Quarterly Outlookstorage.saxoworld.com/outlook/Q22010.pdf · – Quarterly Outlook Q2-2010 – 2...

Q2 2010

Quarterly Outlook

US:Solid growth in Q2, but trouble looms p. 6

Japan:Bursts of growth hide underlying problems p. 8

FXto remain in extremis? p. 9

Q2 EQUity OUtlOOk:

Recovery continues p. 11

– Quarterly Outlook Q2-2010 –

2 QuaRteRly OutlOOk • Q2 – 2010

Saxo Bank, the trading and investment specialist, predicts a slowdown in fundamental data both on a monthly and a weekly

basis. the slowdown is broad and global which is a concern, although it is not yet dramatic.

leading indicator indices confirm the slowdown, but the Strategy team still expects a solid growth in Q2.

However, this growth should be weakening towards the end of the year, where markets will be nervous about the impact of

resetting Option-aRMs, alt-a mortgages and Commercial Real estate. thus, Saxo Bank’s Strategy team is revising its forecasts

for the stock market slightly lower and advises investors to show great caution in constructing their portfolios. Monetary policy

will continue to reflect a weak economic outlook and the team would be surprised to see policy rates moving higher in the cur-

rent year.

the Q2 Outlook for the global economy is a short analysis examining the global economic outlook for the forthcoming quarter.

It also discusses whether the Bank’s 2010 Financial Outlook, released in January 2010, still holds true. the Quarterly Outlook will

be followed by a Half-yearly Outlook in June.

CPI Muted - But Housing Markets On the Rise again

– Quarterly Outlook Q2-2010 –

QuaRteRly OutlOOk • Q2 – 2010 3

DaViD kaRSBØlDIReCtOR, CHIeF eCONOMISt [email protected]

CHRiStian tEGllUnD BlaaBJERGCHIeF eQuIty [email protected]

MaDS kOEFOEDMaRket [email protected]

ROBin BaGGER-SJOBaCkMaRket [email protected]

JOHn J. HaRDyCONSultING FX [email protected]

niCk BEECROFtSeNIOR FX [email protected]

anDREW ROBinSOnFX [email protected]

alan plaUGMannDePuty HeaD OF FutuReS & [email protected]

OlE SlOtH HanSEnSeNIOR MaNaGeR FOR CFD & lISteD [email protected]


Cpi inFlatiOn OR aSSEt pRiCE inFlatiOn?

Should one be worried about inflation? excess reserves

in uS financial institutions currently stand at 1.2 trillion

uSD and the Fed has so far not communicated a plau-

sible strategy to keep it from entering the economy in

one big push. the lack of communication of a cred-

ible exit strategy for the various stability programs has

contributed to push inflation expectations higher.

We doubt that inflation expectations will go much

higher from here due to the dramatic skew in the

way monetary policy is conducted these days: Freshly

printed money is almost exclusively entering the

economy through the bank system. that is one reason

for the huge rally in stocks and a contributing fac-

tor behind the stabilization of house prices in most

countries. It is also a reason not to expect Consumer

Price Indices to show a noteworthy upside in the near

future (12-24 months), but since securitization is (very

slowly) beginning to recover from extreme rock-bottom

lows in 2008-2009 (5-10% of 2006-2007 levels), we

might begin to see more support for housing and even

Commercial Real estate.

Very dramatic differences are building globally with

some countries still experiencing falling house prices

(uS, Germany and Japan down with 23%, 28% and

6% from previous peaks). Some countries are reaching

new highs (Norway, Sweden, australia and China) and

some countries are showing rising prices but still down

from prior highs (Russia 33% lower, uk 9.1% lower,

France 7.5% lower and Canada 2% lower). these

huge differences are likely to result in very different

regional and national results for loss provisions etc. Ob-

viously, uS banks are on the hook for massive losses,

while the loss outlook for european banks is improving

due to largely stabilized and in some cases improving

european housing markets.

