Chinese Central Bank sees gold, oil and other resources recovering this year, but dubious on dollar

Posted by Philip Dru on 3/17/09 • Categorized as Economy, Gold, U.S. Dollar

The People’s Bank of China sees potential rebound in gold, oil, other resource prices, but feels outlook for U.S. dollar uncertain beyond start of year as the U.S. deficit and low rates sap attraction of dollar assets.

BEIJING (Reuters) – The prices of resource products from gold to crude oil are likely to see upward pressure later this year, while the outlook for the dollar is uncertain, China’s central bank said in a report issued on Friday.

In its annual international financial markets report, the People’s Bank of China said it expected global demand to continue to weaken this year but held out the hope that the forceful policy response of governments could lead to a turning point in the world economic crisis.

"The international financial crisis will continue in 2009, and the world economic slowdown may continue. The global economic and financial situation faces huge complexity and uncertainty," it said in the 147-page report.

"The measures taken by governments will gradually show their effects, and there may be a turnaround in the world economic and financial situation. The international financial markets are likely to warm up in the second half of this year."

The central bank added that because of the spreading uncertainties of the financial crisis, financial markets would continue to be marked by a high degree of volatility.

Specifically, it said it expected the following movements in prices:

DOLLAR

– To be strong in early 2009, but uncertain what will happen to the dollar later in the year.

"At the start of 2009, the U.S. dollar will maintain its upward trend against other major currencies, but because of the unclear economic outlook for major economies and other factors, the full-year trend for the U.S. dollar is quite uncertain," it said.

"Safe-haven demand for the U.S. dollar has risen with the spread of the financial crisis and the implementation of U.S. economic stimulus plans has also become a supporting factor for the dollar.

"But the big rise in the U.S. fiscal deficit and the very low U.S. dollar interest rates will reduce the attractiveness of dollar-denominated assets."

GOLD

– Prices to stay high and could scale new peaks.

"In the context of the financial crisis, the price trends for gold, the dollar, crude oil and other commodity futures all experienced a divergence.

"Due to the complexity and uncertainties of the development of the financial crisis, gold price trends will be quite uncertain in 2009. But generally speaking, gold prices will fluctuate at high levels and may possibly break through previous highs."

OIL

– Prices to remain low in the first half, but likely to make big gains in the latter half of the year:

"Following OPEC production cuts and some economies gradually recovering, the decline in supply and the recovering demand will combine to support a rebound in international crude oil prices.

"We forecast that it is very likely that international crude oil prices will fluctuate at a low level in the first half of this year but will rise in quite a large range in the second half."

COPPER AND ALUMINIUM

"At the end of 2008, copper and aluminium future prices dropped to their lowest levels in recent years. There is quite a big possibility that they will rebound in 2009." (Additional reporting by Langi Chiang and Aileen Wang; Writing by Jason Subler; Editing by Ken Wills)

Reuters | Zhou Xin and Simon Rabinovitch | Friday, March 13, 2009

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