Gold losing glitter

Gold is losing its shine. The precious metal, whose price neared a record high at the onset of the war in Ukraine, has come back to earth in the second half of the year after a string of US interest rate increases and a surge in the value of the dollar.

Benchmark gold futures prices in New York are at US$1,729 per ounce as of early October, down 15% from early March. At one point in late September the benchmark fell to US$1,626, the lowest since April 2020.

Gold's strength early in the year was a reflection of its reputation as a haven in times of insecurity. But its subsequent fall is exposing the close inverse relationship between demand for gold and dollar strength.

The fall in gold prices came on the back of accelerating US interest rate hikes. In September, the Federal Reserve raised the benchmark rate by 75 basis points (0.75%) for the third consecutive time. Since March, Fed has raised rates five times to tame inflation. 

The dollar index -- which measures the US dollar's strength against a basket of six influential currencies such as the euro -- soared to 114 in late September, hitting the highest in two decades. A strong dollar weighs on gold, as the yellow metal is often described as a "stateless currency" that investors buy when there is little trust in traditional currencies.

Furthermore, since gold earns no return for its owner, higher interest rates increase the incentive to switch from holding gold to holding dollars.

The Fed is expected to maintain its hawkish approach this year amid continued inflation. In August, the US Consumer Price Index registered an 8.3% increase compared to the same month last year, up from a market consensus of an 8% increase. In the September meeting, the Fed increased its year-end rate forecast to 4.4%, from the 3.4% it had previously expected in the June meeting.

Despite the headwinds for gold in the short term, analysts say the current price level is at the lower end and forecast a rebound next year. 

Itsuo Toshima, a Japan-based financial market analyst for Toshima & Associates, expects gold to range between US$1,800 and US$2,200 per ounce next year. "Amid persistent inflation, investors will soon start fretting over stagflation," said Toshima. He argued that even though inflation can somewhat be tamed, there is a limitation because some costs, such as rent, are unlikely to fall immediately.

Toshima expects the currently strong dollar to peak this year, as it lacks additional bullish factors for next year. "When there are no more bullish factors to strengthen the dollar further, the dollar index will reverse course to fall sharply," he added. 

Internationally, Citi is broadly bullish on gold, expecting prices to rebound above US$1,900 by mid-2023. Goldman Sachs in August forecast gold prices 12 months later at US$1,950. 

Amid continued uncertainty over geopolitical risks and the Ukraine war, gold market analyst Koichiro Kamei at Tokyo's Market Strategy Institute argues that there will be stable gold demand. The sharp fall in cryptocurrencies such as bitcoin on the back of US monetary tightening was alarming for investors, whereas gold prices remained relatively firm, Kamei added. 

The direction of gold prices is being closely watched in India and China, where demand for purchases of physical gold is traditionally strong. The two countries jointly account for around 60% of global demand for gold jewelry, bars and coins.

Ahead of Diwali, one of Hinduism's most popular festival seasons, which falls in October, demand for gold jewelry, bars and coins is expected to increase. The wedding season also comes between November and February, during which gold jewelry sells well. Analysts say despite the headwinds of a weak rupee, traditional demand for gold will still be strong. Gold prices are around 139,000 rupees per ounce as of early October, up 1.2% from three months ago, while gold prices in dollars fell 3% over the same period.

In China, the depreciation of the yuan is acting as a headwind for retail investors. In late September, the yuan plunged to the lowest level against the dollar since 2008. According to the World Gold Council, gold prices in yuan are 4% higher compared with three month ago.

Still, consumer demand for physical gold has little impact on international bullion prices, analysts say. The bigger determinant is how investors manage funds in the gold futures market while taking interest rates and the global economic outlook into account. 

Tatsufumi Okoshi, senior economist at Nomura Securities, expects the Fed to start cutting rates in September next year, a tailwind for the yellow metal, which yields no interest. "As fears over recession loom over and demand for safe-haven assets continues, we will see gold bounce back," said Okoshi.

 

OPEC Plus production cut decision attracts opposite reactions

US Treasury Secretary Janet Yellen said a decision by the OPEC Plus to cut oil production was unhelpful and unwise for the global economy, especially emerging markets, the Financial Times quoted on Sunday.

"We're very worried about developing countries and the problems they face," Yellen told the newspaper in an interview.

As against this, Kremlin praised OPEC Plus for agreeing production cuts that had successfully countered the ‘mayhem’ sown by the United States in global energy markets.

