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The Daily Nugget: Hot Air Predictions

Published 12/06/2012, 06:44 AM
Updated 05/14/2017, 06:45 AM
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This morning the gold price is sitting near its one month low, having still not quite recovered from its "smackdown" on Tuesday night. Silver has fallen for the third day in a row by 0.6%.

Yesterday the dollar remained strong (the Dollar Index gained 0.2%, halting a year-long slump) whilst gold hitting $1,684.93 overshadowed the new record in holdings of gold-backed ETPs. However, as someone said to me last night, he saw the price and thought "Time to go gold shopping!"

Gold price predictions
Yesterday should have been the day when everyone realised that the art of making economic predictions is not an art at all, it’s guess work and not particularly successful.

First up, we have Goldman Sachs who yesterday said they saw gold’s 12-year bull-run peaking in 2013, despite expectations of further stimulus from various central banks including the Federal Reserve. It has lowered its six-month forecast to $1,805 from $1,840. It sees 2014’s gold price to be $1,750. This year’s average so far is $1,668. In 2011 they said they believed the peak would be reached that year, the cumulative average was $1,571.52.

In contrast, Morgan Stanley has listed gold and silver in their top picks for 2013, saying they will outperform other raw materials next year. Morgan Stanley analysts expect the precious metals to benefit from low interest rates, central bank buying and geopolitical uncertainties. They see gold averaging $1,853 next year.

Chancellor fails UK
Meanwhile, here in the UK, we had the pleasure of sitting through Chancellor George Osborne’s Autumn statement. Ideally he should be looking at ways to sort out the mess left from Labour, however he did not go far enough and there were plenty attempts at pulling the wool over our eyes with dodgy figures and funny policies.

Following on from the Bank of England’s admittance that they had been too optimistic over the economy’s figures, the Office of Budget Responsibility has slashed its forecasts for growth and increased its budget and deficit expectations. Yet, for many, they remain too optimistic.

Optimism is, however not having the desired effect, growing media attention on the impact of the UK economy on real people is finally picking up traction. For all the talk of low inflation, it seems families are truly beginning to feel the pinch. However, surveys show that they majority of respondents believe this is down to so called "austerity" measures, of which in reality there are very little. People are also under the impression the debt, rather than the deficit, is being reduced.

Peter Oborne beautifully expressed what I think many are thinking today:

The brutal and very frightening truth is that all our politicians either do not understand the scale of the problem or lack the courage to respond to the demands of an economic situation that is far more hostile than anything we have seen for at least 70 years.

This failure of vision is not just a British problem, and to be fair to Mr Osborne his record has so far been superior to the finance ministers of many other nations, including the United States and most of mainland Europe. Probably it is simply impossible for democratic politicians to cope with the fundamental challenge much of the West now faces.

All in all, a bad day for those making predictions and a worrying day for those who believed Osborne’s speech.

EU recession
In the EU, thoughts of a recovery were dashed as figures showed services PMIs were below 50 across the region, indicating further contraction. Retail sales also fell further than expected across the single currency area indicating a recession. A purchasing managers’ survey showed private business orders were also down, suggesting a loss of confidence in the region.

Today markets are watching for a decision from the ECB policy meeting, whilst the Fiscal Cliff (from which no one seems to be shifting) is still the main focus. No rate change is expected from the ECB’s current 0.75%.

Following on from the Autumn Statement, the Bank of England’s MPC will meet today. Interest rates are expected to remain at the current low of 0.50%.

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