247Bull.com Editor: Here in the UK, official CPI inflation (which underreports the true rate of inflation), has now been above 2% for more than 3 years in a row. In other words, the Bank of England has repeatedly failed to meet its 2% inflation target. Of course this should come as no surprise since it’s a deliberate policy of financial repression that’s designed to inflate away a portion of the national debt. Among other things this policy involves keeping real interest rates negative for many years, something which continues to attract investors to gold.
Wholesale gold bullion prices fell back below $1690 an ounce Monday morning in London, having rallied above that level earlier in the day, while stocks also edged higher and the Euro traded sideways against the Dollar, with US markets closed today for Martin Luther King Jr. Day.
Silver hovered just below $32 an ounce for most of the morning, slightly up on where it ended last week, while other industrial commodity prices dipped.
“There is decent appetite for buying [gold] on dips,” one Hong Kong-based trader told newswire Reuters this morning.
“But I don’t know how long it will last…people will get a little skittish about being over-exposed ahead of [next week's Federal Reserve policy] meeting.
“Gold is holding its own just short of the psychologically important $1700 mark,” says this morning’s commodities note from Commerzbank.
“For the first time in five weeks, speculative financial investors have been showing greater optimism about gold again.”
The so-called speculative net long position of Comex gold futures traders – defined as the difference between bullish and bearish contracts held by noncommercial participants – rose slightly in the week ended last Tuesday, weekly data published Friday by the Commodity Futures Trading Commission show.
“While not much length was added,” says a note from Standard Bank strategist Marc Ground, “we did see an encouraging unwinding of short [positions].This was the first decline in speculative shorts in four weeks…but while the latest improvement is encouraging, the market still does not appear particularly confident.”
Gold could climb to $1825 an ounce over the next three months, according to a note from Goldman Sachs analysts Damien Courvalin and Alec Phillips.
“We see current prices as a good entry point to re-establish fresh longs,” they say, citing ongoing uncertainty over the US debt ceiling and budget, and citing previous gold rallies ahead of debt ceiling decisions.
“The uncertainty associated with these issues, combined with our economists’ forecast for weak US GDP growth in the first half of 2013 following the negative impact of higher taxes will push gold [to $1825].”
Congress last agreed to raise the US debt ceiling in August 2011, following several weeks of negotiations during which gold set a series of new record highs.
The US government is expected to hit the current $16.4 trillion borrowing limit by the end of next month, with the US Treasury already undertaking measures aimed at delaying the point at which the limit is hit.
Republican leaders in the House of Representatives meantime unveiled their “no budget, no pay” plan Friday, under which members of Congress would not be paid if the House and Senate fail to pass a budget.
“The Democratic-controlled Senate has failed to pass a budget for four years,” said House speaker John Boehner.
“That is a shameful run that needs to end…before there is any long-term debt limit increase, a budget should be passed that cuts spending.”
US president Barack Obama meantime was sworn in for his second term last night, with a public ceremony due to take place today.
Ahead of tomorrow’s Bank of Japan policy meeting, the Yen rallied against the Dollar this morning after touching a two-and-a-half-year low at the start of Monday’s Asian trading. The BoJ is expected to announce a doubling of its inflation target from 1% to 2%.
Japan’s prime minister Shinzo Abe has called for “bold monetary policy” to combat deflation.
“If you start to see inflationary pressure and negative interest rates in Japan, people will be thinking about how to protect their savings,” says Nick Trevethan, Singapore-based senior commodity strategist at ANZ.
Gold in Yen meantime eased lower this morning, though it remained near three-decade highs touched on Friday.
Hong Kong-basset asset manager Pacific Group meantime plans to take delivery of gold bars worth around $35 million, Bloomberg reports, as part of a plan to convert a third of one of its hedge fund’s assets into physical gold bullion.
Ben Traynor | BullionVault