One of the great pleasures in life for economists is watching bubbles burst. First the speculative air is pumped in just beyond the point of reason. There is always a trader willing to say that a tulip bulb will soon be worth a million guilders; an investment bank ready to predict $200 oil prices by the end of the year. There is always a looming war or a potential harvest failure to add spurious justification. But the end is inevitably the same. The bubble bursts.
That is what is happening now in the energy market. Sometimes the bubble deflates rapidly, as with the US natural gas price – now at a 10-year low of less than $2 per mmbtu. In other cases the air escapes slowly. That is what has been happening to the oil price since the announcement of a modest fall in Chinese imports.
Once the fall begins it tends to continue. European gas prices are also declining and utilities tied into long-term contracts are struggling to renegotiate terms. If the Japanese succeed in restoring some nuclear power capacity the Asia gas market will follow the downward trend. Simultaneously the important report from the UK's energy department has reopened the door to shale gas development in Britain and perhaps across Europe.
The oil market is also set for a serious adjustment. Iran has backed off from its threats to close the Strait of Hormuz, and another complex negotiating process has begun in Istanbul to find a way in which Israel and Iran can step back from a confrontation neither could win. The sanctions on Iranian oil exports are an important bargaining chip in these negotiations. If there is any progress, Iranian production will come back on to the market.
In any circumstances short of a long war, the decline in prices could be substantial and only the action of Opec swing producers, led by Saudi Arabia, could set a floor. The Saudis' position is that prices should average $100 a barrel, but with output from Iran and Libya restored, that would require a cut of up to 3m barrels a day in Saudi exports – with troubling results for the kingdom's budget.
Nor is the fall likely to be temporary. Years of high prices have encouraged investment and technical advances have started to transform the energy market. The focus of attention has been on shale gas, with US production up 14-fold since 2000 and now meeting almost a quarter of US demand. In China, shale gas exploration is just beginning and if successful could dramatically reduce import requirements over the next decade. In Europe, the environmental debate is unresolved but following the UK government's supportive report, a forthcoming paper from the Royal Society could help set new standards, opening the way for production across the continent.
Significant shale gas reserves exist in Poland and France. With new and clear guidelines, development could be rapid and sharply reduce Europe's import needs. At the same time, the US is beginning to plan for exports of gas. This is the context behind last week's remarkable comment by Vladimir Putin, who warned Gazprom it would have to rise to the challenge of a transformed market.
But shale gas is not the full story. US production of tight oil, which is produced from shale and other rocks, has tripled in the past three years to almost 900,000 b/d. Predictions that the US could become self-sufficient in hydrocarbons in the next two decades no longer look absurd.
For consumers the news is good. The jerry cans in the garage will decline in value but the price at the pumps should decline steadily. In the US, the low gas price is seen as rebasing industrial costs and opening the door to a renaissance of manufacturing. The losers will be those who have invested in the highest-cost oil and gas developments and those who have planned their corporate or national finances on the basis of a one-way bet on rising prices and revenues. One of the most telling features of the current market is that despite the high prices of recent months the shares of oil majors have suffered serious falls. Shell and BP are both down against the market by more than 10 per cent since the start of the year. A persistent fall in prices will reopen the question of industrial restructuring, which has been postponed by the largesse of the past few years. Several Opec states will also be in serious trouble, with any added production from Iraq putting yet more pressure on the quota system, which sustains the cartel.
Within the energy market, attention has shifted to electricity production. The attraction of gas as a feedstock for generating power is well known. If that is reinforced by plentiful supply and falling prices, the drift from nuclear will continue and more questions will be asked about the scale of subsidies needed to back renewables. With climate change off the political agenda the risk of slippage on pledges to reduce emissions is high.
Bubbles tend to distract attention from such long-term trends. As the bubble bursts, we will see more clearly how much the landscape of the energy market is changing.
The writer is visiting professor and chair of King's Policy Institute, King's College London
For the first time in the history of the Indian commodity markets, National Spot Exchange (NSEL) will launch "e-Platinum", an investment product in platinum in demat form under NSEL's e-series banner, on Tuesday, April 17, 2012.
Indian investors will now have an opportunity to buy, sell, hold and liquidate their e-Platinum units electronically. They will also have the option to invest their small savings in this rarest of all precious metals through SIPs (systematic investment plan).
Benefits
**Trading units available in 1 gram
**Extended trading hours from 10 am to 11:30 pm
Indian investors will now have an opportunity to buy, sell, hold and liquidate their e-Platinum units electronically. They will also have the option to invest their small savings in this rarest of all precious metals through SIPs (systematic investment plan).
Benefits
**Trading units available in 1 gram
**Extended trading hours from 10 am to 11:30 pm
It has been an eventful few weeks, culminating in the EU summit on Friday. The continued volatility in markets has tested the nerves of many an investor, and during times such as these it is important to look at the big picture trends and pay close attention to the views of market veterans. One such veteran, Jeremy Grantham, who runs the well known value fund manager GMO, published his "shortest quarterly letter ever" during the past week , which has some interesting observations on global markets. To summarise:
-His forecast of "seven lean years" of 2 1/2 years ago is being realised with a continuance of the large debt overhang, drop in asset values and general financial incompetence.
