Saturday, August 25, 2012
Understanding Gold Exchange Traded Funds ETFs
Historically, investing in gold has been the popular choice of people looking for diversification of holdings. This precious metal, which is traded actively by institutions and individuals, has long been a favorite haven for investors. It is one of the last of the safe options remaining especially after the Swiss Franc was fixed to the Euro.
Gold is doubly attractive because it offers greater chances of long-term price appreciation. Gold prices have proved on countless occasions to be seemingly immune to global turmoil. In fact the price of gold has almost doubled since 2008 despite the global meltdown during those years.
Gold is an excellent portfolio hedge because its price generally moves inverse to prime equity standards, typically offering a healthy return when markets are in a slump.
What are Gold Exchange Traded Funds?
Gold Exchange Traded Funds (ETFs) are funds linked to the price of gold. They are listed and traded on all major stock exchanges in the world, and are backed by gold bullion stored in secure vaults. Gold backed ETFs provide a way for investors to trade in the gold bullion market without the need to take physical possession of the metal. ETFs make gold more accessible to investors and enable them to buy and sell securities on the stock market. The prices of ETFs fluctuate proportionately with the prevailing price of gold and deliver the same returns. Each ETF unit is roughly the price of one gram of gold, though there are ETFs which equate to half a gram.
Why should you invest in Gold ETFs?
Gold ETFs are a good investment because they are:
Highly liquid and can easily be traded
In the Global Asset Class
A hedge against currency fluctuation and inflation
Less volatile than equities hence less risk
Diversification of your portfolio
An asset held in an electronic form
Have no chance of adulteration as in physical gold
Perfect for a retail investor as the minimum trading lot is a single unit
An investment product with a Net Asset Value of a unit equating to a price of 1 or ½ gram of gold
How To Invest?
Gold backed ETFs, which are regulated financial products, are listed on all major stock exchanges. Your broker or financial adviser should be able to assist you in trading.
Best known ETFs in the Stock Market
SPDR Gold Trust (GLD): This is the largest of the gold backed ETFs globally, and an investor favorite. Daily trading volumes average several billions. This is the ideal fund for both ‘buy and hold’ investors and traders. Each share is equivalent approximately to the value of 1/10th of a troy ounce of gold.
COMEX Gold Trust (IAU): This trust is a leading competitor to GLD. It offers access to bullion at only 25 basis points, a super-low cost. Each share approximates the value of 1/100th of a gold troy ounce.
Physical Swiss Gold Shares (SGOL): Funds backed by bullion held physically in vaults situated exclusively in Switzerland. Ideal for investors who prefer to keep investments outside the U.K and U.S.
Physical Asian Gold Shares (AGOL): As with SGOL, this exchange traded fund is backed by bullion held in vaults in Singapore in Southeast Asia.
My review on buying and selling gold with Gold Trader Asia
Just a brief introduction about Gold Price Singapore. The online store selling gold bars and coins minted in Singapore is owned by Gold Trader Asia Pte Ltd. The firm is a registered business with ACRA and has a licence with the Police Licensing Unit as Secondhand Goods Dealers.
Operating for around 3 years, Gold Trader Asia has been buying used gold and selling bullion gold products such as Pamp gold bars. In recent months, the firm decided to extend their business by smelting used gold into bullion gold bars and coins to sell in the retail market through e-commerce. This business model profits from the margin in buying and selling the gold. Sounds simple? I think so too and I love business models that are easy to understand and it’s usually these business that sustain in the long run.
Product design
I had the pleasure of looking at the bullion gold bars and coins up close and personal. Dennis has chosen to use the Singapore Lion symbol as the main feature on the gold bar to tell consumers that they are made in Singapore. In terms of the quality of the product, I would say that it’s comparable to the Singapore Lion bullion coin. As the design is simplistic, it can’t be compared to complicated designs like the Australia Kangaroo nuggets.
As you can see on the right, Gold Trader Asia offers a few different sizes of gold bars and a 1-ounce gold coin. On the top of the photo are their certificate of authenticity. It is noted that there is no legal tender on the gold coin so you cannot use their gold coins as money.
The gold bars and coins are encased between two pieces of plastic, with small magnets on each corner to secure the case. There are seals on the sides of the cases. In my opinion, they do look better than Pamp Suisse gold bars that are sealed in what looked like cheap plastic enclosures.
Authenticity of gold products
The manufacturer will sends a sample from each batch of their gold products to the Singapore Assay Office to undergo Fire Assay (Cupellation). Instead of stamping the hallmark on their gold products, Gold Trader Asia chose to issue a certificate detailing the assaying process and guaranteeing the authenticity of the product.
All the gold bars (except 1gm gold bars) are also stamped with a serial number, e.g. SGDXXXXXX that is also indicated in the certificate. I suggested to Bill that they could consider setting a database of their serial numbers in their website so that in future, buyers can verify the serial number of the gold bar that they are buying online.
Final thoughts on Gold Trader Asia
Gold Trader Asia is probably one of the first firms in Singapore that buy used gold and make bullion gold products to sell although this business is very common overseas. Personally, I like the fact that Gold Trader Asia’s business model is simple to understand. The fact that they make a profit from selling their gold products makes me feel comfortable that they are here to stay. Naturally, only time will tell if their business is sustainable.
If you are worried that end of the day you are unable to sell them off, Gold Trader Asia assures me that they are always willing to purchase your gold back at used gold prices, which are close to gold spot prices.
