In Delhi, gold glitters at record 31,035/10g

Yellow Metal Rallies On Bullish Global Cues New Delhi: Gold price hit a record high of Rs 31,035 per 10 grams on Thursday, deepening concerns of a slowdown in the demand for the yellow metal at home. With consumer buying already in the red due to an uncertain economic scenario, the rise in price has come as a double whammy for jewellers and traders amid tepid demand. In Mumbai too, gold surged to an all-time high of Rs 30,515.      High inflation leading to a negative buying sentiment has marred purchase of gold —both in investment and jewellery form. Most consumers have postponed their purchases, especially around a time when the industry expected a surge in sales.      Analysts say gold prices have rallied to fresh highs on the back of bullish cues in the overseas market. International prices rose in anticipation of a fresh round of fiscal stimulus by the Federal Reserve. By late Thursday evening, gold neared $1675 an ounce in the international market — the highest price since April 13.      Although the precious metal is still some distance away from reaching an all-time high globally, in India the spike has been sharper as the rupee has depreciated considerably over the last 12 months, making imports more expensive. "People have moved from dollar to precious commodities causingprices to surge. With international price increasing and the rupee remaining stable, this is going to impact domestic demand pretty badly," said Gnanasekar Thiagarajan, director Commtrendz Research, a research firm. Even with the festival season around the corner, the steep increase in price of gold has led jewellers and traders to reduce their growth targets for the current quarter. While industry watchers expect some buying to continue, it will remain restricted only to consumer needs.      The increase in price of gold has already dampened sales target for branded jewellery retail chain Orra. While price increases always momentarily impact consumer buying attitude, surpassing the 30,000 barrier point will lead to signs of slowdown, Orra CEO, Vijay Jain said. Though the retail chain is expecting buying mood to return to normal around Diwali, the company is not expecting growth to be as robust as last year. "This is a major concern for us. First, buying sentiment is not so positive, and now this price rise has compounded the problems for the industry. It will come as a shock to the consumers. It might take some time before buying becomes steady again," Jain said. A customs duty of 4% has also added to the price pressure. Sales were significantly hit during last quarter when jewellers protested the implementation of a 1% excise duty, which was later withdrawn. "There are multiple things that are affecting the demand for gold right now. Our business has been impacted due to the duty hike and then due to poor monsoons. The price rise will further postpone any pick-up in demand," said N Balaji, general manager, MMTC.      Analysts said it might take some time for demand to shoot up again as consumers will take time to adjust with the increased price.

TAKING STOCK US Weighs Release of Oil Reserves

Move aimed at preventing Iran from enjoying a windfall as oil prices surge The White House is "dusting off old plans" for a potential release of oil reserves to dampen prices and prevent high energy costs from undermining sanctions against Iran, a source with knowledge of the situation said on Thursday.  US officials will monitor market conditions over the next few weeks, watching whether gasoline prices fall after the September 3 Labour Day holiday, as they historically do. It was too early to detail the size of any release from the US Strategic Petroleum Reserve and other international stockpiles if a decision to proceed was taken, the source said.  Oil prices have surged in recent weeks, with Brent crude prices closing in on $120 a barrel, up sharply from below $90 a barrel in June. The United States and other Group of Eight countries studied a potential oil release in the spring but shelved the plans when prices dropped.  As prices rise again, US officials were now collecting information from the market about potential needs and studying futures, production numbers and data on Iranian oil exports. "The driving force in this is both impact on the economy and impact on the Iran sanctions policy," the source said, noting that Washington did not want rising oil prices to create a windfall for Iran while international sanctions were having an effective impact on its crude exports and revenues.  The United States has not yet held talks with international partners about a coordinated move. The source noted that Britain, France, Germany and other partner nations in the Paris-based International Energy Agency (IEA) were receptive to a potential release a few months ago when conditions were similar. Those countries were concerned about the impact of high oil prices on the global economy and Iran then, and those concerns remain equally relevant now. "The logic behind a potential release in the spring is at least if not ... more true today," the source said. Within the United States, tapping reserves could spark criticism from Republicans, who would cast it as a political moveto boost Democratic President Barack Obama's chances in the November 6 election. The source said the White House had not discussed political ramifications because a decision on a release had not been made. — Reuters

