CME / Thomson Reuters win race to replace London silver fix

As anticipated earlier this week, the race to replace the London silver price fix is finally over, as the London Bullion Market Association (LBMA) has chosen the joint Chicago Mercantile Exchange/Thomson Reuters bid to replace the current 117-year-old price process, which formally ends on August 14.

The LBMA said the joint tender met the requested criteria, in that it was electronic, auction-based and auditable, while remaining tradeable with an increased number of direct participants.

In a statement Friday, the LBMA said the joint tender met the requested criteria, in that it was electronic, auction-based and auditable, while remaining tradeable with an increased number of direct participants.

At present, the silver fix is set each day at noon by three large banks, which are Deutsche Bank, HSBC and Scotiabank by way of a daily conference call.

The CME Group will provide a price platform and methodology, while Thomson Reuters will be responsible for administration and governance, it added.

Thomson Reuters already works with the LBMA to administer Gold Forward Offered Rates (GOFO), a rate used in swap deals.

The association will develop a process of accreditation for silver price participants, with the legal aspects of this division of responsibilities to be finalized prior to the new price mechanism going live.

Financial benchmarks have come under strong scrutiny from regulators around Europe and the United States since 2012, when it became public that British banks had rigged the London Interbank Offered Rate (Libor).

Gold near 3.5-month high on Portugal bank worries

Gold fell for the first time in three days Friday but continued trading near a 3.5-month high with demand steady on investor concern about Portugal's biggest bank.

Spot gold changed hands at $1,336.00 an ounce around 2:20 p.m. Eastern Standard Time, up 70 cents from Thursday's close of $1,335.30. Earlier Thursday it reached $1,345, its highest level since mid-March.

Meanwhile on Friday, gold futures for August delivery traded around $1,337 per ounce on New York's COMEX.

Gains in European shares following declines Thursday put some downward pressure on the yellow metal. But market participants remain worried about the euro zone's financial health as trading in Banco Espirito Santo's stock has been suspended.

In times of political or financial turmoil, investors seek a safe haven in gold, whose price was pushed up sharply during the European debt crisis.

Escalating violence in Israel and the US Federal Reserve's benign stance on interest rates are also supporting gold.

Indian duty

Also Thursday, India maintained a 10% duty on bullion imports. That prompted jewellers awaiting a reduction of the duty to resupply.

India raised the duty last year sparking a dramatic increase in gold smuggling, which yesterday's move may exacerbate.

Precious metals have outperformed other commodities this year with double digit gains for gold and palladium and a strong performance for silver and platinum.

‘Both STT, CTT rates are already very low’ says Revenue Secretary

Cannot understand the expectation to lower them further, says Revenue Secretary

The stock and commodities market seem to be disappointed as the Budget has not revised the Securities Transaction Tax (STT) and the Commodities Transaction Tax (CTT). What was the reason behind this decision?

I don’t know what is the expectation? Because the current rates, of both STT and CTT, are very low. And we have also prescribed that if you have paid the CTT, income from such a transaction will not be treated as speculative income. This, by itself, is a very strong signal. There has to be a tax and rates are very low.

People were also expecting some relief on gold — of import duty being lowered from 10 per cent. Since duty revision can happen outside the Budget, can we expect something during the current fiscal?

The current account deficit, like the fiscal deficit, had been a matter of concern. Things have improved. CAD came down at the end of the last fiscal.

But we need to be cautious, considering the volatility in international markets. International crude prices are rising due to the Iraq problem. So, we have to wait and see how that plays out.

Does this mean there will be no immediate relief on gold?

I cannot say about the future. As of now, all I can say is that there is no decision to reduce the duty. The position is constantly changing, we will see.

Commex trades not speculative if commodity transaction tax's paid

Traders and business houses which traded commodities exempt from commodity transaction tax (CTT) on recognised commexes and adjusted losses or gains arising from such transactions against business income or losses will not be allowed to offset such transactions any longer.