Operating for around 3 years, Gold Trader Asia has been buying used gold and selling bullion gold products such as Pamp gold bars. In recent months, the firm decided to extend their business by smelting used gold into bullion gold bars and coins to sell in the retail market through e-commerce. This business model profits from the margin in buying and selling the gold. Sounds simple? I think so too and I love business models that are easy to understand and it’s usually these business that sustain in the long run.
Product design
As you can see on the right, Gold Trader Asia offers a few different sizes of gold bars and a 1-ounce gold coin. On the top of the photo are their certificate of authenticity. It is noted that there is no legal tender on the gold coin so you cannot use their gold coins as money.
The gold bars and coins are encased between two pieces of plastic, with small magnets on each corner to secure the case. There are seals on the sides of the cases. In my opinion, they do look better than Pamp Suisse gold bars that are sealed in what looked like cheap plastic enclosures.
Authenticity of gold products
The manufacturer will sends a sample from each batch of their gold products to the Singapore Assay Office to undergo Fire Assay (Cupellation). Instead of stamping the hallmark on their gold products, Gold Trader Asia chose to issue a certificate detailing the assaying process and guaranteeing the authenticity of the product.
All the gold bars (except 1gm gold bars) are also stamped with a serial number, e.g. SGDXXXXXX that is also indicated in the certificate. I suggested to Bill that they could consider setting a database of their serial numbers in their website so that in future, buyers can verify the serial number of the gold bar that they are buying online.
Final thoughts on Gold Trader Asia
Gold Trader Asia is probably one of the first firms in Singapore that buy used gold and make bullion gold products to sell although this business is very common overseas. Personally, I like the fact that Gold Trader Asia’s business model is simple to understand. The fact that they make a profit from selling their gold products makes me feel comfortable that they are here to stay. Naturally, only time will tell if their business is sustainable.
If you are worried that end of the day you are unable to sell them off, Gold Trader Asia assures me that they are always willing to purchase your gold back at used gold prices, which are close to gold spot prices.
Main Drivers Of Gold Prices
Gold in 1999 was at an ebb in the wake of a 20-year bear market, and has steadily been on the rise ever since. Gold prices are driven by several factors and there is every indication that this rising trend will continue. The factors while diverse and in constant change, are also influenced by political, economic and global monetary conditions. The price of gold is akin to a global thermometer ceaselessly measuring these varying indices. While fluctuations are influenced by the demand/supply metrics it is not as evident with gold as with other metals.
Some of the factors that drive gold prices are:
A weak US $
Due to the Current Account Deficit which exceeds 5% of GDP, and extreme debt levels exacerbating the dollar’s woes, foreign central banks have resorted to selling US dollars to broad-base their currency reserves. A steadily weakening dollar pushes up the price of gold since the yellow metal remains the most popularly traded monetary asset, no different to currency trading. The price of gold is inversely proportional to that of the dollar.
US Inflation
Negative real interest rates, history has shown, rank among the most powerful drivers of gold price. Provided the US government maintains interest rates and does not raise it to a level to control inflation, real interest rate remains below the median, which forces the price of gold up.
Demand and Supply
Demand for gold is insatiable. Alert investors and speculators play the market according to global circumstances; countries like India, especially during festival and wedding seasons, have a inexhaustible demand for the metal; and China poses a constant threat with her intent to convert foreign currency reserves into gold. These stresses impose an enormous pressure on central banks to sell gold to other banks to meet their incessant demand. The demand at current prices hovers around 3,000 tonnes per annum, far in excess of supply.
Declining Supply
The supply of gold is steadily decreasing. The Beacon Group Advisors as far back as 2002 projected a drop in production of between 30 and 35 percent in the ensuing 7 to 8-year period because of lack of exploration since 1997. Without exploration the world had no fresh gold deposits to tap. To reverse this position with new explorations requires time. It is estimated that a new mine requires anywhere from four to seven years to provide commercial gold.
Geopolitical Tensions
Gold prices are heavily influenced by turbulent conditions around the globe. Some of the recent and current issues have been a stressed situation in the Middle East exacerbated by Iran’s nuclear posturing, the fall-out of NATO troops exiting Afghanistan, a nuclear stand-off with North Korea and the ceaseless tension between the US and China. Prevalent uncertainties create a shift toward gold.
Manipulative Practices
The Gold Anti-Trust Action Committee (GATA) maintains that the price of gold is being artificially suppressed by the Bullion Banks who are in debt to Central Banks because of the unexpected rise in gold prices. There is a mountain of evidence to suggest that every time gold rallies, Central Banks divest some of their government gold stocks to hold the price. This band-aid measure cannot continue indefinitely and when the bubble bursts the price of gold is likely to go through the roof.
Some of the factors that drive gold prices are:
A weak US $
Due to the Current Account Deficit which exceeds 5% of GDP, and extreme debt levels exacerbating the dollar’s woes, foreign central banks have resorted to selling US dollars to broad-base their currency reserves. A steadily weakening dollar pushes up the price of gold since the yellow metal remains the most popularly traded monetary asset, no different to currency trading. The price of gold is inversely proportional to that of the dollar.
US Inflation
Negative real interest rates, history has shown, rank among the most powerful drivers of gold price. Provided the US government maintains interest rates and does not raise it to a level to control inflation, real interest rate remains below the median, which forces the price of gold up.
