INVESTMENT OPPORTUNITY
Trading summary Gold ($/oz) 1,760 1,720 1,680 1,640 1,600 1,560 2012
1,520 Jul
Aug
Sep
Source: Zawya/Dow Jones
Oil Opec Basket ($/bbl)
116 112 108 104 100 96 92
1/07/2012
1/08/2012
1/09/2012
88
Source: OPEC
Currencies - INR/$ 57 56 55 54 Jul
Aug
Sep
Source: Thompson Reuters
Currencies - $/GBP 1.62 1.60 1.58 1.56 1.54 Jul
Aug
Source: Thompson Reuters
Sep
Gold glows thanks to QE3 but Robin Amlôt glowers... GOLD
The announcement in September by the US central bank, the Federal Reserve, of an unspecified, open-ended quantitative easing programme (QE3), pumping more dollars into the economy together with an extension of the rate guidance for the near-zero interest rate policy until mid-2015 had the kind of effect you would expect. Add in illegal strikes in South Africa’s mines and the gold price decisively moved up out of its summer range. At the time of writing, gold is just off its high for 2012 in dollars and has already set a new record high in Euro terms. There is ‘technical momentum’ behind the rally in the short term with the sighting of a positive ‘golden cross’ – this is when the short-term moving average price rises above the long-term moving average price in heavy trading volume – a sign of a bull market to come. Gold, it would seem, has further to go.
OIL
The oil price has now rallied from it summer lows. Mario Draghi’s pledge to do whatever it takes to save the Euro helped – as did Ben Bernanke’s decision to unbutton the Fed’s wallet with QE3, the sequel to the sequel. Balancing this we have the news that Saudi Arabia will turn on the taps a little to offer more oil to the market – that’s what took the steam out of the oil price in September. We are now heading into the northern hemisphere’s winter when demand traditionally rises. Saudi remains the key player as far as medium-term price prospects are concerned. The usual suspects also remain in play: the Chinese economy; Iran and associated geopolitical jitters; and uncertainty in the US ahead of the Presidential election.
CURRENCIES
Alongside the dollar’s slide you may set the Indian Federal Government’s package of tax cuts and tax reliefs. Tax on overseas loans has been cut and plans approved to offer tax relief to retail equity investors (that was also good news for the Sensex). The effect was to see the INR back to flirting with levels against the dollar that it hadn’t been near for best part of the last five months. Inflation is still an issue but while cutting the required cash reserve ratio for lenders, it looks as though the Reserve Bank of India will hold the line on interest rates. I’ve spent the last couple of issues commenting on the EUR, now I’m back to the GBP. On a personal note, a big shout-out to Ben Bernanke for QE3, helping to make my GBP-denominated mortgage back in the UK more expensive as the dollar falls; what I won’t tell you is exactly what I am shouting! However, the UK economy still looks fragile and it is not impossible that the Bank of England will announce more QE measures of its own. It seems unlikely the GBP will add significantly to its September gains against the dollar.
22 ISSUE EIGHTEEN-OCTOBER/NOVEMBER 2012
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