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Global snapshots


by Ngoni Bopoto
Business

 

Chinese officials have indicated that the yuan will achieve “full convertibility” by 2015, according to the EU Chamber of Commerce. 

This is one year ahead of market expectations. A freely traded currency would mark one of the biggest policy shifts since policy-makers embraced private enterprise three decades ago. 

The announcement of such timeline will help China deflect criticism from U.S. and European lawmakers that the world’s second-biggest economy is gaining an unfair advantage in global trade by artificially keeping the yuan undervalued. 

Making the yuan fully convertible will lead to foreign inflows into China and is a key step in pushing it as a reserve currency thus enhancing its use in global trade.”

Global investment bank, UBS, boosted its 2012 gold-price forecast by 50% citing “ongoing global macroeconomic disappointments”.

UBS expects that gold will average US$2,075 an ounce next year, up from an earlier estimate of US$1,380. According to the report the gold price will average $1,725 in 2013, compared with a previous forecast of $1,200. 

Such aggressive upward revisions to bullion price forecasts mainly based on global economic uncertainty paint a gloomy picture of the economic landscape over the next two years. 

Key risks to the buoyant outlook for the gold price are the possibility of European banks selling gold in order to start sorting out their debt issues and any meaningful increase in gold scrap supply.

The precious metal is up 30% this year, set for an 11th year of gains, as investors seek to protect their wealth from depreciating currencies and declining equities fueled by sovereign debt concerns in the U.S. and Europe. The maintenance of U.S. rates close to zero means that gold is not in competition with assets that offer yield.

It appears that more stimuli are being mulled by both the US Federal Reserve and the Bank of England, while Germany will continue to bail out European sovereigns in attempt to curb the crisis from spreading. Italian Prime Minister Silvio Berlusconi’s revised €54b (US$76b) austerity plan has been approved by the Senate as the government seeks to convince investors and the European Central Bank it’s serious about cutting the deficit. 

Additional austerity measures include increases in sales tax and changes to pension fund rules.

Italy is rushing to pass the measures to ensure the ECB continues to buy its bonds after contagion from the region’s debt crisis pushed borrowing costs for Europe’s second biggest debtor to the highest in more than a decade. 

The issue over Italian austerity comes as a second bailout plan for Greece and efforts to shore up the region’s rescue mechanism founder, undermining Europe’s ability to rebuild confidence in the single currency.

So all in all we remain on the edge of our seats in anticipation of how this will all pan out over the medium to long-term. 

What is clear though is that a more sustainable way to solve the crisis is required and the crutches on which the global economy now supports itself will have to be paid for in years to come.

Economist Ngoni Bopoto is the oracle.