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Friday, September 30, 2011

Gold price stabilized this morning at $1,620

The gold price stabilized this morning at $1,620 after dropping $41.00, or 2.5%, to $1,609.15 per ounce on Wednesday as precious metals’ weakness resumed and the U.S. dollar rallied. The spot price of gold held steady near $1,650 for most of the morning, but plunged to an intra-day low of $1,597.80 as renewed liquidation engulfed the yellow metal. With the decline, the gold price extended its loss in September to 11.9%. In doing so, the price of gold is now on pace for its worst month since it plummeted 17.4% in October 2008.

Philadelphia Fed President Charles Plosser was the lastest central banker to criticize the accommodative monetary policies implemented by Chairman Ben Bernanke. In a speech on the economic outlook to the Business Leaders Forum at the Villanova School of Business, Plosser expressed his skepticism that Operation Twist would encourage businesses investment or consumer spending in light of the uncertain economic and fiscal environment in the U.S.

Thursday, September 29, 2011

Gold price drop below $1,600 per ounce again

The gold price drop below $1,600 per ounce on Thursday morning sell-off was fueled by strength in the U.S. Dollar Index (DXY), which advanced 0.5% to 78.42.

Wednesday, September 28, 2011

Rally in Gold price were fueled by weakness in the U.S. dollar

The rally in Gold price were fueled by weakness in the U.S. dollar, as the U.S. Dollar Index (DXY) fell 0.6% to 77.609. Although the gold price initially plunged amid further liquidation in precious metals, it rebounded yesterday afternoon alongside other dollar-denominated asset classes. The broad-based rally in commodities and stocks was fueled by reports that euro zone officials were considering implementing additional measures to combat the sovereign debt crisis. Although no specific plans were announced, European Central Bank (ECB) executive board member Lorenzo Bini Smaghi stated at a conference on Monday that assets from the €440 billion European Financial Stability Fund (EFSF) could be used as collateral to borrow from the ECB. Such borrowings could then be used for additional bailout funds and/or to help recapitalize troubled European banks.

Gold price moved sharply higher Wednesday morning, gaining $31.00 to $1,658 per ounce. After sliding 6.5% over the past two trading sessions, the price of gold moved higher on bargain hunting among investors and traders. Silver spiked higher by a huge $1.82, or 5.9%, to $32.56 per ounce. On a closing basis, gold’s sister precious metal declined 24.4% over the last six trading days. Optimism that European leaders are beginning get serious about stemming the waning confidence in the continent’s banking system helped buoy global stock and commodity markets.

Tuesday, September 27, 2011

Gold price continued to fall Tuesday morning, plunging $34.25 to $1,625 per ounce

Gold price continued to fall Tuesday morning, plunging $34.25 to $1,625 per ounce. Another hike in margins by the CME Group helped greased the skids of the current correction in the gold price. Today’s decline comes on the back of the price of gold posting its worst week since 1983 as broad-based liquidation engulfed the precious metals space. The spot price of gold tumbled $96.48 to $1,644.27 on Friday, bringing its weekly loss to 9.2%. COMEX gold futures slid $101.90, or 5.9%, to $1,639.80 per ounce on Friday, marking the third largest single-day nominal decline ever. With today’s drop, the gold price is now 15.6% below its $1,922.20 all-time high, reached less than three weeks ago on September 6.

McAlvany’s longer-term bearish stance on the U.S. dollar contrasted with his bullish stance on the commodities complex. He predicted that central banks across the globe will continue to engage in policies that debase their currencies in efforts to stimulate economic growth. As a result, he stated that “I think commodities do have a good long-term play,” but also acknowledged that “certainly as long as there is these liquidity concerns in the market you’ll see a liquidation of most of your industrials and ags.”

Going forward, he asserted that “The real differentiation will be with the precious metals, gold in particular, even more than the white metals, as something that has no counterparty risk.” When subsequently asked what his gold price outlook is, McAlvany responded that “I think this year still would not surprise me to see the year finish above $2,000 an ounce. And beyond that $2,500, $3,000, on its way to 4 or 5 (thousand).” McAlvany did not put a time frame on his $5,000 gold price call, however.

