The Daily Nugget: Jackson Hole Day

It has finally arrived, it’s Jackson Hole day! Will Bernanke surprise us? Will the markets be disappointed? Will gold go up or down? Who knows?

It might be like a drug rehab clinic. They’ve all gone to try and purify their ideas. Perhaps some have realised that whilst the opiate money printing (OMP) drug feels good now, the come down is a b***h. But then some cool guy, maybe Bernanke, will stroll in with a big bag of OMP and persuade them all that it’s ok, it’s better to feel good now, deal with the comedown later, or just take more when it hurts.

Having said that, this morning’s early commentaries still appear to be torn in regard to an announcement from Bernanke of another bond-buying programme; weirdly, no-one can predict the future on this one.

Morgan Stanley have stated they have "low expectations for significant news," Goldman Sachs expect to see nothing this year, whilst Michael Woolfolk, managing director at BNY Mellon told the FT, “without explicit evidence of inflationary problems in the core, it is difficult to imagine Bernanke altering his monetary policy outlook in any meaningful way…While Bernanke is expected to confirm the Fed’s bias towards further monetary easing this fall, he has been known to disappoint before.”

On the bullish side many are still harping back to the FOMC’s earlier statement which was strongly worded to imply further stimulus if the economy did not show "significant" signs of improvement. The 1.7% growth, 0.2% higher than expected, seen in the US can hardly be seen as "significant."

Overall, data since the last FOMC meeting has been "better" than expected, whatever that means. The jobless rate still rose last month and for many the growth is seen as too "soft." Whilst Bernanke may announce nothing today and instead may taunt the markets instead, as before, there is still the September FOMC meeting which may provide a window of stimulus opportunity. However, in a recent survey conducted by Reuters, only 44% of fund managers thought the Chairman would announce further QE in September.

The Fed’s dual mandate, of price stability and maximum employment, is in the firing line. Unemployment remains above 8% and "official" inflation below 2%, Bill Gross believes that until the former falls to below 7% and the latter increases to above 2% then Bernanke and his men will continue to "ease quantitatively."

Gold is holding steady this morning, watching which way the eye of the storm is headed. Not only is the potential for QE3 looking likely, the US is fast approaching the fiscal cliff providing another solid reason for owning gold bullion. In February, following the Fed’s decision to keep interest rates near zero until 2014, gold rallied to $1,790.

Some speculate that Bernanke may make a similar announcement today rather than one based on stimulus. Whilst gold may fall if Bernanke disappoints this afternoon, analysts believe this won’t be dramatic and there is good support at $1,620.

They just can’t help themselves
The QE issue has been going on for a long time now and may appear to be the only thing driving the gold price. However, those who have decided to invest in gold bullion know that the fundamentals are not just about central banker’s announcements. As we have written about in the past, we urge those interested in gold investment to ignore the circus which is going on, on both sides of the Atlantic, and consider that announcement or no announcement tomorrow or even in two weeks’ time does not dispute the fact that there will be further monetary easing and therefore debasement in the future.

The picture is not looking any rosier; yesterday global stocks fell for the seventh day, weak economic data from both Germany and Asia caused concern prompting Treasurys to rise and the euro to slide. Spain also continued to delay on making a decision in regard to seeking a bailout. Merkel’s China visit has prompted Chinese Premier Wen Jiabao to consider buying yet more eurozone debt.

Times are desperate for all involved.