Irandaily | No. 4299 | International Economy

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Gold Prospects

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The precious metal probably hasn’t declined further because of the risk of a renewed flare-up of the European sovereign debt crisis and the increasing chance that the US Federal Reserve will have to undertake a third round of quantitative easing (QE) to try and safeguard the tenuous economic recovery.
The European story since 2008 has been one of muddling along and doing just enough to prevent a meltdown, as can be seen by Greece’s recent excursion to the brink of withdrawal from the euro, only to stay in at the last moment.
And the Fed has also signaled that going down the QEIII path is probably its least preferred option.
Both the European Central Bank and the Fed have disappointed hopes that they would act, with both opting for jawboning rather than action in recent public statements.
Certainly, investors haven’t been flocking to gold exchange-traded funds, the most popular vehicle for both retail and professional fund managers.
Total gold ETF holdings have nudged up to 69.945 million ounces in recent weeks, but this is still off the 70.89 million peak for this year reached in March, when fears were high over disruptions to the oil market from Western sanctions against Iran’s nuclear program.
What this means for gold is that at the moment it can only draw some support from fears of further crisis in the Western economies.

Physical Flows in China, India
That leaves it largely dependent on physical flows, particularly in the top consuming nations of China and India.
Here the picture is mixed, insofar as while China appears to be buying more gold, it isn’t enough to offset the decline in Indian demand.
China has already overtaken India as the top buyer of gold so far this year, and since it doesn’t report purchases, the best indicator of demand is net exports from Hong Kong to the mainland, which is the major way China purchases gold.
For the first five months of the year, net gold imports from Hong Kong have averaged about 44.7 tons a month, up from the average 31.6 tons a month over 2011. This is a gain of about 13.1 tons a month, or almost 160 tons for the year if the same pace is maintained over the rest of 2012.
However, India’s first half imports plunged almost 59 percent to 250 tons as the rupee weakened, making the domestic price higher and the government doubled its import duty. This means India bought about 175 tons less in the first half, more than the extra that China may for the whole of 2012.
The Indian outlook isn’t for a major recovery in the second half either, with a Reuters poll forecasting 135 tons of demand in the third quarter, down from 205 tons in the same period in 2011.
A slightly more bullish view was put forward by Prithviraj Kothari, president of the Bombay Bullion Association, who said second half imports could total 300 tons, meaning the full-year decline would be about 30 percent.
However, that’s still about 235 tons less demand in 2012 than the previous year, and considerably more than the additional gold the Chinese are likely to buy.
Central banks are still buying more gold, but after the sixfold gain in 2011 a more modest growth rate this year is likely, with Russia, one of the major buyers, already having stated it will buy less than the 100 tons it did in 2011.
With physical demand for gold at best steady, but most likely to continue its gradual weakening trend, it will take a major escalation of economic fears for the precious metal to rally.

Nickel Undermined
Nickel has been the consistent underperformer of the base metals suite traded on the London Metal Exchange (LME) so far this year.
Last month, LME three-month nickel sank to $15,450 per ton. That was the lowest level since the third quarter of 2009, when metal prices were gradually recovering from the Great Manufacturing Contraction.
A late-July bounce was of the dead-cat variety and nickel is once again teetering on the edge of a technical cliff.
From a demand perspective, this is unsurprising.
Nickel’s main usage is in stainless steel, a sector that is prone to seasonal weakness over the Northern Hemisphere summer months.
Seasonality is currently overlaid with a renewed global manufacturing contraction, as evidenced by Wednesday’s slew of negative purchasing managers indices.
Exacerbating both trends is the nickel price itself, which feeds into the lagging alloy surcharge charged by stainless mills.
At times of weak prices, this creates a negative feedback loop as stainless steel distributors react to falling nickel prices by destocking, further reducing demand.
No great surprise then that surplus nickel has been hitting LME warehouses in ever-increasing quantities. Registered stocks hit a one-year high of 115,884 tons earlier this week.
Tellingly, it is not just ‘commodity-grade’ full-plate cathode that has been flowing into the LME system. Stocks of bagged briquettes, a premium product, have also surged to 11,868 tons.

