COMMODITIES NOW
What Happened to Gold Then? Gold prices have remained stubbornly low
given the turmoil of recent weeks (even in the face of a stronger US dollar). So why can’t this interloper to the commodity party get to dance to a higher octave? “More than ever before, precious metals
markets are being driven by what the Fed may or may not do and that is simply a reality that traders and long-term investors must deal with, that is, until the US gets a little closer to the ‘fiscal cliff’ at year-end,” according to Tim Iacono, founder of investment website Iacono Research. That’s when potential credit
While the US economy may be looking in
better shape (certainly compared to Europe), the gold market still harbours hopes of further US QE and the likely subsequent weakening of the US dollar. “Admittedly, the price of gold has not
yet benefited as much as we had expected from the eurozone crisis, so we are lowering our projections,” say Capital Economics. Nonetheless, they still forecast a fresh surge to new highs around $2,000 by year-end. “While the main source of macroeconomic
Total Commodity Assets Under Management (US$ bn)
100 150 200 250 300 350 400 450
50 0
Q1 06 Q1 07 Q1 08 Q1 09 Q1 10 Q1 11 Q1 12 Source: Barclays Capital
downgrades and a sinking trade weighted US dollar could have a far larger impact than a few Fed speeches about whether the US economy needs further support, he suggests. In the absence of more countries joining
China and Australia in rate cutting – especially the US – the gold price will continue to be pushed around by traders’ speculations on easing.
... the confidence of old for the natural resource market looks more and more drained by the day
“The fundamental issues remain that global
growth has entered a soft patch, sovereign funding costs in many European countries have continued to rise, the US fiscal policy has been tightened, and China’s excess capacity has jumped,” according to bullion specialists Sharps Pixley. For them, the world may well come to a loosely-coordinated monetary easing and with such low real interest rates and bond yields, gold could stands out as a cheaper alternative asset.
8 June 2012
Medium term notes Exchange traded products Commodity index swaps
uncertainty is currently the euro area, another major source of uncertainty will become present later this year in the US. The so called ‘fiscal cliff’ built into current law,” Societe Generale’s commodity research experts conveniently remind us. This could potentially shave as much as 3% from next year’s US economic growth they suggest. So with the prospect of the Fed launching QE3 soon, gold should rally.
Crisis Call Commodity fundamental have now
taken a back-seat to the surrounding macro world, as well as sentiment towards the sector. While prices will ultimately remain firmly anchored to fundamentals, irrational movements away from what analysts expect are more inevitable now than ever.
Jeffrey Currie and his team at Goldman
Sachs may be more upbeat than others (after calling the market down in April), believing that price risks are now shifting more to the upside and “moving back to a near-term overweight recommendation.” But the reality is that, in the grand scheme
of things, this marketplace looks more fragile than I have ever encountered. And particularly in China where overcapacity, irrational investment, over-stretched finances, and vast monetary overhang plague the economic landscape. As Corrigan recently reminded me, sehr
berühmte Jim O’Neill was recently touting that; “the BRICS create one new Greece every 11½ weeks”. He responds: “OK, but what if they are now UN-Creating one over quarter Jim? What does your ‘model’ say, then, pray?” •
Guy Isherwood is Publisher & Editor of Commodities Now.
www.commodities-now.com
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