The Daily Nugget – Gold Heading For Further Lows?

Today gold is holding steady around $1,611, supported by renewed buying interest from China. Weak buying and a firm dollar however have meant the gold price has lacked support to go higher.

Demand from both India and China has helped to bring gold back up above $1,600 after its fall on Friday. Renewed buying following the Lunar New Year embraced the low gold price, spot gold contracts on the Shanghai Gold Exchange dropped to its lowest in seven months, prompting volume to exceed 22 tonnes, a record high. However, analysts are concerned that this renewed buying will not be sustainable enough to maintain gold above $1,600 in the face of downward pressure elsewhere – the dollar index climbed to a one-month high late last week, heading for a third day of gains today.

Analysts expect the gold price to fall to as low as $1550 – $1590 over the next three weeks or so. Commerzbank points to the June lows of 2012 which saw support at $1,547 before climbing again. They also see resistance at $1,625.

The silver price is the metal which seems to be worrying many of our readers. At present the 2008-2013 uptrend remains, despite it falling below $30. It is expected to fall further, according to Bloomberg, to $28.49. Commerzbank’s view on the white metal remains bearish as it remains below its January high of $32.51.

Tomorrow minutes from the Fed’s FOMC meeting will be released, everyone will be looking for further signs of monetary easing and the current attitude towards monetary policy.

Over the next couple for weeks look out for thoughts on the “sequester” a self-imposed deadline from Congress if they do not act over $85bn worth of cuts in both defence and domestic spending. Whilst this won’t see the levels of volatility seen prior to the fiscal-cliff talks, expect some as we approach 1 March.

Someone tweeted at me yesterday – ‘Central bankers, watch what they do, not what they say.’ So when Draghi, head of the MPC, dismisses talk of a currency war we should assume he’s embracing it as he did admit to ‘watching the euro.’

At risk of sounding like a broken record, for as long as these currency wars continue we can look to gold investment, not only to hold its value, but to remain a hedge against weak domestic policies. As we said last week on the Keiser Report – no matter what policies, measures, statements etc governments and central banks come up with you cannot argue against gold’s role (as both money and an investment) in the last one thousand years compared to fiat money.

One thing we do need to look out for as this crisis unfolds is the reduction in autonomy given to central banks, a prime example is the Bank of Japan who has been told that the law governing the central bank may be revised if various monetary policy options suggested by parliament are not approved.

Yesterday the LA Times reported on the outcome of the gold held in the NY Federal Reserve. Rather than bring in an independent auditor, as is expected of all other multi-billion dollar organisations, they decided to carry out the audit themselves. As Robert Wenzel points out, ‘That’s like having Bernie Madoff’s brother auditing Bernie’s customer accounts. Why wasn’t an independent auditing firm brought in? And since the gold is held for countries like Germany, why didn’t Germany and others who have gold on account get to pick the auditor?’

Mr Wenzel raises several interesting points over this so called audit in this quick read which you can find here.

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