The Daily Nugget: Yellen Does Nothing For Gold

The gold price fell to its lowest in a week yesterday as the US dollar climbed from 8-month lows on the back of Obama’s meetings with lawmakers. Many were surprised at gold’s fall given Yellen’s appointment is expected to be a bullish underlying factor for most markets, including the precious metals. Market speculators are clearly convinced Democrats and Republicans will meet some kind of resolution by October 17th, hence why gold has so far failed to catch any of the so-called safe-haven demand. The price of gold remains below the pre-shutdown level of around $1,340.

The FOMC September minutes contained few surprises, instead reflecting what regional Fed presidents had been saying in previous weeks. Many committee members expect to see tapering go ahead before the end of the year, however there does appear to be a fairly even split between doves and hawks. Concerns were expressed over recent shocks in the US such as the budget impasse and looming debt ceiling. It is important to note that the FOMC minutes were recorded prior to the prolonged US government shutdown.

The mention of tapering in the minutes will not have helped gold’s case amongst speculators. However the nomination of Janet Yellen does not exactly inspire confidence that QE will soon be a thing of the past. Yellen’s nomination was certainly not seen as a surprise, particularly since Lawrence Summers pulled out of the race a few months back.

Whilst Yellen is seen as a dove, this is very much how many FOMC members will be viewed until official inflation figures rise and employment numbers improve. Dennis Gartman observed that the nomination brings some much needed certainty for the US economy at a time when it feels that there is anything but.

Morgan Stanley were the latest to join the gold bear parade yesterday as they released a forecast that gold would extend losses into 2014. The bank believes gold will average $1,313/oz next year, a fall in over $100 from their 2013 forecast of $1,420 (which by the way the gold price average for 2013 is $1,453). The given reasons for a further fall in the gold price were the rising of real interest rates and the US dollar.

Head of Commodities at Barclays, Kevin Norrish, responded to Goldman’s calls that gold is a ‘slam dunk’ by arguing that the current environment makes gold a sensible asset to hold.

Yesterday silver climbed to $22.49, its highest since September 20th. Silver-back ETFs continue to tell a different story to their gold equivalents, holdings in the products rose to a record 21,121.5 tons on October 7th.

India’s Prime Minister Mammohan Singh will be pleased with recent gold import figures that showed a significant decline next month. The Economic Affairs secretary announced earlier this month that the government intends to keep imports below 800 tons for this financial year.