The Daily Nugget – The week ahead for gold prices

This morning the gold price is holding steady, confirming its near 7-month high. Last week’s announcement from the Federal Reserve as well as rising tensions in the Middle East are expected to support the gold price during the week, and reinforce market demand to buy gold bullion.

Analysts are speculating whether or not this latest announcement from the Federal Reserve will drive gold past its yearly high of $1,790, or whether gold investors’ expectations have already front-run the Fed’s latest announcement and this announcement is already ‘priced in’.

Whilst some selling has been seen this morning in Asia, as was expected, it does not seem significant. Physical gold buying rose in India last week as jewellers and investors moved to buy gold before gold prices rise during the festival season in a few weeks.

Deutsche Bank bullish on gold prices

Deutsche Bank said in a report released earlier, “We believe the macroeconomic environment for gold is turning more constructive. While flow into physically backed gold ETF stalled earlier this year, the purchase of gold by central banks accelerated…We expect that the growth in supply of fiat currencies are an important driver, the low interest rate environment is likely to continue to enhance gold’s attractiveness given the negligible opportunity cost.”

This weekend saw two fairly significant anniversaries, on Saturday it was four years after Lehman Brothers filed for bankruptcy, whilst Sunday was the 20th anniversary of Black Wednesday, the day Britain left the European Exchange Mechanism.

This Wednesday, the Bank of England will release the minutes of the MPC’s latest meeting. These are likely to be scrutinized in the hope they may give some indication as to when/if to expect another round of QE. Considering economic data seemed ‘robust’ prior to the last meeting, further QE was not expected but it did not prevent the debate of further QE from continuing .

Also on Wednesday we will see some key PMI data released for the Eurozone as well as the results of the EU Consumer Confidence survey. This will be an interesting piece of data considering recent happenings regarding Draghi’s latest bailout plan as well as the banking union plan, which, incidentally, faces further opposition today from Sweden.

This week will see that brilliant economist and Chancellor George Osborne possibly face some scrutiny when inflation figures are released on Tuesday and when the UK’s Public Sector Net Borrowing figures are released on Friday. Considering the massive cock-up last time when figures showed the deficit had grown by £600m rather than fallen by the expected £2.8bn, Friday’s announcement will give a clear indication of whether or not the government can meet the yearly cuts in borrowing…and if they can count.

CPI is expected to have increased by 2.6% – the same rise seen in July. This of course pushes inflation away from the Bank of England’s two per cent target. At present it seems oil prices are being blamed for the increased pressure on the CPI, because of course the inherent inflation within our monetary system has little to do with it.

Whilst much of the data coming out of the UK at present seems to show a ‘robust’ economy, other data shows otherwise. Wonga, the short-term loan provider, are reported to have trebled 2011 profits. 10 times more customers had taken out loans via their mobile phones, whilst 1,000 people each day download the Wonga app. These figures of course indicate an increase in the number of individuals who are struggling to obtain short-term credit from mainstream lenders. Despite Wonga coming under criticism for taking advantage of the financially vulnerable, it is not as though high street and central banks are entirely innocent. Rounds of QE, low interest rates and lack of bank loans is surely an indication of just as much advantageous behaviour as that shown by Wonga.

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About the Author

Jan SkoylesJan Skoyles is Head of Research at The Real Asset Company, a platform for secure and efficient gold investment. Jan first became interested in precious metals and sound money when she met Ned Naylor-Leyland whilst working alongside him in the summer of 2010. Jan then went on to write her undergraduate dissertation on the use of precious metals in the monetary system. After graduating from Aston University in 2011 Jan joined The Real Asset Co research desk. Her work and views are now featured on a range of media including BBC, Reuters, Wall Street Journal, Mail on Sunday, Forbes and The Telegraph. She has appeared on news channels including Russia Today to discuss the gold price and gold investing. You can keep up with Jan's commentary by subscribing to our RSS feed Gold Investment News.View all posts by Jan Skoyles