Daily Nugget: Gold’s Taken A Holiday

Well I’ve been away for two days and it seems gold has also taken a holiday. But its fall to a five-week low on Monday wasn’t exactly a big move, despite what you may read in the media. This is nothing compared to recent stock market volatility and the fundamentals remain in place – namely money printing and currency devaluation.

As if you needed yet more reassurance that central banks believe money printing and inflation is good, Mervyn King told reporters earlier that aiming for a low inflation target wold risk derailing the economy. The MPC expects to see inflation rise to 3% by the summer, suggesting a period of long-term stagflation as unemployment also rises.

Whilst gold continues to inch-down, some buyers following the Lunar New Year are providing some support to the gold price. Deutcshe Bank said in a report yesterday that they are expecting to see gold move lower to $1,600, if not $1,550 an ounce, thanks to a lack of macro-concerns.

Nuclear tests from North Korea helped gold to rally slightly, but not for long. Should this turn into a situation of international concern then this will prove to be bullish for gold as investors rush into the safe-haven.

We expect to see gold suffer in the short-term from the efforts being made to reassure markets over currency devaluations. However, a G7 statement yesterday did little to reassure markets that a currency war would not be allowed to escalate, a bullish position for both gold and silver.

We believe that the efforts going into placating concerns over currency wars, ahead of the weekend’s G20 meeting shows currency devaluation is a key concern for the G7 member countries.

Platinum managed to maintain its 17-month premium over gold yesterday as news of the Zimbabwean government’s repossession of land owned by platinum miner Zimplats Holdings Ltd set off supply concerns.

Palladium also benefitted from platinum’s performance, rising to its highest point since September 2011. On TOCOM, the most active palladium contract rose to 2,334 yen a gram, its highest since mid-2001. This rally is being attributed to the smog issue in Beijing which has confirmed the need for increased regulations on exhaust fumes. Both platinum and palladium can be used in catalytic converters, however at present palladium appears undervalued, hence the increased interest.

Silver continues, strangely to be the most reliable of the metals at the moment. Despite trading at a one-month low earlier in the day, it has seemingly recovered.

India has reported its GDP gap is at one of its widest, in January. Analysts expect this to increase this in March. Bloomberg reports that exports climbed 0.8 per cent from a year earlier to $25.6 billion while imports advanced 6.1 per cent to $45.6 billion. A large part of this will no doubt be attributed towards gold imports, duties on which increased to 6% from 4% last month.