REal ECOnOMiC iMpROVEMEnt, BUt Only

SlOWly

Other factors also show improvement. Capacity utiliza-

tions are still massively down in most of the world, but

M a R k e t C O M M e N t: B l O a t e D O P t I M I S M t O P e a k H I G H e R ?

they are slowly growing. unemployment Rates gener-

ally stopped increasing and surprisingly started to drop

in some countries.

even though the global economy seems to be recover-

ing, it is worth reminding oneself that much of the

current growth is based on government consumption

and stimulus programs. In order to create real growth

we need to see a responsible revival of business lend-

ing to small and mid-sized companies. unfortunately,

the huge government spending is shutting out exactly

these types of companies, which typically deliver the

majority of growth. Since banks taken over by the FDIC

are still costing 30% of assets to close, they are still

engaged in wholesale lying about the value of their

assets) and even Barney Frank recently wanted HelOCs

to be written off from the currently close to par levels,

since they had zero economic value in many cases.

Bank lEnDinG anD SECURitizatiOn Still

anaEMiC

the hopes of an immediate and strong return of secu-

ritization and business lending are therefore ground-

less. the drop in uS bank lending is actually accelerat-

ing, since outstanding loans are dropping at an annual

pace of 7.99% from the top in 2008 but 14.22% so

far in the current year. No good news here.

the only good – and arguably quite important news

– in Q2 and Q3 might be a strong response to lax mon-

etary policy in the housing markets. even with ultra-lax

monetary policy, there is an upper boundary for P/e’s

in the stock market (which should be touched fairly

soon), but despite weak household income growth,

the “P/e” of the property market (Price/Rent) might

well be able to grow from current levels.

We expect an improving outlook for the housing mar-

kets to foster a continuation of the bloated optimism

currently observed in stocks, both because of the

general wealth effect and the decreased loss provi-

sions in banks (although that is still not a reason to

buy financials). the optimism should continue until the


second half of the year where the impact of new finan-

cial regulation will become apparent for financials (and

therefore the outlook for lending and securitization).

tWO FUnDaMEntal CaVEatS

Both our Weekly uS fundamental Strength Indicator

and our monthly Global Business Cycle Indicator are

showing weakness after a strong rebound in the past

12-15 months. this is a worrying sign that is uncom-

fortably broad-based (11 out of 13 countries showing

decline in the Global BC index). this is one reason to

be cautious and also why we are more pessimistic than

consensus.


US: SOliD GROWtH in Q2, BUt tROUBlE lOOMS

Inventories have been at the forefront of the debate

about uS GDP growth, and changes to inventories

have indeed contributed quite strongly to growth

in the second half of last year, notably in the fourth

quarter. But we expect the impact from this part of the

economy to retreat as business activity fails to pick up

to an extent that allows inventory restocking on a large

scale. there’s only so much inventory on the shelves

that can be reduced, and we are more or less at that

point already. We expect weak revenue growth in H1,

which will not be large enough to encourage a signifi-

cant replenishment of inventories. Managers across the

country will be wary of the strength of the current -

and for small businesses still very modest - recovery.

the recovery in the housing market looks set for sever-

al months on the sidelines as many potential investors

have already taken advantage of the first time home-

buyer tax credit programme. the extended version has

been a failure so far, and while we do expect demand

to crawl back somewhat in the second quarter, it will

not by anything near the level we usually see six to

twelve months after the end (manufacturing-wise, at

least) of the recession.

We are looking at 2.4% growth in the second quarter

as inventories and stimuli pick up despite the weakness

in housing. In the longer term, we await the outcome

of the second wave of mortgage resets with unease,

especially since the impressive run-up in house sales

and prices in the second half of 2009 has been – at

best - brought to a standstill.

Consumer prices have risen fairly rapidly of late, but

we believe that growth will slow down over the com-

ing quarters as persistent deleveraging puts downward

pressure on prices. the slack in resource utilization

combined with these deflationary forces will restrict

price growth to the 1-3% range in 2010 with 2.4%

expected in the second quarter.

