Peter J. Cooper’s Weblog

Middle East expatriates have long enjoyed summer months under the Tuscan sun. There is an enviable combination of sunshine, cool hill-tops and wonderful food and wine. This summer I investigated two apartment complexes offering near five-star apartment accommodation.

Only opened this Easter, the Poggio Al Casone near Pisa is already popular with expats from the Gulf, and this attractive collection of spacious, air-conditioned apartments around a swimming pool, and in the middle of a hill-top vineyard certainly seemed close to heaven for families.

It was more difficult for couples as perhaps unsurprisingly screaming children tended to take over the pool. But this was hardly the fault of the owners, although a quieter area for sunbathing could be provided. The accommodation too had its oddities with some of the smallest showers we had ever experienced and not enough storage space.

Great deal

But this is close to five-star standard, and for a fraction of what you would pay in a major hotel. The beds are large and comfortable, the fixtures and furnishings to a high standard, including a flat-screen LCD TV, DVD player and free library; and you get a full sized kitchen-dining room, adequate for cooking main meals as well as breakfast.

The Poggio Al Casone also helpfully provides maps to find some of the excellent local restaurants. Some are tucked away in small medieval villages and without a menu but the food is out of this world. Internet access can be unreliable, with a wireless link to a main station sometimes down.

Pisa is on the edge of the traditional Tuscan heartland for tourists and our second choice the Residence Gavillaccio outside Figline Valderno offered more dramatic scenery and is perched high in the rolling hills above the town. The current owners bought the residence as a derelict farm building 14 years ago and have transformed it into a complex of spacious luxury apartments of rustic style.

There is no air-conditioning, except that if you open the windows a cool breeze can always be found, even in the hottest summer months. Furnishing is simple but comfortable, and the beds would get a five-star rating. Bathrooms are beautifully tiled as you find almost everywhere in Italy; the wireless broadband connection is excellent.

Home comforts

The precise facilities vary with the apartments but the larger units are on two floors and very well equipped indeed. And all the apartments have terraces for individual al fresco meals. The swimming pool was again dominated by children. Nice if you are a family looking to make summer holiday friends. Not so good if you are in search of peace and quiet.

Nearby attractions include Florence: best accessed via the train from Figline Valdarno as parking is a nightmare in the busy season. The designer outlet mall 15 kilometres from the residence also attracts busloads of tourists who even come from cruise liners for the bargains. But then who could resist a Tod’s handbag at 60 per cent off, and with the sales tax refunded on top?

Gold had its worst month for 25 years in August with prices correcting by more than 20 per cent from the all-time high of $1,030 an ounce seen this March. But there are many good reasons to believe that gold will bounce back in September, both as a hedge against surging inflation and a currency which no central bank can control at a time of a global financial crisis.

Arabian investors have already sensed a buying opportunity, and as Emirates Business reported last week gold sales in Abu Dhabi were up by 300 per cent in August. Nobody here believes gold prices will stay down for long, and experts are forecasting that prices are set to rise by 25 per cent during Ramadan, particularly towards the end of the Holy Month.

The Indian religious festivals always favour a pick up in the gold price in the autumn, and indeed this is the usual trading pattern for the yellow metal, with a strong upturn after a low in the summer. Buying of gold as a gifts or Christmas and New Year then follows.

In fact, figures from the Dubai Multi Commodities Centre showed a huge increase in the gold trade in Dubai in the first half of 2008 with a 48 per cent surge to $13 billion. And the DMCC reports that physical shortages of the precious metal have been annoying dealers with gold increasingly being treated as a hard currency.

South Africa ran out of gold krugerands last week when a Swiss buyer bought 5,000 coins, and the US Mint has just suspended sales of its popular Golden Eagle coins as it can not keep up with demand. The retail public is discovering gold, and also silver, and the premiums paid above the gold spot price for coins is growing.

In the Vatican in Italy last week this correspondent noted that silver coins sold for $50 each, a hefty mark up on the $13 an ounce silver price, and perhaps a truer reflection of the value of the metal, at least to retail consumers.

It seems Arabian buyers are not alone in spotting a bargain in current gold and silver prices. This column argued earlier in the year that this summer would be the time to invest in the precious metals and that has proven to be correct, although I did not anticipate the battering prices took in August, which was largely down to a huge intervention in the global currency markets to support the dollar.

However, the important thing to note is that otherwise nothing has changed. Indeed, even what I think is just a temporary respite for the US dollar is bound to end in tears, and higher gold and silver prices. It is surely a fact that the only reason that the US has not gone into a technical recession thus far is its export performance.

What happens now as the dollar strengthens and export earnings start to falter, and they were already looking threatened by the clouds gathering over the European and Asian economies? The US economy is about to take a hit from falling export earnings, before its domestic economy – particularly the housing market – shows any sign of recovery.

Any euphoria that follows the US presidential election is likely to be very short lived indeed, and the outlook for the US economy in 2009 just has to be significantly worse than 2008. At the same time America must start to pay the huge cost of bailing out its banking system from the sub-prime loan disaster and the subsequent collapse in business. Professor Nouriel Roubini who spoke at the DIFC Week thinks this will cost $1.5 trillion.

You need no other reason than this to be confident about the gold price. The US is going to have to borrow enormous sums to bail out its financial system, and Europe and Japan will have to do something similar, and this creation of money will be highly inflationary and devalue currencies against gold and silver. It has to be really, the alternative route of deflation is too horrible to contemplate.

No central bank can print gold or silver. The supply is fixed against annual production levels. And it is not hard to see that as paper currencies are destroyed by unavoidable and necessary new government borrowing then gold and silver will rise in value.

Of course, when people really understand what is going on there will be a rush into precious metals, and gold and silver will hit the roof. This last happened in the late 1970s and followed a similar cycle of a tripling of the oil price, money supply growth, inflation, a housing bust and financial collapse. History does not always repeat itself but it looks like Arabian investors have got the message right this time.

A sharp fall in the oil price and a consequent recovery in the US dollar brought a sharp retrenchment in precious metal prices this week as gold approached the $1,000 barrier for a second time and silver closed on $20.

This is an excellent buying opportunity for anybody who missed out on earlier buying opportunities in this bull market. It can only be a matter of weeks or at most a couple of months before gold breaches $1,000 decisively and then heads to $1,200 before the end of the year.

Why can I be so confident? As Bill Clinton once argued ‘It’s the economy stupid!’ You would have to be a real fool to think the financial sector is out of the woods now and that all will be well.

The US government may agree a rapid bail out for Freddie Mac and Fannie Mae, the two mortgage underwriting agencies, but what comes next? If these agencies have gotten themselves into a mess what other disasters have yet to emerge? How much will it cost next time?

This autumn we are far more likely to see a series of banking failures in the US than a meaningful recovery. How can the banks recover while house prices are still falling and not showing any sign of bottoming out! In this climate a full scale Wall Street Crash is in prospect.

In a frenzied effort to support the economy the Fed will have to cut interest rates from two to one per cent, just as it did in the dot-com crash. That will send the dollar lower and gold and silver much higher.

Anybody who believes the current rally on Wall Street is anything except a brief trading window is stupid. Even a big downswing in oil prices will not be sufficient to prevent the financial crisis that is ongoing and barely one year into a three year cycle.

In that cycle gold and silver will be the winners – and virtually all other asset classes the losers. This last happened in the 1970s and we are seeing history repeat itself all over again.

Apparently Sir Richard Branson’s mother used to look like this in her younger days and he has adopted her as the logo for his new Virgin Gallactic spaceship.