Demand and Supply
Demand for gold is insatiable. Alert investors and speculators play the market according to global circumstances; countries like India, especially during festival and wedding seasons, have a inexhaustible demand for the metal; and China poses a constant threat with her intent to convert foreign currency reserves into gold. These stresses impose an enormous pressure on central banks to sell gold to other banks to meet their incessant demand. The demand at current prices hovers around 3,000 tonnes per annum, far in excess of supply.
Declining Supply
The supply of gold is steadily decreasing. The Beacon Group Advisors as far back as 2002 projected a drop in production of between 30 and 35 percent in the ensuing 7 to 8-year period because of lack of exploration since 1997. Without exploration the world had no fresh gold deposits to tap. To reverse this position with new explorations requires time. It is estimated that a new mine requires anywhere from four to seven years to provide commercial gold.
Geopolitical Tensions
Gold prices are heavily influenced by turbulent conditions around the globe. Some of the recent and current issues have been a stressed situation in the Middle East exacerbated by Iran’s nuclear posturing, the fall-out of NATO troops exiting Afghanistan, a nuclear stand-off with North Korea and the ceaseless tension between the US and China. Prevalent uncertainties create a shift toward gold.
Manipulative Practices
The Gold Anti-Trust Action Committee (GATA) maintains that the price of gold is being artificially suppressed by the Bullion Banks who are in debt to Central Banks because of the unexpected rise in gold prices. There is a mountain of evidence to suggest that every time gold rallies, Central Banks divest some of their government gold stocks to hold the price. This band-aid measure cannot continue indefinitely and when the bubble bursts the price of gold is likely to go through the roof.
How and when to start investing?
When to invest:
It's never too late or too early to start investing. The best time to invest is now. The 4 keys that could guide you regarding when to invest are:-
1-Start investing early- Start early and retire rich. Invest whatever you can today and move steadily towards a secure tomorrow.
2-Invest regularly- Invest regularly and methodically and let the magic of compounding work for you.
3-Never time the market- Be a smart investor. Always invest in time but never try to time the market. Timing the market is mastered by none and is beyond one's control.
4-Be patient- For long-term wealth creation, you need to be patient. The longer the investment horizon, the lesser is the risk and greater are the returns.
How to invest:
You toil hard to earn money and, therefore, it is important to invest it wisely. Ask yourself certain questions before deciding on how to invest:
1-What are your needs and financial goals? Do you need a regular income or want to buy a house or require funds for your child's education?
2-How much risk are you willing to take on? Can you withstand the volatilities in the capital market or are you satisfied with a low-risk, low-returns philosophy?
3-How soon do you need the money? Can you invest for a longer time-horizon or do you need money in the near future?
4-What are your cash flow requirements? Do you need a regular income or a lump sum amount after a certain period of time?
It's never too late or too early to start investing. The best time to invest is now. The 4 keys that could guide you regarding when to invest are:-
1-Start investing early- Start early and retire rich. Invest whatever you can today and move steadily towards a secure tomorrow.
2-Invest regularly- Invest regularly and methodically and let the magic of compounding work for you.
3-Never time the market- Be a smart investor. Always invest in time but never try to time the market. Timing the market is mastered by none and is beyond one's control.
4-Be patient- For long-term wealth creation, you need to be patient. The longer the investment horizon, the lesser is the risk and greater are the returns.
How to invest:
You toil hard to earn money and, therefore, it is important to invest it wisely. Ask yourself certain questions before deciding on how to invest:
1-What are your needs and financial goals? Do you need a regular income or want to buy a house or require funds for your child's education?
2-How much risk are you willing to take on? Can you withstand the volatilities in the capital market or are you satisfied with a low-risk, low-returns philosophy?
3-How soon do you need the money? Can you invest for a longer time-horizon or do you need money in the near future?
4-What are your cash flow requirements? Do you need a regular income or a lump sum amount after a certain period of time?
Factors which influence the decision to invest
Past market trends
Sometimes history repeats itself; sometimes markets learn from their mistakes. You need to understand how various asset classes have performed in the past before planning your finances.
Your risk appetite
The ability to tolerate risk differs from person to person. It depends on factors such as your financial responsibilities, your environment, your basic personality, etc. Therefore, understanding your capacity to take on risk becomes a crucial factor in investment decision making.
Investment horizon
How long can you keep the money invested? The longer the time-horizon, the greater are the returns that you should expect. Further, the risk element reduces with time.
Investible surplus
How much money are you able to keep aside for investments? The investible surplus plays a vital role in selecting from various asset classes as the minimum investment amounts differ and so do the risks and returns.
Investment need
How much money do you need at the time of maturity? This helps you determine the amount of money you need to invest every month or year to reach the magic figure.
Expected returns
The expected rate of returns is a crucial factor as it will guide your choice of investment. Based on your expectations, you can decide whether you want to invest heavily into equities or debt or balance your portfolio.
Sometimes history repeats itself; sometimes markets learn from their mistakes. You need to understand how various asset classes have performed in the past before planning your finances.
Your risk appetite
The ability to tolerate risk differs from person to person. It depends on factors such as your financial responsibilities, your environment, your basic personality, etc. Therefore, understanding your capacity to take on risk becomes a crucial factor in investment decision making.
Investment horizon
How long can you keep the money invested? The longer the time-horizon, the greater are the returns that you should expect. Further, the risk element reduces with time.
Investible surplus
How much money are you able to keep aside for investments? The investible surplus plays a vital role in selecting from various asset classes as the minimum investment amounts differ and so do the risks and returns.
