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According to London-based metals consultancy, GFMS, world gold prices could top last year’s 26 year high of $US730 an ounce within the next year because the now usual litany of factors: the weaker greenback,rising geo-political tensions and an investment-led rally.

Despite three interest rate rises in 2006 plus some major tax changes, investors have returned to the housing market in a big way, according to figures from the Australian Bureau of Statistics.

Barrick Gold is the biggest gold miner in the world and it’s testimony to the controversial idea in business that size can be a hindrance rather than help to share market performance.

Funny how China’s trade surplus in March plunged to ‘only’ $US 6.87 billion from the second highest figure on record reached in February of just over $US23 billion.

While there are signs of a rebound in the US economy after the stronger than expected jobs figures for March, the real driver for world metal prices remains China.

But there are signs that country’s economy is not responding to attempts by the authorities to slow activity and that investment and output are continuing to grow at levels well above official forecasts.

That poses the danger that world metal markets are becoming overheating and a sharp fall is around the corner, especially with the likes of nickel up 50 per cent or more this year and copper, up a quarter or more in price in the past month.

We saw this again overnight in New York where copper futures surged to a new five month high.

Traders said that Comex copper futures for May delivery rose 12.9 USc, or 3.8 per cent, to $US 3.506 a pound the highest close for a most-active contract since October19 last year.

Traders said it was a combination of the surprise US jobs figures and continuing demand from China.

The latest price rise means copper prices have jumped26 per cent in the past month and have had continuous weeks of price rises.

Official stocks monitored by the Shanghai Metals Exchange show that reserves of copper almost tripled since reaching a low of 22,731 tons on Nov. 30.

That may change soon because of a rise in expected consumption in the northern spring and summer but it also reflects the rapid surge in demand as prices fell from October onwards and into early January when world metal prices again fell. They rebounded towards the end of January as demand picked up and financial speculators appeared in the market.

Now the sharp rise in price is seeing importers starting to cutback, according to trade reports in China and London, with imports being delayed to allow Chinese internal prices catch up to world prices which surge weekly.

Official figures show that China’s imports of refined copper and alloys in February rose 12 per cent from January’s level but aluminum stockpiles fell for a fourth week in a row last week.

Chinese authorities late last week lifted the reserve requirement for a sixth time in a year last week to 10.5 per cent to try and rein in investment loans, and advances to stockmarket players and property developers. Official interest rates have risen four times but the currency remains tightly controlled.

This acceleration in demand from China has seen base metal prices surpass the cyclical high made in May last year and here in Australia it has seen the $A move up towards its December 1996 high of $US0.8214.

The AMP’s head of strategy, Dr Shane Oliver says further gains in the $A are likely, possibly up to its February 1989 high of $US0.8950.

“The strength in both commodity prices and the highly cyclical Australian dollar is telling us that, notwithstanding the risks hanging over the US economy, the global growth outlook remains pretty good.

“The rebound in commodity prices is great news for resources stocks because it means that profit estimates will need to be upgraded.

“It also means that the Australian Government’s tax revenues will continue to surprise on the upside leading to the possibility of ongoing tax cuts.”

Pushed by that buying from China, world metal prices rose nicely last week thanks to a mixture of concern about supplies of copper, lead, nickel and tin met strong buying from China.

As a result some metals to record levels and traders said there has been a 180 degree shift in sentiment from the concerns at the start of 2007 about slowing consumption and rising mine output.

Copper reached a five-month high when it touched $US 7,510 a tonne on the London Metal Exchange last Thursday, ahead of the Easter break.

The LME said the three-month copper price rose more than 9 per cent last week thanks to a 17 per cent surge in Chinese copper imports in January and February.

Nickel prices again hit new highs with the three-month price moved reaching a peak last week of $US49,875 a tonne, up 9 per cent for the week, and a huge 50 per cent so far this year. Nickel prices hit $US51,000 a tonne in after hours trading in London.

Boring lead moved to new peaks last week when it hit $US2,028 a tonne up 5 per cent over the shortened week’s trading.

Driving lead is supply problems, including the shutting of the Magellan metals operation near Esperance in Western Australia because of bad pollution problems in the town apparently caused by trucked loans of lead carbonate being blown across the port (the lead is mined inland and exported through Esperance). Lead stocks, like stocks of so many other metals, have been falling recently.

Gold prices also rose last week but fell Monday in New York to cklose at $US676.90 an ounce.

Last month when we looked at the investments and other activities of Warren Buffett’s Berkshire Hathaway, there were two unidentified holdings in which the company was building a position.

