The Daily Nugget: Gold Continues Its Eastbound Journey

Yesterday platinum lost its premium over gold, dropping to as low as $1,580. This morning it is on par with gold, around $1,596 at the time of writing. The white metal is experiencing weakness in Japanese markets on the back of a stronger yen. Whilst issues such as supply and increased demand in China will support platinum, in the short-term it has broken past a key level of $1,600 and it may push lower over the next week or so.

Holdings in platinum backed exchange traded products, remains at an all-time high. Things are looking particularly good for palladium, which is causing particular supply concerns. Rumours over Russia’s exhausted reserves were confirmed last month when their exports were reported to be zero.

Gold investment in the East

Gold climbed yesterday on the back of concerns over Italy’s election outcome, as it seems the country is pushing back on Monti’s austerity measures. Elsewhere in the Eurozone, German business confidence rose to a 10-month high, but this did not do enough to stop the Euro from falling.

In China, gold buying from Singapore helped to support the gold price. The increased demand, following Lunar New Year is despite the country announcing an increase in internal supply by 12% last year. Consumption of gold increased by 9.35% in 2012, and it set to continue this year.

In India, gold prices fell as buying slowed down, buyers are said to be waiting for the next correction in both gold and silver prices.

The IMF has announced that central banks in Russia, Kazakhstan, Turkey and Azerbaijan increased their official gold stockpiles in January. Russia added nearly 400,000 ounces of gold to its reserves in January. This and the China news clearly proves what we have been speculating for a long time, gold’s move from West to East.

Gold price and fundamentals

This morning Goldman Sachs have announced a downward revision of their 3-month gold forecast, explaining that the price cycle has turned and the bull-run is coming to an end. The bank reduced its three-month target to $1,615 an ounce from $1,825 and lowered the six- and 12-month forecasts to $1,600 and $1,550 from $1,805 and $1,800.

In contrast, Morgan Stanley released a research note citing currency debasement and rising inflation as reasons to invest in gold.

For those still concerned about gold’s descent into the death-cross, this interesting article on market watch should put your mind at rest. Author J.J. Zhang, looks at gold’s performance during and after death-crosses and concludes that ‘recent gold crosses are short lived and prices recovered soon after.’

Central Bankers wade in

Central Bankers have been getting vocal again about what banks and central banks should be doing. Future Governor of the Bank of England, Mark Carney, has called for banks to ‘focus on their core-values’ and says that the ‘too-big-to-fail’ belief has dealt a ‘fatal blow to public trust in the financial sector.’

Meanwhile Jens Weidmann, ECB hawk, has warned that the ECB needs to get back on the path of being a traditional central bank who manages monetary policy, whereas at present is veering too close to fiscal policy.

As we said yesterday, look out for Bernanke’s congressional testimony today and tomorrow, to see his thoughts on monetary policy.

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