The Daily Nugget: Gold Price Goes Crash Bang Wallop

Late Thursday morning the gold price went "crash, bang wallop!" in its biggest fall in four weeks, hitting $1,705.64 before recovering later in the day.

Whilst some had foreseen the slump in the gold price, few had expected it to occur as short and sharply as it did – there were no significant news or data releases Thursday to cause prices to drop quickly by $20 per ounce. Some speculate a "fat finger" error, however this was denied by the derivatives market CME. As Lawrence Williams wrote, "talk about ammunition for those who suggest the gold price is being suppressed or manipulated by central banks and allied bullion banks. There seems to be little other logical explanation for this kind of activity."

Silver followed suit and also posted a daily loss, however it did finish above the daily low. Currently the gold-silver ratio is hovering above a two month low of 51.2

Gold and silver have both held their own in the last month or so against a backdrop of political and economic uncertainties across the globe. Analysts agree that Thursday’s sell off should not cause concern to those who have decided to invest in gold.

Whilst some blame Thursday’s fall on worries over the eurozone debt crisis combined with the US fiscal crisis, it was clear that investors remain bullish about gold as holdings in gold-backed ETPs reached yet another record. Physical demand in Asia has been disappointing for this time of year however analysts remain upbeat about gold price in the long-term.

In the short-term, technical analysis suggests that gold could fall to as low as $1,692, presenting an excellent buying opportunity. For this year the gold price is up 10%.

Speculation regarding further stimulus in the US continued yesterday as the Fed’s Beige Book Report showed worries over growth. The Fiscal Cliff was sighted as a cause for concern for manufacturers. Overall, little indication of price rises was seen prompting further expansion of monetary policy.

Japan’s most likely next Prime Minister called for further easing yesterday and a hike in the inflation target from 1% to 2%, as part of efforts to escape stagflation. It is his opinion that people won’t start spending unless they believe prices will rise in the near future.

Today is possibly the biggest day this week for news.
This morning Sir Mervyn King, governor of the Bank of England, will speak at a press conference where he will discuss the Bank of England’s list of perceived threats to the financial system. One area he is expected to discuss is the issue of bad forbearance. Earlier this week he admitted to the Treasury Select Committee that the banks forecasts had been too optimistic, for too long.

In the US we will be looking for GDP data and initial jobless claims. Jobless claims are expected to have fallen somewhat, but it may be a repeat of Thursday where we saw new homes sales tumble following a two-year high, reported just before the US election…