more articles by

Jon Nadler


Click to enlarge Click to enlarge

 

Indian Demand (on) theMend?

By Jon Nadler       Printer Friendly Version Bookmark and Share
May 4 2009 4:02PM

www.kitco.com

Good Afternoon,

Gold prices rose by nearly 1.5% (2.55% at one point) on Monday, as thin markets (London and Tokyo holidays did play a role) made for larger than normal moves in gold and platinum on the back of ETF and spec fund buying. This was gold's first positive session following three consecutive declining ones. The market did try for a breach of the $910 level early in the day, but was seen as struggling to maintain the $900 mark as of the last price check this afternoon.

A substantially lower US dollar and substantially higher crude oil values ($54.45 up $1.25) both helped the yellow metal recover some lost value, and return to the $900 area. Calls for a gallop to 'the races' are still being issued from various quarters, but they still include a liberal sprinkling of the word 'if' as well as the invocation of the $960 figure as a must-break barrier.

As of now, bullion is almost smack in the middle of the broader $845-$960 range and appears relatively comfortable within it, as an absence of market-moving news is manifest. Economic news was on the positive side today, as Messrs. Hoenig and Lacker (bit draws at the Fed) both opined that the green shoots are here to stay, and are looking to yield fruit eventually. Maybe not low-hanging fruit, but still - a harvest could be in the making. Sometime. Soon. Hopefully.

Silver gained 48 cents to trade near $13.00 per ounce at last check. Fund footprints (as mentioned with gold) were all over the platinum market this Monday, with the noble metal rising $30 to $1119, while palladium climbed $4 to $219 per ounce. GM was seen trying to get Saturn to leave its orbit of nameplates. Tell you what: how about Chevy and Cadillac stay, maybe you add Jeep (if Fiat does not come through) and call it a day? Automotive sector talk continues to include the "B" word for GM, following the Obama administration's showing that when it comes to euthanasia, it is willing to employ it as needed. On the better news front, China's manufacturing expanded for the first time in nine months, adding a few more green shoots to the global economic recovery sapling.

Reuters finally obtained some clarification as to India's April gold imports. Local dealers were quoted one week ago (also in a Reuters story) as fretting about a 20 to 40 percent decline in festival season-related gold bullion offtake. It turns out that: India imported about 30 tonnes of gold in April, up 25 percent from the same month last year, helped by a drop in prices and festival demand, the head of a trade body said on Monday. "Prices were a bit lower, so there was buying," said Suresh Hundia, president of the Bombay Bullion Association. "If prices fall below 14,000 rupees ($282) per 10 grams, buying will increase this month."

Before the to-be-expected agitprop is set loose by the perma-bull crowd (any second now) consider the chart below. Please. We already know that the previous three months actually went below the zero line as India had turned into a net exporter of the metal. Thus, a price-driven revival in April -while very nice to report- means a return to conditions that persisted from Feb to July of last year. Which, by the way, were less than half of the hard-running numbers seen from Jan to Nov of 2007. In so many words, if you are rooting for Indian demand to take away 60 to 80 tonnes per month from the market, you also better be rooting for a range of from $730 to no more than about $875. Case closed. Can't have it both ways. Not at this time.

In other news, over the weekend, it was the battle of the loudmouths. The Sage of Omaha versus the Commodity Guru. Nebraska versus Alabama. Inflation expectations versus what a market makes (supply/demand, buyers/sellers). In the left corner, Mr. B - who predicts inevitable inflation as the outcome of current maneuvers. He did not forecast the death of the US currency, and he did not paint a US-as-Zimbabwe picture to his audience.

Mr. Buffet said he is "100% enormously optimistic" about the prospects for the US economy. Okay, we think we got it, with clarity. While he did not mention specific inflation 'targets' and acknowledged the fact that the US has lived with debt-as-percentage-of GDP ratios as high, or higher than what is now being talked about, his take went as follows (at CNNMoney.com):

"Berkshire Hathaway chief Warren Buffett defended the government's handling of the economic crisis, but warned that the purchasing power of the dollar may fall as policymakers stretch to finance expensive rescue plans. Reflecting on the near implosion of the financial system last fall, Buffett said officials should be judged more leniently when facing "as close to a total meltdown as you can imagine." But he warned that efforts such as the Treasury's $700 billion Troubled Asset Relief Program and the $787 billion fiscal stimulus plan passed this year by Congress will have to be paid for, one way or another."