-In particular, the US and developed world is experiencing a permanent slowdown in GDP growth as result of slowing population growth, an aging profile and growing entitlements leaving inadequate resources for growth, together with a declining savings ate.
-In addition, an inadequate infrastructure, declining standards of education and ineffectiveness of government has made the US less competitive than other developed and some developing countries.
-Growth has also been held back by the growing inequality in the US leading to growing feeling of injustice, a weakening of social cohesiveness and a fall in the work ethic.
-Lack of income growth for the middle class has made demand more susceptible to changes in confidence and the willingness to take on more debt.
-The most critical long-term issues of depleting resources, a comprehensive energy policy and global warming have not been addressed in a serious manner.
-Looking ahead over the next year, the likelihood of bad outcomes are not as high as in 2008, but the possibility of extremely bad and long-lasting problems is as high as it has ever been.
-Yet the S&P 500 index has performed relatively well (compared to other global markets), driven by high profit margins and low inflation levels. Historically, these two factors are significant in determining P/E levels of the market and point towards levels which should be 20% higher if it were not for the numerous negatives facing the market.
-The S&P 500 index is unlikely to come down to its fair value of 975-1000 until profit margins decline. However, profit margins will eventually come down towards historical averages , dragging the market down with them.
-All major equity bubbles have broken below trend line values and stayed below them for years – the US in 1929 and 1965, Japan in 1989 – but the current market did not even reach the trend line in 2002 and took only 3 months to recover to the trend line in 2009. This is unprecedented and has been a result of the excessive stimulation of markets by Greenspan and Bernanke.
-Based on their study of the 10 biggest market bubbles (pre-2000) they calculate that it typically takes 14 years to recover the old trend line. With investors being conditioned to expect quick recoveries, an old fashioned downturn without the support of the Fed (whose arsenal is vastly depleted) could lead to a major decline in markets at some point.
-Following the market downturn in July, they found international developed equities , emerging markets and US high quality stocks to be relatively cheap with an expected 7% real return over 7 years. Despite the cheapness they remained a bit underweight due to the numerous negatives.
Recommendations:
-Avoid lower quality US stocks and remain near normal weighting in global equities.
-Have a bias towards safety.
-Avoid long term bonds and have enough cash on hand (and not be short-term greedy).
-Gradually build exposure to resources in the ground on a 10-year horizon. However, resources are likely to have further declines in prices due to a slowdown in China and better weather.
An insightful piece as usual - while pointing out the big issues facing the market, it does suggest maintaining core weightings in sectors such as US high quality, international developed equities, emerging market equities and commodities. At the same time, keep a reasonable amount of cash on hand to increase exposure on further market downturns. So stay the course, and try not to be incentivised to engage in either panic selling on downturns nor trying to pick the bottom to increase long exposure (as you are likely to be underexposed when the market begins to turn around). However, some amount of portfolio rebalancing when markets have big surges on the upside (to reduce long exposure) and on the downside (to increase long exposure) would be prudent.
The EU summit was an important event in that it set a long-term goal in terms of eventual fiscal union. This is a big positive as it does meet a key requirement for market stability – i.e. setting a long-term vision for the Eurozone. This opens the way for the ECB to play a more supportive role in the government bond markets , ranging from increasing its regular bond purchases in the secondary bond markets to quantitative easing (but a big bazooka announcement is unlikely unless market conditions warrant it). However, the actual path towards final stability is likely to be rocky as the finer details and processes are worked out over the coming months. Unfortunately, this implies continued volatility but, at the same time, the removal of a 2008 type meltdown scenario.
Have provided a chart below (from Soc Gen) which illustrates the relationship between the price of gold and the US monetary base over the last 90 years. This is the fundamental case for holding gold as part of diversified asset portfolio – as central banks across the world enter into further easing , gold is likely to continue to rise. So continue to buy on pullbacks!
Trading levels for the week (5th Dec. - 9th Dec.)
For the week Crude prices are expected to find Resistance at 5274-5294 levels. Trading consistently above 5300 levels would renew the previous rally initially towards 5377 levels, and then finally towards the Major resistance at 5470 levels.
Support will be at 5070-5050 levels. Trading below 5040 levels would trigger a sharp fall initially towards 4965 levels and then finally towards the Major support at 4896 levels....read levels of Gold, Silver and Copper
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.
Mineweb has more:
"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.
U.S. dollars for OPEC oil help fund terrorists and the Taliban, T. Boone Pickens told CNBC Friday.
"I am trying to get away from the terrorists," he said. "I think the money we pay to OPEC gets in the hands of the Taliban."
The U.S. is sitting on top of a huge supply of natural gas, he said — so much that American companies are selling it to China and other countries.
"So here we are, we’re exporting our clean-burning fuel and importing dirty oil from the enemy," he said. "We’re gonna go down as the dumbest crowd in history that’s ever come to town."
