Julian Jessop from Capital Economics believes that, while gold has been falling recently, the sovereign debt crisis will help it get back to the $2,000 an ounce level again. Jessop is also generally downbeat about all other commodities, besides gold.
October 19, 2011, 12:34 PM ET
By Mark Gongloff
Wall Street Journal Blogs
Gold and silver prices are falling again today, which you might expect in a market that seems to be pricing in some hope of an imminent magic solution to all of the eurozone’s problems. Trouble is, gold has been falling lately no matter what the eurozone is doing.
That’s a break from the history of the past year or so, when gold prices have closely tracked eurozone anxiety, with gold serving its traditional role as a safe haven.
It’s not been a safe haven lately, and Julian Jessop at Capital Economics thinks he knows why: The dollar’s been suddenly strong. In a note today he writes he doesn’t see this lasting:
Recently, the general return of confidence in the dollar has reduced demand for gold as a hedge against a collapse in the US currency. But we do not expect this to hold back gold much longer. In part this is because the upside for the gold price is not constrained by broader economic and policy considerations, whereas the value of the dollar (and of other national currencies such as the yen and sterling) clearly is. Confidence in the dollar relative to gold could also be undermined again by the potential fall-out from fresh euro-zone shocks on the US economy and banks.
Mr. Jessop thinks gold will eventually top $2000 an ounce again, driven by sovereign-debt worries.
In the same note, Mr. Jessop is generally downbeat about all other commodities but gold:
many analysts have suggested that commodity prices have simply been caught up in the general panic in financial markets over the financial crisis in the euro-zone and that the underlying “fundamentals” are sound. This interpretation seems complacent to us.
For a start, there is plenty of hard evidence that economic activity has stalled, such as the PMI surveys. Europe is already heading into recession.
What’s more, the health of the financial system is a “fundamental” too. This can influence commodity prices both through real channels, such as the impact that the euro-zone crisis is having on growth, and through financial channels, including a general reduction in appetite for riskier assets.
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