Weekly international investment round up to 20th October 2009
• The relationship between gold, oil and the dollar intensifies
• China set to price oil next year
The circus merry-go-round which exists between the price of gold, oil and the US Dollar shows no signs of abating if anything it will probably only intensify over the final months of this year.
While gold is riding at an all-time high, the volatile dollar is extending its rapid decline and oil. It may easier to predict the weather than the direction of its price at the moment as a barrel bounces between the peaks and troughs of the other two.
In January, the interconnected relationship between these three ‘commodities’ was a theme for my forecasts. In my article entitled ‘Outrageous Predictions for 2009’, I highlighted how I believed gold was going to shine by at least 10 per cent from its then value of US$860 per ounce, oil prices were to slip before rebounding and there would be chaos in the global currency markets.
Ten months on and gold is glimmering having now achieved an all time record high, presently sitting at US$1,066 per ounce. Oil, which earlier this year dramatically slipped below US$38 dollars a barrel, has this week just hit a new year-to-date high floating above US$80 dollars per barrel while the dollar’s fall from grace continues. Most recently it was hit by strong rumours that the Gulf States are planning to gradually replace it over the next decade with an alternative oil pricing method most likely to be based upon a basket of currencies probably combining the euro, the Chinese yaun and the eventual new unified currency planned for the nations of the members of the Gulf Council.
Real fears of a recession relapse, a massive deficit and crippling unemployment is likely to edge the greenback over US$1.50 to the euro by year’s end compared to today’s US$1.48 level but fascinatingly, the silver lining for the dollar has been to make America’s exports cheaper in-turn spurring the Dow Jones index through the 10,000 barrier for the first time this year. Furthermore, according to Morningstar a net US$254.6 billion has been invested in US bonds up until the end of September compared to only US$14.5 billion for stock managers. Clearly, foreign buyers are seeing the weaker dollar as an opportunity to buy greater amounts of US Treasuries offering a locked-in return.
Equally, the sanctuary of gold offers reassurance against instable markets and longer-term inflationary fears and is not correlated to the actions or performance levels of individual institutions or governments for any increase in value. History teaches us that gold, whilst at times volatile, always maintains a real value and can be sold relatively quickly.
The ‘golden triangle’ between oil, gold and the dollar may take a new twist if rumours are true that the Shanghai Futures Exchange is looking to offer its own crude oil contracts next year. Currently New York’s Mercantile Exchange is the most important market and traders there set the price. If true, this would be China’s first chance of directly influencing oil prices and reducing what it feels are the inflated values charged by foreign suppliers with implications for us all.
