Hopes are up and so stock markets...Will they get a second helping from the Fed today? They think so and so does gold... It hit a third consecutive all time high reports the FT when the London spot price rose to $929.40 this morning. Supply disruption in South Africa also helped though jewellery demand at this elevated level is flat. As we noted before...those canny Indian housewives are sellers...
Hopes are up and so stock markets...
Will they get a second helping from the Fed today? They think so and so does gold... It hit a third consecutive all time high reports the FT when the London spot price rose to $929.40 this morning.
Supply disruption in South Africa also helped though jewellery demand at this elevated level is flat. As we noted before...those canny Indian housewives are sellers.
But demand from the Middle East and Asia remains “robust” says Gold Investments in their latest bulletin. The gold trade rose 29% in Dubai over the past year they note and the Qatari central bank has been recycling petrodollars into gold. They are not alone. Central banks remain the largest holders of gold and are likely to become net buyers again in an effort to hedge themselves.
All this is good if you own some, not so good if you don’t and positively bad if you sold a while back. Step forward Gordon Brown...or “Golden” Brown as he subsequently became known for his disastrous decision to sell off 395 tonnes of the 715 tonnes of the UK’s gold reserves at the bottom of the market.
The Treasury averaged $275 auction price between 1999 and 2002. Add to that the fact the proceeds were recycled into dollars, euro and yen currency holdings doesn’t add to its credit... or the accusation that it was done with one eye on joining the euro. Miss Haruko Fukuda, the chief executive of the World Gold Council, criticised the decision at the time saying:
It (gold) has been held as a reserve for thousands of years. Its value does not rely on anybody else's promise to pay, unlike cash, and it builds public confidence."
Relying on a promise to pay and building public confidence are two comments to strike a chord in today’s turbulent markets. By our reckoning the proceeds from those sales would have been $3.8bn at the time against a value at its current level of $12.9bn. A notional loss of $9.1 or about £4.5bn on the trade...
And some leading voices say the gold price will hit $2,000 before it is over...
Silver, too, is shining bright. As we mentioned before, silver is James Turk’s pick for 2008 and it hit a 27-year high of $16.76.
Meantime the strains are starting to show amongst central bankers. Public signs of disagreement are beginning to appear. In the UK, David ‘Danny’ Blanchflower of the Bank of England’s Monetary Policy Committee says the level of UK rates is “restrictive” and accuses co-members of falling behind the curve in cutting interest rates. In effect, “fiddling while Rome burns”.
Blanchflower’s views chime with those expressed recently on TV by ex-MPC member DeAnne Julius, a British-based American economist. She called for an immediate 50 basis point cut. Blanchflower has lived in the US since 1989. Is their American-style dynamism for a more pro-active monetary policy the right one for the UK? The consensus call is still a slowdown rather than a recession and, to date, Goldman Sachs hasn’t told us we’re in one. Stephen Lewis, chief economist at Insinger de Beaufort, says in The Telegraph when it comes to choosing between recession and unhinged inflation expectations...inflation still has the upper hand:
“Surveys are telling us we're on the cusp of a wage-price spiral. The reality is there are few signs of slowdown in the UK, and plenty of signs of inflation.”
And the impression remains the MPC are still taking the inflation fight as its top priority whereas in the US it has been relegated to the greater need of salvaging the economy.
Over at the European Central Bank, the Latin nations ‘have begun to mutiny’...led by the Spanish where the property market is already falling and unemployment has risen to 8.6%.
*** So, Mr Job Applicant, you have “A” levels from the McDonald’s school in co-ordinated burger flipping, gherkin slicing technologies and “Happy Meal” assembly, a degree in money market borrowing from Northern Rock and a Masters in casino management from Societe Generale...
Excellent. When can you start in our derivatives department?
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