The Daily Nugget: Gold Breaks Euro Record

After a disappointing day on Wednesday, the gold price continued to shine and hold its own yesterday as it hit record prices in both euro and Swiss franc. It has rallied 14% in euro terms this year, according to Bloomberg, and 13% in US dollars. This week it is headed to make the biggest quarterly gain, 11%, since Q2 2010.

Silver is also set to make new records as it too is set to post its biggest quarterly since Q4 2010, a rise of 26%.

Analysts are now less convinced that we will see a sharp contraction in gold to $1,750 as in the medium-to-long-term the stage looks set for gold’s fundamentals.

The markets were able to relax slightly yesterday, for the time being at least, as Spain unveiled its austerity budget for the upcoming year. It was seen as a move which has paved the way for an EU bailout which gave the markets a feeling of slightly firmer ground; the euro firmed against the US dollar.

Further rumours of stimulus from the Bank of England during the next quarter started doing the rounds yesterday as output figures for Q1 and Q2 were revised, yet again, to show GDP fell by 0.4%. This is now the third revision of the UK output data, so who knows what the next revision will say. How policy makers, and the MPC, can base policies around such sloppy statistic assessment I do not know. The UK current account also saw its biggest ever deficit in Q2 reported, of £20.8bn – the largest ever in money terms but also as a percentage of GDP – 5.4%.

In France today, President Hollande, will show to us just how much he has no idea how an economy functions when he unveils the country’s first socialist budget in over a decade. The government is expected to raise taxes by 20 billion euros ($26 billion) next year, this includes a levy of 75 per cent on incomes over 1 million euros.

Next week is a national holiday in China and so last-minute buying has started today, the last day of trading. Investors remain bullish as the gold forward contract on the Shanghai Gold Exchange traded up 1 per cent.

As we head into Q4 gold investors can usually place faith in India and China to support the gold price, however gold demand is yet to pick up in India, having seen record rupee prices for gold earlier in the month. This year has been a difficult year for India gold buyers as the government work against the national psyche to persuade people to not invest in gold, whilst jewellers were also on strike earlier in the year.

The gold price was also helped after both news of a further liquidity injection from the PBOC into China’s financial system and weaker than expected data from the US economy. Like the UK, the US suffered from statisticians’ revisions over GDP estimates.

This morning, early morning data is showing a weakening in German retail sales, greater than expected, however Italian PPI has beaten expectations. Just goes to show that numbers cannot always portray the health of an economy.

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