The Daily Nugget – gold price holds

Yesterday was another worrying day for gold investors as the gold price fell below $1,700 for the first time since September 7th. This was mainly thanks to the gullibility of investors who believed Draghi when he told the German central bank that his OMT plan would not be inflationary. Instead they heeded his warnings of deflation, something which would prove negative for the gold price in the short-term.

Later in the day, gold enjoyed a little boost following the release of the FOMC minutes in which nothing was announced. The Fed plans to push on with their purchases of mortgage-backed securities, as well as continuing on with Operation Twist until the end. Whilst household-spending has sped up slightly, unemployment still remains higher than desired. The FOMC minutes showed concern for short-term inflation, but belief that in the long-term the threats of downside risks to the economy are greater than that of inflation.

Low rates help gold-price

The reassertion that near-zero rates would remain until mid-2015 edged the gold price up slightly, the better-than-expected data of late may also have pushed expectations of hawkish language from the Fed, they were soon disappointed though as they were as dovish as ever. In the long-term everyone knows the low-rates are good for gold, in the short-term however the current consolidation is likely to continue, and the gold price fell back soon after the announcement having priced it in earlier in the day.

As we said in yesterday’s Daily Nugget, this vanilla outcome from the FOMC was fully expected; it shows an economy stuck in a rut, with everyone (whether central banker or milkman) just waiting for something to kick in, whether that’s a recovery or a bigger financial crisis who knows…well we do…. December’s meeting will be the next one to watch where the FOMC may feel compelled to make a decision regarding the end of Operation Twist. US stocks fell to a seven week low after the announcement.

This morning the gold price has recovered slightly (to $1,711) but remains low for this seven-week period, silver has followed suit despite earlier hitting low prices not seen since August 31st.

India still expect to buy gold bullion

In Asia analysts are still commenting on the lack of gold investment demand, with some profit taking going on yesterday and continuing – this is likely to weaken the gold price further, although the majority of analysts expect support to be found at $1,700. Many do not seem concerned at the lack of Indian demand; Diwali season is nearly upon us and demand to buy gold is still expected to increase.

Today initial jobless claims and pending home figures for the US will be released, jobless claims are expected to disappoint whilst home figures should be higher than the last reading. The preliminary estimate of Q3 GDP for the UK will be announced, some improvement is expected to be seen. Given Prime Minister David Cameron’s hints yesterday that the UK economy was showing some signs of recovery we can assume he’s referring to the GDP figures.

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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

  • Jason Doherty

    Do you think the blips in Indian gold demand are a sign of things to come, Jan?