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Japan's
nuclear crisis has deepened and we deeply regret to say that there is now the
real possibility of a nuclear catastrophe. Investor panic has set in with the
Nikkei down over 16.5% in two days and the Topic index down by 17% - its
worst two-day loss since the 1987 Wall Street stock market crash.
The
cost to insure Japanese debt has surged to a record with credit-default swaps
protecting Japanese government debt for five years soaring 27 basis points to
a record of 125 basis points. One UBS trader said that the deteriorating
nuclear crisis had led to "near panic across local credit-default swap
markets."
 
Gold in JPY – 40 Year (Quarterly)
While
most equity indices and commodities have fallen, some sharply, gold has
remained resilient and is down 1% in US dollar terms and is higher in
Australian dollars which like other so called 'commodity' currencies has come
under pressure in recent days. Gold remains marginally higher in all
currencies since the tragedy began last Friday.
Gold's
fall is likely due to speculators taking profits after recent gains or margin
call selling to cover losses in equity and other markets. Should the sharp
falls seen in Japanese shares spread to western stock markets, gold and
silver could suffer further margin call liquidation and another short term
sell off.
Any
sell off will likely be shallow and short term as the crisis in Japan will
lead to further diversification into gold and increased safe haven demand as
investors grapple with the uncertainty and fragility of today's financial and
economic world.
Gold
will likely be supported by tensions in the Middle East which remain very
high. Iran said this morning that Saudi Arabia's troops entering Bahrain is
"meddling" and "unacceptable".
Japan Government 10 Year – 1987 to Today (Weekly)
The
Japanese crisis could not have come at a worse time for the massively
indebted Japanese economy which is struggling after more than 10 years of
economic contraction. Like the US, near zero percent interest rates and
significant stimulus programmes have failed to create economic growth.
Indeed,
Japan is now the world's second most indebted country, with over $11 trillion
in debt (US has $14 trillion), and a debt-to-GDP ratio of over 200%.
In
January, Standard & Poor's cut Japan's sovereign debt rating, saying the
government has no "coherent strategy" to deal with their mountain
of debt. A bond crisis would see selling of Japanese bonds and an increase in
interest rates - from the unsustainable historic lows of near 1% today. Any
meaningful increase in interest rates would lead to Japan struggling to repay
their debt and the real possibility of default.
The
earthquake, tsunami and now nuclear tragedy in Japan may be a tipping point
that leads to an international bond and currency crisis. This would see
speculators and investors liquidating corporate and government paper assets
in order to protect themselves from currency debasement and inflation.
Fiat
currencies with negative real interest rates would also be shunned and
significantly increased allocations to hard assets and particularly monetary
assets such as gold would be seen.
Gold's
finite currency status means that it will again be recognised as the ultimate
safe haven asset and an essential part of every diversified portfolio.
Gold
Gold
is trading at $1,406.21/oz, €1,013.34/oz and £878.72/oz.
Silver
Silver
is trading at $34.64/oz, €24.96/oz and £21.64/oz.
Platinum
Group Metals
Platinum
is trading at $1,712.25/oz, palladium at $716.00/oz and rhodium at $2,350/oz.
News
(Reuters)
-- Gold down 1 pct as equities tumble on Japan quake
Gold slid more than 1 percent on Tuesday as declines in stock markets
triggered by a growing nuclear crisis in Japan prompted speculators to sell
bullion to cover losses, while holdings on the ETF fell to their lowest since
May last year.
Silver
fell around 3 percent. Platinum and palladium gave up early gains and dropped
more than 1 percent after Japanese shares slumped for a second day on Tuesday
as two fresh explosions rocked a stricken nuclear plant.
Gold
lost $10.70 an ounce to $1,415.95 by 0636 GMT, after rising as much as 1
percent on Monday as Japan battled to prevent a nuclear catastrophe following
last week's devastating quake and tsunami and on political unrest across the
Arab world.
