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Thursday, February 18, 2010
Tax Saving - Planning Options for Employees
EPF and PPF
Returns: 8.5% (EPF) and 8 per cent (PPF) per annum
Maximum deduction: Rs 1 lakh for EPF; Rs 70,000 for PPF
Income: Tax-free
It's compulsory and it's safe. However, in March, the Employee Provident Fund's (EPF) chief importance is that it automatically reduces the amount you must invest to exhaust the Rs 1 lakh limit. Jokes apart, the EPF has several advantages for taxpayers. To begin with, it offers a steady return of 8.5 per cent. Secondly, you cannot withdraw the money until you retire or change your job. This means you are exploiting the power of compounding to the fullest over your career span.
The best part is that the interest and the withdrawals are tax-free, a benefit available only in a couple of other products.
All these features make the EPF ideal for investing for a retirement corpus. However, if you really need the money, the authorities have the discretion of allowing you one withdrawal during your career even if you haven't changed your job or have not retired. For this, you must submit proof of expense for which the withdrawn amount will be used. Typically, a trans-Europe trip does not qualify as adequate reason for dipping into the EPF. If these features seem attractive, you can increase the contribution to the EPF from the mandatory 12 per cent to 25 per cent of your basic salary.
The returns from the Public Provident Fund (PPF) are slightly lower at 8 per cent per annum, but the interest and withdrawals are tax-free. The advantage over the EPF is greater flexibility of withdrawals. The maturity period of the PPF is 15 years. However, you can dip into the fund from the seventh year onwards. The maximum limit of withdrawal is 50 per cent of the account's balance as in the previous year or in the previous three years, whichever is lower. The cut-off date for calculating the balance is March 31, the last day of the financial year.
In case you want the money before the seventh year, you can take a loan from the account up to 25 per cent of the balance in your account in the third year. The loan must be repaid in a maximum of 36 EMIs. The interest on the loan works out to 12 per cent. As the interest on the money is not redirected to the PPF, it may be good idea to avoid taking a loan.
Five-year FDs and NSCs
Returns: 7-8%
Maximum deduction: Rs 1 lakh
Income: Fully taxable
The National Savings Certificates are currently on a par with the PPF in terms of pre-tax returns. But they lose out to the PPF and EPF because the returns are taxable, thus reducing the post-tax yield. Needless to say, they are equally safe and have the advantage of a shorter lock-in period of six years.
The tax treatment of NSC income makes all the difference for taxpayers who have an income that falls within the 30 per cent tax slab. However, if you are a retiree or have an annual income lower than Rs 3 lakh, the tax rate is marginal (only 10 per cent, plus 3 per cent cess). Five-year fixed deposits also have a short lock-in period and offer almost the same returns. The difference is that the interest rates of FDs are more variable and the deposits in private banks are not as safe.
Senior citizens' savings scheme
Returns: 9 per cent per annum
Maximum deduction: Rs 1 lakh
Income: Fully taxable
Whether or not you are looking forward to a retired life, there is one sure reason to celebrate. It is called the Senior Citizens' Savings Scheme, which offers a higher rate of returns 9 per cent than most bank deposits. Though the income is taxable, it is unlikely that you will pay tax because the exemption limit for senior citizens is Rs 2.4 lakh per year.
The twist is that though you are eligible for earning 9 per cent interest after the age of 60, the tax exemption limit comes into effect only after you complete 65 years. Never mind this minor problem. The impact of the extra tax paid in five years will be minimal compared with the long-term benefits of this scheme. So do not ignore this option if you are planning a carefree retired life.
Equity-linked saving schemes
Returns: Market-linked
Maximum deduction: Rs 1 lakh
Income: Tax-free
They have been in the recovery mode since 2009, giving returns of about 76.1 per cent last year. This bounceback from the lows of 2008 (the ELSS funds lost 55.5 per cent on an average) proves that long-term investors cannot overlook the ELSS for saving tax. The returns offered by these funds are unmatched by any other tax-saving instrument. Of course, they have the same risk profile as other equity funds. However, you can play your cards right by choosing funds that have been consistent performers and by staying invested for long periods.
To further hedge your risk, you can invest via SIPs that give you the benefit of averaging out costs. This automatically makes tax planning a year-long affair, as it ought to be. You also have the option to choose dividend payouts for periodic payments. This doesn't affect the taxability of income as both dividends and capital gains at the end of the three-year lock-in period are tax-exempt.
