Saturday, October 30, 2010

Global Forex Market

AT the Group of 20 nations meeting, finance ministers from industrialised and developing economies acknowledged a “fragile and uneven” global economic recovery and pledged to avoid employing competitive depreciation of currencies.

Nonetheless, discussions on maintaining sustainable levels of trade balance, a major determinant of exchange rate levels, concluded with ministers agreeing only to “indicative guidelines” with the IMF chosen to be the referee.

With respect to rebalancing the global economy, IMF is set to release specific critiques of countries’ policies at the upcoming Seoul Summit on Nov 11 and 12. Without enforceable mechanisms, many Asian countries were seen reverting to capital controls and currency interventions during the week. Bank of Korea, for instance, highlighted that measures to mitigate capital flows may be “useful”, while China’s Central Bank set CNY’s reference rate level at 6.6912 against USD, the weakest level since September.

On another note, emerging markets were allocated a bigger voting and financial stake, with Europe ceding two of its nine seats on the 24-member IMF board.

Federal Reserve of New York surprised markets by prompting bond dealers to estimate the size of asset purchases, leading investors to believe that the next quantitative easing measure would be in line with market expectations.

The Wall Street Journal’s survey of economists revealed that the Fed is poised to purchase about US$250bil per quarter, and may continue until Q2 2011, totalling to US$750bil in all. The expected amount pales in comparison to the US$1.75 trillion deliberated during the financial crisis. Fresh optimism resurfaced during the week, following a series of better-than-expected economic data.

Durable goods orders reversed a previous decline, rising by 3.3% in September, indicating that companies are likely to remain on an expansionary mode.

In the same month, housing sector posted gains, with new home sales rising by 6.6% over a month ago, compared to 1.1% in August.

Australia’s CPI rose by 2.8% (y-o-y) in the third quarter, lower compared to 3.1% in the previous quarter. Moderating inflation pressures spurred expectations that the Reserve Bank of Australia may keep the key interest rate unchanged, prompting AUD/USD to plunge by 1.3% during the week.

Growth in Asian economies seems to be moderating, following recent appreciation in the region’s currencies. South Korea reported a Q3 GDP growth of 4.5% (y-o-y) from 7.2% in Q2, with the slowdown attributed to declining export levels. In Taiwan, industrial production growth halved to 12.2% over a year ago, the slowest growth rate in 11 months.

On another note, in a move to address global economic rebalancing, China’s vice-commerce Minister indicated that the nation’s trade surplus would “definitely” be narrower compared to levels in 2009.

Tuesday, October 5, 2010

Private bankers advise: "just say no to gold"

Reuters) - Gold is all the rage as investors flee uncertain markets and worry about inflation, but some bankers to the very rich do not take a shine to the precious metal.

Gold prices have spiked 22 percent this year, with investors sending gold futures to record highs of more than $1,337 on Tuesday. The weak dollar, volatility in currency markets and deficit worries boosted demand for the metal as a safe store of value.

Private banking executives, say gold's glittering price tag is or should give their wealthy clients pause.

"We're not really recommending gold right now, just because it's at a level where there are things driving it beyond the types of things (where) that we can add a lot of value," U.S. Trust President Keith Banks said at the Reuters Global Private Banking Summit in New York.

Instead, Banks said gold prices may reflect the surge in demand for gold exchange-traded funds, listed shares that purchase physical gold, and broader worries about government spending leading to rapid price inflation.

"So what exactly is leading to gold at the levels it's at? Your guess is as good as mine," said Banks, who runs the Bank of America (BAC.N) private bank unit.

The SPDR Gold Trust ETF (GLD.P), which lets retail investors more easily bet on gold, has surged 21 percent this year to a record high of 130.71. The fund shares are up more than 50 percent since the end of 2008.

Wealthy families are more interested than ever in owning commodities such as metals and energy, assets that do not move up and down in step with stock and bond prices. They also offer a hedge against inflation, since their values rise with prevailing prices.

There are many critics who warn gold is the latest frenzy and is doomed to collapse.

"With gold being over $1,300 an ounce now, you have people who are asking whether, first, 'Is it another bubble?' and then, 'How far can I ride that bubble?,'" Credit Suisse Americas private banking chief Anthony DeChellis said.

Bessemer Trust Chief Executive John Hilton said his New York wealth management firm allocated a single-digit percentage of its real return fund into gold.

For some clients, he acknowledged, that was not enough.

"We have clients who have made very large individual purchases of gold. Sometimes they'll just say they're doing it, and they'll ask us if we can hold it for them, but we haven't made any large purchases of gold directly for our clients," said Hilton, whose firm manages about $56 billion.

U.S. private bankers, to be sure, also told the Summit they do recommend investments in a range of commodities.

"We have been a proponent of having an exposure to commodities. The bank is optimistic about the economic recovery, and commodities is a way to play global growth," said U.S. Trust's Banks.

U.S. Trust formed its Specialty Asset Management group, which buys hard assets on behalf of its wealthy clients -- anything from real estate, timberland and farmland to oil and gas properties. U.S. Trust will buy and sometimes hire people to operate these assets.

The business, which manages about $16 billion of assets, is seeing strong interest from clients, he said.

"These are assets that I think people can feel good about, that are probably not going to track the more typical areas, and it's just a unique opportunity," Banks said.

(Reporting by Joseph A. Giannone. Editing by Robert MacMillan)

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