Category Archives: GOLD & PRECIOUS METALS

CENTRAL BANKERS PUSHING ON A STRING, ALGORITHMS & MOMENTUM

Note added 11th March 2016:

Jose Vinales  Director of thw IMF’s Monetary and Capital markets department supports negative interest rates introduced by some central banks “given the significant risks we see to the outlook for growth and inflation”  Link to article in IMF Direct

Why are central banks using negative policy rates?

Once policy rates are cut to what used to be known as the ‘zero lower bound’, central banks can employ unconventional monetary policy measures to provide further stimulus if real interest rates are still above the levels consistent with price stability and full employment. Negative nominal policy interest rates are the latest addition to this unconventional toolkit. Six central banks so far have introduced negative rates that apply to some amount of the cash balances commercial banks hold with the central bank (Table 1).  Negative rates aim to encourage the private sector to spend more and support price stability by further easing monetary and financial conditions. For smaller open economies, negative rates can also help discourage capital inflows and reduce exchange rate appreciation pressures.

Rev Table 1 with new Sweedish Bank Date

 

Reposted by John Katz from The Goldwatcher

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THE BRITISH  RED CROSS SYRIA APPEAL

GOLD PRICES FROM JANUARY 2016 TO 10th MARCH

CHART COURTESY WWW.KITCO.COM

Are Central Banks Pushing on a string?

In the first west week of January I posted this Goldwatcher note

 “Gold is insurance against the unexpected and the unthinkable. Gold is  poised to breach the psychologically and technically important $1100 threshold…Gold pundits like to punt gold demand as coming from fear or love trades. But they ignore the more important trade trades  – i.e. the speculative punts that  can account for most the money flowing in and out of gold”

The global risk landscape this time last year was fairly tame  and I posted several comments on gold price prospects for the year that proved to be useful.  The landscape this year has been different and recent posts on gold have included  Ray Dalio on Central Banks Risk Pushing on a string 

Messages from The Goldwatcher Book:

 

The manuscript for The Goldwatcher was submitted to the publisher, at the end of 2007. At the time the gold price was a little over $800 – about double the where it was when I first submitted the book proposal to Wiley.

 The Goldwatcher (Page 186)    included this comment under the heading

Messages From History

.”…Pundits had been calling for the Gold Price to reach $850, the level it spiked to in 1980. That’s equivalent to about $1900 in 2007 money. However a price spike and a price average over a longer period are very different situations. “

As we all know the price  spiked to above $1900 in September 2011, fell again below $1100 in January this year and is now in sight of breaching $1300.

Motivation, Strategy & Timing

My contribution to investing in gold has been based on motivation strategy & timing. Yesterday’s dramatic responses to ECB President Draghi’s package of stimulus measures was followed by dramatic prices movements  that are settling down today  with these among  other price changes:

GOLD +0.60%,   COPPER+  0.68%

OIL + 2.27%, LEAD +1.15%,, ZINC +1.61%

 

MOMENTUM, ALGORITHMS & ANIMAL SPIRITS:

Price overshoots and undershoots are par for the course in currency and commodity markets.  As it’s likely that  future  price  movements will also be driven by momentum, algorithms and animal spirits it will make sense for  investors to monitor these influences themselves or keep well informed  from a reliable information source.

The Goldwatcher. Page 187 following addresses past consequences of price overshoots.

 

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goldbook-book.png

 From previous Goldwatcher postings:

LINKS TO COMMENT ON REMNINBI INTEREST RATE SURPRISE

# Content added 12th August:

China’s Latest Currency Actions Are Market Driven

by  Peterson Institute for International Economics

|China’s central bank took a potentially major step toward a more market-determined exchange rate on August 11, when it announced a revision in the process for fixing the central parity exchange rate, the starting point for daily trading of the renminbi (RMB) in the onshore market…China’s move is consistent with long-standing advice from the IMF and from the US Treasury, both of which have repeatedly called for China to adopt a more market-determined exchange rate policy. We should expect this to lead to greater volatility and two-way movement in the value of the RMB vis-a-vis the dollar.

Link to read Lardy article

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11th August posting:

Following this morning’s  fall in the Chinese Remninbi Anthony Doyle’s   Bond Vigilantes Quick Comment  is informative :

“The People’s Bank of China (PBoC) has announced this morning that it is improving the pricing mechanism of the daily fixing rate of the remninbi. It will do this by referencing the previous day’s closing rate and by taking into account “demand and supply conditions in the foreign exchange markets” as well as exchange rate movements of other major currencies. As a result, the USDCNY (US dollar to Chinese Yuan Renminbi rate) was fixed higher by 1.9% as a one-off adjustment and represents a record weakening of the Chinese currency. It is the first weakening in the exchange rate by the PBoC since 1994.”

Doyle concludes:

“…Any move to liberalise the determination of exchange rates should be viewed positively for the global economy. Given China’s level of importance as a key manufacturer of goods and its huge cache of foreign reserves, it is unsurprising that large moves in the exchange rate can have significant spillover effects for other economies and financial assets. Any further evolution of the determination of the daily fixing rate of the renminbi will continue to be closely watched, especially in an environment where the Chinese economic growth profile continues to be questioned.”

To read the Bond Vigilantes  article follow this link:

Link to Financial Times Q&A on Remninbi 

Link to Video of Fed Deputy Chairman Stanley Fischer Bloomberg interview yesterday where he mentions concerns with low US inflation and reservations on not moving interest rates until inflation “normalised.”