Unit-linked insurance plans
Returns: Market-linked
Maximum deduction: Rs 1 lakh
Income: Tax-free
Last year, Ulips got a major facelift. The insurance regulator capped the difference between the gross yield and the net yield earned by a Ulip. The ceiling is 3 per cent for Ulips with a tenure of less than 10 years and 2.25 per cent for policies with longer tenures. However, mortality charges have been kept out of this calculation. The rule became effective from 1 January 2010.
Now that the steep charges are gone, you have hardly any reason to ignore this instrument that combines equity exposure, life cover and tax savings. In fact, if the Swarup Committee's recommendations are accepted, all the upfront commissions of Ulips will be phased out by 2011. Therefore, investing in this product will become more profitable. Understanding the features of this financial instrument is important to optimise its benefits. For instance, in addition to saving tax, Ulips can also act as an effective allocation tool. This is because Ulips allow investors to change the equity-to-debt ratio without any penalty for a fixed number of switches every year. Even if you are not market savvy and are unable to take the decision on your own, there are Ulips that change the allocation according to your life stage.
However, if you are looking at short-term returns, stay way from Ulips. This is because they may not be able to recover the upfront charges unless you stay invested for at least 10-12 years. Do not be swayed by agents who claim that you only have to pay premiums for a minimum period of three or five years. In this way, your corpus is not likely to grow enough and will only be able to pay the charges for the life cover.
Life insurance policies
Returns: 5-6%
Maximum deduction: Rs 1 lakh
Income: Tax-free
There may not be many advantages to the expensive endowment or money-back policies that your friend had recommended a few years ago, but there is one silver lining. The premium of the policy is covered by Section 80C of the Income Tax Act and is exempt from tax. This is not to say that you must buy such a policy now. If you are inadequately insured, opt for pure term plans, which are significantly cheaper than traditional policies. In fact, the premiums paid for all insurance policies that cover you, your spouse and dependent children are exempt from tax. But remember that experts are against buying insurance for saving tax alone. The latter should be an added advantage.
Pension plans
Returns: Market-linked
Maximum deduction: Rs 1 lakh
Income: Pension income taxable
It's a must-have for all investors. If your employer does not provide one, buy a pension policy that ensures a steady income after retirement. What can be better than earning tax benefits on the investment as well?
There are three types of pension plans to choose from. The first is the unit-linked pension plan. It offers greater control over your retirement corpus by allowing you to choose the mix of equities and debt according to your risk appetite. A unit-linked pension plan is not as costly as a Ulip because it does not offer life insurance.
However, keep in mind that on maturity, only 33 per cent of the corpus can be withdrawn tax-free. If you do not get gratuity, up to 50 per cent of the pension corpus can be commuted. You must use the balance to buy an annuity from an insurance company that will give a monthly pension.
This pension is fully taxable.
The second type of pension plan is offered as a mutual fund. In most of these funds, the money cannot be withdrawn before the investor turns 58. Even if early withdrawals are allowed, you have to pay a penalty. For instance, the Templeton India Pension Plan charges a hefty 3 per cent exit load on amounts withdrawn before the vesting age of 58.
The third option is the New Pension Scheme (NPS) launched with much fanfare in 2009. However, it is yet to attract investors in hordes. To know more about why the scheme has been a non-starter, read our story 'All you Need to Know About Pension' on our Website, www.moneytoday.in. Sign up only if you are convinced that the NPS has the potential to take care of your pension needs. The contributions fall within the Section 80C ambit.
Home loan EMI
Maximum deduction: Rs 1 lakh
For the past few months, the hefty home loan EMI had been one of the most important reasons employees feared the job axe. Now, the same EMI is cause to rejoice. The cumulative principal of your EMIs is eligible for a Section 80C deduction. This is usually a large amount and, along with the Provident Fund, should take care of most of your Rs 1 lakh limit. If you also factor in the deduction available under Section 24 on the interest paid, the effective loan rate comes down significantly.
Another way to increase the benefit is to take a joint loan with a sibling, spouse or parent. This way, both coowners of the property can claim individual tax benefits on the home loan. A word of caution: do not let tax saving inspire you to extend your loan tenure. It is equivalent to spending more to get a discount. The shorter the tenure of a mortgage, the better it is.
