Here are 3 interesting nuggets:

• The FOMC minutes released at the end of January stated that interest rates are likely to be held at low levels through to the end of 2014 and raised the possibility of further quantitative easing, both of which are supportive of the gold price (and pushed it through the US$1,700/oz level).
• Long term fundamentals in the gold market continue to appear supportive of prices; data published so far for 2011 demand from central banks has far exceeded market expectations and we have seen record levels of gold ETF holdings.
• The strength in the gold price and margin expansion in the gold mining industry has enabled companies to deliver record earnings over the last set of quarterly results.  Despite the robust outlook, the negative sentiment gripping equity markets has weighed on investor attitudes and, as such, we believe gold equities may be like a ‘coiled spring’, ready to deliver value in 2012.

These are the views from our investment partners Blackrock’s Natural Resources team and are for information purposes only.

The Bank of England’s Monetary Policy Committee (MPC) has increased its quantitative easing programme by £50bn as it looks to shore up the UK’s ailing economy.

Its widely expected decision to pump more money into the economy takes the quantitative easing (QE) programme to £325bn. The last time the Bank extended QE was back in October, when it raised the asset purchasing scheme from £200bn to £275bn.

 In a longer than expected statement accompanying the decision, the Bank said it was acting amid a decline in export markets, and tight credit conditions.

It said: “Some recent business surveys have painted a more positive picture and asset prices have risen. But the pace of expansion in the United Kingdom’s main export markets has also slowed and concerns remain about the indebtedness and competitiveness of some euro-area countries.

“A gradual strengthening of output growth later this year should be supported by a gentle recovery in household real incomes as inflation falls, together with the continued stimulus from monetary policy. But the drag from tight credit conditions and the fiscal consolidation together present a headwind. The correspondingly weak outlook for near-term output growth means that a significant margin of economic slack is likely to persist.”

As a result it said inflation was more likely to undershoot the 2% target in the medium term without intervention.

“In the light of its most recent economic projections, the Committee judged that the weak near-term growth outlook and associated downward pressure from economic slack meant that, without further monetary stimulus, it was more likely than not that inflation would undershoot the 2% target in the medium term.

“The Committee therefore voted to increase the size of its programme of asset purchases, financed by the issuance of central bank reserves.”

It added the purchases would be carried out over the next three months.

The expansion comes after minutes from last month’s MPC meeting revealed a growing consensus from members for a new round of QE, while markets have been factoring in a £50bn boost this month after the Bank held back from acting in January.

Meanwhile, the Bank has also opted to hold interest rates for the 35th consecutive month at 0.5%, where they have remained since March 2009.

Its decision to extend the asset purchase programme comes as the UK hangs on the verge of recession after the economy contracted by 0.2% in the last quarter of 2011.

The ongoing eurozone debt crisis has also contributed to an uncertain outlook, with the Greek crisis continuing to rumble on.

But against this, recent upbeat data from the manufacturing, construction and service sectors have hinted at a recovery. The likely prospect of a new EU/IMF bailout for Greece, meanwhile, has also helped steady markets.

The latest round of monetary stimulus comes amid a backdrop of falling inflation, with the CPI index easing from 4.8% in November to 4.2% in December. Next week’s figures are expected to show a further drop in inflation, providing the MPC with the scope to act today.

The Office for National Statistics said Consumer Prices Index inflation fell to 4.2% last month, down from 4.8% in November, thanks largely to a slowdown in the rise in prices of fuel and clothing. 

Yet despite the drop, recent research data reveals that the task facing those searching for an inflation-beating savings account remains a difficult one. A basic rate taxpayer needs to find a savings account paying 5.25% per annum in order to stop their savings pot effectively eroding away, of which only eight standard accounts are currently available, all of which are fixed rate ISAs. A higher rate taxpayer would require an account paying at least 7%, none of which are currently available.

In light of ratings agency Standard & Poors’ recent decision to downgrade the credit rating of nine European countries, our investment partners at Aberdeen Asset Management have given their current overview of market conditions.

To read Aberdeen’s latest views, please download the following PDF document: Aberdeen Asset Management – Market Commentary

In the trust’s latest investment report, chief executive Jonathan Ruffer and investment directors Hamish Baillie and Steve Russell said running a portfolio of offsetting assets has helped dodge the bullets, by allowing the trust to hold comparatively high equity weightings with some confidence.

The managers conceded Japan took a bullet, although it was ‘one that missed vital organs.’ The trust holds 24% in Japanese equities, the trust’s largest single weighting to one asset class.

The managers said: ‘Within the portfolio index-linked bonds crept up and our US equities were also positive contributors with only a modest tailwind of 1.2% rise in the dollar.

They added: ‘We mentioned in the last review that we expect the US to be a relative outperformer and positive manufacturing data in December further endorsed this view.’

The trust, which saw its net asset value at the end of December up by 0.3% over the month at 193.45p, rose by 0.7% over the year in total return terms, compared with a fall of 6.6% in global equities.

