Currency Wars

Posted: February 13, 2013 | Author: | Filed under: Central Banks, Federal Reserve, Forecasts | Tags: , , , , , , , | Leave a comment
Great Depression Food Line

Great Depression Food Line (Photo credit: Kevin Burkett)

Yesterday, the G7 issued a statement about everyone’s favourite topic: Currency Wars.

The statement was seen as very weak and of no implication at all: “We, the G7 Ministers and Governors, reaffirm our longstanding commitment to market determined exchange rates and to consult closely in regard to actions in foreign exchange markets. We reaffirm that our fiscal and monetary policies have been and will remain oriented towards meeting our respective domestic objectives using domestic instruments, and that we will not target exchange rates. We are agreed that excessive volatility and disorderly movements in exchange rates can have adverse implications for economic and financial stability. We will continue to consult closely on exchange markets and cooperate as appropriate.” To compare what’s going on today with the “currency wars” of the 1930s may be wrong.

Economic historian, Niall Ferguson, recently highlighted in the Financial Times (via Credit Suisse), “Back in the 1930s, it was obvious who was waging a currency war. Before the Depression, most countries had been on the gold standard, which had fixed exchange rates in terms of the yellow metal. When Britain abandoned gold in September 1931, it unleashed a wave of competitive devaluations. Today, however, we live in a world of fiat money and mostly floating rates. The last vestige of the gold standard was swept away in August 1971, when
Richard Nixon suspended the convertibility of the dollar into gold. For one country to accuse another of waging a currency war in 2013 is therefore absurd. The war has been going on for more than 40 years and it is a war of all against all.”

Gold at $2,500 In Six Months : Citi

Posted: September 7, 2012 | Author: | Filed under: Forecasts, Gold, Precious Metals | Tags: , , , , , , , | 1 Comment

Citi FX analyst Tom Fitzpatrick is bullish on gold, and he thinks the shiny yellow metal could be on the cusp of a big rally heading into 2013.

In a note to clients today, Fitzpatrick compares the rally he sees coming to gold’s big breakout move higher in 2007:

That was the start of a 6 month acceleration higher in Gold that saw it rally 60% (Low to high) and over 50% on the break.

A similar move here would suggest as high as $2,450-2,500 by the end of Q1, 2013.

Ultimately we still believe that this trend could end up giving us a similar percentage move to that seen in the 1970-1980 bull market…with one caveat.On 24 December 1979 Russia invaded Afghanistan and we saw Gold spike aggressively over the following 4 weeks into the trend high. While such a spike is not impossible it would be imprudent at this point to expect such an aggressive outcome.

As a consequence we look to the bull trend replicating the percentage move (Low to high) seen up to Dec 21,1979 (Before the invasion) which would suggest an ultimate peak closer to $3,400-3,500.

Below is a chart from Fitzpatrick’s note comparing the two rallies (2007 move in blue, current price action in black). The patterns so far show something of a resemblance:

Tom Fitzpatrick gold chart

Citi’s Fitzpatrick also had some words for the gold haters:

We are constantly told that “Gold is a useless yellow metal” with no real monetary value yet history belies this. For over a decade it goes higher and higher and we hear the crescendo of cries that it is unsustainable and a bubble. (There was no such crescendo about the equity markets in 2000 and again in 2007- Nasdaq in particular, or the Nikkei in 1990). When the Oil price went from $10 to $147 it was explained away by peak Oil theory. The housing market was “not a bubble” and we had never had a national decline in prices (Never say never). All of the above ended up being bubbles that burst as people participated in those trends with leverage and sent most of these markets up in multiples far greater than we have seen with Gold.History also shows that markets rarely “implode” when everybody is looking for it. All the way up, every new $100 bounce raises the cries of “bubble” again. We believe this move is far from over and still expect Gold to be an outperforming asset for some years to come.