Gold And The Week Ahead

Last week was a dampener for those in gold as we saw the price decline to a two-week low following positive outlook data on the global economy.

Expanded Reserves
Despite gold’s poor performance at the end of last week, it has picked itself up a bit on news that both Russia and Kazakhstan did a little gold investing last month, expanding their reserves by 2.1% and 1.7% respectively. Meanwhile, Iraq sold some of its gold, reversing a previous trend of net buying.

Concern over palladium supply were further increased as the world’s largest producer -- Russia -- stated that its palladium reserves were ‘exhausted’ and expects sales this year to be just three tons. This morning it crept to highs not seen since September 2011.

Gold Investment And Other Asset Prices
We suspect the price of goldand the markets to be looking ahead to the FOMC meeting, which starts tomorrow and concludes on Wednesday. Goldman Sachs believes the Fed will still advocate the benefits of QE, as opposed to the downsides. That will be good for gold in the long-term, however as we have seen in recent months, gold is becoming less responsive in the short-term to Fed moves as we see expanded easy monetary policy already priced in.

Keep an eye out on Wednesday for a new gold investment research piece entitled Why the Fed needs golden handcuffs, where we’ll be looking at the changes in asset prices over the Federal Reserve System’s first century. While indexes such as the Case-Shiller will, this week, show a modest improvement in the housing market, and on the heels of the S&P 500's strong performance last week, we ask how the Fed has affected these prices and whether or not it’s a good thing for an economy.

U.S. GDP
The U.S. will be the center of much attention this week in regard to data releases. Also on Wednesday preliminary GDP data for Q4 will be released. A Reuters poll showed GDP is expected to have slowed from 3.1% in Q3 to 1.3% in Q4. Markit Economics believes this number is misleading as to the health of the economy as it takes into account government spending, in contrast private sector data is looking relatively strong.

Japan, the one to watch this year, will be releasing yet more bad news as industrial production data for December is expected to show ever-weakening exports. This morning new Prime Minister Abe gave little indication as to plans for the Japanese economy, following on from the move to adopt ultra-loose monetary policy last week.

Elsewhere, global manufacturing PMIs will be released on Friday, following the UK’s better-than-expected manufacturing performance in December. It will be interesting to see the results of the most recent reading.

Germany may be feeling the wrath of struggling euro-zone countries such as Spain and Greece, thanks to their strong employment figures which are expected to show no change when they are released on Friday.

Speaking of job numbers, back in the U.S., nonfarm payroll data will also be released on Friday and is expected to show a small change from 155k jobs created in December to 160K in January. However the unemployment rate is expected to remain the same, at 7.8%.

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