Gold prices inching towards record highs

Gold prices are expected to rise towards record highs, above US$2,000 an ounce in year 2023, albeit with a little turbulence, as the United States slows the pace of rate hikes and eventually stops increasing them, according to industry analysts, reports Reuters.

Spot prices of the precious metal have shot above US$1,900 an ounce, surging by about 18% since early November 2022 as inflationary pressures recede and markets anticipate less aggressive monetary policy from the US Federal Reserve.

Fast-rising interest rates hammered gold prices last year, plunging as low as US$1,613.60 in September 2022 from a high of US$2,069.89 in March 2022 - just shy of a record peak in 2020.

Higher rates lifted returns on bonds, making non-yielding gold less desirable for financial investors, and pushed the greenback to its strongest in 20 years, making US$-priced gold costlier for many buyers.

The weakening greenback and bond yields will become macro tailwinds for the yellow metal, pushing gold above US$2,000/oz in the coming months, said analysts at Bank of America.

With less pressure from the US$ and bonds, investors are likely to buy bullion as a hedge against inflation and economic turbulence, said WisdomTree analyst Nitesh Shah, adding that prices could easily move above US$2,100 an ounce by year-end.

Gold is traditionally seen as a safe place to store wealth. "The risk of central banks overdoing it and pushing their economies into recession is high," said Shah.

Speculators who in November 2022 were betting gold prices would fall have amassed a net long position in COMEX futures of 8.3 million ounces of gold, worth US$16 billion, helping push up prices.

Analysts expect central banks to continue stockpiling gold after buying more metal in the first nine months of 2022 than in any year in half a century, according to the World Gold Council.

Retail demand for gold bars and coins should also remain strong, boosted by a revival of economic growth in China, the biggest consumer market, said analysts at ANZ.

But gold may have gone too far too fast in the short term and needs to correct lower, analysts said.

"Should prices fall from current levels to the US$1,870 to US$1,900 an ounce range, we expect the (upward) trend to reverse," the bank said, adding that if gold falls below US$1,800, it could slip to US$1,730.

 

Pakistan: Falling workers’ remittances

Inward workers’ remittances in Pakistan, an important source of foreign exchange for the country has been witnessing a declining trend in recent months. Inflows declined to US$2.0 billion in December 2022 (down 19%YoY). 

Since the appointment of New Finance Minister, Ishaq Dar on September 28, 2022, who has been very vocal that Pak Rupee (PKR) is undervalued, not only the spread between the interbank and open market rate has increased but it has also given birth to a new rate in the curb market due to short supply of greenback. Since Dar’s appointment, remittances are now down 16%YoY in October-December 2022 quarter to US$6.4 billion.

In FY22, workers’ remittances were reported at US$31 billion which is 8% of GDP one of the highest in the region. Remittances along with exports of US$32 billion in FY22 remained a major source of foreign exchange inflows for Pakistan; this fall in remittances is a key concern.

According to one of Pakistan’s leading brokerage house, Topline Securities, the decline in remittances is mainly due to the rising spread between US$ interbank rate and open market/black market rates seen in recent months.

One of the main reasons for US$ shortage is that now exchange companies are required to surrender 100% of inward remittances in interbank market as per latest SBP regulation.

Interbank rate is the official rate banks use for trading with other banks and for import & exports. This is currently hovering around PKR228 against US$ and went as low as Rs240 before Ishaq Dar announced an inquiry against Banks on currency speculation and initiated administrative measures to control official currency rate.

Currencies in the open market with local exchange companies are available only on presentation of travel documents and subject to buying limits.

Due to restriction on exchange companies black market is growing where no documentation is required. US$ is currently available at PKR260 to PKR265 in black market which is up to 20% premium to the interbank rate.     

 

All set for Davos party

There’s a hangover happening in Davos even though the party hasn’t yet started. The World Economic Forum’s annual winter shindig in the Swiss mountain resort, which kicks off on Monday, marks a return for glitzy parties and high-minded debates following a three-year hiatus.

A record number of business leaders are set to make the trip, and the passage of commercial, private and government aircraft through Zurich’s airport suggests overall attendees are at pre-Covid-19 levels. Yet the direction for the future – and those who will lead it – is more clouded than ever.

