Gold price just $15 away from major rally

On Friday, gold bulls were off to the races, spurred by a turnaround in sentiment towards commodity markets and fresh indications that a rise in US interest rates may be further off than previously thought.

On the Comex market in New York, gold futures with December delivery dates traded up as much 1.3% at $1,159.30, the highest since August 21. Gold is up 5% from where it was trading before the US Federal Reserve at its September meeting decided to hold rates steady. The last time rates were hiked was June 2006.

The week before hedge funds more than doubled net longs which now stand at just under 5 million ounces, the highest since April

Gold's leg up on Friday came after Fed minutes released yesterday suggested that the US economy will grow well below historical averages for the rest of the decade. The central bank estimates growth of around 1.7% through 2020 versus average growth of 3.1% over the past 50 years.

The dollar and gold, and bond yields and gold, have strong negative correlations and on Friday the greenback fell against the currencies of its major trading partners while treasury yields fell across the board.

Hedge funds were wrong-footed by the decision to keep interest rates near zero reducing bullish bets to more than five year lows ahead of the Fed decision.

But sentiment has now turned and according to the CFTC's weekly Commitment of Traders datafor the week to October 6 large speculators on Comex – referred to as "managed money" – added nearly a fifth to their bullish positions from the week before.

The week before hedge funds more than doubled net longs which now stand at just under 5 million ounces, the highest since April. Speculators also cut back on short positions – bets that gold could be bought cheaper in the future – reducing overall positions to 7 million ounces, down from record highs above 11 million ounces set in July.

We have argued that the first US rate hike could become a buying opportunity as it would remove the uncertainty that has prevailed for many months

In late July and early August, hedge funds entered bearish positions not seen since at least 2006, when the Commodity Futures Trading Commission first began tracking the data.

Saxo Bank in its quarterly outlook released last week, said the "the eventual recovery in gold hinges on a change in sentiment among paper investors".

The Danish bank pointed out that most of the third-quarter rallies were driven by hedge funds covering short positions, first after the Chinese devaluation and second after the dovish Federal Open Market Committee statement on September 17. Friday's rally, in solid volumes, followed a similar pattern:

"The combination of a dovish Fed, uncertainty about China’s currency policy and the health of the global economy, as well as low investor involvement, may eventually be what triggers or forces a sentiment change. We have argued that the first US rate hike could become a buying opportunity as it would remove the uncertainty that has prevailed for many months. As we still wait for what potentially could be an elusive rate hike, some uncertainty will linger.

"But having seen three robust recoveries within a short period, we sense a change of sentiment is unfolding. Key to this would be a move above gold’s August high at $1,170/oz, which would confirm a floor has been established. We maintain our year-end target of $1,250/oz and only a break below $1,080/oz would bring a change to this outlook."

Click here for Saxo Bank's commodity insights and essential trades for the final quarter of the year.

Gold price poised to break bear trend

How Glencore production cut will affect Zinc?

LME zinc surged by about 2% to climb above $1,700 per ton, and the most actively-trade zinc contract on the SHFE also rose to around 14,000 yuan per ton after Glencore’s cut news.

Glencore said on Friday it will cut 500,000 tons, around one third of its annual zinc output, of global zinc production due to low prices.

How Glencore’s cut news will affect zinc market?

“Zinc prices, in the short term, will get a boost from the cut news, but its weak fundamentals will not allow a sustainable price rise,” an analyst from Guosen Futures told SMM in the latest interview.

Poor zinc consumption in China, due to a slowing economic growth, is the leading reason behind sluggish zinc prices, the analyst pointed out.

“Weak demand is now in marked contrast to high utilization rates at domestic zinc smelters facing high TCs, especially when a traditionally peak demand season in October also fails to materialize so far this year,” the analyst explained.

The global zinc market is also not in good shape, despite no big rise or even a slight drop in LME zinc inventories, as unreported zinc inventories are estimated to be huge.

Over 500 jobs lost as Glencore suspends zinc operations in Australia

Glencore will temporarily suspend operations at Lady Loretta and reduce production at George Fisher and McArthur River operations, the company announced on Friday.

