Australia

Just this week we had: TVIX, MF Global & “customer money”, CPDO, Greek CDS auction, BATS.... I’m all for some complexity and innovation, but it does seem after a week like this, that the financial markets have become too complex, and some real effort should be made to simplify things and put everyone on an even playing field.

BarCap said it expects precious metals to be one of the commodity price leaders in the second quarter, citing the "resumption of the kind of currency debasement/inflation concerns that have been the big driver of gold and silver prices over the past 12 months". It recommended that investors take a long position in December 2012 palladium, saying lower Russian exports should push the market into a supply deficit and bring prices "significantly above current levels" by later this year. BarCap put a second-quarter price of $745 per ounce for palladium futures on the London Metal Exchange, versus the past four weeks' average of $701. Spot palladium on the LME hit a session bottom below $645 on Thursday.

A growing number of Americans are frustrated with the way in which their economy has been managed and are becoming increasingly concerned about future measures the government may take to keep its coffers full. A question that is arising with increasing frequency is: does expatriation offer a viable protection to those concerned about a more financially-intrusive US system? The short answer is 'yes' but while it does offer a solution to ending one's obligations to pay US taxes - it's important to understand that it's not suitable for everyone. Mark Nestmann gives a great nuts and bolts breakdown of what's involved and what the benefits and risks are

All you need to read.

• So much for that: Obama to fast track southern portion of Keystone XL Pipeline (1600 Report)
• French Police Say They Have Cornered Suspect in School Shooting (NYT); French shooting suspect had been arrested in Afghanistan (Reuters); Suspect in French shootings says he’ll surrender to end standoff (Globe & Mail), Toulouse suspect escaped from Kandahar jail in mass Taliban jailbreak in 2008 (BBC)
• Bernanke Says Europe Must Aid Banks Even as Strains Ease (Bloomberg)
• Monti faces clash with unions over reform (FT)
• UK budget to balance tax breaks with austerity (Reuters)
• Romney scores big win over Santorum in Illinois (Reuters)
• U.S. Exempts Japan, 10 EU Nations From Iran Oil Sanctions (Bloomberg)
• Bernanke Says Fed Failed to Meet Goals During Great Depression (Bloomberg)
• Revised tax deal reached on Swiss accounts (FT)

China is best known as the world's export driver as the hopes of every exporting nation in the world are pinned on the eventual transition of the economy to domestic consumption and hence greater imports. While China has contributed most to Global GDP growth in the past few years, some argue that this growth is not as 'helpful' as US growth to other countries - since China does not import much other than commodities (and less steel now). However, as UBS' Tao Wang points out today, that claim is not quite as valid now as before the financials crisis. China's imports have far outpaced exports in the past 4 years, and trade surplus has shrunk from 9% of GDP in 2007 to 3.3% in 2011. China's 2011 import data shows two sets of information that should be common knowledge by now: 1) China imports a lot from East and Southeast Asian economies (and is the largest market for almost all major economies in the region); and 2) China imports a huge amount of energy and resources (metals and minerals) benefiting Australia and Brazil significantly. But exports to China have become increasingly important for developed economies such as Japan, Germany, and the EU in general and perhaps more concerning is the fact that large emerging market economies may find it increasingly difficult to 'decouple' from China. These two charts show just how large an impact any slowing in Chinese growth and demand will have on some of the largest and most 'decoupled' growth nations - it is clear the BRICs are increasingly self-reliant (and potentially self destructive).

All you need to read.

Jewelers in India are protesting the tax hike on gold imports and plan to keep their shops closed for two more days. This is India’s first nationwide strike in seven years and shows how important the gold industry is in India. The excise duty hike is expected to lead to less demand however Indian demand may again prove to be robust despite tax increases. PDR Gold Trust, the world's largest gold-backed ETF, said its gold holdings remained unchanged at 1,293.268 metric tonnes for the 5th straight session on Monday, despite the drop in prices last week. Gold will have a “sharp” rally as the U.S. boosts monetary stimulus because of a faltering economy in the coming months, Societe Generale said in a report that was picked up by Bloomberg. Data on U.S. gross domestic product in the first and second quarters will “surprise dramatically to the downside,” the bank said today in a report. Meanwhile, ANZ has said that central bank gold buying may lead to a nominal gold record price in 2012 and prices to average $1,744/oz from $1,571/oz in 2011.

