-- Posted Thursday, 17 October 2013 | | Disqus

The 11th hour was almost past when Capitol Hill came out smiling with an end to the US Government shutdown and a three-month extension of the US federal debt ceiling. Stocks rallied though this was very much the expected outcome, if not as good as might have been hoped. Three months is not a long time in politics or financial markets. Gold prices jumped by two per cent.

What happens next? Some seasoned traders said their instinct was to sell into the rally. Why? This is a classic situation where all the good news is now priced into the market. Bonds and gold will rebound.

Peak profits

For stocks to advance there needs to be some new positive information to be discounted into prices. Perhaps a surge in company profits? Most unlikely, Wall Street’s profit forecasts have been falling like a stone and still look too high.

Economists say the government shutdown has wiped about 0.4 per cent off US economic growth this quarter. Has a rising stock market discounted that? Then there is the global economic environment. The latest Chinese trade data was none too good and China is the workshop of the world.

Gold prices lifted on news that the US Government is back in business. That’s most probably because the Fed will not be orchestrating the selling of gold to prop up the dollar for a while. Silver also saw higher prices.

However, what nobody seems to be considering is the longer term damage this sort of episode has caused the markets in general and US credibility in particular. It was notable in the publication of Chinese foreign exchange reserves recently that US treasury holdings are frozen and not growing. China can’t panic the market by selling bonds but is not buying either.

Gold transfer

On the other hand, China is now a voracious buyer of gold (click here). This is the stealthy replacement of US paper with precious metals. The Fed is assisting in this transfer by its bond buying program and gold price suppression (click here).

So far it’s a managed process. But at some point the orderly shift from the dollar to gold will turn into a rout for the greenback and a major advance in the gold price.

With the gold price still close to recent lows now would be a very good time to make a move from equities and bonds and into precious metals. Next month’s edition of our newsletter will have the full inside story on how best to invest in gold (subscibe here).

-- Posted Thursday, 17 October 2013 | Digg This Article

About Peter Cooper:
Oxford University educated financial journalist Peter Cooper found himself made redundant by Emap plc in London in the mid-1990s and decided to rebuild his career in Dubai as launch editor of the pioneering magazine Gulf Business. He returned briefly to London in 1999 to complete his first book, a history of the Bovis construction group.

Then in 2000 he went back to Dubai to become an Internet entrepreneur, just as the dot-com market crashed. But he stumbled across the opportunity to become a partner in www.ameinfo.com, which later became the Middle East's leading English language business news website.

Over the course of the next seven years he had a ringside seat as editor-in-chief writing about the remarkable transformation of Dubai into a global business and financial hub city. At the same time www.ameinfo.com prospered and was sold in 2006 to Emap plc for $27 million, completing the career circle back to where it began a decade earlier.

He remains a lively commentator and columnist as a freelance journalist based in Dubai and travels extensively each summer with his wife Svetlana. His financial blog www.arabianmoney.net is attracting increasing attention with its focus on investment in gold and silver as a means of prospering during a time of great consumer price inflation and asset price deflation.

Order my book online from this link

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