Daily Nugget: The Dance Between Central Bankers And Gold Prices

Yesterday the price of gold fell to its lowest since April 18th, to $1338/oz, before recovering following an announcement from Moody’s. Moody’s investment service said that said that if the US does not act upon its budget issues this year then government debt may face a downgrade, good news for gold prices given the US’s recovery strength as a reason cited to no longer own the metal.

Central bankers pulling their levers

Today two Federal Reserve Presidents are due to speak ahead of Bernanke’s testimony tomorrow. St Louis Fed President, James Bullard, said late last week that he foresees further asset purchases should inflation not climb nearer the 2% target.

Yesterday Charles Evans, the president of the Chicago Federal Reserve Bank said that whilst employment data looks good, he is concerned that it is not sustainable. In regard to inflation, he wants to see it climb closer to the Fed’s 2% inflation target. He also sees the Fed ending QE in August should the improved jobs data be here to stay.

And what of the gold price?

The current gold price continues to swing between concerns over the US’s health and beliefs that the US will drawdown its QE. Any talk by Fed Presidents, or even the Chairman himself, of QE timelines is likely to be bad for gold prices short-term.

Holdings in the SPDR gold trust fell once again yesterday, to 1031.05 metric tonnes of gold bullion, its lowest since 2009. The ongoing outflows indicate that the yellow metal is still experiencing downward pressure.

Silver prices slumped to as low as $20.69/ounce, a two-and-a-half year low before recovering to above $22/ounce. This morning it is at $22.72/ounce. Standard Bank said yesterday that they foresee silver could “suffer from selling into rallies in the foreseeable future,” perhaps returning to the $20-$15 range. They describe the supply/demand fundamentals of the industrial precious metal as ‘weak’.