India

Previously we heard Pimco's thoughts on the matter of an Iranian escalation with "Pimco's 4 "Iran Invasion" Oil Price Scenarios: From $140 To "Doomsday"", now it is the turn of SocGen's Michael Wittner to take a more nuanced approach adapting to the times, with an analysis of what happens under two scenarios - 1) a full blown EU embargo (which contrary to what some may think is coming far sooner than generally expected), and the logical aftermath: 2) a complete closure of the Straits. The forecast is as follows: 1) "Scenario 1: EU enacts a full ban on 0.6 Mb/d of imports of Iranian crude. In this scenario, we would expect Brent crude prices to surge into the $125-150 range." 2) "Scenario 2: Iran shuts down the Straits of Hormuz, disrupting 15 Mb/d of crude flows. In this scenario, we would expect Brent prices to spike into the $150-200 range for a limited time period." The consequences of even just scenario 1 is rather dramatic: while the adverse impact on the US economy will be substantial, it would be the debt-funded wealth transfer out of Europe into Saudi Arabia that would be the most notable aftermath. And if there is one thing an already austere Europe will be crippled by, is the price of a gallon of gas entering the double digits. And then there are the considerations of who benefits from an Iranian supply deterioration: because Europe's loss is someone else's gain. And with 1.5 million of the 2.4 Mb/d in output already going to Asia (China, India, Japan and South Korea) it is pretty clear that China will be more than glad to take away all the production that Europe decides it does not need (which would amount to just 0.8 Mb/d anyway).

• Markets await US Non-Farm Payrolls data, released 1330GMT
• UniCredit experiences another disrupted trading session, trades down 11%, then returns to almost unchanged
• Iran causes further unease with plans to engage in wargame exercises in the Strait of Hormuz

The abysmal hit rate of Byron Wien's predictions over the past several years (ostensibly since the inception of this silly practice nearly three decades ago) has been the source of much laughter on the pages of Zero Hedge: see here and here. It has also been the source of much profit, due to the Blackstone Vice Chairman's uncanny ability to bat just over 0.000 with laser-guided precision and consistency. Below, as reported by Bloomberg, are the latest set of forecasts which are to be faded with impunity as soon as is possible.

The new year’s worldwide economic downturn has an interlocking effect: every national economy is searching to accommodate itself politically as well as economically to what looks to be an extended period of low growth. After longer or shorter periods of historically unrivaled prosperity, they are feeling for a “bottom” – a level to wait out new growth. That is the proverbial “soft landing”.

One of the topics touched upon by Eric deCarbonnel in the earlier article discussing the potential, if not necessarily probable absent further validation, implications of the Exchange Stabilization Fund, is that of the nature of AIDS. Which got us thinking. While we won't necessarily go into the implications proposed by none other than Chuck Palahniuk in his book Rant (word search Kissinger, especially what Neddy Nelson has to say on the topic), it made us recall that particular National Security Study Memorandum, aka NSSM 200, better known as "The Kissinger Report" authored on December 10, 1974 and immediately classified under Executive Order 11652 until 1989, titled simply, "Implications of Worldwide Population Growth For U.S. Security and Overseas Interests." What did the report say and why is it relevant, especially in our day and age when so many believe that all important substance - black gold - may have peaked? Well, since it has 123 pages full of very, very curious information as pertains to how US foreign policy is truly styled, we will leave it up to our readers to make their own conclusions, but here are some preliminary observations to help them on their way...

The metals space has had a rather disconcerting start to the week this evening with Silver and Copper dropping almost 2% from their opening levels and then Gold following suit. All this as the USD inches very gradually up tracking almost perfectly with Crude for now. These moves seem very liquidation-like in their velocity but have for now stabilized at the lows. The last few minutes saw some of the ugliest macro data we have seen in a while come out of India as it's Industrial Production growth missed expectations by a mile falling to levels only seen in the middle of the global economic shutdown in Q1 2009. So another leg in the EM-will-save-us-all stool just got kicked out and still we are to believe the US will decouple and 'muddle-through'?

But largely ignored -- what with the dramatic Euro crisis and a threat of double-dip American recession –   is the more important emerging economy, India, now slipping back into its traditional morass.

More than just "tradition".

India's stock market about to tank?

The latest observations the spread of gold's popularity comes from none other than BRIC expert, Goldman's Jim O'Neill, who advises clients in his latest letter that it may be prudent that in addition to China and India as a source of ever increasing demand for gold, it may be time to also add the Middle East to the ever increasing list of investors (typically quite wealthy) who believe in the yellow metal. "Not because of this particular anecdote, but the Middle East being what it is, my meetings involved more discussion about Gold prices than is usually the case in other parts of the world. While the gold bar machine anecdote adds to all the other colourful stories I pick up, the recent remarkable resilience of gold, despite what has happened to silver and other commodities, is rather impressive. This gold price strength may perhaps be just a simple function of both the extremely low level of G7 real interest rates and the prospect that they might not rise anytime soon. I got the impression that there a quite a few bulls of Gold in the Middle East."

