Gold and the dollar are Bank of America Merrill Lynch’s top currency trades for 2012

Gold and the dollar (DXY) are Bank of America Merrill Lynch’s top currency trades for 2012 as the U.S. government begins cutting benefits and raising taxes and the European Central Bank purchases more government bonds.

Investors should buy gold versus the euro as the ECB engages in quantitative easing to contain debt turmoil, David Woo, global head of rates and currencies in New York at the Bank of America Corp. unit, told clients in research note today. The second-biggest U.S. bank by assets after JPMorgan Chase & Co. also favors selling the Australian dollar versus the greenback.

“The ECB will be buying more government debt and doing QE, so buy gold against the euro,” Woo said in a telephone interview. “The second major theme is U.S. fiscal tightening is about to come and the U.S. economy will slow, and this will be very good for the U.S. dollar and, in contrast, it will be very bad for the Australian dollar.”

Related recommended trades include receiving euro forward real yields and selling 10-year Treasury Inflation Protected Securities, or TIPS.

“The general theme for the year ahead is pretty negative for the risk environment,” Woo said.

IntercontinentalExchange Inc.’s Dollar Index, a gauge of the currencies of six major U.S. trading partners against the greenback, increased 0.4 percent to 78.60 at 3:50 p.m. today. Gold futures were little changed at $1,749.80 an ounce. The euro dropped 0.4 percent to $1.3403. The Australian dollar decreased 0.2 percent to $1.0227. – BLoomberg

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Posted by admin on Dec 3 2011. Filed under Gold predictions, Gold price. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry