Gold Talk: Don't Worry!

Good riddance to February is all I can say. The month signaled the longest run of a fall in gold prices during the entire bull run -- dropping five consecutive months.

February saw the price decline by 5.1%, taking this year’s total fall to 5.8%.

Currency Watch
Should we be concerned for our gold investment? No, but of course we’re going to say that, though it's true. Gold's price is only down in some currencies, and as we’ve said all week, it remains up when priced in JPY or GBP -- the two currencies that are both print happy. Both have been downgraded in the last year on the back of a lack of confidence in the countries’ recoveries.

Looking back over the week, the economic data releases have been excellent: Jobless claims in the U.S. dropped last week, German unemployment fell this month suggesting that Europe’s biggest economy is recovering and Japan’s industrial production in January rose for the second month in a row. Today, two Chinese manufacturing indexes showed the economy expanded at a slower-than-estimated pace.

But once again nothing that supports demand for gold has disappeared. For the last 12 years of the gold-bull run, economic data from the many economies has been positive -- but gold has continued to climb. Why? Because government’s and central banks continue to create monetary systems which are unsustainable.

As we said in today’s MarketWatch briefing:
Many are declaring that there is no catalyst to drive gold forward. They’re right; the bullish drivers of gold haven’t changed at all for several years. Those that pay attention to the markets know that governments embrace easy monetary policy, they know that the euro will continue to have significant problems and they know that currency wars will continue to escalate. This is why gold’s bearish factors – such as improved US data has a greater impact on the gold price.

That doesn't mean, however, that the bearish drivers will succeed in ending gold’s run. Those bullish factors will culminate in such a way that increasing numbers of investors -- and even those who wouldn’t consider themselves investors -- will look for assets that are not depreciating in value and that governments cannot meddle with.

No, the gold bull-run is not over, it just doesn’t need to rush to wherever it’s climbing to.

Indian Demand
In India yesterday, gold investment demand received a boost as the government announced it had no plans to increase the import duty on the precious metal. The gold price has seen the biggest drop in the IDR than any other country.

Gold isn’t the only one to suffer this week as silver fell, poised for its fourth weekly loss while platinum and palladium have fallen to levels not seen since January.

Meanwhile in the U.S., sequestration talks continue and many believe midnight will see the $85 billion of federal cuts come into play.

Easing And Gold
While it seems strange that gold continues to sit below $1,600 during the same week Bernanke confirmed his love for the printing press, we must remember that gold has gained 80% since he turned them on.

Bloomberg’s survey of analysts found them split on gold’s price action for next week -- half were bullish, the other half not so. The latter half were obviously on the side of Goldman Sachs, which declared that we are seeing a turn in gold’s cycle.

Once again the East are showing us up. India’s physical buying has been ‘above average’ this month, while average volumes on the Shanghai Gold Exchange so far this year have been more than double last year's.

According to the WGC, demand from both India and China will increase by at least 11%.