Gold demand falls 20% in Q1 on high prices

New Delhi: Gold demand fell 20% to around Rs 51,000 crore during April-June quarter as households postponed purchases in the wake of high prices. This is the second straight quarter of falling sales, a rarity in India given that the precious metal is seen as the safest investment option, more so during times of stock market volatility and economic uncertainty.      But high inflation, which has resulted in higher consumption spending, at a time when pay hikes have been modest added to the negative sentiments.      "The fluctuations in the exchange rate and the rise in the gold price to records of around Rs 30,000 per 10 gram in June were compounded by domestic inflation and concerns over a weak monsoon season," the World Gold Council said in a statement. With nearly 60% of the sales in India accounted for by rural areas and small towns, a weak monsoon will cause a further dent in the months ahead.      Customs duty of 4% has also added to the price pressure. Market players said that sales were also hit during the initial part of the quarter as jewellers pulled down shutters to protest the 1% excise duty proposed by Pranab Mukherjee in the Budget, which was later withdrawn.      In volume terms, overall demand fell to 181 tonnes, a 38% decline from 294.5 tonnes during April-June 2011, data released by the World Gold Council, the international agency tracking the sector, showed.      Within this, it was investment demand which faced a bigger dent recording a 51% decline to 56.5 tonnes. Investment demand is measured in terms of sales of coins and medallions. Jewellery that accounts for a much larger share of purchase in India witnessed a 30% fall during the period with demand adding up to around 125 tonnes.      "We had expected that demand would bounce back in May and June, which is the wedding season. But it remained flat," said MMTC general manager N Balaji.      While branded jewellers remained relatively shielded from the seasonality factor, brand owners said growth had fallen as compared to the 2010-11 period. "There was no panic buying this season as there was last year when prices rose consistently. People are looking at gold as more of an inspirational commodity now, hence there is lack of demand on the investment front too," said Geetanjali CEO Sanjeev Agarwal. If volatility in gold prices remains in the festive period, demand will remain subdued, jewellers said.      World Gold Council, which promotes sales of precious metal, however, sought to suggest that all is not lost. "General sentiment is low with India staring at below 6% GDP growth in fiscal year 2012-13. However, it is important to remember that there is still a lot of latent demand for gold and with the upcoming festival and marriage season, we should see an upsurge in demand," said Ajay Mitra, MD for India and West Asia.  COSTLY HEDGE  äOverall demand fell 38% to 181 tonnes in Apr-June 2012 from 294.5 tonnes a year ago  äInvestment demand, measured in terms of sales of coins and medallions, plunged by 51% to 56.5 tonnes in Apr-June 2012  äJewellery demand in India fell 30% to around 125 tonnes  äPoor demand in India and China, which together accounted for 45% of total sales, impacted the global performance

Sagging demand may lower natural gas prices The fall is due to the piling inventories, which have resulted from the slowdown in the global economy.

Fossil fuels have been powering the world for more than a century. Though coal and crude oil dominate the nonrenewable energy segment, the usage of natural gas has been increasing steadily due to the rising concern over emissions leading to global warming. Natural gas, an odourless and colourless fossil fuel, contains largely methane and emits lesser carbon dioxide on burning than coal and crude oil, which emit 45% and 30%, respectively. Natural gas is found deep under the earth in oil fields and coal beds, and is measured in billion cubic metres (bcm). If the gas contains hydrocarbons other than methane, it is called wet natural gas, but if it has only methane, it is termed dry natural gas. At the end of 2011, the world's natural gas reserves stood at 208.4 trillion cubic metres compared with 196.1 bcm discovered till the end of 2010. 

    The world production of natural gas has increased at a compounded annual growth rate (CAGR) of 2.46% since 2005 and was 3,276.2 bcm in 2011. Of this, the US contributed 19%, closely followed by Russia at 18.4%, Canada at 5% and Iran at 4.3%. India had a marginal share of 1.4%. The increase in global production, especially in the US, was due to technical improvement and continued drilling in the shale plays, areas that have a high concentration of natural gas and crude oil. The supply in the US grew at 7.7 % in 2011. A significant rise in output was also witnessed in Qatar and Russia. 
    The global consumption of the fossil fuel has witnessed a marginal growth at a CAGR of 2.17% since 2005 and stood at nearly 3,222.9 bcm in 2011. The consumption slumped in 2009 to 2,930.6 bcm due to the slowdown of the global economy. However, it has gone up again over the past two years due to the implementation of new environmental regulation, which emphasises the reduction in emission of sulphur dioxide and nitrogen oxide. The consumption in North America grew by 3.2% in 2011 compared with that in 2010 as lower prices drove the demand for the fuel. The consumption in China, Saudi Arabia and Japan grew by 21.5%, 13.2% and 11.6%, respectively, but fell to 9.9 % in the European Union due to the weak economy, high prices of gas and the financial debt crisis. The per capita consumption of natural gas in India was 43.11 cubic metres in 2011. 
    On the domestic front, the production of natural gas, which stood at around 26.4 bcm in 2000, increased to 46.1 bcm in 2011, but was lower by 9.1% compared with that in 2010. Two-thirds of the demand for natural gas is derived from the power and fertiliser sector, which consumed 61.1 bcm in 2011, a CAGR of 7.98% since 2000. 
    The price of natural gas rose sharply in 2005 due to a decline in supply and disruption in distribution triggered by the damage caused by hurricanes Katrina and Rita. The prices touched a peak of $15.73 million metric British thermal units (mmBtu) in December 2005, but fell afterwards. They began torebound from 2007 and touched a high of $13.58 mmBtu in July 2008. However, the supply of natural gas has been rising since mid-2008 and even outpaced demand, which led the prices to subside and fall to $2.51 mmBtu in 2009. Overall, the average yearly prices remained under pressure with slight ups and downs. The prices have witnessed a slight rise in the past few months with the start of the hurricane season ( June-November) in the US despite sufficient inventories. 
    In the coming months, the prices are expected to remain range-bound with a negative bias because of piling inventories as demand sags due to the slowdown in major economies. However, any major halt in production in the US due to the ongoing hurricane season might support an upside in the prices. 
Tips for first-time investors 
Besides demand-supply fundamentals, investors should keep track of the natural gas inventories, economic health of major consuming nations, new discoveries of gas wells and proven reserves of major economies. Along with these, they should closely monitor currency fluctuations, weather conditions in the US, particularly during the hurricane season, and the rising fuel demand from China, before taking any investment decisions. 
Trading strategy 
Prices are trading at around 162 mmBtu and are expected to hover in the range of 150-190 mmBtu in the medium term. 
The writer is Associate Director, Commodities & Currencies, Angel Broking

