Commodities
The biggest direct impact of QE3 will be on gold and silver. Here are the reasons:
1. There are nearly zero real options available to global policy makers. The world needs growth and is willing to go to extraordinary lengths to get it.
2. Macro-economic environment for gold is once again turning more positive and forecast prices to exceed USD2,000/oz in the 1H of 2013. Growth in supply of fiat currencies such as the USD will remain an important driver.
3. Gold vs fiat currency. Gold's value depends on large part on the degree of "badness" of bad money. This lends a certain art to the science of forecasting gold prices.
4. Gold as value: actions of central bankers continue to create disincentives for capital formation. Capital is an important resource, current monetary policy signals the opposite.
5. Investment flows into gold are changing significantly with the emerging world a growing source of demand. China is poised to overtake India as the world's largest consumer of gold jewellery. Emerging market central bankers are a key source of long-term gold demand.
Tune in for part 3.
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