Daily Nugget: Gold Awaits FOMC And The Next Catalyst

Gold rose for the first time in a week yesterday as investors in China, and elsewhere in Asia, embraced the low gold price. On the Shanghai Gold Exchange the most active gold-futures contract and two spot gold contracts fell to near-seven month lows, this prompted further buying interest.

It appears we are currently in a pattern which sees prices and demand rise when Asian trading is open, and drop during Western hours. COMEX gold finished US day trading at a 6.5 month low yesterday.

As we often comment, the Asians are the bright ones in this gold investment scenario; buying on the cheap, fully in the knowledge that economic data releases mean very little these days – unlike in the West where the short-term now appears to matter more than the long-term.

The firmer and stronger dollar has not helped gold prices whilst improved economic data from the US has reassured investors over the world’s largest economy’s recovery. The S&P 500 has gained 7% this year, compared to gold’s 4% drop.

More signals to buy gold?

Later today the FOMC minutes will be released, many believe the Fed will signal an end to its third round of stimulus measures, prompting gold to fall for a fourth session yesterday. We believe that unless Team Bernanke presents an exceptionally dim view on the US’s economic state, there will be no gold rally on the back of this release. January’s FOMC minutes showed a split between members over the end this third round of easing, yet its commitment to buying $85bn of securities each month was reiterated.

Beliefs over the Fed’s next move are due to recent signals that the US economy is slowly recovering. If you believe this then check out yesterday’s recommended read. Needless to say US data isn’t exactly all roses, but more a mixed bag – whilst jobless benefits claims fell this month, January saw industrial production fall. If investors are looking to see if the economy can hold its own once again, without the helping hand of the Fed, then they’ll be disappointed.

In Europe the biggest indicator released yesterday was the German ZEW expectations index which hit a three-year high, prompting many to speculate that the worst of the Eurozone crisis was behind us. Elsewhere Italian and Spanish bonds sneaked a little lower yesterday thanks to a ‘well-received’ Spanish debt offering. Speaking of Italy, look out for the Italian elections starting on Sunday.

Silver looked a little shaky yesterday, falling below $30/oz. It settled at $29.56/oz – up $0.35 on the day. Technical analysis does however suggest that it may fall further to $28.49/oz, a level not seen since June 2012.

Despite Platinum’s 0.4% fall yesterday, UBS have stated that they expect to see the rally continue – to $1,850 an ounce in three months. In the short-term however expect a price of $1,650 over the next month as the bank believes the “potential downside risks to sentiment surrounding the US automatic budget sequestration” could weigh on prices. The bank expects palladium to falter slightly in the next couple of months to $720, compared to its $760 price at present.

Disclosure: 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.