This Month in Gold – December 2010

Deutsche Bank’s Lewis: Gold, Agriculture, Are “Safest Long Positions”
Bloomberg – Michael Lewis, Deutsche Bank’s Global Head of Commodities Research, reports that gold and other commodities are “still cheap” and that gold’s recent rally, while record-breaking, is “not yet extreme.” Demand from emerging markets remains strong for all commodities. Lewis noted that gold is below its 1980 peak in terms of rate of appreciation, inflation-adjusted producer price, and inflation-adjusted consumer price. ETFs and central bank purchases are new sources of demand that were not present in the late ’70s.
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The World Does Not Need to End for $10,000/oz Gold
Wall Street Journal – Shayne McGuire, manager of the $100 billion Teacher Retirement System of Texas, made a daring move in ’07 when he allocated aggressively into gold at $650/oz, against the anti-gold conventional wisdom of the pension industry. Thanks to McGuire’s courage, the fund was up 15.6% in its fiscal year ending in June ’10. Now, he has released a book saying gold will hit $10,000/oz before the rally is over. He points out that as little as 1% of total global stock and bond holdings moved into the metal would cause this ten-fold rise in price. Predicting a return to gold as money in the midst of high inflation, McGuire says that while “it seems like an aggressive call,” it’s really just “a return to normal.”
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JP Morgan: Dollar to Become World’s Weakest Currency
Bloomberg – JP Morgan’s research dept. predicts that the US dollar will continue to slide toward becoming the “world’s weakest currency.” They see the dollar hitting a target of 75 yen next year, 21% below its high of 95 yen earlier this year. JP Morgan’s analysts are perplexed that “The U.S. has the world’s largest current-account deficit but keeps interest rates at virtually zero.” This is widely understood to be a recipe for currency weakness. Bloomberg noted that the dollar has declined against 12 of its 16 most-traded counterparts this year.
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