Daily Archives: December 4, 2009

This is a summary of part of Goldman Sachs’ 2010 commodity outlook

Gold will rise to $1,450 / toz by 2011 if the US government maintains its near-zero interest rate policy. However, as inflation is expected to remain subdued, gold prices are likely to come under significant downward pressure once the recovery strengthens and the Fed starts to raise rates.

Goldman Sachs’ gold forecasts now stand at $1,200/toz, $1,260/toz, and $1,350/toz on a 3-, 6-, and 12- month horizon respectively, with an average price forecast of $1,450/toz in 2011.

 Read more

This is a summary of part of Goldman Sachs’ 2010 Commodity Outlook

The commodities investor has typically seen commodities as substitutes: for the past five years, price convergence has been a feature of commodity markets.

Supply shortages are changing that. A lack of investment coupled with protectionism has led to shortages of most commodities, natural gas and nickel being notable exceptions. Supply shortages will lead to greater price divergence between commodities. Three factors will determine the price: supply constraints, investment constraints, and emerging market demand.

On the whole, emerging markets are willing to pay more than developed economies Read more

Bernanke confirmation special

The many City economists who have been accused of having egg on their faces because they thought the initial UK third quarter growth figures looked funny, no longer look silly. The Office For National Statistics has just revised up its estimate of construction output in the third quarter from an estimate of -1.1 per cent to +2.1 per cent.

Alone, this will almost eliminate the recorded contraction in the third quarter (reducing the quarterly decline to 0.1 per cent), makes the Bank’s growth forecasts appear less outlandishly rosy, brings Britain’s official figures closer into line other indicators of the period and the European norm, and brings the eventual exit from 0.5 per cent interest rates and £200bn of quantitative easing a small step closer.

For officials and the minority of economists who insisted the initial figures were accurate and the City was whinging because it had got things wrong, this is a tad embarrassing. This is how the ONS put it this morning.

 Read more

Ralph Atkins

I was struck by the comments on Greece yesterday by Jean-Claude Trichet, European Central Bank president. Asked about the country’s acute fiscal difficulties and the risk of a possible default, he said simply that “I have confidence that the government of Greece will take the appropriate decisions”. That suggested he did not rule out totally Greece facing problems in servicing its debt or being forced into the hands of the International Monetary Fund. As Erik Nielsen, European economist at Goldman Sachs, told me later: “If you have ‘confidence’, you can also be disappointed.”

I am sure Mr Trichet did not want to suggest that a Greek default is at all likely. Rather, I think that he, like other European Union policymakers, is keen to keep up the pressure on the new Socialist administration in Athens. The aim is to avoid “moral hazard” - that by suggesting European Union authorities would ride to the rescue, governments are encouraged to act recklessly. Earlier this year, when the risk of a systemic crisis was high, Greece might have expected more comforting words from Frankfurt.

The Bank of England governor said last month that Britain lacked “a credible plan” for cutting its £175bn deficit. But if he was hoping that Alistair Darling would announce a big new fiscal squeeze next week, he will be disappointed.

The chancellor has discarded the criticisms of Mervyn King, the Conservatives and the credit ratings agencies that he is not moving quickly enough to cut borrowing; his pre-Budget report will argue that the priority now is getting the economy moving. It may not be enough to satisfy the markets. Read more at ft.com.

Ralph Atkins

One of the subtleties of yesterday’s complex package from the European Central Bank was that it attempted to re-assert the principle of “separation”. When the financial storm broke in August 2007, the ECB insisted, doggedly, that emergency financial market liquidity injections were not related to its monetary policy. That remained firmly aimed at controlling inflation and still very much determined the level at which it set the main policy interest rate. Indeed, in July last year the ECB famously raised the interest rate to 4.25 per cent because inflation appeared to be getting out of control.

After the collapse of Lehman Brothers a few months later, the ECB slashed its main policy rate and the distinction became harder to draw. It became impossible once, from June this year, the ECB Read more

Ralph Atkins

An exceptional communication challenge faced Jean-Claude Trichet, the European Central Bank president, yesterday afternoon. The latest stages in the central bank’s exit strategy were hammered out after lengthy discussions in the governing council. The result was that the complex series of announcements appeared to have been pasted into Mr Trichet’s statement at the last minute.

The ECB tried to do its best, but I’m not sure how effective it was. This is taken from the press release and is meant to explain how it will calculate the interest to be paid on 12-month liquidity it supplies later this month.
 Read more