The Daily Nugget – Gold pops-up before slamming back down
So yesterday the gold price had a little pop-up following both the weak GDP data release and then, of course the FOMC announcement.
Journalists looking for comments yesterday were pushing for us to declare that gold’s stagnant period was over and it was up, up, up and away over $1,700 for the gold price.
Luckily we’re not big on predictions here and we knew that the little jump we saw yesterday would not be long lasting. The FOMC statement was not quite what the markets were looking for, it was just more of the same. If concerns had been expressed over inflation or a hint that even more QE ideas would be coming up, then gold’s boost would have been slightly more long-lasting.
As MarketWatch quoted us as saying yesterday, gold acts as an inflation hedge and so as long as the Fed issues statements such as this then the end of the gold Bull Run won’t be for a long, long while yet.
As a result of yesterday’s only temporary boost in the gold price, it seemed to have an even tougher landing as data showing an increase in US incomes and an unexpected increase in German unemployment was released earlier today. This prompted the biggest drop in a week as people clearly began to feel more confident about the US economy and the stability of the Eurozone.
Tomorrow non-farm payroll data is out, but we’re not expecting any big surprises, not any which gold hasn’t already priced in anyway. This is the most important US data release of the month, so expect markets to react accordingly.
Earlier today mining lobby group the World Gold Council released some research which confirmed something we’ve all known for a long time, that ‘Gold has a positive correlation to emerging market growth, and a negative correlation to the US dollar and other developed-market currencies. Gold has a low investment cost relative to traditional foreign exchange hedges and is a proven hedge against tail-risk. Given these qualities, there is a strong argument for complementing existing exchange-rate hedging strategies with gold.’
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