M a C R O F O R e C a S t S

United States 2010Q1 2010Q2 2010Q3 2010Q4

Gross Domestic Product (QoQ, SaaR) 2.7 % 2.4 % 1.7 % 1.2 %

Consumer Prices (yoy) 2.6 % 2.4 % 2.0 % 1.5 %

unemployment Rate 9.8 % 10.0 % 10.2 % 10.4 %

* SaaR: Seasonally adjusted annual rate


the eurozone and uk will see weak yet positive growth

in Q2 as both regions dig themselves out of the deep

economic hole they are in. While there are differences

between the two, the similarities are plentiful. unem-

ployment is high, private consumers are missing and

public deficits soaring, all meaning the governing bod-

ies will find it difficult to increase public consumption

without a more aggressive monetary policy.

the eurozone economy is struggling because of a lack

of internal demand, especially from the debt-ridden

countries in the southern part of the union. Budget

cuts will prevent meaningful growth in these countries,

which will impact the northern countries’ exports. un-

employment will remain high throughout 2010 and we

expect the rate to increase further to 10.1% in the sec-

ond quarter. Inflationary pressures are still limited given

the overleveraged consumers (and governments) while

capacity – both in employment and manufacturing – is

still excessive. Our CPI forecasts for the eurozone signal

that this will continue in 2010 with prices rising 0.8%

yOy in Q2.

the uk is in the same boat regarding unemployment

and growth, but we expect slightly higher prices as the

Government’s effective – price-wise - money pumping

will continue to add upward pressure to prices. We

therefore see a price growth of 1.8% yoy in Q2.

e u R O z O N e & u k : C O u R S e u N C H a N G e D , a N a e M I C R e C O V e R I e S S t R a I G H t a H e a D

United kingdom 2010Q1 2010Q2 2010Q3 2010Q4

Gross Domestic Product (yoy) -0.3 % 0.7 % 1.5 % 1.4 %



Eurozone 2010Q1 2010Q2 2010Q3 2010Q4

Gross Domestic Product (yoy) 0.8 % 1.4 % 0.8 % 1.4 %




In asia, Japan is struggling to escape the deflationary

forces that continually suppress any sustainable recov-

ery. In the short term, however, we see ample room for

continued expansion as a flow of government funds is

providing the fix. the JPy has shown a good perform-

ance against the uSD the last couple of quarters, while

euRJPy has declined more than 5% in 2010 alone. We

expect JPy to weaken somewhat in Q2 against euR

and uSD, which will help out the struggling Japanese

exporters.

Japan and deflation go together like ying and yang,

and while we expect consumer prices to fall at a slower

pace in 2010 than last year, it is still deflation. Capac-

ity utilization is currently rebounding firmly from the

horror levels a year ago, but is still 18% below the

peak. Combined with an unemployment rate of 4.9%,

inflation is not an issue.

Following the sturdy 3.8% growth in Q4 we see ad-

ditional short term strength in the Japanese economy

with a growth target of 1.4% for Q2 though the risk is

presently mostly to the upside. However, the long term

outlook is still unconvincing and growth is expected to

be weak for the remainder of the year.

J a P a N : B u R S t S O F G R O W t H H I D e u N D e R ly I N G P R O B l e M S

Japan 2010Q1 2010Q2 2010Q3 2010Q4

Gross Domestic Product (QoQ, SaaR) 2.1 % 1.4 % 1.0 % 1.2 %

Consumer Prices (yoy) -1.3 % -1.6 % -0.9 % -0.6 %


* SaaR: Seasonally adjusted annual rate


the poles of FX– the australian dollar on the strong

side and the British pound on the weak side – are

stretched to once in a generation extremes as we head

into Q2 of this year. So we’ll keep these two currencies

squarely in our sights in the coming quarter. elsewhere,

we’re most curious whether the uSD rally catches fire

again and whether the euro will resume its steep slide.

the australian dollar has reached its highest level in

a generation vs. the rest of the G-10 with its gaudy

interest rate, expectations of even higher rates in the

pipeline, the way its banking system manages to avoid

the worst of the credit crisis, and its exposure to the

white hot Chinese economy. the pound sterling, on

the other hand, has suffered as the uk was at the

epicentre of the global financial catastrophe and is still

struggling to make a case that it has a viable plan for

pulling itself out of its fiscal and economic malaise. On

top of that, the investment world is fretting the poten-

tial for a hung parliament in the wake of the national

elections that must be held by early June.