ABC News reports that 242 workers will lose their jobs at Lady Loretta Mine while while 224 positions will be lost from George Fisher, and 69 at the McArthur mine.

The closures gave zinc a bump. The Wall Street Journal says zinc rose 6.7% on the London Metal Exchange today.

Before the news, zinc had dwindled to a five year low, dropping to 72 cents USD/lb late last month. The metal had a 52-week high of $1.09 USD/lb.

Glencore plans to reduce annual zinc metal mine production across its operations in Australia, South America and Kazakhstan by approximately 500,000 tonnes or one-third. There was no news on how operations outside of Australia would be impacted.

"Glencore remains positive about the medium and long term outlook for zinc, lead and silver, however we are taking a proactive approach to manage our production in response to current prices," said the company in a statement.

The company said it has invested over $1 billion across our zinc operations, and it will continue to fund several large scale projects at our operations.

The company regrets the closures.

"These changes, although temporary, will unfortunately affect employees at our operations. This decision has not been taken lightly. In the coming days we will engage with all employees and put in place support services to assist our people who may be affected as a result of these changes."

Lady Loretta—a zinc (sedimentary exhalative) deposit, with additional occurrences of copper, lead, and silver—is located in Australia about 140km NNW of Mt Isa. The mine is an underground operation, employing long-hole stoping technology.

Copper mining's deepening costs crisis

GFMS Thomson Reuter's closely watched annual base metals review and outlook contains some stark warnings for copper miners.

The industry has made progress to reduce costs – since the first quarter of 2014 average cash costs have dropped by $303 a tonne according to GFMS calculations.

Over the same period the price of copper is down by $998 a tonne. And since the end of the June quarter of 2015 (the scope of the report) copper is down another $1,000.

It seems unlikely that the pace of cost reduction can improve much from the relatively modest pace of the last few quarters

GFMS says at the August low of $4,888 a tonne (a six-year low visited again at the end of last month) 10% of the industry is losing money on a cash basis.

But consider total costs (a better proxy for sustaining production levels at mines) and 47% of the industry is unprofitable at a 2009 copper price.

While costs have been reduced by 8% since the start of 2014, in Q2 2015 cash costs for the industry actually creeped up fractionally over the first quarter.

The inability of copper miners to make deeper cutbacks was despite a 50% fall in the price of crude oil and a sharp depreciation of producer country currencies against the dollar (on average more than 15% says GFMS) over the period. The usual culprit when it comes to rising costs in copper mining – falling grades – were relatively stable.

And the outlook is not all that rosy for the cost curve to lower much more:

"While cash costs may benefit from the lag in the transmission of lower energy prices, it seems unlikely that the pace of cost reduction can improve much from the relatively modest pace of the last few quarters.

"If copper prices continue to languish, additional cuts in sustaining capital are likely in the coming months, which will clearly impact the future production profile. We expect noise levels to increase in the coming months as the industry announces cuts to mine production and capital budgets, but how much of that translates into mine closures and/or a meaningful reduction in volumes remains to be seen."

Why India Might Finally Begin To Get Its Commodities Game Together

India is a commodity powerhouse. It is the largest producer or consumer for commodities that range from milk, pulses and spices to gold, edible oils and industrial crops. It is second largest producer of sugar, rice and cotton. And yet, instead of dictating terms, we follow the prices set overseas for them. What stops us from taking our rightful place in the global order? The feebleness of our market.

The power of any market comes from its ability to set the benchmark price that acts as the reference for all other trades around the globe, whether it is London for physical gold or New York for cotton. India's commodity markets have been illiquid, ill-equipped and ill-connected ever since their inception in 2003 due to a combination of outdated laws and ill-informed policymakers.

Now, 12 years later, this is set to change. SEBI has taken over as the new regulator and guardian of the commodity market, which will now be governed by the Securities Contracts (Regulation) Act, 1956, applicable to stock exchanges. India's commodity markets have a fighting chance to emerge from the shadows.

