The central banking pantomime

Ned Naylor-Leyland, Head of Gold & Silver, comments on the dynamics in monetary metals markets, as a central banking pantomime has so far had a suppressing effect on gold and silver prices.

 

Over the last year some of the key factors have been in place for gold and silver prices to rise, with inflation rising to 7% in the US and interest rates barely moving. Yet the reality worked out quite differently. I remain optimistic on the outlook for monetary metals, however.

 

Jerome Powell, Chair of the US Federal Reserve (Fed), looks increasingly stuck threatening to raise interest rates without it seeming like the Fed can do so without simultaneously risking the stability of financial markets. It’s a central banking pantomime, as Powell shouts “I’m going to raise interest rates!” and bond investors call back “Oh no you’re not!”. I think it’s the market that is right, and that it isn’t feasible to do anything like the full raft of interest rate rises that have been suggested for this year and next.

 

Away from macroeconomics, the merger and acquisition (M&A) wave among listed monetary metals companies, which we’ve been expecting, is very much upon us now. One of the sub-trends within this is a bias in this activity towards Canada, to the benefit of investors like us who know individual locations and risk profiles well. Perhaps Australia will be the next place to ride the M&A wave? The gold price in Australian dollar terms is about where it was a year ago, but many of the Australian gold mining companies have seen their share price halve over that time, which suggests there is plenty of opportunity from here. 

Will 2022 be China’s year?  

Salman Siddiqui, Fund Manager, Global Emerging Markets Focus, assesses the prospects for China in 2022.

 

Emerging markets stock markets have so far begun 2022 much better than US equities. China’s underperformance during 2021 was caused by a liquidity crisis in its property market, by anti-monopoly regulation – particularly in the internet sector – and by China’s zero-tolerance Covid policy, which stifled consumer spending. All three negative factors were self-inflicted: they were largely due to government policy.

 

At the end of 2020, when the Chinese economy was very robust, its government grabbed what it saw as a window of opportunity to introduce hard-hitting, long-term structural reforms. Anti-monopoly regulation and the property market had been two key priorities at the Chinese government’s main annual policy setting economic conference in December 2020. Interestingly, at the same conference in December 2021, anti-monopoly regulation and property were no longer mentioned as key priorities. While that doesn’t mean that these headwinds have gone away, peak regulation and peak property tightening may now be behind us.

 

China needs to take action to reinvigorate economic growth if it is to meet its long-term annual growth target of 5%. Last week there were early signs it was doing just that as the Chinese central bank cut interest rates and hinted at more to come. This sounds very much like a more pro-growth message.

 

Prospects for China could therefore be very interesting this year. The main thing that makes us cautious about China, at present, is its zero-tolerance Covid policy. We believe that at some point China will have to soften this stance, but given several big events in the calendar, including the Winter Olympics in February, and the Party Congress in the autumn, China could continue with stringent lockdowns, mass testing and strict travel restrictions for some time yet.

The value of active minds: independent thinking

A key feature of Jupiter’s investment approach is that we eschew the adoption of a house view, instead preferring to allow our specialist fund managers to formulate their own opinions on their asset class. As a result, it should be noted that any views expressed – including on matters relating to environmental, social and governance considerations – are those of the author(s), and may differ from views held by other Jupiter investment professionals.

Important information

This document is for informational purposes only and is not investment advice. We recommend you discuss any investment decisions with a financial adviser, particularly if you are unsure whether an investment is suitable. Jupiter is unable to provide investment advice. Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested. For definitions, please see the glossary at jupiteram.com. The views expressed are those of the individuals mentioned at the time of writing, are not necessarily those of Jupiter as a whole, and may be subject to change. This is particularly true during periods of rapidly changing market circumstances. Every effort is made to ensure the accuracy of the information, but no assurance or warranties are given. Holding examples are for illustrative purposes only and are not a recommendation to buy or sell. Issued in the UK by Jupiter Asset Management Limited (JAM), registered address: The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ is authorised and regulated by the Financial Conduct Authority. Issued in the EU by Jupiter Asset Management International S.A. (JAMI), registered address: 5, Rue Heienhaff, Senningerberg L-1736, Luxembourg which is authorised and regulated by the Commission de Surveillance du Secteur Financier. For investors in Hong Kong: Issued by Jupiter Asset Management (Hong Kong) Limited (JAM HK) and has not been reviewed by the Securities and Futures Commission. No part of this document may be reproduced in any manner without the prior permission of JAM/JAMI/JAM HK. 28524