Lower Prices Send Sales of Physical Gold 'Skyrocketing' in India

Although it is tempting to view charts as abstractions with their own sets of rules, we need to remind ourselves occasionally that they are merely representations of the interactions of price with supply and demand in real markets as part of the price discovery process.

The lower price of gold in New York and London has caused sales of physical bullion to 'skyrocket' in India, a significant market.

These sales will tend to underpin the futures markets as more dealers take delivery. And so the physical market will react and possibly provide some discipline to the metal bears of Wall Street.

And this is why any attempt by Central Banks to permanently suppress the price of gold are doomed to eventual failure as long as markets remain open and buyers are allowed to take physical delivery.


Gold Makes Glittering Comeback
29 Aug, 2008, 0606 hrs IST,
Amrita Nair-Ghaswalla
Times of India

MUMBAI: Gold is enjoying a modern-day renaissance in the country. From retail sales of 300-400 kgs of gold bar per day at the start of 2008, demand has surged to 3,000 to 4,000 kgs per day. Barring the slight rise in price at the start of this week, most counters registered an unprecedented sale.

Gold's dip below Rs 12,000 per 10 grams early this month has sparked off widespread buying. From a high of Rs 13,900 for 10 grams around a month and half ago, the price of the yellow metal slipped to Rs 11,850 on Wednesday, ensuring droves of customers.

The demand for the metal has skyrocketed to such an extent that imports for the month of August alone are set to cross 100 tonne. Last August, the country imported 69 tonne of gold.

'' Ten days ago, the price was Rs 11,300 and retail outlets recorded consumer demand many times higher than that witnessed during 'Dhanteras' , the first day of Diwali, or 'Akshaya Tritiya' , when buying gold is considered auspicious,'' said Suresh Hundia of the Bombay Bullion Association.

India, the world's biggest buyer of bullion, is also set to increase its gold imports for the first time in nearly 12 months, analysts told TOI. Given that the first half of 2008 saw volatile gold prices driving down demand, the last few weeks have witnessed a sudden rush of imports....

World's Largest Refiner Runs Out of Krugerrands
By Claudia Carpenter
Bloomberg

Aug. 28 (Bloomberg) -- Rand Refinery Ltd., the world's largest gold refinery, ran out of South African Krugerrands after an ``unusually large'' order from a buyer in Switzerland.

The order was for 5,000 ounces and it will take until Sept. 3 for inventories to be replenished, said Johan Botha, a spokesman for Rand Refinery in Germiston, east of Johannesburg. He declined to identify the buyer.

Coins and bars of precious metals are attracting investors as a haven against a sliding dollar and conflict between Russia and its neighbor Georgia. The U.S. Mint suspended sales of one- ounce ``American Eagle'' gold coins, Johnson Matthey Plc stopped taking orders for 100-ounce silver bars at its Salt Lake City refinery and Heraeus Holding GmbH has a delivery waiting list of as long as two weeks for orders of gold bars in Europe...

Broad Money Supply Growth in the US Remains Robust and Inflationary

Considering the slowing GDP, the growth of the broad money supply figures, MZM and M2, remains exceptionally strong. We would expect the growth of the broad money supply to be a little closer to a steady growth in GDP. From the charts it appears obvious that the Fed stimulates money supply when the economy slows.

The money supply growth has been achieved in spite of the declining growth of commercial bank credit thanks in large part to the Fed, the Treasury and several of the foreign Central Banks. Money supply expands from many sources other than commercial bank lending.

G7 Plans to Support the US Dollar In Case of a Major Financial Failure

Report of US currency rescue plan
By Krishna Guha in Washington
August 28 2008 03:00
Financial Times

The US, Europe and Japan discussed the possibility of co-ordinated currency intervention to support the dollar during the Bear Stearns crisis in March, according to Japan's Nikkei online.

The US Treasury declined to comment on the report, which claimed the G7 had considered issuing an emergency communiqué during the weekend of March 15-16.

The Financial Times was unable independently to verify the Nikkei report. A G7 official said he understood there were some preparations for possible currency intervention during that period, but did not comment on any international talks.

As reported earlier in the FT, US and European policymakers have been concerned at various stages of the credit crisis about the possibility that, in an environment of persistent dollar weakness, a crisis at an individual financial institution could trigger a disorderly plunge in the US currency.

Such a disorderly decline would aggravate existing stress in other financial markets and could lead to foreign investors demanding a currency risk premium on all dollar assets, pushing up long-term US interest rates.

It would also increase the stain on economies such as the eurozone that have floating exchange rates, pushing up their own currencies to unsustainable levels.

This concern was acute at the time of the Bear Stearns crisis. G7 policymakers were in contact then and discussed potential spillovers in international markets.

However, in the event there was no emergency G7 statement. The G7 waited until their scheduled meeting on April 11 when they expressed concern about "sharp fluctuations in major currencies" and "their possible implications for economic and financial stability". They added: "We continue to monitor exchange markets closely, and co-operate as appropriate."

This statement marked a shift in international currency policy. Hank Paulson, US Treasury secretary, remained generally sceptical about currency intervention, but was careful not to rule it out in all circumstances.

Prior to March, US and European officials were at odds over currencies, with eurozone officials concerned about the decline of the dollar against the euro, but US officials broadly welcoming this as a prop to growth.

However, following the April 11 G7 meeting, US and European officials told the FT they were united in their support for a stronger dollar. Ben Bernanke, Federal Reserve chairman, joined Mr Paulson in talking in public about the US currency.

Policymakers believe a crisis at a financial institution is less likely to trigger a run on the dollar in an environment of general dollar strength. A stronger dollar also helps to curb oil and inflation, and support confidence in US assets.

Without another Bear Stearns-style crisis, currency intervention is unlikely, but if a similar crisis were to occur again and the dollar were to weaken precipitously, co-ordinated intervention is possible.

You Can Believe the GDP Revision for the Second Quarter...

You can believe today's GDP revision upwards to 3.3% growth for the second quarter to the extent that you accept that inflation is running at an annual rate of 1.2%, which is what was used for the deflator to calculate the GDP revision.

There is a profound mathematical relationship between higher GDP and the assumption of a lower rate of inflation.

In addition to the GDP figures, there are GDP deflators, which measure the change in prices in total GDP and for each component. Though the consumer price index is a more closely watched inflation indicator, the GDP deflator is another key inflation measure. Unlike CPI, it has the advantage of not being a fixed basket of goods and services, so that changes in consumption patterns or the introduction of new goods and services will be reflected in the deflator.

In short, the government economists have a SIGNIFICANT amount of latitude to make the GDP deflator appear to be what they wish it to be, and thereby to make real GDP growth achieve whatever growth objectives that they feel people will need to see to believe that the government is doing a good job, and that all is well.

And oh by the way...