Archive for June, 2011
By Greg Hunter’s
27 June 2011
The Federal Reserve has been a clandestine organization since its inception. It is not really part of the federal government; it is merely a subcontractor for monetary policy. The Fed is basically a cartel of both U.S. and European banks. It has pulled the levers in the economy from behind a curtain of secrecy since 1913 and has always enjoyed a certain degree of respect and admiration. All that changed when the economy melted down in 2008. The respect and admiration of the Federal Reserve is being shredded right along with its veil of secrecy. The Fed allowed everyone to think the cost of controlling the 2008 financial crash was just a measly $3.3 trillion. This giant lie was exposed after Senator Bernie Sanders of Vermont put a provision in last year’s financial reform bill that forced the Fed to come clean on $9 trillion in additional emergency loans and bailout money. The Fed funneled cash to foreign banks and companies right along with American banks and companies. It basically rewarded reckless and illegal behavior of greedy Wall Street bankers that caused the mess we are in now.
Nothing is fixed and nothing has really changed. The economy is still a wreck, and the Fed still wants its secrets. CNBC reported last week that the Fed refuses to tell how much cash it sent to Iraq just after the invasion because it came from the “oil for food” program. The Fed claims it has to obey “rules.” The report said, “The Fed’s lack of disclosure is making it difficult for the inspector general to follow the paper trail of billions of dollars that went missing in the chaotic rush to finance the Iraq occupation, and to determine how much of that money was stolen.” (Click here for the complete CNBC story.) Taxpayers would be on the hook for the missing cash that the Defense Department says is $6.6 billion. This could represent the largest theft in history. The Fed didn’t obey any “rules” when it hid $9 trillion in bailout money. Doesn’t the Fed work for the U.S.? Apparently not.
Last week in Congressman Ron Paul’s Monetary Policy Subcommittee, Treasury Inspector General Eric Thorson assured Congress U.S. gold was safe. The gold is under the control of the Federal Reserve, and it has not been audited in decades. Paul wants an audit, and there are plenty of folks at the Fed who are against it. CNN reported last week on the hearing and said, “During the hearing, Paul suggested that the Federal Reserve of New York, which has 5% of the U.S. gold reserves, has the ability to secretly sell or swap gold with other countries without anyone knowing. “The Fed is pretty secret, you know,” said Paul, who leans Libertarian. “Congress doesn’t have much say on what’s going on over there. They do a lot of hiding.” (Click here for the complete CNN story.)
Also last week, Fed Chief Ben Bernanke held a press conference and said, “We don’t have a precise read on why this slower pace of growth is persisting.” This is an astounding admission from the head of the Federal Reserve. Bernanke doesn’t know why the economy is failing? Economist John Williams from Shadowstats.com isn’t buying it. In his most recent report, Williams said, “It is hard to believe that Mr. Bernanke, the presidents of the regional Federal Reserve Banks and the extensive staff of fine economists throughout the Federal Reserve System do not understand why the economic and systemic-liquidity crises persist. If indeed the problems really are not understood, Mr. Bernanke should not be Fed Chairman. More likely, the problems are understood, but Bernanke’s admitting that would entail his admitting that circumstances are beyond control, and that the Fed lacks the ability to address the issues effectively. . . . There is the possibility, though, that the comments were deliberate, intended as a warning of things to come. . .”
The Federal Reserve wants its dealings with bailouts and our nation’s gold to be kept secret. I don’t know if Bernanke is just incompetent, or if he continually lies about what is happening in the economy to keep the public from panicking. Do we really need the Fed with all their secrets and lies?
Read the entire article HERE.
By Eamon Javers
Tuesday, 21 Jun 2011 | 7:30 PM ET
CNBC Washington, DC Correspondent
The New York Fed is refusing to tell investigators how many billions of dollars it shipped to Iraq during the early days of the US invasion there, the special inspector general for Iraq reconstruction told CNBC Tuesday.
The Fed’s lack of disclosure is making it difficult for the inspector general to follow the paper trail of billions of dollars that went missing in the chaotic rush to finance the Iraq occupation, and to determine how much of that money was stolen.