The OPEC Plus decision to cut oil production despite stiff US opposition has further strained already tense relations between President Joe Biden and Saudi royal family, Reuters reported on Saturday.

The White House pushed hard to prevent the output cut. Biden hopes to keep US gasoline prices from spiking again ahead of midterm elections in which his Democratic party is struggling to maintain control of the US Congress.

Kremlin spokesman Dmitry Peskov said it was very good that such balanced, thoughtful and planned work of the countries, which take a responsible position within OPEC, is opposed to the actions of the United States.

"This at least balances the mayhem that the Americans are causing," Peskov said, according to Russian news agencies.

Peskov said that the United States had begun to lose its composure over the OPEC decision and was even trying to push additional volumes of its reserves into the market.

"They are trying to manipulate with their oil reserves by throwing additional volumes into the market. Such a game will not lead to anything good," Peskov said.

The worry for those tracking Europe's energy transition commitments is that these accumulated costs of LNG imports, alongside other expenses already incurred, drain both the funds available for de-carbonization projects and the level of ambition of the governments responsible for them.

There's an irony in that this potential diminished firepower comes when the appetite in society and government for weaning Europe off fossil fuels has likely never been greater.

But funding has always been a critical component of every energy transition plan, and the reality is that if government and commercial budgets have already been drained by imports of fossil fuels to keep the economy going, there may be little left in the kitty to finance the transition to a greener energy system.

 

Iran State run live TV hacked by protesters

According to a BBC report, Iran’s state-run broadcaster was apparently hacked on air Saturday, with a news bulletin interrupted by a protest against the country’s leader. A mask appeared on the screen, followed by an image of Supreme Leader Ali Khamenei with flames around him. The group called itself “Adalat Ali”, or Ali’s Justice.

It comes after at least three people were shot dead when protesters clashed with security forces in new unrest over the death of Mahsa Amini. She was detained in Tehran by morality police for allegedly not covering her hair properly.

The 22-year-old Iranian Kurd died in custody on September 16, 2022, three days after her arrest. Her death has sparked an unprecedented wave of protest across the country.

Saturday’s TV news bulletin at 21:00 (17:30 GMT) was interrupted with images, which included Iran’s supreme leader with a target on his head, photos of Amini and three other women killed in recent protests.

One of the captions read “join us and rise up”, whilst another said “our youths’ blood is dripping off your paws”.

The interruption lasted only a few seconds before being cut off.

Such displays of rebellion against Ayatollah Ali Khamenei are historically rare, and he wields almost complete power within Iran.

But following Amini’s death, there has been widespread open dissent.

Also on Saturday, social media videos emerged which seemed to show female students at a university in Tehran chanting “get lost” during a visit by President Ebrahim Raisi.

Earlier in the day, two people were killed in Sanandaj, including a man shot in his car after he sounded his horn in support of protesters.

A video shared online also showed a woman shot in the neck lying unconscious on the ground in Mashhad.

In Sanandaj, a police official said a man had been killed by “counter-revolutionaries”, the state-run news agency IRNA reported.

On Friday, Iran’s Forensic Medicine Organization said Amini had died from multiple organ failure caused by cerebral hypoxia — and not from blows to the head, as her family and protesters contend.

Rights groups say more than 150 people have been killed since the protests in the Islamic Republic began on September 17.

Shops in several cities have shut in support of the protesters, including in Tehran’s bazaar where some set fire to a police kiosk and chased the security forces away.

The protests reaching the bazaar in Tehran will ring alarm bells with Iranian leaders who have counted the merchants as among their supporters.

Bridge linking Russia and Crimea damaged

The bridge, commonly known as Crimean Bridge was built by Russia after it declared Crimea to be Russian territory in 2014. Russia uses it to move military equipment, ammunition, and personnel from Russia to battlefields in southern Ukraine. The bridge is particularly hated by Ukrainians as it is seen as a symbol of Russian occupation. However, Ukraine has not accepted responsibility of attack on the bridge.

Russian authorities said that a massive explosion involving a truck on Saturday caused a fire and destroyed a section of a bridge linking Russia and Crimea, killing at least three people. The bridge is regarded as a key supply route for Russian troops in southern Ukraine.

The Crimean Bridge, a US$3.69 billion (230 billion rubles) project, was constructed following the annexation of Crimea. Russia opened the first part of the span to car traffic in May 2018. The parallel bridge for rail traffic opened the following year. Before the bridge’s existence, the Crimean Peninsula could only be reached from Russia by sea or air.