Here are five steps SEBI can take to make it happen.

1. Create policy stability

Commodity exchanges need a conducive ground created by surrounding institutions such as the government, the banking framework and corporate law. Commodity trading has been frequently disrupted by bans and mid-air changes in trading rules. This destroys market confidence despite a strong regulator. As an independent regulator, SEBI should seek a commitment from Central and state governments to adopt transparent and predictable rules for direct interventions, such as changes in trade policies, procurement operations and trading rules. To prevent panicky reactions, it has to rapidly educate the media, politicians, bureaucrats and the public about the role and mechanics of commodity exchanges.

"SEBI has a historic opportunity to create a wide and enduring economic moat around our commodity markets through sophistication and scale."

2.Consolidate volumes by expanding the network

Size begets power. Commodity exchanges benefit from strong "network effects". These mean that more members are better--the more trades exchanges handle, the more liquidity they can provide and the more activity they attract. By connecting hedgers, government companies such as FCI, and farmer bodies, to generate trade volumes that are in multiples of crop production, SEBI can improve price discovery and make the market more efficient.

3. Build scale by allowing better quality of investors and speculators

A large market to which producers, dealers, manufacturers, and speculators converge makes a contract as liquid as a stock certificate or a coupon bond. Allowing banks, mutual funds and large foreign investors to enter the commodity market will improve its risk-insuring function.

4. Connect to overseas markets

Today, no market is an island. In a hyper-connected world, India will only gain if its commodity contracts are listed on overseas exchanges reciprocally so that they are quickly accepted as a reference price.

5. Create a cost advantage

Compared to overseas markets, it is expensive to trade in India. The commodities transaction tax, local state taxes, high brokerage fees and high cost of physical delivery due to poor logistics have made costs a deterrent. SEBI will have to scrutinise each one so that market participants are attracted by favourable terms and remain loyal due to the high cost of switching business away from India.

In 2014-15, 10 out of the top 20 agricultural contracts by volume were traded on exchanges based in China, according to data from the US's Futures Industry Association. CME's Chicago Board of Trade was the leading agricultural futures market outside China. Precious metals are dominated by the Comex gold and silver contracts traded at CME's New York Mercantile Exchange. The Shanghai Futures Exchange is emerging as an important centre for gold and silver trading in Asia.

India has a natural competitive advantage in a wide swathe of this global commodity market. But it remains untapped because little attention has been paid on how to fight competition. SEBI has a historic opportunity to create a wide and enduring economic moat around our commodity markets through sophistication and scale. If it is successful, India--with its 52 million farmers and 1.2 billion consumers--can finally stand up to take its rightful place in the world of food and natural resources.

SOURCED FROM :- Huffingtonpost.in

Govt reviewing capital mkt reform measures

A recent report on capital markets by a government appointed panel is being examined by the finance ministry and financial regulators, and some its suggestions could perhaps be incorporated in the upcoming 2016-17 Budget.

The report, by the standing council on international competitiveness of the Indian financial sector, was made public in early September and recommended a number of steps to reform derivatives markets for commodity, equity and currency.

Some of these recommendations include removal of securities transaction tax and stamp duties, especially for futures and options products, clarifying tax treatment in exchange-traded currency derivative markets and avoiding ban on any market segment, participant or product.

The report also suggests allowing access to all foreign participants as long as they meet financial Action task force requirements, clarifying regulatory positions on participatory notes, removing regulatory constraints on banks and mutual funds to participate in commodity futures, uniform KYC norms, internationalising the rupee, and a longer term move to a residence based taxation regime.

Senior government sources said that the finance ministry has asked all financial regulators to suggest which of the numerous suggestions, divided into short-term, medium-term, and long-term timelines, can be implemented. Once the government is in agreement with the likes of Reserve Bank of India and Securities and Exchange Board of India on which reforms can be implemented, these could be included in the Budget, they added.

"The various financial regulators have been asked to review these recommendations and suggest which can be implemented, and some of these cannot be carried out, then why not," said a senior official.