The Day Ahead: Gold Inches Higher

The Bank of England released their quarterly inflation report yesterday. As expected, they reduced their growth forecasts – to 0% for the rest of 2012, down from 2%.

They gave no hint of further action to be taken, however charts show the BoE expects inflation to fall below target in the next two to three years suggesting that they may then take further measures. Analysts yesterday acknowledged that they are fully expecting further QE, perhaps before the end of 2012. Yet another bullish move for gold is on the horizon.

Most concerning about the entire press conference following the report’s release was some of the suggestions from the mainstream media. BBC Newsnight’s Paul Mason asked if it was time for ‘Plan B’ – where the central bank would basically fund government spending, whilst Jeremy Warner asked if a ‘helicopter drop’ might be a good idea….umm…Zimbabwe anyone?

Ed Conway of Sky News asked the Governor if considering how many times the Bank had been spectacularly wrong over recent years, it may finally have come to the point where the markets and British citizens will no longer trust anything they say.

It seems Mr Conway was onto something as it seemed yesterday was the day when the markets may have begun to clock that the authorities may not have a big enough ‘bazooka’ to fix these struggling economies. However the British pound did gain on the back of the inflation report.

Amongst all the charts, the lack of predictions and the backtracking, all the Bank of England’s report indicated was that they have no idea what they are doing. All they can do is point the finger of blame towards the Eurozone and changing energy prices, which, let’s be honest, won’t be changing for the better any time soon. They continue to treat the symptoms of the epidemic rather than the cause.

France’s central bank also confirmed that QE3 would likely see the economy fall into recession.

Meanwhile in the US yesterday Ben Bernanke in so many words confirmed that student loans will be the next financial stability issue.

The lack of imminent action from central banks and rate-cutting prompted investors to shed ‘riskier assets’ with a fading of the three-day rally in world equity markets and a fall in the euro.

The day ahead

European stocks are expected to carry on their two-week rally today as figures from China indicate a 30-month low in CPI promoting speculation of further policy easing to boost growth. Gold has inched up immediately following this release.

As yet another government fights debt with more debt this will prove bullish for the gold price as Chinese investors are fully aware of the dangers of such inflationary measures.

In other news, the Telegraph reported earlier this week of the unprecedented custom cash-for-gold shops are seeing in Italy as citizens desperately realise chattels and assets for cash. Whether this gold is then smuggled or illegally carried over the border to Switzerland it is unclear but gold is now becoming Italy’s fastest growing export.