The international monetary system is in chaos trying to establish order to avert currency war and trade protectionism. China with the highest growth rate and surplus and massive forex reserve has emerged as the new global financial super power and she is resisting pressure to assume its global financial responsibility.

Forex buyers are turning to gold as dollar’s fate is uncertain and Yuan is not freely available. American dollar is expected to drop as part of U.S. strategy of “Quantitative Easing” to enhance exports. U.S. manufacturers are asking to devalue dollar by 40% to make American products globally competitive.

Iran’s foreign exchange reserves have increased by billions of dollars because Iran imported tons of gold when the price of gold was $656 per ounce and now gold price has risen to $1,230 dollars per ounce.

World Bank president Robert Zoellick has suggested a gold standard in view of the uncertainty of the fate of currencies in the global financial market. Others foresee the ascendancy of two or three reserve currencies in the world besides dollars.

G20 summit in Seoul merely endorsed the agenda agreed upon in G20 ministerial meeting in Gyeongju to move toward a market determined exchange rate, to restrain from competitive devaluation of national currencies, to implement IMF reform, and to introduce guidelines on current account balance.

G20 head of states meeting failed to persuade China to accept the leading role as the global financial leader substituting United States. The global financial market is left without a captain as United States has relinquished its captaincy and China refuses to accept it.

The premiere blamed resource and environment bottleneck, enlarging income gap, poor technological innovation, unbalanced industrial structure, and uneven urban and rural development for China’s unbalanced, uncoordinated and unsustainable development.

He said that to boost domestic consumption turning potential demand into actual buying power in the next five years China has to further encourage urbanization, improve income distribution, expand social security network, augment basic public services, and upgrade consumption structure.

Wen said that hastening the transformation of the economic growth would move the country’s economic and social development to a new. He called the move “a profound reform in the country’s economic and social development”.

Wen emphasized a balance approach to guarantee firm and fairly rapid economic development, adjustment of economic structure and avoidance of possible inflation.

Recounting the achievements of the last five years, Wen mentioned that the thousand year old agricultural tax was eliminated, free nine-year compulsory education was attained throughout the country, and a social security system was established in both urban and rural areas in past five years.

He considered it a main assignment of Chinese government during next five years to consolidate and expand upon China’s accomplishment to deal with the adverse effects of the global financial crisis.

The Chinese government released complete transcript of Premier Wen Jiabao’s justification of five year economic and social development plan for the country on Thursday, which was adopted earlier at the Fifth Plenary Session of the 17th CPC Central Committee.

The state Council will draft the new five-year program and it is likely to be reviewed at the fourth session of the eleventh National People’s Congress next year in March.

Photo: Seekingalpha.com

Commodity prices fall as dollar rises and  investors sell off some of their goods for a  profit. The US dollar bounced back in  unstable forex market on Thursday as  investors become vigilant ahead of G20  finance ministers meeting on Friday and  Saturday.

Market analysts forecast a stronger dollar if  the G20 finance minister meeting developed  a consensus not to devalue their currencies.  A stronger dollar turns buyers using foreign currency away from commodities since they are priced in dollars.

Investors are watchful while they wait for Federal Reserve decision next month as how to fuel the economy. Majority of investors are expecting Policy makers to start buying bonds in November that will exert more pressure on the US dollars.

Metals, grains, energy contracts all dropped on Thursday. Gold shed US$18.60 settling at US$1,325.60 an ounce.

In contracts for December, Crude lost US$1.98 to US$80.56 a barrel, Silver dropped 72.5 cents to US$23.139 an ounce, copper lost 1.2 cents to settle at US$3.7815 a pound, and palladium shed US$4.35 to US$586.30 an ounce, wheat dropped 14.25 cents to US$6.6875 a bushel, and corn fell 9.25 cents to US$5.6425 a bushel.

Around 10:54 a.m. EST (1554 GMT), lightly traded but nearby January gold is $20 higher at $1,158.20 an ounce on the Comex division of the New York Mercantile Exchange, while most-active February climbed $20.10 to $1,159 and peaked overnight at $1,163, its most muscular level since Dec. 8.

“It’s about the dollar and the very strong Chinese trade data,” said Frank Lesh, broker and futures analyst with FuturePath Trading.

The euro has been as high as $1.4558 against the dollar, its strongest level since Dec. 16 and up more than 1 cent compared to $1.4414 late Friday. Investors often buy gold as a hedge against dollar weakness. Furthermore, a softer greenback makes all dollar-denominated commodities cheaper in other currencies and thus can help demand.

The dollar remains undercut by a softer-than-forecast U.S. jobs report Friday.

“We have dollar weakness because the employment data pushed any thoughts of any [Federal Reserve] rate hikes out further,” Lesh said. “So we lost some dollar support and that, of course, is supportive for gold.”

Currency analysts also said a 17.7% rise in Chinese exports last month added to the pressure on the dollar.

“We also had very strong Chinese import data,” Lesh said. “That shows, as of right now, the appetite for commodities remains pretty strong.”

