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ETF Securities-Research Update-CME Hikes Gold Futures Margins Another 27% - What Does it Mean for the Gold Price?
August 26, 2011--Summary:
The CME raised margin requirements on COMEX gold futures positions by 27%, effective at the end of trade
on 25 August. The margin increase is the second in two weeks, coming on top of a 22% hike on 11 August 2011.
The margin hikes have been compared to the five consecutive silver futures margin hikes in May 2011 that was viewed as helping to precipitate a nearly 30% fall in the silver price during that month. Below we take a closer look at the current situation, building on our last report released on 12 August 2011 and assess the likelihood of a similar situation developing for gold.
Key points:
The CME increased margin requirements on US gold futures positions by 27% yesterday, the second
increase in two weeks. There are some concerns that the current situation may be directly comparable to
the 84% increase in COMEX silver futures margins in May that helped drive a nearly 30% decline in the silver
price. Including yesterday’s hike, COMEX gold margin requirements will have increased 56% in two weeks.
Further margin hikes cannot be ruled out. It has to be remembered that the CME is not targeting a lower gold price, but ensuring its counterparty risk is covered to reflect higher price volatility. When price volatility falls, margins will also fall. On our calculations, based on the historical relationship between gold price volatility and COMEX margin requirements as a percent of the gold price, there is possibly another 10-25% of margin hikes ahead. This would bring total margin increases from June levels to around 65-80%. This is estimated using a base case of the gold price and gold price volatility remaining near current levels and that the historic relationship between gold margins and gold price volatility remain the same. These variables of course have the potential to move quite quickly so there is a relatively large margin of error around these estimates.
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Emerging market private equity deals rise in H1
August 26, 2011-Global emerging market private equity deal volume rose by 11 percent to $14.1 billion in the first half of 2011, and fundraising doubled to $22.6 billion, the Emerging Markets Private Equity Association said on Thursday.
Emerging market private equity deals dropped sharply during the global financial crisis, totalling $28.8 billion in 2010 compared with $47.8 billion in 2008, the association said in a statement.
The Taxation and Regulation of Banks -IMF Working paper
August 25, 2011--Summary: The financial crisis has prompted a reconsideration of the taxation of financial institutions, with practice outstripping principle: France, Germany, the United Kingdom and several other European countries have now introduced some form of bank tax, and the U.S. administration has revived its own proposal for such a charge. This paper considers the structure, appropriate rate, and revenue yield of corrective taxation of financial institutions addressed to two externalities,
consequent on excessive risk-taking, prominent in the crisis: those that arise when such institutions are simply allowed to collapse, and those that arise when, to avoid the harm this would cause, their creditors are bailed out. It also asks whether corrective taxation or a regulatory capital requirement is the better way to address these concerns. The results suggest a potential role for taxing bank borrowing, perhaps as an adjunct to minimum capital requirements, at marginal rates that rise quite sharply at low capital ratios (but are likely lower when the government cannot commit to its bailout policy), reaching levels higher than those of the bank taxes so far adopted or proposed.
view IMF Working paper-The Taxation and Regulation of Banks
US funds show true state of eurozone banks
August 25, 2011--In any murder mystery film, it pays to watch the boring grey man (or woman) in the corner; quiet, unobtrusive characters can be deadly.
So, too, in finance. Four years ago, the giant US money market funds seemed some of the dullest actors in the global financial scene. But in 2007, they quietly helped to spark the crisis in the mortgage-backed securities world, when they silently stopped rolling over bonds. Then, in 2008, they furtively wielded the knife again, pulling funding from some American banks and the “repo” – repurchase – markets.
Gold drops $160 an ounce in two days
August 24, 2011--Gold suffered its largest two-day absolute fall in more than three decades, dropping $160 per ounce between Tuesday and Wednesday in a move that spotlighted the dangers of an asset viewed as a haven.
Investors risked further sharp moves as the leading US metals exchange announced it will demand larger good-faith deposits to own gold futures starting after Thursday’s close.
CPSS-IOSCO releases report on requirements for OTC derivatives data reporting and aggregation
August 24, 2011--The Committee on Payment and Settlement Systems and the Technical Committee of IOSCO have today released for comment a report on the OTC derivatives data that should be collected, stored and disseminated by trade repositories (TRs).
The committees support the view that TRs, by collecting such data centrally, would provide the authorities and the public with better and timely information. This would make markets more transparent, help to prevent market abuse, and promote financial stability.
The report addresses Recommendation 19 in the October 2010 report of the Financial Stability Board (FSB), Implementing OTC derivatives market reforms, which called on the CPSS and IOSCO to consult with the authorities and the OTC Derivatives Regulators Forum in developing:
1.minimum data reporting requirements and standardised formats, and
2.the methodology and mechanism for data aggregation on a global basis. A final report is due by the end of 2011.
Report on OTC derivatives data reporting and aggregation requirements- consultative report
OPEC-Monthly Oil Market Report-Auust 2011
August 24, 2011--Oil Market Highlights
The OPEC Reference Basket moved within a narrower range of $106.5-$113.6/b in July as market volatility diminished. After having lost a total of more than $9 in May and June, the Basket posted a monthly gain of $2.58 or 2.4%, to stand at $111.62/b.
