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.
“Investors view this as shockingly bad news”: one assessment of Dubai’s request for a freeze on all financing to Dubai World, the government’s heavily indebted flagship holding company. The requested freeze would last till May 30, and would cover DW’s troubled property unit Nakheel, which is due to pay back $4bn on an Islamic bond on December 14. Dubai sovereign CDS spreads rose 130bps from an overnight level of 318 and LSE shares fell – the exchange has a 20 per cent stake in Borse Dubai.
Meanwhile the “gold up, dollar down” trends continue. Sri Lanka has bought 10 tonnes of gold from the IMF
Capital control, anyone? Emerging markets are taking action to curb currency appreciation. Brazil – whose economy is recovering well – introduced a 2% tax on foreign capital inflows last month, and has just announced a further measure, effective today: there will be a tax on American depositary receipts, which allow foreigners to invest easily in Brazilian stocks. Meanwhile Indonesia has announced possible capital controls, sending its currency sharply lower.
The flight to gold continues,
This might seem like a currency special edition. The dollar fell after China hinted at renminbi appreciation. The People’s Bank of China said foreign exchange policy would take into account “capital flows and major currency movements”, a pointed reference to US dollar weakness and the large speculative inflows of capital that China is receiving. Those speculative inflows are a growing concern for many emerging markets, whose currencies are rising quickly: Taiwan, Russia, Brazil, Thailand and Chile are all planning how best to slow the influx of capital.
Dollar reserves have been going out of fashion over the past few months, and now two IMF economists have called for diversification away from the greenback. This will make Geithner’s (widely mocked) ‘commitment’ to a strong dollar even harder to achieve.
More good news for China, Russia and India and more warnings for the US, UK and EU. George Soros asks if the new communist/capitalist divide has been replaced by a polarisation between international capitalism and state capitalism.
Too-big-to-fail policies are giving banks the wrong incentive, namely to grow very big, very quickly. Clearing houses can collapse as well as banks, and Sri Lanka joins the rush for gold.
The Fed has accused banks of ignoring the risks of debt backed by commercial real estate, with some worrying numbers about bank reserves. Gold climbs higher, but is it being pushed up by new type of buyer, interested in speculating rather than hedging?