Tuition fees
Maximum deduction: Rs 1 lakh
The ever-increasing school fees of your children could burn a hole in your wallet. There is some respite because the tuition fee of up to two children is taxdeductible. Note that only the tuition fee is included. Other myriad charges in various forms, such as the building development fee, bus fee, etc, are not eligible for deduction. Another rider is that the fee must be paid to a recognised educational institution in India. This means that playschools, foreign colleges and private coaching classes do not qualify. Also, the fee must be paid for the taxpayer's children, not siblings, nephews, nieces or grandchildren.
The benefit cannot be availed of by both the parents. If there's one child, only one of the parents can claim tax benefits on the school tuition fee. Otherwise, each parent can claim tax benefit for different children. Even so, the tax benefit is helpful, especially for those who can't save enough to cut taxes.
via Indiainfoline/Money Today
Daily News Roundup - Feb 18 2010
RIL may be forced to hike its bid for LyondellBasell as creditors of the bankrupt US Company have reached an agreement with the current management. (ET)
ONGC, IOC and Oil India will initially invest US$2.25bn in the recently bagged Venezuela project. (ET)
NMDC and Arcelor Mittal are exploring an opportunity for a joint mining project in Africa. (FE)
REC has fixed a floor price of Rs203 for its forthcoming FPO. (ET)
AXIS Bank has sought government permission to set-up a subsidiary in UK. (ET)
Government has promised its support to Bharti Airtel in its attempt to acquire the African operation of Kuwaits Zain Telecom. (ET)
HDIL has received an approval from government to develop a slum rehabilitation project in Mumbai. (ET)
BHEL has signed a MoU to form 50:50 JV with Japan’s Toshiba for manufacturing equipment for power T&D business. (ET)
Spice Mobile to buy 65% stake in a new JV that would own smart phone brand Blueberry and two manufacturing units of Malaysia CSL mobile. (ET)
REpower Systems, majority owned by Suzlon, has signed an agreement with French wind and solar power developer EOLE-RES SA, for the supply of 26 turbines with a total capacity of 52 MW. (BL)
Tata Steel expects to commission the Rs24bn Dhamra Port in Orissa by July. (BL)
NMDC is set to revise its pricing policy from April 1. (BS)
NMDC is looking at clocking Rs300bn turnover by 2014-15 when its various projects worth Rs260bn would be operational. (BS)
Ashok Leyland is set to enter into construction equipments business in JV with John Deere. (ET)
BHEL to hire 8,000 people in the next two years to meet growing domestic demand. (ET)
Abbott labs has announced an open offer to acquire 20% of Solvey Pharma India at Rs3,054 per share. (ET)
Union Bank of India will price its public issue in a range of Rs60-66 per share. (ET)
JK Lakshmi Cement to raise Rs6bn via ECBs and rupee term loans in the next quarter to finance its Greenfield projects. (ET)
Mahindra Satyam is looking to hire around 5,000 people, including freshers and experienced professionals, by the end of next month. (BS)
Havells India plans to produce ceramic metal halide (CMH) lamps which are designed for indoor and outdoor lighting applications. (BS)
Novartis is looking to buy out the remaining stake in US-based eye care group Alcon by the end of this year. (BS)
Areva T&D India has been awarded a Rs1.2bn contract for electrical Balance of Plant (eBOP) by L&T Power for state utility, Madhya Pradesh Power Generating Company Ltd. (BS)
L&T General Insurance is ready to launch its operations in the next three-five months. (BS)
SpiceJet will start flights on international routes by this year if it receives all the requisite approvals. (BL)
Chettainad Cement is planning to raise its capacity to 25mtpa by 2020 from 8.5mtpa currently. (ET)
Government to ban FDI in Tobacco sector. (ET)
Prime minister’s economic advisory council has pitched for a single Cenvat rate, which would be higher than the current 8%. (ET)
India has retained its top slot in gold consumption. (ET)
Tax heavens pose a threat to security because of their complex and secret laws, says the finance ministry. (ET)
Government is considering selling part of its stake in PSU banks to LIC and GIC. (FE)
Banks want the deadline for the implementation of base rate to be extended by three months. (FE)
The government is confident that food prices will start easing from April when the rabi harvest hits the market. (BS)
The government has removed cap on the number of players who can participate in financial bidding for port expansion projects under public private partnership (PPP) to minimise litigations and get better returns. (BS)
According to the Finance Minister, India’s economy is poised to grow by 7.5% this fiscal and will top 8.5% in the next on the back of a strong industrial recovery, said. (BS)
The Designated Authority in the Commerce Ministry has recommended a modified definitive anti-dumping duty on nylon filament yarn mainly from Malaysia. (BL)
Avoid the risk
What you risk is what you value.