While the reasons that have taken these two curren-

cies to their current levels are compelling, we suspect

that mean reversion may be a theme worth investigat-

ing for these two currencies, particularly for the aussie.

the timing is tough to predict, but China is one of the

main reasons why the aussie rally may falter. after all,

history shows that once a country gets serious about

clamping down on an overheating economy, that’s

when the markets and the economy in that economy

often hit the skids. and China is getting serious. this

year, growth pains seem an ever increasing likeli-

hood, with all of the egregious excesses in credit and

overexpansion in production and housing capacity. a

short aussie position is one way to trade a Chinese

hiccup, since the australian economy has more or

less become a derivative of the China story, and the

aussie’s strength has reached quite an extreme. the

pound, on the other hand, is extraordinarily difficult to

make a positive case for. there are types of hope for

this currency: First, that the election fears are over-

blown and that the winning party gains a clear victory

Q 2 2 0 1 0 F X O u t l O O k : F X t O R e M a I N I N e X t R e M I S ?

Chart: GBP and AUD have reached remarkable opposite extremes in weakness and strength. Most of the times in

recent decades, currencies have shown a tendency to revert to mean after such moves, but is this time different?


and promises an effective plan that reassures markets.

Second, that things look so bad for the sterling already

that it has been oversold and that markets often begin

to rise when things look worst.

On a more general macro note, G-10 currencies are at

an interesting inflection point here on the cusp of the

second quarter of 2010. that’s because, as we started

writing this (on the “Ides of March” – how’s that for

portent?), measures of risk appetite, which have been

so influential for the direction in many of the major

currencies over the last few years, are trying to nose

into new extremes of risk willingness since the 2008

credit debacle and ensuing recession. While in the

past we could normally depend on most of the G-10

currencies to align themselves somewhere along the

ever-dominant axis of risk appetite, the picture has

now become far more complicated with a number of

confusing cross-currents that have at least partially

disrupted the previous predominance of risk-on/risk

off. also, the last several months have shown a lack of

trending in traditional carry trades, which have been

choppy for several months even as risk conditions have

improved. the lack of cooperation from the bond mar-

ket (where yields have remained very low despite belief

in a recovery), is a likely central reason behind this,

particularly for JPy crosses. So in Q2, we will need to

watch whether bonds break out of important ranges

(most important for JPy crosses, which positively cor-

relate with yields) and whether risk can keep up a head

of steam (most important for commodity and eM cur-

rencies that positively correlate with risk appetite.)

the most significant change to sweep through the FX

market in Q1 was the rapid demise of the euro. the

Greek fiscal crisis and its implications for the rest of

the nations at the eurozone periphery and for the euro

itself caused a sea change in the market’s attitude to

the currency and whether it had the right to receive

equal status to the uS dollar as a credible reserve

currency alternative. the great euro question is far

from being answered as we head into Q2, even if the

situation seems stable at the moment. It’s a Catch 22

for the eurozone: backing up Greece is a minefield of

moral hazard. Do nothing and you possibly raise the

contagion risk and antagonize intra-eurozone relations.

this situation will continue to dog the euro again and

again in the future, though we suspect with far less

ferocity than we have seen December of last year. We

don’t expect euR strength, just perhaps a lower market

underperformance ahead.

