The Swami That Dreamt Of Gold

This morning the gold price edged up to near one-and-a-half-week highs on the back of expectations over tapering expectations. Last week the yellow metal gained 3.7% and silver 3.1%, the best weekly gains in two months.

Back in September commentators felt it was a no-brainer that the FOMC would announce a tapering of QE. When that didn’t come about they then reassured us that tapering would come this side of Christmas. Following last week’s debt deal, this is looking increasingly less likely particularly for October’s meeting due to take place next week.

Support
There appears to be little upside support for gold at the moment, with many believing the outcome of next week’s meeting to have been priced in.

Many still believe tapering will happen before 2014, however it is unlikely the FOMC will make any decision to do so before they have received all of the data that shows the effects of the US government shutdown.

Goldman's Outlook
Goldman’s released a note last week with updated commodities forecasts, unsurprisingly, it remains bearish about gold. Even less unsurprising is their expectation that gold will finish the year off ‘close’ to $1,300/oz. Citing QE tapering and an improved US economy, the bank expects the price to fall further to $1,050/oz next year.

However, for those who actually trade and understand yellow metal, sentiment remains bullish. In CNBC’s weekly poll of traders, analysts and strategists which assesses sentiment in the gold market, 52% of pollsters believe prices will rise this week thanks to a weaker dollar and the assessment of the latest agreement over the US’s fiscal situation.

This Week's Outlook
Some expect a weaker gold price this week as outflows from New York’s SPDR gold trust continue. Holdings now sit at levels not seen since 2009. Whilst ETF prices do not have the same impact on gold prices as futures do, this steady liquidation certainly does not help provide support. However, few realise that the gold once used for ETFs remains in high demand, however it is now held for its physical worth rather than the product it is supposedly backing.

Following 2011’s debt ceiling extension there was a 17% rally in the price of gold in the ensuing fortnight. This time the situation is far more tenuous, the US National Debt is now above $17 trillion, further rounds of unprecedented aggressive easing has taken place and ultimately the stakes are much higher. The debt will continue to rise for as long as the US Government continues to spend more than it takes in, with it gold will also rise.

Asia Continues To Use Gold As Inflation Hedge
Whilst many cite lack of support from India, for the gold price, last week HSBC said in a note that they expect Asia to continue to buy gold as an inflation hedge. Economists cited the lack of financial instruments that can be used to hedge against inflation, to Asian investors. According to HSBC forecasts consumer prices in China will rise to 2.7% in 2014 and 3.1% in 2015, (currently at 2.6%). Inflation in India (now at 8.7%) will be 7.7% by 2014 and 7.9% in 2015.

Holy Man Foresees Gold Treasure
Speaking of India, a holy man’s dream might be provide the solution to the government’s current account deficit. Swami Shoban Sarkar dreamt that he found 1,000 tons of gold beneath an ancient temple in the village of Daundia Khera. Media reports state the Archaeological Survey of India (ASI) has sent a 12-person team to the site in question.