Market Reflections

Thoughts, ideas and musings on current state and evolution of financial markets

Market Manipulation with “Advisories” Continues

From recent news Jan 21, 2009
India’s gold imports dipped 47% to 402 tonnes in 2008, reported the PTI quoting a top economist of National Commodities Exchange of India or NCDEX, who cited high prices as cause for the decline. According to the economist, Manasee Gokhale, December 2008 imports stood only at 3 tonnes compared to 16 tonnes in December 2007.
Gokhale said the economic crisis hit the demand for luxury goods, resulting in drop in demand for jewelery as well. The economist added that buying remained dull and prices rose up on global cues.

What does it means to the demand of this commodity? According to World Gold Council (WGC) ( jewelery consistently accounts for around three-quarters of gold demand and India is the largest consumer in volume terms, accounting for 25% of demand in 2007 (about 800 tonnes) because of its importance in Indian marriage ceremony. The USA uses about half of that or 12.5% of world demand. WGC also wrote in Q3 2008 Gold Demand Trends that “…US and UK were down by 9% and 5% respectively (declines of more than 25% in tonnage terms). … “ and “ … industrial and dental demand declined 11%… “
Same document states “ … identifiable investment, up 137.5 tonnes (56%) relative to year-earlier levels. …”
India So, about 400 tonnes less to India, about 100 tonnes less to USA and 137 tonnes more for investment. WGC correctly noted that demand for jewelery was down most in countries hardest hit by economic downturn Q3 2008.

By now China, Europe, India, Russia, Japan, … are all in deep recession. Yet, Jan 21, 2009 Bloomberg reports: “Gold may average higher for each of the next three years and climb to a record driven by increased demand and a declining dollar as governments ramp up spending to battle the global recession, according to Morgan Stanley.

“Devalued currencies, growing global incomes and a renewed appreciation for gold should keep prices higher,” Morgan Stanley’s New York-based analyst Hussein Allidina wrote.” (

Do you really believe that a prominent Wall Street bank analyst of gold in New York does not know what is going on in the world? That Mr. Hussein Allidina was unaware EU unemployment reaching 8% (higher than ours), EU bank and industry “bail-out” about as pricey as ours. China’s “stimulus package” isn’t any smaller than ours either and it is closing factories anyway because its export demand has vanished? Apparently, Mr Allidina knew that the battle with recession is global. But he did not know that dollar has been appreciating, rather than declining like he writes.

More likely Morgan Stanley has a different reason for promoting investment of gold at this time. There is nothing wrong in “riding with big guys” as long as one is ready to jump off quickly. Lessons from 2008 should have taught that investment demand for any commodity (oil, gold …) is artificial. ( Once the bubble bursts Morgan Stanley and others will have again many billions to write down. Make sure they will not lose yours.

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