Though the world has weathered the financial storm well so far, one cannot convincingly say that we are out of the woods. For every 2-3 good news there is one bad news. China is overheated while Europe is facing certain debt issues. The US is growing but the quality of recovery is questionable. Unemployment is still pretty high in the matured economies.
For India, the big issue is inflation and its broader economic fallout. Interest rates are set to head north, slowly but surely. The Government has limited elbow room as fiscal deficit is not sustainable. With the economy doing well, a partial rollback of fiscal stimulus is definitely on the cards.
We expect a subdued opening owing to mixed global cues. Asian markets are down mostly, barring Japan. Chinese markets will resume trading next week. US stocks closed higher and European stocks rose for a third straight session. We expect a choppy session with a slightly positive bias. Budget will be a crucial event as will be the monsoon.
The NSE Nifty may find immediate support at 4895 and could face resistance at 4950. Beyond 5000, it will meet resistance at 5018 and later at 5045. In case of a major fall, 4700 should act as a good support. We see a near-term trading range of 4800 and 5000.
FIIs were net buyers in the cash segment on Wednesday at Rs5.2bn on a provisional basis while the local funds were net buyers of Rs1.97bn, according to figures published on the NSE's web site. In the F&O segment, the foreign funds were net buyers of Rs7.77bn. On Tuesday, FIIs were net buyers of Rs2.57bn in the cash segment, while Mutual Funds were net sellers at Rs590mn, according to SEBI web site.
US stocks closed up on Wednesday, as investors considered a better-than-expected housing report, a mixed forecast from the Federal Reserve and some upbeat company news. The dollar firmed up, hitting dollar-traded oil, gold prices and stocks. Treasury prices plunged.
The Dow Jones Industrial Average rose 40 points, or 0.4%, to end at 10,309.24. The S&P 500 index rose 5 points, or 0.5%, to close at 1,099.51. The Nasdaq Composite index edged up 12 points, or 0.6%, to 2,226.29.
The dollar rose for a second day against the euro as signs that the US economy is gaining momentum fueled speculation that the Fed is moving closer to withdrawing stimulus measures. The dollar gained versus the euro and the yen, pressuring dollar-traded commodity prices.
US light crude oil for March delivery rose 32 cents to settle at $77.33 a barrel on the New York Mercantile Exchange.
COMEX gold for April delivery rose 30 cents per ounce to settle at $1,120.10.
Treasury prices tumbled, raising the yield on the 10-year note to 3.74% from 3.66% late on Tuesday.
US stocks clung to modest gains throughout the session as investors weighed the day's news against the headwinds that have punished stocks year-to-date.
Stocks rallied on Tuesday after Merck and Barclays released better-than-expected results and commodity prices rose. The Dow gained 1.7%, or 170 points, for its biggest one-day point gain since Nov. 9.
Tuesday's advance was an exception, and stocks have had a rough start to the year, with the Dow, Nasdaq and S&P 500 posting declines for four of the last five weeks. Concerns about the strength of any recovery have continued to worry investors.
While quarterly profit reports have been good, the economic news has been mixed. The economic recovery has been good, its not going to be as strong as had been anticipated.
In 2009, the Dow gained 18.8%, the S&P 500 rose 23.4% and the Nasdaq gained 44%. But the gains were even bigger off the multi-year lows of last March, with the Dow rising 59%, the S&P 500 rising 65% and the Nasdaq rising 79%.
The Fed released the minutes from its last policy meeting in the afternoon, as well as its revised economic forecast. Chairman Ben Bernanke and the other officials said unemployment should decline only modestly over the next few years, keeping the unemployment rate above the level that is typical during a recovery.
The US bankers also gave a slight boost to forecasts for economic growth this year, lifting the target to growth of between 2.8% and 3.5% in 2010 versus November forecasts for growth between 2.5% and 3.5%.
