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Loaded plate

What with the inflation figures, the Bank of England governor’s letter to the Chancellor and the Mansion House dinner, last week packed a lot in. Inflation has further to go, according to Mervyn King. Incomes will be squeezed and an economic slowdown is inevitable. As to whether interest rates will need to rise, it is still too early to be certain.

Core to the decision as to whether we return to monetary tightening will be the attitude of the workforce to the pressure on their pockets. With gas prices forecast to rise by 40 per cent by the end of the year and the 1.50 litre of diesel now a reality in some areas, there will be real pain in some households. Settlement of the Shell tanker drivers’ dispute did not augur too well, either. Admittedly, their 14 per cent wage rise is over two years but if settlements of this magnitude become common, we can expect stern words from King.

King is clearly a worried man and I dare say Alistair Darling is not sleeping too well, either. In a way, I found the references made in the Mansion House speeches to the present being the most challenging period since 1997 rather encouraging. Then, as now, we had a myriad of problems facing us but we survived and arguably some areas of the world were strengthened as a result.

But the market is still of a nervous disposition. It hardly helped that Morgan Stanley announced it had uncovered a rogue trader in its London operation, even if the numbers bandied around as potential losses pale into insignificance alongside the write-downs as a result of the sub-prime debacle.

I took more interest than I might usually have done when a colleague dumped a chart of the gold price on my desk. Not long ago, gold breached $1,000 an ounce but recently it has behaved as if becalmed. The technical analysts are getting excited over the pattern that is beginning to develop. A breakout is in prospect. It should come as no surprise that the breakout could take place in either direction, except that the re-emerg-ence of inflation on a global scale does prov-ide an argument for gold bugs anxious to promote their case. Gold can be viewed as an inflation hedge. In the past, the price has tended to move in line with oil – a correlation that appears to have fallen by the wayside of late.

I have never been a keen follower of the yellow metal. Years ago, I worked alongside the late, great Julian Baring – or Goldfinger, as he was often known. He once conceived the idea of launching a fund designed to exploit his knowledge of gold mining but was sufficiently foresighted to name it the gold and general fund in case gold fell out of fashion.

Perhaps the real indicator to watch is the dollar. Gold is priced in dollars and the recent fall in price reflected the dollar’s recovery from record lows. Some think a turn in the dollar is imminent, putting pressure on the gold price. But the US is not out of the woods and the more that uncertainty persists, the more the nervous will turn to gold. It’s a thought.

Brian Tora (brian.tora@centaur.co.uk) is principal of the Tora Partnership

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