AZK/DEZ
Jim Rogers junks dollar-gold correlation
Ruchi Ahuja / New Delhi February 24, 2006
Gold is just another commodity and there is nothing like an inverse correlation, which the yellow metal shares with the US dollar, said commodity guru Jim Rogers.
“A large section of the market has established an inverse correlation between the dollar and the yellow metal. However, it does not work that way as each has its own rhythm. The two may move in the same direction at times but there is nothing to prove their correlation. On top of it, the dollar is a flawed currency,” said Rogers at a seminar on Investment Strategies in the Global Market.
The idea of inverse correlation had gained ground in the market from the fact that when gold prices, quoted in the US dollar per ounce unit, fall, it becomes cheaper in other currencies.
Also, historically, all central banks have managed their respective wealth reserves in gold and dollars, following which the yellow metal has emerged as a stable alternative to the dollar.
Rogers said gold prices would rise to US$900 an ounce in two years. At present, the metal price is hovering between $550-560 an ounce and its all-time high was $850, seen in January 1980.
According to him, silver will outperform gold in price terms, as at about $9 an ounce, silver is 55 per cent lower than its all-time high level - $14.73 an ounce - seen in March 1983.
“Silver prices fell after losing a major market in industrial usage, that is photography. Also, there are huge inventories of silver in east and West Africa, and India. At the moment, not many fresh opportunities have been found for it but it will happen in 1-2 years and then, silver can be seen touching new highs,” he said.
Rogers stressed more on agri-commodities than metals. When asked why, pat came the reply: “Just look at agri. Most commodities’ prices are trading 60-80 per cent lower than their all-time highs. Soybean and maize are trading 60 per cent lower, coffee 70 per cent lower, sugar 80 per cent lower and cotton 50 per cent lower. Industrial metals are hitting new highs or near all-time highs and thus, the risk factor becomes higher.”
In case of energy, he said, “It’s a different ball game. The supply-demand scenario is tilted in favour of the former, as it is a fast depleting group and new finds are hard to find. In a decade, the net exporters of oil like Malaysia and the UK, will become net importers. Some have already shifted, like Indonesia (which will soon be out of Opec) and China.”
“Further, the Middle-East is emerging into a tension zone and will keep crude price spiraling higher to US$100 a barrel. However, scares like Bird Flu, 9/11 will just pull its prices down, to $35 a barrel, and you must buy it then,” he added.
On ‘promising’ emerging markets, Rogers listed some natural resources-based economies like Myanmar, Angola, Tanzania, Ethiopia, Zimbabwe, Brazil, Argentina and Bolivia.
“One can get things cheap here and these countries have just seen a major change. This will make them grounds for best returns,” Rogers summed up. |
