Further Data Will Make Gold Shine

Last week, the markets were disappointed by both the Fed’s and ECB’s lack of action. Bernanke stated that the Fed stood by to take further action if necessary. This is expected prior to the election in November (gold investors look out) – particularly given the low consumer confidence numbers and fall in GDP. It will also depend on the situation in Europe and how much further/faster things deteriorate.

Meanwhile Draghi dropped a clanger and let the markets down after a much hyped up declaration of his ability to do whatever it took to save the single currency. As we said last week, his speech on Thursday was almost pitiful to watch but not as pitiful as the fall in the markets, including gold, as soon as Mario opened his mouth.

Gold investors should watch the next few weeks with interest as discussions as to whether a banking license should be given to the ESM and further investigations into fiscal unity continue. Further cracks will no doubt start to show between those desperate to push the button on the printing presses and those who wish to heed history’s warnings.

So, as we said last week, considering the alternatives and the jobs on the line, it’s a given that the central banks will start printing again.

This may come sooner than we think but not in the West, but rather in the form of stimulus from the Chinese. On Thursday they are due to release data on retail sales, industrial output, CPI and fixed asset investment. After PMI releases last week and a "low" inflation level of 2.2% in June analysts predict this may make extra stimulus necessary.

As most who invest in gold know, the Chinese government stimulus means that we are likely to see a further increase in physical gold purchases from the country’s worried citizens who know, more than anyone, the dangers of government interference in the economy.

The downturn in global manufacturing will be seen to be gathering pace this week as both industrial production and trade data are set to be released on several prominent EU nations as well as India. How long the manufacturers will struggle for we don’t know but this is most likely just the beginning of further job losses and rising inflation.

Also out this week, the BoE will give us yet another excuse to watch them make up some numbers and excuses, mainly that all things going wrong are for reasons out of their control. Analysts expect the Old Lady of Threadneedle Street to downgrade many of its current growth forecasts given the "disappointing" (but not surprising) data in recent months.

As we know from last week’s speeches however, central bankers will spin us any number of tales in the hope that we’ll fall for it, and so far the majority of people have been duped. In Draghi’s, now infamous "Whatever it takes" speech, he tried to tell us the euro was stronger than ever and improvements in the single currency zone could be seen in the last 6 months. Both of those statements are clearly Euro Trash.

So will the BoE and Chinese government hope that they too can continue to pull the wool over our eyes. I suspect so, but those thinking persons among us should just enjoy the grim fairy-tale being played out in front of us.