Inside investment: A resurgent euro or Trump tweet can aid bullion prices



Is it time to visit the Dubai gold souq, contact the Perth Mint or buy a gold ETF via your e-brokerage account?

Last year gold broke out of its four-year bear market and prices rose spectacularly to US$1,370 an ounce by the summer before retreating back in the autumn. Gold still beat the S&P 500 index for the year.

But by December analysts at Goldman Sachs, among others, said the gold market was broken again. In this column I pointed to a perfect double bottom in prices that was typical of what you would expect at the end of a bear market.

So far this year, a $200 an ounce gain in the price of gold has me smiling. However, financial markets are great humblers of forecasters and gold is presently at a tricky inflection point.

Looking at the technical charts the gold price is trying to cross its 200-day moving average price line of around $1,260. If it can do this decisively then a return to the highs of last year, or even higher, is easy enough for chartists to predict.

It has to be said it is not hard to imagine events that would cause this to happen. The unpredictable new US president Donald Trump might wake up in the night and issue a 140-character tweet that upsets markets. North Korea could go ballistic.

But absent of those events it could be that gold carries on knocking up against the 200-day moving average for a couple of weeks.

However, keep a very close eye on the first round of the French presidential election on April 23, and should no candidate win a majority, the run-off election between the two top candidates would be on May 7.

I think this election is a win-win scenario for gold prices.

First, let us assume that the far-right candidate Marie Le Pen wins. Her commitment to take France out of the euro would be like the collapse of Lehman Brothers in 2008 for the global financial system, possibly much worse.

It would certainly be a political shock to the global economy bigger than the United Kingdom’s Brexit vote to leave the EU, or the election of Mr Trump as the US president. Both of those political events were positive for the gold price, and Madame president Le Pen would be even better for gold prices.

Then again, say she loses and the conservative centrist Emmanuel Macron takes the Elysée Palace. Well, think of all those Wall Street speculators who are currently shorting the euro because they believe that after Brexit and Mr Trump, Ms Le Pen is a sure thing.

If Mr Macron wins, the euro will surge and the dollar index will crash. And what happens to commodity prices when the dollar falls in value? They all go up in price.

Gold and silver would prob­ably be the first and largest beneficiaries of a collapsing dollar as they were in the last global financial crisis, after the initial shock to precious metal prices was over. That price swing took gold to $1,923 an ounce, and silver to $49.80 an ounce on April 25, 2011.

Right now investors are still in love with the major stock markets. No matter that on some metrics US shares have not been this overvalued since the Great Crash of 1929.

Never mind that interest rates are on the way up and that the US Federal Reserve has a long history of popping stock market bubbles by raising interest rates, albeit with a small time delay.

Sure, US consumer confidence has not been this high since the 2000. But that was the start of Wall Street’s bear market and the collapse of the dot-com bubble that set the stage for the 2008 global financial crisis.

Yet if you sagely decide to sell up and avoid the coming correction – and cycles have not been eliminated from financial markets at any time in history in the past millennia – then what on Earth do you buy now?

Shares are fully priced. Bond prices are falling owing to rising interest rates. Real estate is facing similar pressure from the rising cost of money. Is there any­thing that looks cheap?

Step forward gold at $1,250 an ounce and silver knocking around $18. These are also the classic haven assets in unstable markets, and as the cracks appear in the mighty US stock market that is what we are going to have in the near future.

But I am not being alarmist and predicting a win for Ms Le Pen in the French presidential.

A resurgent euro under president Macron will hit the dollar and boost gold quite enough to be bullish about the gold price this year, and I think we can rely on Mr Trump’s help too.

Peter Cooper has been a financial journalist in Dubai for the past two decades

business@thenational.ae

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THE BIO

Born: Mukalla, Yemen, 1979

Education: UAE University, Al Ain

Family: Married with two daughters: Asayel, 7, and Sara, 6

Favourite piece of music: Horse Dance by Naseer Shamma

Favourite book: Science and geology

Favourite place to travel to: Washington DC

Best advice you’ve ever been given: If you have a dream, you have to believe it, then you will see it.

How the UAE gratuity payment is calculated now

Employees leaving an organisation are entitled to an end-of-service gratuity after completing at least one year of service.