This is because the Budget spells out that such offsetting of transactions can be done only in respect of commodities traded on recognised associations (by CBDT) and on which CTT has been paid. This will be applied retrospectively from April 2014. Such transactions have been declared as non-speculative or eligible ones for offsetting.

Earlier, if CBDT recognised a commex that collected CTT, all transactions done on it were deemed non-speculative. But the government has now modified the previous rule, in line with a notification in January this year, that only transactions done on a CBDT recognised exchange and on which CTT has been paid are not speculative, explained Anil Mishra, MD & CEO, Ahmedabad-based commex NMCE.

However, another commex official on condition of anonymity, said a trader will also continue to be able to adjust business loss/profit against that from non-CTT commodity futures contract so long as these transactions result in delivery.

Section 43(5) of the income tax deems transactions in commodity, including stocks and shares, but excluding derivatives on recognised stock bourses, as speculative if they do not result in delivery.

Speculative loss/gain can be offset only against speculative loss/gain and carried forward for 4 years, while non-speculative gain/loss can be offset against speculative loss/gain and business loss/gain and carried forward for 8 years.

CTT was announced by the UPA government in the Budget for FY14 and began to be imposed from July last year.

Commodity investors get the cold shoulder, No relief from transaction tax, 80:20 rule too not eased

No relief from transaction tax, 80:20 rule too not eased

Participants in the commodity market had given a long wish list, but they have been left disheartened by the Finance Minister.

Their request for removing commodity transaction tax on non-agricultural commodities has not been granted.

Also, gold jewellers who have been long lobbying for lifting of gold import restrictions and reduction in gold import duty have been left high and dry.

Stocks of Tribhovandas Bhimji Zaveri (TBZ), Titan Company and Rajesh Exports traded in the green when the market opened, but pared their gains after the Budget was table in Parliament.

TBZ and Titan ended five per cent lower for the day.

Markets in a tizzy

This has been as bad year for commodity trading like 2013, when turnover at the commodity bourses dropped 28 per cent.

MCX, the largest commodity futures bourse with large chunk of the volumes from bullion and energy contracts, has seen its turnover nosedive.

Now, the monthly turnover on MCX is just a third of what it used to be in 2013. Average monthly turnover in gold and silver contracts has more than halved.

Industry observers say the levy of CTT is the major reason for fall in volumes on the commodity bourses as it has hit margins of arbitrage traders.

Introduced in July last year, the Commodity Transaction Tax was being levied at the rate of 0.01 per cent on the sell side and is applicable on all non-agricultural commodities including gold, silver, industrial metals and energy and a few agricultural commodities.

Though the levy is just 0.01 per cent of the contract value, the new tax has increased the cost of trading by 18-20 per cent.

Losing sheen

Jewellers have nothing to celebrate either.

As the Government announced the 80:20 rule giving all gold importers an export obligation, the premium on gold bars in the spot market in Mumbai touched a high of $110/ounce in January. But since then domestic jewellery demand has not been great.

The Government also lifted some curbs on gold imports, so much of the premium has evaporated.

However, gold jewellers wanted the Government to reduce import duty and go easy on the 80:20 rule and free them from export obligations in the Budget.

But, both these haven’t happened. Official gold availability in the country may thus continue to be tight, warranting premium. Currently, the premium in the market is around $5-10/ounce.

The Polar Vortex Is Back In The Middle Of July.

While every single economist and "straight to CNBC" pundit was quick to blast the atrocious economic performance in Q1 as solely due to the "harsh weather", what has emerged in various retail earnings reports so far in Q2 is that, drumroll, they lied. In fact, as one after another "stunned" retailer admits, the depressed spending observed during Q1 continued, if not deteriorated even further, in the second quarter. Which means only one thing, the same thing we said back in January: as a result of Obamacare, the declining credit impulse resulting from the Fed's tapering, and a ongoing contraction in global trade as the world slides back into recession, the US economy is on the verge of stalling and may well enter into a tailspin if one or more exogenous events take place in a centrally-planned world that is priced to perfection.