China’s imports rose nearly 56% last month. This improved demand picture has helped a number of commodities, Lesh continued.

Gold took off at “warp speed” as soon as overnight screen trading began late Sunday, said Jon Nadler, senior analyst with Kitco Metals. The report showing what he termed a “commodities shopping spree” in China triggered a return of risk appetite.

The overnight surge in gold was accelerated by buy stops, or pre-placed orders triggered when certain chart points are hit, said Matthias Detremmerie, founder and precious metals analyst at Goldessential.com. In fact, he said, when electronic trading opened Sunday night, it took only seconds for the market to break above Friday’s high of $1,140 in February gold and more buy stops were hit around $1,143.50.

Short covering was triggered, in which traders buy to exit positions in which they previously sold, Detremmerie continued.

Most-active March silver is up 32 cents to $18.79 an ounce and hit a high of $18.925 that was its strongest level since Dec. 4.

Meanwhile, April platinum is up $24.90 to $1,595.50 an ounce and hit a life-of-contract high of $1,596.20, while March palladium is up $5.85 to $431.

On Tuesday, Fertilizer producer Moasic, a major potash company, said its fiscal second-quarter profit fell 89 percent. The company reported a net profit of $107.8 Million (24 cents per share) for the end of November 2009, compared to $959.8 Million ($2.15 per share) in November 2008. Mosaic blamed falling potash prices for their problems, and said that sales volumes were 40% less than they were the year before. 

The industries recent troubles have left some companies desperate. BHP Billiton just announced that it will go ahead with plans to develop what will be the world’s biggest mine of Potash. However, some companies fail to see the light in this possible Chinese contract. Instead, they see China’s low price offer as an insult and some even plan to just move on to other countries.

Negotiating from Vancouver based marketing consortium Canpotex, Canadian fertilizer giants Potash Corp. Agrium joined U.S. Mosaic to form the holdouts seeking a higher price. Mosaic CEO, Jim Prokopanko took things to a next level when he told the Chinese that that the fertilizer demand revival is expected and the company is very happy to find better paying customers if the Chinese buyers wont agree to their terms.

However, it may be Mosaic who could feel the repercussions of this, as it is simply the Chinese who could seek out different producers, such as companies in Russia who would have more amicable negotiations. 

Potash prices have fell from $1000 a ton in 2008 during global food shortages, a time when Potash traders were the darlings of the day. It was prices like those which attracted many companies to the industry. Companies like BHP, an Anglo-Australian company who entered the Potash market during its golden days. Times are more rough now and Potash companies must now look in the long run to what is in the best interest of their company, and the failing industry.

Industrial metals led the Index in 2009 with a gain of 82.42% as recorded by the S&P GSCI Industrial Metals Index. For the decade, the S&P GSCI posted a cumulative total return of 63.69% led by a 265.84% increase in the S&P GSCI Precious Metals Index.

“Coinciding with an approximate 1/4 devaluation of the U.S. Dollar since 1999, the S&P GSCI Precious Metals Index was the best performing sector within the S&P GSCI during the decade,” says Michael McGlone, Director of Commodity Indexing at Standard & Poor’s.

“The opportunity cost of holding non-income producing physical assets was certainly enhanced during the decade as the U.S. government benchmark 2-year note declined from a yield of 6.21% at the end of 1999 to 1.14% at the conclusion of 2009.”

The year 2009 was notable for the outperformance of commodity indices designed to alleviate the negative impact of rolling into contango. During the year, the S&P GSCI Enhanced Index increased 21.63% and the S&P GSCI 3-Month Forward Index increased 20.79%. Decade-to-date, these indices posted solid, pro-forma total returns of +272.50% and +287.36%, respectively

The S&P GSCI is the most closely followed benchmark for investment performance in the commodity markets. For more information on the S&P GSCI, please visit: www.spgsci.standardandpoors.com.

  S&P GSCI Analysis for December 31, 2009

                         Weight     Value       MTD      QTD      YTD
                          (%)    12/31/2009   Change   Change  Change
                          ---     ----------   ------   ------  ------
  S&P GSCI                           4534.17     0.86%    8.42%   13.48%
  S&P GSCI Energy
   Index                  70.19%     1016.21     0.71%    7.30%   11.22%
  S&P GSCI Petroleum
   Index                  65.16%     2183.65    -0.17%    8.77%   18.85%
  S&P GSCI Industrial
   Metals Index            8.22%     1706.93     7.35%   16.32%   82.42%
  S&P GSCI Precious
   Metals Index            3.10%     1424.01    -7.47%    7.64%   25.07%
  S&P GSCI Agriculture
   Index                  14.38%      615.52     0.29%   11.34%    3.81%
  S&P GSCI Livestock
   Index                   4.12%     2048.13    -0.05%    3.00%  -14.08%
  S&P GSCI Softs Index     4.93%       89.04     9.47%    7.04%   49.89%
  S&P GSCI Enhanced
   Index                              634.93    -0.08%    8.60%   21.63%
  S&P GSCI 3 Month
   Forward Index                      595.20     0.25%    9.41%   20.79%
  ----------------                    ------     ----     ----    -----