• BHP Billiton sees China iron ore demand flattening (Reuters)
• Australia Passes 30% Tax on Iron-Ore, Coal Mining Profits (Bloomberg)
• State Capitalism in China Will Fade: Zhang (Bloomberg)
• Venizelos quits to start election campaign (FT)
• Fed’s Dudley Says U.S. Isn’t ‘Out of the Woods’ (Bloomberg)
• China Is Leading Foreign Investor in Germany (WSJ)
• Fed undecided on more easing: Dudley (Reuters)
• Martin Wolf: What is the real rate of interest telling us? (FT)

All you need to read.

South Africa's gold output fell again in January and was down a very large 11.3% in volume terms in January.  Annual gold production is set to be close to 220 tonnes which is a level of gold production not seen since 1922 (see chart below). The falls were seen only in the gold market with production of other minerals holding up with total mineral production down only 2.5% compared with the same month last year. South Africa as recently as two decades ago was the world's largest producer of gold by a huge margin. Only 40 years ago South Africa produced more than 1,000 tonnes of gold per annum but will only produce some 220 tonnes in 2012. Production peaked in 1970 and has been falling steadily and sharply since. The nearly 80% fall in South African gold production has led to it being recently overtaken by China, Australia and the U.S.  It is now even at risk of being overtaken by Russia. The massive 11.3% decline in South Africa was more than even that seen in December when gold output fell by 8.2%. The continuing output decline is due to many of the country's biggest gold mining operations having reached the ends of their lives and having closed down.

In the Spring of 2011, when Libyan oil production -- over 1 million barrels a day (mpd) -- was suddenly taken offline, the world received its first real-time test of the global pricing system for oil since the crash lows of 2009. Oil prices, already at the $85 level for WTIC, bolted above $100, and eventually hit a high near $115 over the following two months. More importantly, however, is that -- save for a brief eight week period in the autumn -- oil prices have stubbornly remained over the $85 pre-Libya level ever since. Even as the debt crisis in Europe has flared. As usual, the mainstream view on the world’s ability to make up for the loss has been wrong. How could the removal of “only” 1.3% of total global production affect the oil price in any prolonged way?, was the universal view of “experts.” Answering that question requires that we modernize, effectively, our understanding of how oil's numerous price discovery mechanisms now operate. The past decade has seen a number of enormous shifts, not only in supply and demand, but in market perceptions about spare capacity. All these were very much at play last year. And, they are at play right now as oil prices rise once again as the global economy tries to strengthen.

In addition to all the US election year propaganda and delayed after effects of central banks injecting nearly $3 trillion in liquidity to juice up the US stock market, something far more notable yet underreported has happened in 2012: the world stopped exporting. Observe the following sequence of very recent headlines: "Japan trade deficit hits record", "Australia Records First Trade Deficit in 11 Months on 8% Plunge in Exports", "Brazil Posts First Monthly Trade Deficit in 12 Months " then of course this: "[US] Trade deficit hits 3-year record imbalance", and finally, as of late last night, we get the following stunning headline: "China Has Biggest Trade Shortfall Since 1989 on Europe Turmoil." Here we must apologize, but blaming the highest trade deficit in 23 years for a country that needs a trade surplus to exist, on the Chinese Lunar new year, which accidentally happens every year, is more than a little naive. Because as the charts below indicate, while exports did in fact tumble in a seasonal pattern as they do every February although more than expected, February imports of $146 billion not only did not drop, but posted a 19% increase compared to January, and soared 40% compared to a year prior. Why? Perhaps the second consecutive record high in monthly crude imports has something to do with it. Which in turn when considering the huge selloff of US Treasury paper by China in the last few months, indicates that the world's fastest growing economy no longer has an interest in taking its export dollars and using them to fund purchases of US paper, but is in fact converting US fiat into real, hard goods. Such as crude (for all those curious where the marginal demand is coming from that is). And most likely gold. But we will only learn about the gold hoarding well after the fact, when China is prepared to see the price of the metal soar as it did in 2009.

All you need to read.

All you need to read.