The view from downunder14 Feb 2022 20:47
Despite the US entering a tightening cycle, Goldman Sachs noted that M2, a measure of money supply, is still growing at 13.5 per cent year-on-year which is more than double the pre-pandemic average.
“Should European interest rates go positive this year as our economists believe, the bid for euros would further weaken the dollar creating an even greater tailwind for commodities,” Mr Currie said.
Goldman Sachs pointed out that all base metals are in backwardation, meaning the cost of delivery today is higher than tomorrow, which has only occurred seven times in the last 50 years. Of the 23 commodities in the Bloomberg Commodity Index, this is presently true for 16 of them.
At a time when capital has never been cheaper due to low interest rates, it has never been more expensive to build infrastructure and equipment like mines, steel mills, or drilling for an oil and gas well.
The growing pursuit of ESG metrics that favour clean investments has also led to the valuations of companies in the green new economy becoming stretched to the upside at the expense of those operating in the old economy.
“Whether it is ESG metrics that discourage 'dirty’ capex, or windfall profit taxes that reduce cash flows, commodity producers’ ability to invest in future output is being constrained,” Mr Currie added.
....meanwhile, boosted gold prices as investors rushed to safe havens. Newcrest Mining rose 4.3 per cent to $23.7, AngloGold gained 3.5 per cent to $5.66. Evolution Mining leapt 7.9 per cent to $3.96, and Northern Star climbed 5.9 per cent to $9.0. Many of the other mid tier gold producers hiked by 6 to 8 %, so good day at the office!
Bonds and their ridiculously low yields are on the nose and staying that way. In Australia, thanks to the wonder of the dividend credits, most savers have little exposure to low yielding bonds, but for most of the pensioners in the rest of the world, so-called prudent regulation means they are heavily exposed to assets with a negative real yield, and are dependent on capital gains for their returns.
We love our strong dividend culture in the market, and will be betting against the USD, and upping the wager on gold. Why bet on a 2% yield on a bond, when you can get 5+% on a big 4 bank with capital appreciation.
Central banks around the developed world tipped to “change course very, very soon, very aggressively to realign themselves with the new reality.” Dragged out of their useless models, and into reality (again).
go gold and base emtals ...
the gnome
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