The Daily Nugget: Gold Investment Remains Buoyant

This morning, the gold price has received a bit of a boost thanks to positive data from China and potential political mayhem in Italy. Political and economic uncertainty are causing people to want to buy gold bullion.

Thanks to fresh data from China indicating better than expected domestic activity, investors are feeling more bullish about gold investment. Following on from October’s data showing a cooling in inflation and a revival in growth, November’s figures give further confidence to the markets. This coming Friday may also bring some good news from China as flash PMIs are released.

This week gold investors will be looking out for the Federal Reserve’s rate setting meeting on Tuesday and Wednesday this week. Given the close proximity to the fiscal cliff decision, Bernanke’s press conference and statement is likely to be watched more closely than usual.

Whilst rates are expected to remain the same, analysts are optimistic that the Fed will announce fresh bond purchases of $45 billion a month in order to replace the nearly expired Operation Twist. If they do not continue to support the purchase of mortgage-backed securities then this could prove bad for gold, but the likelihood of this appears slim.

Despite the drop in the gold price last week, and the 25% fall in Goldmans’ gold holdings (thank you Goldman Sachs) prices do remain incredibly buoyant. This is primarily thanks to the extremely slow recovery seen in the U.S. Data last week showed confidence amongst consumers is at a four-month low, unsurprising given the endless fiscal cliff talks and very little improvement in employment levels.

Other US figures to look out for are the data releases for inflation, trade, retail sales and industrial production. Considering GDP is thought to have increased at a slower rate than the last quarter, these figures will be key ones to watch.

This week earlier than usual flash PMIS will be released for China, the eurozone and the US. A quick glance at the figures highlights that readings are expected to have improved somewhat from last month, however the majority remain below 50 indicating no expansion in those sectors.

A report released yesterday from the BIS showed that the number of risky assets investors have turned to in the last three months has increased; pushing up the price. According to the BIS investors felt they had little alternative but to invest in risky assets as "they had little alternative with rates on so many bank deposits close to zero and the supply of other low-risk investment in decline."

An interesting article on Bloomberg has highlighted central banks’ lank of interest in inflation levels. Rather than battling inflation many are looking "beyond this" and instead to "economic growth, employment or financial stability when inflation threats are either not pressing or deemed to be passing." According to Citigroup we are likely to see more central banks follow the Fed’s lead on money printing and inject more stimulus in 2013: "The on-going challenges facing the major economies, coupled with our subdued projections for inflation, suggest that central banks will remain broadly expansionary through 2013 and probably well beyond."

This makes gold bullion investment look like even more attractive.