Archive for April, 2013

Can We Hear A Popping Sound?

The gold market has been interesting again recently. Following a few months’ stately decline it suddenly collapsed over the weekend, losing more than $200 per ounce in the course of two days’ trading (prices here). It has bounced a little since but remains 20% down over the past six months. Now the gradual decline could be explained by reference to dollar weakness, but the spike down suggests something else.

Reuters has some interesting comments from Singapore overnight. Asian investors are at least as hooked on gold as are some of us in the west, and generally assumed to be keener buyers at a retail level. Here’s what a gold trader had to say:

Prices have suddenly jumped but I guess it’s because gold
has broken the $1,400-level again. Technically, people are just
buying up again …

This is from the global head of commodity strategy at ANZ:

A key factor to watch will be gold (exchange-traded fund)
ETF holdings, with a stabilisation in ETF holdings and then
fresh ETF buying to restore some of the lost confidence for
longer term gold investors.

The rest of the article waxes on about declining inflationary risks in the US and putative bullion sales by European central banks. As regular readers will know, the economic arguments used to explain the price behaviour of gold have always been utterly specious. The rally has been driven by sentiment – a heady mix of panic over the world at large and greed at the prospects for the supposed opportunity presented by gold ownership in particular.

So what is interesting about the discussion and coverage now is that the focus has shifted to this way of thinking. Note that the professionals comment on technically-driven trading and investor interest. This is what is getting the attention. Wise-sounding opinions on “fiat currency”, quantitative easing and so on are being displaced by the rather less elevated analysis of the commodity market’s real drivers: supply and demand.

Gold has always been a safe haven – in a sense. (It is, after all, a costly and highly volatile one.) Should funk set in again it might well reach the $2,000 or even $10,000-an-ounce levels being predicted for it with some confidence only 18 months ago.

Meanwhile, however, it would be consistent with growing confidence for investors to lose their appetite for gold as a haven asset. Perhaps what we are seeing is a buying opportunity, as is being advocated by some. Alternatively, this could be the early popping sound of a major bubble.

19/04/2013 at 4:46 pm

Green Shoots

UK activity indicators continue to disappoint. At -0.3% for the final quarter of last year, real GDP is estimated by the NIESR to have risen by only 0.1% in Q1. The trade figures suggest that British exporters have yet to benefit from the weakness in sterling. Only this morning, new data suggested that the recovery in construction is proving glacial. And yet there has been one important sign of brightness lately.

When Norman Lamont said he could see the green shoots of recovery in 1991 he was derided. He was absolutely right, technically speaking: the British recession ended in the last quarter of that year. But it didn’t feel like that. It was in 1991 that repossessions peaked, hitting a total of about 75,000 for the year.

The experience of our residential property market this time round has not been quite so miserable. Repossessions reached “only” 48,000 in 2009, and had already come back down to under 34,000 last year. At the same time, however, data on mortgage approvals, net lending secured on dwellings and housing equity withdrawal show the property market still stuck firmly in the post-recession trough.

So it feels a little courageous to observe that several key indicators for house prices have risen recently. The ONS series, Nationwide index and Halifax index have all gathered pace in recent months. This chimes with a bounce in the RICS survey for England and Wales which shows an even balance between those reporting higher and lower prices (the average for the last 5 years has been -25.6%). Most surprising of all is the recent performance of housebuilders on the stock market: shares in Persimmon, Taylor Wimpey and Barratt have returned 74%, 82% and 108% over the last 12 months as against 18% for the All Share index.

The importance of the housing market to the UK economy is hard to overstate. The “cult of equity” which occasionally troubles commentators in financial circles is an irrelevant sideshow here to the Cult of Property which has variously dominated everything from fiscal policy to the banking system to parliamentary expenses claims to British TV schedules over the years. An upturn in prices and activity would give consumer confidence a badly needed boost.

This is not to advocate a return to the days of irresponsible borrowing and the deposit-free mortgages which the Chancellor seems to think it a good idea to reintroduce. But it would be nice – half a decade on – to see the market put on, say, the 3.5% which on ONS figures would see it rediscover its pre-recession peak.

This blog has long argued that the UK is lucky to have been considered a safe haven. On this side of the Atlantic it remains harder to show optimism over the economy’s near-term prospects. But that doesn’t mean we should ignore green shoots when we see them. A stronger residential property market might just help us get back towards trend levels of growth before 2016.

12/04/2013 at 5:44 pm


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