“I think the issue is not so much the price of gold but the value of the currencies that it’s priced in,” McAlvany added. “And as they continue to compete on the downside, you’ll see the price of gold appreciating. In fact that’s why I think on a longer-term basis you have a strong argument for commodities in general beyond the supply and demand constraints that you’ll face on a week-in week-out basis. I think you’ll see them all repriced as we have sort of a beggar thy neighbor policy in place in the currency realm.

Based on his bullish gold price outlook, McAlvany was asked if precious metal mining companies would be “of interest to you.” Although he did not discuss specific gold and silver stocks, McAlvany responded that “It would be, it would indeed.”

Saturday, September 24, 2011

The spot gold price fell to its lowest level since mid-August

The price of gold came under significant pressure yesterday as the U.S. dollar rallied to a seven-month high against a basket of foreign currencies. The spot gold price fell to its lowest level since mid-August. The SPDR Gold Trust (GLD), the world’s most liquid gold price proxy, tumbled to $164.60 Friday morning – leaving the world’s second largest ETF lower by 6.4% this week.

Legendary investor Jim Rogers echoed this positive sentiment on the dollar in a CNBC interview on Thursday. “I own the dollar. As we talked last time, I think the dollar is going to go higher…It’s going up against everything right now. There are various reasons for that, one of which is everybody is panicked and for some reason they are rushing into the U.S. dollar. The U.S. dollar is not a safe haven if you ask me but I do own it.”

Rogers – known for running the Quantum Fund with George Soros and for his positive stance on commodities over the past decade – reiterated that his bullish bet on the greenback is only for the short-term. Over the longer-term he sees it going considerably lower as the U.S. government remains committed to debasing its currency to stimulate economic growth. Rogers has also been a long-time gold bull and recently predicted that the gold price will soon surpass its $2,300 inflation-adjusted all-time high.

Although Rogers did not specifically discuss the price of gold in yesterday’s interview, his outlook for the global financial system and economy augurs well for higher gold prices over the longer-term. “The major problems are coming from the West, from Europe and the U.S. We’re much worse off than we were in 2008 because the debt has gone through the roof since 2008. At least in 2008 there was a possibility that governments could bail us out. Right now of course the governments have gotten deep into debt themselves.”

Friday, September 23, 2011

Gold price may face additional headwinds in the short-term, the longer-term outlook for the price of gold remains more favorable

In the aftermath of the Fed meeting, although the gold price may face additional headwinds in the short-term, the longer-term outlook for the price of gold remains more favorable. Chairman Bernanke has made it particularly clear that his foremost goal is to prevent deflation from overwhelming the U.S. economy and that he is willing to go to extraordinary measures to fight that battle. The inclusion of the “significant,” wording – coupled with the commitment to “employ its tools as appropriate,” and leave the Fed funds rate near zero through mid-2013 – suggest that the Fed is likely to maintain policies that indirectly benefit the gold price for the foreseeable future.

The gold price tumbled $45.91, or 2.6%, to $1,736.44 Friday morning amid significant weakness in financial markets across the globe. Silver plunged alongside the price of gold, by $2.61, or 6.6%, to $37.01 per ounce. U.S. markets were set to open with large losses, as S&P 500 futures dropped 30.00 points to 1,125.75. In addition to disappointment stemming from yesterday’s Fed meeting, a weaker than expected report on the Chinese economy helped fuel the selling. HSBC’s preliminary China Manufacturing Purchasing Managers’ Index, or “flash” PMI, slid to a two-month low of 49.2 in September, below the 50 level separating expansion from contraction.

Thursday, September 22, 2011

The markets and Gold price do not appear to be very pleased with Operation Twist

The markets and Gold price do not appear to be very pleased with Operation Twist, at least not at first glance. Following the Fed meeting, U.S. equity markets turned sharply lower, with the Dow Jones Industrial Average (DJIA) closing lower by 283.82 points, or 2.5%, at 11,124.84.

However, gold also turned lower and the U.S. dollar rallied after the Federal Reserve announced plans to extend the average maturity of its holdings of U.S. Treasuries, also known as Operation Twist. The U.S. Dollar Index, a trade-weighted measure of the greenback versus several of the world’s other leading currencies, climbed from negative territory on the day near 76.80 to as high as 77.33. The euro gave up its modest gains against the dollar as it slid 0.2% to 1.3673 this afternoon.

Joseph Arsenio, Managing Director at Arsenio Capital Management, commented to Reuters that “The market is deteriorating because the Fed didn’t reduce yields on reserves. There is no additional impetus for banks to lend. It wasn’t sufficiently stimulating. The stock market is reacting to that and since that has been fairly closely coordinated with oil markets, we’re seeing declines there as well.”