Pickens, chief executive of BP Capital Management, is a longtime natural gas operator and backer of federal legislation to encourage more natural gas development. He said he is pleased the Obama administration has said it backs using domestic resources for federal fleets in the future.
"You’ve got to have direction from the White House" in order to spur natural gas development and get off OPEC oil dependence faster, rather than just leaving it to market forces, he said.
On that point, he strongly differs from the billionaire Koch brothers, who run privately-held Koch Industries. Charles Koch declined to be interviewed with Pickens on CNBC.
However, the company said in a statement it "has consistently opposed subsidies that distort markets. We maintain that the marketplace, while not perfect, is the best mechanism for allocating resources to consumers…We also consistently oppose subsidies for all other fuels whether or not we benefit from them."
To which Pickens responded: If you don't like the subsidies, don't take them.
"They import over 60,000 barrels a day of OPEC crude and pay OPEC $2 billion a year, and he may be the largest in subsidies for ethanol," Pickens said of Charles Koch.
"I'm asking for $1 billion a year" for five years for natural gas development, Pickens said.
"We have cheap natural gas and an opportunity to use it for transport fuel, and all I’ve asked for is the eight million 18-wheelers," he said. "With that I can cut OPEC in half...The subsidies for ethanol are vastly different from that, $6 billion a year. I’m asking for $1 billion a year.
"Mine is either a good idea and it’ll all happen in five years, or it was a bad idea and just forget it."
( Source : CNBC )
According to the data from World Gold Council, China's demand of gold rose 21% YoY to 142.9 tons and outpaced India, the largest market of gold bars and coins in the first quarter of 2011.Chinese investors bought 93.5 tonnes of gold between January and March in the form of coins, bars and medallions, a 55 per cent increase from the previous quarter and more than double the level of a year earlier according to the data. The rise in Chinese gold consumption has been stimulated by the deregulation of the country’s gold market, which has led to an increase in the number of banks importing gold and the number of specialist shops that sell it.
Some investors are betting on improved economic conditions in the West and interest rate hike. They are considering to cut the exposure in Gold.While, some fund managers considering to move away from gold and accumulating diamond and gem set jewelry.
For Example, George Soros’s hedge fund sold almost all its holdings in the largest gold exchange-traded fund, SPDR Gold Shares, in the first quarter, according to a regulatory filing this week.
"Gold no longer satisfies status demand, you need bling, you need something shiny, you need diamonds, " says Eddie Tam who runs the hedge fund CAI Global.The fund, which returned 48 percent last year has increased its exposure to two high-performing Hong Kong listed jewelry stocks - Look Fuk whose shares have surged 261 percent over one year and Chow Sang Sang, which is up 80 percent over the same period.
"The strong gold and diamond prices of late as well as the mounting inflationary pressures bode well for Hong Kong jewelers in terms of both revenue and margins."
Jewelry chains enjoy a 10 percent profit margin on gold, but hedge fund manager Tam says they can make 3 to 5 times more on gem set jewelry.
So far, the bulk of jewelry chains’ revenues still come from gold. A spokesman for Chow Sang Sang told CNBC, 55 percent of their sales come from gold and just 35 percent from non-gold jewelry. The rest comes from watches.
But Tam expects this product mix to change, with diamonds and gem set jewelery set to grow as advertising campaigns try and influence more Chinese men to buy diamond engagement rings.
According to De Beers, diamond sales grew 25 percent in China in 2010 and the country is now tied with Japan as the second-biggest consumer of diamonds, with the U.S. taking the top spot. Tam says China's demand for diamonds is about to go non-linear because of income growth and will soon hit high double-digit percentage increases, if not triple digits.
Despite being bullish, Bank of China says investors need to be wary of two risks. For one, same store sales may drop if China experiences a major slowdown caused by a downturn in the property sector. And two, both companies have large inventories of gold and diamonds that could decline in value if jewelry prices drop.
( Source: Financial Times, CNBC )
Central banks increased their exposure in Gold, and loaded up 129 tons of gold in the first quarter of 2011 according to the data from World Gold Council.
The demand was seen quiet stronger, as uncertainty over US economy ,Dollar, ongoing European crisis, global inflationary pressures and continued tensions in the Middle East and North Africa
Demand from China and India has been healthy according to Marcus Grubb, who said central banks continue to add to their reserves.
"Central bank purchases jumped to 129 tons in the quarter, exceeding the combined total of net purchases during the first three quarters of 2010," he said.
"The resilience of gold during recent volatility in the commodities market exemplifies the strength of the global gold market and its unique demand drivers," he added.
"High levels of investment demand across the world, strong demand in India and China, the continued strength of the technology sector together with central bank purchasing demonstrates gold’s diverse demand drivers.
We anticipate continued strong demand during the rest of 2011," Grubb said.
The long-term expected rate of return on commodities is ‘zero,’ according to Mark Matson of Matson Money.
“Equities are the best long-term creators of wealth and if you own a diversified portfolio, you already own commodities in all of your stocks, so don’t double down—it doesn’t make sense for long-term investors,” Matson told CNBC.
