The Daily Nugget – gold investors waiting for Draghi now

Yesterday was a relatively quiet day on the markets front thanks to a national holiday in the US. This morning PMI data is set to be released, this time for services. The contagion of the crisis is spreading as over in the BRICS countries, only Russia’s manufacturers reported growth. Considering yesterday’s poor show for manufacturing in the EU, which indicated a contraction, services are expected to have performed slightly better.

Gold investors’ best friends return from Jackson Hole

Draghi was back after a weekend lying low during the Jackson Hole conference. He failed to turn up to give a speech at the European Parliament, but he told the Economic and Monetary Affairs Committee that his (potential) plan for the ECB to buy member bonds, in order to maintain price stability, would not breach EU law. Germany, that sensible bunch, remains opposed to most solutions which come out of the Committee.

Finally Moody’s, that oh-so-wise credit ratings agency, has finally seen it necessary to move the triple-A credit given to the EU onto a ‘negative outlook’. Considering the UK, Netherlands, France and Germany pay in 45% of the Eurozone’s budget this is perhaps not surprising, all were placed on negative outlook reflecting the risks which they face.

Whilst we wait for the ECB announcement on Thursday, something which Draghi will not be able to avoid, it seems investors and commentators are torn on what will happen. As we said yesterday, in the Daily Nugget, analysts do not expect much to come from Thursday but this morning financial news reports show European stocks ended higher yesterday due to investors’ hopes of further stimulus being announced.

Reuters reports that holdings of gold-backed ETFs rose to a record high of 71.729 million ounces last week. The month of August recorded an inflow of 1.8 million ounces, representing a near 3% rise – the biggest monthly gain seen since November.

The gold price impresses

Spot gold also impressed and managed to climb to new highs not seen in recent months, finishing at $1,696.20.

Gold prices for the past 9 months have reflected shifting expectations as to how both the US, EU and to some extent, China, will handle the snowballing financial crisis.

It seems the gold price has been trading sideways, occasionally climbing, as it waits for the next announcement from a central bank. Last month was a prime example, as we all waited for Jackson Hole. This week and the rest of the month, is also likely to be another waiting game for gold.

On the sixth September we will see an announcement from the ECB, from which little is expected. We are also waiting for the German constitutional court, on the 12th December to give a preliminary ruling on the ESM and European fiscal compact. The following days see lots of meetings which are never going to solve the Eurozone crisis. September will of course also see the FOMC meeting, which will see an even bigger debate of ‘will he, won’t he?’ from Bernanke.

With the gold price gradually climbing, and the 2nd most powerful party in the US touting the gold standard, the decision to invest in gold bullion is creeping into more peoples’ consciousness.  For those new to gold, it must be clear that the bankers are going to get it wrong whatever they announce. This can has gone far enough down the road.


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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