In this briefing:
- Gold: Dovish Central Banks May Sustain Rally; Closing Our GLD Short
- Repsol, Petronas & Mitsui Make Massive Gas Find in Indonesia
- Free Money Has Flown
1. Gold: Dovish Central Banks May Sustain Rally; Closing Our GLD Short
Central banks around the world have signaled their willingness to return back to the Easy Money Playbook in their quest to re-stimulate economic growth and inflation. This significant shift in market expectations has been the key factor driving the recent rally in Gold (GOLD COMDTY) prices, and it appears to have legs. As such, we are closing our Spdr Gold Shares (GLD US) short.
2. Repsol, Petronas & Mitsui Make Massive Gas Find in Indonesia
Repsol SA (REP SM)‘s discovery is very significant for the companies involved and others around the area, which we discuss in detail below. It is also important for Indonesia, which requires more gas to supply domestic and export demand. It is also positive for exploration sentiment globally, to see a material discovery (Oil Exploration: We Expect a Resurgence in 2019 Pointing to Strong Performance for E&Ps) and this may encourage further M&A in Indonesia such as this deal: (Indonesia Upstream Gas Asset Sale: Positive Read-Through to Other SE Asia Gas Companies).
![](https://static-prod.smartkarma.com/images/media/000/079/478/original/INDONESIA_EN_tcm14-11706.jpg?1550602891)
3. Free Money Has Flown
The world will soon discover that debt matters.
The announcement of each round of QE increased asset prices, but the effect on Treasury bond prices began to fade when central bank purchases began. This unexpected behaviour revealed a little-known fact: asset prices react more to the expectation of changes in liquidity than to the experience of greater liquidity in financial markets. By contrast, economic growth is subject to the fluctuating standards of commercial bank lending, which follow variations in the demand for credit. Consequently, financial markets lead the economy. Meanwhile, central banks focus on lagging indicators, so they’re followers, not leaders. Bond markets usually predict more accurately than stock markets. To work, central bank easing policies require real risk-adjusted interest rates. However, with those rates below zero in many countries, further reductions would penalise lenders without helping borrowers. Thus, only rising inflation can save stressed debtors.
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