Meanwhile, Joseph Duran of United Capital Financial Partners said the decline in commodities is “healthy” over time, and allows for sustained growth. His best plays are multinational mega-cap names, as they are able to take advantage of global growth.
“People are realizing that QE3* is off the table and that means less money—and less money means less money for commodities,” he explained.
* a hypothetical third round of quantitative easing.
The commodity boom may seem like a recent phenomenon, but in fact, it started 115 months ago, in 2001, according to Michael Darda, chief economist and chief market strategist at MKM Partners.
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| Silver Bars |
That time frame is worth noting, because it’s about how long the tech boom lasted (114 months) and how long the housing boom lasted (113 months), Darda said in a Friday research note.
“Most observers think ‘it’s different this time’ for commodity prices,” Darda said. And while it may be, he cautions that, in the past, “’it’s different this time’ has proven to be a costly mantra.”
This past week, the boom appeared to have stalled, as commodity prices plunged
on fears of a slowing global economy and falling demand for gasoline, in turn triggered by hard-to-swallow prices at the gas pump. On Wednesday, U.S. light crude sank 5.5 percent, while silver futures tanked 7.7 percent.
on fears of a slowing global economy and falling demand for gasoline, in turn triggered by hard-to-swallow prices at the gas pump. On Wednesday, U.S. light crude sank 5.5 percent, while silver futures tanked 7.7 percent.
Oil prices traded slightly lower on Friday, which some market observers credited to strength in the dollar , which gained Friday against a basket of currencies as the euro fell.
While the dollar and oil may be trading in tandem Friday, a falling dollar did not play a big role in the commodity price boom these past 115 months, Darda said, pointing out that the dollar fell only 40 percent from its peak in 2001, while commodities soared 240 percent.
Instead, the dominant force in commodity prices has been China, he said.
In a Thursday research note, Darda said commodity prices are sliding because of a hike in reserve requirements for Chinese banks, which has slowed money growth and increased risk spreads in China. Another factor? A contracting balance sheet for the European Central Bank, he says.
( Source: CNBC )
From midnight today, there will be hike in petrol prices across the India according to the latest price hike announced by Oil Companies. It will be a biggest price hike in history
The steep hike in petrol price is likely to be followed by a Rs 4 per litre increase in diesel rates and Rs 20-25 per cylinder increase in domestic LPG price later this month.
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| Gas Prices Hike |
Is the price hike really needed at this stage, as India Inc is already struggling with high inflation numbers?
The answer from oil companies will be a definite "Yes". But let's make a comparison according to inflation, salaries and global gas prices( Petrol Prices ). We have seen a move from government to deregulate fuel prices and keep them vary according to market demand and supply to help Oil companies loosing money and government don't have to spend money on them.
United States:
If we see gas prices in United States, as of today highest price is $4.254 per gallon in California state. Now let's calculate this number in indian rupees. 1 galleon equals 3.78 liters so, 1 liter of gas ( Petrol ) costing is 50.64 Rs per liter ( Conversion: 1 USD = 45 INR ). That means highest price paid in United States per liter of Petrol ( gas ) is 50.64 Rs. If we consider average gas price in Unites States, it will come down to 46 -47 Rs / Liter. Now, an average person in United States earns an average minimum 1500 $ / per month, that is 67,500 Rs in India. So an average person can spend at least $ 200 means 9000 Rs a month on Gas. See more story links below
India:
Let's take a case of developing country like India, People are struggling with price hikes and inflation. Government continuously hiking interest rates since last year. If we see, Petrol prices in Delhi ( Capital of India ) is close to 63 Rs/ Liter , some states like Gujarat, it will be 67 Rs/Liter after this price hike. This figure is 26 % higher than in United States as per above comparison ( 50.64 Rs / Liter in US ). If we see, average salaries in the country, it is around 15000 Rs per month ( 333 USD/ per Month ). Now if you think that an average person can afford drive a vehicle or even a public transport, how can it will be possible? In reality, Indian public can't afford such a price hike. Check out other links here, you might like it
Deregulated Fuel Prices
In United States, Markets oil prices decide gas price that mean it is deregulated. For Example, If oil prices start moving higher, Gas prices will move higher and if Oil prices will go down Gas prices will follow the same. This effect you can see in weekly oil prices. US consumers have seen gas prices to go up and also come down as per market movements of crude oil.
While in India, there is no change in petrol price from higher to lower side, even if when Oil prices was above $110 a barrel and come down to below $ 100 a barrel. If the fuel prices are deregulated as per government authorities, why Petrol prices are not changing up and down as per Oil prices in international markets?
Oil Companies:
Oil companies are still claiming that they are loosing money despite of such a higher petrol prices. If we see above figures and conclude that Consumers and citizens of India are already paying a 26 % higher prices than in United States although their average earnings are way below ( One fifth ) of the minimum earnings of US consumers and citizens. How India Inc will try to manage inflation and promote higher growth?
In India, labor is way cheaper than in United States, as we can see from salary figures. Oil companies aren't able to manage competitive prices despite cheap labor or they are claiming something different than they actually are.