To be sure, one of the potential scapegoats we highlighted previously was the replacement of the polar vortex with what we dubbed the "solar vortex", ala El Nino, which as we further reported, has already been blamed in advance by the Bank of Japan for a spending collapse set to take place in the second half of 2014, the year when the Japanese economy now almost certainly re-enters recession.

But just to make sure that the abysmal Q1 GDP which has now spilled over into Q2 and will likely see the US economy growing in the mid-2% range, has a sufficiently broad "excuse" in the third quarter of the year, here comes - in the middle of July - the polar vortex 2.0.  As WaPo reports, "However you choose to refer to the looming weather pattern, unseasonably chilly air is headed for parts of the northern and northeastern U.S at the height of summer early next week."

Bearing a haunting resemblance to January’s brutally cold weather pattern, a deep pool of cool air from the Gulf of Alaska will plunge into the Great Lakes early next week and then ooze towards the East Coast.

The atmospheric impact will not be nearly as dramatic, but still temperatures are forecast to be roughly 10 to as much as 30 degrees below average.

This means that in parts of the Great Lakes and Upper Midwest getting dealt the chilliest air, highs in this region could well get stuck in the 50s and 60s – especially where there is considerable cloud cover.

And focusing on next week specifically, "Wednesday morning’s lows may drop into the  40s over a large part of the central U.S."

 

Highs may struggle to reach 80 in D.C. next Tuesday and Wednesday with widespread lows in the 50s (even 40s in the mountains).

More from WaPo:

What’s behind this unusual winter weather pattern primed for the dog days of summer?  A lot of it is simply chance (randomness), but Weather Underground’s meteorologist Jeff Masters says Japan’s typhoon Neoguri is playing a role in the pattern’s evolving configuration:

….the large and powerful nature of this storm has set in motion a chain-reaction set of events that will dramatically alter the path of the jet stream and affect weather patterns across the entire Northern Hemisphere next week. Neoguri will cause an acceleration of the North Pacific jet stream, causing a large amount of warm, moist tropical air to push over the North Pacific. This will amplify a trough low pressure over Alaska, causing a ripple effect in the jet stream over western North America, where a strong ridge of high pressure will develop, and over the Midwestern U.S., where a strong trough of low pressure will form.

What amazes me most about the pattern is not so much the forecast temperatures, but the uncanny similarities in the weather patterns over North America seen in both the heart of winter and heart of summer. All of the same features (refer to the map at the top of this post)  apparent in January are on the map in mid-July: low pressure over the Aleutians (blue shading), a large hot ridge (yellow and red shading) over the western U.S., the huge cold low or vortex over the Great Lakes (blue and green shading), and then the ridge over northeast Canada (yellow and red shading).

It’s not at all clear what this means or what, if anything, it portends.  Weather patterns cycling through a certain circulation regime can repeat (and we’ve seen this pattern multiple times since November-December), but with El Nino forecast to develop, the global configuration of weather systems is likely to change.

So the question is: just how profound of an adverse impact on Q3 GDP (because remember: weather anomalies are never additive to GDP; only wars can do that in a Keynesian world) will the second, summertime coming of polar vortex have on the US economy? Judging by the laughable farce that the economic profession has devolved to, desperately seeking to "explain away" any deviation from a priced to perfection growth rate, if only that of the Fed's balance sheet, not to mention why its forecasts are always wrong we are likely to find out very soon.

Gold Spikes, Bonds & Stocks Surge Despite Fed Warning Over Complacency

As usual the initial knee-jerk reaction (in this case lower in stock prices and higher in bond yields) has been faded rapidly and despite Fed warnings over investor complacency (and real economic uncertainty not being priced in), investors are buying bonds and stocks with both hands and feet (for now)... Gold is spiking higher as the USD drops.

Gold is spiking

As Bonds, stocks, and the USD revert

How long can this last?

Charts: Bloomberg