FX COMMODITIES pick up again.
In my view the main argument against this thesis is that the global economy is currently going through a secular deleveraging
trend that has
few historical precedents. This deleveraging trend originates in advanced economies but has led to a gradual erosion of
emerging markets’ hitherto
impressive growth rates as well as their current account surpluses. As far as emerging markets are concerned, such development is arguably welcome as they rebalance their economies away from expor ts towards more domestically driven consumer demand. Yet over the last decade the bulk of the increase of demand for gold has come from China and
India. Thus, all other thing s equal, the transformation of emerging markets demand (and in par ticular the reduction of the current account surplus) is more likely to have a negative rather than a positive impact on gold.
Oil, emerging demand transformation and global supply boost
Oil, like gold, is another pretty wild card. Why has it remained so remarkably range bound in spite of continuous tensions with Iran, and the recent flare- up of tensions with Syria ? Should we expect a downward movement now that the Syrian crisis appears to have been brought
under even Iran seems control , and to be heading
towards a better understanding with the West ?
Many, including the International Energy Agency, argue that oil demand is
stil l
bound to remain strong because of the increasing number of emerging market middle-class consumers (especially Chinese) acquiring cars. It is difficult to deny that the growth of per capita income in emerging markets will be an important positive factor for oil prices. Yet, one should be cautious to extrapolate from the strong oil demand which occurred in the 60s and the 70s in the United States
and Europe, when
more and more families could allow themselves to buy a car. Emerging market consumers will not buy the same inefficient gas-guzzlers of the 60s and 70s. As virtually al l major car producers are now focussing on hybrids and electric cars, they are even likely to bypass the relatively more efficient cars most of us are currently driving.
Source: CEIC. GaveKal Data
Even before efficiency (supply- side) considerations wil l kick- in, global deleveraging (demand-side) considerations will exercise – also in emerging markets – a negative impact on oil prices. In fact, the shift from an expor t- driven investment economy to a domestic demand-driven consumption economy is, initially, not without pain.
26 FX TRADER MAGAZINE October - December 2013
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