On the short-end interest rate differential front, which

is often a key driver of exchange rate pricing and carry

trades, we suspect that relatively low inflation expecta-

tions and the underwhelming quality of growth will

keep central bank expectations from accelerating their

exit strategies much beyond what the current expec-

tations are pricing into the forward curve. this could

keep the traditional “risk on” currencies (commodity

currencies) in check somewhat relative to what one

might normally expect in relatively risk benign circum-

stances. the uS dollar could flourish in the coming

months if the public sector-driven recovery blossoms

enough to spark the idea that the uS is looking reason-

ably resilient while China is rolling over - which is nega-

tive for commodity exposed currencies and eM - and

europe is ever lagging behind in the cycle.

Q2 tRaDE iDEaS:

For the very bold, a euRauD and/or GBPauD long

trade is worth a look as a mean reversion idea. We still

prefer uSDJPy higher from here (as long as it is trading

above 90), and euRuSD lower.


the cyclical recovery continues as predicted in our

yearly Outlook and equities are going higher on the

back of this, but it is not quite driven by the reasons

we expected. Originally we believed that the overall

risk appetite would drive equities higher, but this has

only partly been the case.

another key question for expected equity returns was

the potential for a P/e expansion. We argued that

stable or even slightly contracting equity market P/es

in 2010 were to be expected, as the risk of changes

in interest rates/bond yields was asymmetric to the

upside. But the driver has not, so far, been the change

of interest rates/bond yields. Rather ePS has been

upgraded quite significantly during the last 3 months

and this has led to a drop in the P/e ratio for major in-

dices. Currently the earnings expectations for S&P500

in 2010 is 78 uSD and for 2011 94 uSD. Bear in mind

that the realized earnings for 2009 were 60 uSD and

this would imply that earnings should grow by 30%

this year which we find too optimistic. eventually we

expect to see downward revisions, but most likely only

in the later part of the year. Obviously this will put a

downward pressure on equity markets.

But for the second quarter we expect the trend from

the first to continue. We do not think that earnings ex-

pectations are going to rise much more from here, but

due to the accommodative monetary policy and benign

inflation expectations being still in effect, there is room

for equities to rerate – even above the current ePS esti-

mates. this has been the case historically and we think

that it is going to happen this time around as well.

However there are risks to this view. In the short term

there is the risk that the spill-over effects from the sov-

ereign debt markets will resurface. We saw in February

how this theme evolved and made equity markets sour

by almost 10%. the likelihood of this theme playing

out one more time is in our view quite high, since the

underlying problems have not been solved. But as

trichet pointed out, he found it inappropriate for IMF

to help Greece. In other words eu and eCB will try

to solve their problems internally and this will make

markets rerate quite fast.

another factor that could start a sell-off in equity

markets and make the correction last longer is macr-

oeconomic headwinds. as we pointed out in the yearly

Outlook we expect this to happen in the second half of

2010, but both our short term fundamental indicators

and our longer term Saxo Business Cycle Indicator now

point towards another downturn. If this trend contin-

ues it becomes likely that we have already seen the

peak in equity markets and not as originally anticipated

during the upcoming summer.

In sum we stick to our original underlying thesis that

equities will move higher in the first half and then

lower in the second half. We have, however, revised

our forecasts a bit lower as we expect macroeconomic

data to remain sluggish and we do not anticipate

another positively surprising earnings season leading

towards further upward revisions.

Q 2 2 0 1 0 e Q u I t y O u t l O O k : O N e M O R e P u S H H I G H e R O N I l l - F O u N D e D O P t I M I S M

index Closing level at 14th of December 2009

June 2010 target December 2010 target

yearly Outlook

2nd Quarter Outlook

yearly Outlook

2nd Quarter Outlook

S&P500 1114 1250 1200 1150 1100

DJ Stoxx 600 247 275 269 260 248

Nikkei225 10106 10750 11431 10320 10029

MSCI eM 979 1180 1105 1050 998


US

It appears the market has finally started to believe Ber-

nanke when he says that he will keep rates ‘exception-

ally low for an extended period’. Fed Funds futures see

only a 60% chance of the smallest rate hike, 0.25%,

before end-Q3 2010.