The New York Fed will not reveal details, the inspector general said, because the money initially came from an account at the Fed that was held on behalf of the people of Iraq and financed by cash from the Oil-for-Food program. Without authorization from the account holder, the Iraqi government itself, the inspector general’s office was told it can’t receive information about the account.
The problem is that critics of the Iraqi government believe highly placed officials there are among the people who may have made off with the money in the first place.
And some think that will make it highly unlikely the Iraqis will sign off on revealing the total dollar amount.
“My frustration is not with the New York Fed, it is with the Iraqis,” said Stuart Bowen Jr., the Special Inspector General for Iraq reconstruction (SIGIR). “They haven’t been sufficiently responsive.”
As for the New York Fed’s position of secrecy about the total amount transferred to Iraq, Bowen said, “We understand it in the sense that it’s a foreign account and the account holder, according to their own rules, must provide permission.”
A spokesman for the New York Fed issued a statement to CNBC Tuesday evening. “The New York Fed has cooperated closely with SIGIR during its investigations and will continue to do so, in accordance with our policies related to disclosing customer account information, which generally includes receiving the consent of the account holder,” the spokesman said.
The impasse comes as the inspector general continues a massive and years-long investigation into what happened to billions of dollars in cash that left the New York Fed and vanished during the US occupation.
It was one of the largest shipments of cash in history. And the inspector general says that if the money was stolen, that would represent the largest heist in history.
According to a 2007 investigative report by Donald L. Bartlett and James B. Steele in Vanity Fair magazine, the cash originated from a little-known Fed vault located at 100 Orchard Street in East Rutherford, NJ, the largest depository of American currency in the world.
On Tuesday, June 22, 2004, the duo reported, unmanned vehicles loaded a tractor-trailer truck with pallets of $100 bills — weighing 30 tons and worth $2.4 billion — and that truck headed out onto New Jersey Route 17 bound for Andrews Air Force Base outside of Washington, DC.
There, the money was transferred to a C-130 transport plane and flown to Baghdad.
The cash transfer on that one day was just one of several such shipments of currency to Iraq, and the inspector general is trying to determine just how much was sent, and how much was stolen once it arrived in Iraq.
“We don’t have access to the Federal Reserve account to know how much money actually came out of the Fed,” said Jason Venner, the inspector general’s chief auditor. “They won’t tell us.”
Venner said that the inspector general plans to make a formal request of the Iraqi government to release the account information during a meeting in Jordan next week of the International Advisory and Monitoring Board, the body that oversees development funds for Iraq.
Determining the total amount of money that has gone missing — and who was responsible for losing it — is much more than an academic question. Some Iraqi government officials have threatened to sue the United States over the missing money, arguing that the government had a fiduciary obligation to apply appropriate financial controls, and is therefore liable for any losses.
If that effort overcomes the many legal challenges it would face, the lost money would have to be replaced — at the US taxpayers’ expense.
Read the entire article HERE.
Thursday, June 23, 2011
Gainesville Coins has been receiving a number of inquiries regarding the impact of the Dodd-Frank financial overhaul bill on the silver and gold market. Specifically, we have been asked whether the legislation has any similarity to the U.S. government’s actions in 1933 that removed gold coins from circulation and made it illegal for U.S. citizens to own gold. The Dodd-Frank legislation DOES NOT impact the individual investor’s ability to own gold and silver.
The impact of the Dodd Frank legislation on the precious metals market is to restrict the ability of brokerages from providing investors the ability to trade in over the counter (OTC) futures, including gold and silver futures.
There are two venues to trade derivatives, including futures – the over the counter derivatives market, and the exchange traded derivatives market. Over the counter derivatives are traded off an exchange. For precious metals investors, the CME is the main exchange for gold and silver derivatives, including futures and option. The legislation only impacts those trades that DO NOT occur on an exchange. Futures and options that trade on an exchange are not affected.
In an OTC futures transaction, the buyer and seller enter into an agreement to buy or sell gold at a predetermined price, quantity, and date. The difference between an OTC futures contract and an exchange traded futures contract is that in a OTC transaction, these terms are not standardized. Like exchange traded derivative contracts, OTC contracts have margin requirements set to ensure that both parties will perform on their obligation to either buy or sell. However, unlike exchange traded futures, these transactions are not centrally cleared. This means that a failure to perform by one side of the transaction could result in economic harm to the other side of the transaction. This is known as counterparty risk. Futures traded on an exchange, like the CME, do not subject either party to counterparty risk, and this is the reason for the changes being made through the Dodd Frank legislation.
