February 28th, 2011
By: Mark O’Byrne
The paper-driven sell off in the gold market seen in January has been trumped by continuing robust physical demand in January and February. This has resulted in gold rising nearly 6% in February and silver’s strong industrial and investment demand leading to a 19% rise to new nominal 30-year highs.
Political, and more importantly socioeconomic, revolutions in the Middle East and North Africa are leading to a degree of geopolitical instability and risk not seen in many years. This is leading to concerns about oil supplies from the region and hence the 14% jump in US crude oil just last week and deepening inflation concerns.
Hopes that the feudal Saudi regime will contain the situation by increasing production and exporting more oil are misplaced as the Saudis are already producing oil at maximum capacity and indeed are likely to have been overstating their oil reserves for some years, possibly considerably.
With all eyes on the Middle East and North Africa, there has been less focus on the continuing European sovereign debt crisis. However, the crisis continues and recent days and weeks have seen government bonds in Greece and Ireland again come under pressure.
The yield on Greek bonds (10-year) have risen to over 11.6% in recent days and the yield on Ireland’s 10-year reached a new record high of 9.40% this morning after the Irish electorate “liquidated” the Fianna Fail/Green government over the weekend. While the new government is likely to be a centrist Fine Gael and Labour one, there has been a swing to the left with Sinn Fein, the Workers Party and many left leaning independents elected.
The majority of Irish people are seeking that the massive debts of the Irish and European banking systems, incurred against them, be restructured or defaulted. Therefore, the new government will be under pressure to negotiate a fairer, more equitable settlement with the European Commission and the ECB with possible ramifications for the many European banks who lent irresponsibly to Irish banks.
Political and economic instability in Europe is set to continue and while the Irish used the ballot box, citizens in some EU countries may not be as peaceful or passive. While the euro has bounced against the beleaguered US dollar recently (the dollar looks very vulnerable to breaking down technically (see chart above), gold above EUR 1,000/oz (€1,020/oz this morning) is a sign that the euro’s troubles are far from over and further euro weakness in the coming months will see gold rise above the EUR 1,072/oz high seen at the end of 2010 (Dec. 28).
The move by the popular Egyptian Front for Reclaiming the People’s Wealth to ban the export of gold in order to preserve the wealth of the impoverished Egyptian people is a prudent one. The move may be emulated in other countries in the coming months leading to a further decline in scrap supply from emerging markets.
Conversely, mooted proposals by the Vietnamese Central Bank to ban “gold bullion trading” (see news below) are somewhat bizarre. If true this would be a very important development as the Vietnamese are some of the largest buyers of gold bullion in the world. It is unclear whether the proposed ban is simply to prevent “trading” or speculative short term buying and selling, or actually a move to ban the buying of gold bullion ingots and jewelry by Vietnamese households. If it is the latter, it will be unworkable as buying will simply move to the black market or Vietnamese will buy from overseas from bullion dealers.
Gold is trading at $1,410.50/oz, €1,020.11/oz and £868.59/oz.
Silver is trading at $33.43/oz, €24.18/oz and £20.59/oz.
October 25th, 2010
By: John Vidal
Rising food prices and shortages could cause instability in many countries as the cost of staple foods and vegetables reached their highest levels in two years, with scientists predicting further widespread droughts and floods.
Although food stocks are generally good despite much of this year’s harvests being wiped out in Pakistan and Russia, sugar and rice remain at a record price.
Global wheat and maize prices recently jumped nearly 30% in a few weeks while meat prices are at 20-year highs, according to the key Reuters-Jefferies commodity price indicator. Last week, the US predicted that global wheat harvests would be 30m tonnes lower than last year, a 5.5% fall. Meanwhile, the price of tomatoes in Egypt, garlic in China and bread in Pakistan are at near-record levels.
“The situation has deteriorated since September,” said Abdolreza Abbassian of the UN food and agriculture organisation. “In the last few weeks there have been signs we are heading the same way as in 2008.
“We may not get to the prices of 2008 but this time they could stay high much longer.”
However, opinions are sharply divided over whether these prices signal a world food crisis like the one in 2008 that helped cause riots in 25 countries, or simply reflect volatility in global commodity markets as countries claw their way through recession.
“A food crisis on the scale of two or three years ago is not imminent, but the underlying causes [of what happened then] are still there,” said Chris Leather, Oxfam’s food policy adviser.
“Prices are volatile and there is a lot of nervousness in the market. There are big differences between now and 2008. Harvests are generally better, global food stocks are better.”
But other analysts highlight the food riots in Mozambique that killed 12 people last month and claim that spiralling prices could promote further political turmoil.
They say this is particularly possible if the price of oil jumps, if there are further climatic shocks – suchas the floods in Pakistan or the heatwave in Russia – or if speculators buy deeper into global food markets.
“There is growing concern among countries about continuing volatility and uncertainty in food markets,” said Robert Zoellick, president of the World Bank. “These concerns have been compounded by recent increases in grain prices.
“World food price volatility remains significant and in some countries, the volatility is adding to already higher local food prices.”
The bank last week said that food price volatility would last a further five years, and asked governments to contribute to a crisis fund after requests for more than $1bn (£635m) from developing countries were made.
“The food riots in Mozambique can be repeated anywhere in the coming years,” said Devinder Sharma, a leading Indian food analyst.
“Unless the world encourages developing countries to become self-sufficient in food grains, the threat of impending food riots will remain hanging over nations.
“The UN has expressed concern, but there is no effort to remove the imbalances in the food management system that is responsible for the crisis.”
Mounting anger has greeted food price inflation of 21% in Egypt in the last year, along with 17% rises in India and similar amounts in many other countries. Prices in the UK have risen 22% in three years.
The governments of Kenya, Uganda, Nigeria, Indonesia, Brazil and the Philippines have all warned of possible food shortages next year, citing floods and droughts in 2010, expected extreme weather next year, and speculation by traders who are buying up food stocks for release when prices rise.
Food prices worldwide are not yet at the same level as 2008, but the UN’s food price index rose 5% last month and now stands at its highest level in two years.
World wheat and maize prices have risen 57%, rice 45% and sugar 55% over the last six months and soybeans are at their highest price for 16 months.
UN special rapporteur on the right to food, Olivier de Schutter, says a combination of environmental degradation, urbanisation and large-scale land acquisitions by foreign investors for biofuels is squeezing land suitable for agriculture.
“Worldwide, 5m to 10m hectares of agricultural land are being lost annually due to severe degradation and another 19.5m are lost for industrial uses and urbanisation,” he says in a new report.
“But the pressure on land resulting from these factors has been boosted in recent years by policies favouring large-scale industrial plantations.
“According to the World Bank, more than one-third of large-scale land acquisitions are intended to produce agrofuels.”
But the World Development Movement (WDM) in London warned that food speculation by hedge funds, pension funds and investment banks was likely to prompt further inflation.
According to the US Commodity Futures Trading Commission, speculators on the trading floor of the Chicago Exchange bought futures contracts for about 40m tonnes of maize and 6m tonnes of wheat in the summer.
Longtime hedge fund manager Mike Masters, who has worked with WDM, said: “Because there is already much more capital available in the world than hard commodities, speculators can increase the price of consumable commodities, like foodstuffs or energy, much higher than traditional consumers and producers can react.
“When derivative markets are linked to commodity markets, this nearly unlimited capital from the financial sector can cause excessive price volatility.”
US government reports of much cooler-than-normal water temperatures in the Pacific, which traditionally lead to extreme weather around the world, last week added to food price uncertainties.