Friday 19th December 2014
NEWS TICKER: FRIDAY DECEMBER 19TH 2014: Scotiabank’s Commodity Price Index dropped -4.8% m/m in November (-6.1% yr/yr) and will end 2014 in a ‘deflationary’ mode, says economist Patricia Mohr. "Significant capacity expansion and the defence of market share by major oil and iron ore producers— against a backdrop of lacklustre world economic growth — account for the softness at the end of the year," she says. Mohr adds that the decision by Saudi Arabia not to reduce output to shore up international oil prices, but instead to allow prices to drop to levels curbing US shale development appears to be having a negative impact on confidence in a wide variety of other commodity as well as equity markets. She predicts prices will fall further this month, but will start to rebound in mid 201 - Jonathan Hill, the EU's financial-services commissioner, says he plans to pursue rules that separate a bank's proprietary trading from retail operations. "The sensible thing to do is to seek to make progress quickly" on the issue, Hill said. "There are still areas of risk in some of the biggest and most complicated banks,” reports Bloomberg- CME Group, said yesterday that it will change daily price limits in its CME Feeder Cattle futures effective today, pursuant to its emergency action authority. The current daily price limit for CME Feeder Cattle futures is $3.00 per hundredweight and will change to $4.50 per hundredweight effective on trade date December 18th Additionally, effective December 19th (tomorrow) these limits will have the ability to expand by 150% to $6.75 per hundredweight on any business day in the event that one of the first two contract months settles at limit on the previous trading day. CME Feeder Cattle futures have been locked limit for five consecutive days as a result of various factors. The change to daily price limits is necessary to ensure continued price discovery and risk transfer, says the CME. Daily price limits for CME Live Cattle futures will remain unchanged at $3.00 per hundredweight. Effective Friday, December 19th, these limits will have the ability to expand by 150 percent to $4.50 per hundredweight in the event that one of the first two contract months settles at limit on the previous trading day - The Straits Times Index (STI) ended +16.42 points higher or +0.51% to 3243.65, taking the year-to-date performance to +2.49%. The FTSE ST Mid Cap Index gained +0.29% while the FTSE ST Small Cap Index gained +0.71%. The top active stocks were Keppel Corp (+2.68%), SingTel (-1.02%), DBS (+2.36%), Global Logistic (-3.21%) and UOB (+0.30%). The outperforming sectors today were represented by the FTSE ST Basic Materials Index (+3.13%). The two biggest stocks of the FTSE ST Basic Materials Index are Midas Holdings (+6.38%) and Geo Energy Resources (unchanged). The underperforming sector was the FTSE ST Telecommunications Index, which declined -0.98% with SingTel’s share price declining -1.02% and StarHub’s share price declining-0.73%. The three most active Exchange Traded Funds (ETFs) by value today were the IS MSCI India (+2.56%), DBXT CSI300 ETF (+0.42%), STI ETF (+0.61%). The three most active Real Estate Investment Trusts (REITs) by value were Ascendas REIT (-0.42%), Keppel DC REIT (unchanged), Suntec REIT (+0.26%). The most active index warrants by value today were HSI23400MBeCW150129 (+7.32%), HSI22600MBePW150129 (unchanged), HSI24000MBeCW150129 (+12.50%). The most active stock warrants by value today were KepCorp MBeCW150602 (+21.95%), DBS MB eCW150420 (+29.29%), DBS MB ePW150402 (-18.03%) - Spain’s Director of Public Prosecutions, Eduardo Torres Dulce, has resigned from the post for “personal reasons”, Spanish daily El Mundo reported this morning. A spokesman for the Public Prosecutor’s office confirmed the news by telephone to The Spain Report, saying that Mr. Torres Dulce had informed Justice Minister Rafael Catalá of his decision: “but that it perhaps would not come into effect until they find a replacement”. That decision is taken at cabinet level. The next cabinet meeting for Rajoy’s government is tomorrow morning - Hedge funds including Marshall Wace, Odey Asset Management and Lansdowne Partners are shorting OTP Bank Plc, a Hungarian lender with a Russian subsidiary whose shares have fallen almost 6% this month reports Albourne Village. All three London-based funds took or increased their position this month in OTP, Hungary’s largest lender, according to data compiled by Bloomberg. The ruble rose today in Moscow after plunging as much as 19%against the dollar yesterday, when Russia’s central bank increased interest rates to 17% percent from 10.5 percent in an attempt to stem the decline. The ruble is down 52% this year and has taken a disproportionate beating in the wake of sanctions and falling oil prices. The country still has the third largest currency reserves in the world and so is unlikely to default. According to Eric Chaney, Manolis Davradakis and Greg Venizelos from AXA IM’s Research and Investment Strategy team Russia will likely resort to fiscal stimulus to contain the risk of social and political unrest. Capital controls, political unrest and even default on private hard currency debts are possible outcomes they say. They credit default swaps market is pricing a one-third probability of sovereign default within five years - Indonesia is ramping up financing for its $439bn development program, planning an almost fivefold increase in sales of project sukuk. The government is seeking to raise IDR7.14trn rupiah (around $568m) from notes that will fund particular construction ventures next year, compared with IDR1.5trn this year, which say local press reports, will help finance its estimated spending of about IDR5,519trn from 2015 to 2019 to build roads, railways and power plants.

