The Daily Nugget: Gold’s Up And Down Day

Gold had a bit of an up and down day yesterday, experiencing a large trading range as various announcements and data releases affected investors.

Gold initially fell after a press conference given by Mario Draghi of the ECB which prompted the Euro to fall against the dollar. Gold dropped thanks to Draghi in the morning discussing the upswing in the Euro and then hinting about his concerns about the Euro’s strength. Which prompted the Euro to sink. This dip helped bring in some buyers who then helpfully drove the gold price up further.

US data released yesterday was also quite disappointing which may have driven more into the safe-haven. The data also fuelled a drop in the DJIA.

Reliably the president of the Chicago Fed managed to give the precious metal a boost again when he stated likening the Fed’s bond-buying programme to an ‘energy’ bar for the US economy. This requirement for energy will, according to the president, be required until the Fed are certain the labour market has returned to full strength.

The gold recovery didn’t last too long as investors booked profits after its brief rise. The dollar’s strength was too much for the gold to stay strong against. This wasn’t the only reason for gold’s drop however as the day was yet another day of markets listening to bankers. Not only did Draghi and the Chicago Fed president help affect the gold price, but earlier comments from Fed governor Jeremy Stein over the strain put on credit markets thanks to the easy monetary policy set the gold price on a downward slope.

UBS warned yesterday that those involved with platinum and palladium should approach with caution. Both have reached 17-month highs in recent weeks as investors look at the improving global economic outlook, yet analysts warn that positions might be overstretched and so a consolidation phase may be ahead. This may have begun yesterday as both extended losses

Gold investment for New Year

China’s first solid economic data releases of 2013 appeared earlier. It seems the Chinese rebound is here to stay for the short-term at least, a surge in exports and imports was seen last month and many are suggesting it was not all down to New Year. CPI was down for the year, from 2.5% to 2%

At the weekend, Chinese New Year celebrations will begin, but we need to look out in the gold market. Gold has been trading in a narrow range recently, and for many analysts this means that it is due for a breakout imminently. However, Chinese buyers appear to have been buying on the dips recently but will be on holiday next week. Some support may be found by Japanese buyers who have provided support to the market recently.

MPC meeting

The Bank of England’s MPC met yesterday and, as expected, there is nothing to report. Rates will remain at 0.5% whilst QE will not be changed.

Yesterday the next ‘King’ of the Bank of England, Mark Carney, was up in front of the Treasury Select Committee where he pointed to a new change in style. Carney stated that he believed growth could be boosted in the UK, without creating too much more inflation, ‘as long as it is prepared to be more creative and more flexible.’ Expect targets to be raised, increased flexibility around the Bank’s operations and a change in management style.

Whilst there is no doubt Carney will reform the Bank’s style, we do not expect to see a revolution. Many of the proposals are not so radical by international standards, and some such as inflation targets and money supply are short term changes. We are concerned that after all the changes long-term inflation will remain.

HSBC put out a report yesterday saying that they expect accommodative monetary policies to push gold higher this year. They expect the situation in the US to remain the same for the next year – for inflation to remain low and for the unemployment rate to drop only slightly, both of which will prompt the Federal Reserve to continue on with their current quantitative easing plan until the end of the year.

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