Investment need
How much money do you need at the time of maturity? This helps you determine the amount of money you need to invest every month or year to reach the magic figure.
Expected returns
The expected rate of returns is a crucial factor as it will guide your choice of investment. Based on your expectations, you can decide whether you want to invest heavily into equities or debt or balance your portfolio.
Why you should invest?
Take a minute to think about why you may want to invest
Inflation is constantly increasing the cost of goods and services and eating into the value of your income and wealth. You need to save money and invest it well so that the value of every rupee is augmented.
Higher life-expectancy means people live longer and hence, need more money to maintain their living standards.
Investing selectively allows you to enjoy tax benefits.
By investing wisely you can improve your standard of living and create wealth for the future.
Inflation is constantly increasing the cost of goods and services and eating into the value of your income and wealth. You need to save money and invest it well so that the value of every rupee is augmented.
Higher life-expectancy means people live longer and hence, need more money to maintain their living standards.
Investing selectively allows you to enjoy tax benefits.
By investing wisely you can improve your standard of living and create wealth for the future.
Financial Instruments
Equities
Equities are a type of security that represents the ownership in a company. Equities are traded (bought and sold) in stock markets. Alternatively, they can be purchased via the Initial Public Offering (IPO) route, i.e. directly from the company. Investing in equities is a good long-term investment option as the returns on equities over a long time horizon are generally higher than most other investment avenues. However, along with the possibility of greater returns comes greater risk.
Mutual funds
A mutual fund allows a group of people to pool their money together and have it professionally managed, in keeping with a predetermined investment objective. This investment avenue is popular because of its cost-efficiency, risk-diversification, professional management and sound regulation. You can invest as little as Rs. 1,000 per month in a mutual fund. There are various general and thematic mutual funds to choose from and the risk and return possibilities vary accordingly.
Bonds
Bonds are fixed income instruments which are issued for the purpose of raising capital. Both private entities, such as companies, financial institutions, and the central or state government and other government institutions use this instrument as a means of garnering funds. Bonds issued by the Government carry the lowest level of risk but could deliver fair returns.
Deposits
Investing in bank or post-office deposits is a very common way of securing surplus funds. These instruments are at the low end of the risk-return spectrum.
Cash equivalents
These are relatively safe and highly liquid investment options. Treasury bills and money market funds are cash equivalents.
Non-financial Instruments
Real estate
With the ever-increasing cost of land, real estate has come up as a profitable investment proposition.
Gold
The 'yellow metal' is a preferred investment option, particularly when markets are volatile. Today, beyond physical gold, a number of products which derive their value from the price of gold are available for investment. These include gold futures and gold exchange traded funds.
Crude oil prices today
Crude oil price varies in appearance depending on its composition. It is usually black or dark brown (although it may be yellowish or even greenish). In the reservoir it is usually found in association with natural gas, which being lighter forms a gas cap over the crude oil, and saline water which, being heavier than most forms of crude oil, generally sinks beneath it. Crude oil may also be found in semi-solid form mixed with sand and water, as in the Athabasca oil sands in Canada, where it is usually referred to as crude bitumen. In Canada, bitumen is considered a sticky, tar-like form of crude oil which is so thick and heavy that it must be heated or diluted before it will flow. Venezuela also has large amounts of oil in the Orinoco oil sands, although the hydrocarbons trapped in them are more fluid than in Canada and are usually called extra heavy crude oil. These oil sands resources are called unconventional oil to distinguish them from crude oil which can be extracted using traditional oil well methods. Between them, Canada and Venezuela contain an estimated 3.6 trillion barrels (570?109 m3) of bitumen and extra-heavy oil, about twice the volume of the world's reserves of conventional oil.
This Week In Petroleum
To August 29, 2012
An Update on West Coast Gasoline Markets
Between August 6 and August 13, the price of retail regular grade gasoline on the West Coast (PADD 5) increased 19 cents per gallon, well above the 8-cent-per-gallon increase for the United States as a whole. While rising global crude oil prices have pushed gasoline prices higher nationwide, an August 6 fire at Chevron's Richmond, California refinery placed added pressure on West Coast prices. After an initial increase of 32 cents per gallon on August 7, spot prices in Los Angeles for California-specification Reformulated Blendstock for Oxygenate Blending (CARBOB) have fallen 18 cents per gallon to $3.09 per gallon on August 21, a discount to similar prices in New York Harbor (Figure 1). Although press stories indicate that the crude distillation unit at the Richmond refinery is expected to remain offline for four to six months, reports that gasoline-producing units at the Richmond refinery will continue to run using gasoil feedstocks transported from other sources, along with news that other West Coast refineries were increasing gasoline production, appear to have mitigated its impact on wholesale gasoline prices. This situation contrasts with that following the earlier outage at BP's Cherry Point, Washington refinery, when CARBOB traded at a large premium to gasoline in New York Harbor for an extended interval.
The price response to both the Richmond and Cherry Point outages highlights the special sensitivity of the West Coast gasoline market to supply disruptions. Unlike other U.S. markets, which are interconnected by pipelines and river systems, the West Coast liquid fuels market is relatively isolated and largely supplied by in-region refinery production. Through May of this year, West Coast refinery production supplied 80 percent of the almost 1.5 million barrels per day (bbl/d) of gasoline consumed in the region (Figure 2). Additionally, while there are 23 refineries in PADD 5 (exclusive of Hawaii and Alaska), and 2.6 million bbl/d of operable refinery capacity, four large refineries, each with an operable capacity greater than 200,000 bbl/d, account for almost 40 percent of the region's total crude oil distillation capacity. Both the Richmond and Cherry Point refineries are in this group. Assuming a typical gasoline yield of about 50 percent, an outage at a 245,000-bbl/d refinery (the average size of the four biggest West Coast refineries) has the potential to remove more than 120,000 bbl/d of gasoline from the market. Given that the West Coast market depends heavily on in-region production, and given that a small number of large refineries contribute major shares of that production, a single unplanned refinery outage can have a dramatic impact on supply.
