Manufacturing PMI for April gave a reading of 50.5 compared to 51.6 in March. A reading above 50 is indicative of expansion in the economy. But the dip from March levels is surely a cause of concern.

Flash China Manufacturing Output Index provided a reading of 51.1 compared to 53.0 in March, a two-month low.

Private sector activity in Eurozone too declined, amid business activity in Germany dropping.

All these economic events are pointing towards yet another possibility of a fresh round of global easing measures, analysts say. Will that be the case?

The case of US

We know that in US a round of stimulus measures is already underway. The US Federal Reserve is currently running its fourth round of Quantitative Easing measures. The latest round of easing is seeing to it that $85 billion in bonds and Mortgage Backed Securities are purchased by the US Federal Reserve on a monthly basis.

“I don't think there will be an additional round of Quantitative Easing measures from US. On the contrary they are seeking to exit the stimulus measures as exiting is also important.” said V.K. Vijayakumar, Chief Investment Strategist, Geojit BNP Paribas, South India.

The US Federal Reserve has tied QE measures to a positive evolution of job markets and a healthy inflation. Latest data suggests that unemployment rate in different US States dipped in March year on year including California where joblessness dipped to a low in 4 years. The housing bubble in US which invited the global downturn had destroyed the associated job markets there on a substantial scale.

Now, with new home sales and housing starts gaining momentum, US economy is trudging on a path of return. For instance, new housing starts climbed 7% in March from February to touch an annual rate of 1,036,000, and were up by 46.7 percent compared to March 2012.

According to Stephen Levy, Director of the Center for Continuing Study of the California Economy, a private research organization in Palo Alto:

"The good news is that the recovery is spreading beyond the [San Francisco] Bay Area. There are parts of southern California, such as Los Angeles County, that were badly hit by the housing crash, that are showing signs of recovery," California, he said Reuters, "is emerging again as an economic growth leader led by traditional strengths in technology, trade, tourism, agriculture and the application of creativity to the design of goods and services in demand worldwide".

This trend, if it sustains can see a phase out of Quantitative Easing.

Also, it has to be noted that the jobless claims in US climbed 4000 in figures to a seasonally adjusted 352,000 for the week ending April 13. However, the rise was in line with the expectations fielded by economists even as the claims stood near a line economists normally associate with average monthly job gains of more than 150,000.

The US recovery may at best be termed fragile, and a few indicators are not sufficient enough to hold forth the true picture. Nonetheless, it gives a picture and sunshine as of now outshines the shadows.

So, one can say that another round of monetary stimulus measures is least forthcoming from US.

The case of Europe

An April 4 report appeared in the Bloomberg hints at the possibility of a stimulus measure to be adopted by Eurozone.

“We are considering both standard and non-standard measures” to increase stimulus, ECB President Mario Draghi was quoted by Bloomberg. He was mum on what the tools are.

The report also notes:

“Our monetary policy stance will remain accommodative for as long as needed,” Draghi said at a press conference in Frankfurt today after the ECB kept its benchmark interest rate at a record low of 0.75 percent. “We will assess all the incoming data in the coming weeks and we stand ready to act.”

Meanwhile, in Europe, the Eurozone nations cannot think of stimulus measures as Germany has vehement opposition to such a move.

"The deficit reduction in the eurozone must continue," said Wolfgang Schäuble, the German finance minister raising his voice over and above stimulus measures; after all, Schauble is the pay master of the Eurozone. 

"Europe can't function without solving the structural problems." he added.

Germany is still haunted by the specter of hyper inflation episode it experienced in its formative years.

Now, if Germany will have its way, then chances are more that Eurozone would maintain the current status of depressive growth.

However, the picture is not definitive as Gavin Hewitt Europe Editor of The BBC notes in a an analysis titled 'Europe: Retreat from austerity':

Like the arrival of a new season, all the signs are that Europe is in retreat from austerity.

The retreat is disguised, but cannot be concealed. The President of the European Commission, Jose Manuel Barroso, said: "While I think 'austerity' is fundamentally right, I think it has reached its limit."

He implied that a policy can only be pursued if it has "a minimum of political and social support". There is not a general recanting yet, but the explanations are flying thick and fast as to why the policy that Europe has embraced for the past three years must change.

"A period of reduced spending and borrowing was necessary to calm markets concerned about out-of-control debt levels, particularly in peripheral European countries. That time has passed." The EU's Economics Commissioner, Olli Rehn, too said.

If this idea goes viral, chances are more that the Eurozone austerity drive would come to an end even as Germany would be forced to tow the stimulus line. After all, the German economy is also slowing down.