"It
still looks like it's constructive. It's just consolidating. But if we get a
large sell-off in equities, people will tend to sell gold," said
Jonathan Barratt, managing director of Commodity Broking Services in
Melbourne.
"But
if it's a major concern, then people will eventually go to gold as the last
resort."
Premiums
for gold bars were steady at between $1.00 and $1.50 an ounce with spot
London prices in Hong Kong and Singapore, with no signs of safe-haven buying
related to last week's massive earthquake and tsunami in Japan and the
subsequent nuclear crisis.
Japan
faces a recovery and reconstruction bill of at least $180 billion -- 3
percent of its annual economic output -- or more than 50 percent higher than
the total cost of 1995's earthquake in Kobe.
Japan
warned that radioactive levels had become significantly higher around a
quake-stricken nuclear power plant on Tuesday after explosions at two
reactors, and the French embassy said a low level radioactive wind could
reach Tokyo by the evening.
"The
price shot up to above $1,430 but it could not break through that level. I think
that's why the market is down. Also, ETF holdings seem to be going down
again," said a dealer in Singapore.
"We
can say people are selling gold to cover their margin call."
U.S.
gold futures for April fell $8.6 to $1,416.3 an ounce.
In the
Middle East, the United States urged Saudi Arabia on Monday to show restraint
after it sent troops to neighbouring Bahrain in a move some analysts said
showed the limits of Washington's influence in the region.
The
deployment of 1,000 Saudi troops, at the request of Bahrain's Sunni royal
family, came two days after U.S. Defense Secretary Robert Gates visited the
island kingdom and pressed its rulers to implement political reforms to
defuse tensions with the Shi'ite Muslim majority.
Rising
tensions in North Africa and the Middle East helped bullion strike record
around $1,444 last week.
The
yen surged on Tuesday after Japan's prime minister said radiation levels near
a quake-hit nuclear plant had become high and the risk of further nuclear
leakage was rising, prompting investors to dump risky assets.
The
Bank of Japan (BOJ) said on Monday it would increase the size of its asset
purchase to 10 trillion yen ($122 billion) from 5 trillion yen and analysts
think it may take more steps if the economic outlook deteriorates further.
The
BOJ is even more dovish than the U.S. Federal Reserve, which has been
cautious about seeking to exit its stimulus policy as it wants to bring down
unemployment.
U.S.
Federal Reserve policymakers meet on Tuesday and investors will closely watch
the Fed's assessment on unemployment and the economy in general.
(Bloomberg)
-- Gold Drops as Commodities, Equities Tumble on Japanese Crisis
Gold dropped, snapping a two-day advance, as Japan's strongest quake and a
worsening nuclear accident spurred concern that the global economic recovery
may be hurt, prompting a selloff in commodities.
Immediate-delivery
bullion fell as much as 1.3 percent to $1,408.07 an ounce before trading at
$1,412.93 at 2:25 p.m. in Singapore. The April-delivery contract dropped 0.7
percent to $1,415.70. Oil plunged as much as 2.5 percent in New York as base
metals and equities also declined.
"Gold
and other precious metals are coming under pressure as commodities decline
across the board," said Chae Un Soo, a Seoul-based trader at KEB Futures
Co. "The decline in commodities also coincided with the need for gold to
take a breather after a recent rally to a record."
A
third blast occurred today at the Fukushima Dai-Ichi nuclear plant and Prime
Minister Naoto Kan said the risk of further radiation leaks is rising. The
March 11 temblor caused a death toll estimated at more than 10,000 and shut
down factories.
Asian
stocks tumbled 5.5 percent, led by the Topix index of Japan, which plummeted
14 percent on concern that the nation's economy will be crippled. The Dollar
Index, a gauge of the currency's value, jumped as much as 0.4 percent. Gold
usually moves inversely to the dollar.