After all, the story here is just for comparison and to raise questions regarding private oil companies' efficiency or may be government efficiency to deal with inflation.
India Inc took a wrong meaning of "DE RAGULATION OF FUEL PRICES" as per above comparison. The meaning that make sense is " UP REGULATION OF FUEL PRICES", because once price will go up, it will never come down, whatever will be the situation.
Copyright Stockinvestips
The Silver Users Association (SUA), a group devoted to the conflicting goals of keeping silver prices low and keeping silver available for users, stunned the silver investing community last month by repeating the claims made by silver investors and analysts, that the silver market is very tight and that any significant investor demand will create a shortage of silver.
The SUA made the bullish case for silver when asking the Securities and Exchange Commission (SEC) to deny Barclays' petition for a Silver Exchange Traded Fund (ETF). The Silver ETF will require Barclays Global Investors to buy up to 130 million ounces of silver prior to the approval of a silver ETF, in anticipation of investor demand for the silver ETF. But the COMEX division of NYMEX only has 117 million oz. of silver in all warehouse stock categories combined. Furthermore, COMEX market participants, through approximately 140,000 silver futures contracts at 5000 ounces each, already have claims of up to 700 million ounces of silver -- silver that may not exist.
The SUA's position: "The Silver Users Association opposes the creation of a silver ETF because of the concerns that doing so will require the holding of physical silver be held in allocated accounts, thus removing large amounts of silver from the market. By doing so, the ETF will cause a shortage of silver in the marketplace."
The SUA is asking the SEC to limit investors' ability to buy silver through an ETF. A silver ETF, which would warehouse silver for investors, and be easier for investors to buy and sell, makes more sense for silver than gold, because of silver's weight. But there are already limits on silver purchases. At the COMEX, there is a position limit of 1500 contracts per person or entity per month (which is a limit of 7.5 million oz. of silver), and total silver deliveries to all market participants may be limited to 1.5 million ounces in any given delivery month.
Back in May, 2004, the U.S. Commodity Futures Trading Commission (CFTC), which is supposed to oversee and prevent market manipulation and defaults, issued a 9-page report on silver that acknowledged many of the bullish fundamentals for silver, yet went on to say that a short side price manipulation could not exist because there is "unrestricted access to the market, [because] many knowledgeable and well-capitalized traders would readily buy any silver offered at artificially low prices." Michael Gorham, director of the CFTC, in the same report, then contradicted his earlier statement by defending the position limits that prevent unrestricted access to the silver market. Michael Gorham then resigned from the CFTC about 3 weeks later.
In free markets with free prices, supplies are rationed not by limits, but rather, by higher prices. The SUA, who is advocating a type of limit for investors, would rather not see higher prices. Today, it appears as if the SUA is more concerned with keeping silver available to its members than keeping silver prices low, since they can no longer continue to do both. The SUA is endorsing the bullish story for silver, in an attempt to keep silver available to users, and away from highly capitalized investors who may want to buy silver through a silver ETF.
What are the bullish fundamentals for silver?
According to the Silver Institute and CPM Group, each year about 600 million ounces of silver are mined, while about 870 million ounces of silver are consumed by industry, jewelry, and photography. The difference is largely met by recycling and investor selling. In 2004 however, investor selling ended as about 40 million ounces of silver was purchased by investors throughout the year, which drove silver prices up from a low of $4.15 to a high of $8.40/oz.
According to the Silver Institute and CPM Group, each year about 600 million ounces of silver are mined, while about 870 million ounces of silver are consumed by industry, jewelry, and photography. The difference is largely met by recycling and investor selling. In 2004 however, investor selling ended as about 40 million ounces of silver was purchased by investors throughout the year, which drove silver prices up from a low of $4.15 to a high of $8.40/oz.
Historically, the silver to gold ratio was that 15 ounces of silver would be worth 1 oz. of gold. Today, with silver at $7.76/oz. and gold at $472, it takes just over 60 oz. of silver to buy one ounce of gold.
Have we hit "peak silver," like "peak oil"? Peak oil proponents maintain that there is about a 40-year supply of oil in reserves, worldwide. However, according to Ted Butler, there are only about 16 years of silver in in-ground reserves, worldwide. The silver to oil ratio hit a high of over 1 in 1980, as a $50 ounce of silver could buy more than a barrel of oil at $43/barrel. Today, with oil prices hitting $70/barrel, silver prices are at historic lows as compared to oil, as an ounce of silver recently was 1/10th the price of a barrel of oil.
But what about the existing above ground supply of silver? Precious metals are held privately, and are not able to be tracked or traced, so nobody truly knows what the above ground supply of silver of might be. However, experts maintain that about 40 billion ounces of silver has been mined throughout all of human history, and that about 90% of that has been irretrievably consumed by industry, jewelry, and photography. Most of the approximately 3-5 billion ounces of silver left is in the form of jewelry, mostly held in India. Silver that is in the form of above-ground, refined, deliverable, identifiable silver is about 150 million ounces, mostly held at COMEX. The U.S. government once held up to 6 billion ounces of silver, but around 2002, the U.S. ran out, and had to buy silver on the open market for its Silver Eagle coin program. The COMEX once had up to 1.5 billion ounces of silver about 10-15 years ago, but today has less than 1/10th of that: 117 million ounces.