Wednesday, September 21, 2011

Gold bounced back modestly from yesterday’s large sell-off

Wednesday morning as the gold bounced back modestly from yesterday’s large sell-off. The gold price held firm while financial markets across Asia and Europe rebounded amid hopes that Greece will receive its next round of bailout money. Investors will also be keeping a close eye on Ben Bernanke and the Federal Reserve, as it begins its two-day FOMC meeting.

However, we remain neutral on gold for the time being. While gold thrives on financial market uncertainty, we believe that the funding issues at European banks in the face of a possible Greek default should remain a concern over the next few days, driving the dollar stronger. We continue to believe that in this environment, commodities will find it difficult to rally, including gold.

Gold extended its gains Wednesday morning, as gold price surged $30.80, or 1.7%, to $1,809.70 per ounce. The rebound in gold follows the sector’s large declines from yesterday. Monday’s weakness was fueled by considerable strength in the U.S. dollar, particularly against the euro currency. On Tuesday, however, gold and silver bounced back alongside the general commodities complex despite stabilization in the euro/dollar currency cross near 1.3670.

Tuesday, September 20, 2011

Gold price posted substantial losses as amid broad-based liquidation in commodities and a rally in the U.S. dollar

While the sovereign debt concerns in Europe dominated the headlines last week, this coming week the focus is likely shift back to the United States. There the Federal Reserve will hold its two-day Federal Open Market Committee (FOMC) meeting on Tuesday and Wednesday. The Bernanke-led Fed recently chose to expand the meeting from one to two days due to heightened market and economic turmoil stemming from sovereign debt issues and concerns of a renewed recession in the U.S.

At the previous FOMC meeting in August, the Fed shifted its policy by committing to leaving the Fed fund rate near zero through mid-2013, but stopped short of launching a third round of quantitative easing (QE3). Although the September nonfarm payrolls report came in far worse than expected by most economists, the likelihood of a QE3 announcement this week is small, at least according to UBS’ Schnider. ”If people are expecting a QE3 right now, they could be disappointed. The hurdle is very high for a QE3.”

The gold price posted substantial losses near $1,779 Tuesday morning as amid broad-based liquidation in commodities and a rally in the U.S. dollar. The price of gold climbed to as high as $1,832 per ounce in overnight trading but relinquished its gains ahead of the open of U.S. equity markets. In contrast to the gold price, silver declined alongside cyclical commodities, by 3.7%, to $39.33 per ounce. The stability in the price of gold came after European policymakers failed to develop any new concrete plans for dealing with a potential Greek default in meetings over the weekend.

Saturday, September 17, 2011

Gold price held steady near $1811 per ounce Friday closing

The gold price held steady near $1811 per ounce Friday closing as markets await the outcome of a meeting among euro zone finance ministers in Poland. While the price of gold stabilized, the euro currency slid 0.7% to 1.3779 against the U.S. dollar. Equity markets in Europe shrugged off the euro’s weakness to post modest gains. U.S. markets nonetheless looked to open slightly lower, with S&P futures down 2.50 points at 1,201.75.

Barclays Capital Research elaborated on why the measures are no panacea for the European financial system in its own report on Thursday. “The EUR has rallied as a result of the measure: it offers term USD liquidity to strained European banks and gives some breathing room to the European authorities,” the firm wrote. ”However, the move is being amplified by short positioning and is likely to be short lived. This measure just alleviates one of the symptoms of the euro area debt crisis and, if anything, confirms the liquidity constraint that banks are facing.”

As Barclays alluded to, there are several other key constraints that the European financial system is facing. One of the most significant is the fact that the debt burdens of many of the PIIGS far outweigh those nations’ ability to generate economic growth. Regardless of how much liquidity the ECB provides to its banks, it cannot create capital – which is a far more binding constraint for European banks. In light of this, the sovereign debt crisis is unlikely to be meaningfully improved by the dollar liquidity provisions. While the gold price may face additional headwinds from these actions in the days and/or weeks ahead, the longer-term economic backdrop for the price of gold remains quite favorable.

Friday, September 16, 2011

Gold is likely to reach $2,000 per ounce by the end of 2011

Gold is likely to reach $2,000 per ounce by the end of 2011, according to precious metals consultancy firm Thomson Reuters GFMS.