The Financial Times reported on Saturday that “the sharp drop in gold and silver prices has stimulated a surge in buying from India in a sign that consumers in the world’s largest gold-buying country retain faith in the decade-long bull story for precious metals.” Chhabil Jain, a Mumbai silver trader told the Financial Times that “demand for silver bars was going through the roof” and that “many vendors were starting to run low on stocks”. “People are booking incredible amounts of silver as they see the current drop in prices as a great opportunity to buy more ... most are buying for pure investment,” he added. Bloomberg reports this morning that silver was the most traded commodity in April.

Gold and silver have extended their recovery and may be headed for the fourth day of gains due to the continuing European sovereign debt crisis, Chinese inflation (+5.3%) and the real risk that rising oil and commodity prices are leading to an inflation spiral internationally and stagflation. German inflation data this morning was worse than expected jumping to 2.7% from 2.3% due to surging energy costs and despite recent strength in the euro. This has led to the euro falling against all currencies and especially against gold. The precious metals are likely to be supported later today when US trade deficit data is expected to be poor with still high oil prices leading to a very large expected deficit of $47.7 billion. This should see the dollar come under pressure and support gold. Stagflation or low economic growth, high unemployment and rising inflation is a clear and present danger to the UK, EU and U.S. economies and other economies internationally. This is especially the case in the UK where house prices have begun to fall again and may be set for sharp falls. Internationally, we are seeing significant debt deflation where the value of goods and assets bought with debt are falling (cars, property etc) while the value of finite, essential goods such as food and energy are rising. Safe haven and inflation hedging diversification into gold is likely to continue as inflation is deepening and there is a distinct whiff of stagflation in the air. It is too early to tell whether the recent sell off is over and a further correction is possible however global macroeconomic conditions suggest that gold and silver bull markets are very much intact. This is especially the case due to continuing Asian demand with gold again being bought on all dips in China, India and the rest of Asia.

After dumping thousands of tons of radioactive water in the sea, Japan appears to have been stunned to find that the radioactive content of various fish has surged and is now above just imposed radiation safety thresholds. From Kyodo: "Japan hastily set a legal limit Tuesday for the permitted level of radioactive iodine in seafood as safety concerns spread overseas in the wake of continuing leaks contaminated water into the Pacific Ocean from the crippled Fukushima Daiichi nuclear power plant. The limit of 2,000 bequerels per kilogram set by the Ministry of Health, Labor and Welfare for radioactive iodine in marine products such as fish and shellfish is the same as that already adopted for vegetables, Chief Cabinet Secretary Yukio Edano told a press conference. The imposition of the limit followed the detection by Japanese authorities 4,080 bequerels per kilogram of radioactive iodine in young sand lance caught Friday off Kitaibaraki in Ibaraki Prefecture, which prompted the health ministry to consider setting a limit for fish and clams. Different young sand lance, also caught near Kitaibaraki, were found to be contaminated with 526 bequerels per kilogram of radioactive cesium, exceeding the legal limit of 500 bequerels already set by Japan." And now that Japan has another crisis scenario fall out to deal with, other countries no longer have faith that Japan has any control over the situation and are imposing complete bans on Japanese food imports: first India, and soon everyone else. Expect sushi prices to surge momentarily.

All those who continue ridiculing gold, saying it has no utility, tend to forget one thing: it just happens to be the ultimate status symbol (especially for the nouveau riche). And who these days wants to demonstrate status (and has a lot of nouveau richness)? Why, the 2+ billion consumers who are benefiting from the biggest growth story in the world, i.e., China and India. According to the World Gold Council, gold demand in India in the last year reached a record. Per Bloomberg: "Purchases were about 800 metric tons, compared with 557 tons in 2009,
Ajay Mitra, managing director for India and the Middle East at the
producer-funded group, said today in a phone interview from Dubai." But how is that possible? After all gold prices surged in 2010 compared to 2009: is gold demand supposed to be inelastic? Surely you jest? Well, no: "Our assessment is demand will continue to be strong,” [Mitra] said. “Price is no longer a factor.”" Re-reading the bolded sentence a few times just may explain why PM distribution centers with actual physical inventories have suddenly become rarer than hen's teeth.

It appears that gold isn't really a currency... until it is. The Economic Times reports that India is attempting to ensure steady crude oil supplies from Iran. In doing so it is doing everything it can to pay Iran in a way that avoid loopholes associated with recent US sanctions. And the stunner: "India could settle crude oil import transaction using gold in the short term, while efforts to resolve the deadlock continue." But does Iran realize they can't possibly eat all that gold? Or that The Fed has no way of diluting to oblivion? Or that, unlike the dollar, it is currently not involved in a global race to bottom in which every central bank will have no choice but to print ever more of its linen-infused currencies? Something tells us that the answer to all three is yes.