Soya, Sunflower Oil Prices to Rise Due to Festivals

The US Department of Agriculture (USDA) report on low soya bean production has set on fire the soya oil market, with prices moving upwards to $1,270 per tonne from $1,230 per tonne on Friday. Sunflower oil, which India imports from Black Sea countries, has also seen an upward trend and is trading at the same level as soya oil. Traders in India say soya and sunflower oil will become costlier in the upcoming festival season as a large portion of demand will have to be met through imports. The Indian crop will enter the market by October end as the late monsoon has delayed harvesting. USDA has forecast soya bean production at 2.69 billion bushels, a 12% decline from last year. The expected yields of an average of 36.1 bushels per acre would be the lowest since 2003. The Black Sea countries — Russia, Ukraine, Romania, Bulgaria and Kazakhstan — reaped a record sunflower seed harvest of 22.5 million tonne last year. But due to an erratic weather condition, sunflower production has declined this year in this part of the globe. BV Mehta, ED of the Solvent Extractors' Association, said: "The scenario is not very good in India and abroad. Soya bean has been sowed in India but if rains do not continue till October, the yield will come down affecting production. Groundnut and sunflower sowing has been affected as there has been little rain in Karnataka and Maharashtra. Overall, prices of edible oil in the country will remain on the higher side." 

Imports of soya oil rose in July due to the arrival of delayed vessels from South America while sunflower imports fell, reflecting lower demand for fried foods during the summer. Soya oil imports in July are seen up 7.7% from June to 1,50,625 tonne while monthly sunflower oil imports were down by 11.8% to 77,500 tonne in July. Total July vegetable oil imports, including small amounts of nonedible oils, are likely to have risen by 4.7% to 8,20,500 tonne from June. 
"During the upcoming festival season, the demand for sunflower oil will increase as Indian housewives love the bright yellow colour of the sunflower oil," said Sandeep Bajoria, CEO of Sunvin Group, a vegetable oil consultancy firm. "Imports could rise to as high as 9,50,000 tonne in August," said a trader. Mehta said he expected edible oil imports in the oil season that will start from November to reach 9.5-10 million tonne, as against the earlier estimate of 9.1-9.2 million tonne. 
Soya Prices to Rise on US Drought 
WASHINGTON With the worst drought in half a century decimating crops in the US, the government on Friday slashed its estimate of the annual corn yield by about 17% in the last month to the lowest level since 1995. The crop will fail to replenish already-thinned commodity stockpiles and will translate into higher prices for goods like processed food, animal feed and ethanol, analysts said. "Unless there is normal weather and rain from here on out, I can easily see prices for corn and soya bean" rising another 20-25%, said Terry Roggensack, an analyst at the Hightower Report in Chicago. In the last month, as the government physically surveyed more than 25,000 farmers, the results forecast a drop in yields for soybeans, and lower production of eggs, milk and pork.— NYT

