Gold And The Global Tug Of War

This morning the gold price is back up in the $1,700s after two days of posting losses. After booking profits on a near 16% rise in price, investors are now back to hanging onto gold as they place their faith in recent moves by central banks to lift sentiment in the yellow metal as well as silver.

Golden Cross
Yesterday further signs gave indication of gold’s strength in the market as both gold bullion’s intermediate and longer-term momentum is getting increasingly bullish. This was seen as gold’s 50-day moving average traded above its 200-day moving average, which marks a golden cross in technical analysis.

According to Reuters, ‘The previous long-lasting golden cross on bullion charts was formed on February 6, 2009, and gold prices surged 11 percent in the following 11 sessions.’ This is good news for the yellow metal, which has already surged 10% in the last four weeks.

After we spoke about the need or lack of need for catalysts yesterday, it seemed economic data was all that gold investors needed to hear that the economy will not be looking after their wealth any time soon.

The Data Front
Data yesterday showed the U.S. manufacturing suffered its weakest quarter for three years, whilst jobless claims were also worse than expected, prompting the U.S. Dollar index to fall. Housing data however provided some light relief, as housing stocks are up 0.8%.

Poor data from the Euroz one, released yesterday, has resulted in the single union currency suffering its biggest one-day loss this morning. This is disappointing for the ECB who have worked hard to reassure markets that they are getting on with fixing this mess. The ECB has obviously got some catching up to do with everyone else.

The U.S. and Euro zone figures, along with China’s also released yesterday, paint a bleak picture for the financial recovery. As a result, the FTSE continued to edge away from sixmonth highs seen last week, as it closed down 0.6%.

We seem to be in a tug of war between good and bad indicators from all countries. This causes even more uncertainty, which will be good for both gold and silver prices.

Glimmer Of Hope In UK
Sir Mervyn King, Governor of the Bank of England, told a major news channel last night that the UK is beginning to show small signs of recovery and that the next quarter is likely to show some sign of improvement. He once again blamed a huge part of our lack of recovery on the ‘black cloud’ that is the Eurozone and also the slowing of the global economy.

According to the CBI, manufacturers’ order books continued to collapse this month, showing a substantial decline. It seems the ‘wealth effect’ central banks are so desperate to nurture is not coming through as many businesses admitted to being unconfident about the future, not wanting to increase pay or invest in the development.

King also acknowledged that the British taxpayer would most likely have to step in once again should there be any future crises. Once again, as with all central bankers they are able to ‘fix’ things in the short term but do not be appearing to ask why this hugely inequitable and dangerous situation has arisen in the first place.

Volker Speaks
Speaking of central bankers, Paul Volcker has felt the need to step in and protect his old stomping ground. He believes the role of the Federal Reserve is becomingly increasingly pulled into economic debates. He warned that ‘Fed-bashing’ in politics will not help general confidence that the Fed will be effective in fixing the economy. Between you and me, I don’t think the Fed needs help in convincing the people that they don’t have a clue what they’re doing.

Please Note: Information published here is provided to aid your thinking and investment decisions, not lead them. You should independently decide the best place for your money, and any investment decision you make is done so at your own risk. Data included here within may already be out of date.