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Commodities Briefing 18.Sep 2013

Posted on 18 September 2013 by VRS |  Email |Print

The commodities supercycle may or may not be dead, but that doesn’t mean there isn’t still value in commodities, Pimco portfolio managers Nicholas Johnson and Greg Sharenow say“While the supercycle may be dead, the outlook for commodity returns today seems broadly consistent with historical returns,” the two write in a research note.
A big reason why commodities were in a so-called supercycle in the first place was the rapid growth of emerging markets, especially the exponential growth in China. Amid that, commodities prices doubled between 1998 and 2008………………………………………..Full Article: Source

Posted on 18 September 2013 by VRS |  Email |Print

While commodity price appreciation won’t likely mirror the supercycle, this shouldn’t necessarily imply a negative view on commodity returns going forward. We believe commodity prices are at reasonable levels from a long-term valuation perspective. In addition, the roll yield from investing in commodities is the highest it’s been since 2005, said Pimco portfolio managers.
The outlook for commodity returns today seems broadly consistent with historical returns, and commodities remain an important tool for hedging inflation risk. Overall, while the supercycle may be dead, the outlook for commodity returns today seems broadly consistent with historical returns, and commodities remain an important tool for hedging inflation risk. (Press Release)

Posted on 18 September 2013 by VRS |  Email |Print

If the Federal Reserve pulls back on its bond buying, the central bank’s actions could further undermine the case for investing commodities, which have been battered by excess supplies and souring sentiment.
The Dow Jones-UBS Commodity Futures Index has dropped 7.9% since the start of the year as investors have sought out stocks and other higher-yielding assets. This is in sharp contrast to 2009, when the index rose 19% partly on the Fed’s post-crisis stimulus efforts………………………………………..Full Article: Source

Posted on 18 September 2013 by VRS |  Email |Print

The diplomatic rabbit that Russia pulled out of its hat (actually out of John Kerry’s hat) by suggesting that Syria could hand over its chemical weapons to an international body and thus avoid US air strikes on pro –government targets has injected some badly needed confidence – and temporary stability in the Middle East oil markets.
The news of a US-Russian agreement reached in Geneva regarding Syria’s chemical weapons arsenal by US Secretary of State John Kerry and his Russian counterpart Foreign Minister Sergei Lavrov along with the picture showing the two diplomats getting along in a very cordial manner was well received by the oil markets………………………………………..Full Article: Source

Posted on 18 September 2013 by VRS |  Email |Print

In recent years, U.S. business and political leaders have giddily talked of a “Saudi America” gurgling with domestic oil and gas. It’s true that the U.S. now has access to abundant supplies of cheap domestic gas capable of transforming the U.S. economy. Too bad these same leaders are about to give away a vast chunk of North America’s hydrocarbon production — and all the strategic advantages that go with it.
We’re already seeing the effects. On July 19, U.S. drivers lost their price edge as West Texas Intermediate oil soared to $109 a barrel, almost equaling the cost of Brent crude in Europe, which only months before had sold at a $20 premium………………………………………..Full Article: Source

Posted on 18 September 2013 by VRS |  Email |Print

The Chinese government announced it would invest more than $13 billion on oil and gas exploration this year. The World Bank said last weekend the Chinese economy should continue growing near-term and with that comes a growing appetite for energy.
Demand centers in the energy market are shifting to Asia as the United States produces more and more of its own oil and natural gas. China may be looking to duplicate some of that success but its moves in the Middle East and Asia suggest it could be something more than that………………………………………..Full Article: Source

Posted on 18 September 2013 by VRS |  Email |Print

Continuing geopolitical tensions and other factors threaten to weaken the outlook for gold prices, says Barclays chief investment officer for Europe Kevin Gardiner.
Despite a rally towards the end of August, where gold prices rose to a three-month high of around $1,420 per ounce, prices have since dropped by 20 per cent since the beginning of 2013. As of today, the gold price is $1,312 per ounce………………………………………..Full Article: Source

Posted on 18 September 2013 by VRS |  Email |Print

Goldman Sachs said it remained neutral on gold prices until the end of this year, citing a recent string of slightly disappointing US economic data and expectations of a “dovish” tapering by the US Federal Reserve.
The Fed, which begins a two-day policy meeting on Tuesday, is widely expected to announce it will begin curbing its $85 billion monthly bond purchases by $10 billion - a smaller reduction than previously anticipated………………………………………..Full Article: Source

