The Daily Nugget: August 16, 2012

Everything remained quiet yesterday, with markets still unable to do anything with conviction. This may be because everyone’s on holiday or just because they’re plain bored waiting for further news from above.

The spot gold price finished slightly higher, somewhat unexpected given the lower than expected CPI levels from the US. With US CPI down to its lowest level since 2010 this may have given some further confidence to QE3 speculation, but they’ve been waiting for QE all month now.

The World Gold Council have reported today that YoY Q2 demand fell by 7% thanks to a decline in gold investment demand from China and India, the world’s largest consumers of the yellow metal. Interestingly demand for gold increased by 15% YoY in Europe as investors looked for a safe-haven from the on-going financial difficulties.

A strong dollar against the rupee and poor weather affecting agricultural conditions are the main culprits of weak gold demand seen in India. In China, a "lack of direction in the sideways gold market" which can lead to investment stagnation, is to blame. Had the two gold loving nations not been considered in the survey gold bar and coin demand would be up 16%.

Most noticeably, the increased demand in Europe was seen in Germany. They know their history. German investors have always been sensible when it comes to gold but it seems certain rhetoric of late may have increased fears about the risks to their money and their country’s sovereignty.

Central banks were also noticeably showing their lack of faith in their contemporaries from April to June. Gold purchases in the official sector were at their highest since Q2 2009 when gold buying shifted from net sales to net purchases.

This eager shift into increased gold reserves as opposed to euros or US dollars is something which will catch up with both currencies. If central banks are already losing faith in the powers of monetary stimulus from the world’s largest central banks then it is only a matter of time before the markets do also. Therefore we expect Indian gold demand to pick up, if not earlier than later thanks to the wedding and celebration season.

Also yesterday Roubini treated us to his latest wise words, arguing that the eurozone would be better to have an "orderly divorce" now rather than a "messy split down the line." But of course we know this won’t happen due to the undemocratic nature of the eurozone which would permit even the consideration of an early breakup, the costs of one at all are just too much to consider. Yet the technocrats do not realise that the costs and damage will just grow the longer this is delayed. Instead, the Germans and ECB push for large-scale liquidity to buy yet more time. As we know, this is not a liquidity problem, but one of solvency.

In the meantime Europe’s citizens suffer, and those who aren’t just yet are buying gold. Germans haven’t noticed much change in their economy just yet, but they know this is something which is likely to change, and in preparation they’re buying.

Analysts argue that gold won’t be going anywhere until the Feds and other central bankers implement further rounds of stimulus, whether fiscal or monetary. They should all just hear this – there will be further stimulus, there is nowhere else for them to turn. Whilst tiny data releases may show an improvement in both the US and some eurozone countries, they are both still in huge debt crises. Data also indicates a slowdown in India, China and Brazil – 3 of the 4 BRICs we had all pinned our hopes on to increasingly drive the global economy.

Today is another quiet day on the releases and announcement front, none of which we expect to drive gold to either side of its current trading range. Numbers to look out for however include the eurozone’s CPI, the US Philly Manufacturing index and jobless claims. No doubt tiny changes will prompt claims of a recovery or the need for more stimulus.