Quite right too, in our view. By any reading of the Fed

Funds rate and the ‘taylor rule’, the most acclaimed

academic study into the relationship between inflation

and unemployment targets, , Fed Funds would ideally

be substantially negative right now, and probably well

into 2011, even taking into account Quantitative eas-

ing and the possibility of further fiscal stimulus.

ever since the Fed‘s surprise hike in its Discount Rate

on 18th February, speculation has been rife as to

whether this move contained any predictive power

regarding uS Monetary policy. We believe the answer

is that it did not; raising the Discount Rate from 0.5%

to 0.75% represented merely a technical move to start

to normalize the spread between Fed Funds (the rate

at which banks borrow from each other overnight) and

the Discount Rate (the rate at which they can borrow

from the Fed, the lender of last resort). Historically, this

spread has been 100bp in order to penalise banks for

the poor cash management which may have lead them

to borrow from the discount ‘window’). the recent

move took it back to 50bp.

the diminishing effects of the inventory cycle and fiscal

stimuli should leave the unemployment rate stubbornly

stuck at around 10.0% for the whole of 2010, the

housing market is looking distinctly anaemic, with the

key existing home sales figure proving very disappoint-

ing as Government subsidy plans expire, bank lending

remains subdued, and inflation shows signs of slipping

dangerously towards at least disinflation; indeed watch

out for a possible deflation scare towards end-Q3.

We would expect the Fed’s first moves towards any

sort of tightening to be the removal of some Qe meas-

ures, but not before end-Q3. Rises in the interest rate

the FeD pays on reserves and/or rises in the Fed Funds

rate will happen between Q2 2011 and Q2 2012.

Japan

the war of words between the Ministry of Finance and

the Bank of Japan is becoming more heated by the

day, with the former desperate for the BOJ to embark

on additional Qe measures in order to combat defla-

tion; the 4th Quarter GDP deflator was -2.8% yoy.

against this backdrop, we do not expect any increase

in the BOJ’s overnight call rate (currently 0.1%), before

end-Q3. It seems increasingly likely that the BOJ will

bow to the pressure from the MOF so that we will see

some or all of the following actions within the next

quarter-reduction of the policy rate floor from 0.1%

P O l I C y R a t e S I N Q 2 a N D Q 3 2 0 1 0


to 0.05%. this is a verbal strengthening of the com-

mitment to keep rates low, ‘for an extended period’.

We will also see inflation targeting and/or a return to

the commitment to continue Qe until core CPI settles

above zero or increases JGB purchases.

EUROzOnE

Some would say recent events have exposed the

central, unavoidable fallacy that one could construct a

monetary union without a fiscal union; the euro’s pos-

sibly fatal flaw. the jury is out as to whether Greece,

and the other fiscally challenged Southern european

countries, will be able to avoid default and/or secession

from the euro.

therefore, the last thing the eCB can afford to do is to

tighten monetary policy, for the simple reason that the

very act of sticking to austere deficit reduction meas-

ures will be inherently deflationary, possibly brutally so.

We expect to see the Refinance Rate to remain un-

changed at 1% until at least Q1 2011 and that the

eCB will provide enough liquidity to keep overnight

market rates below 0.5% during this period.

Uk

It has become almost de rigeur to refer to the uk’s

economic recovery as ‘fragile’, and for good reason.

economic growth remains anaemic and real output fig-

ures refuse to track PMI readings meaningfully higher.

Comments from Bank of england’s Monetary Policy

Committee members remain resolutely downbeat, with

Governor king leading the chorus of woe, repeatedly

refusing to rule out rejuvenation of the Bank’s paused

Qe programme.

there is also a growing suspicion that the BOe is col-

luding with the government, if not conspiring, to keep

sterling weak in order to help exporters and to ward

off the threat of deflation later in the year.

We expect base rates to remain at 0.5% until at least

Q1 2011, with the distinct possibility that Qe is reintro-

duced.