The tenure is calculated on the number of days worked and does not include lengthy leave periods, such as a sabbatical. If you have worked for a company between one and five years, you are paid 21 days of pay based on your final basic salary. After five years, however, you are entitled to 30 days of pay. The total lump sum you receive is based on the duration of your employment.

1. For those who have worked between one and five years, on a basic salary of Dh10,000 (calculation based on 30 days):

a. Dh10,000 ÷ 30 = Dh333.33. Your daily wage is Dh333.33

b. Dh333.33 x 21 = Dh7,000. So 21 days salary equates to Dh7,000 in gratuity entitlement for each year of service. Multiply this figure for every year of service up to five years.

2. For those who have worked more than five years

c. 333.33 x 30 = Dh10,000. So 30 days’ salary is Dh10,000 in gratuity entitlement for each year of service.

Note: The maximum figure cannot exceed two years total salary figure.

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Starring: Raed Zeno, Hadi Awada, Dr Mohammad Abdalla

Director: Raed Zeno

Rating: 4/5

The specs: 2018 Volkswagen Teramont

Price, base / as tested Dh137,000 / Dh189,950

Engine 3.6-litre V6

Gearbox Eight-speed automatic

Power 280hp @ 6,200rpm

Torque 360Nm @ 2,750rpm

Fuel economy, combined 11.7L / 100km

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How to play the stock market recovery in 2021?

If you are looking to build your long-term wealth in 2021 and beyond, the stock market is still the best place to do it as equities powered on despite the pandemic.

Investing in individual stocks is not for everyone and most private investors should stick to mutual funds and ETFs, but there are some thrilling opportunities for those who understand the risks.

Peter Garnry, head of equity strategy at Saxo Bank, says the 20 best-performing US and European stocks have delivered an average return year-to-date of 148 per cent, measured in local currency terms.

Online marketplace Etsy was the best performer with a return of 330.6 per cent, followed by communications software company Sinch (315.4 per cent), online supermarket HelloFresh (232.8 per cent) and fuel cells specialist NEL (191.7 per cent).

Mr Garnry says digital companies benefited from the lockdown, while green energy firms flew as efforts to combat climate change were ramped up, helped in part by the European Union’s green deal. 

Electric car company Tesla would be on the list if it had been part of the S&P 500 Index, but it only joined on December 21. “Tesla has become one of the most valuable companies in the world this year as demand for electric vehicles has grown dramatically,” Mr Garnry says.

By contrast, the 20 worst-performing European stocks fell 54 per cent on average, with European banks hit by the economic fallout from the pandemic, while cruise liners and airline stocks suffered due to travel restrictions.

As demand for energy fell, the oil and gas industry had a tough year, too.

Mr Garnry says the biggest story this year was the “absolute crunch” in so-called value stocks, companies that trade at low valuations compared to their earnings and growth potential.

He says they are “heavily tilted towards financials, miners, energy, utilities and industrials, which have all been hit hard by the Covid-19 pandemic”. “The last year saw these cheap stocks become cheaper and expensive stocks have become more expensive.” 

This has triggered excited talk about the “great value rotation” but Mr Garnry remains sceptical. “We need to see a breakout of interest rates combined with higher inflation before we join the crowd.”

Always remember that past performance is not a guarantee of future returns. Last year’s winners often turn out to be this year’s losers, and vice-versa.

COMPANY PROFILE

Company: Bidzi

● Started: 2024

● Founders: Akshay Dosaj and Asif Rashid

● Based: Dubai, UAE

● Industry: M&A

● Funding size: Bootstrapped

● No of employees: Nine

COMPANY PROFILE
Name: Almnssa
Started: August 2020
Founder: Areej Selmi
Based: Gaza
Sectors: Internet, e-commerce
Investments: Grants/private funding
Porsche Macan T: The Specs

Engine: 2.0-litre 4-cyl turbo 

Power: 265hp from 5,000-6,500rpm 

Torque: 400Nm from 1,800-4,500rpm 

Transmission: 7-speed dual-clutch auto 

Speed: 0-100kph in 6.2sec 

Top speed: 232kph 

Fuel consumption: 10.7L/100km 

On sale: May or June 

Price: From Dh259,900  

Venue: Sharjah Cricket Stadium

Date: Sunday, November 25