                          YTD      YTD    3-MO.    12-MO
                         High      Low    Change   Change    Decade
                         ----      ---    ------   ------    ------
  S&P GSCI              4679.49  3116.66    8.42%    13.48%    63.69%
  S&P GSCI Energy
   Index                1076.88   646.34    7.30%    11.22%    90.88%
  S&P GSCI Petroleum
   Index                2302.41  1291.03    8.77%    18.85%   184.77%
  S&P GSCI Industrial
   Metals Index         1712.57   853.25   16.32%    82.42%   173.28%
  S&P GSCI Precious
   Metals Index         1586.19  1040.96    7.64%    25.07%   265.84%
  S&P GSCI Agriculture
   Index                 663.49   509.40   11.34%     3.81%   -20.75%
  S&P GSCI Livestock
   Index                2467.74  1927.70    3.00%   -14.08%   -34.10%
  S&P GSCI Softs Index    89.64    55.85    7.04%    49.89%   -14.87%
  S&P GSCI Enhanced
   Index                 653.19   439.30    8.60%    21.63%   272.50%
  S&P GSCI 3 Month
   Forward Index         608.32   408.43    9.41%    20.79%   287.36%
  ----------------       ------   ------    ----     -----    ------

  Source: S&P Indices

However, this is more likely to make it difficult for the US Bureau of Land Management to speed up the permission of oil and gas projects on federal land. The staff in BLM shall need to acquire approvals from supervisors and make more visits to those places where the energy companies are ready to gain access.

The US domestic production from federal onshore oil and gas wells makes up 11% of US natural gas supplies and 5% of the country’s oil. The Obama administration is already in the midst of a fight with the oil and gas industry over proposals to raise billions of dollars. This is as additional taxes from energy companies.

Mr. Salazars action has attracted criticism from Government Accountability Office for violation of federal law; as well as litigation from certain environmental groups. It was planned that oil and gas drilling will be carried out by allowing federal land managers to ignore widespread environment reviews that are required.

The GAO mentioned that the 2005 law fails to state the conditions under which the exclusions can be granted. Many business groups are apprehensive that this action will discourage domestic energy development, in addition to new rules and regulations to the process of oil and gas drilling

The Industrial Energy Consumers of America, which is a lobbying group representing manufacturers has written a letter to Mr. Salazar. In this they stated the 2005 law about reducing the drilling permit backlogs and boosting natural gas production. “At a time when we should be working to enhance our energy supplies here at home, we believe it would be a mistake to pursue policies that would make it more expensive or difficult to access critical natural-gas resources, “the group said. Republican lawmakers have also insisted to Mr. Salazar not to give up the practice of granting categorical exclusions, as better guidance was needed y the BLM staff.

“We are concerned that the [U.S.] Department of the Interior is prepared to use a sledgehammer where a scalpel would suffice, “said Rep. Doc Hastings of Washington, in a letter to Salazar a few months back. According to some congressional democrats and environmental groups, the BLM has misused its authority in a number of cases and the rules have to be more stringent.

The MOU was signed at a ceremony in Jaipur by C. Vinod Hayagriv, Chairman of the All India Gems & Jewellery Trade Federation and Mr. Eli Avidar, IDI Managing Director.

The MOU states that the two parties share the desire to promote positive relations between the Indian Gems & Jewellers Industry and the Israeli Diamond Industry, and to enhance areas of cooperation between them, as well as to intensify the dialogue concerning issues of mutual interest via collaboration between the parties.

The MOU calls for:
- An examination of joint interests to safeguard the industry;
- An ongoing exchange of information for the benefit of the members of both organizations;
- An annual meeting to examine and plan subjects on the agenda;
- A joint educational effort.

In addition, the parties will determine by mutual consent the level, agenda, time and place of consultations and other forms of cooperation. Moreover both parties will grant each other honorary membership in all functions and events taking place under the auspices of the two organizations.

The All India Gems & Jewellery Trade Federation is a national trade federation for the promotion and growth of trade in gems and jewellery across India. The Federation unites manufacturers, wholesalers, retailers and exporters all over India.

GJF Chairman C. Vinod Hayagriv said: “This marks a new, unexplored and exciting opportunity for Israel and India to seek each others strengths to widen their markets. The direct access will help businesses of both countries immensely as this partnership will help businesses of varying sizes to come together for a common purpose of commerce. Also envisaged is education and knowledge transfer between India and Israel”.

IDI Chairman Moti Ganz said: “This is an extremely important moment in the relations between the Israeli and Indian diamond and jewelry industries. We truly believe that we have a common interest and through partnership we will be able to benefit our members. The MOU is just the foundation for the joint projects yet to come.”

This is the second MOU that IDI has signed with India in the past four weeks. The first MOU was signed in November with the Gem and Jewellery Export Promotion Council of India (GJEPC).