The Daily Nugget: King And His Men Get It Wrong Again

The gold price managed to break free of its three-day decline this morning, just ahead of a Deutsche Bank report stating gold will most likely go above $2,000 next year as more investors buy gold as a hedge against inflation.

The yellow metal is still set to clock yet another consecutive annual gain, for the 12th year in a row as governments continue with loose monetary policies and the global recovery lacks bite. Last week holdings in gold-backed ETFs reached record levels. However, Deustche Bank’s analysts warn us that “the outlook’s pretty positive for gold but people shouldn’t expect too much, we’re dealing with a market that’s fundamentally long…the rally’s becoming more mature.”

Yesterday’s continued decline is thanks to limited buying interest following a stream of negative eurozone data and continued disagreements amongst Greece’s lenders.

Early yesterday silver futures hit a new three-week high. Resistance is expected to be seen at $33.50.

Key announcements for gold investment
Later on, those interested in gold investment will be watching President Obama’s news conference. Here he is expected to field questions about negotiations of the looming fiscal cliff.

All eyes will also be on Japan, late tonight. The pressure for the central bank to implement yet more easing is growing one again, all against the backdrop of a political power shift following Prime Minister Yoshihiko Noda’s offer to dissolve Parliament tomorrow.

This morning the Bank of England has predicted growth of around 1% for the next year, re-adjusting the previous forecast of 2%. In his last quarterly report before his successor is announced, Sir Mervyn King acknowledged the difficulty of stimulating private demand when a significant amount of trade is with the eurozone – something which is out of anyone’s control.

The sombre report from the Bank has put a small dampener on earlier news from the ONS that unemployment has fallen by 49,000 to 7.8% thanks to youth employment.

Unsurprisingly the Bank has now changed its mind on inflation and has acknowledged that it is unlikely to move back towards its target of 2% in the first half of next year, and instead will begin to do so in 2013.

We wonder how many more times predictions will have to be reversed by the Bank of England.

UK will suffer from Eurozone fallout
According to a new report from Jim O’Neill of Goldman Sachs we should not be surprised at the UK’s struggle to increase growth to levels seen pre-crisis. Our trading partners are mainly economies similar to ourselves – wealthy and low growth – such as the Netherlands and France. Our trade with these countries is significantly greater than with those emerging countries such as China.

Germany on the other hand is less likely to feel as a big a bump from the collapse of the eurozone than we are, as their businesses are becoming less reliant on other eurozone countries. By 2020, O’Neill projects less than 34% of trade will be with the euro area, whilst trade with BRIC nations will be over 20%.

Germans are the most active private investors of gold in Western Europe. As they develop their trade with China, who are (unofficially) trading and storing in gold, this is likely to come in handy. Perhaps as real inflation climbs and the economy stalls Brits should be looking to their European contemporaries for inspiration.

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