Most commodities began 2010 as horses out of the

starting box, racing to solid gains primarily enabled

by the strong momentum that had carried over from

2009.

two themes have been the main drivers of markets so

far; worries about the economic health of some coun-

tries given the huge debts that have been built up after

the banking crisis and the stronger dollar. these two

have been linked with europe catching most of the

sovereign debt attention resulting in a weak euro and

a strong dollar. the adverse relationship between dollar

and commodity prices meant that some markets have

been struggling as the dollar continued to strengthen.

a third and very important theme later this year will be

China and their ability to keep the economy moving

forward. Worrying signs about a frightening bubble in

assets prices and unsustainable infrastructure expan-

sion is emerging and the two rounds of fiscal tighten-

ing seen so far will undoubtedly be followed by others.

Should our worst case scenario occur, commodity

markets will suffer as a consequence.

a the end of February nine out of the 22 most traded

commodities were in positive territory with lumber and

orange juice in front while cocoa and natural gas made

up the back of the pack. Heavyweight markets like

crude and gold both were hovering around zero return

with all still to play for as we head towards the second

quarter.

Some decoupling from the above mentioned dollar

commodity relation has been seen recently with both

crude oil and gold, despite several attempts to bring

prices lower, having held up very well. Measured in

euro gold made a new record high and crude reached

levels last seen in late 2008. this was initially based

on a very cold winter on the northern hemisphere but

more importantly on expectations that economic activ-

ity among developed nations will continue to improve

with most of the increased demand so far having come

from the BRIC nations.

Crude oil finds itself in a uSD 70 to uSD 84 range

with the technical picture still pointing towards the

upside. until we see a definite confirmation of an

economic pick up the market is expected to continue

range trading with a chance of reaching uSD 85 and

potentially overshoot to the upside reaching uSD 90

which represents a 50% recovery of the 2008 to 2009

sell off. Crucial support is the 200 week moving aver-

C O M M O D I t y O u t l O O k .


age at uSD 69 with a break below signalling a deeper

correction.

Gold has so far failed to challenge its record high from

2009 having spent most of the time pivoting around

uSD 1,100. IMF gave up in their quest to offload the

remaining 190 tons out of an original 400 tons to Cen-

tral banks, choosing instead to offer it into the open

market. Central Banks will undoubtedly be the buyer

but prefer the anonymity of the open market. China,

Russia and India have been mentioned as potential

buyers and as such the overhang is not expected to

have any adverse impact on prices.

With flows into gold etFs having stalled, the market

increasingly looks towards signs of a pickup in physical

demand to drive the market higher. Safe haven buying

on the back of sovereign debt worries has been offset

by the stronger dollar and as such has been a minor

factor and continues to be so in the near future. We

are long term bullish on gold, but think that the short

term will offer better buying opportunities than the

uSD 1,120 seen at the time of writing.

Saxo Bank a/S · Philip Heymans allé 15 · 2900 Hellerup · Denmark · telephone: +45 39 77 40 00 · www.saxobank.com

DiSClaiMER

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person for the accuracy of the information or any

market quotations supplied through this service

to a customer, nor for any delays, inaccuracies,

errors, interruptions or omissions in the furnishing

thereof, for any direct or consequential damages

arising from or occasioned by said delays, inac-

curacies, errors, interruptions or omissions, or for

any discontinuance of the service. Saxo Bank ac-

cepts no responsibility or liability for the contents

of any other site, whether linked to this site or

not, or any consequences from your acting upon

the contents of another site. Opening this website

shall not render the user a customer of Saxo Bank

nor shall Saxo Bank owe such users any duties or

responsibilities as a result thereof.

analySiS DiSClOSURE & DiSClaiMER

RiSk WaRninG

Saxo Bank a/S shall not be responsible for any

loss arising from any investment based on any

analysis, forecast or other information herein

contained.

the contents of this publication should not be

construed as an express or implied promise, guar-

antee or implication by Saxo Bank that clients will

profit from the strategies herein or that losses in

connection therewith can or will be limited.

trades in accordance with the analysis, especially

leveraged investments such as foreign exchange

trading and investment in derivatives, can be very

speculative and may result in losses as well as

profits, in particular if the conditions mentioned in

the analysis do not occur as anticipated.

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