Posted on 18 September 2013 by VRS |  Email |Print

Thomson Reuters GFMS released Gold Survey 2013, which discusses the massive swing in the market between the first and second quarters of the year, and its lingering effects. Rhona O’Connell, head of metals research and forecasting at Thomson Reuters, noted that the first half of 2013 was the period in which gold exchange traded funds, with their day-to-day transparency, became an increasingly important price maker, rather than a price taker, as an ever more unsettled professional gold market responded to bearish external financial forces.
She notes that physical demand exploded in April after a particularly nasty price fall, with gold shedding over $240 or almost 16 percent in three trading days in mid-month………………………………………..Full Article: Source

Posted on 18 September 2013 by VRS |  Email |Print

Up until last year, gold prices rose for at least 11 years in a row. The precious metal spawned a frenzy among everyone from gold bugs to politicos who think America should return to the gold standard. But today they’re likely feeling nervous. Gold prices have entered bear market territory, having fallen by 22% this year.
And it’s going to get worse as investors zero in on whether the U.S. Federal Reserve will scale down its stimulus program, called quantitative easing. Goldman Sachs (GS) analysts say gold will continue dropping into 2014, possibly falling below $1,000 an ounce, a level not seen since early 2009. This is a reverse from gold’s steady rise from $800 an ounce in early 2009 to more than $1,900 in the fall of 2011; on Tuesday morning, it was trading at $1,314.50 in New York………………………………………..Full Article: Source

Posted on 18 September 2013 by VRS |  Email |Print

Gold demand in India, the biggest user, is poised to decline during the main festival season as the weakest economic growth in a decade curbs discretionary spending and volatile prices spur investor selling.
Sales of jewelry, coins and bars between August and November will be less than a year earlier because of the slowdown and a bullion shortage caused by central bank curbs on imports, said C. Vinod Hayagriv, managing director of C. Krishniah Chetty & Sons Pvt., a Bangalore-based retailer. He didn’t say how much gold was sold during festivals in 2012………………………………………..Full Article: Source

Posted on 18 September 2013 by VRS |  Email |Print

Price manipulation is a time-honored tradition in structured finance. There will be abuse anytime there is a price “fixing” or a price set on the basis of a trade.
Instances of abuse are the dragons that “regulators” are supposed to constantly slay. When regulators are too slow, unwilling, or unable to do the job—and if you haven’t been paying attention, regulators have been all three for decades—market professionals take matters into their own hands………………………………………..Full Article: Source

Posted on 18 September 2013 by VRS |  Email |Print

Though broad commodities have seen a strong reversal in their trends bouncing back from the lows last month, these again fell to the negative territory over the past week.
Despite the encouraging data from China and Europe, commodities have shown a sharp fall after the Syria tension eased. Obama put the strike on hold after Syria accepted Russia’s proposal of surrendering its chemical weapons to international control for their ultimate destruction……………………………………….Full Article: Source

Posted on 18 September 2013 by VRS |  Email |Print

Hedge funds may be making their clients less money than mainstream financial markets, but with their portfolios increasingly seen as a safer, low-volatility option in a tough investment landscape they have more cash to manage than ever.
The industry’s coffers hit a record $2.4 trillion globally in 2013, swollen by money from U.S. and European pension funds seeking help to find returns in the face of low interest rates and unpredictable markets post-financial crisis………………………………………..Full Article: Source

Posted on 18 September 2013 by VRS |  Email |Print

Five years ago I was watching the world financial system implode after the failure of Lehman Brothers in real time. Since I’m largely a buy-and-hold investor, I grimaced while my retirement savings took a pummeling in 2008-2009.
What have we learned since that calamitous year? There were certainly a few gut-wrenching surprises as well as some enduring truths that still hold in personal investing for the future………………………………………..Full Article: Source

