247Bull.com Editor: The experts are arguing that inflation is dead, just as they did in the 1970s right before inflation took off. This is likely to be the next catalyst for gold.
The U.S. dollar gold price dipped back below $1580 per ounce towards the end of Friday morning in London, slipping a little after making gains earlier in the day, though it remains substantially down on the week following falls on Wednesday and early Thursday.
Silver meantime held above $28.80 an ounce for most of Friday morning, 3.4% down on the week, as European stock markets regained some ground lost yesterday. Commodities also edged higher while US Treasuries dipped.
“[Gold's] recovery continued in Asia today amid decent demand,” says UBS analyst Joni Teves.
“It has been a welcome break from the persistent selling over the past week.”
Heading into the weekend, gold looked set for a 1.9% weekly drop by Friday lunchtime in London.
This would be gold’s second weekly drop in a row, after the metal fell to seven-month lows following Wednesday’s publication of the latest Federal Reserve policy meeting minutes, which show policymakers discussed the possibility of reducing the size of their ongoing quantitative easing bond purchases.
“After the Fed, people seemed to have a little less conviction that we are going to see indefinite low Dollar rates, which have attracted a lot of interest in commodities, especially precious metals,” one Hong Kong trader told newswire Reuters this morning.
“But the macro[economic] picture hasn’t changed tremendously and the underlying demand is still strong.”
“A [gold price] bounce driven by physical demand and/or short-covering over the next few trading sessions is possible,” counters a note from Credit Suisse, “but should be viewed as another chance to sell in our view.”
ANZ bank meantime has announced a cut in its 2013 average gold price forecast to $1690 an ounce, down from more than $1800. Based on afternoon prices at the London Gold Fix, the gold price has averaged just under $1660 an ounce so far this year.
The world’s largest gold exchange traded fund SPDR Gold Trust (ticker: GLD) continued to see outflows of gold bullion held to back its shares yesterday. A further 8.9 tonnes of gold was sold out of the GLD Thursday, making a total of more than 34 tonnes since a week ago – the biggest weekly outflow from the GLD in 18 months.
By contrast, the world’s biggest silver exchange traded fund iShares Silver Trust (ticker: SLV) saw weekly inflows in the week ended Thursday, adding 81.2 tonnes.
During last month’s Fed policy meeting, Fed chairman Ben Bernanke “minimized concerns that the central bank’s easy monetary policy has spawned economically-risky asset bubbles” according to a report today by Bloomberg, which cites “three people with knowledge of the discussions”.
Over in Europe meantime, economic sentiment and business conditions have improved this month, according to Ifo survey data published Friday. The Ifo Expectations index also edged higher.
“All in all, today’s Ifo index nicely illustrates the green shoots in the German economy,” reckons ING economist Carsten Brzeski.
“Even if the current harsh winter weather might delay the blossoming out somewhat, growth should return, leaving the contraction of the fourth quarter quickly behind…the crisis is over. At least in Germany.”
Germany’s economy however shrank by 0.6% in the fourth quarter of 2012 on a seasonally adjusted basis, according to official data published Friday. The German economy is expected to grow by 0.5% during 2013, according to new forecasts published today by the European Commission, which previously projected 0.8% growth this year for Germany.
France’s economy is forecast to grow by 0.1% – down from 0.4% forecast three months ago – while the economy for the Eurozone as a whole is projected to shrink by 0.3%, with Spain contracting 1.4% and Italy shrinking 1.0%.
Bank of England governor Mervyn King met with People’s Bank of China governor Zhou Xiaochuan Friday to discuss the creation of a Sterling-Renminbi currency swap arrangement.
“London is growing rapidly as a center for [Renminbi-denominated] business,” said King.
“The establishment of a Sterling-Renminbi swap line will support UK domestic financial stability.”
The currency swap arrangement “cements London as the western hub for the fast-growing Renminbi market,” added Britain’s chancellor George Osborne.
Ben Traynor | BullionVault