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Why Bad News in the World is Good News for Gold

The U.S. Comex gold futures shot up 1.97 percent to $1,670.60 on Thursday, up 3.3 percent so far this week. Gold futures broke their 200-day moving average on 21 August, a bullish signal. The precious metals block performed very well this week, with silver futures up 8.7 percent to $30.542, and the platinum futures up 4.91 percent to $1,554.90, owing to the mine violences and strikes in South Africa. The CRB Commodities Index also rose 1.24 percent this week. However, the S&P 500 Index has fallen 1.13 percent by Thursday, the Stoxx 50 has declined 1.71 percent while the Emerging Markets Equities Index has dropped 0.31 percent.

Gold price was ignited when the U.S. Fed released its FOMC meeting minutes from the 31 July meeting, where many members favoured monetary easing “fairly soon” unless the U.S. sees a stronger recovery. The recent weaker U.S. data, ranging from lower consumer confidence, and higher job claims than expected, as well as an unemployment rate stuck at 8.3 percent, are clearly of concern to the Fed, who seems to want to take more actions.

Elsewhere, the Eurozone Markit Economics PMI index contracted for the seventh consecutive month in August, while the July business confidence in Germany fell to a two-year trough. In China, the August preliminary HSBC PMI index dropped to 47.8 from 49.3 in July. Without the need to see more data, Charles Evans, the Federal Reserve Bank of Chicago President, urges central banks around the world, including China and the U.S., to conduct more monetary easing.

Bloomberg reported that gold ETP holdings surged 46.9 metric tons so far in August, and rose 85.5 tons in 2012 to reach 2,442.3 tons. Gold ETP holds the fourth largest gold reserves in the world, after the U.S., Germany and Italy.

With the momentum turning positive for gold, and the 14-day RSI breaching 70, some technical analysts worry that prices may dip. The gold price will continue to be impacted by expectations and the eventual realizations, or not, of QE3 from the Fed, or more monetary easing from China and Europe, which will fuel inflation.

Important upcoming data and events will include the U.S. July durable goods new orders on 24 August, the Samaras-Merkel and Samaras-Hollande meetings on 24 and 25 August, Germany’s August IFO on 27 August, and Fed Bernanke’s speech at Jackson Hole on 31 August.

Austin Kiddle
Sharps Pixley, London

24 Aug 2012 | Categories: Gold

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