Thursday, 20 December 2007

What Price Sterling ? . . . What Price Gold ?

As we coast towards year-end, Sterling finally tips over the edge and we are back below $2. And the CBs have panicked – here’s Franklin Sanders writing at Goldprice

Let's see . . . The world's central banks, obviously working together, inject $0.540 TRILLION dollars into the financial system in one day. Would that classify as pushing the panic button? Is a pig's rear pork? Can a duck swim? Does a bank suck blood? Of course! You can hear the sweat dropping off their foreheads from Tennessee. Scares me, I'll promise.

And if this doesn't grip you, check Sackerson for other scary stuff.

On the other hand …gold (in Sterling) is at an all-time nominal high (a 19-year high in real terms). So – how are you placed for 2008 ?

ND

22 comments:

Sackerson said...

Hi Nick - your link to me actually takes us through to Bullion Vault! Which of my posts did you have in mind?

People have me down as a gold bull, but actually I think we're in a very volatile/fool's market generally and can't think of anything I'd recommend. I know Marc Faber says gold could break $1,000/oz. soon but remember, for all the gentle European manner, he's an ex-Swiss national team skier and still (at his age!) a recreational superbike rider: he is bright, quick and has balls of brass.

So I think Marc Faber and the gold market are for the fast-moving trader; stocks are for the very long-term investor; and everyone else had better work out their worst-case scenario survival plan, just in case.

Old BE said...

I have thought that the pound needed to come down quite significantly for some time, but the trade figures out today(?) show classic signs of a Labour balance of payments crisis.

Just remember, the pound in your pocket... etc.

Is this how we join the euro?

Nick Drew said...

Fixed !

sorry abt that Sackers, wasn't meant to be a satirical comment

I didn't want to be any more prescriptive than to invite folks to look around, you post loads of excellent stuff (not all of it apocalyptic)

very volatile/fool's market generally and can't think of anything - agreed, so I'm heavily into 'zero'-risk now: but still keep a little back for active management & have found gold behaves quite nicely

Nick Drew said...

Ed - CU will have something to say about that, I'm sure - but meantime I would say no: the last thing you'd do at a time like this is lock in to the DM again ! ask the Spanish.

then again, knowing McBroon, and your namesake Mr Balls ...

I am looking forward to a definitive explanation of why they have been piling into US Treasuries. I suppose the recent fall in the £ makes it a good investment ! Insider trading ??

Old BE said...

What I really meant was that the pound might collapse in value so much that the only option is to sell the paper to the Germans at a preferential rate.

hatfield girl said...

'worst-case scenario survival' plans take surprisingly long times to put into effect. It's what can be done in a hurry that's left to do for most people now.

Mark Wadsworth said...

I don't get the GBP pessimism, the same shit will happen to USD, JPY, EUR, the whole bloody lot, surely?

It's a question of the relative impact of the same shit on different currencies that matters.

Trubes said...

Happy Xmas Gorgeous

Nick Drew said...

blimey !

And to yourself, madam

you are MOST welcome

Old BE said...

Well the difference between GBP/USD and JPY/EUR is international trade. The UK now has a worse trade gap than at the peak of the 80s boom and significantly wider than the US (post devaluation). I think that is quite enough to be pessimistic.

We can't go on borrowing 6% of GDP year-in, year-out even if El Gordo says we can. He never was much good at arithmetic.

Jeremy Jacobs said...

What price a recession in 2008?

GB said...

I'm very schizophrenic when it comes to GBP/USD. On the one hand, all my USD investments become more valuable when the USD goes up :-). But then most of wealth is in GBP so in terms of the big picture, I must be less wealthy :-(. For a while I was hedging via City Index, which has netted me a few £k, however I think I've decided against that as a long term strategy now because it's quite onerous keeping track of whether margin calls might become due.

GB xxx

Nick Drew said...

GB - surely it all depends on whether you have a large transaction imminent (asset sale, new loan) ? Otherwise they are just inevitable fluctuations within a wisely diversified portfolio

(and diversification is the only free lunch, as eny fule kno)

GB said...

In my case Nick, I have a long-standing USD denominated investment in a hedge fund. The returns look quite good in USD this year, but until the recent fall of GBP/USD they were very average in GBP. I'm invested in the hedge fund because I believe in their strategy, but in all honestly I don't really have any view on the forex risk. If anything, I've been a USD bear along with everyone else. So if I was an institutional investor I reckon that means I should hedge that risk, because it adds unecessary volatility to my returns. Because at present I'm unhedged, the recent USD rally has been good for me. Although vs EUR of course, my Tuscan holidays and French wine purchases will now be slighly more expensive :-(!

GB xxx

Nick Drew said...

Well I think my point remains: if a $ investment achieves diversification for you, but you restore it to a £ investment via hedging, you have replaced the egg into the original basket - but maybe you are not so concerned abt diversifying

BTW I have noticed some notionally 'US' funds that do well in $, have been achieving this by sneakily investing in non-$ assets ...

(none of this is financial advice of course, just comments in the abstract)

CityUnslicker said...

Well I am sticking on gold for now as part of my portfolio. Unlikely to tank like some of my other investments if the economy goes off a cliff next year.

JJ - Sentiment drives recessions and the sentiment right now is really bad. I hope it does pick up over christmas or else next year will be a difficult time.

Ed - The pound may suffer but the credit crisis may destroy the euro. Why do you think it is relatively unaffected Euroland that is pouring the most money to keep liquidity up? It is becuase they have politics to lose in a way that the US/UK do not. We can just let our currencies drop for a while...

Anonymous said...

@Jeremy: Will we have a recession you ask?

Well take a look at these M4 money supply statistics from the BoE:-

http://www.bankofengland.co.uk/statistics/m4/2007/nov/index.htm

Now for most of the time during Labour's reign we have had M4 money supply running at 12% p.a. which equates to about 1.0% per month. But what has happened in the last few months? I summarise below:-

Aug 1.3%
Sep 0.9%
Oct 0.2%
Nov 0.1%

M4 money supply has dropped off Beachy Head!

Its not unusual for money supply to drop for one month in the Autumn, but the Oct/Nov figures give us too extremely low M4 months.

What does this mean to the man in the street? Well M4 money supply indicates the amount of money being created out of thin air in the economy by lending banks. Mostly "electronic" money. All the "growth" we have had for the last 10 years has been attributable to the creation of M4 money. GDP growth has absorbed some of it, and the rest has been absorbed in rapidly growing property prices. There has been no real growth - in fact the UK economy has actually contracted as more and more people are working in non-jobs for the government.

So if we had M4 money supply at 12% and it only gave us 3% growth then a contraction in M4 money supply to 1.2% would result in... a severe recession. So we would need to see a significant improvement in M4 money supply in the next few months or we will be in a severe recession due to the generation and take-up of credit coming to a dramatic halt.

CityUnslicker said...

Well I am sticking on gold for now as part of my portfolio. Unlikely to tank like some of my other investments if the economy goes off a cliff next year.

JJ - Sentiment drives recessions and the sentiment right now is really bad. I hope it does pick up over christmas or else next year will be a difficult time.

Ed - The pound may suffer but the credit crisis may destroy the euro. Why do you think it is relatively unaffected Euroland that is pouring the most money to keep liquidity up? It is becuase they have politics to lose in a way that the US/UK do not. We can just let our currencies drop for a while...

Old BE said...

Thanks for correcting my assumption. That sounds like rather a desirable outcome to me: a recession here to pull people back from their splurge and a break-up of the Euro preceding an end to political integration.

Merry Christmas!

Nick Drew said...

and a Merry Christmas to you, Ed

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