Will there be a cut at all? Looks like a half-point is out. Gold continues to confuse – here’s how you can buy it cheaply ahead of the next leg higher. Will margin calls lead the property market lower?

One of the potential market movers this week – for both
the UK stock market and the forex markets – is the Bank
of England rate decision tomorrow.

My learned colleague, Ben Traynor, picked up on this in
today’s Fleet Street Daily e-letter…

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Will there be a cut at all?
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“The doves are out in force. The Bank of England’s
Monetary Policy Committee (MPC) meets tomorrow, and an
interest rate cut is most definitely on the agenda.

“Pretty much everyone, from homeowners to the
Confederation of British Industry (CBI) wants rates to
come down… the market has priced in a quarter-point
cut… and what’s this? Gordon Brown – the same Gordon
Brown who, as chancellor, granted the Bank operational
independence in 1997 – is also sticking his beak in.

“If you look at this situation, because we’ve got low
inflation we can cut interest rates,” the prime
minister said.

“Hang on, Gordon. Isn’t the MPC is supposed to set
rates independent of political considerations? Naughty,
naughty Mr Brown…

“In fact, there’s some speculation that Brown’s
comments may have angered the MPC hawks, who’ll now
argue more fervently to keep rates on hold. I’ve said
before I’ve got this hunch the MPC might take the
chance to wrong foot the market and boost its
credibility. Now that Brown’s lumbered into the debate,
might that now prove too tempting a proposition?”

Ben follows the UK economy closely for his readers and
tries to piece together events as they unfold,
examining how they affect the big picture… and what
it all means for investors.

Each working day he writes a round-up of the big events
that are moving the financial world – to keep his
readers one step ahead of the crowd. If you have a
second, sign up to Ben’s free Fleet Street Daily email:

http://signup.fspinvest.co.uk/LF/fsd.html?newsourcecode2=XFSDD304

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Looks like a half-point cut is out…
————————————-

Ben’s right about most people calling for a quarter-
point cut. In fact, 81% of economists surveyed by
Bloomberg have predicted a 25 basis point cut in UK
base rates when the Bank of England announces its
decision on Thursday at noon.

And whilst there may have been an outside chance of a
50-point cut – given the volume of bad news coming out
about the UK economy and the latest housing market data
– this morning’s better than expected UK manufacturing
output data should put paid to such drastic measures.
Personally, I doubt it’s strong enough to keep the Bank
from a quarter-point, though.

And with the European Central Bank likely to keep their
rates on hold, once the UK rate cut is announced, we
could see further pressure on the pound which is
hitting all-time lows against the euro on the back of
all that bad news for house prices and the IMF’s latest
UK growth forecasts.

And if we get anything totally unexpected tomorrow,
then watch for the market moves.

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Gold continues to confuse
————————-

Meanwhile, gold’s not done with sending confusing
messages to traders. Anyone who’s been making lots of
money spread betting the shiny yellow stuff all the way
up from $600 or so must be hating all this indecision.
Gold is no longer a one-way ticket…

I’m still in the bullish camp – even if $1,000 seems a
long way off again. We all know just how quickly gold
can move, once the conditions are right. There could be
some more profit taking still to come… but gold will
likely be higher than it is now in six months time.
It’s just a case of waiting for that next leg higher.

Adrian Ash from BullionVault follow’s gold’s moves
daily. If you’re keen on knowing what makes gold move,
he’s a good guy to know about – here are his
observations today:

“Spot gold prices slid into the London opening on
Wednesday, reaching a four-session low of $903.60 per
ounce before bouncing 1.4% to recover the day’s losses
on news that US gasoline prices have reached a new
record high for consumers.

“The average price of regular unleaded has now risen to
$3.343 per gallon according to the AAA survey, almost
20% higher from this time last year.

“International commodity prices meantime reversed an
earlier 0.5% fall, while the US Dollar fell on the
currency markets and Wall Street stocks opened lower
from Tuesday’s close.

“The subprime crisis presents a strong case for gold,”
said Philip Klapwijk, head of the GFMS consultancy, at
the launch of the group’s Gold Survey 2008 today
in London.

“Pointing to growing risk aversion amongst investors,
negative real rates of interest on the US Dollar, and
sharply falling earnings from S&P equities, Klapwijk
also noted a hitherto overlooked threat – a “sharp
deterioration” in the United States’ fiscal position as
a result of “the Federal Reserve’s largesse” in bailing
out Wall Street banks.

“We’ve been told by pension and other institutional
investors that they’ve been looking at gold for a long
time,” Klapwijk said.

“Now they’ve taken a position – or they’re just about
to – they say they won’t be distracted by short-term
moves in the price.”

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Will margin calls lead the property market lower?
————————————————-

The key to the property market – and whether this
latest headline-grabbing 2.5% fall statistic has more
serious implications – looks to be buy-to-let
investors, specifically the ones who stumbled into it
late, when the party was in full swing. I’m talking
about all those people who got sucked in over the past
two or three years by the “Become an armchair property
millionaire!” newspaper ads for property seminars
promising spectacular gains.

A rush to the exits by these “greater fools” as they
start receiving margin calls from their buy-to-let
mortgage lenders and we’ll start seeing a new surge of
supply in the market and lower or at least
stagnating prices.

Wow! Look at the oil price! $111 a barrel – more on
this and how to play it as we work it out…

That’s all for today.

Until Friday…

Best regards,

Frank Hemsley
Profit Watch

P.S. Don’t forget the deadline for Time Trader. You’ve
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