Thoughts on Gold, Pessimism About Europe, Chinese Equities and Poland's Chances of Growth

Includes: CYB, FXC, FXE, GLD, PLND
by: Global Investing Editor

Tom McClellan, recovering from an emergency appendectomy, writes in The McClellan Market Report:

I have been neglectful of mentioning the full moon that happened on Thursday, May 27. Such events often mark turning points or acceleration points for the price of gold, and that seems to be the case again. Thursday also saw gold tag the Price Oscillator Unchanged and stop its rebound, which makes me think gold prices are going to head down to test the most recent low around 1180.

Although I did not get Tom's view until the weekend, I also lightened up on gold ETFs and gold shares last week. My reason was looking at the price of the yellow metal in euros. I also think the price of gold is less risky than the booming gold-mining sector, where I really did my selling.

Adam Carr, Sr economist at ICAP, Australian brokers, highlights the difficulty pessimists are having. He writes:

it hasn't even been close to the Armageddon they've been forecasting.

Europe hasn't disintegrated, no-one has defaulted and there has been no restructuring. On the flipside, Greece will be able to cover its debts for the next few years. So while growth may be lower than otherwise due to 'austerity', another recession is unlikely and indeed the recent depreciation of euro will assist. In this age of competitive currency devaluations a weaker euro will only be met with joy. Pessimists will undoubtedly continue to predict the worst on a daily basis, but unless something actually happens near-term, the fear will subside.

As I've been arguing, the global growth data will eventually assist this process. India's economy grew by 8.6% in Q1 after an upwardly revised 6.5% rate in Q4. Canadian GDP was shown last night to have expanded by 6.1% in Q1 with consumption alone up 4.4%.Now the interesting thing about Canada and India is that they are about 4 to 7 times the size of Greece, Portugal and Ireland and about the same size as Spain - so the economic impact is twice that of Spain's. Throw in the fact that the remaining 60% of the euro zone (Germany, France, Benelux) is fiscally healthy (comparatively) and you can see why I'm not worried about Europe.

From Michael Kurtz of Macquarie Securities (Hong Kong), a warning about China:

Consensus EPS downgrades underway. Shanghai A-shares' consensus 2010 EPS have declined 6.2% on a 4-week-change basis, while Shenzhen consensus 2010 EPS is down fully 10%. The momentum of latest revisions suggests risk of further downgrades.

The People's Bank of China's open-market liquidity drains appear to have been substantial recently -- which, along with broader policy tightening, has contributed to a material flattening of China's yield curve. Yet local depositors' ‘liquidity preference' remains fairly high as inflation pressures persist, suggesting a willingness to return to risk assets if/when the intensity of recent policy intervention eases.

The Bank of Canada has doubled interest rates to 0.5%. For the reasons, read Mr. Carr's comments above.

Poland achieved only a 3% growth rate in Q1, vs estimates of 3.1% by analysts polled by Bloomberg, mainly because of bad weather leading to higher unemployment in infrastructure sites. This will be reversed going forward. Tightening is the real risk, rather than floods. The zloty fell against the euro. The Polish central bank expects growth this year to be between 3 and 2.4%.