 | Artemis
Global Moderator
Senior Member
| 
Joined: Mar 2006
Posts: 157
   United States
|
 Oct 17, 2011, 04:18:26 PM | #1 |
Shanghai skyline Precious metal and commodity prices fell yesterday, with continuing strength in the US dollar putting a lid on gains in dollar-denominated assets. Hedge funds and other private investors remain uncertain about the direction of markets, and are waiting for clear signals that central banks will engage in more quantitative easing – aka money printing.
On this score it looks as though the Bank of England is willing to oblige investors, with many expecting the Bank’s Monetary Policy Committee to vote tomorrow in favor of a second £50 billion round of quantitative easing for the UK. Meanwhile in the US, Federal Reserve Chairman Ben Bernanke reiterated yesterday that the Fed stands ready to help the “close to faltering” US economy. This is his way of saying he stands ready to print more money.
Bernanke also made sharp criticisms of Chinese monetary policy, noting that he thought China’s policy of suppressing the value of the yuan was “blocking what might be a more normal recovery process in the world economy” and was “to some extent hurting the recovery.” This came on a day when the US Senate voted overwhelmingly in favor of opening debate on a bill that would impose tariffs on countries that suppress the value of their currencies – though Republican House Speaker John Boehner said he thought it was “a pretty dangerous thing” for US politicians to be interfering in this argument.
The Chinese have allowed the yuan to gain value against the dollar since June (spurred in-part by escalating inflation in China). They have been happy to do this as long as strength in the euro compensated their exporters for the lost competitiveness in America. However, with the euro now weakening significantly against the yuan – thus threatening Chinese exports to the eurozone – the Chinese now face the prospect of losing exports to both of their major international markets. This will encourage them to re-peg their currency to the dollar in order to regain export competitiveness in America, which will in-turn encourage the Bernanke Fed to engage in more quantitative easing – in order to weaken the dollar and encourage US exports to China. The dynamic of this situation are spelt out in more detail by Tangent Capital’s Jim Rickards. As he notes, the only sure-fire winner in this zero-sum currency war is gold.
Gold prices continue to hold up better than silver, platinum and palladium prices, with the gold/silver ratio now standing at 56. This means the price of 56 ounces of silver is equivalent to the price of one ounce of gold. In late April of this year – when high oil prices were encouraging commodity buying and raising inflation expectations – the gold/silver ratio dropped as low as 32. Over the next few years, many analysts – such as Eric Sprott of Sprott Asset Management – expect the gold-silver ratio to fall as low as 15, as more and more people are drawn to physical silver as a more affordable pound-for-pound alternative to the other precious metals.
The gold/platinum ratio is also falling. 1.12 ounces of platinum now costs the same as one ounce of gold, a significant shift from the trend over the last 20 years, when on average gold has traded at 80% to 100% of the platinum price. |
|
| 
