247Bull.com Editor: Gold is doing an excellent job of wearing out all but the most diehard bulls. Once the last of these so-called “weak hands” has thrown in the towel we expect gold to begin its next leg higher. We feel certain that this is coming but it may not happen in the first half of 2013.
The dollar gold price eased back below $1680 an ounce Wednesday morning, though it remained well within its trading range for the past month, while stock markets extended their losses for this week and US Treasuries gained.
Silver hovered around $31.30 an ounce for most of this morning, also in line with its recent trading range, while other commodities were similarly flat.
“In the short term, the combination of weaker growth and the run up to the debt ceiling and potential budget sequestration should prove supportive to gold prices,” says a note from Goldman Sachs this morning.
“[However] improving US growth will outweigh further Fed[eral Reserve] balance sheet expansion…the cycle in gold prices will likely turn in 2013.”
Federal Reserve Bank of Kansas president Esther George warned last week that the Fed’s accommodative policies could make it difficult to hit the Fed’s 2% inflation target, while St Louis Fed president James Bullard argued against linking asset purchases to economic variables such as unemployment.
Yesterday however, Minneapolis Fed president Narayana Kocherlokata said the Fed “should provide more monetary accommodation” and argued for an unemployment rate target of 5.5% – one percentage point lower than the 6.5% target announced last month.
“Continued monetary accommodation is absolutely appropriate,” added Boston Fed president Eric Rosengren Tuesday, “and indeed needed as long as we are projected to miss on both elements of the Fed’s dual mandate, inflation and employment.”
Bullard, George and Rosengren are all voting members of the Federal Open Market Committee this year while Kocherlakota is not.
Fed chairman Ben Bernanke warned Monday of “critical watersheds” for US fiscal policy in the weeks ahead. US politicians are yet to reach an agreement to prevent spending cuts postponed to the start of March as part of the deal on the so-called fiscal cliff earlier this month. Negotiations are also expected on the federal budget and the debt ceiling.
“Washington’s activities will keep gold nervous in the next few weeks,” writes Rhona O’Connell, senior analyst at Thomson Reuters GFMS, in the metals consultancy’s quarterly newsletter.
“As well as frequently being sold in times of short-term distress, gold has often experienced longer periods when it has suffered in line with a bearish commodities sector as investors have become risk averse; the much longer-term view, however, still points to gold maintaining a role as a hedge against risk. Its short-term characteristics often, therefore, appear to be in conflict with its longer-term role.”
Britain’s banking system meantime “is in a stretched position”, Bank of England governor Mervyn King warned yesterday.
“A combination of a weak [economic] recovery and…people searching for yield in ways that suggest that risk isn’t fully priced is a disturbing position,” King told members of parliament on the House of Commons Treasury Committee.
“In the context of the UK,” says a note from Standard Bank analyst Steve Barrow, “one such ‘risk’ would seem to be a ratings downgrade, which we feel is likely to occur some time this year. But while King might have been referring to the UK, the question is just as valid on a global level.”
The Euro meantime is “dangerously high”, according to Jean-Claude Juncker, chairman of the Eurogroup of single currency finance ministers.
The Euro has fallen back a little this week after touching an eleven-month high against the Dollar on Monday, although it rallied this morning following the publication of data showing so-called ‘core’ consumer inflation rose slightly last month.
“Those comments from Juncker suggests that euro zone politicians are gearing up for some rearguard action and responding to the rhetoric we have had from Japan,” says Neil Mellor, currency strategist at Bank of New York Mellon, referring to comments from Japan’s prime minister Shinzo Abe, who has urged the Bank of Japan to be more aggressive in fighting deflation.
In South Africa, workers at Anglo American Platinum’s Rustenburg mine refused to go underground last night, following news that AmPlats plans to cut 14,000 jobs from a total of 60,000 employees.
Shares in the London-listed platinum miner, the world’s biggest producer, were the heaviest fallers on the FTSE 100 this morning, dropping more than 3% by lunchtime.
South Africa’s platinum industry saw a series of strike actions last year, which also affected the gold mining sector. The country’s gold output fell 32.2% in November compared to the same point a year earlier, data published Tuesday by Statistics South Africa show.
Ben Traynor | BullionVault