Corporate and financial chieftains who skipped last May’s low-key Davos gathering are back. JPMorgan boss Jamie Dimon, a regular at the conference, will be joined by Wall Street leaders including David Solomon of Goldman Sachs and Morgan Stanley’s James Gorman. Chevron Chief Executive Mike Wirth and BP’s Bernard Looney will represent resurgent oil majors. All in all, the WEF expects to welcome some 2,700 leaders from 130 countries, including 370 public figures.

Yet the apparent return to business as usual only serves to highlight the changes that have taken place since the last full gathering of the Davos elite. The global pandemic and Russia’s invasion of Ukraine have added more friction to the already creaking globalised world that Davos epitomized.

Meanwhile, the political leaders responsible for shaping the new order are mostly staying at home. US President Joe Biden is not making the trip – unlike his predecessor. Though, a smattering of US Congress members are expected to come they are hardly well-known international figures. China’s most senior representative is Vice-Premier Liu He. British Prime Minister Rishi Sunak, grappling with a slowing economy and striking public sector workers, is also staying home.

A stroll down the Davos Promenade, the town’s main drag where countries and corporations temporarily take over storefronts, underscores the shift. Poland and Indonesia have a prominent presence, but other national delegations have quieter messages on display. Saudi Arabia has a few conspicuous banners touting NEOM, its futuristic economic zone. The United Arab Emirates is touting tolerance.

The cryptocurrency firms that were at previous gatherings are mostly muted, replaced by companies promoting technologies like the blockchain. The Medical Psychedelics House has been replaced by the India Inclusivity Lounge. Established technology companies like Workday, Salesforce, Cisco, Qualcomm and Meta Platforms dominate the street scene. Perhaps the most striking new tenant is Manchester United, the English Premier League club which is seeking a buyer.

The shift is reflective of a world that has become introspective and less joined-up. As big companies diversify supply chains, governments and regions are competing hard for business. Biden’s Inflation Reduction Act is dangling subsidies for American manufacturing, encouraging governors like J.B. Pritzker of Illinois to lure investment to their state. The WEF and its founder Klaus Schwab acknowledged some of this by renaming the conference “Cooperation in a Fragmented World”.

Still, those returning to Davos for the first time in three years may feel like the cocktail is a little less potent.

Courtesy: Reuters

Pakistan: Need for Revamping Oil Refineries

Lately, I got an opportunity to participate in a discussion with some young and enthusiastic Chartered Accountants discussing the outlook for crude oil refineries in Pakistan.

They were of the consensus that since local refineries have become obsolete and capable of producing a few products only, it would be prudent to shut these and import the finished products.

Almost all of them were annoyed by production of furnace oil containing high sulfur, especially because now the Government of Pakistan (GoP) has virtually stopped power generation at plants using furnace oil.  

However, they had no clue what to do with the existing facilities, paying off banks, finding employment opportunities for those to be laid off and mobilizing foreign exchange for the import of finished products.

One of the youngsters who was bold and outspoken said, “Our mandate was to study the outlook and not to give suggestions regarding revival of these obsolete refineries”.

The other gentleman said, “Pakistan has to produce environment friendly products and if the local facilities are incapable of producing these products, the country must shutdown inefficient and pollution spreading refineries”.

One of the gentleman hit head of the nail by saying, “The real problem for the poor operating capacity and higher cost of production is production of ‘High Sulfur Furnace Oil’. As the storage tanks are full refineries have no option but to suspend refining activity”.

I presented to them my rationale, which I am sharing with policy planners, activists, to make the existing refineries eco-friendly. My submissions are:

The successive governments have failed in upgrading these refineries, but these are still producing, though fewer products, to meet the indigenous demand. Therefore, efforts should be made to operate these refineries at optimum capacity utilization and export surplus furnace oil. However, there is an urgent need to come up with a prudent “Refinery Policy” to facilitate creation of new refineries based of modern technology.

Along with this, incentives should be provided to ensure up gradation of the existing refineries.

There is no need to shutdown/scrap the existing facilities, which are capable of meeting the existing demand of the large percentage of the existing demand.

To put it on record the aggregate capacity of the exiting refineries, is estimated around 22 million tons, which is sufficient to meet almost 100% of the indigenous demand.

At the best, additional units have to be installed at the refineries to bring down the sulfur content in furnace oil for using it for power generation.

It is also to bring on record that almost all the power plants are have ‘dual fired’ boilers and these is no need to run these plants on gas, particularly on R-LNG.

I invite all by readers to please share their point of view.