Gold outlook remains tied to political risks

Wednesday, 08 February 2012
Gold outlook remains tied to political risks If 2011 was all about a strong investment case for gold, the sell-off at the very end of last year heralded a more cautious approach to the yellow metal. Most analysts believe gold will continue to rise in the first half of 2012, possibly by as much as $300 to $500 a troy ounce. However, they also warn that prices are likely to start falling in the second half of this year and continue on a downward path into 2013, while platinum and palladium could climb steadily. By Vanya Dragomanovich. http://www.ftseglobalmarkets.com/media/k2/items/cache/5214bdb529ff52c2bc08d9b03f97b94e_XL.jpg

If 2011 was all about a strong investment case for gold, the sell-off at the very end of last year heralded a more cautious approach to the yellow metal. Most analysts believe gold will continue to rise in the first half of 2012, possibly by as much as $300 to $500 a troy ounce. However, they also warn that prices are likely to start falling in the second half of this year and continue on a downward path into 2013, while platinum and palladium could climb steadily. By Vanya Dragomanovich.

The vast strategic allocations—not only from speculators but also from private banking and high net worth individuals—which have shaped the precious metals market over the past two and a half years have now subsided, according to Nick Moore, a commodity analyst at RBS. “To us this had always seemed inevitable. Investment demand could not expand perpetually,” he says.
Even so, this is no grounds to become bearish because the arguments in favour of investing in gold remain solid, adds Moore. Last year, it has to be said, was busier than most, dotted with events that inevitably propelled investors towards gold as a safe haven. In case you’ve forgotten, here’s the well-worn list: the Arab Spring; the Japan earthquake; the conflict in Libya; the downgrading of the US sovereign debt; the Greek debt crisis. Equally inevitably, gold prices shot up from $1,370 a troy ounce in January 2011 to a high of more than $1,900/oz in September. The subsequent drop to $1,670/oz by year end was as much about cashing in on the year's rally as it was about deleveraging while the debt crisis exerted its wasting grip on Europe.
It is patently clear already that a lot of the uncertainty of 2011 will overhang across the market, at least for the first half of 2012. The list of reasons is again very obvious: the chronic European debt problem; fragile growth in the global economy; and unsettling political stresses emanating from Iran and the US, even potentially Syria. All of these elements will continue to inject volatility into the gold market.
With this amount of uncertainty it would be foolish to write off gold as an investment. Despite the sell-off in December, a large proportion of investors across the board—be they retail, central banks, large institutions or speculators––continue to look at gold either as an alternative currency or a diversification asset designed to protect against losses from other investments.
In the past two months investors have been divided in their approach to gold. While short-term speculators liquidated large positions in December, cashing in on a rally that happened over the course of 2011, long-term investors, particularly ETF investors, stuck faithfully to their positions. Speculative positions in Comex gold are at their lowest levels since 2009 but physical gold ETF holdings reached record levels of 2,300 tonnes in December.
Since the beginning of this year “fresh money has been put to work and the energy sector and precious metals have so far been the main recipients,” particularly gold and silver, says Ole Sloth Hansen, senior commodity manager at Saxo Bank. One of the key factors working in favour of gold is the low interest rate environment which currently exists in over half of G20 countries, he adds.
Further monetary easing in Europe, China and potentially a round of QE3 in the US will increase liquidity and drive the gold price to new records, possibly as early as the first half of 2012. “Liquidity will be a stronger influence on market performance than macroeconomic turbulence,” says Bjarne Schieldrop, chief commodities analyst at SEB bank.
The European sovereign debt crisis will also be supportive at the retail level because at times of crisis retail investors tend to buy gold bars and coins. While at first glance this type of demand may seem like a small driver of the market, industry consultancy Thomson Reuters GFMS says that last year bar and coin buying rivalled that of ETF investment flows.
“Private investors in Europe and the US are the biggest buyers of bars and coins; they buy it for safety because they are worried about the purchasing power of paper currencies,” says Carsten Fritsch, an analyst at Commerzbank.