Warren Buffet bought 129.7 million ounces of silver in 1997, and "concluded that equilibrium between supply and demand was only likely to be established by a somewhat higher price." Since then, numerous investment analysts and newsletter writers have grown increasingly bullish on silver prices, including: Ted Butler, David Morgan, Jim Puplava, Harry Schultz, Doug Casey, Richard Russell, Jason Hommel, and many others. With the addition of the CFTC and the SUA making the bullish case for silver, what knowledgeable silver analyst or commentator remains left to maintain a bearish outlook for silver prices?
So, if there is an impending shortage of silver, how have prices remained low? Well, there is no shortage of silver for industrial users (commercials) who have unrestricted access to silver; there is only a shortage of silver for very large investors (speculators), who are restricted by position limits. Silver prices are also low due to lack of monetary demand, and a general lack of interest or knowledge by most investors. Demonetization of silver started in the 1870's with Germany abandoning silver coinage to move to a gold standard. The last time 90% silver coins were minted in the U.S. for everyday monetary transactions was 1964.
So, how high will silver prices go? Conceivably, if investor and monetary demand continues to increase, silver may not be able to be priced in dollars if the dollar collapses completely. But how would silver be valued if not in terms of dollars? Well, about 100 years ago, when silver was used as money nearly worldwide, a day's wage varied between a silver dime to a silver dollar. A return of monetary demand worldwide, in conjunction with a silver shortage, could conceivably drive silver prices higher than historic norms.
Will higher silver prices hurt the economy? The SUA also says: "This removal of large quantities of physical silver [through a silver ETF] could have a negative impact on silver-industry specific employment as well as the overall economy, both through job losses and inflation." However, higher silver prices will also create jobs in the silver mining industry, which has been devastated by low silver prices. In fact, currently, there are no profitable public silver mining companies in the U.S. Most silver miners remain unprofitable in 2005, because oil and energy prices (which are a large part of mining costs) have risen much faster than silver prices.
Whether a silver ETF or whether the growing sense of a silver shortage will drive investor demand for silver remains to be seen.
Conclusion? If there really remains less than 150 million ounces of silver in above ground refined form, then there is about half of an ounce of silver per person in the U.S., which means that if you have a single ounce of silver, the SUA might say that you have "more than your fair share.
Enjoying WTI at sub $100? Since we have at most two months of WTI trading sub $115 (and Brent at $130, assuming the WTI-Brent spread does not finally collapse) according to JP Morgan, enjoy it while you can. From Lawrence Eagles: "Although oil prices fell sharply last week, on Friday we raised our Brent crude price forecast to $130/bbl for 3Q2011 due to a tight supply/demand outlook. While product cracks and crude differentials also saw some readjustment, we do not expect a major realignment in differentials going forward as the underlying pressures remain intact." In other words, as we said last week, nothing has changed (except for some margins). And since all commodities correlate as one, and since Jim O'Neill was out earlier today bashing commodities (the surest contrarian sign ever), time to load up the boat courtesy of the CME's persistent banging the speculator is likely here.
More from JPM:
Refiners are typically conservative when it comes to selecting crudes. It is not worth risking an outage just to save a few cents a barrel. But given recent sweet/sour differentials there is a major incentive to run sour crude, so many refiners are pushing limits. It is often said that sour crude use is "maxed out" due to sulfur limitations. However, recent visits to key refining clients in Asia indicate that this is not entirely true. Refiners are running as much sour as they readily can, but several said logistical constraints or preference for domestic crude is preventing them from fully maximizing sour crude use. Some pointed to ways they could possibly run more sour crude if the price is right.
It needs to be "right". Demand is growing seasonally as refiners return from maintenance but sweet crude supply is constrained. Refiners must be incentivized to run additional sour crude from Iraq and others as they ramp-up runs. In 2008, diesel/fuel oil differentials spiked to push refiners to raise runs, but then we had a much tighter refinery sector. In 2011, the critical constraint is crude volume: more crude needs to be run. The incentive must continue to come wide Brent/Urals and Brent/Dubai, especially if OPEC adds the crude the market needs.
News Flow:
In the US, Mississippi river floodwaters are expected to crest on Tuesday in the city of Memphis. But further south, waters will continue to rise and refineries will be impacted. Tanker traffic is already beingaffected due to flooding of terminals.
A portion of Venezuela's Amuay refinery experienced a significant power outage on Friday, knocking out the majority of the refinery's operating units, including a large FCC unit (108 kbd). The Isla refinery in Curacao was also a victim of a blackout, causing full plant shutdown, according to reports.
At the request of the Japanese Prime Minister, Chubu Electric Power Company is reportedly shutting its 3.5 GW Hamaoka nuclear plant. The plant lies adjacent to a fault line and is said to be at risk of damage if a major earthquake hits the area.
