For years I've been analyzing, I told everyone most of the currency fluctuate based on the country's export and gold value.
Yes, There is some country who do based on that, US never, for years, i realized Gold is the one always set the price at highest peak and slowly petrol price will fluctuate later on, this tactic was used to counter the last crisis and it works.
Here's how it works, Firstly, US will lower down USD to the lowest point, countries especially Asia will tend to buy more USD which actually equal to buy more imported good from Europe.
Feel proud right? the more you import, the less you export, demand on local turn lesser, less investment on local, however local government will take this opportunity to strengthen local currency (eg RM) and invest in overseas, for example (EPF invested RM500bil in UK real estate)
Wise decision to see our currency turn stronger? the more it stronger, the more expensive our food will be, the more tax you have to pay. Real estate in Malaysia will collapse if tax keep fluctuating. Still good decision made by government?
Weak dollar fuels the rise in oil and gold.
It's the tactic where Malaysia will never learn.
Look at the news here,Gold, oil, silver, and copper -- all of which are priced in dollars -- surged to new highs. Gold ended the day with a record close of $1,340.30 an ounce, after hitting an intraday high of $1,342.60.
It's not just gold attracting investors' attention. Oil settled at a 5-month high of $82.82 a barrel Tuesday, and copper continues to trade around a 27-month high. Silver is also at new highs above $22 an ounce, its highest level since the early 1980s.
"If you push down on water, something else is going to pop up somewhere," Adams said.
"I wouldn't be surprised if we saw $1,360 [per ounce of gold] this week," said Carlos Sanchez, precious metals analyst at CPM Group in New York. "I think we'll see $1,400 by the end of the year."
Foster was even more bullish about the precious metal. "I think we've got our sights on $1,400 to $1,500 in the next three to six months," he said.
Part of what's driving the recent run is that gold remains miles away from its true peak, when adjusted for inflation. Gold hit its real record on Jan. 21, 1980, when it rose to $825.50 an ounce. Adjusted for inflation from 1980 dollars to 2010, that translates to an all-time record of $2,184.08 an ounce. 
Anyone out there still remember what I told you why do I choose Swiss Franc to swap with USD and swap to Singapore dollar /Aussie ? Today CNN explain to you why.
"Dollar also lost ground elsewhere, dropping to a two-month low of $1.5938 against the pound, falling 0.3 per cent to a record low of SFr0.9629 against the Swiss franc and losing 0.4 per cent to a 26-month low of $0.9745 against the Australian dollar."
May be I do not explain well here, well, I suck in explaining, Learn it from news everyday. I'm not a good financial planner, but I understand the economy flow. I still bull shitting? Too bad. life sucks..^^
Hi Andy,
ReplyDeleteJust my 2 cents :)
The USD does not fluctuate with metal and commodities prices, but rather the opposite. Currencies are impacted by more substantial factors such as economic indictors, investors' risk appetite for the currencies, and of course a country's current account. On the other hand, commodities prices are by and large affected by the value of currencies.
As for the USD, the government practises a free float which means that the US government does not deliberately devaluate the USD. Therefore, it is misleading to state that the Fed lowers the USD to a low point. It is true that Asians will buy more USD as it is relative cheap. However, what Asian countries such as China love to gobble up is the US Treasury bonds. In fact, it is good news for China that the USD appreciates so that they will have to fork out more CNY for Treasury bonds. Thus, ensuring a relatively low CNY to fuel the export-led economy.
Furthermore, the more you import, it is not necessarily that you export less. Exports have been mainly driven by external factors such as economic conditions of the countries to which goods are exported to. If we were to import more than we export, there will be a net outflow of currency, leading to a lower local currency. Thus, spurring higher demand for exports, instead of the stated opposite.
Investments are considered exogenous as there are many other factors that come into play, such as country's preference for saving and political climate. As aforementioned, a country's income is ambiguous with regard to exports and imports. Thus, available savings for investments are also ambiguous.