Housing starts rose 2.8% in January to a 591,000 annual unit rate, according to a National Association of Home Builders report released Wednesday morning. Economists thought it would rise to a 580,000 unit annual rate from a 575,000 unit annual rate in the previous month.
Building permits, a measure of builder confidence, fell 4.9% to an annual unit rate of 621,000 in January, versus forecasts for a drop to a 620,000 unit annual rate. Permits stood at a 653,000 unit annual rate in the prior month.
Industrial production rose 0.9% in January after rising 0.7% in the previous month, the government reported Wednesday. Economists thought it would rise 0.7%. Capacity utilization rose to 72.6%, as expected, from 71.9% in December.
Deere & Co. reported higher quarterly earnings that topped estimates on lower revenue that also topped estimates. The heavy equipment maker said that cost-cutting and the benefit of better currency rates helped offset the weak economic environment. Deere also boosted its 2010 sales forecast.
Walgreen said that it will buy rival drugstore Duane Reade in a deal valued at $1.08 billion including debt.
Toyota said that it plans to install a new brake override system in its cars, and that it will tighten controls on safety, in the aftermath of its recall of millions of autos due to faulty brakes. However, President Akio Toyoda said he won't testify before Congress at the hearing later this month. Shares of Toyota fell nearly 3%.
After the close, Hewlett-Packard reported higher quarterly earnings and revenue that topped expectations. Shares gained 1% in extended-hours trading.
Thursday brings the weekly jobless claims report from the Labor Department, the index of leading economic indicators (LEI) from the Conference Board, the January Producer Price Index (PPI) and the Philadelphia Fed index.
In addition, Wal-Mart Stores reports results before the start of trading. The retailer is expected to have earned $1.12 per share versus $1.03 a year earlier.
European shares advanced for the third straight session, boosted by strong earnings data from the financial sector. After rising 1.4% over the first two sessions of the week, the pan-European Dow Jones Stoxx 600 index added another 1.4% to close at 247.69. That move pared year-to-date losses to 2.4%.
The UK's FTSE 100 index rose 0.6% to close at 5,276.64, the German DAX index finished 1% higher at 5,648.34 and the French CAC-40 index advanced 1.5% to settle at 3,725.21.
Indian markets witnessed smart follow through buying on Wednesday thanks to overnight gains in the US and firm cues from the Asian and the European markets. Benchmark indices extended winning streak to second straight trading session with the NSE Nifty reclaiming 4900 levels.
Nifty has now gained over 120 points in just two days. The decisive up move had the leadership of index heavyweights like Tata Steel, Hindalco, Sterlite Industries and HDFC Bank.
The Metals, Auto and the banking indices were among the top gainers among the BSE sectoral indices. The BSE Mid-Cap and BSE Small-Cap index added over 0.7% each. However, the IT and Realty index were under pressure.
Stocks to be added in the F&O segment were in momentum ahead of the inclusion. NSE announced in its circular that 11 new stocks would be added from February 19, 2010 which is just 5 trading session away from the current series F&O expiry.
Finally, the BSE Sensex advanced 202 points to end at 16,429 it hit an intra-day high of 16,480 and intra-day low of 12,248. While the NSE Nifty gained 58 points to end at 4,914.
Among the 30-components of Sensex, 22 ended in the positive terrain and 8 ended in the red.
Outside the frontline indices, the big gainers in the broader market were Videocon Industries, Godrej Ind, Mundra Port, Aban Offshore and Educomp. On the other hand, losers included IB Real Estate, Bharat Forge, CESC and NMDC.
Shares of Tata Steel surged by over 6% to end at Rs584 after posting a group profit for the first time in four quarters.
The Group posted a profit after Minority Interest and Share of Profit of Associates of Rs47.26bn for the quarter ended December 31, 2009 as compared to Rs81.38bn for the quarter ended December 31, 2008. Total Income decreased from Rs332.34bn for the quarter ended December 31, 2008 to Rs266.11bn for the quarter ended December 31, 2009.
Shares of Bharti Airtel rebounded after days of severe offloading. The stock gained 3% to end at Rs279. According to reports, the company said that the acquisition of Zain Group's African assets would result in a total payout of US$9bn, which includes any loans payable by the operating companies to Zain Group, stated reports. The scrip opened at Rs273 it touched an intra-day high of Rs281 and a low of Rs273 and recorded volumes of over 1.6mn shares on NSE.
