The Daily Nugget: The Week Ahead, Where Did The Gold Price Go?

So, last week The Daily Nugget got it wrong, we expected support for the gold price to be found at $1,730 but instead it fell straight through and reached a low of $1,714.20 before closing at $1,720.50. This morning at the time of writing gold prices sit at $1,721, having hit a one month low earlier on to $1,713.

Some analysts expect to see more choosing to buy gold, as part of the Indian wedding season, should the price of gold hit $1,700. As we have seen this morning, there is still support for gold between $1,700 and $1,725.

Silver prices followed suit, and over the course of Friday it moved over a dollar. It saw a low of $31.83 and finished at $32.07, this morning it’s at $32.11.

Last week and the week ahead for gold prices
It appears people are getting more nervous the longer gold doesn’t make new gains after the climb seen post QE3 announcements. Recent (too be good to be true) US data has put a halt on expectations of a lengthy round of money printing. Also, with the US election just three weeks away, it seems many buyers are hanging on to see the outcome before making a decision to buy gold bullion.

The fact is, like any election, this one will prove to be highly inflationary as election promises are seen going to into action boosting the velocity of money.

Speaking of the US, the highlight of the week is, of course, the FOMC meeting which will take place over Tuesday and Wednesday, with Bernanke due to speak at the end of it. Many analysts and market commentators are expecting the Committee to adopt a "wait-and-see" approach given last month’s meeting outcome and the end of Operation Twist on the horizon in December.

US Q3 GDP forecasts are due on Thursday; this is expected to show a small improvement on the last quarter, something else which could influence the FOMC’s decision.

The EU summit last week turned out to be a massive non-event in terms of market reaction, the dollar did make some gains against the euro however which faltered on low expectations of the summit. This morning European stocks are a mixed bag.

Draghi is due to give a speech to German Parliament on Wednesday which will review the outright monetary transaction plan and its implications on sovereigns of the eurozone. He might be slightly less prone to his usual ‘we will do whatever it takes’ line of prose, given his audience and may adopt a slightly more hawkish approach.

Japan’s export data has come in worse than expected which has caused Asian stocks to suffer this morning. On Saturday the economy minister said how the government needed to do more to fight deflation and issue yet more monetary easing policies. Yet another example of how long the impact of poor central bank decisions can be dragged on for.

This week manufacturing and services PMI data will be released for several countries, including China. Last month’s HSBC manufacturing PMI reading for the country was 47.9, under 50 indicating the manufacturing sector is in decline. Should the reading come in below 50 once again will promote speculation of monetary easing.

China announced earlier that its cabinet had asked policy think-tanks to think up their most drastic reform proposals in the hope of implementing their most radical structural reform process yet. This comes ahead of next month’s decision on the change of the "once-in-a-decade" leadership of the Communist Party.

Change or continuity in the gold investment market?
The change in Chinese leader, combined with the US election and oncoming fiscal cliff is likely to explain the hang back in the gold price and disappointing performance in the last month. With the risk of sounding like a broken-record, the last twelve years of gold’s bull run has seen several pullbacks in the price before it gains more breath to run again. This seems like exactly what we are seeing right now and, as the economic and political calendar show, there’s still quite a run to be had.

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