The Daily Nugget: Physical Gold Purchases Increase

This morning the gold price is sitting just above its weekly low of $1,759.94, at around $1,763.

As we said in yesterday’s Daily Nugget, gold appears to be in consolidation as the dollar gains strength and the euro continues to cause concern in the markets. A strong dollar has led investors to book short-term profits as well as turn to the currency over the yellow metal as a short-term safe haven. The IMF’s growth forecast yesterday did little to reassure the markets as UK shares also fell for a second session.

Bullion dealers have reported an increase in sales in the last week as the price of gold has retreated slightly in the last few days.

Reuters report that holdings of gold-backed exchange-traded funds continued to climb, having risen to a record high of 74.76 million ounces by 8th October.

Coutts have recommended that investors double their proportion of gold in light of poor growth forecasts. Whilst good advice, lack of growth shouldn’t be the driving factor, the fact remains that governments continue to devalue the money supply. Slow growth does not mean your wealth is more at risk – what you need to worry about more are monetary policy decisions by central banks.

Yesterday British Prime Minister David Cameron warned Britain of its looming "hour of reckoning" and offered up some of the truth of the dangers the economy is facing. He told the Conservative party conference that the "there are painful decisions ahead" and that we cannot borrow our way out of a crisis. The speech came following reports that the UK’s trade deficit widened to more than double its July size in August prompting the pound to fall against the dollar.

Later on in the day Sir Mervyn King, Governor of the Bank of England, staunchly defended the Bank’s handling of the pre-crisis bubble. He did, however, admit that higher interest rates may well have boosted stability, but this would have been too big a "gamble." This does not mean however that he is considering interest rates now, the risk of inflation is obviously not as scary as that of getting some stability into the economy and putting a tough end to this crisis so as to get on with fixing things for the better.

Overnight it has been reported that the Chinese central bank has injected fresh liquidity ($41 billion) into the banking system via a daily operation, in order to bring a boost to the economy. This may well see an increase in gold demand from the world’s second largest buyer as investors turn to their preferred inflation hedge.

After causing some strife in the markets yesterday with their doom and gloom report of the growth of sovereign nations, the IMF have this morning released their “Global Financial Stability Report” which targets the insolvent banking system. Once again they show that economists are unable to predict anything with accuracy, in April this year they told us that the worst case outlook for European banks was a need to deleverage to $3.8 trillion by the end of 2013, today’s report however sees this number now at 12% of bank assets, $4.5 trillion.

Bloomberg have reported on Greece’s gold mining industry, it seems in their sheer desperation the country’s government has finally woken up to the potential of Greece’s mining industry. Never the most efficient country, the government has launched a "fast-track" approvals programme for companies wishing to drill for gold. The country has potential to become a bigger gold producer than Finland, currently the continent’s biggest gold producer. Let’s hope that in more ways than one the decision makers realise the potential gold has when it comes to giving hope and stability to a country in economic strife.

Please Note: Information published here is provided to aid your thinking and investment decisions, not lead them. You should independently decide the best place for your money, and any investment decision you make is done so at your own risk. Data included here within may already be out of date.