Expert Zone

Straight from the Specialists

What has happened to gold?

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(The views expressed in this column are the author’s own and do not represent those of Reuters)

Gold has disappointed, down 4 pct over the last 4 weeks, despite the risk-related Brent crude oil advancing 3 pct. Gold appears to have become the victim of a steadily improving global macro environment, where the pressing problems and risks of 2011 appear to be easing, if not being resolved. Slowly the market appears to be building a consensus that the growth outlook for 2012 looks more positive. Consequently gold’s ‘safe-haven attraction’ is starting to lose out to more growth oriented investments.

The biggest shift in gold’s fortunes has come from the U.S. After the gold price advanced 7 pct in February on the back of the U.S. Fed Chairman’s January 25 hint of another round of quantitative easing (QE), the March 13 FOMC statement appears to have triggered gold’s fall. While the statement did not contain an overt change in sentiment, it did acknowledge a better growth profile despite the continuing risks. Its ‘less wary’ tone suggested that QE possibilities were minimal.

‪The market appears to have gone further in its read of the FOMC statement and now appears to reflect the possibility of the U.S. Fed normalising its monetary policy earlier than the U.S. Fed’s reiteration that there will be no interest rate rise before late-2014. An ending of the ‘highly accommodative stance for monetary policy’ was considered not good for gold. UBS economists expect that the U.S. Fed will begin raising rates in mid-2013 and do not anticipate further quantitative easing.

‪The mood shifted has manifested itself in a rising U.S. dollar, now at an 11-month high against the Yen, and in rising bond yields. Strengthening U.S. employment and manufacturing data is building a ‘growth leveraging’ environment. Recent rises in leading indicators, such as the US Empire State Index (20.2 in Mar from 19.5 in Feb) and the Philadelphia Fed index (12.5 in March from 10.2 in Feb) and the continuing downtrend in jobless claims is augmenting the improving data flow. Job growth in the U.S. over the past six months has been the strongest since 2006 and UBS now expects that U.S. unemployment will drop to 7.7 pct by the end of this year.

Is 2012 the tipping point for China steel?

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(The views expressed in this column are the author’s own and do not represent those of Reuters)

The 2011 outcomes in China’s steel and related industries have ratcheted up the risks faced in China’s and the world’s steel and steel-making raw materials industries in 2012. Q411 steel production in China was particularly weak, down 12 pct from the levels enjoyed in the first 3 quarters of 2011.

Season to be jolly? With 2012 outlook, unlikely

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(The views expressed in this column are the author’s own and do not represent those of Reuters)

It is the season to be jolly and it is also the season for ‘outlook’ views on what the New Year will bring, and that is unlikely to make anyone jolly. There are many possible binary outcomes in 2012 that could move markets and commodities erratically, so the only certainty appears to be ongoing volatile price swings.

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