The Daily Nugget: Gold Does Not Care About Fed Minutes

Everyone was clearly convinced the Fed were going to provide, with absolute clarity, what they were thinking in regard to tapering. This is despite them failing to do so every other time markets thought they might do just this.

Obviously the FOMC minutes did not provide any further clues as to when the bond buying programme might be scaled back. The general sentiment of the board was that more data was required and, for some, that it might be too soon to begin tapering. Despite this many believe the minutes indicated that the Fed ‘remained on track’ to scale back purchases should conditions remain the same.

The gold price didn’t really care, before or after the release. In the run-up to the minutes it fluctuated between gains and losses and post-release it originally gained in the first few minutes but then fell very slightly. The SPDR Gold Trust gained 0.5%, despite seeing outflows.

Prior to the FOMC minutes, volumes of the Shanghai Gold Exchange climbed to 10,926kg for gold of 99.99 percent purity, their highest level since August 2nd.

China’s faith in gold
Yesterday’s ups and downs was unlikely to be all about the Fed. Data from China may well have impacted the price. The China’s Purchasing Manager’s Index rose last month, following an 11-month low. Given the country is set to be the world’s biggest purchasers of gold, I expect this additional data will provide further support to the gold price.

The phenomenal gold buying in China and India indicated that the gold price may be bottoming, according to JPMorgan and Bank of America. The latter believes Q4 will see an average gold price of $1,495.

ANZ have upgraded their gold price forecast to hit $1,380 by the end of the year. They do not believe this climb will be based on the fundamentals, but instead thanks to short-covering. Overall, they predict a ‘healthy downward correction.’

One of those fundamentals is supply which will certainly be one to look out for in the coming months. South Africa’s National Union of Mineworkers plans to hold a ballot to see if the gold-miners should strike following the stall in wage negotiations. This is likely to result in shortages which could cripple physical gold demand.

Silver bulls
Silver continues to benefit from both its investment and industrial qualities, both have allowed it to race ahead of gold in recent weeks. Moving more dramatically, either way, to gold is common for the metal. Whilst silver futures climbed 14% last week, it remains lower on the year than gold.

It’s not all bad though, the physical demand for silver (both investment and industrial) is climbing at a record pace. Holdings in the world’s largest silver-backed ETF, i-Shares Silver Trust are up on the year, a stark contrast to gold where holdings in the SPDR Trust fell to 913.52 tons yesterday.

‘Crazy’ Ron Paul?
CNBC reported yesterday that Dr Ron Paul may just have the ‘craziest’ portfolio they have ever seen. They report that Paul’s investment portfolio has a 64% allocation to gold and silver miners.