The case of China

Meanwhile, in China, yet another big economy, there are problems of inflation and asset bubbles. “This would deter the Chinese leadership from employing yet another round of stimulus measures,” Vijayakumar noted.

The Chinese property bubble and local government debt issues have already been dealt with here. 

While additional stimulus measures by US and China can be ruled out, the same cannot be the case for Eurozone. The general mood of Eurozone is drifting towards consumption/stimulus led growth rather than austerity driven recovery.

As published here: http://www.commodityonline.com/news/us-china-monetary-easing-measures-may-be-ruled-out;-not-eurozone-54108-3-54109.html

Lamborghini Tractors' India market foray imminent; model details yet to emerge

Last Updated : 22 April 2013 at 11:00 IST

Back in 1950s Mr.Ferruccio Lamborghini, the yet-to-be-founder of legendary Lamborghini cars, while driving his newly owned Ferrari, felt that a change in clutch system would significantly improve the performance of the Ferrari car. Mr.Lamborghini happened to be a tractor manufacturer and an engineer who also owned a Ferrari.

Being a devoted customer, Mr.Lamborghini sought an appointment with Mr. Enzo Ferrari—great and exotic car manufacturer. Mr. Lamborghini explained his idea and Mr.Ferrari quipped that Lamborghini better mind his own business of tractors.

Lamborghini fumed and decided to give an answer to the insult, action-packed ; he assembled his team and they assembled a new car from scratch with the idea incorporated. Thus born the Lamborghini cars! The rest is history as the race between arch rivals continue. 

Later on Lamborghini's descendents exited tractor business and concentrated on exotic cars.

SAME Deutz-Fahr India and Lamborghini

Bhanu Sharma, the Managing Director of SAME Deutz-Fahr India who owns the Lamborghini tractor brand, tells me that there are three things that he would look for in a potential Indian buyer; one of them being money and the other two being the prospective buyer's understanding of technology and affection for brand.

“See, I have seen farmers in India, especially in Punjab who drive Mercedes Benz and BMWs. They belong to the top 1% of farmer community who are rich and knowledgeable (of brand). These new generation farmers are our target group,” said Bhanu Sharma who knows the pulse of farmers' India.

The target group makes sense. At least 65% of 1 billion plus Indians sustain on agriculture. “One percent is a huge number, believe me,” he said.

“We also target hobby farmers, intellectuals or professionals who are rich, who lead a hectic life and those who also slip out quietly into their weekend farming pleasures in some farm land..they may not have the time to repair or cater to the maintenance of tractors and it is where Lamborghini tractors come in,” he noted.

“So you are trying to say that Lamborghini tractors require less of maintenance,” I asked. “That is the technology,” he said.

And yes, catering to niche market, Lamborghini tractors have “no competition in India,” as of now.

He noted that slowdown in the global economy has not affected Lamborghini tractor prospects. “First of all, we cater to a niche sector and agriculture is least affected by slowdown,” he said. He says he is “in general positive about the health of economy,” even as he notes that there are a few countries in Europe “which are not going good.”

He said abundant monsoons can significantly enhance the Indian prospects of Lamborghini tractors. He was optimistic that “Indian agriculture sector would perform well this year too.”

Global presence

SDF Group is one of the world’s leading manufacturers of tractors, combine harvesters, farm machinery and diesel engines. It rolled out the world’s first tractor, mounted with a diesel engine in 1927 and its products are marketed in 144 countries under famous and prestigious brands like Deutz-Fahr, Lamborghini, Hürlimann and Grégoire. SDF India is a 100% owned subsidiary of SDF Group.

Lamborghini tractors have a mother plant for tractor manufacturing in Italy and plants in Germany, India, Turkey, Croatia, Russia and a Joint Venture in China as well.

“Where does he find it easier to do business,” I asked him.

“Europe is Europe,” he answered and added that India too provides for a great business climate.

My final question: Legendary investor Jim Rogers said that one day farmers would be the ones who would be driving Lamborghinis and Ferraris. I am sure that he was not referring to tractors. But can tractors be a beginning?

“In India, yes...” he said.

While Bhanu Sharma says that no Indians own the Lamborghini tractors now--800 exotic tractors manufactured in Ranipet of Tamil Nadu was exported to Europe and Malaysia--he does plan to plough the Indian fields shortly.

He is however mum on the models that he plans to roll out and the price tag. The company is yet to take a decision in this regard, he said.

As published here: http://www.commodityonline.com/news/lamborghini-tractors-india-market-foray-imminent;-model-details-yet-to-emerge-54043-3-54044.html