CENTRAL banks and politicians are now being called upon to act decisively as speculation that the global economy is slowing continues to grow while global financial turmoil is expected to continue affecting demand.
The fear now is debt securities and other holdings tied to currencies are slowly becoming the most dangerous assets.
Amid fears of a global slowdown, policymakers in major central banks boosted stimulus measures on July 5, 2012 to strengthen their economies and boost domestic activity.
Notably the European Central Bank and the People’s Bank of China both cut interest rates and the Bank of England increased its asset purchase programme.
ECB chief Mario Draghi said that economic growth in the euro-area continues to remain weak with heightened uncertainty weighing on both confidence and market sentiment.
As a market analyst, one can conclude that the problems in Europe are probably going to remain a drag on the global economy.
The ECB cut its rates by 25 basis points to 0,75 percent while China reduced its one-year rate for lending by 0,31 percent.
The Bank of England increased it asset purchase programme by £50 billion to £375 billion.
The biggest market driver, the Federal Reserve Bank rates, currently stand at a record low — 0,25 percent — and will likely trigger carry trades transactions and in turn boost those holdings tied to high-yielding assets like the Australian dollar and rand assets among others.
At the moment the Federal Reserve is currently focused on bond buying to inject cash into the economy.
Such action by the Federal Reserve has left them, as the biggest owner of treasuries with a whopping US$1,67 trillion as of June 27, ahead of China's US$1,15 trillion.
At this juncture as a dealer or financial institution it makes it difficult to have short dollar-denominated assets or sell a large portion to anyone.
The data that filtered through to the market on jobs leaves market wanting treasuries or gold.
Why gold? It is because of those negative real interest rates that we are likely to see an upside in gold.
The stimulus will see a spike in the price of gold and the only threat for gold is the strengthening of the dollar.
Going forward, investors will be made to search for quality in the market as we continue to see that crowding out effect coming into the market as demand for safe assets continues.
All these central bank actions are inflationary, so why not own gold as it is an inflationary hedge.
The International Monetary Fund continues to make noise on the impending danger the global economy is facing, pushing it to reduce its global growth forecast.
Weaknesses in investments, jobs and manufacturing in Europe, the US, Brazil, India and China will support gold demand and copper will definitely be affected to the downside on Chinese weakness.
Gold inched higher as central bank stimulus is slowly being felt on the global market.
The data in the US is bad and concern that the economy is losing momentum came on July 6 as the jobs data showed.
Gold held steady before the jobs report, but experienced that gradual increase as it rose slightly to US$1 590,70 an ounce.
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