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