Generally, the real interest rates are negatively correlated with the gold price, i.e. the rising interest rates adversely impact the yellow metal. Based on this adverse relationship between real interest rates and price of gold, Elfenbein built a model for the price of gold. According to it, whenever the dollar’s real short-term interest rate is below 2%, gold rallies, and whenever the real short-term rate is above 2%, the price of gold falls. Another rule of thumb is that gold moves eight times stronger than the difference between real interest rates and 2%. If the model is correct, the Fed’s future interest rates hike may be detrimental for the price of gold. However, there are many objections to the use of such a simple model, and generally to the adverse relationship between gold and real interest rates.
Central Banks and the Business Cycle
I like it when someone besides a few financial bloggers takes the gloves off and starts asking some hard-hitting questions.
Trading position (short-term; our opinion): No positions.
On Friday, crude oil lost 0.68% as concerns over a global oversupply continued to weigh. Additionally, soft U.S. housing data pushed the commodity below $82 per barrel. Will we see another test of the strength of the psychologically important level of $80?
Old Habits Reappear
Fighting the Fear of Fear
Myself Is after Me
Frayed Ends of Sanity
Hear Them Calling
Frayed Ends of Sanity
Hear Them Calling
Hear Them Calling Me
– Frayed Ends of Sanity, Metallica
Post Traumatic Stress Disorder
Returning to the UK, more exactly Scotland after many years in France I could call this a move from TSD Land to PTSD Land and the facts and figures back that claim. France like all other aging or mature democracies such as the UK is struggling with the unstoppable growth of Altzheimer’s disease victims, with the curve suggesting the incidence of this disease will be claiming 750 000 new victims per year by the 2020s. Also having a fast-growing (by EU standards) population and a growing number of childhood cancer victims, as well as adult victims, the French national health spending implications are somber, but what happens to surviving victims of Altzheimer’s disease, the treatement of which is improving and extending life expectancy of victims? In Britain, a UK Medical Research Council report of late October provides some of the answers.
We humans have been changing the world around us for tens of thousands of years. It’s pretty much what we do, we shape and we change the existing environment through design and then indifference to the results of our actions.
The sheer scale and lightning fast speed of change since the 1950s has been almost unbelievable. So incredible and so sweeping are the changes scientists call the last 65 or so years the ‘Great Acceleration’.
The perennially-optimistic crowd on Wall Street never lets the truth get in the way of a good story. So whenever the stock market doesn’t move their way, they come up with a myriad of excuses to explain the fall. The members of what my good friend Peter Grandich likes to call, "The Don’t Worry Be Happy Crowd" appear in the main stream media and try to deflect attention away from the truth.
What these cheerleaders are unwilling to admit is that the Federal Reserve’s myriad of QEs and manipulations of interest rates have been pumping air into the stock market. Therefore, every exit attempt from its manipulations has, and will, begin a painful (yet necessary) deflation of this bubble.
The consequences of the coming bull market in the US dollar, which Iâ€™ve been predicting for a number of years, go far beyond suppression of commodity prices (which in general is a good thing for consumers â€“ but could at some point threaten the US shale-oil boom). The all-too-predictable effects of a rising dollar on emerging markets that have been propped up by hot inflows and the dollar carry trade will spread far beyond the emerging markets themselves. This is another key aspect of the not-so-coincidental consequences that we will be exploring in our series on what I feel is a sea change in the global economic environment.
The latest Moneyfacts Personal Pension and Annuity Trends Treasury Report, has revealed how the annuity market endured a perfect storm during Q3 2014 as a combination of plummeting gilt yields and a marked slowdown in demand following the 2014 Budget took their toll on annuity rates.
Unbeknown to most of Tesco’s remaining customers as they continue their weekly shops at its well stocked mega-stores across Britain is that Tesco is not just at the edge of a cliff but has actually fallen off it and is in a state of free fall. So whilst customers may soon start to look forward to splurging on their Christmas shopping which undoubtedly will buy the likes of Tesco time during a period when the stock price could hit bottom and bounce. However, as experienced investors well understand that which is termed a ‘dead cat bounce’, as literally even a cat thrown off a cliff will eventually hit bottom and bounce and so that will likely be the experience for Tesco investors over the coming months as they mistakenly assume a rallying stock price is a sign of recovery.
Tom Naysburn writes: Financial and derivative trading is an interesting but violent game, full of love, fear, greed, loathing and ecstasy. There you go, I have owned up, and if your still wondering, it is emotional.
When I started in the City of London, apart from all the fun and learning, I was most impressed by a pervasive rule, that “your word was your bond”. Deals were done with counter parties who you may not have personally known, but when the phone went down and the ticket written up, you knew the deal was done. Your word was your bond, and by extension your firm’s word, was coveted at all costs. To rescind on a deal was infinitely more costly than the deal itself and consequently it did not happen. This principle of trust was honourable, good and tremendously impressive and was carried over into everyday dealings. It remains with me to this day.