Oil prices to hover around US$90 over next five years

Conflict in Ukraine, sanctions on Russia, intensifying rivalry between the United States and China, lingering pandemic disruptions, and the slowdown in the business cycle all seem to be combining to make forecasts more uncertain.

Brent oil prices are expected to hover around US$90/barrel over the next five years, according to eighth annual survey of energy market professionals by John Kemp a senior market analyst at Reuters specializing in oil and energy systems.

Forecasts range from US$4 to US$10 per barrel above predictions at the time of the 2022 survey, conducted before Russia's invasion of Ukraine, and up by around US$20 compared with the 2020 survey, before the coronavirus pandemic.

In this year's survey, prices are forecast to average US$87 in 2023, down from US$99 realized in 2022, when prices surged following Russia's invasion and sanctions imposed in response by the United States and European Union.

Forecasts for 2023 are tightly clustered, with half of respondents expecting the average price to hover between US$80 and US$95, and more than 90% expecting the average to range between US$70 and US$105.

Prices are expected to continue averaging around US$90 from 2024 to 2027, with a slight downward skew in forecasts later in the period.

Forecast prices are from US$15 to US$20 per barrel above where the futures strip was trading at the time of the survey, a similar premium to the one revealed in last year's survey, but up from a premium of around US$10 before the pandemic.

Understandably, there is more dispersion in forecasts for later years, reflecting greater uncertainty about the evolution of the business cycle and structural changes affecting the industry.

But uncertainty over all time horizons has jumped significantly following the pandemic and continued to increase in the most recent survey.

Both short-term forecasts for 2023-2024 and longer-term forecasts for 2025-2027 are characterized by much higher standard deviations than comparable forecasting horizons before the pandemic.

Israel: Demonstrations against Netanyahu’s legal reforms

According to Reuters, tens of thousands of Israelis demonstrated in three major cities on Saturday against Prime Minister Benjamin Netanyahu's judicial reform plans. Organizers were accusing him of undermining democratic rule weeks after his reelection.

Bestriding a religious-nationalist coalition with a solid parliamentary majority, Netanyahu, now in his sixth term, wants to rein in the Supreme Court in what he has described as a restoration of the balance of the three branches of government.

Critics say the proposed reforms would cripple judicial independence, foster corruption, set back minority rights and deprive Israel's courts system of credibility that helps fend off war-crimes allegations abroad. Among those opposed are the Supreme Court chief justice and the country's attorney-general.

After President Isaac Herzog appealed to polarized politicians to lower the temperatures of the debates, organizers of the demonstrations - held under chilly winter rain - sought to strike a note of national unity.

"Take an Israeli flag in one hand, an umbrella in the other, and come out to protect democracy and law in the State of Israel," said centrist ex-defence minister Benny Gantz, who attended the Tel Aviv rally but, like other opposition figures, was not due to address it.

"We Are Preserving Our Shared Home," read one demonstrator's placard. Netanyahu was guilty of a legal putsch, said another.

Israeli media put the number in attendance at some 80,000, with thousands more at protests in Jerusalem and Haifa.

Social media footage showed a small number of Palestinian flags on display, in defiance of Netanyahu's far-right allies. One of these, National Security Ministry Itamar Ben-Gvir, told Kan TV he wanted such flags removed but was awaiting the opinion of the attorney-general before ordering any crackdown by police.

The 73-year-old Netanyahu on Friday signalled flexibility on the reform plan, saying it would be implemented with careful consideration while hearing all of the positions.

Polls have diverged on public views of the reforms. Channel 13 TV last week found 53% of Israelis were opposed to changing the court appointments' structure while 35% were in support. But Channel 14 TV on Thursday found 61% in favour and 35% opposed.

Critics of the Supreme Court say it is overreaching and unrepresentative of the electorate. Its proponents call the court a means of bringing equilibrium to a fractious society.

"Tens of thousands of people were at tonight's demonstrations. In the election held here two and a half months ago, millions turned out," tweeted Miki Zohar a senior lawmaker in Netanyahu's conservative Likud party.

"We promised the people change, we promised governance, we promised reforms - and we will make good on that."

 

Iran and Britain: History of strained relations

British-Iranian relations have been strained for decades, were back in the spotlight after Iranian authorities executed British-Iranian national Alireza Akbari for spying, charges he had denied.