During the financial crisis of 2008, OTC derivatives, specifically OTC derivatives tied to BBB tranches of subprime mortgages caused a near total financial meltdown when AIG was unable to perform on its obligation. AIG had written hundreds of billions of dollars in OTC credit default swaps on BBB tranches of subprime mortgage securitizations. When these securities went down in value on the housing market implosion, AIG did not have sufficient cash to pay the buyers of this insurance. This is one of the main reasons for the Dodd-Frank Legislation. Because these derivative contracts were over –the-counter, and not centrally cleared, AIG’s failure to perform on its obligation raised the possibility of a cascade of financial failures. The Federal Government was ultimately forced to intervene to stop the financial contagion. Removing the risk of counterparty failure, and thus moving much of the OTC derivatives market onto an exchange, is one of the key drivers behind this legislation.
With all that said, hopefully with some clarity, Gainesville Coins would like to re-iterate that there IS NO IMPACT on individual’s ability to own gold or silver. The only impact is on the ability of an individual to buy gold and silver in the OTC market. There is no change to gold and silver futures traded on an exchange.
Finally, it should be noted that there are exceptions to this legislation. For example, if you can qualify as a Qualified Eligible Participant (QEP), you are exempt from this legislation. For example, to qualify as a QEP, you would need to show a net worth of $1 million in assets. Also if you can prove that you can satisfy the obligations created by an OTC futures transaction within 28 days, you would also be exempt. It is up to each brokerage house to determine whether an individual investor qualifies under these exemptions. As a final note, the Dodd-Frank legislation only impacts leveraged or margined OTC transactions. These changes go into effect on July 15th, 2011.
Read the entire article HERE.
After Getting Smoked On Treasuries, Bill Gross Joins The Ranks Of Silver Market Conspiracy Theorists
Jun. 24, 2011, 12:21 PM
Despite the imminent end of QE2 — and the fact that Bernanke has made it fairly clear that QE3 is not imminent — Treasuries keep grinding higher, moving against bond god Bill Gross, who has said they’re due to tank.
Nonetheless, he’s been vocal about his belief bondholders will get screwed in various ways, and that inflation is on the march.
Now he’s even getting conspiratorial.
Here’s the latest tweet from PIMCO (which is actually probably one of the best corporate twitter feeds).
Catch that about the silver?
Back in May, when silver was literally going parabolic, the CME hiked margins on speculators. Conspiracy theorists thought this was a deliberate attempt to keep the price down, though the CME (and others) noted that the exchange has established formulas for hiking margins when volatility spikes.
We’re not interested in joining that debate right now, though we’ll just note that Bill Gross (or at least PIMCO) has thrown his lot in with the conspiracy crowd.
Read the entire article HERE.
Oblong Industries, Inc., a gesture recognition company, licenses human gesture-based operating system to licensee/development partners in various industries. It offers a gesture recognition engine that parses and interprets positions of elementary targets, such as the user’s hand and finger positions and orientations; and a motion tracking software system, which performs glove tracking.
Oblong Industries, Inc. is based in Los Angeles, California.
The G-Speak SOE (spatial operating environment) is Oblong’s radically new platform. The SOE made its public debut in the film Minority Report, whose bellwether interface one of Oblong’s founders designed. But its full history extends backward to three decades of research at the MIT Media Lab. The g?speak SOE implements the biggest advance in human-machine interface in twenty-five years. It also introduces:
a new model for multi-process cooperation
a real-world geometry engine for gestural input and multi-display output
an athletic new network layer for data translation, encapsulation, and transport
… and a host of other crucial innovations.
It’s the platform for what’s next.
Published 22 June 2011
Gold is trading at $1,544.31/oz, €1,072.96/oz and £957.30/oz.
Gold is lower in dollars but higher in euros and has reached new record highs in pounds sterling at £958.25/oz. Gold is being supported by strong and increasing demand internationally.