Bullion
climbed to an all-time high of $1,444.95 an ounce on March 7 after rallying
30 percent last year, the tenth straight annual gain, on the prospect of
currency debasement and rising inflation.
Auto
Plants
Demand for palladium and platinum has been hurt by shutdowns in Japan's auto
plants, Hussein Allidina, head of commodity research at Morgan Stanley, wrote
in a report. The metals are used to make pollution-control devices.
Toyota
Motor Corp., the world's biggest carmaker, will suspend output at 12 Japanese
factories today and tomorrow, spokeswoman Shiori Hashimoto said yesterday.
Isuzu Motors Ltd., a Toyota affiliate, will halt production at its two
Japanese plants until March 18, spokesman Koichi Ito said. Honda Motor Co.
and Nissan Motor Co. also shut facilities in northern Japan.
"The
greater feed-through for platinum and palladium spills from investor
sentiment as a result of this disaster," Edel Tully, analyst with UBS AG
in London, wrote in a note to clients. "A cautious tone already shrouds
these metals and this could become more extreme in the current climate."
Palladium
for immediate delivery dropped as much as 2.7 percent to $726 an ounce after
losing 1.8 percent yesterday, while platinum decreased as much as 2.1 percent
to $1,718.15 an ounce, extending a 1.5 percent decline. Cash silver fell as
much as 3.6 percent to $34.62 an ounce before trading at $35.15 an ounce. The
metal touched $36.7525 on March 7, the highest level since 1980.
(Financial
Times) -- Saudis and US at odds over Bahrain policy
Some US officials say Washington and Riyadh have been at odds in the Middle
East since the protests in the region began, but in recent days tensions have
reached new heights, writes Daniel Dombey.
While
Washington has been urging allies to carry out political reforms, Saudi
Arabia has been giving the opposite advice, urging governments to stay firmly
in control.
On
Sunday, as Saudi Arabia was preparing to send troops to Bahrain, the White
House issued a statement calling on the Bahraini government "to pursue a
peaceful and meaningful dialogue with the opposition rather than resorting to
use of force".
US
officials say the Saudi and Bahraini governments have greatly overstated
fears that the island state's Shia majority would move the country closer to
Iran.
"The
Saudis and the Americans are not on the same page about events in the
region," says Simon Henderson at the Washington Institute for Near East
Policy, a US-based think tank.
The
two countries were visibly at cross purposes over the protests in Egypt, with
Saudi Arabia counselling former President Hosni Mubarak to stay even as the
US called for a democratic transition. But Bahrain in particular has become
something of a tug of war between Washington, which recommends more reforms,
and Riyadh, which resists them.
(Bloomberg)
-- U.S. Commodities: Sugar, Raw Materials Drop on Japan Concerns
Raw sugar fell to a two-week low, leading commodities lower, as conditions in
Japan worsened following last week's earthquake and tsunami, threatening to
hurt economic growth and demand for raw materials.
Prime
Minister Naoto Kan said Japan faces its worst crisis since the end of World
War II, and local media estimated the death toll from the March 11 temblor
may top 10,000. The Bank of Japan today injected 15 trillion yen ($183
billion) into the financial system. The UBS Bloomberg Constant Maturity
Commodity Index fell, extending the longest slump since August.
Most
prices "are down because people are still assessing the impact of the
quake," said Jeff Bauml, a senior vice president at R.J. O'Brien &
Associates, a broker in New York.
In
other markets, crude oil rebounded on speculation that unrest in the Middle
East may escalate after Saudi Arabia sent its troops into Bahrain. Cotton
tumbled. The UBS Bloomberg index declined 0.3 percent to 1,717.89, the sixth
straight decline.
Raw
sugar for May dropped 1.07 cents, or 3.7 percent, to 27.79 cents a pound on
ICE Futures U.S. in New York. The sweetener posted the biggest drop among 26
commodities in the UBS Bloomberg index. Earlier, the price touched 27.41 cents,
the lowest since Feb. 25.