Numerous small news points from China drew our interest in advance of oil trade data expected tomorrow: (1) State refiners continue to ration wholesale diesel, but buying interest slowed with the fall in crude prices. Gasoline buying also reportedly slowed. (2) Sinopec is said to "outsource" about 400 kbd of gasoil and 90 kbd from independent refiners in May. Sinopec is reportedly giving a subsidy of about $6/bbl versus $2/bbl a month ago. (3) Chinese independent refiners have reportedly been running more condensate, although the volumes remain small for now at around 12-15 kbd.
Analysis
Even if refineries themselves are not flooded, deliveries of crude and loading of products will be impacted. Runs may be reduced just as US refiners are struggling to return from a period of elevated outages amidst seasonally rising demand. Recent robust US Gulf Coast exports to Latin America may be scaled back as consumers up cracks to keep products for domestic use.
Infrastructure problems continue to be a constraint for Latin America's oil industry; in addition to unplanned outages for refineries, our crude production forecasts have been lowered in this month's assessment of 2011 supply from Venezuela. Electricity shortages have been identified as a source of additional demand as consumers utilize oil to meet power needs, and with difficulties operating refining capacity, imports into Latin America from the US should continue.
A number of nuclear reactors around Japan are seeing delayed returns, but as far as we know this is the first proposed long-term shutdown of an operating plant. Public pressure of this type will continue, so it is important to note potential impacts on oil. Chubu electric has about 5 GW of oil-fired capacity, but according to company reports it is used primarily as back-up. Should it close Hanaoka, Chubu will first turn to cheaper LNG before oil. Unlike TEPCO, it can also draw on neighbors as it is on the undamaged 60 hertz western grid. Neighboring utilities including Kansai electric will also push up LNG use before oil Oil use oil. will undoubtedly surge further with peak summer demand, but the impact should be more muted than in eastern Japan.
China is unusual in that a decline in price can lead to a short-term decline in implied demand growth. This is likely due to hoarding at the retail and consumer level in anticipation of administered price increases. The opposite can happen when crude price falls. Essentially, why build stocks when price is likely to be adjusted downwards, or as in this case not adjusted upwards? Retailers/consumers simply put off purchases and drawdown stocks. Just as March and April implied demand was likely boosted by hoarding, if prices remain lower May could see destocking. At the same time, runs at independent refiners could improve due to better refining economics. Taken together, Chinese net product exports could bounce if the international crude price remains relatively low. Condensate will need to find new uses as Middle East supply ramps up faster than splitting capacity. Relatively simple teapot refineries, often running at low utilization, are a natural home for surplus condensate.
And with this down, look for Goldman to formally revise its sell rating on Crude any minute now.
It needs to be "right". Demand is growing seasonally as refiners return from maintenance but sweet crude supply is constrained. Refiners must be incentivized to run additional sour crude from Iraq and others as they ramp-up runs. In 2008, diesel/fuel oil differentials spiked to push refiners to raise runs, but then we had a much tighter refinery sector. In 2011, the critical constraint is crude volume: more crude needs to be run. The incentive must continue to come wide Brent/Urals and Brent/Dubai, especially if OPEC adds the crude the market needs.
News Flow:
In the US, Mississippi river floodwaters are expected to crest on Tuesday in the city of Memphis. But further south, waters will continue to rise and refineries will be impacted. Tanker traffic is already beingaffected due to flooding of terminals.
A portion of Venezuela's Amuay refinery experienced a significant power outage on Friday, knocking out the majority of the refinery's operating units, including a large FCC unit (108 kbd). The Isla refinery in Curacao was also a victim of a blackout, causing full plant shutdown, according to reports.
At the request of the Japanese Prime Minister, Chubu Electric Power Company is reportedly shutting its 3.5 GW Hamaoka nuclear plant. The plant lies adjacent to a fault line and is said to be at risk of damage if a major earthquake hits the area.
Numerous small news points from China drew our interest in advance of oil trade data expected tomorrow: (1) State refiners continue to ration wholesale diesel, but buying interest slowed with the fall in crude prices. Gasoline buying also reportedly slowed. (2) Sinopec is said to "outsource" about 400 kbd of gasoil and 90 kbd from independent refiners in May. Sinopec is reportedly giving a subsidy of about $6/bbl versus $2/bbl a month ago. (3) Chinese independent refiners have reportedly been running more condensate, although the volumes remain small for now at around 12-15 kbd.
Analysis
Even if refineries themselves are not flooded, deliveries of crude and loading of products will be impacted. Runs may be reduced just as US refiners are struggling to return from a period of elevated outages amidst seasonally rising demand. Recent robust US Gulf Coast exports to Latin America may be scaled back as consumers up cracks to keep products for domestic use.
Infrastructure problems continue to be a constraint for Latin America's oil industry; in addition to unplanned outages for refineries, our crude production forecasts have been lowered in this month's assessment of 2011 supply from Venezuela. Electricity shortages have been identified as a source of additional demand as consumers utilize oil to meet power needs, and with difficulties operating refining capacity, imports into Latin America from the US should continue.