Shares of Tata Motors gained 1.5% to end at Rs711 after the company yesterday announced that it was entering the business of combat vehicles manufacturing for the defence sector. The company is also reportedly planning to bid to supply light bullet-proof vehicles to the Indian Army, with a possible order size of Rs3.5bn.
The Auto major also plans to increase prices of its commercial vehicles by 1-2% from April when the new emission norms become effective.
Shares of HDIL was absolutely unchanged to end at Rs314. Media reports stated that the company secured new slum rehabilitation project worth Rs20bn in Mumbai. The scrip opened at Rs316 it touched an intra-day high of Rs322 and a low of Rs311 and recorded volumes of over 7.2mn shares on NSE.
Bank of Baroda reportedly obtained a US$175mn term loan due 2013. The bank had canceled its planned sale of bonds denominated in U.S. dollars this month. Credit Agricole CIB, HSBC Holdings Plc and Standard Chartered Plc arranged the facility, stated reports.
The stock gained 1.1% to end at Rs577, it opened at Rs575 it touched an intra-day high of Rs580 and a low of Rs572 and recorded volumes of over 0.49mn shares on NSE.
Shares of ThinkSoft Solutions were locked at 20% lower circuit yet again. The stock has dropped over 40% in the two das. The scrip opened at Rs390 it touched an intra-day high of Rs390 and a low of Rs317.7 and recorded volumes of over 82,000 shares on NSE.
After surging over 300% from the time of its inception, shares of ThinkSoft Solutions is witnessing heavy selling. The stock had debuted at Rs100 a discount of 20% over the IPO of Rs125 per share.
Shares of Golden Tobacco are locked at 5% upper circuit to end at Rs139.40 after its board approved a plan to develop its north Mumbai property and move its manufacturing facilities to a new location. The scrip opened at Rs136.6 it touched an intra-day high of Rs139 and a low of Rs133.7 and recorded volumes of over 42,000 shares on NSE.
United Bank of India sets IPO price band at Rs 60-66 a piece
IPO remains open for bidding between 23 and 25 February 2010
State-run bank United Bank of India has reportedly set a price band of Rs 60- 66 per share for initial public offer (IPO). The IPO remains open for subscription between 23 and 25 February 2010.
United Bank of India is looking to raise Rs 350 crore by selling 5 crore equity shares of Rs 10 each in the proposed IPO, reports added.
Following the IPO, the government's stake in the Kolkata-headquartered bank would come down to 84.20%, from the current level of 100%.
Credit rating agency, CARE has assigned grade '4' for the IPO, indicating above average fundamentals.
Omax Auto
Investors with a short-term trading perspective can buy the stock of Omax Auto. The stock formed a medium-term peak at Rs 71 on January 11 and is in a medium term downtrend since then. This downtrend halted above the long-term 200-day moving average at Rs 44 after it had retraced about 46 per cent of its prior up-move. That makes it likely that the nascent uptrend from the February 8 low can sustain for a few more sessions. It is apparent from the daily chart that after a two-session halt, the short-term uptrend resumed on Wednesday. The stock has the potential to rally higher towards its 50-day moving average positioned at Rs 57 in the near-term. Movement of the oscillators in daily chart support the continuation of the current up-move. Daily moving average convergence divergence oscillator has just generated a buy signal while the rate of change oscillator is on the verge of moving above the zero line. This stock can be bought with the stop at Rs 48.5 and the targets of Rs 55 and Rs 57.
via BL
Economic data pushes crude higher
Prices crawl up despite a strong dollar
Stronger than expected economic data pushed crude prices higher on Wednesday, 17 February 2010. Prices ended higher despite a strong dollar.
On Wednesday, crude-oil futures for light sweet crude for March delivery closed at $77.3/barrel (higher by $0.29 or 0.4%). During intra day trading, prices rose to a high of $77.82. Last week, crude gained 4%. In January 2010, crude ended lower by 8.3%. On a year to date basis, crude is lower by 2.3%.
In the currency market on Wednesday, the dollar index, which weighs the strength of dollar against the basket of six other currencies rose by almost 1%.
