Steen Jakobsen
The Bank of Japan has abandoned quantitative easing and the European Central Bank may taper its bond-buying programme, so what is the role of central banks in 2017, asks Saxo Bank’s chief economist Steen Jakobsen.
Article / 10 August 2016 at 8:00 GMT

From the Floor: Gold soars on dovish wings

Your Next Trade
  • Asian equities slightly down after pallid US session
  • Thin palladium market sees huge, 7.5% move
  • Oil market confused on conflicting API, EIA forecasts: Hansen
  • Core bonds, stocks higher as historic inverted correlation breaks down
From the Floor
By Michael McKenna

It has been a long time since central bank birdwatchers have spotted a hawk, and gold traders are starting to act as if the famed predator is nearing extinction.

Reporting live from Saxo Bank's Singapore trading floor, Global Sales head Christoffer Moltke-Leth tells us that tonight's Reserve Bank of New Zealand meeting is not expected to be any sort of exception to this trend as investors forecast a thick cloud of doves over Wellington and a cash rate cut when the statement is released at 2100 GMT.

"Asian [equity] markets are eagerly awaiting the decision following a soft day today on the back of a weak US session," he adds.

The RBNZ is not the only central bank out sounding what has become a sort of ceaseless alarm; last night, outgoing Reserve Bank of Australia governor Glenn Stevens gave his last public address, in which he told his audience that lower growth is here to stay, that there are limites to the efficacy of monetary policy, and that governments should consider infrastructure investments as a potential route out of the current "new nothingness".

Saxo Bank chief economist Steen Jakobsen, of course, heartily agrees; when we sat down with him back in mid-May, he emphasised that "infrastructure is and always will be productive."

In March, Jakobsen noted that Chinese investment in Asia's "new Silk Road" appears likely to benefit the region to Beijing's great benefit in much the way that the post-World War Two Marshall Plan did for Europe to Washington's lasting advantage.

Beyond the belated discovery that endless easing cannot, in and of itself, convincingly simulate a healthy world economy, the continuous dovish trend is boosting gold at the expense of a great many other assets, most notably the USD which has fallen back to its pre-nonfarm payrolls level after a sharp, jobs-fueled rise.

"The soft dollar is a big demand driver here, as is the worldwide trend of dovish central banks," says Saxo Bank head of commodity strategy Ole Hansen.

XAUUSD; year-to-date:

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Source: Saxo Bank 

Noting that bond yields have moved lower in tandem with the struggling greenback, Hansen tells XAUUSD investors that he sees $1,365/oz and $1,375/oz as the key levels to watch in the gold trade.

Elsewhere in the metals sector, Moltke-Leth reports that palladium saw a vertiginous, 7.5% rise in a very thin market overnight. The metal, he tells us, spiked as high as $745/oz on a total trading volume of just 60,000 ounces. It has since settled back at around $725/oz, a level that Hansen says is not "out of sync" with its fellow precious metals.

One of the reasons that bond yields are sliding lower is the interest roused by last year's US Treasury bond auction, where Saxo Bank head of fixed income strategy says that there was very strong demand for the US three-year issue.

"Core bonds moved higher following both the auction and the Bank of England's failed buyback", says Fasdal; the issue with the BoE being that the market simply could not furnish enough sellers, thus driving core yields lower.

"Core bonds and equities are both outperforming at the moment, so the historic negative correlation has broken down," concludes Fasdal, noting that 10-year German bunds were trading at 167.66 at the time of today's Saxo morning call, so "at the upper end of the current range".

Finally, crude oil prices are heading lower for the second straight day following their prolonged rally. According to Hansen, the market is "confused" in the wake of mismatched data from the API and EIA which have the former calling for a 2 million barrel rise in inventories and consensus on the latter forecasting a 1.5 million barrel decline.

The EIA numbers are out at 1430 GMT. As always, and just like Janet, we remain... data-dependent. 

Had someone told us of the potential for addiction before we started... Photo: iStock 

Michael McKenna is an editor at 


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