Sterling has fallen after the BoE minutes raised concerns of further quantitative easing and currency debasement. The Bank of England looks increasingly likely to maintain its ultra accommodative monetary policies. Interest rates may continue to remain at multi century lows and the BoE is again considering more printing of money to buy government debt.
UK Interest Rates – 1700 to Today
Despite Papandreou winning yesterday’s vote, the Greek parliament must now approve the austerity measures and this is leading to continuing nervousness in markets.
Cross Currency Rates
European equities have been sold this morning and Italian, Portuguese and particularly Irish debt are under pressure showing that the risk of contagion remains real. There remain many possible impediments to a solution to Greece’s and the Eurozone’s sovereign and banking debt crisis. That is, if indeed, a solution is possible given the scale of the crisis and the fact that it is systemic.
Gold in British Pounds – 30 Days (Tick)
Gold and silver’s increasing safe haven status is seen in news from the Financial Times (front page) and from Bloomberg today (see news).
The Financial Times reports that “Greek citizens are emptying savings accounts and buying gold as they brace themselves for the possibility of a sovereign default and a run on the banks.”
Sales of gold coins have soared as savers seek a safer and fungible source of value, says the FT.
“When the global financial crisis started, our sales of coins to investors overtook bullion for the first time,” said Harry Krinakis, at Sepheriades, a Greek precious metals trader. “Now the sales ratio has reached five to one.”
Tomas, a computer technician, has exchanged his euro savings for gold coins: “I keep them at home just like my grandmother did in the second world war.”
Athens Stock Exchange General Index – 10 Years (Weekly)
Gold is again being seen in Greece as an essential store of wealth, hedge against inflation and safe haven asset.
This is not surprising given the scale of the crisis and the sharp falls seen in Greek property and equity markets (see chart above).
The fact that gold cannot default or go bankrupt unlike every single corporation, bank and government in the world is making it the safe haven of choice again.
There is also the important fact that it cannot be debased by bankers and central bankers unlike currencies and bonds.
Greece is the canary in the coalmine and the likelihood is that what is happening in Greece today, people using their cash deposits in banks to buy gold bullion, will be seen in many other countries in the coming months.
Indeed, news from the Perth Mint of record sales of silver coins is indicative that this trend has already begun.
Bloomberg reports that “Silver-coin sales from Australia’s Perth Mint, which was founded in 1899 and processes all of the country’s bullion, have surged to a record as buyers seek to protect their wealth with the metal known as poor man’s gold.
The mint sold 10.7 million 1-ounce silver coins since July 1 last year, according to Sales and Marketing Director Ron Currie. That’s 66 percent higher than the previous full fiscal year and about 10-fold more than five years earlier. Sales of 1- ounce gold coins will be close to a record, he said.
Confirming robust demand internationally, UBS said that its gold sales to India have increased significantly and that sales of gold coins and bars in Europe have also accelerated in recent days.
GoldCore has seen a marked increase in sales last week and this. Silver in particular had seen a sharp drop in sales since late April but buying renewed again last week. Renewed buying comes after a long period of hesitancy on behalf of many clients since the sell off at the end of April led to heightened concerns that the “bubble” had burst.
Yet another indication, if one were needed, that gold is anything but a bubble comes in the news that the People’s Bank of China is planning to double its issuance of gold bullion Chinese gold coins.
Both the FT and Bloomberg report that the People’s Bank of China plans to issue about 1 million ounces of its 2011 panda gold bullion coins compared with plans at the end of last year for 500,000 ounces of the coins.
Gold is far from being a bubble. Bubbles witness investors and speculators greedily piling in in expectation of making quick profits. It is quite the opposite today as risk and concern is leading to diversification into gold and buying of gold bullion as a long term store of wealth internationally.
Today, those buying gold and silver are increasingly protected due to the floor being put under precious metal prices due to Indian, Chinese and Asian public and central bank buying of gold.
Silver is trading at $36.09oz,€25.07/oz and £22.37/oz.
PLATINUM GROUP METALS
Platinum is trading at $1,740.00/oz, palladium at $763/oz and rhodium at $1,925/oz.
Read the entire article HERE.
Money and Markets
Wednesday, June 22, 2011 at 7:30 am
For a very long time in America we’ve enjoyed a seemingly endless, cheap, and abundant variety of foods from all over the globe.
