Is the Price of Gold Heading for $2,300 an Ounce?

Is the Price of Gold Heading for $2,300 an Ounce?

 

Debate over the Fed’s recent QE2 maneuver has been generating some interesting volatility on commodity prices, particularly Gold. We’ve seen the US dollar gaining strength as investors anticipate the possibility of renewed inflationary growth in the US, but occasionally there is similar counter-pressure from investors working to price in the devaluation which must naturally accompany a money-printing policy such as QE2.

 

Commodity prices appear to be rising despite a strengthening USD, but there have been a few minor blips in downward movement amid growing concerns as to the effect of QE2. Moreover, the sudden weakness of the EUR in recent days, due to debt concerns in Europe’s periphery, has also added to these fluctuations in both the USD and commodity prices.

 

Previous articles have harped on the notion of a rising price of Gold, and nothing really seems to be able to change that analysis. We’ve seen Gold reach a nominal record high of $1,420 an ounce, even though its true record, after adjusting for inflation, was reached about 30 years ago.

 

What is interesting in this observation is the price reached at that time, in today’s dollars. When Gold took off in the 1980s, its value in today’s dollars was around $2,300 an ounce. If today’s price of Gold is heading in a similar direction, then right now may be the best time imaginable to open a Gold Trading Account and start making profits. What are you waiting for?

Australian Dollar Pullback Will Be Buying Opportunity, ING Says

Australian Dollar Pullback Will Be Buying Opportunity, ING Says

 

Australia’s dollar may fall to the low 90 U.S. cent level if the Federal Reserve disappoints investors looking for extra monetary stimulus, presenting an opportunity to buy the Aussie, ING Investment Management said.

A decline in Australia’s currency will enable investors to “reset” wagers on its longer-term appreciation, said Mark Robertson, a senior portfolio manager at the unit of the biggest Dutch financial services company. Fed policy makers will announce roughly $500 billion of Treasury purchases at their next meeting on Nov. 2-3, and indicate they are ready to buy more, Goldman Sachs Group Inc. said last week.

“There is a lot of expectation built into what the Fed’s going to do so it wouldn’t be surprising to see some near-term U.S. dollar strength on perhaps a winding back of some of those expectations,” said Robertson, who helps oversee the equivalent of $19 billion as part of a multi-strategies group in Sydney. A pullback in the Aussie “would be an opportunity to reset the portfolio with a little more Aussie dollar exposure,” he said.

ING Investment has been “overweight” the Australian currency since August, said Robertson, who forecasts it may strengthen to $1.10 over the next 12 to 18 months.

The Australian dollar, which briefly rose above parity with the U.S. dollar on Oct. 15, traded at 97.11 U.S. cents as of 11:35 a.m. in Sydney from 96.86 cents in New York yesterday. The currency has gained 9.9 percent in the past three months.

Fed Purchases

The U.S. dollar has dropped against all 16 of its most- traded counterparts in the past quarter amid mounting speculation the Fed will expand a program to purchase Treasuries. The central bank completed purchases of about $1.7 trillion of U.S. debt in March.

Chicago Fed President Charles Evans said yesterday the central bank will need to buy securities on a large scale several times to carry out his preferred strategy of aiming to raise inflation temporarily. Additional Treasury purchases can lower long-term interest rates, he said.

“There’s still going to be a very large and sustained increase in the amount of U.S. dollars in circulation, which has to be Aussie dollar positive,” Robertson said. “The Aussie is a bit like the price of gold, you don’t know how high it’s going to go but you just know it’s going higher.”

Gold rose to a record $1,387.35 an ounce on Oct. 14. The metal will average $1,400 next year, UBS AG analysts wrote in a report Oct. 18, increasing their forecast from $1,295.

China Rates

Australia’s dollar slid the most since June yesterday after China unexpectedly raised interest rates, sparking concern slowing growth in the Asian nation will damp demand for commodities. Australia, which is the largest shipper of iron ore and coal, counts China as its biggest trading partner.

“The rate hike will no doubt be a short-term negative for local and regional equity markets as it was slightly unexpected,” Robertson said. “The intentions behind the move should be seen as supportive of sustainable growth for China over the long term.”

Robertson forecasts that Australia’s benchmark interest rates will rise toward 5 and 5.5 percent over the next 12 months. Governor Glenn Stevens raised the key rate six times beginning October 2009 before beginning a five-month pause in June.

Analyst picks long-term strength

AMP Capital Investors chief economist Shane Oliver says while the Australian dollar is vulnerable to a correction, after rising so quickly since August, it is likely to hold around the parity level for the “next few years”, due to the strength of the economy and strong commodity prices.

“While the high $A will make life tough for trade exposed companies without a natural hedge, on balance it is more of a positive for the Australian economy. It is unambiguously positive for consumers and will help limit the extent to which interest rates have to rise,” Mr Oliver said.

Charts suggest the local currency could rise as high as $US1.0236 in coming weeks, the 161.8 per cent Fibonacci projection level of the currency’s fall between November 2009 and May 2010.

The Australian dollar has been the strongest major currency since the country skirted through the global financial crisis without falling into recession. In fact, its economy picked up steam, and the currency has surged 66 per cent since touching a low of $US0.6007 in October 2008.

Unlike other countries griping about excessive currency strength against a sliding dollar, Australia’s central bank has considered a stronger currency a natural outcome of the country’s booming resources trade and a tool for fighting inflation.

