[Marxism] The mother of all carry trades

Donal Ó Cófaigh donaloc at hotmail.com
Wed Nov 4 09:57:55 MST 2009

Maybe two interesting FT articles related to this...

Gold extends record breaking run 

By Chris Flood 

Published: November 4 2009 11:46

Gold prices extended their record breaking run on Wednesday, pushing towards the $1,100 an ounce level, following Tuesday’s news that India’s central bank had bought 200 tonnes of bullion from the International Monetary Fund.
Gold hit a record $1,093.65 a troy ounce, gaining 3.3 per cent since the news from India broke, and up 24.5 per cent this year. 

James Steel, precious metals analyst at HSBC noted that the IMF sale to India accounted for 40 per cent of the gold which could be sold this year under the new Central Bank Gold Agreement, removing with one fell swoop a substantial proportion of the bullion which other CBGA signatories can sell to the market over the next ten months. 

“This move by India re-affirms the trend of official sector purchases for diversification purposes which would be positive for gold prices,” said Mr Steel. 

Eugen Weinberg of Commerzbank said the deal between India and the IMF was “an indication that central banks from emerging economies are still willing to accumulate gold to diversify their currency reserves in spite of the current high prevailing gold price”. 

Mr Weinberg noted that news of India’s gold purchase had encouraged renewed interest among financial investors with holdings in the SPDR Gold Trust, the largest physically backed exchange traded fund, up 4.9 tonnes to 1,108.4 tonnes, the first increase in four weeks. 

Market talk has turned to the remaining 203 tonnes of gold which the IMF has decided to sell this year. China was widely considered as a potential buyer of the entire 403 tonne IMF tranche. The deal by India has raised expectations that China might do a similar off-market transaction but many other Asian central banks have seen substantial increases in their foreign exchange reserves this year and were seen as likely to be interested in buying gold for diversification purposes. 

Other precious metals prices followed gold higher with silver at $17.45 a troy ounce, up 6.2 per cent over the past two sessions but the reaction for platinum and palladium was more muted. Platinum reached $1,363.50, up 2.3 per cent over the past two sessions while palladium hit $331.50, up 3.1 per cent over the same two sessions. 

Crude oil prices made modest gains ahead of the latest US inventories data with Nymex December West Texas Intermediate up 54 cents to $80.14 a barrel while Brent crude added 35 cents at $78.46 a barrel. 
China current account surplus set to fall

By Geoff Dyer in Beijing 

Published: November 4 2009 15:32

China’s current account surplus will fall by almost half this year, the World Bank predicted on Wednesday, potentially bolstering Beijing’s resistance to appeals expected from US President Barack Obama for renminbi appreciation.

A rapidly falling surplus would signal that the stronger than expected recovery in recent months is bringing about some rebalancing of the Chinese economy.

The World Bank, which also raised its forecast for Chinese growth this year, said the current account surplus was likely to drop from 9.8 per cent of gross domestic product last year to 5.6 per cent of GDP this year, and to 4.1 per cent in 2010. In absolute terms, the bank forecast the surplus would fall from $426bn in 2008 to $261bn this year and $213bn in 2010. 
At the peak of the surplus in 2007 – when, some economists argue, a large imbalance in China’s favour contributed to the glut of liquidity in western financial markets that precipitated the global crisis – the current account surplus was equivalent to 11 per cent of GDP. 
The new evidence of China’s declining external surplus comes ahead of Mr Obama’s first visit to Beijing in 10 days time when he is likely to encourage China to appreciate its currency to help global rebalancing. 
“The reduction in the surplus is quite impressive but it is too early to say whether it will be sustained,” said Louis Kuijs, senior economist at the World Bank in Beijing. Some of the decrease simply reflected the fact that the Chinese economy was growing strongly while most of the rest of the world was weak, he said. However, he added, “there have also been an accumulation of policy steps that are maybe beginning to start to shift the pattern of growth in China”.
The World Bank, which in the past has urged China to adopt a stronger currency, said the renminbi had depreciated by 7.6 per cent overall against its main trading partners since March as a result of its informal peg to the US dollar. 		 	   		  
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