Crude
Oil
Oil futures for April delivery rose 3 cents to $101.19 a barrel on the New
York Mercantile Exchange, ending a four- session slump. Earlier, the price
touched $98.47, the lowest since March 1.
Saudi
Arabia's cabinet said the kingdom has responded to a Bahraini request for
"support." Prices were lower most of the day on speculation that
energy demand in Japan, the third- largest economy, may decline after an
8.9-magnitude earthquake devastated parts of the northeast.
"The
situation in Bahrain appears to be escalating and people start to wonder that
it could become a bigger issue," said Carl Larry, the president of Oil
Outlooks & Opinions LLC in Houston.
Saudi
troops entered the neighboring country as part of a regional force from the
Gulf Cooperation Council, the first outside intervention since a wave of
popular uprisings swept through parts of the region.
Cotton
Cotton tumbled the most allowed by the ICE exchange on signs that demand may
ease in China, the world's biggest buyer, after prices approached a record
high.
The
China National Cotton Information Center said imports dropped 53 percent in
February to 184,200 metric tons from January, down 17 percent from a year
earlier. On March 11, the price jumped as much as 3.5 percent to $2.0798 a
pound. The fiber climbed to an all-time high of $2.197 on March 7.
"This
sell-off is largely on a reduction to demand expectations at these high
prices," said Erica Rannestad, a commodity analyst at CPM Group in New
York. "A lot of manufacturers are expected to purchase less cotton and
use less in end-products."
Cotton
for May delivery fell by the exchange limit of 7 cents, or 3.4 percent, to
$1.9794 on ICE. The price dropped 3.6 percent last week. The fiber has more
than doubled in the past year as demand outstripped global supplies.
Commodities
settled as follows:
Precious metals:
April gold up $3.10 to $1,424.90 an ounce
May silver down 9.5 cents to $35.84 an ounce
April platinum down $29.40 to $1,752.30 an ounce
June palladium down $17.30 to $748.20 an ounce
Livestock:
June live cattle down 0.3 cent to $1.1665 a pound
August feeder cattle down 0.775 cent to $1.3685 a pound
June lean hogs down 1.95 cents to 97.55 cents a pound
Grains:
May soybeans up 5.5 cents to $13.40 a bushel
May corn up 1.75 cents to $6.66 a bushel
May wheat up 2 cents to $7.2075 a bushel
May rice up 36.5 cents to $13.375 per 100 pounds
May oats down 6.5 cents to $3.44 a bushel
Food
and Fiber:
May coffee down 1.1 cents to $2.733 a pound
May cocoa down $23 to $3,389 a metric ton
May cotton down 7 cents to $1.9794 a pound
May sugar down 1.07 cents to 27.79 cents a pound
May orange juice up 1 cent to $1.6895 a pound
Energy:
April crude oil up 3 cents to $101.19 a barrel
April natural gas up 2.5 cents to $3.914 per million British thermal units
April heating oil up 3.48 cents to $3.0638 a gallon
April gasoline down 2.74 cents to $2.9603 a gallon
Others:
May copper down 2.1 cents to $4.1865 a pound
May lumber down $3.30 to $307.80 per 1,000 board feet.
(Bloomberg)
-- Topix Drops as Japan's Default Risk Jumps; Commodities Decline
Japanese stocks dropped, sending the Topix index to its worst two-day plunge
since 1987, and default risk jumped as Prime Minister Naoto Kan said the
danger of further leaks from a nuclear power plant damaged by the nation's
biggest earthquake was increasing. Commodities fell.
The
MSCI Asia Pacific Index slumped 5.2 percent at 4 p.m. in Tokyo. The Topix
sank 9.5 percent and the cost of protecting Japan's sovereign debt surged to
a record. Treasuries gained, sending yields to their lowest level this year.