Among economic report scheduled for the day, The Labor Department in US reported on Wednesday, 17 February 2010 that the prices of goods imported into the United States jumped 1.4% in January, the sixth straight increase. The increase was led by higher prices for oil and gas. Also, The Federal Reserve in US reported on Wednesday that industrial production registered a 0.9% increase in January 2010, the seventh straight monthly gain. For the past year, industrial production has also risen by 0.9%. The report showed that manufacturing output had the sharpest increase since August, but all major subcomponents of production showed improvement.
Separately, the Commerce Department in US reported on Wednesday, 17 February 2010 that housing starts in US rose 2.8% to a seasonally adjusted annual rate of 591,000, the highest level since July. Housing starts for December were revised higher. In December, starts were revised to an annual rate of 575,000, up from 557,000 previously.
In the latest monthly report, Paris-based IEA reported last week that it expects global oil demand this year to be 170,000 barrels a day higher than previously expected. Demand is estimated at 86.5 million barrels a day, representing an increase of 1.6 million barrels a day compared with 2009 levels.
Among other energy products on Wednesday, gasoline for March delivery increased 1.97 cents, or 1% to $2.0079 a gallon in New York. Heating oil for March delivery gained 1.02 cents, or 0.5% to $2.0065 a gallon.
Crude ended FY 2009 higher by 78%, the highest yearly gain since 1999. It reached a high of $82 earlier in October 2009 and hit a low of $33.98 on 12 February 2009. Oil prices had reached a high of $147 on 11 July, 2008 but have dropped almost 48.8% since then. Crude prices had ended FY 2008 lower by 54%, the largest yearly loss since trading began at Nymex.
At the MCX, crude oil for February delivery closed Rs 16 (0.45%) higher at Rs 3,559/barrel. Natural gas for February delivery closed lower by Rs 1.1 (0.44%) at Rs 247.4/mmbtu.
Mixed end for precious metals
Gold rises marginally but silver slips
Yellow metal prices ended little higher on Wednesday, 17 February 2010. Gold gave up earlier losses and ended higher for the day despite a strong dollar. Silver fell for the day.
Generally, a stronger dollar pressures demand for dollar-denominated commodities, such as crude oil and gold, which become more expensive for holders of other currencies and also vice versa.
On Wednesday, gold for April delivery ended at $1,120.1 an ounce, higher by $0.30 (0.02%) an ounce on the New York Mercantile Exchange. Last week, gold gained 4%. For January 2010, gold lost 1.2%. Year to date, gold is higher by 2.5%.
On Wednesday, March Comex silver futures ended lower by 5 cents (0.3%) at $16.098 an ounce. Last week, silver ended higher by 4.1%. In January 2010, silver shed 3.9%. Year to date in FY 2010, silver has dropped by almost 0.9%.
In the currency market on Wednesday, the dollar index, which weighs the strength of dollar against the basket of six other currencies rose by almost 1%.
Among economic report scheduled for the day, the Labor Department in US reported on Wednesday, 17 February 2010 that the prices of goods imported into the United States jumped 1.4% in January, the sixth straight increase. The increase was led by higher prices for oil and gas.
The World Gold Council reported on Wednesday that demand for gold climbed 2.6% in the fourth quarter from the prior three-month period. Gold consumption increased to 819.7 metric tons with prices averaging 15% more on a quarter-to-quarter basis. Conversely, demand for gold fell 24% in the fourth quarter from a year ago, and was down 11% in 2009 versus the year earlier.
Gold had ended FY 2009 higher by 24%. Silver futures had ended 2009 up 50%. The dollar index had lost 4.2% against its counterparts last year.
Last year, after hitting a low at $807.30 per ounce on 15 January 2009, gold futures rallied almost 51% to hit an all-time high at $1217.40 per ounce during early December of 2009 but fell from those levels at the end. Silver futures had hit a low at $10.42 on 15 January 2009 and hit a high at $19.30 per ounce on 2 December 2009. Like gold, silver also ended lower than its all time high level.
At the MCX, gold prices for April delivery closed higher by Rs 25 (0.14%) at Rs 16,756 per ten grams. Prices rose to a high of Rs 16,850 per 10 grams and fell to a low of Rs 16,664 per 10 grams during the day's trading.
At the MCX, silver prices for March delivery closed Rs 151 (0.6%) lower at Rs 25,047/Kg. Prices opened at Rs 25,090/kg and fell to a low of Rs 24,770/Kg during the day's trading.
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