Posted on 18 September 2013 by VRS |  Email |Print

The transfer of administrative control of the regulator for commodity trading, the Forward Markets Commission (FMC), from the consumer affairs ministry to the finance ministry seems a typical government response to a crisis like the one besetting the National Spot Exchange Ltd (NSEL).
But it is a sensible step that should have been taken much earlier, although it will not suffice to regulate exchange-based commodity trading - be it spot trading or forward trading. That requires a strong and autonomous regulator with sufficient expertise and infrastructure, as well as the authority to take expeditious action and effectively enforce its orders. The FMC currently lacks all these………………………………………..Full Article: Source

Posted on 18 September 2013 by VRS |  Email |Print

India’s National Spot Exchange Tuesday named a new chief executive, as it struggles to settle commodity contracts that were outstanding when it halted trading amid a regulatory probe into alleged rule violations.
The board has appointed Saji Cherian, the new CEO, also as the exchange’s managing director, it said in a news release. Mr. Cherian was previously head of listing at MCX Stock Exchange Ltd., a stock exchange co-founded by Financial Technologies (India) Ltd., the owner of the National Spot Exchange………………………………………..Full Article: Source

Posted on 18 September 2013 by VRS |  Email |Print

Milk production in New Zealand is rebounding to a record as pastures recover from drought, accelerating shipments from the largest exporter just as U.S. supply expands to an all-time high.
New Zealand’s output will expand 4.5 percent in the year ending May 31 after the most widespread drought in three decades, as U.S. farmers produce 1.2 percent more in 2014, estimates from the two countries’ governments show………………………………………..Full Article: Source

Posted on 18 September 2013 by VRS |  Email |Print

New figures from Nomura Holdings show the Indonesian rupiah to be Asia’s worst performing currency. The rupiah has weakened almost 14% since the start of June, compared with a 10% slide in the Indian rupee.
The rupiah’s fall is a result of Indonesia’s record current-account deficit. The Bank of Indonesia has embarked on an aggressive tightening policy and has also eaten into the country’s foreign-currency reserves in a bid to protect the rupiah………………………………………..Full Article: Source

Posted on 18 September 2013 by VRS |  Email |Print

The expected end of the Federal Reserve’s era of easy money has hit currencies in emerging markets from the rupee to the real. And that is hurting corporate profits from Bangalore to Brazil.
Consider the case of Brazil’s Gol Linhas Aereas Inteligentes, the country’s second-biggest airline. About 60% of its costs, such as jet fuel, are in dollars, while revenue is in reais. The real fell as much as 15% after the Fed in June signaled that it would be ending its bond-buying program; as of Tuesday, it was down 9.5% year to date………………………………………..Full Article: Source

Posted on 18 September 2013 by VRS |  Email |Print

An academic think tank has claimed that a separate currency would be the “prudent option” for an independent Scotland. The National Institute for Economic and Social Research (NIESR) worked with the Economic and Social Research Council to assess choices on currency.
It concluded the Scottish government’s plan to retain the pound would limit its options in a future crisis. The Scottish government has insisted keeping sterling remains “sensible”………………………………………..Full Article: Source

Posted on 18 September 2013 by VRS |  Email |Print

Julia Gillard says her decision not to argue against a fixed carbon price being labelled a “tax” hurt her terribly politically. “I erred by not contesting the label ‘tax’ for the fixed-price period of the emissions trading scheme I introduced,” the former prime minister wrote in The Guardian on September 14.
“I feared the media would end up playing constant silly word games with me, trying to get me to say the word ‘tax’. “I wanted to be on the substance of the policy, not playing ‘gotcha’. But I made the wrong choice and, politically, it hurt me terribly.”……………………………………….Full Article: Source

Posted on 18 September 2013 by VRS |  Email |Print

A robust recovery for the global economy remains well out of reach. That’s the view that emerges from a survey of U.S. economists just as the Federal Reserve is expected this week to reduce its stimulus for the U.S. economy. Europe has finally emerged from recession. Japan is growing after two decades of stagnation.
And the United States is trudging ahead. Yet an Associated Press survey of more than two dozen economists suggests that global growth will remain below full health this year and next. Persistently weak growth would make it harder to resolve many of the world’s biggest economic challenges. They include historically high unemployment in Europe , sluggish spending by consumers and businesses in the United States , heavy government debts in Europe and Japan , and unstable economies in some emerging nations………………………………………..Full Article: Source

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