The Crimean Bridge—also called Kerch Strait Bridge or Kerch Bridge—is a structure 19 kilometers (12 miles) in length that passes across the Kerch Strait and links southern Russia to the Crimean Peninsula. The Kerch Strait links the Black Sea and the Sea of Azov.

A truck exploded on the bridge. Russia’s National Anti-Terrorism Committee announced that the explosion caused a fire on the parallel rail section, where seven railway cars carrying fuel caught fire. The blast also caused a “partial collapse of two sections of the bridge.”

The Russian Investigative Committee said in a statement that the incident killed at least three people, “presumably the passengers of a car that was driving by the truck that exploded on the bridge.”

‘The bodies of a woman and a man were recovered from the water, their identities are being established,” the statement reads, according to Russian state-owned news agency TASS.

The Crimean Peninsula is the key to sustaining Russia’s military operations in the south. If the bridge is made inoperable, it would make it significantly more challenging to ferry supplies to the peninsula. While Russia seized the areas north of Crimea early during the invasion and built a land corridor to it along the Sea of Azov, Ukraine is pressing a counteroffensive to reclaim them.

The explosion on the Crimean Bridge took place hours after multiple explosions early Saturday hit the eastern Ukrainian city of Kharkiv, which triggered a series of secondary explosions.

While no one has yet to explicitly claim public responsibility for the attack, Ukrainian President Volodymyr Zelenskyy’s aide, Mikhail Podoliak, posted on Twitter saying the explosion is “the beginning.”

Podoliak previously in August threatened the bridge, telling The Guardian that the bridge is “an illegal construction and the main gateway to supply the Russian army in Crimea” and that “such objects should be destroyed.”

Armageddon Warning by Joe Biden, Desperation or Insanity

This morning I posted a blog, who is the Biggest Satan? Within few hours I am obliged to share President Joe Biden’s warning about the possibility of ‘Armageddon’. Over the last eight months, I have been saying that in this proxy war Ukrainians are the biggest losers. One point is sure that the US considers Putin a ‘bad guy’ and all US policies seem to be touching insanity.  

President Joe Biden’s warning about the possibility of ‘Armageddon’ rumbling from the battlefields of Ukraine has scrambled an already complicated picture in the eight-month conflict. He raised this warning during a recent appearance at a Democratic fundraiser. 

But White House press secretary Karine Jean-Pierre, asked Friday if there were any new intelligence assessments that had caused Biden to “ratchet up the level of concern,” responded, “No.”

Jean-Pierre sought to cast the president’s words as a general warning about the dangers of an escalation and as a riposte to Russian President Vladimir Putin’s saber-rattling — not as an actual prediction that there would be a nuclear attack.

“We have not seen any reason to adjust our own strategic nuclear posture, nor do we have indications that Russia is preparing to imminently use nuclear weapons,” the press secretary told reporters on board a short Air Force One flight to Hagerstown.

The debate over Biden’s comments is in many ways a classic Washington back-and-forth, focused on the question of whether the president’s words were out of whack with intelligence assessments and whether the White House will now have to walk them back.

Ukraine has made startling gains against Russian forces in recent weeks, taking back enormous swathes of territory that Putin’s troops once held. Ukrainian President, Volodymyr Zelensky claimed late Thursday night that his forces had liberated more than 500 square kilometers of territory since the beginning of this month alone, after having run up much bigger gains throughout September.

But the Ukrainian gains have had the grimly ironic effect of making Putin more desperate— and more willing to countenance the kinds of tactics that have not previously been used since the Kremlin launched the invasion in February.

In a speech last week, Putain said that the United States had created a “precedent” for the use of nuclear weapons by its atomic bomb attacks on the Japanese cities of Hiroshima and Nagasaki during the Second World War.

The idea that Putin might use nuclear weapons causes outrage for obvious reasons. But it has also stirred discussion as to what the United States and its allies might do in response.

The Biden administration has been adamant that it will not put American boots on the ground in Ukraine, even as it backs Kyiv with billions of dollars in military aid. 

National security adviser Jake Sullivan said last month that the US had warned Russia that there would be “catastrophic” consequences in the event of such a move.

But it’s simply not clear what those consequences might be. Experts advance various different ideas, most of which stop short of a direct American military attack.

