Daily Nugget: Fed Pushes With QE, But Gold Falls

Gold’s decline overnight and into this morning is likely to be down to weak data from China which showed a fall in new export orders in April, for the first time this year.

Gold climbed slightly on the back of the statement from the Fed but failed to make new gains, this morning it is back at a one-week low.

Depending on which headlines you read, last night the Fed signalled that they would either curb or ramp up stimulus.

In truth they didn’t hint either way, a sentence which did not appear in the previous report, ’The committee is prepared to increase or recue the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labour market or inflation changes.’

For Goldman Sachs this above statement suggested an increase in the flexibility for the Committee, particularly as they pointed towards ‘fiscal policy is restraining economic growth.’

Good news for gold and silver is that the Fed do appear to want to push on with QE for the foreseeable future, bad news for the precious metals is that the Fed seem convinced inflation is under control.

Outflows in gold-backed ETFs continue, according to the mainstream media this still because of loss of confidence in gold. Citing fears over other central banks selling gold (after Cyprus was told to), holders of ETFs are apparently concerned. Given any gold sold would be snapped up by an emerging economy bank (ahem, China) we give little credence to this theory.

We maintain it is in paper gold where the confidence has all but disappeared.

Physical buying remains strong but has slowed somewhat due to China’s three-day holiday, as supplies recover buying as become easier and premiums have come down somewhat.

Today’s big economic announcement to look out for is the ECB’s decision, they are widely expected to cut rates and if not then at least hint towards doing so next month. If they decide to do so this will be good for gold and silver.

Aside from the ECB announcement later today, the US non-farm payrolls data (released tomorrow) will be the next key release investors will be looking out for.

An economist for the Bank of England, Ben Broadbent, last night expressed fears that the Bank’s consistent failure to over-predict growth and under-predict inflation means that they may need to change their models. Stating the obvious, but also something which all other economists failed to have grasped, ‘ Large financial crises are rare events and none is exactly like any other.’

In our opinion this crisis can’t be ‘fixed’ by tweaking elements of the tools we use, instead they need to be dismantled to make way for a fundamental and structural change.

Disclaimer: Information published here is provided to aid your thinking and investment decisions, not lead them. You should independently decide the best place for your money, and any investment decision you make is done so at your own risk. Data included here within may already be out of date.