The Daily Nugget – physical gold purchases increase

This morning the gold price is sitting just above its weekly low of $1,759.94, at around $1,763. The IMF’s growth forecast yesterday did little to reassure the markets as UK shares also fell for a second session.

As we said in yesterday’s Daily Nugget, gold appears to be in consolidation as the dollar gains strength and the Euro continues to cause concern in the markets. A strong dollar has meant investors booking short-term profits and reduced their clamour to buy gold. It has been flip-flop from one short-term safe haven to the other – buy Uncle Sam vs buy gold bullion. Bullion dealers have reported potential changing of market momentum tho in the last week as the price of gold has retreated slightly.

ETFs reflect desire to buy gold

Reuters report that holdings of gold-backed exchange-traded funds continued to grow, having risen to a record high of 74.76 million ounces by 8th October.

Coutts have recommended that investors buy gold and double their allocation to gold in light of poor growth forecasts. Whilst good advice, lack of growth shouldn’t be the driving factor, the fact remains that governments continue to devalue the money supply. Slow growth does not mean your wealth is more at risk – what you need to worry about more are monetary policy decisions by central banks.

Yesterday British Prime Minister David Cameron warned Britain of its looming ‘hour of reckoning’ and offered up some of the truth of the dangers the economy is facing. He told the Conservative party conference that the ‘there are painful decisions ahead’ and that we cannot borrow our way out of a crisis. The speech came following reports that the UK’s trade deficit widened to more than double its July size in August prompting the pound to fall against the dollar.

Later on in the day Sir Mervyn King, Governor of the Bank of England, staunchly defended the Bank’s handling of the pre-crisis bubble. He did, however, admit that higher interest rates may well have boosted stability, but this would have been too big a ‘gamble.’ This does not mean however that he is considering interest rates now, the risk of inflation is obviously not as scary as that of getting some stability into the economy and putting a tough end to this crisis so as to get on with fixing things for the better.

Overnight it has been reported that the Chinese central bank has injected fresh liquidity ($41 billion) into the banking system via a daily operation, in order to bring a boost to the economy. This may well see an increase in gold demand from the world’s second largest buyer as investors turn to their preferred inflation hedge.

After causing some strife in the markets yesterday with their doom and gloom report of the growth of sovereign nations, the IMF have this morning released their “Global Financial Stability Report” which targets the insolvent banking system. Once again they show that economists are unable to predict anything with accuracy, in April this year they told us that the worst case outlook for European banks was a need to deleverage to $3.8 trillion by the end of 2013, today’s report however sees this number now at 12% of bank assets, $4.5 trillion.

Bloomberg have reported on Greece’s gold mining industry, it seems in their sheer desperation the country’s government has finally woken up to the potential of Greece’s mining industry. Never the most efficient country, the government has launched a ‘fast-track’ approvals programme for companies wishing to drill for gold. The country has potential to become a bigger gold producer than Finland, currently the continent’s biggest gold producer. Let’s hope that in more ways than one the decision makers realise the potential gold has when it comes to giving hope and stability to a country in economic strife.

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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