In addition, because of the relative isolation of the West Coast market, it can be costly to supplement supply from outside the region when a refinery outage occurs. Unlike other gasoline markets in the United States, the West Coast market does not receive or ship significant volumes of gasoline to or from other U.S. regions or abroad. Year-to-date through May in 2012, gasoline volumes shipped to the West Coast from other regions of the United States averaged about 130,000 bbl/d, or 9 percent of total regional supply. Most of this was shipped from the Gulf Coast via pipeline into Arizona; some additional barrels are shipped from the Rocky Mountain region. East of the Rockies, petroleum product markets are connected via extensive pipeline systems. These pipelines allow refineries on the Gulf Coast to efficiently ship additional products to the East Coast and Midwest to balance those markets when supply disruptions
occur. In addition, the West Coast market is distanced from the actively traded physical markets in the Atlantic Basin, where price signals can divert cargoes in transit to locations where they are needed.
During a major refinery outage on the West Coast, one of the first sources of supply on which the market draws is likely to be reduced exports of gasoline. Gasoline exports from the West Coast have averaged just over 35,000 bbl/d year-to-date through May in 2012, but were as high as 90,000 bbl/d earlier in August 2011. The majority of exports from the region are shipped from San Francisco, and Mexico is the largest importer of West Coast gasoline. However, an increase in wholesale prices is necessary to bid this formerly-excess supply back into the domestic market and out of the export market.
Attracting imports also tends to be an expensive solution for supplying West Coast markets. The small stream of regular imports into the West Coast comes mainly from Canada. Occasionally, tight market conditions can open an arbitrage with Asia, but this happens only when prices are high enough to cover the cost of shipping products across the Pacific. This did happen earlier this year, when price differentials supported trans-Pacific trade and the West Coast pulled gasoline cargoes from South Korea and Singapore, among others. However, imports remain a small part of the region's supply, averaging 26,000 bbl/d in 2012, making up only about 2 percent of total supply.
Unique specification requirements for gasoline, particularly in California, also complicate bringing supplies into the region. California gasoline has a stringent Reid Vapor Pressure limit during the summer months, which California's refineries are designed to meet. However, domestic and global availability of gasoline meeting this specification is limited, making it difficult to find supplies, especially on short notice.
During prolonged refinery outages, like the Cherry Point shutdown that lasted from late February through May, West Coast gasoline inventories often fall sharply because of the difficulty in securing supplemental supplies. After the Cherry Point shutdown, West Coast gasoline stocks fell 22 percent (6.8 million barrels) between February 17 and May 18. This inventory reduction was much larger than the 1.9-million-barrel draw typically seen in West Coast stocks over this period. However, stock draws do not obviate the need for higher wholesale prices to attract supplies
Gasoline and diesel fuel prices continue to climb
The U.S. average retail price of regular gasoline increased two cents this week to $3.74 per gallon, 16 cents per gallon higher than last year at this time. The largest increase came on the Gulf Coast, where the price is up six cents to $3.55 per gallon. The West Coast price is up five cents to $4.00 per gallon. The last time the West Coast price was at or above the $4-per-gallon mark was the week of June 11, 2012. In the Rocky Mountain region the average price is now $3.54, up four cents from last week, while on the East Coast the price is $3.71, up three cents from last week. Rounding out the regions, and going against the trend, the Midwest price declined three cents to $3.76 per gallon.
The national average diesel fuel price increased six cents to $4.03 per gallon, 22 cents per gallon higher than last year at this time. The last time the average U.S. diesel price was at or above $4 per gallon was the week of May 14, 2012, and prices are now above that mark in all regions except the Gulf Coast. Prices increased in all regions of the Nation, with the largest increase coming on the West Coast and in the Rocky Mountain region, each of which had prices increase ten cents, to $4.25 per gallon and $4.06 per gallon, respectively. The Gulf Coast price increased six cents to $3.91 per gallon. On the East Coast, the price is now $4.01 per gallon, up five cents from last week. Rounding out the regions, the Midwest price also increased five cents, to reach $4.02 per gallon.
Propane stocks show a sizeable build
Last week, total U.S. inventories of propane continued their seasonal growth by adding 1.9 million barrels of new stocks to end at 70.9 million barrels, 18.9 million barrels (36 percent) higher than a year ago. The Gulf Coast received the largest build of 1.5 million barrels. Meanwhile, Midwest regional inventories grew by 0.4 million barrels, the Rocky Mountain/West Coast region added 0.1 million barrels, and East Coast regional stocks grew slightly. Propylene non-fuel-use inventories represented 7.3 percent of total propane inventories.
Strait of Hormuz and Oil Price Rise
The Strait of Hormuz is in the news again. The Iranian parliament is considering a bill that threatens to close this Strait to oil tankers from countries that support sanctions imposed on Iran. More than half of the members of parliament are said to have signed the bill.
