The Daily Nugget – gold price retreats

This morning has seen both the gold price and silver gain some ground after a fairly dismal start to the week. News regarding Spain and Germany’s improved business sentiment appears to have helped the precious metals to climb slightly.

Holdings of gold-backed ETFs also began to recover yesterday to just below last week’s record high of 74.793 million ounces.

Data sends mixed signals to gold price

Last night, Moody’s stopped just short of downgrading Spain from its Baa3 rating, however it has moved to a negative outlook. This helped to boost the euro against the dollar, helping the gold price. The euro climbed to a one-month high and the dollar-index to a near two-week low.

Hopes seem to be pinned on Spain asking for financial help, this would see it become eligible for the ECB’s bond-buying programme which in turn would see a boost to the euro in the short-term and a weakening of the US dollar.

Yesterday’s economic data from the US did little to boost the gold price; there were few surprises to provide direction for either gold or silver. However the data did show that the economy has got some tough headwinds ahead of it, not to mention the fiscal cliff which everyone is pretending they haven’t seen.

Because of yesterday’s uneventful data releases, focus will now return to action in Europe ahead of the EU summit tomorrow, as well as further GDP data from China.

Here in the UK, CPI data showed inflation dropped by 0.3% from 2.5% in August. This is thanks to a slower increase in energy prices this year which helped to cover up the increase in inflation in recreation and culture, and transport. Analysts appear torn on whether this is a sign of inflation finally heading below 2% after 30-months above, or if this is the last of the good news for some time to come. As we explained last week, inflation is a phenomenon which can sit and brew for some time before heating up the economy.

This morning minutes from the recent MPC meeting of the Bank of England have been released which shows the members voted unanimously on both the holding of the Bank Rate and the continuation of the £375bn asset purchases. Some discussion was had as to whether further easing would be required in the future.

The recent pullback in the gold price is very much that, a ‘pullback’ rather than gold losing its lustre, as so many would like to have us believe, other analysts believe this potentially gives us a nice opportunity to buy gold bullion prior to further economically poor decisions from governments. Whether you believe the gold price has climbed thanks to expectations of severe inflation, or because of the failure of governments to produce growth and we are heading down the deflationary route, the fact remains that we are not yet seeing the end of gold.

Fascinating stuff from Chris Becker of Mises SA yesterday who highlighted some interesting parts of the Reserve Bank of Zimbabwe’s mid-2012 monetary policy statement in which Gideon Gono basically admitted that his money printing strategy (which he states ‘were exactly the mould of bail-out measures and quantitative-easing measures currently instituted in the US and EU’) has only lead to hyperinflation and misery. As Becker suggests, perhaps it’s time we turn our attentions to Gono, who seems to (slowly) be learning from the past, unlike Bernanke or Draghi.


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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