Although for many of us, our understanding of food supply and what it takes to get it all on the grocery store shelves is very limited. Somehow, it just magically appears!
The problem: Like so many of our other natural resources, we have simply taken for granted the costs associated with producing, harvesting, packaging, and shipping the items we have come to expect at the market each day.
But with fuel prices and other costs surging, we are seeing …
The End of Cheap Food
Today, in emerging markets such as India and China, there is exponential growth and a new middle class that is demanding things they’ve never had before. Millions of cars, better housing, electronics, and above all … better foods.
Demand has surged for things like meats, better quality grains, soft commodities including coffee, cocoa, and sugar. This huge increase in demand is rapidly outstripping supplies of many key resources, and putting a strain on an already overloaded agriculture system.
On top of the global surge in demand we are seeing a decline in quality agricultural acreage and arable land in many regions, mainly due to an increase in poor farming methods. In China for example, poor hillside farming techniques are quite common. And antiquated farming equipment is often still the norm.
In addition, much of the once abundant younger rural population has fled the farms for the chance of a better life and increased pay in the larger cities and factories. This migration has left behind an elderly and dying rural population that simply will not be able to sustain the growing food demand.
Meanwhile, China has been racing to secure arable farmland anywhere it can, gobbling up land in South America, Europe, and especially Africa. China has made huge investments in parts of Africa and has secured vast amounts of arable land, mining resources, and even a new built-in workforce. China’s influence is so widespread that many people are now referring to parts of the Dark Continent as Chafrica.
The Chinese leadership realizes the dire situation they face if they don’t secure long-term supply lines for food and other raw materials for their people. The widespread unrest this year in the Middle East in places like Egypt, Tunisia, and Libya, in large part was ignited because of surging food and fuel costs. This is very worrisome to the Chinese leadership, as civil unrest in China could be uncontrollable once ignited.
More Hungry Mouths to Feed
According to the U.S. Census Bureau, the current world population of close to 7 billion is projected to exceed 9 billion by the middle of this century. To put those numbers in perspective, in 1950 there were only 2.5 billion people.
As global population explodes demand for food, fuel and land will increase at a frantic pace as nations work to secure long-term supplies from all corners of the Earth.
High Costs Going Much Higher
Of course higher prices for agricultural products help farmers, but at the end of the day their input costs have soared as well. Costs for things like fertilizer, equipment, irrigation, seed, and most of all, fuel.
Farming is a very energy intensive business, and as diesel and other fuel costs soar those increased prices roll downhill to the consumer in the grocery aisle. And energy costs don’t just impact the growing process … it also significantly increases the cost of packaging and certainly transport.
As food prices climb, along with everything else, those costs are hitting Americans in the wallet — hard. In fact many people are being forced to make extremely difficult choices. Things have gotten so bad right now that we have over 44 million Americans on food stamps, a grim new record high, according to the latest data from the U.S. Department of Agriculture (USDA).
While surging food and gas prices are hitting Americans with a one two punch, those same prices are even more devastating for poor and developing nations, and often can often become a matter of life and death.
This is only expected to get worse …
According to a June 17, Organization for Economic Cooperation and Development Report, “Cereal costs may average 20 percent more and meat 30 percent more over the next decade than in the last one.”
2011 has been a rough year so far, as widespread natural disasters have caused major crop delays and damage around the globe. Flooding in much of the U.S. has virtually wiped out many farmers’ chances of getting any crops in the ground this season. And those who have gotten crops in the ground, risk a very hot, dry summer which may kill corn and other crops that were planted late.
In addition, many farmers are now worried that because they got the crops in late they may risk an early freeze before they can harvest.
Simply put: 2011 is setting up to be a very expensive year for agriculture and potentially a very profitable one for those who are invested in it.
Do I Think Commodities Are in a Bubble? No Way!
Seems these days that everywhere I go, investors and fund managers are concerned about the rising costs of commodities. They’re always asking me if this is a commodities bubble and when it will burst, and when will prices return to the cheap levels we are used to.
My answers are always the same: This is not a bubble, and the chances of prices falling by any significant amount are slim to none.