Travellers uncertain

Travellers at Sydney International Airport, who were heading on holidays on Saturday afternoon and those returning home to the US, expressed their surprise, delight and indifference to AAP.

Friends Helen Foulis and Debra Thorsen – who were flying to San Francisco, Las Vegas and New York for a two-week break – said the strong Aussie dollar was encouraging for their shopping trips.

“The shopping trips are going to be mega,” Ms Foulis said.

“Same for me, I’m going shopping for clothes, shoes, jeans,” Ms Thorsen said.

Christine Chong, who planned to visit friends and family in Los Angles, said the historic parity didn’t make much of a different to her.

“If you’re going to travel, you’ll travel,” she said.

“I don’t spend much anyway so it doesn’t make a difference.”

American business traveller Chris Phipps said the two currencies had been close for a long time.

“Being parity is like being at home and I’m going to spend the normal way,” he said.

China Unexpectedly Hike Rates‎, ready to reduce the value of US Dollar next time

China Unexpectedly Hike Rates‎, ready to reduce the value of US Dollar next time

 

The People’s Bank of China unexpectedly raised the one-year lending and deposit rates by 25 basis points each, effective Wednesday. October 20, 2010

Higher interest rates in China might attract more inflows of speculative “hot money” that regulators worry might be fueling a dangerous bubble in stock and real estate prices. Beijing has tried to block such flows, and analysts suggested earlier that might have been a reason for delaying a rate increase.

U.S. POINTS TO CHINA

The G20 finance ministers and central bank governors at the meetings in Gyeongju, South Korea are expected to tackle head-on the disparities in currency policies that are distorting capital flows in the hopes of achieving a more coordinated approach.

But U.S. officials have put most of the blame on China’s highly restrictive exchange rate regime, which until recently had kept the yuan largely pegged to the dollar. The United States is pressuring China to allow the value of its yuan to rise to take some pressure off capital flows and to rebalance its economy away from exports.

On Friday, however, Geithner delayed a report about whether the yuan’s value is being manipulated, saying instead that he wants to work through the G20 process to hash out a multilateral solution.

Geithner said in Palo Alto that he believes China will continue to lift the value of its yuan currency to aid the rebalancing of its economy away from exports and toward domestic growth.

Asked how much higher China should allow the yuan to rise, Geithner said: “Higher.”

“You can’t know how far it should go. What you know now is that it’s significantly undervalued which I think they acknowledge and it’s better for them, and of course very important for us, that it move. And I think it’s going to continue to move,” Geithner said.

 

Many banks expect that AUD/USD will rise to parity by the year-end

BNP Paribas is one of the largest global banking groups in the world, bet on Aussie’s strength.

Strategists at BNP Paribas are loyal to the forecast that Australian dollar will rise above the parity with the greenback to $1.0200 by end of the fourth quarter.

Technical analysts at RBS Morgans are quite bullish on Australian dollar expecting that the pair AUD/USD will advance to US$0.978 in coming months. Some traders even bet that Aussie’s going to strengthen to parity with its US counterpart.

Analysts at BNP Paribas SA in London expect that Australian currency will for the first time rise to parity with the greenback by the end of 2010 and trade at the level of $1.02. According to the specialists, this may happen as Australia’s economic growth is gaining pace, while the Federal Reserve intends for further monetary policy.

Everyone is worried about exchange rates except Australia. The Australian dollar has appreciated 50 per cent since March 2009 and 20 per cent since June this year and is this morning sitting comfortably above 97 US cents, but there has not been a peep from either politicians or central bankers.

Australia is an island of laissez-faire calm in a frothing sea of competitive devaluation. Why? Because we have neither a demand deficit nor high unemployment.

As 12-year Reserve Bank staffer and now HSBC’s Australian economist, Paul Bloxham, said in my interview with him on Inside Business yesterday, the RBA likes the appreciation of the Australian dollar because it helps reduce inflation.

 

SOUTH KOREAN Central Bank Looks To Gold

South Korea, holder of the world’s fifth-biggest foreign exchange reserves, is considering buying gold to diversify its dollar-heavy portfolio, the country’s central bank said, adding it would be cautious in making any final decision.

Even a small realignment of South Korea’s reserves would have a powerfully bullish effect on the gold market. With just 14 tonnes of gold – or 0.2 per cent of its $290bn reserves – Seoul is one of the smallest holders of gold among large economies. The world average is 10 per cent, according to the World Gold Council, while countries such as the US, Germany and France hold well over 50 per cent of their reserves in gold.

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Many banks expect that AUD/USD will rise to parity by the year-end

BNP Paribas is one of the largest global banking groups in the world, bet on Aussie’s strength.

Strategists at BNP Paribas are loyal to the forecast that Australian dollar will rise above the parity with the greenback to $1.0200 by end of the fourth quarter.

Technical analysts at RBS Morgans are quite bullish on Australian dollar expecting that the pair AUD/USD will advance to US$0.978 in coming months. Some traders even bet that Aussie’s going to strengthen to parity with its US counterpart.

Analysts at BNP Paribas SA in London expect that Australian currency will for the first time rise to parity with the greenback by the end of 2010 and trade at the level of $1.02. According to the specialists, this may happen as Australia’s economic growth is gaining pace, while the Federal Reserve intends for further monetary policy.