The list was of investments with a market value greater than $US700 million.

He told shareholders in his letter the two exceptions had a combined market value of $US1.9 billion but he didn’t disclose their names “because we continue to buy them. I could of course, tell you their names. But then I would have to kill you.”

Late last week Berkshire revealed it had built a 10.9 per cent stake in that most unfashionable of companies, the huge Burlington Northern Sante Fe railway and transport company (BNI) which now had a market value of $US 3.2 billion.

Berkshire says it now owns 39 million shares of the second-largest US railroad as of April 5.

The deal has surprised analysts who point out that the US railroad industry is fully priced at the moment with good operating margins and high valuations by investors.

Buffett’s stock purchases make him the largest shareholder, ahead of Marsico Capital Management LLC, which owned 32 million shares for an 8.9 percent stake in December.

US brokers said Berkshire would have had to disclose the rail stake upon exceeding a 5 per cent threshold if Buffett was purchasing the Burlington Northern shares with the intent of making a takeover bid, seeking a board seat, or otherwise influencing management.

But passive investors can wait until the end of the year to report 5 per cent holdings, but investors do have to file with the SEC within 10 days of reaching or exceeding a 10 per cent stake.

According to the filing, Buffett paid $US81.18 to $US81.80 in three transactions on April 4 and April 5. Burlington Northern closed at $US 82.72, on April 5.

Burlington Northern has more than 51 thousand kilometres of track in the US, shifting millions of tonnes a year of coal, grain and general freight. It is the second largest US rail group behind Union Pacific Corp.

In its 2006 annual report Berkshire listed its five-largest holdings as USG Corp, Washington Post Co, Moody’s Corp, White Mountains Insurance Group Ltd. and American Express Co.

As expected the punters hopped into Coles shares yesterday, whipping them up to a day’s high of $17.08 before they settled back at a new record close of $16.86, 39c above the $16.47 offer price from Wesfarmers and its partners.

Yes Australia had yet another trade deficit in February.

Good news and not so good news from North Asia for Australian exporters this week.

Steady as we go: it was an each way bet, but you wouldn’t have heard that phrase around the Reserve Bank board table in Sydney yesterday.

Inflation up according to the TD Securities/ Melbourne Institute inflation gauge and normally that’s means more ‘upward pressure on interest rates’ headlines.

If you had to find a single reason why interest rates are going to rise, look at this graph from the Reserve Bank.

The world grain trade is facing its biggest shake up in years as American farmers lift corn planting to the highest level since 1944 to take advantage of surging prices pushed higher by the rising demand for ethanol.

In a move with possible consequences for Australia and Australian exports to China, the Bush Administration has hardened its attack against Chinese imports.

It’s a move that could threaten the freedom of global trade and the global economy.

It’s not the first time the Bush Administration has done this: they introduced quotas on steel imports about eight years ago and also on imports of Australian lamb: both were done to protect inefficient US producers and in the case of steel, they caused immense damage to America’s reputation.

Nor is it the first time action has been taken against Chinese imports but this time the Government is using a more powerful punishment: counterveiling duties instead of anti-dumpuing duties.

But this is the first time they have used counterveiling duties against China, America’sfastest growing source of imports (for companies like Wal-Mart) and its second biggest creditor, with much of its foreign reserves of $US1.1 trillion held in US Government bonds and other treasury securities.

The potential for China to retaliate by dumping some of these holdings and switching more quickly to other currencies (which it has said it will do gradually over the next couple of years) is now a real possibility.

This is a dispute every Australian investor should monitor closely because if China and the US get into a trade war (Australia has to back China) then the resources boom could be curtailed through a drop in demand from Chinese importers.

The US Commerce Department reversed more than two decades of practice and decided late last week to levy countervailing duties to compensate for alleged Chinese subsidies to exporters.

Trade commentators say the policy change opens the way for steel, textile and other US manufacturers to apply for the same protection: US steel and textile producers in particular have been lobbying for action against Chinese imports of these products.

A move against steel imports would hit world steel prices hard, hurt Chinese consumption of Australian iron ore, coal (in small amounts but projected to increase) and energy imports of LNG.

That would in turn hurt a host of companies such as BHP Billiton, Rio, Fortescue Metals, Woodside, Macarthur Coal and Centennial Coal. The list is long.

So will rates rise this week?

The betting is even money for a 0.25 per cent lift to 6.50 per cent, and there are even some commentators wondering if there will be another rate rise after this one (which might not happen anyway).

Commentators are split on whether a rise will happen this week or in May, but there’s been a change in consensus over the past three weeks.

