Overview Gold miners soared last week on the back of improving sentiment towards the gold price (it broke through its 200 day moving average last week) and increasing confidence that current stock prices largely reflect past and upcoming gold reserve valuation write-offs.….
Equities generally saw improved sentiment with leveraged DAX, leveraged MIB as well as US small cap Russell 2000 and Shipping indices seeing large gains. In currencies the Pound rose strongly on improved growth sentiment while the Yen fell back on weakening Japanese growth, making GBP/JPY the best performing pair last week. We remain bullish on broad commodities, with our expectation that global growth will continue to recover. Accordingly, cyclical equities and cyclical currencies should also benefit from rising investor risk appetite in coming months.
Gold breaks through the US$1,300 threshold and the 200-day moving average on weak dollar. Soft economic data from the US, coupled with re-affirmed continued stimulus from the Fed, weighed on the US dollar last week, in turn pushing the gold price higher. Investors appear to have been reassured the Fed will maintain stimulus for a “considerable time” as “the recovery in the labour market is far from complete”, according to new Fed Chairman Yellen’s testimony to the Congress. The last time gold traded around these levels was in November 2013, before the Fed started tapering. The nickel price gained 3.0% last week, as the Indonesian government reaffirmed its intention to proceed with the planned nickel ore export ban as. Meanwhile, the corn price fell by 0.5% last week, after the US Department of Agriculture (USDA) announced it expects corn acreage to fall by just 2% in 2014.
Gold miners rose nearly 11%, the highest weekly increase since August 2013. Last week saw the price of gold crossing the US$1,300/oz level for the first time since November 2013, lifting the DAXglobal® Gold Miners Index which saw the strongest weekly increase since last summer. With the US debt limit extended for another year and Janet Yellen’s pledge to continue with measured tapering, global equities have continued to rally last week, recovering from recent weakness. European leveraged equity indices surged 5.6% on average while the Russell 2000® Index was up 4% over the past week to Thursday. With the potential for upcoming key indicators in the US and in Europe to beat expectations, equities are likely to continue to receive support.
Sterling (GBP/USD) reaches a 4-year high despite policy rates likely to remain at record lows until 2015. The Bank of England (BoE), in its next phase of forward guidance, indicated that policy interest rates won’t rise until more spare capacity in the economy has been absorbed and rates will only rise gradually at that point. The market cheered the BoE’s guidance with a vote of confidence, and sterling rose 1.9% against the US dollar as investors hope that low interest rates will maintain the positive growth momentum for the foreseeable future. However, at such elevated levels the risk to sterling remains on the downside and we believe most of the good news is priced in. The Norwegian krone rose 1.5% against the US dollar as inflation data for January surprised to the upside. At 2.4% versus 2.0% expected, the Norges Bank could build a case for raising interest rates.