Even now, we still have the die-hard dollar bulls coming out and claiming that we really don’t have inflation and the commodities markets are simply speculator driven and the worst for the dollar is over. I strongly disagree.
I believe a small move up in the dollar will continue a bit longer as the euro seemingly crumbles because of Greece.
However, longer term I think the same problems that drove the dollar into the ground will persist, and even worsen. The Fed has dug a hole that is too deep to climb out of, no matter how much funny money they decide to print.
Sure, speculation is a part of this picture. But to lay the blame on the farmer’s doorstep or to say it’s all speculators and hedge funds causing the run-up is a sad mistake.
Real physical demand and the weak U.S. dollar policy are two of the biggest reasons. And I don’t see demand for commodities going anywhere but higher longer term.
One thing you can count on is that everything from milk to yogurt and steak to eggs is going up in price — and not just a little, a lot!
That’s why as consumers and investors, we must look for ways to hedge ourselves against those costs we all are facing in the grocery aisle.
By Jennifer Ablan
NEW YORK | Wed Jun 22, 2011 12:15pm EDT
Jackson Hole is an annual global central banking conference, led by the Fed, which takes place at Jackson Hole, Wyoming. It was at this event last year that Fed chairman Ben Bernanke said the U.S. policymakers were prepared to make a major new investment in government debt or mortgage securities if the economy worsened significantly or if the Fed detected deflation — a prolonged drop in prices of wages, goods and assets like homes and stocks.
Gross, the co-chief investment officer of PIMCO, the world’s top bond manager, on Wednesday said on Twitter: “Next Jackson Hole in August will likely hint at QE3 / interest rate caps.”
PIMCO oversees more than $1.2 trillion in assets, mostly in fixed-income. PIMCO confirmed Gross had sent the Tweet on QE3.
Last week, Gross first introduced the idea that the Fed on Wednesday could signal that interest rates could be capped if warranted due to soft economic growth.
Gross said on Twitter last week on Tuesday that: “QE3 likely to take form of ‘extended period’ language or interest rate caps on 2-3-year Treasuries.”
Gross also said on Twitter last week: “Next week’s Fed statement will likely stress ‘extended period of time’ language or even a period of interest rate caps.”
The Fed will issue its policy statement after the close of its meeting on Wednesday.
The recent soft patch of economic data has increased speculation over whether U.S. policymakers will perform a third round of bond purchases, an unconventional monetary measure known as “quantitative easing,” or QE2. The second round of QE2′s $600 billion in purchases will conclude on June 30.
Read the entire article HERE.
By Claudia Assis
June 22, 2011, 10:24 a.m. EDT
Forex.com, a large retail foreign-exchange operation, on Friday told clients it will discontinue its gold and silver over-the-counter products marketed to retail investors who are U.S. residents. It asked investors to close their positions by July 15. Read a related blog post on Forex’s move and brokerage’s reaction.
“It is our interpretation that we just can’t offer it legally” in response to regulatory provisions in the 2010 Dodd-Frank Act that kick in after July 15, said Alicia Brown, a spokeswoman for Gain Capital, the parent company of Forex.com. Get full coverage of Dodd-Frank.
The allure of gold as an alternative to paper currencies has helped propel the precious metal to record highs, alongside a surge in retail currency trading. Read more on retail currency trading.
Trading gold and silver over the counter — bypassing a futures exchange — offered investors a chance to enter a highly speculative, leveraged market that also left many investors at risk of fraud, according to one trade group.
“In order to trade, it needs to be done in a exchange, or it can’t be done at all,” said Dan Driscoll, a vice president with the National Futures Association.
The industry group asked Congress for such changes, due to numerous cases of fraud in such contracts. Doing business with a futures exchange offers retail investors more protections and transparency, he said.
Firms that “continue to offer these run the risk of government action,” Driscoll said.
After July 15, commodities transactions between retail investors that are leveraged and not delivered in 28 days, must be conducted in a “designated contract market,” a board of trade or exchange designated by the CFTC, according to the new rules.
Contracts fully paid for or delivered within 28 days, and commodity futures contracts trading on an exchange such as the CME Group CME
-0.13% and others, will not be
affected. Read more on gold futures.
