Waiting patiently
Paul van Eeden
Jun 6. 2006
The problem with writing a weekly commentary is that I don't
always have something new to write about every week. At the moment
I am just patiently waiting. The weakness in the US economy is
becoming more apparent and with it increased probability of a
global economic slowdown. Emerging markets have fallen sharply
and I believe it is only a matter of time before the next major
devaluation of the US dollar commences. Given a worldwide slowdown
of economic activity I remain bearish on commodities (including
base metals).
During the past several months the gold price had risen in sympathy
with base metals as institutional money looking for hard assets
bid prices up across the board. Now gold is suffering from the
same indiscriminate trading and giving up some of its gains along
with over-bought base metals. At some point I believe that the
gold price will decouple from base metals since reduced economic
growth implies reduced demand for base metals but not reduced
demand for gold. So while base metals prices will remain under
pressure, there should be no such pressure in the gold market
other than from short-term institutional investors who do not
understand either market.|
On the positive side, economic woes could well increase demand
for gold as investors seek a financial asset that is not correlated
to the stock market, the real estate market or the bond market
and that can offer protection against a decline in the purchasing
power of their favorite fiat currency. Gold is the only asset
that fits that bill.
While a falling US dollar exchange rate would cause all metal
prices quoted in US dollars to rise, the lack of demand contraction
in the gold market (as opposed to base metals) should cause the
gold price to outperform the other metals going forward.
Paul van
Eeden
email: pve@publishers-mgmt.com
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