December’s Autumn Statement And Gold’s Choppy Ride

Well the US’ budget talks seem to be looking about as successful as a chocolate teapot factory. On Monday the Democrats rejected the Republican’s counter-proposal to avoid the fiscal cliff and yesterday President Obama signaled he is ready to make some concessions once the Republicans accept tax increases on top-earners.

In response commodities, generally, felt the weight of the politicians’ bickering Monday night and this has continued into this morning. In the early hours of yesterday morning gold dipped its toe below $1700, to $1,690, the first time in a month.

The fall in the gold price on Monday night was curious, like last week’s, considering both New York and London were closed and it was quiet in Asian trading.

Gold has recovered slightly this morning as some embrace the bargain prices; however those looking to buy gold remain wary, aware of the looming fiscal cliff in the background.

Central bank gold investment
This morning, South Korea’s central bank has said that they bought 14 tonnes of gold last month ‘in order to spread portfolio risks’. The bank now owns 84.4 tonnes. Central bank gold investment is a story which will not be letting up for some time and still continues to outshine private investment, which has dropped this year. As Jim Sinclair said a long, long while ago – "Be your own central bank."

For many, gold’s current price behaviour can seem confusing; we often explain its rise caused by concern over the stability of the US economy. Therefore, why is gold not exploding out of its seat?

In the short-term we see there is little confidence in gold. As Ross Norman said yesterday, we can only expect gold to rise if increasing numbers of people are buying it. Whilst it is certainly supported by currency movements and economic events which cause concern, it won’t go far until increasing numbers of people become interested in gold.

The World Gold Council reported earlier this year of the 8% decrease in private gold investment this year. Those reading this should not only see this as a call to tell more people about gold, but also to embrace the low gold prices before others "clock-on" to gold.

Whilst I suspect the Fiscal Cliff agreement, if one is reached, won’t be a long-term "fix" the gold price will suffer in the short-term as wary investors try to increase liquidity and get into dollars. Many analysts expect this short-term choppiness to continue into the New Year ceteris parabus.

Autumn Bingo
This morning the UK is set to hear what Chancellor George Osborne has to say in his Autumn statement. Those of us on The Real Asset Company Research desk aren’t holding out a huge amount of hope, regardless of what is said it seems the general public still believe the government are playing the long game and trying to sort this mess out. A recent poll showed the respondents believe the government are working hard to slash the debt – the opposite is the case, they’re planning on increasing it by £600bn. Is this a case of lies being told or heads in the sand? A mixture of both I suspect.