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Sector Update: Gold Can't Seem To Catch A Break - National Bank

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National Bank of Canada notes Central Banks have been aggressive in guiding market expectations for a protracted period of low interest rates. In Europe, it notes, the central bank went as far cutting its bank rate.

Abundant liquidity conditions notwithstanding, the price of gold can't seem to catch a break, National Bank says, before asking "what's going on?"

National Banks says while it is true that lower interest rates could be supportive of bullion, the current environment is characterized by slowing inflation. Rates might be holding still or declining but not after adjusting for falling inflation. "This environment is likely to prevail for much of 2013," the bank adds.

Last Friday, the U.S. Environmental Protection Agency proposed for the first time to ease an annual requirement for ethanol in gasoline, saying that levels mandated in a 2007 law are difficult, if not impossible, to meet. National Bank says charts show the price of corn has been pummelled in anticipation of this news. It says: "We expect this development to have important ramifications on global inflation given the strong correlation between corn and the United Nations' food price index. As shown, the long-term trend shows that food is deflating for the first time since 1998, a situation that is generally not conducive for rising bullion. Recall that food is an important component of the CPI of many countries, emerging markets in particular, hence the strong relationship with gold."

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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