The Daily Nugget: Gold’s Death Cross

Another Daily Nugget and one which doesn’t carry glad tidings:

At the moment stocks are performing better than gold this year. The S&P 500 has gained 6% so far in 2013, compared to gold’s 4% loss.

Gold fell from $1,580 yesterday, and sits just above $1,560 at the time of writing. Analysts expect it to find support at $1,530.

Late last year, it seemed that every day we brought news to you that holdings in the SPDR Gold Trust were reaching record levels. But yesterday, it slipped to its lowest in five-months to 1,299.164 tonnes.

Gold wasn’t on its own: all four precious metals saw further losses. Silver, having hit a six-month low in the previous session, closed at $28.46. Industrial metals too, had a bad day; platinum fell for the third straight session, even as Amplats warned new investment was being jeopardized thanks to staff issues. Palladium fell 1%, having fallen 3% earlier in the day – its biggest daily decline in nearly four months according to Reuters.

As mentioned yesterday, markets in Asia are seeing this movement in the precious metals markets as an opportunity to invest in gold. Unfortunately Western power is having a greater effect on the gold market, and as a result increased physical buying in Asia is not enough to offset the damage to the gold price in the West.

Yesterday warnings were rife of gold heading towards the so-called ‘death-cross’, which it did end up dipping to. The death cross is the technical term used for the 50 day moving average line falling to cross the 200 day moving line. However, this should not be seen as a bearish move. We have seen six death crosses in the last 10 years, only one of which has had a significant impact. In those ten years gold remains in a bull-market, and reasons to invest in gold still exist.

Central banks push gold and currencies

Two sets of minutes released from yesterday wreaked some havoc in the markets.

First up was the Bank of England’s MPC minutes, which showed three senior members of the Committee voted to increase QE by £25bn in asset purchases. King’s vote to extend QE has left the media speculating that he is ‘pulling out all the stops’ to make for a stronger handover to Carney.

On the back of the dovish minute, the pound tumbled to an eight month-low against the dollar. The Committee said it was prepared to bring inflation back to target over a longer-time frame than would usually be expected.

Over the pond, the FOMC’s minutes showed a hawkish committee who may end QE soon. The minutes showed a growing unease over the latest round of QE, known as ‘QE infinity’, and it’s open-ended nature saying it ‘may prompt excessive risk’. It seems many on the committee want to vary the amount of QE from month-to-month depending on economic data. They believe the US economy is ‘on a moderate growth path.’

Gold has done phenomenally well on the back of previous Fed QE announcements, however in recent times even when announcements have been particularly dovish gold has reacted less and less. This latest response, to fall from $1,580, is not something we see as a sign that gold has been in decline since 2011. The state of the global economy remains in worse position than when the bull run first began – as recent quarterly results show Europe, the US and Japan all see their economies shrinking.

Central banks have adopted inflation targets and we believe that they will continue to do so. Even if, as in the UK, inflation is above target the central banks will work extremely slowly to bring it back down. Further currency debasement is expected, against which gold acts as a safe haven.

Indian gold investment taxed further?

Meanwhile, India, is being punished for wanting to embrace the low gold-price. The Indian government, in a bid to deal with its current account deficit, is mulling over the idea of increasing the import tax to 8 per cent, the second increase this year.

Please Note: Information published here is provided to aid your thinking and investment decisions, not lead them. You should independently decide the best place for your money, and any investment decision you make is done so at your own risk. Data included here within may already be out of date.