Another big contributor to a high gold price in 2011 was the fact that central banks bought some 450 tonnes of the metal. Analysts expect the trend to subside this year but not to stop. “Central banks in emerging markets are still heavily under-invested in gold,” says Fritsch. “In 2011 Mexico for instance bought 100 tonnes of gold and Russia, Turkey and South Korea were all major buyers. We don't expect to see the same amount of central bank buying this year but we do expect central banks to buy smaller amounts, for instance Russia,” he says. Fritsch argues that if Russia does come back as a buyer it will most likely absorb some of the domestic gold production but this will mean that less gold will make it onto the global market.
One of the two key risk factors for gold is the strength of the dollar, particularly when it weakens the currency of a big gold buyer such as India. When the rupee plunged against the US currency in late 2011, domestic gold buying as good as dried up. The other potential threat to gold is a recovery in equity markets which annuls the reasons for safe-haven buying.
Looking at other precious metals such as silver, platinum and palladium, there is an interesting investment case to be made—particularly for palladium. All three were sold off heavily at the end of last year to the point that they are now considered relatively cheap.
“Within the precious metals group we see palladium as the better pick given its bias to the US and China,” says Deutsche Bank's Michael Lewis. The palladium price depends heavily on demands from the car industry which uses it to make catalytic converters, to cut CO2 emissions. In November 2011, US car sales rose by 14% and Chrysler said recently that its US sales rose 37% in December, the fastest of the top three US car manufacturers.
On the other hand, Chinese car sales slowed considerably in 2011 because of the phasing out of tax subsidies and car scrappage incentives. Yet even with that, China's sales of 18.5m cars in 2011 still outstripped the estimated 12.8m light vehicles sold in the US. This comes at a time investors in palladium futures cut their net long positions by 77% from August 2011 highs and when ETF investors reduced their exposure by 23% for the same period.
An important question this year is whether Russia will stick to current export volumes for palladium. The answer is actually a political one.  Although Russia's nickel miner Norilsk Nickel is the world's biggest palladium producer, stocks of palladium are ­state-controlled and sold through a government agency that never reveals how much stock it holds or plans to sell. For years analysts in the West have speculated that those stockpiles are about to come to an end, this year being no exception, but there is so far no material evidence to support this. The speculation may prove yet again to be a case of wishful thinking rather than actual fact.
Even so, Commerzbank expects palladium prices to recover noticeably over the course of this year and to hit $850 by the end of 2012, up from the current $680/oz.
There is a similar case to be argued for platinum, which is also used by the car industry and in jewellery. Platinum has traditionally traded at a higher price than gold, but with gold now the more expensive metal, jewellers, particularly in Asia, are switching to platinum as an alternative.
On the supply side, South Africa, the biggest platinum producing country, is facing problems with electricity supplies which could hamper platinum mining over coming months. However, at current prices, platinum miners are under pressure and on an all-in cost basis many are making losses. “We believe this is unsustainable in the long run and something has to give—the price has to recover or production growth will slow,” says RBS's Moore. He sees the $1,400/oz level as the floor and expects that any dips in prices below that figure will prove short-lived. In similar vein, Commerzbank forecasts platinum prices to rise to $1,850/oz by year end from the current $1,550/oz.
Silver is probably the most volatile of the three and not a market for the faint-hearted. “Silver has always been a volatile metal, but 2011 was a vintage year. The euphoria of the 89% February-April rally to a $50/oz peak was followed by the revulsion of a 35% collapse, the latter over just two weeks. A few months later, in September, an even more dramatic drop saw silver shed 40% of its value,” says Moore. This serves as a painful reminder for investors to tread cautiously, or at least not to leave their silver positions unchecked for lengthy periods.
This year the demand from the electrical and electronics industry, the key consumer of silver, will continue to support prices although consumption from solar cell makers is likely to slow after several years of fast growth.
RBS's Moore expects silver to rally from current levels to a peak of $34/oz in the third quarter, in line with gold, but to trend lower afterwards.

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