In the right corner, expat Jim Rogers -whose neighborhood is now sparkly and orderly Singapore. While Mr. R said he intends to hold on to his gold (and perhaps buy more if presented with the opportunity) he sees at least one major hurdle that the metal must overcome in the near future. Commodity Online asks:

"Will the International Monetary Fund's (IMF) decision to sell 403 metric tons of gold drive down gold prices? Yes, gold prices will plunge to $700 or below that if and when IMF really sells its gold reserves, says legendary global commodities investor Jim Rogers.

Rogers, who left the United States to settle down in Singapore last year, and who is regarded as a commodities guru globally said he will hold on to his gold and is waiting to buy more gold because he expects gold prices to considerably come down when IMF sells its gold holdings.

?The fact is that IMF is trying to get permission from everybody to sell gold. I don’t know it will succeed or not. But if and when IMF sells its gold, gold prices may go to a bottom. Who knows? It may go down to US$700. IMF has got a lot of gold to sell. If it does, I hope I’m brave enough and smart enough to buy more,? Rogers told Bloomberg Radio in an interview.

Rogers launched the Rogers International Commodity Index in 1998. The index is a composite, US dollar-based, total return index, designed to meet the need for consistent investing in a broad based international vehicle. The Index represents the value of a basket of commodities consumed in the global economy, ranging from agricultural to energy to metal products.

Rogers who is known for a investor across various commodities has never been fascinated by gold. Recently he had stated that gold trading at COMEX was a paper game. Rogers said that is worried that gold prices are under pressure because of the IMF decision to sell gold reserves. He said owns own some gold. But at the same Rogers is not planning to buy any more yellow metal because IMF, which is one of the largest owners of gold in the world, is desperate to sell its gold.

Rogers’ comments come in the wake of the G20 leaders’ decision that IMF should sell gold from its reserve to help stimulate the world economy.

"Additional resources from agreed sales of IMF gold will be used, together with the surplus income, to provide US$6 billion additional concessional and flexible finance for the poorest countries over the next two to three years," G20 leaders had said. The IMF’s board approved a proposal in April 2008 to sell 403.3 metric tons of bullion as part of a plan to close the Washington-based lender’s annual deficit. The sale of 403.3 tonnes of gold was originally proposed in 2007 after a committee chaired by Andrew Crockett recommended the IMF adopt a new funding model. The IMF is the third-largest holder of gold reserves after the US and Germany, with 3,217 tons in deposits, according to the World Gold Council (WGC).

Countries like India and China want IMF to sue the money to invest to raise IMF liquidity or spend it to improve incomes of the poorest countries. A large part of the IMF gold may find its way into central banks and private players. Since most of it will be out of reach for retail markets, gold prices may not get hammered. Globally gold prices now are in the $870-$950 per ounce range. India and Turkey, traditionally big buyers of gold, have not bought much lately because of low domestic demand.

According to IMF, a recent surge in IMF lending to countries facing balance of payments crises related to the global economic slowdown and financial turmoil has led analysts to question whether the Washington-based institution will proceed with the plan. The sale is expected to hit the gold price, which is at the peak now. Following the recession, gold prices have soared to new heights as safe haven buying increased."

Sit back and expect the spin to start being spun from various quarters. Bits and pieces of the statements made by both men will be shaped to fit a sales agenda or another. The very story above fails to mention the fact that this hoopla is not about 403 tonnes of potential sales. Make that, certain sales. The subtext that is missing, is the remaining 2800 tonnes in the IMF's coffers. How much of that stash will need to be mobilized, may be mobilized, and what the effects of same might be.

With the crystal sphere still out on loan, we cannot offer any soothsaying on that matter. All we can add is that holding on to the metal Rogers style cannot be unwise. It's the expectations of lunar-orbit hyper-performance that may be misguided.

Jon Nadler
Senior Analyst
Kitco Bullion Dealers Montreal

 

****

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.