The Daily Nugget – Gold and the week ahead
Last week was a dampener for those in gold investment as we saw the gold price decline to a two week low following positive outlook data on the global economy.
Despite gold’s poor performance at the end of last week, it has picked itself up wee bit following on from the news that both Russia and Kazakhstan did a little gold investing last month and expanded their gold reserves by 2.1% and 1.7% respectively. Meanwhile Iraq sold some of its gold, reversing a previous trend of net buying.
Concerns over palladium supply were further increased, as the world’s largest producer Russia, stated that their palladium reserves were ‘exhausted’ and are expecting sales this year to be just 3 tonnes. This morning it crept to highs not seen since September 2011.
Gold investment and other asset prices
We suspect the gold price and the markets will be looking ahead to the FOMC meeting which starts tomorrow and concludes on Wednesday. Goldman Sachs believes the Fed will still advocate the benefits of QE, as opposed to the downsides. This will be good for gold in the long-term, however as we have seen in recent months gold is becoming less responsive in the short-term to Fed moves as we see expanded easy monetary policy priced in, to some extent.
Keep an eye out on Wednesday for a new gold investment research piece entitled ‘Why the Fed needs golden handcuffs’ where we’ll be looking at the changes in asset prices over Federal Reserve System’s first century. Whilst indexes such as Case-Shiller will this week show a modest improvement in the housing market, and the S&P 500 reached 1,500 last week, we ask how the Fed has affected these prices and whether or not it’s a good thing for an economy.
The US will be the centre of much attention this week in regard to data releases. Also on Wednesday preliminary GDP data for Q4 will be released. A Reuters poll showed GDP is expected to have slowed from 3.1% in Q3 to 1.3% in Q4. Markit Economics believes this number is misleading as to the health of the economy as it takes into account government spending, in contrast private sector data is looking relatively strong.
Japan, the one to watch this year, will be releasing yet more bad news, as industrial production data for December is expected to show ever-weakening exports. This morning new Prime Minister Abe gave little indication as to plans for the Japanese economy, following on from the move to adopt ultra-loose monetary policy last week.
Elsewhere, global manufacturing PMIs will be released on Friday, following the UK’s better-than-expected manufacturing performance in December, it will be interesting to see the results of the most recent reading.
Germany may be feeling the wrath of struggling Eurozone countries such as Spain and Greece, thanks to their strong employment figures which are expected to show no change when they are released on Friday.
Speaking of job numbers, back in the US, non-farm payroll data will also be released on Friday and is expected to show a small change from 155k jobs created in December to 160K in January. However the unemployment rate is expected to remain the same, at 7.8%.
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