The Biggest Winner

–The great repatriation of Japanese cash back to Japan has not yet punished Australian stocks (or the Aussie dollar) in the way your editor expected. In fact, some stories are now reporting that Japan-aversion by global investors is bullish for emerging markets, which presumably includes Australia (at least as far as Australia is a popular destination for the “risk on” trade).

–There you have it. We live in a world where there is no crisis that cannot produce a gold-studded silver lining for investors. Could it be the G-7 currency intervention arrested the Yen’s rise and turned the sentiment about Japan around?

–It’s a tangled mess at the moment. We’re on the case researching the matter for our upcoming update of the Australian Wealth Gameplan (where we explore such matters and their implications in more depth). But what do the mavens say?

–Warren Buffett is not scared of Japan. He says if he owned Japanese stocks he certainly wouldn’t be selling. That’s a fair point. But it does seem a bit ghoulish for some commentators to rub their hands in glee with the share market bargains currently on offer in Tokyo.

–This is a kind of reflexive, “buy when there’s blood in the streets” contrarianism that isn’t really contrary.  That is, it’s a set piece investment response, not a genuinely unpopular stand against the conventional wisdom. Not that there’s anything wrong with it. It’s just not terribly insightful, and thus, might not be very profitable. Like all set piece thinking, it’s lazy.

–Mohamed El-Erian from PIMCO told the Financial Times that in a world of geopolitical instability, “the biggest gainers will be the oil exporters who are not currently impacted by geo-political uncertainties. These are located mainly in the set of emerging and frontier economies (e.g., Angola, Gabon, Ghana, Indonesia, Nigeria and Russia) but also in the advanced world (e.g., Norway).”

–You’ll note he did not include Australia in that list. But that’s because he forgot the biggest winner of all from the last month: natural gas. Natural gas is not oil, the security of which is in doubt as the Middle East rages. Natural gas is not uranium, whose own prospects have been clouded by Japan’s nuclear crisis. And natural gas is not coal, which finds itself in the position of being attacked for its “coalness” by the Australian political establishment.

–Gas is the only relatively clean, secure, and abundant hydrocarbon left capable of fuelling electric power stations. Abundant? Yes, when you consider the two big developments that have unlocked previously inaccessible gas all over the world. More on that tomorrow.

–Finally, natural gas is not gold either. And for more on gold and paper money, we’ll hand the keys of the Markets and Money over to our old desk mate from London, Adrian Ash. He takes a look at the gold and foreign-exchange markets, Libya, Japan, and much, much more.

FX Volatile, Precious Metals Higher

By Adrian Ash

The price of gold jumped against a falling Dollar at the start of Asian trade on Monday, hitting near-two-week highs for US investors as crude oil also leapt following the weekend’s joint UN air strikes on Libya.

The BBC reported that a key Gaddafi “command centre” had been destroyed in Tripoli, capital of Africa’s third-largest oil producer.

In Yemen, meantime, a senior general defected to the opposition, while Sunday’s referendum in Egypt returned a huge majority for constitutional reform.

World stock markets rose over 1.5% on average. Silver bullion prices jumped more than 2% to recover what was left of last week’s 6.5% drop.

Ahead of this week’s European summit on the region’s sovereign-debt crises, the US Dollar fell to a 9-week low vs. the Euro at worse than $1.41.

That capped the jump in Euro gold investment prices below €32,500 per kilo, unwinding one half of last week’s 2.5% drop.

“With the increased volatility in the foreign exchange market, many traders and investors [have] turned to the precious metals as a safe haven,” says a note from Commerzbank’s analysts.

“Some speculators have been selling today, taking the opportunity of higher prices,” Reuters quotes a dealer in Singapore, where premiums over benchmark London gold investment bar prices held firm around $1 per ounce.

But despite Tokyo being closed for the Spring Equinox, Asian precious-metals volumes “were decent”, says a Hong Kong dealer, after the metal “gapped higher” at the start of electronic Globex action.

Engineers at Japan’s Fukushima nuclear power plant said on Monday they’d restored electricity to three of its six stricken reactors. But smoke was seen forcing staff to evacuate another unit, and the United Nations’ atomic watchdog said the situation is still “very serious”.

With 8,450 already confirmed dead after this month’s earthquake and tsunami, Japan today widened its ban on spinach, milk and other food supplies from the affected area.

“It’ll take some time to rebuild, but it will not change the economic future of Japan,” said legendary investor Warren Buffett, chairman of Berkshire Hathaway, on a visit to South Korea today.

“Something out of the blue like this, an extraordinary event, really creates a buying opportunity.”

Already swelling its current account last week by a record ¥15,000 billion ($185bn), “The opportunity [also] just opened up for the Bank of Japan to not be worried about such issues [as the] fear and accusation of currency manipulation,” says Bank of America Merrill Lynch analyst Bin Gao.

Advising Tokyo to engage in fresh quantitative easing to devalue the Yen, Bin notes that China’s central-bank balance sheet is more than twice the size in terms of domestic GDP (68% vs. 27%), almost entirely made up of foreign assets “and no one seems to be too concerned!”

“Gold’s fate will depend on the evolution of the situation in Japan and in Libya,” reckons a note from Swiss refiner MKS’s finance division.

“We expect the metal to stay supported by the safe haven buying fuelled by the uncertainty and worrying aspect of the two crisis.”

As gold investment prices fell sharply early last week, the “net long” position of speculative traders in US gold derivatives shrank at its fastest pace since July 2010.

Down by 11% in the week to last Tuesday to the equivalent of 789 tonnes, the difference between bullish and bearish contracts held by non-commercial, non-industry players in gold futures first reached that level in late 2007.

The volume of gold bullion held to back shares in the giant SPDR Gold Trust fund, in contrast, jumped on Friday to unwind 5 weeks of decline, rising back to 1226 tonnes.

Adrian Ash

Editor’s Notes: Formerly City correspondent for Markets and Money in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – winner of the Queen’s Award for Enterprise Innovation, 2009 and now backed by the World Gold Council market-development and research body – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.

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2 Comments on "The Biggest Winner"

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Greg Atkinson
Just a quick note to say that from where I am in Japan all I see is a nation determined to work hard to rebuild after the terrible events of the last few weeks. I think it’s easy to forget that in addition to a massive earthquake and tsunami that much of N.E Japan has been shaken by dozens of strong aftershocks which in themselves have been earthquakes. Then there is the ongoing crisis at the Fukushima nuclear power plant, rolling blackouts across Tokyo and tens of thousands of people who have lost everything. Not to mention the many thousands… Read more »

Cheers Greg and thanks.

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