A number of nuclear reactors around Japan are seeing delayed returns, but as far as we know this is the first proposed long-term shutdown of an operating plant. Public pressure of this type will continue, so it is important to note potential impacts on oil. Chubu electric has about 5 GW of oil-fired capacity, but according to company reports it is used primarily as back-up. Should it close Hanaoka, Chubu will first turn to cheaper LNG before oil. Unlike TEPCO, it can also draw on neighbors as it is on the undamaged 60 hertz western grid. Neighboring utilities including Kansai electric will also push up LNG use before oil Oil use oil. will undoubtedly surge further with peak summer demand, but the impact should be more muted than in eastern Japan.
China is unusual in that a decline in price can lead to a short-term decline in implied demand growth. This is likely due to hoarding at the retail and consumer level in anticipation of administered price increases. The opposite can happen when crude price falls. Essentially, why build stocks when price is likely to be adjusted downwards, or as in this case not adjusted upwards? Retailers/consumers simply put off purchases and drawdown stocks. Just as March and April implied demand was likely boosted by hoarding, if prices remain lower May could see destocking. At the same time, runs at independent refiners could improve due to better refining economics. Taken together, Chinese net product exports could bounce if the international crude price remains relatively low. Condensate will need to find new uses as Middle East supply ramps up faster than splitting capacity. Relatively simple teapot refineries, often running at low utilization, are a natural home for surplus condensate.
And with this down, look for Goldman to formally revise its sell rating on Crude any minute now.
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| Silver |
Gold and Silver has continued an uptrend and hit a record high on Thursday's trading session. Silver has touched a record high of $49.35 rising about 4 % breaking earlier record in the year of 1980. while gold has touched all time high of $ 1536 and retreated to $1532. while dollar continued weakening and touched record low after fed has continued low interest rate low and monetary easing policy to help struggling economy and job markets.
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| Silver |
Monday 2:10 am, silver futures surged to a multi-year high of $49.82 per ounce and after nine hours later, in the US stock market trading ,the May Silver contract was down 8 % and before midnight Monday, futures touched a low $44.61, correcting 10.5%. On tuesday, silver has recovered a bit and closed at $45.06.
Regardless, this veritable "Flash Crash" in silver should serve as a reminder, especially to the retail investors jumping in now, of the volatility that is possible with commodities. It may also be the sign of a top in the best trade since shorting the housing market, traders said.
“There was no fundamental cause for the pullback, because there was no real fundamental cause for the 30 percent rally in a month,” said Dan Nathan of RiskReversal.com. “We know how this ends. That was a blow-off top.”
Silver was below $10 in 2009, so a move above $50 would represent a more than fivefold increase. Silver has been outpacing its precious peer, gold, as hedge funds have looked elsewhere for a metal with a similar "store of value" quality while the Federal Reserve devalues the dollar through its easy money policy. Silver coin advertisements may soon start to rival the gold advertisements on TV.
“Absolutely this serves as a warning that ‘buyers should beware’ in any market that makes stratospheric or parabolic moves, especially when trading leveraged positions,” said John Person, president of Nationalfutures.com and co-author of the Commodity Trader’s Almanac.
Speaking of leverage, CME and the Shanghai Gold Exchange raised margins on silver Monday, making it more expensive to borrow and buy the metal. Some traders blamed this margin increase for the fall. Others said jitters before the Federal Reserve’s policy statement Wednesday or simple technical reasons were the culprit for the 23-hour plunge.
“Using spot silver as a guide, we have looked for a test of the 1980 high near $49-50,” Mary Ann Bartels, head of U.S. technical and market analysis at Bank of America Merrill Lynch Global Research, said in a note to clients.
“With the sharp downside reversal off this high, the risk is for a near-term buying climax for silver," she said. "While the longer-term pattern is bullish, shorter-term backing and filling is not ruled out and we would considered this a buying opportunity for silver.”
Still others see a classic bubble, fueled first by a legitimate fundamental cause, and then taken into the stratosphere by momentum-chasing hedge funds before the retail investor finally catches on just in time to be holding the bag. More areas could be ripe for bubble-blowing these days with the explosion in popularity of exchange-traded funds.
In March, ETFs focused on silver had $838 million in inflows, behind only Japan and Emerging Markets, according to data from Birinyi Associates. That’s a lot of money flowing into funds not focused on a large sector of stocks or a whole country. While those who put money in last month are still in the green for April, many traders this week’s vicious sell-off is just a sign of things to come.
( Source: CNBC )
Today Gold price hits record high of $1500 per ounce and Silver is at $ 46.21 per ounce while dollar sinked to a three-year low against major currencies.Main action in commodities are due to weak dollar, uncertainty over libya, euro zone debt concerned and rising inflation v/s historically low interest rates, downgrade looms over US debt.
These all factors sum up to a continuous rally in Gold and Silver. According to the Analysts' view there is a still momentum in precious metal prices and it will continually move higher. Every dip will be a buying opportunity according to Wall Street Analysts.
