Daily Nugget: Gold Defies Taper Talk

This morning the gold price got off to a shaky start, despite having made small gains in the previous session. The price edged up to a one week high, however trading remains subdued as, unsurprisingly, investors and speculators remain fixated on the FOMC’s meeting next week. Once again there is the expectation that the results of the meeting will give further indication over future monetary policy decisions.

As a result of tapering expectations the volumes in both the futures and physical market remained thin. However, the price has rebounded from its low on December 6th of $1,210.61, its lowest since July 5th. Also, volumes didn’t disappoint everywhere; physical volumes on the SGE rose to 14,063, the highest since November 28th.

A weak dollar

The one week high came thanks to a weak US dollar, which, according to a research note from HSBC, is likely to remain for some time. The strong euro topped a five-year high against the yen, and hit a six week peak on the dollar as markets saw the likelihood of further stimulus from the ECB wane.

The weak dollar is likely to provide some support for the gold and silver price, however the ongoing, endless and boring speculation over tapering will no doubt keep the paper gold price in a tight-trading range for the short-term.

Dectaper debate

Should tapering be announced next week, gold will no doubt fall but to what extent is up for debate. Many analysts and commentators, including this one, believe that the majority of the tapering has already been priced into the gold price. Consider, for all the tapering talk yesterday, gold continued to make small but significant gains.

In the usual manner, the Fed has been rolling out the occasional Fed President to provide some ‘useful’ insight. Yesterday it was the turn of St Louis Fed President, James Bullard. He stated that the odds of seeing a ‘Dectaper’ are now higher following the improving job market data, as seen in Friday’s non-farm payroll data release.

He argues, however, that the cut in QE should be modest, “a small taper might recognize labour-market improvement while still providing the committee the opportunity to carefully monitor inflation during the first half of 2014.”

A recent Bloomberg poll showed 34% of economists that that due to the apparent improvement in the US labour market, the FOMC are likely to start dialling down the $85 billion in asset purchases in December rather than wait until either the January or March meetings.

In a Barclays note yesterday, clients were advised to short gold after March, their target period for any change in the stimulus package.

Dallas Fed President Richard Fisher was also on hand yesterday to provide yet more dovish thoughts on the issues of Dectaper. He told an agricultural group in Chicago that the FOMC should look to taper as soon as possible. He also argued that the Fed should stop ‘changing the goalposts’ for raising interest rates. Previously there have been discussions over changing the unemployment threshold for considering a rate rise. Fisher believes it should remain at the current level of 6.5% unemployment.

Russia churns out the gold

These days, any talk of gold production often comes with a sharp intake of breath and a muttering of concern over production costs seems gold miners in Russia aren’t so worried. Data released yesterday shows gold production rose by 12% in the first ten months of the year.