Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Silver Springboards Higher – What’s Next? - 26th May 20
Stock Market Key Resistance Breakout Is Where the Rubber Meets the Road - 26th May 20
5 Ways To Amp Up Your CFD Trading Today - 26th May 20
The Anatomy of a Gold Stock Bull Market - 26th May 20
Stock Market Critical Price Level Could Soon Prompt A Big Move - 25th May 20
Will Powell Decouple Gold from the Stock Market? - 25th May 20
How Muslims Celebrated EID in Lockdown Britain 2020 - UK - 25th May 20
Stock Market Topping Behavior - 24th May 20
Fed Action Accelerates Boom-Bust Cycle; Not A Virus Crisis - 23rd May 20
Gold Silver Miners and Stocks (after a quick drop) Ready to Explode - 23rd May 20
3 Ways to Prepare Financially for Retirement - 23rd May 20
4 Essential Car Trade-In Tips To Get The Best Value - 23rd May 20
Budgie Heaven at Bird Land - 23rd May 20
China’s ‘Two Sessions’ herald Rebound of Economy - 22nd May 20
Signs Of Long Term Devaluation US Real Estate - 22nd May 20
Reading the Tea Leaves of Gold’s Upcoming Move - 22nd May 20
Gold, Silver, Mining Stocks Teeter On The Brink Of A Breakout - 21st May 20
Another Bank Bailout Under Cover of a Virus - 21st May 20
Do No Credit Check Loans Online Instant Approval Options Actually Exist? - 21st May 20
An Eye-Opening Perspective: Emerging Markets and Epidemics - 21st May 20
US Housing Market Covid-19 Crisis - 21st May 20
The Coronavirus Just Hit the “Fast-Forward” Button on These Three Industries - 21st May 20
AMD Zen 3 Ryzen 9 4950x Intel Destroying 24 core 48 thread Processor? - 21st May 20
Dow Stock Market Trend Analysis and Forecast - 20th May 20
The Credit Markets Gave Their Nod to the S&P 500 Upswing - 20th May 20
Where to get proper HGH treatment in USA - 20th May 20
Silver Is Ensured A Prosperous 2020 Thanks To The Fed - 20th May 20
It’s Not Only Palladium That You Better Listen To - 20th May 20
DJIA Stock Market Technical Trend Analysis - 19th May 20
US Real Estate Showing Signs Of Covid19 Collateral Damage - 19th May 20
Gold Stocks Fundamental Indicators - 19th May 20
Why This Wave is Usually a Market Downturn's Most Wicked - 19th May 20
Gold Mining Stocks Flip from Losses to 5x Leveraged Gains! - 19th May 20
Silver Price Begins To Accelerate Higher Faster Than Gold - 19th May 20
Gold Will Soar Soon; World Now Faces 'Monetary Armageddon' - 19th May 20
Gold Mining Stocks Fundamentals - 18th May 20
Why the Largest Cyberattack in History Will Happen Within Six Months - 18th May 20
New AMD Ryzen 4900x and 4950x Zen3 4th Gen Processors Clock Speed and Cores Specs - 18th May 20
Learn How to Play the Violin, Kids Activities and Learning During Lockdown - 18th May 20
The Great Economy Reopening Gamble - 17th May 20
Powell Sends a Message With Love for Gold - 17th May 20
An Economic Renaissance Emerges – Stock Market Look Out Below - 17th May 20
Learn more about the UK Casino Self-exclusion - 17th May 20
Will Stocks Lead the Way Lower for Gold Miners? - 15th May 20
Are Small-Cap Stocks (Russell 2k) Headed For A Double Dip? - 15th May 20
Coronavirus Will Wipe Out These Three Industries for Good - 15th May 20
Gold and Silver: As We Go from Deflation to Hyperinflation - 15th May 20

Market Oracle FREE Newsletter

Coronavirus-stocks-bear-market-2020-analysis

Tapering Blues for Gold and Silver

Commodities / Gold and Silver 2014 Feb 01, 2014 - 12:02 PM GMT

By: Alasdair_Macleod

Commodities

The second tapering reduction, a further $10bn per month, was announced this week. It was we are told by the news channels fully expected. This is probably the initial reason why US Treasury prices rose on the news, because bears would have bought back their positions. However, weakness in emerging market currencies indicates that there is a safe-haven element developing in US Treasury bond prices.


It's against this background that gold traded in a $20 range between $1250 and $1270 until Thursday, when gold was finally sold down to the $1240 level and silver to $19.10. At the same time the US dollar rallied strongly, being the West's preferred safe-haven from emerging market currency volatility. This is now the developing story, which may turn out to be the mainspring behind the gold price in the coming months.

The big question is how will currency instability in emerging market economies affect demand for gold? Downward pressure, which has been brought on by the Fed's tapering policy, is forcing some Asian governments to increase interest rates. However, this at best is a short-term fix whose cost is less economic growth in the future. Particularly vulnerable are currencies whose central banks have limited quantities of dollars to hand, and while this excludes China, other gold-hungry Asian states such as India and Turkey are particularly vulnerable.

Traders in Western capital markets would probably conclude this is a reason to sell gold because of deflation in Asia, while the Oriental would see additional gold as the best protection you can have from the currency debasement that governments always rely upon in times of stress.

Looking beyond the rate hikes and the negative economic effects on emerging markets, we should be aware of the possibility that further selling of these currencies could accelerate. If so, we may have a replay of the East Asia crisis of 1997-98 on our hands with the addition of India, Turkey and half of Latin America.

The Fed is pre-occupied with domestic monetary policy, and for the moment it seems international monetary co-operation is secondary. But undermining emerging markets, which make up nearly half global GDP, is not ultimately in the interests of America's own economy. Given the sharp reaction in foreign exchange markets, it seems reasonable for the Fed to pause its tapering programme to give these emerging economies a chance to stabilise.

Next week

If this week's events are any guide, next week will see more retrenchment into safe haven investments. Meanwhile here is a summary of next week's announcements.

Monday. Japan: Vehicle Sales. UK: Halifax Price Index, CIPS/Markit Manufacturing PMI. Eurozone: Manufacturing PMI. US: Manufacturing PMI, Construction Spending, ISM Manufacturing, Vehicle Sales.

Tuesday. Eurozone: PPI. US: Factory Orders.

Wednesday. Eurozone: Composite PMI, Services PMI, Retail Trade. US: ISM Non-Manufacturing Index.

Thursday. UK: BoE Base Rate. Eurozone: ECB Interest Rate. US: Initial Claims, Non-Farm Productivity, Trade Balance, Unit Labour Costs.

Friday. Japan: Leading Indicator. UK: Industrial Production, Manufacturing Production, Trade Balance. US: Non-Farm Payrolls, Private Payrolls, Unemployment, Consumer Credit

Alasdair Macleod

Head of research, GoldMoney

Alasdair.Macleod@GoldMoney.com

Alasdair Macleod runs FinanceAndEconomics.org, a website dedicated to sound money and demystifying finance and economics. Alasdair has a background as a stockbroker, banker and economist. He is also a contributor to GoldMoney - The best way to buy gold online.

© 2014 Copyright Alasdair Macleod - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Alasdair Macleod Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules