Gold Goes Down, Gold Goes Up

The EUR fell yesterday, bad news for gold, which has recently been positively correlated to the EUR. Gold fell to a one-and-a-half-week low, as the USD rose to a one-and-a-half-week high.

The euro’s fall was thanks to further bickering, speculation and uncertainty in the Euro zone. Rumours of fallout between France and Germany regarding the formation of a banking union as well as worry regarding Greece’s budget shortfall and Spain’s will they/won’t they bailout request caused concern over the strength of the Euro.

Other than euro-rumours, poor European data kept the single currency low yesterday, as well as the FTSE which also dipped as a result. The dollar climbed on the back of some ‘unexpected’ data from Germany, which showed the Ifo index of business sentiment fall for the fifth month in a row, to its lowest level since March 2010.

Elsewhere in the Euro zone, Van Rompuy waded in and contributed nothing of any value insisting the EU’s economic programmes must continue ‘with renewed vigour’. I can almost hear the eurocrats screaming ‘THAT’S WHAT WE ARE TRYING TO DO!’ from my desk in London.

Meanwhile the Portuguese government took further steps to cause suffering as it threatened to raise income taxes in a bid to control the deficit.

Things were so bad in the Euro zone that the Chicago Fed’s Index which placed the U.S. recovery even further in doubt yesterday, could do little to distract from the single currency union.

Analysts remain positive that central banks’ easing programmes will continue to be perceived positively by the markets. Whilst data this week may be seen by some as the need to take a reality check, beliefs that monetary easing will soon feed through will keep the markets buoyant -- including the gold and silver price.

Precious Metals
This morning both gold and silver are holding steady thanks to central bank monetary easing measures supporting market sentiment to hold precious metals, this is expected to continue after Japan indicated yesterday that the BOJ may be sent for monetary stimulus, further to the 80 trillion yen announced last week.

Gold demand increased in India yesterday after the yellow metal fell to its lowest rupee price in a fortnight, the rupee rose to a four-month high yesterday prompting jewellers and investors to restock in preparation for the festival and wedding season.

Increased demand in both China and India is expected for the final quarter of the year as the world’s largest gold-consuming populaces prepare for festivals and weddings.

Near Term Sluggish
Next week will be interesting to watch as the world’s hungriest gold consumer -- China closes for a week for a national holiday. Many are expecting gold and silver to remain sluggish for the week.

In a survey cited by the German newspaper Frankfurter Allgemeine Zeitung, inflation was shown to be the concept which causes Germans the most cause for concern, out of a choice of serious illness, lower living standards in old age and terrorism. Inflation received 63% of the vote.

Bloomberg writes, ‘The ECB’s new building in Frankfurt is now under construction. The project’s cost has grown to about 1.2 billion euros ($1.6 billion) from the originally planned 850 million euros, mainly due to inflation. For an institution mandated to ensure price stability, the ECB is giving Germans good reason to lose sleep.’

Both gold and silver’s behaviour Monday and this morning is something that we are likely to have to get used to over the coming months. Whilst central banks’ printing presses and wealth theft is now guaranteed to continue (there’s no way they fancy reversing down this muddy path) data releases and speeches are likely to cause some retracements and corrections in the near future.

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