Interest rates are unlikely to rise when the Reserve Bank of Australia (RBA) meets next week, according to a majority of economists surveyed by AAP.

The news agency surveyed 19 economists and just seven expect an increase on Wednesday, 10 of the economists say the RBA could raise the overnight cash rate from 6.25 per cent some time in 2007, while two are forecasting a cut.

The most common factors mentioned were a shortage of skilled labor, resilient consumer confidence and fears of a renewed outbreak of inflation.

A couple mentioned the stronger dollar as perhaps helping the RBA not to move saying it would help limit the growth in import prices (oil products in particular).

Investment bank, Goldman Sachs JB Was were being cautious and telling clients late last week that a rise probably won’t happen this week.

And AMP’s Dr Shane Oliver believes that while the recent run of solid economic data has raised the risk of another interest rate hike, “on balance we think the RBA will leave interest rates on hold preferring to wait for more confirmation that growth in domestic demand is back on to a firm footing and that the US economy is not sliding into recession on the back of its mortgage crisis.

He said that waiting till the May meeting will also allow the Bank to look at the March quarter inflation data.

But since the speech on March 16 by Malcolm Edey, the bank’s Deputy Governor in charge of economics, the push has gathered force amongst commentators, analysts and others in favour of rate rise.

The speech didn’t say anything significant or new, just reminded the market that inflationary pressures were still evident and still evident at a worrying level and that the bank would be keeping a close eye.

It was a statement of the obvious but it was made with the intention of reining in expectations of an easier monetary policy this year and reminding the market not to get too far ahead ofreality.

His speech came as more information emerged confirming that the modest recovery in economic growth in the final quarter of 2006, was continuing in the early months of 2007 with solid retail sales, a glimmer of an upturn in building approvals and housing finance, solid growth in car sales and good profits reported in the interim reporting period.

Overseas the European lifted rates, as did the Chinese but the US seemingly changed focus from a single-minded concentration on inflation, to one that also mentioned other factors in the economy, such as the slumping housing sector and subprime mortgage problems.

Last week’s comments by Fed chairman, Ben Bernanke were also seen as both a continuation of the Fed’s new stance, and also ‘hawkish’ on inflation.

In fact it was more ‘jawboning’: no one seriously believes the Fed will lift interest rates when the US housing slump is deepening and we have yet to seen the full impact on new and existing home sales of the subprime problems.

And as analysts downgrade US and Australian housing industry forecasts consider these comments from Brickworks CEO, Lindsay Partridge, at a media briefing in Sydney yesterday.

Welcome to the bank reporting season.

Within a month, four of the Big Five banks will produce interim earnings while the Bank of Queensland trots out its figures in the middle of next week.

The ANZ, St George, National and Westpac will all produce solid profit performances in the first half of the 2007 financial year and analysts are generally agreed that the main points to be watched will be the level of bad and doubtful debts in housing mortgages and personal, such as credit cards.

And while there were fears there could be an upsurge in the level of dodgy loans and actual losses, it is now becoming clear from the APRA and Reserve Bank data, plus the RBA’s financial stability statement on Monday that much of that concern was misplaced.

In fact the RBA’s comments on the banks and the banking system should be read by all bank shareholders: unless the RBA has made a horrible error, it’s clear there are no black holes in bank balance sheets.

Perhaps the most interesting area to watch is the implicit warning about the contraction of lending margins on housing mortgages because of low demand and high levels of competition.

The RBA points out that there are hardly any mortgages being sold where the borrower is paying the bank headline adjustable or fixed rate, such is the intensity of competition.

Banks’ share prices have increased by around 14 per cent over the past six months, slightly underperforming the broader market. The market has been driven more by one off situations involving private equity (Qantas and Coles) and lately, the recovery in commodity prices.

The RBA said on Monday that market-based measures of credit risk also remain benign, with bank bond spreads remaining low by the standards of recent years, and the premiums on credit default swaps – both senior and subordinated – falling further over the past six months.

“In the financial sector, both the banking and insurance sectors continue to record high rates of return on equity, benefiting from continued balance sheet expansion, low levels of non-performing loans and the strong performance of equity markets.

“While there has been robust competition in lending to households for a number of years, recently there has also been a noticeable pick-up in competition for business lending, with margins under downward pressure and an easing of lending conditions.

“As has been the case for some time, the challenge for financial institutions is how best to measure, and price for, risk in an economy that is now in its 16th year of expansion

“Bank business credit grew by 17 per cent over the year to January, up slightly from 16 per cent over the preceding year, and faster than the 11 per cent growth in banks’ on-balance sheet housing credit.

