The Daily Nugget: Gold Price Awaits Anxiety

The gold price hit a new monthly low yesterday of $1,703, its biggest decline in three-months, before the low price spurred investors to buy gold ahead of the FOMC announcement this afternoon. This is expected, the gold price often shows small signs of volatility prior to a Fed announcement. However no change in Fed policy is expected given the close proximity to the elections and the desire to remain as apolitical as possible.

This morning the gold price had recovered to the USD at the time of writing, partly driven by the Indian market which remains robust this week and is looking to take advantage of the low prices. Silver also recovered from lows seen yesterday. Gains may not be significant in the precious metals, if they remain at all, given the strength of the US dollar which rose for the fourth straight session yesterday. Few are expecting gold to make any significant gains prior to the US election on November 6th.

Holdings in gold-backed exchange treaded products remained near their October 11th high of 2,583 tonnes, at 2,581.9 metric tonnes yesterday.

Data gives gold price small lift
In the early hours of this morning, HSBC released its report on China’s manufacturing sector, its PMI reading of 49.10 was an improvement on earlier reports, and a three month high. It indicates some slowing down of the economy’s downturn and recovery in the global crisis. This briefly lifted the gold price but has not made a lasting impact.

As we write Markit’s flash PMI figures for France and Germany are coming in. Only France’s services sector has bettered forecasts whilst readings for manufacturing and services in Germany indicate contraction in both sectors. Yesterday the euro dropped on the back of weak economic Spanish and French data, however it has recovered slightly this morning.

Central bankers defend themselves
Speaking of the euro, Draghi is due to address the Bundesbank in the hope of garnering support for his Outright Monetary Transactions plan. Considering some Germans have not exactly kept schtum about their thoughts of this plan going against the orthodoxy on which the euro was built, this may well be a tough gig for Draghi. The man is seen as untrustworthy by 42% of Germans whilst the Bundesbank has openly opposed the OMT plan.

Sir Mervyn King addressed the South Wales Chamber of Commerce yesterday; the main headline was that the central bank stands ready to inject more cash should the recent signs of positivity in the economy begin to fade. However the focus of his speech seemed to be towards Lord Turner, whom we discussed last week, King disagrees with his suggestion the bank cancel the bank’s holdings of gilts.

King also disregarded implementing Friedman style QE, as it is "irreversible" and reminded the government that QE was not there to support public spending ‘nor to help them relax about the deficit. Given the bank is set to come to the end of its July implemented round of QE, we await November 8th (the date of the next MPC meeting) with interest.

Buy gold in the October sales
Whilst it may feel by many investors that October is treating you badly, it is important to remember that the gold price is up 9.1% this year, and silver by 14%. Whilst we will always refer to gold as a safe-haven asset, it is clear many investors are growing concerned about which way gold will go – whether it will remain a safe-haven or begin to follow other raw commodities.

Gold has always acted extremely well as a safe haven over a long period, however it only shows its true colours when anxiety in the markets is high. At the moment things are only slightly worrying investors, therefore gold is having a little pullback until the next phase of anxiety.

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