As the gold bear market continues, the precious metal suffered a battering in speculative trading last week, breaking through the $1,100-an-ounce support level. Bullions ($1.7bn to be precise) melted away in a matter of minutes on futures exchanges in the US and Shanghai whilst Europe slept last Sunday, with the sell-off continuing through the week. The gold price has dropped -42% since its market peak in 2011, after investors flooded into the “safe haven” post financial-crisis. With a positive outlook for global growth, a rapidly strengthening dollar and hawkish statements from the Fed, investors are seeking returns from other asset classes. Perhaps the biggest mover of the market though, came from the People’s Bank of China declaring its current gold holdings were much less than analysts expected. Gold investors can no longer sit in their gilded cages as the price of this asset moves towards record lows.
Tuesday, July 28, 2015
Tuesday, July 21, 2015
The first half of the year has been good to oil producers as WTI rallied 11%, after falling 47% over the course of 2014. However, the rollercoaster ride in oil isn’t over yet. Despite some signs of correction, supply continues to flood the market. Saudi Arabia produced crude oil at a rate of 10.5m barrels per day in June, its highest in recorded history (since 1962). Last week’s deal with Iran is likely to add yet more fuel to an already oversupplied fire in the coming quarters. Lower oil prices will hurt producers, but, on the whole, the global economy continues to benefit from these lower energy costs. Hold on tight through the turbulent times ahead.
Tuesday, July 14, 2015
Wimbledon marks the start of the British summer but as the weather heats up, the UK economy is cooling off. In the Summer Budget 2015 last week, George Osborne introduced various supply-side measures including a Living Wage Premium, which could encourage corporates to improve their labour productivity. In response, the UK Office for Budget Responsibility revised its forecast for unemployment back up to 5.4% (after revising it downwards to 5.3% in the March Budget). But this downward revision stems partly from the anticipated increase in productivity - the forecasted average for 2015-2019 was revised upwards by 0.1%. The key to economic recovery in the UK is the return of productivity growth to a sustainable level. When, or rather if, output per worker returns to its pre-crisis trend is difficult to predict. Yet if achieved, game, set and match.
Monday, July 6, 2015
In recent weeks the Chinese stock market has hit the headlines for all the wrong reasons. Major indices have fallen significantly, with the shanghai composite, for example, is now down over 20% from its recent peak. Such was the scale of the run up, key indices of Chinese equities remain up by double since the start of the year. But where to now? Although there were pauses on the way up, history suggests that now the tide has turned, further downside awaits. This latest evolution in share prices bears a striking resemblance to the rally in Chinese equities that started in 2007 and lasted throughout that year. The similarities are so great that the correlation between the two series is almost prefect. Buyer beware.