Coal Min Halves Output Target for Captive Mines Move may worsen shortage of fuel

The coal ministry has halved the production targets of captive coal mines owned by the private as well as public sector companies, a decision that is likely to exacerbate the shortage of the fuel supply in the country.  The results framework document prepared by the ministry has set the target for private sector captive coal mines in the current fiscal at 23.7 million tonne (mt), down from 49 mt they produced in 2011-12, while the target for public sector captive mines has been lowered to 15.8 mt from 37.11 mt.  The move comes at a time when CIL has expressed inability to supply more than 65% of the contracted coal to power producers.  Coal ministry officials could not be reached for a comment. But a senior executive in the coal industry said the captive producers were facing the same problems as CIL. "Land acquisition issues and delays in environment and forest clearances have also been acting as deterrents for the captive mine owners," the executive said on condition of anonymity.  In contrast, CIL's target for 2012-13 has been raised to 468 mt, compared with 435.84 mt in 2011-12. The miner was earlier given a target of 447 mt for FY12, but it could not achieve it because of the introduction of a new set of pollution norms, which affected production at a number of its large mines.  debjoy.sengupta@timesgroup.com

Govt mulls sops to end gold rush May Give More Tax Incentives For Investment In Insurance To Wean Investors Away From Yellow Metal To Other Financial Instruments

New Delhi: Buying life insurance policies may get more attractive with the government looking at further tax sops for investment in risk covers as part of its plan to wean investors away from gold to financial instruments, including mutual funds. 

    There have been at least two statements from the government — first from PM Manmohan Singh and then by finance minister P Chidambaram on Monday — laying down the direction for a shift of investment towards insurance and mutual fund schemes. While insurance policies will provide the government with long-term resources as bulk of the funds are invested in government securities, mutual funds will generate resources for stock markets as well as in the debt instruments. 
    Sebi is expected to announce measures, such as an increase in expense ratio for mutual funds, which is currently capped at 2.5%, and other steps that would encourage fund houses to go beyond the top 10 cities in the country. The markets regulator has also been pitching for offering tax sops to individuals with income up to Rs 10 lakh, something that was announced for those investing in stocks for the first time. 
    For individuals, insurance provides an opportunity to cover potential risk — something that few Indians possess today. India has among the lowest insurance penetration, which further declined last year. As a proportion of GDP, insurance penetration in 2010-11 was estimated at 4.4% compared to 4.6% in the previous year. 
    Currently, investment in life insurance policies is part of the Rs 1 lakh exemption limit for individuals. In addition, they get tax breaks onhealth insurance premium of up to Rs 15,000 a year. But going forward, the Direct Taxes Code will curtail tax sops for investment in life insurance andhealth covers to Rs 50,000 annually. "This is not sufficient. The Life Insurance Council (an industry body headed by an IRDA member) has made a strong pitch for Rs 1 lakh exemption for these segments," Aviva Life CEO T R Ramachandran said. 
    Government officials too reckon that tax sops would be beneficial to push insurance and are going to seek changes in the current regulation when the issues is discussed with Chidambaram at length. 
    The other area where the insurance industry is seeking sops is for the pensions business. "Nearly Rs 30,000 crore in premium is gone (for the insurance industry). This is a completely virgin area and people can plan for their retirement," said S B Mathur, secretary general of the Life Insurance Council. He suggested that given the reach of life insurance companies, these could reach the remote areas of the country and meet the needs of rural areas as well. 
LOOKING FOR NEW RISK COVERS tPM & FM have hinted at moving investments to insurance, MFs 
tInsurance seen as long-term resource for govt as most investments go into G-Secs; MFs expected to prop up equities, debt instruments 
tA tax-saving push for insurance will raise number of individuals with risk covers from the current dismally low level tSebi may unveil steps to encourage fund houses to expand beyond the country's top 10 cities

MCX-SX gets nod to start currency options

Mumbai: MCX Stock Exchange (MCX-SX), which on July 11 got the regulatory nod to launch full-fledged stock trading platform, on Sunday said it has received the approval from the market regulator Sebi and RBI to launch currency options on its platform.      The Sebi-RBI approval came nearly four years after MCX-SX started its currency derivatives trading platform, the only one that it offers currently. At Julyend, it had a turnover of about Rs 13,500 crore in the currency derivatives segment, and a market share of 43.6%. The two other exchanges which offer currency derivatives trading platform are NSE and United Stock Exchange (USE). Of late, however, USE's turnover has dwindled and there is hardly any trading on this exchange.      This regulatory nod would enable MCX-SX to expand its offerings in the currency derivatives segment (CDS) by introducing currency options in the dollar-Rupee currency pair, a release from the exchange said. This will allow the bourse to offer its members a product which, for a large number currency traders, is a complementary as well as a hedging product for their foreign currency positions.      On Saturday to test the readiness of its currency options platform, it had successful conducted a mock trading session. The bourse will soon announce the date of live trading of currency options, the release said.      Currency options are contracts that grant the buyer of the option the right, without any obligation, to buy or sell the underlying currency at a specified exchange rate during a specified period. For this right, the buyer pays premium to the seller of the option. The seller, on the other hand, has an obligation to deliver the pre-specified currency but has not right.      Last month MCX-SX, after about three years of struggle with the regulator got the approval to offer trading platforms for equities, equity futures, interest rate futures and wholesale debt products.