Daily Nugget: Gold Price's 3-Day Climb likely To Snap?

The gold price looks likely to snap its three-day climb today despite having found support last week following Fed Chairwoman-to-be Janet Yellen’s confirmation hearing.

During the hearing Yellen as good as confirmed that she would continue with the Fed’s so-far easy monetary policy. Many analysts believe that gold has already priced in both Yellen’s dovish stance and the chances of tapering being pushed to early 2014.

Whilst Yellen’s comments were good for gold, speculators are still looking for inflation and trouble in the equity markets (as predicted by so many gold bulls). With neither of these yet officially showing themselves, the overall sentiment surrounding gold is bearish. This was clear last week when hedge funds doubled their short holdings, just before the gold price recovered earlier losses.

Ultimately Yellen didn’t say anything we weren’t expecting. We have long known that she is a dove and believes the US economy and jobs market can do far more given they are falling “far short of their potential.”

The Week Ahead

All eyes will be on the FOMC minutes released from the October meeting. Many will be curious to see whether or not a December taper was on the cards prior to the better-than-expected non-farm payrolls data, or if members had been pushing for a delay in tapering for 2014.

One indicator FOMC members will be looking out for will be the flash PMI for November. Last month’s reading signalled a near stalling in manufacturing activity. This was attributed to the government shutdown. All eyes will be on the recovery, if any, since then.

Also this week the minutes from the most recent Bank of England meeting will be released. Last week’s Inflation Report commented on the unexpectedly strong growth seen in the UK economy. Both the report and Carney stressed that a return to below 7% unemployment figures would not necessarily mean that there would be an automatic increase in interest rates. The minutes of the MPC meeting, released on Thursday, will provide an insight into how unanimous members are in this, and forward guidance generally.

As well as the US flash PMI, flash PMIs for both China and the Eurozone will be released. The Eurozone is under ongoing scrutiny after seeing a rather pathetic 0.1% growth in GDP last quarter, this combined with low inflation prompted the ECB to lower interest rates. Markets will be looking for an indication of some positive movement in the single-currency zone.

Indian gold

There have been some interesting articles on India and their love for gold over the weekend. This comes after the World Gold Council’s Q3 Gold Demand Trends report acknowledged the rampant smuggling of gold into the country.

Over on Bloomberg the difficulty for Indians to give up gold, especially for significant occasions, is highlighted as the reporter discusses the bridal jewellery worn for a traditional wedding. The incidence of smuggling is acknowledged towards the end of the article, ‘Indian laborers working in the Middle East are acting as couriers for gangs in return for a ticket home and a few thousand rupees, said Rishi Yadav, assistant commissioner at the Mumbai customs department’s Air Intelligence Unit.

‘“When you have social compulsions, there are many ways of overcoming restrictions,” said Babu as he sat in his house a day before the wedding. “Irrespective of what the government does, Indians will find a way to get around this because every wedding has to have gold.”’