Global economic momentum improving, but don’t ignore disconnect between stocks and Doctor Copper

07 January 2014

Global economic momentum is improving and looks set to surprise on the upside in 2014. However, Doctor Copper should not be ignored. Copper has frequently been dubbed the metal “with a Ph.D. in economics” for its uncanny ability at forecasting the global economic cycle. When the global economy expands, industrial output increases and demand for copper pushes its price up. The converse happens when the global economy contracts.

The two charts below show the 5-year weekly copper price and the MSCI World (Stock) Index for the same period respectively.

copper

msciworld

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Bretton Woods, Gold, and the current monetary system

17 April 2013

In the next post, I intend to describe what I personally deem to be bearish arguments against gold, and make out a case why the secular bull market that began in 2001 probably ended in September 2011. Undoubtedly, there will be many believers in gold who will vehemently disagree. My bullish arguments FOR gold are laid out in this post (but as my next post will explain, I think the bear case outweighs the bull case).

First however, I will need to devote one post to describing a little bit of history to set the context for the discussion. We need to understand how the current monetary system evolved, as well as its flaws.

Post World War II, the Bretton Woods system fixed global exchanged rates to the US dollar, and the USD was in turn pegged to gold at a price of $35 per ounce. The US Federal Reserve guaranteed USD-gold interconvertibility between central banks at this rate, and the free market for gold was naturally tied down by this arrangement.

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Has the secular bull market in gold ended? (Part One – Bullish arguments for gold)

16 April 2013

The honest answer to the above question is “I Don’t Know”. The most I can do is to list out the long-term factors for or against gold, and evaluate the probabilities accordingly.

Factors favouring a continuation of secular bull in gold

1. Central bank money printing

Central banks continue to print money and expand their balance sheets in order to fend off what they perceive as deflationary forces and prop up the economy. There is even talk of the US central bank headed by Ben Bernanke moving to a single mandate — combating unemployment.

While the money printing is not immediately inflationary due to the deleveraging process still underway, the slow velocity of money, and global excess capacity, money printing eventually leads to distorted asset prices, and should ultimately be beneficial for gold as people start to find ways to defend against the depreciation of purchasing power of fiat money.

Many in fact have argued that the current stock market rally especially in the United States has been a result of money printing.

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