Before that, what is Strait of Hormuz? The Strait of Hormuz is a strategic shipping route connecting Persian Gulf to the Arabian Sea and Gulf of Oman. The US Energy Information Administration characterizes the strait as "the world's most important oil chokepoint." In 2011, the strait witnessed a daily flow of 17 million barrels of oil per day. This is almost 20% of world's traded oil and roughly 35% of all seaborne traded oil, the agency reports. Further, the EIA estimates that on an average, 14 crude tankers pass through the waterway per day, with almost the same number of empty tankers entering it. The chokepoint? At the narrowest point, the Strait is just 21 miles wide. Blocking this neck, theoretically at least, is an easy possibility for Iran, cutting away nearly one fifth of the world's traded oil. Note also that this is a major shipping route for crude exported from Saudi Arabia (the world's second largest oil exporter), Kuwait, Iraq, Qatar and UAE. Almost 85% of the export is for Asian markets like Japan, India, South Korea and China.
The draft bill is said to be Iran's retaliation for the economic sanctions imposed on it by the US and European Union. The sanctions aim to curtail Iran's nuclear ambitions, especially using Uranium to develop weapons. Iran, meanwhile, insist that the reactors are for medical and electricity uses only.
Could Iran close the Strait?
The answer is an emphatic no. After all, the US' Fifth Fleet is stationed nearby. Iran would only be giving excuses for an invasion. In addition, leaked US diplomatic cables, from as early as 2010, show Saudi Arabia urging the US to attack Iran and destroy the nuclear programme (Thanks Wikileaks). Thus in the event of a war, the US may receive support even from the Arab world. Not a bad bargaining position for the world's superpower. On the other hand, if a blockade were to occur in the Strait even Iran's oil would stagnate. So, the new hostile resolution could be just empty noise.
Still, "just noise" from Iran could do a lot of damage to oil prices. Why does Iran create all these noises, empty or not? Mostly to increase oil prices to sustain oil revenues from China and India. Notwithstanding threats of US sanctions on institutions doing business with Iran and though China and India are actively looking for oil elsewhere, at present, a significant portion of their oil imports comes from Iran. Namely, 10% of India's total crude import and 12% of China's are Iranian (as of June). The higher the prices, the better it is for Iran. Remember the Arab Spring unrest and how Iran, together with Libya, managed to send oil prices to $128 a barrel? In the past, any threats from Iran, even if unfounded, have boosted the oil prices.
If Iran does choke the Strait, How?
Iran can block the narrow waterway by using mines, mini submarines, suicide squads or missile-ladden speedboats. Even one of these is enough to ignite a war in the region. Of course, a head-on confrontation with the US would be nothing short of suicide for Iran. Instead, it will certainly employ "guerrilla warfare", of the same kind it has supported for decades around the world with Hezbollah, Iraqi insurgents and Afghanistan. And the resulting uncertainty brought by the situation will disseminate panic sending oil prices higher.
Some guerrilla tactics Iran will likely employ:
harassing oil tankers in the Strait
using it as a leverage for nuclear talks with the world powers.
security search and checks of oil tankers. Other than delay, this could also create unrest in the region.
deploying Ghadir miniature submarines so they appear on tankers Sonars.
publicizing its intention to scatter mines in the strait. Even though Iran has an estimated 2,000 anti-ship mines, the mines don't have to be there. But a mere rumor will deter civilian tankers from cruising in the Strait.
No amount of US warship will prevent insurance companies to raise insurance premiums trough the roof on multi-billion tankers once it is known that Iran is acting with hostility in these waters and this will be enough to send the price of oil up. That's all Iran wants.
A similar situation, the "Tanker War", occurred 30 years ago. In 1984, Iraq attacked Iranian tankers and an oil terminal at Kharg Island. Iran retaliated by attacking Iraqi oil tankers. In what's known as the "Tanker war," the two countries attacked oil ports and oil tankers belonging to the other. The US and the then Soviet Navy entered the fray only in 1987, providing protection for Kuwait ships. US started acting against Iran and relations between the countries deteriorated from then on.
Unlike during the Tanker War, Iran is not in direct war with the US and western world. But it has indirectly been fighting US and western forces by supporting terrorism and Islamic insurgents on the theater of war and sees itself in a holy war against the West. Iran will likely employ the same deceitful tactics in harassing oil tankers and disrupting the distribution of oil. Forget Ideology - Iran needs the money.
Compared to western civilized societies, Iran remains in large an under-developed poverty-stricken nation ruled by ruthless theocrats. Since its non-competitive workforce is not a suitable tax base for its government's hegemonic aspiration, Iran has to rely almost exclusively of oil revenues to finance its government, police, army, hospitals and institutions. Most of its influence on the rest of the Arab worlds, its financial backing of Hezbollah is solely made possible by oil revenues. But cut these oil revenues and the proverbial goose that laid golden eggs is gone; without a market for its oil, Iran will likely face overwhelming domestic unrest leading soon to a civil war.
In fact, the US is all too familiar with the importance of the strait. Consequently plans are underway to develop alternative routes to bypass the strait. With US support UAE opened the new pipeline of Habshan-Fujairah in June 2012. This 220 mile long pipeline with a capacity of 1.5 million barrels a day is designed to bring oil from the UAE and Oman to the Fujairah export terminal, past the Strait of Hormuz. This port is well away from Iranian territorial waters and is guarded by the US fleet so that any possible threat can be addressed decidedly. The Saudi Arabian East-West pipeline from Abqaiq on the Red Sea, is another alternative, though the capacity is much less than the traffic in Strait of Hormuz. Considering that Iran's major clients are in Asia, one alternative is to transport oil through Suez canal. Expensive and dangerous, still a possibility. Iran too is building a new terminal at Bandar Jask in a bid to decrease the over reliance on the said strait. Oil can also be transported via the Iraq-Turkey pipeline. The UAE is also constructing the Abu Dhabi oil Pipeline ending at the port of Fujairah.
