The gold fed by fears of stagflation
25-02-2008 newspaperThe worries of which the United States has to face to a high inflation in moments in which it faces a possible recession - phenomenon known as “stagflation“ - are contributing to the recent upward gust of the gold and of other precious metals, make sure the analysts.
This possible stage had been already mentioned to justify the recent rises in the precious metals, but he received a major impulse then that the Federal Reservation (Fed) was publishing on Wednesday the minutes of his meeting of January. This there joined an article about the stagflation published in the front of The Wall Street Journal.
The newspaper pointed out on Thursday that the inopportune combination of a recession in blossomings and a persistent inflation is reviving the fears from which there returns the stagflation, a condition that the country has not experienced from the 70s.
On the other hand, several analysts mentioned to the topic in the daily reports that they send to his clients.
“The minutes of the FOMC emphasized the rises in the prices, what was endorsed by the numbers on the IPC”, supported Peter Grant, analyst for the sector of the metals of USAGOLD-Centennial Precious Metalsw.
“And that the Fed also should have cut his expectations away for the growth of the GDP he makes to think about the possibility of a stagflation”.
The authorities of the Federal Reservation determined that the risks of an economic weakening keep on being present, despite the significant clippings of the money-market rates, according to the minutes of the meeting of the Fed of January 29 and 30.
The central bank admitted in his last projection for 2008 that the United States faces to a deceleration of the economic growth and to an increase in the inflationary pressures.
Also, the officials of the central bank increased the possibility that aggressive money-market rates increases are adopted, if these are needed in some moment to reduce the inflation,
According to The Wall Street Journal, the term “stagflation“, minted in the United Kingdom in 1965, came to the United States to define the period between 1970 and 1981, when the inflation came to almost 15 %, the economy crossed three recessions and the unemployment reached 9 %.
The current circumstances are very different. The unemployment, although it is high, is located in 4.9 %. Nevertheless, there are worrying similarities. As in the 70s, the rise in the price of the basic goods, especially the oil, is leading the tendency. As in the 70, the rhythm to which the economy can grow without generating inflation, his "potential", has diminished because of the minor growth of the productivity and the labor force, added the newspaper.
The gold amounted to a record in January, 1980, which had not been overcome until last month.
“The word that starts with "and" - stagflation - is something about what the people have not been speaking really and detest having close”, pointed out Mark O'Byrne, executive director of Gold Investments. “But increasingly, one sees like enough estanflacionario. Obviously, we have a deceleration of the economic growth and have an increase in the inflation”, it added.
The minutes of the meeting of the Fed insinuate new valuations clippings, said John Person, president of NationalFutures.com. The short-term yields of the qualifications of the Treasure and the futures on the federal interbank valuation are deducting more clippings in the interest rates, he added.
“That is going to accelerate the theory of the stagflation”, indicated Person.
If really a stagflation takes place, the phenomenon will be of benefit to the gold of two ways, the experts coincide.
They affirm that perhaps the most important thing the portion of the inflation is inside the equation. O'Byrne emphasized that the prices of the energy and of several basic food have been in recent form beating record. The finished effect of these rises might not be reflected in the official inflation by other three to six months, it supported.
“The worries for the inflation are real, at least in the medium term”, he said.
“Obviously, the people buy to be protected from the inflation”.
Even an economic deceleration might impel in the long run to the gold, due to the biggest demand for alternative assets, affirm the analysts.
“If the American economy really enters to a recession, possibly dragging with it to the rest of the world, as the money goes out of the world actions markets he will need to find a hearth”, pointed out Grant.
“And I believe that the gold is going to benefit from that”.
In general, the investors might get overturned towards the market of bonds of the government, considered a refuge in suspense times.
“But the decrease in the yields makes it less attractive and increases again the attraction of the gold”, he added.
According to Person, the funds of coverage and other investors prefer the gold.
O'Byrne emphasized the demand of investments as another element to be taken into consideration.
In the current stage, there will be more of this that at the end of the 70, due to the advent in the last years of funds that are quoted in Stock Exchange, known like EFT endorsed by gold, he explained.
“There was no ETF in 70 ″, said O'Byrne. “Then the massive market could not take part in this moment as it can do it nowadays. In that one then, it was a question of coins, bars or futures”.
At present, the biggest EFT endorsed for gold - streetTRACKS (GLD) - it was provided last Wednesday with 631.15 tons. According to analysts, this fund is between the 10 biggest golden holders in the world.
“The only reason does not exist so that the investors support gold”, affirmed John Reade, strategist of UBS.
“Some of them are afraid of a collapse of the dollar, others buy gold to have a liquid route to take part in the cycle of the basic goods, others buy them due to the impulse of the moment. But the Wednesdays fluctuations show another reason: we believe that several investors have bought and retained gold due to the fears of a stagflation, together - perhaps - to the worries about the risks in the financial system”.
According to Reade, the UBS economists do not believe in a stagflation and “they believe firmly that the current conditions are very different from those of ends of the 70 and beginnings of the 80.
Nevertheless, “we believe that the risks of a stagflation have increased, at least in the head of some investors. This has been sufficient to offer support to the gold in the current levels”, it added.
25-02-2008