Here is a timeline of main developments since the 1950s:

1953 - Britain and the United States help orchestrate the overthrow of popular Prime Minister Mohammed Mossadegh and restore Shah Mohammed Reza Pahlavi to power.

1979 - Islamic Revolution overthrows the US-backed Shah.

1980 - Britain closes its embassy in Tehran.

1988 - Britain restores full diplomatic relations with Iran.

1989 - Iranian Supreme Leader Ayatollah Ruhollah Khomeini calls on Muslims to kill British author Salman Rushdie for blasphemy against Islam in his book "The Satanic Verses", prompting Britain to break diplomatic relations in March.

1990 - Partial diplomatic relations restored.

1994 - Britain accuses Iran of contacts with the outlawed Irish Republican Army, a charge Iran denies but relations worsen. Iran and Britain expel each others' diplomats over the IRA issue.

1998 - Iran formally dissociates itself from the call to kill Rushdie.

1999 - Iran says relations between Tehran and Britain have been upgraded to ambassadorial level.

2001 - British Foreign Minister Jack Straw visits Iran to strengthen an international "anti-terror" coalition after the September 11, 2001 attacks on the United States.

2004 - Iran arrests eight British military personnel for straying into its waters from Iraq. They are later freed.

2005 - Britain says there is evidence Iran or the Iran-backed Lebanese militia Hezbollah was the source of technology used in roadside bombs against British soldiers in Iraq, a charge Tehran Iran denied. The same year, Iran accuses Britain of being behind bombings that killed six people in Iran. London denies it.

2007 - Iranian forces seize eight Royal Navy sailors and seven marines from their patrol boat in the Shatt al-Arab waterway separating Iran and Iraq. They are freed in April.

2007 - Iran's Foreign Ministry summons the British ambassador to protest against the award of a British knighthood to Salman Rushdie.

2009 - Britain freezes Iranian assets under Western sanctions imposed over Iran's disputed nuclear program. The same month, Britain protests to Iran after Supreme Leader Ayatollah Ali Khamenei calls Britain the most treacherous of Iran's enemies. London and Tehran each expel two of the other's diplomats.

2009 - Iran releases on bail the last of nine Iranians who worked at the British embassy and who had been detained in June for alleged involvement in unrest following an Iranian election.

2011 - Britain imposes financial sanctions on Iran, ordering all UK financial institutions to stop doing business with Iranian counterparts and Iran's central bank. Iran's Guardian Council approves a parliamentary bill reducing ties with Britain.

2011 - Britain shuts Iran's embassy in London and expels its staff, saying the storming of the British mission in Tehran that month could not have taken place without consent from Iran's authorities.

2015 - Iran reaches a nuclear deal with the United States, Britain, France, Germany, Russia and China. Under the agreement Iran accepted curbs on its nuclear program in return for a lifting of many foreign sanctions. Iran reopens its embassy in London hours after Britain restores diplomatic ties.

2016 - Iran detains British-Iranian aid worker Nazanin Zaghari-Ratcliffe, who was employed by the Thomson Reuters Foundation, a charity operating independently of Thomson Reuters and its news subsidiary Reuters. She was later convicted of seeking to overthrow the clerical rulers, a charge she denied.

2019 - Twitter suspended Iranian Supreme Leader Ayatollah Ali Khamenei's account over a tweet that said Khomeini's fatwa against Rushdie was solid and irrevocable.

March 2022 - Zaghari-Ratcliffe and another British-Iranian dual national, Anoosheh Ashoori, return to Britain from Iran.

August 2022 - Salman Rushdie is stabbed on stage at a literary event in New York. Iran's Foreign Ministry says no one has the right to level accusations against Tehran. Several Iranian hardliner newspapers praise Rushdie's attacker.

October 2022 - Britain imposes sanctions on three Iranian military figures and a defence manufacturer for supplying Russia with drones used to attack targets in Ukraine.

November 2022 - The head of Britain's domestic spy agency says Iran's intelligence services have made at least 10 attempts to kidnap or kill British nationals or individuals in Britain.

December 2023 - Iran's Revolutionary Guards arrest seven people with links to Britain over anti-government protests.

January 2023 - Iran sentences to death and executes British-Iranian national Alireza Akbari, a former Iranian Defence Ministry official, on charges of spying for Britain. State media say he was involved in the 2020 assassination in Iran of a top nuclear scientist. Akbari denied the charges.

Courtesy: Reuters