Back to the draft bill: According to a top Iranian Naval commander, the country would not close the Strait as it is vital for its economy too. Yet, Iran does have the capability to disturb oil supplies and prices by different threats. This bill could well be the beginning of a formal start to a series.
Before that, what is Strait of Hormuz? The Strait of Hormuz is a strategic shipping route connecting Persian Gulf to the Arabian Sea and Gulf of Oman. The US Energy Information Administration characterizes the strait as "the world's most important oil chokepoint." In 2011, the strait witnessed a daily flow of 17 million barrels of oil per day. This is almost 20% of world's traded oil and roughly 35% of all seaborne traded oil, the agency reports. Further, the EIA estimates that on an average, 14 crude tankers pass through the waterway per day, with almost the same number of empty tankers entering it. The chokepoint? At the narrowest point, the Strait is just 21 miles wide. Blocking this neck, theoretically at least, is an easy possibility for Iran, cutting away nearly one fifth of the world's traded oil. Note also that this is a major shipping route for crude exported from Saudi Arabia (the world's second largest oil exporter), Kuwait, Iraq, Qatar and UAE. Almost 85% of the export is for Asian markets like Japan, India, South Korea and China.
The draft bill is said to be Iran's retaliation for the economic sanctions imposed on it by the US and European Union. The sanctions aim to curtail Iran's nuclear ambitions, especially using Uranium to develop weapons. Iran, meanwhile, insist that the reactors are for medical and electricity uses only.
Could Iran close the Strait?
The answer is an emphatic no. After all, the US' Fifth Fleet is stationed nearby. Iran would only be giving excuses for an invasion. In addition, leaked US diplomatic cables, from as early as 2010, show Saudi Arabia urging the US to attack Iran and destroy the nuclear programme (Thanks Wikileaks). Thus in the event of a war, the US may receive support even from the Arab world. Not a bad bargaining position for the world's superpower. On the other hand, if a blockade were to occur in the Strait even Iran's oil would stagnate. So, the new hostile resolution could be just empty noise.
Still, "just noise" from Iran could do a lot of damage to oil prices. Why does Iran create all these noises, empty or not? Mostly to increase oil prices to sustain oil revenues from China and India. Notwithstanding threats of US sanctions on institutions doing business with Iran and though China and India are actively looking for oil elsewhere, at present, a significant portion of their oil imports comes from Iran. Namely, 10% of India's total crude import and 12% of China's are Iranian (as of June). The higher the prices, the better it is for Iran. Remember the Arab Spring unrest and how Iran, together with Libya, managed to send oil prices to $128 a barrel? In the past, any threats from Iran, even if unfounded, have boosted the oil prices.
If Iran does choke the Strait, How?
Iran can block the narrow waterway by using mines, mini submarines, suicide squads or missile-ladden speedboats. Even one of these is enough to ignite a war in the region. Of course, a head-on confrontation with the US would be nothing short of suicide for Iran. Instead, it will certainly employ "guerrilla warfare", of the same kind it has supported for decades around the world with Hezbollah, Iraqi insurgents and Afghanistan. And the resulting uncertainty brought by the situation will disseminate panic sending oil prices higher.
Some guerrilla tactics Iran will likely employ:
harassing oil tankers in the Strait
using it as a leverage for nuclear talks with the world powers.
security search and checks of oil tankers. Other than delay, this could also create unrest in the region.
deploying Ghadir miniature submarines so they appear on tankers Sonars.
publicizing its intention to scatter mines in the strait. Even though Iran has an estimated 2,000 anti-ship mines, the mines don't have to be there. But a mere rumor will deter civilian tankers from cruising in the Strait.
No amount of US warship will prevent insurance companies to raise insurance premiums trough the roof on multi-billion tankers once it is known that Iran is acting with hostility in these waters and this will be enough to send the price of oil up. That's all Iran wants.
A similar situation, the "Tanker War", occurred 30 years ago. In 1984, Iraq attacked Iranian tankers and an oil terminal at Kharg Island. Iran retaliated by attacking Iraqi oil tankers. In what's known as the "Tanker war," the two countries attacked oil ports and oil tankers belonging to the other. The US and the then Soviet Navy entered the fray only in 1987, providing protection for Kuwait ships. US started acting against Iran and relations between the countries deteriorated from then on.
Unlike during the Tanker War, Iran is not in direct war with the US and western world. But it has indirectly been fighting US and western forces by supporting terrorism and Islamic insurgents on the theater of war and sees itself in a holy war against the West. Iran will likely employ the same deceitful tactics in harassing oil tankers and disrupting the distribution of oil. Forget Ideology - Iran needs the money.
Compared to western civilized societies, Iran remains in large an under-developed poverty-stricken nation ruled by ruthless theocrats. Since its non-competitive workforce is not a suitable tax base for its government's hegemonic aspiration, Iran has to rely almost exclusively of oil revenues to finance its government, police, army, hospitals and institutions. Most of its influence on the rest of the Arab worlds, its financial backing of Hezbollah is solely made possible by oil revenues. But cut these oil revenues and the proverbial goose that laid golden eggs is gone; without a market for its oil, Iran will likely face overwhelming domestic unrest leading soon to a civil war.
