Mexican Central Bank buys almost 100t of gold (FT.com)

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 Mexican Central Bank buys almost 100t of gold (FT.com)

By Jack Farchy in LondonPublished: May 4 2011 11:35 | Last updated: May 4 2011

 

The central bank of Mexico bought nearly 100 tonnes of gold in February and March, the latest emerging market country to turn to bullion as a means of diversifying away from the faltering dollar.The purchase is one of the largest by a central bank in recent history. The gold, worth $4.6bn at current prices, is equivalent to about 3.5 per cent of annual mined output.- The central bank has not been publicly announced the move, but has reported it both on its own balance sheet, posted online, and to the International Monetary Fund's statistics on international reserves.Central banks became net buyers of gold last year after two decades of heavy selling, a dramatic reversal that has helped propel the price of bullion to a series of record highs.On Wednesday morning, gold was trading at $1,535 a troy ounce, down from the nominal record of $1,575.79 touched on Monday.Mexico follows other booming emerging market economies, including China, India and Russia, which have all made large additions to their gold reserves in recent years.Matthew Turner, precious metals strategist at Mitsubishi, the Japanese trading house, said the purchase "seems to confirm there's an appetite now among emerging economies with large forex reserves to add to their gold reserves. Gold is seen as one way in which to diversify away from the dollar- or euro-denominated assets."The dollar has plunged 10 per cent since January against the world's major currencies and is trading near an all-time low. Robert Zoellick, president of the World Bank, has suggested that gold should form part of a  new international monetary system.China announced in 2009 that it had bought 454 tonnes of gold over the previous six years; India bought 200 tonnes of gold directly from the International Monetary Fund in October 2009; and Russia has bought just less than 400 tonnes on the open market over the past five years.However Mexico's buying in February and March, which amounted to 93.3 tonnes of gold, is one of the most rapid programmes of accumulation on record. Apart from India's off-market purchase in 2009, the 78.5 tonnes bought in March is the largest monthly purchase by a central bank in at least a decade, according to data from the World Gold Council.The Bank of Mexico could not be reached for comment on Wednesday morning.

Glencore has bigger risk appetite than Wall St banks

By Javier Blas in London

Published: May 2 2011 22:35 | Last updated: May 2 2011 22:35

Glencore’s appetite for risk in commodities trading is bigger than that of leading Wall Street banks, according to information released by the banks underwriting the trading house’s multibillion-dollar flotation.

The banks’ reports in advance of Glencore’s initial public offering shed new light on the financial activities of the world’s largest commodities traders. Glencore’s risk appetite will be an important factor for investors weighing this month’s offering in London and Hong Kong.

The research reveals that Glencore could have lost a daily $42.5m last year on average when measured by the so-called “value-at-risk” measure, much more than the average $25.7m put at risk each day in 2010 in commodities trading by Goldman Sachs, Morgan Stanley, Barclays Capital and JPMorgan.

The four banks are the largest commodities dealers by revenues in the financial sector.

Daily value-at-risk (VAR) is a common industry yardstick used to measure potential losses. The gauge has its critics, as it measures potential losses on regular trading days, but does not capture unusual trading situations such as during a war or in a crisis.

Glencore told the nine banks behind its IPO syndicate that it had a $100m limit on VAR, but added that it had not exceeded that limit since at least January 2008.

The trading house’s VAR fell to $26.4m in 2009 after peaking in 2008 at $50.1m.

The higher risk-taking by Glencore is partly explained by the physical nature of its business, which makes price hedging difficult.

For example, it trades a large amount of Russian oil, but hedging instruments such as Brent and West Texas Intermediate futures reflect the cost of crude in Europe and the US.

The physical nature of the trading implies that Glencore’s VAR starts from a base of about $25m-$30m, according to people familiar with the trading house.

But the higher figure also reflects the fact that Glencore does speculate in the market from time to time.

“Price exposures are normally hedged,” Ephrem Ravi, lead analyst on Morgan Stanley’s report, wrote in a note for investors.

He added: “Nevertheless, the company sometimes engages in deliberate price exposures to leverage on the insight it has into certain commodity markets.”

Olivia Ker, lead analyst for UBS, cautioned that, although Glencore had a limit of $100m for its daily VAR, the company had not explained how it responded when it sustained a loss.

“If it is in the habit of reducing risk after a loss, then we can be confident that risk is well controlled,” Ms Ker wrote. “But, if Glencore is in the habit of sticking with exposure after a loss to back the original trade, then the risks are that larger losses may accrue over a period of days.”

The Swiss-based company is aiming to sell a stake of 15-20 per cent, worth up to $12.1bn.

The company is set to issue its prospectus, providing detailed information about its activities, later this week.

FT.com / Commodities - Glencore has bigger risk appetite than Wall St banks

The MasterMetals Blog

Gold falls, silver drops 4 pct after bin Laden death - Yahoo! News

Gold falls, silver drops 4 pct after bin Laden death

By Frank Tang | Reuters –

NEW YORK (Reuters) - Gold fell from a record high on Monday and silver notched its biggest one-day loss in seven weeks after the killing of Osama bin Laden sapped the safe-haven premium out of precious metals.

Silver bounced off early lows after falling as much as 11 percent, as speculators scaled back their bullish bets on increased futures margins and a technical overhang after a 170 percent rally over the last 12 months to a record high last week.

Gold initially rose to a record high for a fourth consecutive session, but news of the al Qaeda leader's killing by U.S. forces sent gold down almost 2 percent. The CBOE gold volatility index, a gauge of bullion investor anxiety, posted its biggest-ever two-session gain since its inception in September last year.

"People are pulling out of gold and going back into the equity market, as the news had a de-risking effect on the geopolitical environment," said Steven Faber, analyst at Haber Trilix Advisors, which manages $2 billion in assets.

Investor buying later lifted bullion off its lows after data showed U.S. manufacturing activity slowed in April for a second straight month but input prices reached their highest level in nearly three years.

Spot gold was down 0.4 percent at $1,558.09 an ounce by 2:26 p.m. EDT (1826 GMT), after hitting a record high for a fourth straight session at $1,575.79. U.S. June gold futures settled up 70 cents at $1,557.10 after ranging from $1,540.30 to $1,577.40.