Last week’s release of the FOMC’s minutes scared a few of those in gold investment. The fear that the Fed may not continue with bond-buying after FOMC members expressed concern about QE’s effect on financial markets prompted some to assume this means gold has no chance of completing its 13th year in this bull-run. The quick sell-off saw gold drop to $1,625.79, a low not seen since August 2012.
Asian Buying Girds Prices
While some analysts expect the price of gold to possibly visit lows seen last week, strong buying from Asia is helping to underpin prices. If further lows are seen then this as good an opportunity as any to buy gold as there is still strong support to break through $1,800 and head toward $1,900 in the first half of this year.
Despite some in gold investment feeling spooked, gold's price has recovered, somewhat today, thanks to weak U.S. jobs data for December -- despite the pace of hiring remaining steady, the unemployment rate remains at 7.8%, pointing to some frailty in the U.S. economy. Considering the Fed’s assurances to keep printing until the unemployment rate is below 7%, the new data has brought some optimism to the more fickle gold investors out there.
I say fickle in light of gold’s track record and that of the world's largest central. Gold has been around long enough to prove its ability to act as a stable form of money. The Fed’s recent actions are based on poor decisions made in previous years, which means that this fire-fighting approach will continue well into the future.
Zerohedge reminds us of the issues facing the U.S. and its currency:
- The IMF is predicting the structural deficit to worsen once again starting in 2015
- Projections by the IMF do not reflect the disastrous consequences of the ‘Fiscal Cliff’ deal struck on December 31, 2012.
- In 2013, US structural deficit is projected to be around 5.49% of GDP against the G7 average of 3.04%
- In 2010-2017, according to the IMF projections, the US cumulated structural deficits will add up to 44.84% of GDP – against Japan’s 58.53% and the G7 average of 24.97%. For 2013-2017, the same figures are: U.S. 21.43%, Japan 33.31% and G7 average 10.48%. In other words, things are going to get worse in the US compared to G7 average in 2013-2017 than they were in 2010-2012. They will be worse still in Japan, but everyone expects Japan to remain the sickest member of G7, so there is little surprise or repricing that can be expected before the US risks are repriced.
This week we see two central bank meetings where not much is expected to happen: the Bank of England is expected to let the printers rest for January, while the ECB continues to support its ‘accommodative’ policy.
A research paper from the Bank of England suggests that the MPC will take a route that favours a more limited role for asset purchases after finding supply-side factors were just as important to the UK’s recovery as demand shocks.
Elsewhere in the world the U.S. has a fairly quiet economic calendar. China will be closely watched as industrial and inflation figures are released. Hopes that the country has seen some improvements are high after the recent PMI release showed the manufacturing sector had its best performance in 19 months.
Silver, Platinum And Palladium
The LBMA’s best forecaster for 2012, Rene Hochreiter, said that 2013 will see the end of gold’s current bull run, with prices finishing at an average of $1,600, down from 2012’s record $1,668.75. He believes we will start to see the U.S. recovery really take shape and, as a result, silver, platinum and palladium will see prices rise. Last year, each metal outperformed gold. That does not mean, however, that Mr Hochreiter will be selling any gold in favour of other metals: unless you really have to sell, you don’t sell.
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