Currencies Twitchy as Commodity and Equity Prices Fall

Weird Investments
Photo by wonderwebby (Flickr)

A secondary market is a sine qua non for equities and bonds: investors would not buy them if they were obliged to hold them to maturity. By the same token, a secondary market in Wimbledon seats is admissible (unlike that for Wembley or Twickenham tickets). The secondary market in groceries has also long been considered legitimate; corner-shop proprietors buy at the cash-and-carry and sell on at a higher price. Sainsbury’s in Cheadle did likewise recently when the shop ran out of Warburton’s bread. An employee went to Iceland next door, bought two dozen loaves for £1 apiece and put them on Sainsbury’s shelf at £1.49. In the bond market it would have been called arbitrage; to bemused shoppers it looked more like taking the mickey.

For several years the practice of buying to sell at a higher price was the only one that made sense in the commodities market. Ten years ago gold was $350 an ounce, five years ago it was $800 and one year ago it was $1650. But for the last six months the price has been going down and in the last three days it has fallen out of bed. Since Thursday evening it has dropped from $1560 to $1375 an ounce. Nobody is entirely sure what started the rout but fingers are being pointed at the EU and its demand that Cyprus must sell excess gold reserves. It is not the 14 tons of Cypriot gold that give cause for concern. It is the 112 tons held by Greece, the 282 tons in Madrid, the 383 tons owned by Portugal and Italy’s 2,452 tons that make investors uneasy. If Cyprus is indeed to provide the template for future bailouts, the EU/IMF/ECB troika will insist on recipients helping themselves by offloading their gold.

The nervousness in commodities and precious metals was mirrored in the way investors treated currencies on Monday. As expected, things did calm down following yesterday’s early flight to safety but the consolidation had a clear “risk-off” tilt to it. As for exactly what constituted “safety”, investors were not certain, other than that the Japanese yen was the safest of the lot. It strengthened by three quarters of a yen and was Monday’s top performer. The US dollar, the euro, the Swiss franc, the Scandinavian crowns and the pound were not far behind, separated by a third of a euro cent or less. Among the commodity dollars it was the Aussie that fell furthest, losing nearly a cent to the pound. The South African rand took the biggest hit, down by -1.5% on the day. For more information on International Money Transfers from Moneycorp please click here.

Monday’s ecostats created no waves: Euroland logged a wider trade surplus, America reported a net outflow of long-term investments and the NAHB housing market index dropped two points to 42. The minutes of the Reserve Bank of Australia’s policy meeting did not shake the idea that the Bank could lower its 3% cash rate in the next couple of months.

After a week-long ecostat drought, today brings a downpour of data. The UK figures cover producer and consumer price inflation and there are also consumer price index readings from Euroland, the States and, tonight, New Zealand. ZEW publishes its surveys of German and eurozone investor confidence. Other North American data cover US housing starts, building permits and industrial production as well as Canadian manufacturing shipments.

Today’s main driver is likely, once again, to be commodity and equity prices. The UK inflation figures, whilst theoretically important, are unlikely to ruffle sterling’s feathers unless they are well off-target. For more information on Money Transfers from moneycorp please click here.


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