The trust’s holdings in the US were in large defensive companies, which outperformed their smaller counterparts. Overall, the pharmaceutical company Merck & Co. was the best performer.

At the end of December, the trust’s largest holdings included 1.25% Treasury index-linked 2017 securities at 7.5% of the fund, 1,25% Treasury index-linked 2055 securities at 6.5% of the fund and US Treasury 1.625% TIPS 2018 securities at 5% of the fund.

In terms of the largest equity holdings, the trust held 3.5% in Vodafone Group, 2.6% in T&D Holdings and 2.5% in Nippon Telegraph & Telephone.

The managers said: ‘We will endeavour to maintain a portfolio that will perform come sunshine, rain (or gales) and, as ever, the battleground will be to ensure that our offsetting assets are fulfilling their role in protecting other parts of the portfolio.’

Joshua McCallum, Senior Economist at UBS Asset Management, has giving his views on the current state of the global economy. To read this, please download the PDF file below:

The Tipping Equilibrium – Joshua McCallum

Brazil became the world’s sixth largest economy in 2011, overtaking the UK, after continuing to see breakneck growth while the UK economy stuttered.

Brazil, whose economy is driven by its vast supply of commodities including oil and iron ore, saw its GDP rise from $2.1trn in 2010 to $2.52trn in 2011, according to the Centre for Economics and Business Research (CEBR).

Meanwhile the UK, where economic growth is still heavily reliant on financial services, saw GDP grow at a much slower rate. It increased from $2.25trn to $2.48trn, leaving the country in seventh place.

Elsewhere, the US continues to dominate the global economy for now, with GDP of $15.1trn, up around $500bn in the last year.

Brazil are now the world's sixth largest economy, with the UK dropping to seventh.

The gap is being closed however, with Chinese growth climbing much more sharply. The world’s second largest economy saw its GDP rise from $5.9trn in 2010 to $7trn in 2011.

Meanwhile, third place Japan saw its economy grow despite the devastating earthquake and tsunami which struck early last year. Its GDP rose from $5.46trn to $5.86trn.

Douglas McWilliams, chief executive of the CEBR, said: “Our league table shows how the world’s economic map is changing, with Asian countries and commodity producing economies climbing up the league while we in Europe fall back.”

The CEBR World Economic League Table 2011

Rank  Country  $GDP (bns)

1.        US          $15,065

2.        China      $6,988

3.        Japan      $5,855

4.        Germany $3,629

5.        France     $2,808

6.        Brazil       $2,518

7.        UK           $2,418

8.        Italy        $2,246

9.        Russia     $1,885

10.      India       $1,843

Jupiter Chief Investment Officer John Chatfeild-Roberts is becoming more confident in the US economic recovery but says investors will need to remain on their guard in 2012.

The crisis in Europe has legs yet. The ‘Merkozy’ plan to introduce stricter fiscal compliance may have soothed financial markets’ nerves in the short term, but there is significant uncertainty as to whether weaker countries, which are already struggling under enormous debt burdens, will be able to cope with the new disciplines. Moreover, if no-one kept to the original set of Stability Pact rules (including Germany!), why should a new set of rules fare any better?

The failure by European politicians to treat this is an insolvency crisis rather than a liquidity crisis will ensure that Europe has a substantial negative impact on world growth. The ECB has signalled that Europe will suffer a recession in the next year, if it is not already in one. If that is the case, the UK will not be immune from the knock-on effects.

As investors we found ourselves last year on the “weighing scales” like never before; on one side, there has been a pessimistic macroeconomic outlook and, on the other, some attractive asset valuations. Markets have swung like a pendulum on a daily basis as investors try to assess the impact of these opposing pressures. Predicting the final outcome is very difficult but what is clear to us is that further financial blood-letting will be required before the global economy can heal.

Jupiter Asset Management's Chief Investment Officer, John Chatfield-Roberts

The sovereign debt crisis has created a dilemma for investors – what is the definition of investment risk? Received investment wisdom places cash and government bonds at the lower end of the investment risk spectrum and equities at the higher end. However, this crisis has turned the concept on its head.

In a world in which sovereign debt and the banking system are under such strain, cash and government bonds may not offer the kind of comfort investors might traditionally expect. Even supposed ‘safe havens’ are not what they seem – there is no such thing as a risk-free investment and one should not confuse volatility with risk.

If you analysed sovereign debt in the same way as you would equities, you might well conclude that a yield of less than 2% on the 10-year gilt, for example, is paltry recompense for an over-owned, overly indebted investment that is priced at levels not seen for 100 years, offers no long term growth prospects, no dividend growth and no protection against inflation.

The US, although burdened by high debts, looks like it is starting to recover and is not quite in the same category as gilts as the dollar is still the world’s reserve currency. Nonetheless, a yield of under 2% on the 10-year treasury suggests to me that this is not a cheap investment.

Cockburn Lucas would like to take this opportunity to wish you all a very merry Christmas and offer our best wishes for the New Year.

Have a good one!