OPINION contributor

Dollar, euro, yen or gold

HDN | 8/20/2010 12:00:00 AM | MAHFİ EĞİLMEZ

As we are tackling with the referendum issue, an interesting term waits for us in which people will be dragged into speculative investments.

The fiscal rule’s dropping off the agenda, an unannounced middle-term program, and discussions over the upcoming constitutional amendment referendum continue to have impact on the economic agenda. Economists and actors in the market have not understood quite clearly why the fiscal rule is not on the agenda. The most understandable explanation is “we’ll have elections next year; therefore, the government does not want to tie itself up with the fiscal rule.” It seems reasonable, but then the confusion is if the fiscal rule would be canceled out. In the meantime, we keep receiving so much data, on subjects varying from unemployment to the private sector’s short-term foreign debt stock. In fact, there should be nothing exciting in the economy because it is summer. However, I think 2010 is an exception.

As Turkey is pre-occupied with the referendum, interesting economic developments are occurring internationally. The number of economists anticipating another recession in the United States is increasing. Indeed, recent news from the U.S. economy is not pleasant. Unemployment remains a problem, demands are not blossoming as expected and the recovery signals have decreased. On the other hand, the American dollar is not devaluating as expected.

As Japan failed to reach expected growth in the second quarter, China has left Japan behind and become the second largest economy per capita after the U.S. The Japanese economy has failed to recover for about two decades and stepped back to the third slot. This was expected. As China achieved around 10 percent annual growth, growth in Japan stopped. However, despite economic problems the yen is gaining value.

The eurozone seems to have overcome trouble. Results of stress tests applied to banks and economic data indicate recovery in the eurozone. Bankruptcy was imminent in Greece, but somehow seems to be receding. Similarly, nothing extremely negative happened in Portugal or Spain. On the other hand, the euro has taken a downturn as serious devaluation is anticipated in the upcoming term.

In the past, a widespread opinion was, “If the economy is strong, the currency is strong.”

But the latest global economic developments seem to indicate an opposite trend. Weakening economies have strong currencies and vice versa. Considering recoveries or economic strength, it is not easy to profit from foreign exchange investments, as in the past. This is quite a complex situation, involving many reasons.

Gold prices have fluctuated above $1,150 to $1,200 levels for a long time, but surpassed $1,200 and settled at between $1,220 and $1,250 per ounce. Speculators are leaning more on gold in their portfolio. In this case, increased demand in gold is pushing the prices up although reserve currency creates confusion. Price increases in gold cause speculative purchases and vice versa.

As we are tackling the referendum issue, an interesting term waits for us in which people will be dragged into speculative investments. Many will earn money as others will lose.

Mahfi Eğilmez is a columnist for daily Radikal, in which this piece appeared on Thursday. It was translated into English by the Daily News staff.



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