“I would expect NATO would respond through the Ukrainians,” said Robert Wilkie, who served as Under Secretary of Defense during the Trump administration and is now a distinguished national security fellow at the America First Policy Institute. 

He suggested this could be done by using weapons supplied by the US and other Western powers to complete the encirclement of Putin’s troops in Crimea — meaning weapons would be used to take out their lines of retreat there, but NATO forces would never touch the ground in Ukraine.”

Joel Rubin, who served as a deputy assistant secretary of State during the Obama administration, cautioned against the idea that the use of nuclear weapons by Putin would necessarily be expected to bring a symmetrical and instant response.

“There is a narrative from some folks that if he uses nukes, we have to use nukes. But there is no winner in a nuclear war — everyone loses,” Rubin said. 

Instead, he suggested, “all options would be available and nuclear would be one of them, but that is not the preferred choice. There would certainly be new moves to completely cut Russia off from every actor on the planet, whereas now China and Saudi Arabia are still giving oxygen to this leader.”

“Maybe that would be enough,” Rubin added of such isolation. “Who knows?”

In some ways, it is the kind of scenario for which Biden is well-prepared. He was steeped in foreign policy throughout his decades in the Senate, including a stretch as Chairman of the Foreign Relations Committee. His career has been long enough to encompass an era when there were real worries about nuclear war with the Soviet Union.

Biden’s handling of the Russian invasion of Ukraine has won a degree of approval even from some ideological opponents, especially regarding his effectiveness in assembling and maintaining an international coalition.

On the other hand, there is a legitimate question of whether he overstepped with the “Armageddon” remark, perhaps raising the very tensions he is seeking to ease.

Wilkie, the Trump administration veteran, called it “very disturbing” that Biden would make such a remark apparently off-the-cuff at a fundraising dinner.

The gravity of the situation, Wilkie argued, “Demands going to the American people and explaining what’s at issue and what’s at stake — instead of these off-script, ‘I’m a tough guy’ moments.”

Who is the Biggest Satan?

I have often written that Saudi Arabia and Iran must end their animosity and find out who is their common enemy. Over the decades United States has brainwashed Saudis by propagating “Iran is a bigger threat as compared to Israel”. I am sure if, Russia, Iran and Saudi Arabia join hands and develop a common currency to trade oil; it could bring US hegemony to an end. I want all my readers to read the following content and find out “The biggest Satan”.

The decision by OPEC Plus nations to reduce oil production is a foreign policy black eye for President Biden after his July visit to Saudi Arabia. It’s also prompting calls from congressional Democrats to rethink the Washington-Riyadh alliance, particularly on the subject of weapons and defense technology sales.  

Human rights advocates have long criticized what is sometimes a rocky relationship between the US and Saudi royals, particularly after the 2018 murder of Washington Post columnist Jamal Khashoggi. 

When Biden met with Saudi Crown Prince Mohammed bin Salman in July, it was viewed by many as a necessary evil that could potentially lead to increased OPEC output and lower gas prices. Since Wednesday’s announcement, a number of Democratic lawmakers have called for the US to respond by ending arms sales and military assistance to the kingdom.

“From unanswered questions about 9/11 and murder of Jamal Khashoggi, to conspiring with Russian President Vladimir Putin to punish the US with higher oil prices, the royal Saudi family has never been a trustworthy ally of our nation. It’s time for our foreign policy to imagine a world without their alliance,” Sen. Dick Durbin, the number two Democrat in the Senate, tweeted Thursday.

Sen. Bernie Sanders, meanwhile, called the cutback “a blatant attempt to increase gas prices at the pump” and called for an end to military assistance to Saudi Arabia. 

On the House side, Reps. Tom Malinowski, Sean Casten and Susan Wild have introduced legislation to withdraw US troops from the kingdom, calling the cutback “a turning point in our relationship with our Gulf partners.” 

Another vocal House critic of the Saudis, Rep. Ro Khanna, has also called for the nation to be dealt with “harshly” and for an end to weapons sales. 

“The Saudis need us more for weapons than we need them. President Biden should make it clear that we will cut off weapons if OPEC Plus doesn’t reverse the decision to make drastic cuts in production,” Khanna said in a statement to The Hill. “In Congress, we should also explore ways to rein in OPEC Plus control over energy prices worldwide.” 