Forex.com knew the requirements were scheduled to come into effect this July, a year after the act passed, and prior to the letter to clients Friday disclosed its intention to cease the products in filings, Gain Capital’s Brown said
FXCM, another large retail foreign-exchange firm, has not offered the over-the-counter precious metals investments. There were clients that “on occasion” would ask for such products, but ultimately FXCM decided not to offer it, said spokeswoman Jaclyn Sales.
“Our bread and butter is (foreign-exchange) products,” she said. “We looked into it … and decided not to move forward” particularly after the Dodd-Frank Act passed, she said.
Read the entire article HERE.
by Tyler Durden
06/21/2011 00:19 -0400
India’s heretofore “insatiable” appetite for precious metals will need to find a new adjective to describe it, after it surged by an absolutely unprecedented 500% in May MoM, and 222% compared to May of 2010, touching on a massive $8.96 billion in imports in the past month. Putting this number in perspective the yearly average Indian imports are about $22 billion: in one month the country will have imported about half its average quota for the year! And while inflation may have much to do with it, events like the Sensex flash crash from last night certainly are not helping matters:
“The gold story is puzzling” added financial analyst A S Kirolar. “Consumers are shying away from stocks and bonds and heading to safe assets like gold and real estate, but one cannot understand this given the meagre 12% growth in imports of petroleum and oil products.” Granted demand is not just at the retail level as ever more institutions are buying up gold: “Analysts maintained that India’s central bank, the Reserve Bank of India’s decision to grant licenses to seven more banks to import bullion has helped push up demand. Karur Vysya Bank, State Bank of Bikaner and Jaipur, State Bank of Hyderabad, Punjab and Sind Bank, South Indian Bank, State Bank of Mysore and State Bank of Travancore were added to the list. As of the start of 2011, some 30 banks in India have been granted permission to import gold and silver. Jewellers are getting easy supplies which is also helping push up demand. Moreover, the flow of scrap is also expected to fall from a yearly average of 200 tonnes, which could again boost imports, underlining the insatiable appetite of the Indian consumer.” Add ongoing Chinese demand for PMs, and one can see why calls for an imminent gold crash absent a global deflationary vortex are largely overblown.
“Even as inflation and a widening trade deficit to $15 billion in May continues to weigh on the minds of Indian investors, the demand for fresh gold has continued to grow. This is very confusing, especially when one sees it against the backdrop of a 400% rise in the value of the rupee over the last decade,” said bullion analyst Anand Patnaik with a brokerage firm.
India’s commerce and industry minister Anand Sharma recently released trade figures. India’s imports have surged to a 4-year high at a scorching pace of 54% mainly due to rising oil prices and a surge in gold imports.
The country’s imports have jumped to $40.9 billion, which has resulted in the gap between imports and exports widening to $15 billion – a 67% increase which is the largest since August 2008, prompting the government authorities to caution that India’s trade deficit for 2011-12 could touch a record $145-150 billion.
Minister Sharma pointed out that exports of iron ore were down given the ban on exports imposed by the country. Imports in pearls and precious stones, however, have risen 24.6% to $ 5.20 billion, gold and silver by 222% to $ 13.5 billion and iron and steel by 13% to $ 1.80 billion, he said.
But the true cause of this endless demand is and always will be the threat of central bank hijacked purchasing power :
“People in India have accepted high inflation as a reality of life,” said Rajesh Shukla of the centre for Macro Consumer Research. Noting that Indians tend to use gold as a hedge against inflation, Shukla said this would be partly responsible for the spike in imports.
He added that high imports reflected a strong demand for the yellow metal, despite the weakening of the rupee.
The Indian rupee fell to its lowest in three weeks on Monday weighed down by losses in domestic shares and the euro, with dollar demand from oil companies also adding pressure.
“Bidding from oil companies is keeping the rupee lower. All of last week, the rupee depreciated. Hiking of key interest rates has further weakened the rupee,” said a forex dealer at a national bank.
And that’s merely the anchor for current gold prices at over $1500 even as stocks continue to sink. Once the Fed announced Operation Twist 2 either on Wednesday, or in one or two month’s time, the PM complex will explode, reaching $2000 in no time whatsoever.
Read the entire article HERE.