The Daily Nugget: The Week Ahead

Gold gained yesterday for the first time in 3 days over here in London. Many analysts are attributing this to the worsening Middle East situation and unresolved fiscal discussions in the US. Silver is, however, the one impressing everyone.

Last week the gold price posted a disappointing weekly loss thanks to pressures of the eurozone recession and disappointing news from the US in regard to economic data and Bernanke’s housing market outlook.

Usually gold has an adverse relationship with the US dollar, however as S&P 500 equities fell towards the end of last week fears of investors being forced to sell gold on the back of leveraged accounts remained high, placing pressure on the gold price.

Monday morning however gains made by the US dollar eased somewhat as fears regarding the fiscal cliff resolution and Middle-East problems are providing support to the gold price. In the long-run, failed fiscal talks, as we saw last year, are likely to send gold to high, of not new, levels.

Holdings in gold-backed exchange traded products reached another new high on Friday. Net long positions in U.S. silver edged up to 27,802 contracts from 27,350 contracts the previous week which had been at their lowest since August.

The week ahead for gold investment
Those looking to buy gold have their eyes on further stimulus announcements from the Bank of Japan meeting later on. Expectations of further easing are high, considering they have shown little restraint in the past.

On Thursday British PM David Cameron will be meeting with EU officials in Brussels to begin "hard-line" budget talks. Whilst many Conservative MPs want to see a cut in the budget, Cameron is expected to go for a freeze in real terms. Boris Johnson has told Cameron to take his handbag and blue suit in order to channel his inner Margaret Thatcher to help him take a hard line with those pesky EU officials.

Whilst many, both within the British Cabinet and elsewhere, are against upsetting (and, gasp, exiting) the EU they may feel slightly different after the flash PMIs are released during the course of the week. Last month’s signalled some slwoing in global economic activity, down to as low as mid-2009 levels.

Germany’s manufacturing and services PMI, as well as IFO business confidence index are expected to show a far worse economic situation in the EU’s largest economy, than official data released earlier in the month has shown. Speaking of Germany, their finance ministry has told the press there is no guarantee of a decision regarding Greece’s aid package by tomorrow, as had previously been expected.

Minutes from the Bank of England MPC policy meeting will be released later this week. This will give an indication as to how big the appetite for QE is. Given the ONS’ recent CPI report implied "back-door" inflation on some products it will be interesting to see how the MPC are perceiving inflation’s impact on the general public.

Given China’s announcement of leadership and economy chatter last week, many will be paying attention to the manufacturing PMI data released on Thursday. Last month we saw a three month high suggesting hopes that the slowing down of the Chinese economy had begun to bottom out. This was in comparison to both the US and eurozone who continue to disappoint markets.

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