G.O.O.D

Source: Bloomberg.com

Gold prices rose the most in a week as mounting tensions in the Middle East and South Asia boosted the appeal of the precious metal as a haven.

Palestinian militants yesterday launched their biggest rocket attack on southern Israel in at least six months after a truce expired Dec. 19. Pakistani troops are being diverted from tribal areas near Afghanistan to the border with India, the Associated Press reported. Gold gained 4 percent this week.

“The only possible explanation for gold’s gains are the geopolitical tension in Gaza and in India and Pakistan,” said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois.

Gold futures for February delivery climbed $23.20, or 2.7 percent, to $871.20 an ounce on the Comex division of the New York Mercantile Exchange, the biggest gain for a most-active contract since Dec. 17. The metal is up 6.4 percent this month.

Silver futures for March delivery gained 18 cents, or 1.7 percent, to $10.53 an ounce. The metal is still down 29 percent this year.

Indian Foreign Minister Pranab Mukherjee stepped up diplomatic pressure on Pakistan to act against those behind last month’s Mumbai terrorist attacks.

India is the world’s biggest buyer of gold, accounting for more than 20 percent of purchases last year, according to the World Gold Council.

Some investors buy gold as a haven when military tensions threaten to disrupt financial markets. Crude oil rallied as much as 7.2 percent.

The Middle East was responsible for 31 percent of global oil production in 2007, according to BP Plc, which publishes its annual Statistical Review of World Energy each June.

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Technorati Tags: Gold, oil, commodities

Source: Telegraph

“It is sheer unmitigated fear: even institutions are looking for mattresses to put their money until the end of the year,” said Marc Ostwald, a bond expert at Insinger de Beaufort.

The rush for the safety of US Treasury debt is playing havoc with America’s $7 trillion “repo” market used to manage liquidity. Fund managers are hoovering up any safe asset they can find because they do not know what the world will look like in January when normal business picks up again. Three-month bills fell to minus 0.01pc on Tuesday, implying that funds are paying the US government for protection.

“You know the US Treasury will give you your money back, but your bank might not be there,” said Paul Ashworth, US economist for Capital Economics.

The gold markets have also been in turmoil. Traders say it has become extremely hard to buy the physical metal in the form of bars or coins. The market has moved into “backwardation” for the first time, meaning that futures contracts are now priced more cheaply than actual bullion prices.

It appears that hedge funds in distress are being forced to cash in profits on gold futures to cover losses elsewhere or to meet redemptions by clients. But smaller retail investors – and perhaps some big players – are buying bullion in record volumes to store in vaults.

The latest data from the World Gold Council shows that demand for coins, bars, and exchange traded funds (ETFs) doubled in the third quarter to 382 tonnes compared to a year earlier. This matches the entire set of gold auctions by the Bank of England between 1999 and 2002.

Peter Hambro, head Peter Hambro Gold, said the data reflects a “remarkable” shift in the structure of the market. The rush to safety reflects a mix of fears about the fragility of world finance and concerns that the move towards zero interest rates could set off an inflationary surge further down the road, and possibly call into question the worth of some paper currencies.

The near paralysis in the “repo” markets may prove to be no more than pre-Christmas jitters as banks square their books.

However, there are some signs that extreme monetary stimulus by the US Federal Reserve and other banks is starting to have unintended consequences.

The Bank of Japan is it is reluctant to cut its rates to zero again because of the damage this causes to the money markets, which serve as a key lubricant of the credit system. The US is now starting to face the same dilemma.

Technorati Tags: gold shortage, commodities

Source: NYTimes.com

Food Prices Rising

For more than a year, food manufacturers have been shaving package sizes and raising prices, declaring that they had little choice because of unprecedented increases in the cost of raw ingredients like corn, soybeans and wheat.

Prices are dropping for commodities like this corn being harvested near Auburn, Ill., but economists predict the cost of food for consumers will continue to increase through next year.

Now, with the price of grains and other commodities plunging, it may seem logical that grocery prices will follow. But while prices for some items like milk and fresh produce are dropping, those of most packaged items and meat are holding firm or even increasing. Experts warn that consumers should not expect lower prices anytime soon on most items at the grocery store or in restaurants.

Government and industry economists project that the overall cost of food will continue to climb in 2009, led by increases for meat and poultry. A big reason, they say, is that food companies still have not caught up with the prolonged run-up in commodity prices, which remain above historical averages despite coming down from their highs early this year.

The Agriculture Department is forecasting that food prices will increase 3.5 to 4.5 percent in 2009, compared with an estimated 5 to 6 percent increase by the end of this year.

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Technorati Tags: commodities, corn, soybeans , wheat

Source: Telegraph

Gold is poised for a dramatic surge and could blast through $2,000 an ounce by the end of next year as central banks flood the world’s monetary system with liquidity, according to an internal client note from the US bank Citigroup.

The bank said the damage caused by the financial excesses of the last quarter century was forcing the world’s authorities to take steps that had never been tried before.

This gamble was likely to end in one of two extreme ways: with either a resurgence of inflation; or a downward spiral into depression, civil disorder, and possibly wars. Both outcomes will cause a rush for gold.

…

Citigroup said the blast-off was likely to occur within two years, and possibly as soon as 2009. Gold was trading yesterday at $812 an ounce. It is well off its all-time peak of $1,030 in February but has held up much better than other commodities over the last few months – reverting to is historical role as a safe-haven store of value and a de facto currency.

Gold has tripled in value over the last seven years, vastly outperforming Wall Street and European bourses.

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Source: FT.com

Commodities were hammered for the second day running with oil prices falling below $90 a barrel as investors rushed to unwind trading positions in crude amid worries about AIG, the US insurer and the sponsor of a large commodity index.

West Texas Intermediate prices tumbled more than $5 to an intra-day low of $90.51, firming $4.56 lower at $91.15, leading a broad sell-off in base metals and agriculture commodities.

The DJ-AIG commodity index is the second most popular in the asset class, with pension funds and other large investors investing some $30bn in derivatives that track the benchmark. The index fell 2.7 per cent to its lowest level since September 2007.

Bankers said while AIG had not provided all that exposure to the index through derivatives for clients, it was a counterparty for a “significant amount”.

Bankers said investors had moved about $10bn since Monday – more than 5 per cent of the funds tracking commodity indices – because of concerns over counterparty risk from several institutions.

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Source: FT.com

Sovereign wealth funds have invested almost $20bn in commodities futures, according to fresh data from US regulators. It confirms for the first time the presence of state-owned vehicles in the commodities market.

The Commodity Futures Trading Commission, the regulator of US commodity markets, said in a report SWFs accounted for about nine per cent of the $200bn invested in commodities indices at the end of June.

Bankers have in the past said the secretive SWFs were investing in commodities – with some buying gold to hedge against the US dollar and others, particularly the Middle East-based ones, investing in agriculture.

But until now, there was no official confirmation of their widely rumoured presence.

SWFs’ investment in the commodities market attracts attention because of fears about control of strategic assets.

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