Gold has lost its value from its high of USD 1858 per ounce as at August 2011 to its current levels of USD 1225 January 2019
The markets do seem to read more into dollar positive news than anything else and thus the sell off in Gold (XAU) now seems to be now nearing its end with further global weakness trickling into the global markets. Any sign of a global meltdown could spur a rally in Gold as that is the safe haven when times are uncertain.
The geopolitical tensions between China and US too caused further shocks in global markets. More so in stock markets. As we saw global Stock markets fall by 16pct in 2018, and metals prices slumped to their lowest in a year, however with signs of a trade deal on the table between US and China we could see metals gain in the short term. Econsult expects Gold to test USD 1350 before we see the next move.
Recommendation by Econsult – We feel that the bottom for is safe and that a short burst in Gold is very much on the cards. So we would recommend to buy Gold for a rally to USD 1400
IMF Chief Christean Lagarde in her message in the IMF Annual Report 2018 says that countries should promote an open and rule basis multilateral trading system, and should strive to make new technologies work for all – boosting rather than undermining inclusive growth and financial stability.
According to her, the growth momentum of the global economy is under pressure from a slow erosion / weakening of trust in institution due to, a) the lingering effects of the global financial crisis. b) perception that the rewards of economic growth and globalization are not being shared fairly and equitably. c) anxiety over future of jobs and economic opportunity. d) weak governance frameworks that often facilitate corruption. She further emphasizes that population ageing and over-funding of pension schemes are holding back economic momentum. Income disparities are widening and if unaddressed the climate change is likely to severely disrupt economic wellbeing in the decades ahead.
Lagarde urged that European Union (EU) leaders need to redouble their efforts to lift living standards across the continent as populist movements question the merits of integration. The poorer southern countries in the EU have not caught up with their richer northern peers – a gap that has worsened since the global financial crisis. Between 2008 and 2017, the average annual growth in real income per person, was negative in the five southern members of the euro zone, hit hardest by the crisis.
She urged EU countries to reform their labor markets so that firms have greater flexibility in hiring and firing workers and their business climate becoming more welcoming to investment. These developments it is hoped, would increase spending on research and development.
Lagarde’s remarks come amid a turbulent debate over Britain’s exit from the EU, as well as amidst signs of spluttering growth in the world’s biggest economic bloc. The IMF partly blamed softening demand across Europe for having to cut its 2019 forecast for global growth, for the second time in three months.
South Asia to remain fastest growing region in world
The World Bank Global Economic Prospects Report released on 05th February 2019, expects South Asian regional growth to accelerate to 7.1 percent in 2019, under pinned by strengthening investment and robust consumption. India is forecast to grow by 7.3 percent as consumption remains robust and investment growth continues. Bangladesh is expected to grow by 7.0 percent supported by strong construction and infrastructure investments. Nepal growth forecast to moderate to 5.9 percent. Sri Lanka is anticipated to grow by 4.0 percent supported by domestic demand and infrastructure projects. Pakistan is projected to decelerate by 3.3 percent with financial conditions tightening.
The USD/LKR has halted its slide temporarily. The main factor had being CBSL “Moral Suasion” and regular intervention in the spot market. Despite these measure the external environment vulnerability had seen the currency slip by 19pct in 2018.
The analysis below indicates the rupee weakness over the past 2 years. Thus we continue to believe that the overall trend of a stronger Dollar viz a viz the LKR would continue in 2019.
The Central Bank has made it position clear as they are going stick to an exchange rate policy of cautious intervention at times of excessive volatility in the forex market, Central Bank Governor Dr. Indrajit Coomaraswamy said on 4th January 2019 at the launching of the economic road map for 2019.
Recommendation by Econsult – Stay long Dollars and use opportunity of selling by the CBSL / Moral Suasion to buy Dollars on dips
Forward Market Quotes For USD/LKR- FWD prices must be used in pricing of Cost of sales