What does gold want at the moment? It seems since the Cyprus bail-in was decided it has been unimpressed by most goings on. Even the significant yet disappointing U.S. data releases this week have not been enough to pick it up from its consolidation phase.
All week analysts have been looking forward to today’s U.S. jobs data (arguably the most important release of the month) and how gold will react. The non-farm payrolls data is expected to show 200,000 jobs were added last month, down slightly on the 236,000 February. Overall unemployment rate is expected to remain unchanged
Strong numbers will see investors turn to the alternative asset classes as they become more attractive in an apparently recovering economy. Rumours abound that the numbers won’t be as good as predicted, if so then this will go some way to helping investors and Fed officials that this quarter is likely to be somewhat weaker than Q1 prompting a weak dollar and equities. In turn, good news for gold.
Gold ETFs have seen quite an exodus in the last quarter which has not helped the gold price. Physical gold buying has picked up this week as bargain hunters rush in, however a Bank Holiday in China yesterday and today will certainly not help support this.
Sabre rattling from North Korea seems to have little impact on the gold price at the moment. This suggests that few investors see a real threat in the on-going rhetoric, however should this turn to full blown military conflict then gold will clearly react accordingly.
Yesterday gold failed to react to news of Bank of Japan’s unprecedented monetary stimulus hitting a ten-month low by the end of the day. They announced they are to buy 7 trillion yen of bonds per month. At end 2013, amount outstanding will be 140 trillion yen.
This is an underlying catalyst for the gold-bull market. If you bought gold in Yen then you are sitting pretty at the moment, it is the only currency in which gold is currently up on the year.
However, given gold’s less than stellar reaction to the Bank of Japan news, don’t be surprised if it reacts in a similar fashion to a below-par non-farm payroll data release.
Yesterday we were asked to give three reasons why should be going down at the moment:
- No major reason. The market is tired. It’s more of the same old yabbering from politicians, mediocre data releases and little action in currencies and so there’s nothing to particularly grab onto at the moment. Yes BoJ are printing, yes the euro zone is still struggling, yes the U.S. data seems up and down but really there is little news to worry people more than they are already.
- The paper market is many, many times bigger than the physical. The paper is driving/manipulating the price at the moment as investors jump from paper gold to other asset classes. Those interested in physical, as a safe haven, continue to hold on and those who are buying physical are only managing to slow down the price decline rather than push it back up. Paper gold is not a safe-haven.
- Many people, wrongly, assume gold only goes up when the bad stuff is hitting the fan. So when data etc isn’t looking quite so dire, gold is sold. A bad move given gold’s 149% rise between 2003-2007 (pre financial crisis, global GDP was 4.8%)
We were then asked to give three major reasons why it shouldn’t be going down:
- Sovereign currencies aren’t going up in value, and have failed to do so for over forty years. Gold has not changed/expanded supply etc, its role as money and an investment has not changed
- No central banker has yet managed to really show we are on the road to recovery, explain how they will reign in QE or if they even know that it will come back to bite them…hard.
- Individuals continue to see their savings disappear, their daily lives cost more and their pay checks no longer stretch as far. They should be asking who and what is causing this, especially when 1% improvement in some data set is being shown to them as a sign of a recovery. The average Joe is not experiencing any recovery or good news, and they should be looking at ways to secure their money. Especially after Cyprus showed what could be done by the banks and politicians.
Yesterday we were shown what capital flight really looks like when a car crossing the Swiss-Italian border, into Switzerland, was intercepted. Gold bars weighing a tonne were found in a compartment under the car’s false floor. The owners, clearly concerned over capital controls, deposit confiscation As Zerohedge points out ‘the confiscated product was gold: not euros, not Cypriot euros, not dollars, not palladium, not bitcoin… gold?’
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