The Daily Nugget: Gold Gains For 2013…But Not Everywhere

The main news from the weekend is, of course, the UK’s downgrade from its Triple-A rating, ongoing since 1974.

Osborne’s statement following the announcement was clearly well prepared, which suggests the downgrade came with the British Government’s support. And how could it not? It achieved precisely what they’ve been looking for – a weakening in the pound.

Gold price for 2013

In regard to the pound and the gold price, the weakening of the pound sees gold up by 0.2% for the year. It is only one of two of the nine major currencies, which sees an increase in gold for 2013 so far, the other being the JPY in gold which has increased by 1.2%.

The same is true for silver. The white metal is up 0.6% when priced in GBP and 1.9% in JPY. As a point of reference, silver is down 5.8% in USD and gold 6.1%.

For those who are beginning to wonder if hanging onto gold, or even choosing to invest in gold during this time was the right decision, you will be relieved to hear that for the last five Februaries Gold has either completed an intermediate cyclical top or bottom. And for each of those five years, it has gone on to finish the year higher than previously.

Gold above 7-month low

Gold remains above its seven-month low seen last Thursday, as the low price spurred more buying in Asia. Still not enough, however, to drive the price above $1,600 in the short-term.

Traders are also hoping to see increased buying from India as the wedding and festival season gets underway.

In Japan, gold has risen on the TOCOM, thanks to a weak yen. This came after the Japanese government suggested two new possibilities to head up the Bank of Japan, both of whom are strong supporters of easy monetary policy.

Look out for some support for futures contracts, as South Korea urges North Korea to abandon nuclear ambitions. The South is said to have warned their neighbours to stop wasting their scarce resources on the weapons. This comes just a fortnight after the country carried out is third nuclear test.

Support for gold can also be found in concerns over the outcome of Italy’s unpredictable elections. Many are worried that there may be a hung parliament, which could further hamper the recovery of the Euro’s third-largest country.

The week ahead Data from China, released this morning, saw the HSBC Flash Purchasing Managers Index fall to a four-month low. This does not appear to have dissuaded markets of the economy’s recovery. The reading remained above 50.0, indicating an expansion in manufacturing activity.

The main thing to look out for this week is Bernanke’s two-day congressional testimony on the economy, starting tomorrow. Investors and markets will be interested to hear his comments on the recent management of the economy and how it will be handled in the future. Comments from St Louis Fed President James Bullard on Friday hinted at further aggressive monetary policy, which will help the gold price.

The US will also see plenty of data-releases (including, home sales, consumer confidence and manufacturing), ahead of the March 1 deadline for automatic budget cuts. We expect the majority of data to revive ideas of continued quantitative-easing. If the automatic budget cuts are allowed to go through, then expect to see plenty of safe-haven buying.