Futures prices also recovered early in July, on the back of a weaker US dollar and improving macroeconomic sentiment. However, the gains were short lived as prices plunged in the first week of August with both Nymex WTI and ICE Brent falling to a five-month low on deteriorating macroeconomic sentiment due to Euro-zone debt concerns and
the slowdown in the US economy. The Basket stood at $102.37/b on 8 August.
World economic growth has been revised down to 3.7% in 2011 and to 4.0% in 2012. This was mainly due to revisions in the US forecast, which was cut to 1.8% from 2.5% in 2011 and to 2.3% from 2.9% in 2012. The forecast for Japan and the Euro-zone remained unchanged in 2011 at minus 0.8% and 2.0% respectively. Japan’s forecast for 2012 remained at 2.5%, while the Eurozone’s forecast was changed to 1.4% from 1.5% previously. Developing Asian countries continue to be the main drivers of growth. The forecasts for China remain unchanged at 9.0% in 2011 and 8.5% in 2012. India’s forecast for 2011 was revised down from 8.1% to 7.9%, while the forecast for 2012 was unchanged at 7.7%.
World oil demand is forecast to grow by 1.2 mb/d in 2011, representing a downward revision of 0.15 mb/d. Economic worries have affected OECD oil demand, leading to weaker-than-expected consumption during the summer driving season. Oil demand in the OECD is expected to continue its contraction after a temporary rebound last year. In 2012, world oil demand is forecast to reach 1.3 mb/d, representing a slight downward revision from the previous report.
US committee completes review of Deutsche Börse and NYSE Euronext combination
August 23, 2011--The Committee on Foreign Investment in the United States (CFIUS) has completed its review of the Deutsche Börse and NYSE Euronext combination without objection to the transaction going forward. CFIUS is an inter-agency committee of the US government to regulate foreign investment in the US. With this approval, the companies have cleared another important regulatory hurdle.
CFIUS reviews the national security implications for the US of foreign investment in US companies. The committee, which is chaired by the Department of the Treasury, includes representatives from the Departments of Justice, Commerce, State, Defense and Homeland Security. It concluded that there are no national security grounds to oppose the merger.
The transaction remains subject to further conditions being met, including approval in the US and Europe by the relevant bodies governing competition, finance and securities, and by other supervisory authorities. These assessments concerning regulatory requirements and competition law are expected to continue until the end of the year.
ETFS Precious Metals Weekly: Gold Nears $1,900/oz as Wall of Worry Hits Global Markets
August 22, 2011--Gold spot price hits record high above $1894/oz today as trifecta of global growth, financial stability and currency worries roil markets. Continued policy gridlock on solving sovereign debt problems in Europe, growing concerns about the potential for European bank insolvencies against a backdrop of lacklustre European and US activity data have combined to drive the gold price higher.
Silver price rises at double digit pace, plays catch-up to gold.
Rising concerns about precious metal mining regulations in South Africa and ongoing stop-work action add support to platinum and palladium prices. Tougher safety laws and class action health and safety lawsuits were announced last week in South Africa as the country’s National Union of Mineworkers announced a wage dispute with No.2 global producer Impala Platinum. Supply concerns helped support platinum and palladium prices despite continued concerns about the possibility of weaker industrial demand as global growth slows.
Gold price trades just shy of $1,900/oz mark - sovereign risk worries soar as stuttering European growth and political paralysis spook money markets. The Franco-German political summit provided little fresh impetus to beleaguered European sovereign bond markets, with the prospect of jointly issued Eurobonds dimissed by German authorities. News of a sharp fall in the growth of ‘core’ European growth driver Germany also rattled markets, raising questions as to how much the country will be able to contribute to further sovereign debt bailouts. This has contributed to interbank payment anxieties as participants question the robustness of bank balance sheets amidst slowing growth and heightened bank default risk.
Bernanke speech likely a key driver for precious metal prices this week. Markets are awaiting hints from the Fed Governor’s speech at Jackson Hole on August 26 as to whether a third round of quantitative easing (QE3) is back on the table and if so how much. Silver, platinum and palladium prices rallied particularly strongly in the wake of QE2, rising between 8% and 27% in the 3 months after the programme was announced. A move towards QE3 would reinforce recent comments that US official interest rates are set to remain at rock-bottom levels until at least 2013 and boost inflation expectations.
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Institutional investors eager to invest in infrastructure
August 22, 2011--Institutional investors are showing a strong appetite for infrastructure, with almost three-quarters seeking to make further investments in the asset class within the next 12 months, a new survey has revealed.
According to Preqin, institutional investors are more eager to invest in infrastructure this year than in 2010, when most cited management fees, carry structures, liquidity, limited partners (LP)/general partners (GP) interaction and hurdle rate as the main barriers for such investments.
But Preqin said the current infrastructure fundraising market remained highly competitive, although the same issues continue to curb investor appetite and capital raising.
One of the main issues for institutional investors remains interaction with GPs, according to Preqin's survey.