Daily Nugget: Gold Climbs Following FOMC

Gold experienced some strong selling pressure yesterday morning after a batch of healthier-than-expected data was released. As a result of this, and no clear message from the FOMC, COMEX gold prices ended the day lower.

This morning the gold price has returned to healthier levels as the lack of indication over further QE or tapering sent the US dollar to a six week low against a basket of other currencies, according to Reuters.

Economic data showed US GDP growth in Q2 was higher than expected, 1.7% as opposed to 1%. A private jobs report also showed employers increased jobs numbers by 200,000 which shows employment gains are in line with the previous month.

Today look out for policy announcements from both the Bank of England and the ECB. No major changes are expected, however some expect Draghi to reaffirm his commitment to ‘do whatever t takes.’

Empty words from the FOMC

Yesterday the FOMC announced that it would continue to support bond purchases. For some reporters the announcement was seen as dovish, for others it was slightly more opaque. There was no mention of tapering however the Committee did reiterate its commitment to QE as the economy continued to struggle with tightening of the federal budget.

The FOMC also expressed concern about inflation, “The committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance,” this view will prove beneficial to gold, as many see the yellow metal as an inflation hedge. It is important to note at the moment that we are not experience deflation but rather disinflation, that is a slowing in the rate of inflation but it is still ever present and growing.

Despite the lack of information, there does still to be a general assumption that September will see an announcement regarding tapering. However only one voter, Kansas City Fed President Esther George, expressed concern over low rates and risks to inflation. In the meantime, there is nothing new to speculate about the FOMC’s earlier comments or conclusions to be drawn.

Gold bars move from West to East

Yet more evidence this morning that the great gold migration is in full flow, and not just thanks to Asian gold demand. Yet another bank, this time ANZ, have announced the opening of a gold-storage facility in Singapore. They join a host of big names who offer Singapore gold storage, namely The Real Asset Co, JPMorgan Chase & Co., UBS AG and Deutsche Bank AG.

ANZ is one of the few banks who remain bullish on gold, they believe the gold price will recover following this year’s 22% fall, seeing the price average $1,400 in 2014 and $1,500 in 2015.

India’s Finance Minister Palaniappan Chidambaram has said that the country’s gold imports will be limited to 845 tonnes this year as efforts to control the current account deficit continue. Last year the India accounted for 20% of global gold demand.

Gold coins remain popular
Gold coin sales, which broke records in the month April, continued to impress last month. The US Mint website shows the sale of gold bullion coins was up 66% compared to July 2012.