I do not think that the local government deliberately strengthens the local currency. Malaysia is an export-led economy, which means that a strong ringgit is harmful. Currently, a strong MYR is a byproduct of the central government raising interest rates to keep inflation under control, creating an inflow of hot money, raising the MYR. Therefore, overseas purchases are more attractive. Also, external factors such as the performance of overseas currencies such as the GBP and EUR affected by the Europe debt crisis will definitely lower the value of those currencies relative to the home currency, MYR.
A strong MYR for a developing such as Malaysia can be advantageous as a stronger ringgit will buy more capital for development. Tax can hardly fluctuate since there is the progressive tax bracket, which leads to auto-correction. Real estate collapse? Hardly. It's not like there is a a craze for Malaysian real estate like in China and Australia that a potential bubble is created, and the real value of properties neglected.
hey there..my pleasure to meet you..i understand you have a strong finance background. you are so right from what you have said. again, may I ask, do you learn all these knowledge from text book?there is some question i would like to ask too, love to hear from you, why is still gold set at the highest point while USD is at lowest point as you said commodity price are affected largely by value of currency.what do you actually mean by "value of currency"?
ReplyDeleteindeed. countries like china will grab opportunity to grab more T-bonds as T-bonds is counted safe compare with regular bond. but do you know what is the risk of holding too much T-bonds? No doubt buyer can hold cheaper bond right now don't forget your biggest risk is interest rate risk.i guess you understand well than me. Why not T-bills as it is the shortest maturity?
Everything you said above is before inflation adjustment. There are 2 questions people always ask around, how high risk can you afford and which will you prefer?risk taker or risk maker?
What do you see in current market now? I would love to hear from you. It's glad to see someone who really know something. hopefully you are an experience person instead of just a book worm.'p
Hi Andy,
ReplyDeleteI'm sorry to disappoint you. I am still in university and will only be graduating end of this year :) However, two of my many interests are Economics and Finance.
With regard to the gold price, let's work out the chain of actions. If US is still in recession or has not fully recovered, the Fed will most probably keep the interest rate low (liquidity trap) and will pump more money into the economy (fiscal policy) by issuing more T-bonds. Low interest rates + economic uncertainty = weak USD. If gold is priced in USD, then the gold price will have to rise in order to reflect the true value of the gold, given the weak USD. Therefore, there is a negative correlation between USD and gold price. IMHO, the rise in gold price is mainly driven by demand as investors demand gold in times of uncertainty as gold is deemed as a safe investment. If you see gold price rising, most probably investors aren't as optimistic.
T-bonds. There are no risks (not even interest rate risk) for the Chinese to hold them for two reasons: First, there is a close to zero chance that the US government will default. Second, there is no interest rate risk when bonds are held to maturity, since there is only exposure to such risk when bonds are sold before maturity. With regard to maturity, it depends on the country's view and since China looks long term in putting downward pressure on its currency, a long-term bond is more feasible than a short-term one. Why not T-bills? One reason is that it does not suit one's investment horizon. If I want to create a long-term investment portfolio, I will not include T-bills. Countries like China with lots of cash can afford to buy T-bonds, as it not as liquid as T-bills.
At the moment, Asian markets are improving, such as Thailand which has gone back to its original growth momentum. On the other hand, China has not returned to its original state. Therefore, creating lots of capital growth opportunities. However, the world economy is still cautious because of the slow recovery of the US economy and the looming European debt crisis. Be careful though, strong Asian currencies may not last very long (or maybe it will), if the overseas governments decide to tighten monetary policy.
thanks. May I know how do you found this blog?
ReplyDeleteYour link was found in Michelle Moh's blog :)
ReplyDeleteMaybe when I'm back, me, you and my gf can go out for a drink and discuss more about Economics and Finance and other things (:
ReplyDeletesure...but your gf? i just met a inti college lecturer, talk about finance stuff, it did not works as i put too much expectation on him.
ReplyDelete