The Daily Nugget – 1st August 2012

Yesterday’s AM fix was USD 1,622.75 GBP 1,034.46 and EUR 1,323.29.

Gold finished at USD 1,615.40 in New York, down -0.43% having reached highs of USD 1,629.

The gold price stayed relatively calm yesterday as some kind of indication was expected from the FOMC meeting which started in the afternoon. Today is the final day of the meeting and Bernanke is due to give a press conference.

Yesterday data showed unemployment in the Eurozone has ‘ballooned’, with only Germany and Cyprus experiencing steady levels or improvements. Greece’s finance minister spoke of his country as ‘on the brink’, so we’re not sure where he thinks they’ve been all this time…
Hopes for QE3?

Several figures released yesterday afternoon provided a more optimistic outlook of the US economy than had been expected – the CB consumer confidence index jumped to 65.9 from 62.7 in June, whilst single family home prices rose for the fourth month in a row in May.

Interest rates are predicted to remain at 0.25% following the FOMC 2 day meeting, and expectations of further asset purchases have also fallen following Bernanke’s speech last month. However some analysts expect other measures to be discussed such as express commitment to significantly low interest rates for a long period of time.

Following the Fed’s announcement Bernanke’s press conference will be closely monitored by the markets. His comments are likely to affect the volatility of the USD in the short-term, they will also determine a short-term positive or negative trend.
PMI data

Manufacturing PMI data is also due to be released today. Earlier ‘flash PMIs’ released by Markit showed ‘US manufacturing growing at the slowest rate for 19 months and on-going downturns in China’s manufacturing economy and the Eurozone’.

Also on Wednesday, Nationwide’s House Price index (UK) is expected to show fall in house price inflation, but lower than that seen last month.

Meanwhile in the US data on vehicle sales, construction spending and employment is expected to show a small decline. Data on mortgage applications is also due.

In regard to the gold price, previous FOMC announcements and Bernanke comments have previously impacted the market. However in increasing measures the impact of such events has been seeing to have less of an effect on the gold price each month.

This is not just for the gold price but the economy generally, as Dennis Gartman wrote in a recent Daily Gartman letter:

‘We fear that no matter what the Fed does at the next two-day meeting its effect will be non-existent upon the economy.’

Figures quoted today demonstrate a global economy which is grinding to a halt, right before inflation is likely to kick in on a grand scale. Given that tomorrow we are also expecting announcements from the BoE and the ECB it is worth bearing in mind that at present all policy makers will inevitably go further down the road of monetary easing. Other than making such a decision they do not know what else to do. This only paints a pretty picture for gold which acts a hedge against the on-going devaluation of fiat money.