Sen. Bill Cassidy, a vocal critic of Biden’s energy policies, told The Hill that critics of the Saudi government are “upset because having consciously made ourselves dependent upon them, they’re not bending to our will” despite Biden taking office “promising an adversarial relationship.”  

Sarah Leah Whitson, Executive Director of the nonprofit Democracy for the Arab World Now, was skeptical that the cuts would lead to a lasting schism in the relationship. In an interview with The Hill, Whitson said much of the public anger at Saudi Arabia was likely “performative,” but added that “some of it is real, because publicly, this is so humiliating to Biden.”  

Ahead of Biden’s Saudi trip over the summer, the White House was careful to portray the president as not meeting directly with bin Salman, who the intelligence community determined approved Khashoggi’s killing in Istanbul in 2018. But upon arrival in Jeddah in July, Biden was met by bin Salman outside the royal palace where the two men fist-bumped, a casual gesture critics viewed as elevating Salman on the world stage despite Biden’s campaign pledge to make the kingdom a pariah.

American military support for Saudi Arabia dates back to World War II, when President Franklin Roosevelt and King Abdul Aziz reached an agreement under which the US would provide security backing in exchange for access to Saudi oil. In 2015, the Saudis led a coalition to intervene in Yemen’s civil war against Iran-backed Houthi rebels. Over the next four years, US arms sales to the Saudis increased 130 percent, according to data from the Stockholm International Peace Research Institute.  

Biden was a vocal critic of Saudi Arabia on the campaign trail and early in his presidency, pledging to end US backing for the Saudis and the United Arab Emirates in Yemen. However, in August his administration allowed the sale of more than US$5 billion in arms to the two OPEC nations. The administration also caught the ire of Saudi critics by failing to call for an end to its blockade of Yemen. 

In the meantime, Whitson said, despite the calls to sever the business relationship with the Saudis, the American defense industry is likely to stiffly resist any attempts to unwind it. In the meantime, she said, the Saudis would likely find alternate sellers to replace much of the lost arms sales to the US. 

An end to arms sales “is not just a punishment for Saudi Arabia. It’s a punishment for a very powerful defense industry that has extremely close ties to Biden administration,” she said. “So I think there will be countervailing pressures on taking the actions that are being threatened.” 

“The painful reality that we see over and over and over again, is that our policymakers … are not actually in a position to make the decisions that are in the best interests of the American people because they are beholden to so many interests,” she said.  

 

Israel-Lebanon maritime deal

The Israel-Lebanon maritime deal is in the interests of both countries. The deal can help unlock energy security for both states at a time when the world needs new and secure natural gas supplies.

Israel has much to gain from the current talks, but it does not mean Israel must make a deal at any price. Lebanon appears to be pushing for last-minute changes to a US-backed deal that President Joe Biden’s energy envoy, Amos Hochstein, has worked on for the past year.

Prime Minister Yair Lapid said Israel will not compromise on its security and economic interests. Several entwined issues are at stake.

Israel wants the Karish gas field to begin production, and Energean, which developed the field, is ready to move ahead. 

Hezbollah is openly threatening the field – not only launching drones, but prodding Lebanon to increase rhetoric against Israel’s exploitation of these resources off its coast.

The deal that has been worked on with US support would see Israel receive royalties from gas that Lebanon extracts in the disputed area of the Mediterranean Sea, but Israel would concede a triangle of economic waters. 

Lebanon only recently asserted more claims to these waters. Lebanon also wants to develop a field called Qana that extends into areas Israel claims.

The current deal would preserve a line of buoys that extends some five kilometers off the coast into the sea. 

Then the line would deviate slightly and give Lebanon more of the area it wants. It appears that this would be in the interests of other countries as well, such as France.

Lebanese block 9 of its offshore concessions could lead to exploitation of the Qana field, but Lebanon does not want Israel receiving any share of profits from that field. 

This creates complexity. In the past, it was assumed that trade and economics could underpin peace in the region. Lebanon needs investment, and Hezbollah is busy siphoning off money from the state. 

The upcoming Israeli election also hangs over the current discussions. Opposition leader Benjamin Netanyahu has opposed Lapid’s decisions and has openly said the deal, which he views as surrender to Hezbollah threats, would not bind a new government that he seeks to establish after the November election.

This could create another strange situation in which one Israeli government accepts the deal and the next tears it up, the way the US shifted tactics on the Iran deal. 

This would lead to tensions and accusations that Israel is then crossing the line and give Hezbollah an excuse to resist by firing rockets.