Daily Nugget – Gold’s Week Ahead

Despite some choppy trading today, both gold and silver remained strong against a backdrop of a strong dollar, US stock indexes and rallying Asian and European stock markets. It seems investors are getting the taste for risk back, which is posing a bearish threat to both gold and silver.

Bad news for those in the US looking for cheery factory orders data. The most miserable of them all was the change yoy in factory orders (excluding transport), the best indicator of overall business spending, which saw a -0.2% nominal drop in December, the first decline since July.

Some significant numbers will be coming out of China this week namely services PMI on Tuesday (will be published for the rest of the world) as well as inflation and trade data on Friday. Both CPU and exports are expected to have declined in December.

Markets will be looking towards the ECB meeting on Thursday which will indicate what role the declining euro is set to play in these escalating currency wars. We do not expect any change in policy given the improved flash PMI data earlier in the month which reflected the ‘positive contagion’ referred to by Draghi, something which is apparently helping the region to recover. This is of course despite recent profit taking in the euro thanks to Spain’s political issues.

We do, however, expect some indication in the ECB statement of a further rate cut in March.

Speaking of the Euro, leaders will be meeting to discuss the budget for 2014-2020. Do not expect this to lift the markets, but it is likely to reaffirm confidence in the Eurozone’s ability to work together and resolve various disagreements.
Chinese gold investment

On Saturday China will begin their week-long Lunar New Year holiday, despite Chinese purchases being slower than in previous years, we expect physical buying to support the gold price this week but do not expect it to push the price over the psychologically significant $1,700 mark.

Reuters reported earlier today that fund managers are cooling their enthusiasm for gold as ‘economic fears recede’ however the last four days have seen European stocks fall the most in six-months whilst new predictions of US Q4 GDP have been released from various banks, all of which show downward revisions (unsurprising given last week’s ‘shock’ GDP release from the US).

Data releases and policy decisions remain a mixed bag of slight recovery signals and then no recovery at all. Unfortunately it comes down to personal judgement, as to how much exposure to gold you have, but you should have some. I personally feel that the gold price is quite boring at present but then one needs to remember that prices are in an 11-year uptrend.

It seems that as money managers become less pessimistic about the economy, they are favouring platinum and palladium over the other precious metals. Today platinum has risen to a near 4 month high whilst palladium has risen to a 17 month peak, both have outperformed gold and silver in the last month.

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