Argentina Celebrates Bond Payoff

Bond payoffs are supposed to be boring, but Argentina’s president is celebrating Friday’s final $2.3 billion payment on a bond given to people whose savings were confiscated a decade ago, calling it a lesson for European countries now mired in foreign debt.
The nation’s economic disaster left thousands with a grim choice after the government seized their dollar-denominated deposits to stop bank runs in 2002. They could switch to devalued pesos and regain access to what was left of their savings, or accept a piece of paper promising to repay the money in dollars over the next 10 years, AP wrote.
Few had any faith in the government’s promises back then. Argentina had just defaulted on more than $100 billion in foreign debt, banks were shuttered, the economy was in ruins and streets were filled with pot-banging protesters whose chants of “throw them all out” would send five presidents packing.
However, Argentina has mostly paid up after all, making good on 92.4 percent of that defaulted debt so far, including $19.6 billion in US currency over the years to cancel the Boden 2012 bond.
Most of the hard-luck account-holders later sold the bonds at a loss, but as the government makes its last $2.3 billion payment on Friday, the few stalwarts who kept the faith have been made whole, while earning a modest 28 percent profit over the years.
President Cristina Fernandez praised her government for meeting its commitments and blamed multinational financial institutions for the debt crises that afflicted Argentina back then and threaten Europe today.
“This is the money that the banks should have returned to the Argentine citizens,” she said during a national address from the Buenos Aires stock exchange Thursday night.
Showing charts and rattling off numbers, she argued that her government has shown the world how to emerge from default without imposing austerity measures, growing its economy and strengthening the social safety net.
Argentina’s foreign-currency debt has dropped from a daunting 166 percent of GDP at the end of 2002 to a more manageable 42 percent of GDP at the end of 2011, said Ramiro Castineira of the Econometrica consulting firm.
“If before it was a burden to shoulder, now it’s just a handbag. It doesn’t restrict the economy as it did in the past,” he said. However, the debt has grown in nominal terms during the same period, from $137 billion to $179 billion.

Red Meat Crisis in Turkey Looms

Turkish consumers could see problems related to an unprecedented rise in prices in the red meat market repeat this year amid skyrocketing livestock feed prices, observers argue.
Most Turks will recall that the Eastern Anatolia region is a major hub for its strong stockbreeding industry as it was taught in geography classes in school. Yet this years-long positive image may well be changing for the worse, given recent developments in markets, Today’s Zaman wrote.
The latest problem to haunt the once-buoyant livestock sector was a lack of rain this spring. Stockbreeders from Eastern Anatolia in particular regret the poor rainfall this year. This drought has led animal feed prices to surge noticeably, increasing the cost of feeding cattle, milking cows among them.
Many milk producers had sent dairy cows to slaughterhouses to exploit high meat prices, which then led to a reduction in the supply of milk below demand levels, thus increasing the price of milk.
More than 1 million milking cows were slaughtered in 2008, and this reduced the number of calves, igniting a meat shortage crisis in 2009.
The government back then intervened in meat prices by issuing import licenses for red meat from abroad. The cheaper livestock coming from abroad pushed red meat prices at home.
Observers attribute high feed prices to the fact that many farmers do not harvest their own feed. A healthy pricing mechanism in the markets is another problem.
Most farmers living in rural areas buy feed from other producers. Harvesting their own fodder could decrease its unit cost by as much as 70 percent, according to market experts.
The situation is no different in global markets. Observers argue high feed prices and a possible increase in red meat prices could propel the government to encourage increased red meat and livestock imports.
The latest concerns could mount complaints leveled against the ruling Justice and Development Party (AK Party) government on policies concerning agriculture and livestock. A possible market imperfection could add to problems in the stockbreeding industry with which to contend.
The livestock sector is and will be a crucial sector in the sustainable development of the economy. Many critics blame the government for “sitting and watching” as a sustainable and regular livestock market weakens. The government, on the other hand, says it focuses on policies to make the sector more attractive.