Economic Briefing
Rosland Capital’s Senior Economic Advisor’s Latest Comments on the Gold Price Correction and Dubai Crisis
Published 11/30/2009 | Read more: money.cnn.com
NEW YORK – Jeffrey Nichols, Managing Director of American Precious Metals Advisors and Senior Economic Advisor to Rosland Capital, today made the following statement on Friday’s price correction of gold on news that Dubai is having trouble making payments for infrastructure construction and real estate developments:
“We should have seen it coming.
“When Americans were celebrating Thanksgiving, the potential multi-billion dollar debt default by a Dubai state-owned development conglomerate triggered fears of renewed global financial turmoil. Dubai had borrowed some $80 billion to finance infrastructure construction and real estate development aimed at transforming its economy to an international tourist destination and financial center – but the global business slump has put these projects in financial jeopardy and the emirate state can no longer make payments due its creditors.
“Reacting to this news, world equity markets sold off sharply on Thursday, as did U.S. stock markets on their Friday opening and the dollar rallied sharply as, once again, many investors and traders saw it as a safe haven, just as they did at the time of the Bear Sterns and Lehman crises. This rush into the U.S. currency and the decline in world stock markets triggered a swift correction in gold, a correction that was, in any event, overdue given the speed and magnitude of the metal’s recent advance.
“Through mid-week, before the Dubai debacle hit home, the yellow metal had risen about 16 percent since the beginning of November, with demand fueled by expectations of further central bank reserve diversification, growing pessimism about the sickly U.S. dollar, and increasing fears among some market participants about inflation in the next year or two.
“Gold’s swift ascent early last week to successive historic highs had gathered momentum as the dollar dropped through key technical levels against the euro, yen, and a widely followed basket of currencies and on news of additional central bank buying. First was a report that India might buy more gold from the International Monetary Fund, following its purchase of 200 tons earlier this month. Later came news the IMF had recently sold 10 tons of gold to the Central Bank of Sri Lanka and Russia’s central bank purchase of 15.6 tons from domestic mine production.
“Last week’s price action is an important reminder that even long-term bull markets do not go straight up. While the focus has been on central banks, hedge funds, and retail investors in the West supporting the rising gold market, we have been hearing reports that demand in India and other price-sensitive markets was softening at prices over $1,100 an ounce. Moreover, the technical picture was already looking worrisome with some indicators suggesting a sudden, swift sell-off of $50 to $100 might be in the cards. Perhaps the market’s ‘Thanksgiving Day’ drop was the expected correction; perhaps not.”
Jeffrey Nichols, Managing Director of American Precious Metals Advisors and Senior Economic Advisor to Rosland Capital, has been a leading precious metals economist for over 25 years. His clients have included central banks, mining companies, national mints, investment funds, trading firms, jewelry manufacturers and others with an interest in precious metals markets.