The Daily Nugget: Gold's Retreat

This morning has seen both gold and silver gain some ground after a fairly dismal start to the week. News regarding Spain and Germany’s improved business sentiment appears to have helped the precious metals' slight climb.

Holdings of gold-backed ETFs also began to recover Tuesday to just below last week’s record high of 74.793 million ounces.

Downgrade Helps
Last night, Moody’s stopped just short of downgrading Spain from its Baa3 rating, however it has moved to a negative outlook. This helped to boost the euro against the dollar, helping the price of gold. The euro climbed to a one-month high and the dollar-index to a near two-week low.

Hopes seem to be pinned on Spain asking for financial help, this would see it become eligible for the ECB’s bond-buying program, which in turn would see a boost to the euro in the short-term and a weakening of the U.S. dollar.

Tuesday’s economic data from the U.S. did little to boost the gold price as there were few surprises to provide direction for either gold or silver. However, the data did show that the economy has got some tough headwinds ahead of it, not to mention the fiscal cliff that everyone is pretending they haven’t seen.

Eyes On EU Summit
Because of Tuesday’s uneventful data releases, focus now returns to action in Europe ahead of the EU summit Thursday, as well as further GDP data from China.

Here in the UK, CPI data showed inflation dropped by 0.3% from 2.5% in August. This is thanks to a slower increase in energy prices this year which helped to cover up the increase in inflation in recreation and culture, and transport. Analysts appear torn on whether this is a sign of inflation finally heading below 2% after 30-months above, or if this is the last of the good news for some time to come. As we explained last week, inflation is a phenomenon which can sit and brew for some time before heating up the economy.

Minutes from the recent MPC meeting of the Bank of England have been released which shows the members voted unanimously on both the holding of the Bank Rate and the continuation of the £375bn asset purchases. Some discussion was had as to whether further easing would be required in the future.

Just A Pullback
The recent pullback in gold is just that -- a pullback rather than gold losing its lustre, as so many would like us to believe. Other analysts believe this potentially gives us a nice opportunity to buy gold bullion prior to further economically poor decisions from governments. Whether you believe the gold price has climbed thanks to expectations of severe inflation, or because of the failure of governments to produce growth and we are heading down the deflationary route, the fact remains that we are not yet seeing the end of gold.

Fascinating stuff from Chris Becker of Mises SA yesterday who highlighted some interesting parts of the Reserve Bank of Zimbabwe’s mid-2012 monetary policy statement in which Gideon Gono basically admitted that his money printing strategy, which he states ‘were exactly the mould of bail-out measures and quantitative-easing measures currently instituted in the U.S. and EU’, has only lead to hyperinflation and misery. As Becker suggests, perhaps it’s time we turn our attentions to Gono, who seems to (slowly) be learning from the past, unlike Bernanke or Draghi.

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