“Growth has been particularly strong in large loans, including syndicated facilities where a number of lenders each finance a portion of the total amount.

“Nearly $100 billion of such facilities were approved last year, 38 per cent higher than in 2005, with around one quarter of these used to finance mergers and acquisitions, compared to an average of 15 per cent over the period since the early 1990s.

“Competition also remains intense in the housing loan market, which, over recent years, has been associated with some notable changes in lending practices.

“As discussed at some length in previous Reviews, these include: an increase in permissible debt-servicing and loan-to-valuation ratios; the use of alternative property valuation techniques; an increased reliance on brokers to originate loans; and the wider availability of ‘low doc’ loans.

“More recently, it appears that many lenders have attempted to maintain strong growth in their mortgage portfolios at the same time as the demand for housing finance has moderated from its peaks in 2003.

“This competition is evident in the contraction of margins on variable-rate housing loans, with the vast majority of new borrowers now paying an interest rate less than the major banks’ standard variable home loan indicator rate.

“The average interest rate paid by new borrowers was around 60 basis points below the standard variable rate as of mid 2006, compared to an average discount of around 45 basis points two years earlier, and around 20 basis points in the mid 1990s. Consistent with a large proportion of housing loans having been taken out in recent years, the average discount on outstanding loans has increased to around 40 basis points.

“With refinancing accounting for over one quarter of new housing loan approvals over the past two years, it seems likely that average housing loan margins will continue to contract, even if the size of the discount on new loans stabilises.

“It appears that competition has also picked up around fixed-rate housing lending, as some lenders have responded to increased demand for these products. In late 2006, fixed rate loans accounted for around 20 per cent of owner-occupier loan approvals, well above the average of around 10 per cent since 2000.

“At the same time, the margin on fixed rate loans has narrowed slightly, with the 3-year fixed indicator rate increasing by less than the 3-year swap rate over the past year.

“The narrowing of housing loan margins has been particularly pronounced in the low-doc segment of the mortgage market. These loans involve a large element of self-verification in the application process and are designed mainly for the self-employed or those with irregular incomes who do not have the documentation required to obtain a conventional mortgage.

“The interest rate paid on new low-doc loans was, on average, around 20 basis points below the major banks’ standard variable indicator rate in mid 2006, compared to 50 basis points higher than the standard variable rate two years earlier.

“This is equivalent to 45 basis points above the actual rate paid on new full-doc

A decade after the great Asian crisis was born, grew and left no country untouched; the region is the engine room of the world economy.

The continuing rebound in economic activity might produce another rise in interest rates a week today but it’s also having a positive impact on the states with growth and activity switching away from the resource boom areas of WA, Queensland and the Northern Territory.

At the same time figures yesterday from the Housing Industry Association showed an improvement in new home sales in February, but they also confirmed just how depressed the new homes market really was.

The HIA said a recovery in NSW pushed new home sales up 2.9 per cent in the month as buyers took advantage of stable interest rates.

New home sales totalled 8,193 dwellings, according to the HIA which said sales in NSW rose almost 17 per cent from January.

Sales of private ‘detached’ houses rose by 3.9 per cent, while sales of units fell by 4.2 per cent, the HIA said.

Western Australia had the second-fastest rise in sales volume with an increase of 11.2, while sales fell 3.4 per cent in Queensland.

But the apparent good news was just that: apparent.

February’s sales volumes were 5.2 per cent lower compared with February 2006 while in NSW sales in three months to the end of February were 21 per cent down on the figure for the three months to February 2006.

So housing still has a way to go to recover, especially in NSW but a rate rise next week would be the last thing the industry would want.

But according to the National Australia Bank the so called two speed economy is starting to disappear with the slower south eastern states picking up momentum.

In its latest look at the states the NAB said that the minerals and energy boom (again, while still present) was starting to lose impetus and the resource-rich areas (WA, NT, Qld) are no longer being pump-primed to the same degree.

“Moreover, the benefits of the boom have partly flowed to the South-East (of the continent) through various mechanisms – in particular, fiscal stimulus and equity prices.

“Government revenue has increased and the benefits partly reinvested in the South-East and seen lower personal income taxes.

“The business and financial services industry, which is primarily based in the South-East, has been given a fillip with strong corporate profitability, takeover activity and high equity markets – all partly resulting from the boom.

“Manufacturing and other services (NSW, Victoria, SA) continue to expand at a slower pace, due to lower returns and, to a lesser extent, lost competitiveness to China and others.