The Australian dollar weakened 1.2 percent. The S&P GSCI spot index of 24
commodities slid 1.3 percent. Oil lost 1.9 percent in New York. Futures on
the Euro Stoxx 50 Index decreased 2.1 percent and those on the Standard &
Poor's 500 Index declined 2 percent.
The
Bank of Japan added 8 trillion yen ($98 billion) into money markets today,
adding to yesterday's record cash injection, to secure the nation's financial
stability following the March 11 temblor -- updated to a magnitude of 9, from
8.9, by the U.S. Geological Survey -- and subsequent tsunami. Tokyo Electric
Power Co.'s Fukushima Dai-Ichi nuclear plant was today rocked by two more
explosions and a fire.
(Financial
Times) - Saudi soldiers enter Bahrain
More than 1,000 Saudi troops rushed to the rescue of Bahrain's royal family
on Monday as neighbouring Gulf states backed the Sunni rulers' attempts to
confront a popular uprising by a mainly Shia opposition.
As the
Saudi troops crossed into Manama, the capital of Bahrain, the United Arab
Emirates said it had also sent 500 police officers to help quell unrest in
the tiny kingdom of less than 600,000 people. The Manama regime appealed on
Sunday for help from its partners in the Gulf Co-operation Council, the
regional grouping.
The
cross-border intervention in the strategically important state, home to the
US Fifth Fleet, dramatically raises the stakes in Bahrain's political
standoff, which has pitted the Shia majority against the Sunni al-Khalifa
royal family.
It
came after Bahrain's riot police were over-run by tens of thousands of Shia
protesters who by the end of Sunday had occupied much of the capital's
central business district bringing the city to a halt.
Protesters
said they would not be deterred by Saudi Arabia's military intervention, and
remained determined to press ahead with demonstrations. The main opposition
parties warned that the intervention was a "blatant occupation" and
"undeclared war" by armed troops.
People
familiar with the matter say the Saudi force was primarily to be used for
policing, but Mr Fairouz said at least two dozen Saudi tanks had also crossed
the causeway into Bahrain.
"It
will deepen the crisis," said Jawad Fairouz, a senior member of
al-Wefaq, the largest Shia opposition party. "The conclusion to this
could be very dramatic . . . I think they are playing their last card."
The
Saudi intervention creates a dilemma for the US, which has been urging Arab
states to negotiate with protesters but does not want the region to spin out
of control. The White House said it was aware that other countries from the
GCC were considering sending troops. But it urged the Gulf states to
"show restraint and respect the rights of the people of Bahrain, and to
act in a way that supports dialogue instead of undermining it".
The
Pentagon confirmed that neither defence secretary Robert Gates nor chief of
staff Adm Mike Mullen had been informed of the Saudi move on their recent
trips to Bahrain.
The
defence department said it was monitoring the deployment of Saudi and GCC
forces closely.
"We
have communicated to all parties our concerns regarding actions that could be
provocative or inflame sectarian tensions and we continue to call on all
parties to prioritize a peaceful, negotiated outcome in support of the Crown
Prince's National Dialogue," said spoekesman Col Dave Lapan.
"We
expect GCC states to support the reform initiatives proposed by the
government."
Observers
said that regional Arab involvement could provoke Shia-dominated Iran to try
to assist the protesters.
In
Tehran, the spokesman for parliament's foreign policy committee, Kazem
Jalali, said the involvement of "foreign forces" in Bahrain to help
crack down on protesters was "a kind of crime". Reports from Riyadh
suggested that the Saudi troops moving into Bahrain were part of the
Peninsula Shield Force, an arm of the GCC first set up as an anti-Iranian
bulwark after the Islamic revolution of 1979.
Even
under the GCC umbrella, however, the intervention was likely to make "a
difficult situation even more difficult", said Abdulkhaleq Abdalla,
professor of political science at the United Arab Emirates University. The
Bahraini government said the Peninsula Shield forces had arrived to "help
protect the safety of citizens, residents and critical infrastructure".
Mark O’Byrne
Goldcore
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