In fact, the US is all too familiar with the importance of the strait. Consequently plans are underway to develop alternative routes to bypass the strait. With US support UAE opened the new pipeline of Habshan-Fujairah in June 2012. This 220 mile long pipeline with a capacity of 1.5 million barrels a day is designed to bring oil from the UAE and Oman to the Fujairah export terminal, past the Strait of Hormuz. This port is well away from Iranian territorial waters and is guarded by the US fleet so that any possible threat can be addressed decidedly. The Saudi Arabian East-West pipeline from Abqaiq on the Red Sea, is another alternative, though the capacity is much less than the traffic in Strait of Hormuz. Considering that Iran's major clients are in Asia, one alternative is to transport oil through Suez canal. Expensive and dangerous, still a possibility. Iran too is building a new terminal at Bandar Jask in a bid to decrease the over reliance on the said strait. Oil can also be transported via the Iraq-Turkey pipeline. The UAE is also constructing the Abu Dhabi oil Pipeline ending at the port of Fujairah.
Back to the draft bill: According to a top Iranian Naval commander, the country would not close the Strait as it is vital for its economy too. Yet, Iran does have the capability to disturb oil supplies and prices by different threats. This bill could well be the beginning of a formal start to a series.
Could Oil be a safer investment than Gold?
How many people around the world with money to invest are going to continue to fall for the advice of so called experts calling for them to invest in gold?
Everyday, newspaper and television advertisements are enticing people to invest their capital in gold. They are backing up their advice with claims that investing in gold will safeguard their capital from high inflation. They also go further by telling prospective investors that investing in gold will protect their money and savings from turbulence in the world economy.
Unfortunately, a number of people are falling for this advice and are investing their money in gold without actually calculating the risks, and it must be said that there is now more risk than previously in using gold as an investment strategy. One of the main risks is the mind boggling amount of fake gold bars circulating. As reported by our partner site Gold-Quote.net, number of governments worldwide have been secretly carrying out audits of their gold reserves due to the fact that trading in fake gold has become a major criminal activity. The Chinese government has actually recalled its gold reserves being held by the Bank of England. However, ironically it is also a Chinese company which has been advertising the fact that they manufacture and sell fake gold based on an alloy known as tungsten. Their website, Chinatungsten Online, actually quotes the following, 'We are well accustomed to exploit more innovative applications of tungsten products. Gold plated tungsten is one of our main products.'
It is no surprise that the Chinese may be at the forefront of criminal activity involving gold, as approximately sixty percent of the world's supply of tungsten ore is mined in China. Tungsten is a dream product for those who wish to make a profit from scams involving fake gold. While gold's density is 19.3 g/cm3, tungsten's density is 19.25 g/cm3, only 0.26% lower and given any practical measurements this difference is impossible to discern.
Counterfeiters manufacture fake $480,000 400oz gold bars as follows: a brick of tungsten is cast, and a thick layer of gold is deposited via electrolysis, sealing all the edges and covering the whole surface. Although these gold bars resemble gold and contain on the surface approximately $50,000 worth of gold, they are not gold, and those that have mistakenly invested in tungsten filled bars or coins, thinking that it is a safe and lucrative investment, have been in for a nasty surprise.
But the Chinese are not the only culprits, in October 2009, it transpired that there were tungsten-filled gold bars in the gold reserve held in Hong Kong... shipped from the USA. In the past number of years, some UK based investment banks have actually pulled out of trading in gold commodities due to their concerns regarding the amount of fake gold circulating.
Criminals that are manufacturing and selling fake gold have been using such sophisticated methods, that even seasoned experts have been fooled. A number of US citizens have actually been calling for an audit of the Federal Reserves. One of the problems with identifying fake tungsten filled gold, is that it can only be detected by drilling the bar.
When there are concerns about fake gold in such world renowned banking institutions as the Bank of England and the US Federal Reserves, there can be little doubt that the criminals, trading this gold, have been helped along the way by insiders working in these institutions. There is so much red tape involved with these banking institutions that it is impossible fake gold would have been able to infiltrate their vaults without help from insiders.
Whereas there is no doubt that real gold is valuable, it is no longer the safe investment that it once was. Rumours which are currently circulating that GLD EFT very likely holds tungsten counterfeit bars among its 1117 metric tons make frightening reading. This is more gold than the central banks of China, Switzerland, Japan and Europe put together. A large number of Investment strategists are now convinced of the fact that investing in oil is a safer and more lucrative investment strategy than investing in gold. Our studies show that this view is certainly correct. No one wants to make counterfeit oil, as there is no money in it.
There is simply no substance known to man that produces as much energy per liter for as cheap as oil. Any attempt to make "counterfeit" oil, to manufacture such potent combustible material is guaranteed to cost more, a losing business proposition. So oil is counterfeit-proof because it is... cheap. On the other side crooks will always attempt to counterfeit gold and may turn a profit because it is... expensive (gold costs close to $1,200/oz today)and there are cheaper materials out there such as tungsten (only $20/lb) and "proven" modern manufacturing technologies that make counterfeited gold impossible to detect.
As a result of the high amount of criminal activity now involved in the gold commodities market, anyone who invests in gold is taking the risk that some of the gold they purchase, whether they physically hold it or not, may include fake gold.
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