GOLD MARKET LIKELY TO SEE A SOFTENING

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SINGAPORE - The gold market will likely see a softening in the next two months as the impact of the massive gold selling by the International Monetary Fund (IMF) sinks in.

The IMF said on Wednesday that its second phase sale of 191.3 tons of gold will "shortly" be underway. The move is in a bid to reduce its dependence on lending revenue.

"In the short term of one to two months, there will be a bearish impact on gold prices because of the large quantity being offered," said Mr Wong Eng Soon, investment analyst at trading firm Phillip Futures.

At Wednesday's market price of US$1,120 ($1,548) an ounce, the gold to be sold by IMF would be worth nearly $9.7 billion.

To avoid disruption of the gold market, IMF said the sale would be conducted in stages and would be based on market prices.

On Thursday, spot gold price fell close to 1.8 percent to the lowest level of US$1,100.22 per ounce.

Gold futures for April delivery also dropped 1.7 per cent or US$18.50 to US$1,101 an ounce.

Analysts, however, do not see gold prices falling below US$1,065 per ounce. They said gold would recover to the US$1,200 reference level it had reached early December last year.

If there is a correction in prices, the drop in investor demand will be picked up by demand in the jewellery and industrial sectors, they said.

"Big players like the institutions may take this chance to increase their holdings. Also, India and China are the two largest consumers of gold and their economic recovery will continue strong demand for the commodity," said Mr Wong.

Central banks may also take the opportunity to increase their gold allocation; thus, providing a more bullish long-term prospect for gold.

"Net purchasing by central banks in recent quarters combined with the constraints in mine supply and stable level of recycling activity continue to make gold an ideal portfolio diversifier," said Mr Aram Shishmanian, chief executive officer of the World Gold Council (WGC).

Meanwhile, analysts reactions are mixed if this new sale might replicate the negative impact the first phase sale of 212 tons of gold had on the Australian dollar and oil prices.

WGC managing director Albert Cheng said: "Australian Dollar is more of a proxy to commodities because of its economy is hugely supported by the performance of commodities in general."

From TODAY, Monday, 22-Feb-2010

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White House seeks more funds vs A(H1N1)

06/03/2009 | 10:37 AM

WASHINGTON — The White House on Tuesday night asked Congress for $2 billion to help prepare for a possible swine flu pandemic — a request that came on top of up to $2 billion already pending in House-Senate talks on a huge war funding bill.

President Barack Obama also sent lawmakers a request for $200 million in humanitarian aid to Pakistan, where 2.5 million people have been displaced from their homes, in large part because of the government's campaign against insurgents.

The requests, if granted, would likely bring the cost of Obama's funding bill for military and diplomatic efforts in Iraq and Afghanistan to more than $100 billion.

Republicans in the House are lining up to oppose the war-funding bill if Democrats insist on including in it a new line of credit for the International Monetary Fund.

Democrats may have to scramble to pass the bill in the House, where Republican votes are likely to be needed to make up for about 50 anti-war liberal Democrats who opposed it last month.

At the core of the tentatively priced $98.8 billion House-Senate measure is $79.9 billion for the Pentagon, a figure that's also rankling House Republicans since it represents an almost $5 billion cut from the version that passed the House last month. That measure did not include funding for the IMF.

Responding to media reports that House Democratic negotiators have agreed to include a new $100 billion line of credit to the IMF — a top priority of President Barack Obama — the top Republican in the House said Tuesday he would oppose the bill.

"Let's be clear: a troop-funding bill should fund our troops, period," said Minority Leader John Boehner, a Republican from Ohio. "Weighing down this critical legislation with nondefense spending will only drag this process out further and cost it essential Republican support needed for passage."

Obama promised the IMF money at April's G-20 summit to help developing countries deal with the troubled global economy. About $8 billion for an earlier commitment for the IMF will be included. - AP

From GMANews.tv; see the source article here.

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Next stage of the crisis

Edmund Conway

Think we are on the road to recovery, that economies and financial systems are now back in rude health, that interest rate cuts and quantitative easing are likely to push us out of recession and generate another boom? Not so fast.

Sure, many of the major Western banks have been rescued from full-scale implosion after governments took drastic measures to shore up their capital and ensure their survival. But the mountain of debt that poisoned the financial system has not disappeared overnight. Instead, it has been shifted from the private sector onto the public sector balance sheet. Britain, for example, has taken on hundreds of billions of pounds of bank debt and stands behind potentially trillions of dollars of contingent liabilities.

If the first stage of the crisis was the financial implosion and the second the economic crunch, the third stage is where governments start to topple under the weight of this debt. If 2008 was a year of private sector bankruptcies, 2009 and 2010, it goes, will be the years of government insolvency.

That, at least, is the horror story. It was one underlined by Standard and Poor’s (S&P) decision to change the outlook on Britain’s debt from “stable” to “negative”. While the United Kingdom still clings on to its prized AAA rating, it now stands a very real chance of losing it within two years. Questionable as are the credentials of the agencies following the financial crisis, the significance should not be underestimated. A cut in S&P’s ratings would reflect a considered opinion that the UK may default for the first time in its history.

If Japan’s experience in 2001 is anything to go by, it would also trigger an instant exodus of cash from foreign investors, since many of their reserve managers are obliged to invest the vast bulk of their cash in AAA-rated currencies.

But in spite of all this potential fire and brimstone, the reaction from financial markets in the wake of the S&P announcement last Thursday was hardly dramatic.

Indeed, so far as markets were concerned, a couple of disastrous headlines for the government — the S&P decision and the International Monetary Fund’s verdict on the management of the economy the previous day — were no more a concern than the latest nasty set of economic output or employment data.

Still, capital markets are unpredictable. As emerging markets — which have suffered sudden crises as international investors abandoned ship — know to their cost, creditors can turn on a sixpence. Foreign investors hold around a third of UK debt — most of it in the short-term gilt market. Unlike Japan, which had a massive savings glut when it lost its AAA-rating, the UK is directly vulnerable if their central banks and sovereign wealth funds turn a cold shoulder on sterling.

As things stand, the UK is the first of the major G7 economies to have been put on watch during this crisis (Japan is already AA). Were it the only country under real threat of downgrade, it would be easy to make baleful predictions about the impact.

However, the economic crisis has touched every nation. The UK is likely to be joined by other countries as the full scale of the downturn becomes apparent and more financial skeletons are pulled from the sub-prime closet.

So while we may suspect this is how the next stage of the financial crisis will look, it is harder to grasp which countries, or for that matter, which businesses or investments will benefit and which will suffer.

Central banks are likely to invest some of their cash in commodities such as gold and oil; tangible assets will become more desirable. For governments, survival is based on relative rather than absolute strengths. Countries that provide the most feasible and sensible fiscal plans are likely to thrive as they garner investment and support, while those that churn public money while failing to mend their financial systems are the most likely to suffer.

For in the final stage of this crisis, those countries that recover and start to flourish will be those that face up soonest to the new period of fiscal austerity that must last for the next decade.

This is an abridged version of a commentary that was published in The Daily Telegraph yesterday.

From TODAYOnline.com, Business – Monday, 25-May-2009; see the source article here.

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