India

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.

The subcontinent is poised to overtake China’s white hot growth rate. India will grow by 8.5% this year. Growth could exceed that in the Middle Kingdom as early as 2013. Financing and construction of huge transportation, power generation, water, and pollution control projects are underway. India is also a huge winner on the demographic front, with one of the lowest ratios of social service demanding retirees in the world. Many hedge funds believe that India will be the top growing major emerging market for the next 25 years. (INP), (FXI).

A report issued by the US Joint Forces Command has a rather bleak view on US oil production, and on peak oil in general. In a foreword to the report issued by General James Mattis, he warns that "By 2012, surplus oil production capacity could entirely disappear, and as early as 2015, the shortfall in output could reach nearly 10 million barrels per day." Does this mean that oil, just like in the Bush administration, is about to become a "strategic interest", which coupled with the upcoming discoveries of non-existent weapons of mass destruction, would result in some additional geopoltical tensions particularly in the middle east? With nuclear tensions between Iran and Israel already at boiling hot levels, will Uncle Sam decide to make landfall in the Persian Gulg once again? More from the General: "While it is difficult to predict precisely what economic, political, and strategic effects such a shortfall might produce, it surely would reduce the prospects for growth in both the developing and developed worlds. Such an economic slowdown would exacerbate other unresolved tensions, push fragile and failing states further down the path toward collapse, and perhaps have serious economic impact on both China and India." Well, Mr. Chanos, there's your catalyst. We just hope that the negative carry of a five year short position is palatable to your LPs.

$1,200 here we come. Bernanke just got punk'd. Again. From the Financial Chronicle of India: "The Reserve Bank of India (RBI) may well buy IMF’s remaining hoard of 201.3 tonnes on acceptable terms, which are now under negotiation."

India buys 200 metric tons of IMF gold.

Who's next?