In its Gold Survey 2011 Update 1, released this morning, GFMS reported that rising investment demand is likely to lead to further gains in the price of gold.

Earlier this year GFMS was acquired by Thomson Reuters, hence the addition to its name. The Gold Survey 2011 Update 1 marks the first research report published since the acquisition. GFMS will remain an independent research and consultancy division within Thomson Reuters, according to the company.

GFMS’ global head of metals analysis, Philip Klapwijk, commented that sovereign debt concerns in Europe and the U.S. have been a driving force behind the surge in gold investment demand.

“Not only did we have the threatened contagion from peripheral to core eurozone countries but it also crossed the Atlantic in the form of the U.S. credit rating being downgraded,” according to Kalpwijk. ”And both of these were critical to the surge in investment witnessed recently.”

Klapwijk also highlighted several additional factors likely to propel gold prices higher – including recession worries across the globe, emerging markets inflation, continued negative real interest rates, and ongoing conflicts in the Middle East and North Africa.

The gold price plunged below $1,800 per ounce Friday morning with profit-taking in the gold futures market fueling the sell-off.Gold price stabilized near $1,782 after the European Central Bank announced “dollar liquidity” measures in cooperation with the U.S. Federal Reserve. With Greece on the verge of default, central banks are furiously attempting to inject confidence into the international monetary system.

Thursday, September 15, 2011

Donald Trump apparently disagrees with Fed Chairman Ben Bernanke that gold is not money

Donald Trump apparently disagrees with Fed Chairman Ben Bernanke that gold is not money. The prominent real estate investor’s Trump Organization announced that it will accept three 32 ounce gold bars as a security deposit from tenant Apmex at 40 Wall Street in New York City.

According to the Wall Street Journal, Trump commented that “It’s a sad day when a large property owner starts accepting gold instead of the dollar. The economy is bad, and Obama’s not protecting the dollar at all….If I do this, other people are going to start doing it, and maybe we’ll see some changes.”

Apmex, which is renting office space on the 50th floor of the building, is a precious metals dealer. CEO Michael Haynes stated that “I figured, Trump is a smart guy, and he’ll realize that taking gold is a better idea than taking cash.”

With financial markets across Europe continuing to be pressured by speculation of a Greek sovereign debt default, the chorus of investors and businesspeople calling for a default has increased considerably. The gold price moved marginally lower Thursday morning, slipping $11.89 to $1,821.81 per ounce. The price of gold bounced back after disappointing retail sales data. The U.S. dollar weakened versus the euro and the yen while oil and copper prices declined 0.8% and 0.7%, respectively. Silver held near unchanged at $40.98 per ounce.

Wednesday, September 14, 2011

President Barack Obama’s jobs plan is unlikely to have any meaningful impact on U.S. economic growth

President Barack Obama’s jobs plan is unlikely to have any meaningful impact on U.S. economic growth, according to Gluskin Sheff chief economist and strategist David Rosenberg.

In a recent note to clients, Rosenberg characterized the plan as “smoke and mirrors.”

“Much of it is merely rolling over existing tax relief passed in late 2010, such as payroll taxes for workers and extended jobless benefits,” he wrote. ”I’ll put it to you this way. Assuming (i) that the House Republicans do not accept the Obama spending measures, and (ii) half of the tax relief goes into savings and debt reduction, then we are talking about the grand total of $35 billion of net new stimulus from this ‘jobs plan’. That’s principally because so much of it is merely extending what is already in the system.”

Rosenberg – a long-time bull on gold and U.S. Treasuries, and one of the few economists to accurately predict much of the financial crisis in 2008 – went on to say that “At an annual rate, that is a 0.2% boost to baseline GDP growth. In other words: much ado about nothin’. It doesn’t even come close to offsetting the ongoing drag from the retrenchment at the state and local government levels.”

The gold price rallied Wednesday morning, gaining $28.10 to $1,843.10 per ounce. Gold prices have oscillated in a wide trading band over the past two months, falling as low as $1,704 in late August and then climbing to a fresh record of $1922.20 in early September. The price of gold is currently trading in the middle of the range as investors and investment strategists debate whether the yellow metal is set to break out or break down.

Tuesday, September 13, 2011

Germany is strongly considering not providing Greece with further bailout funds

Although the gold price posted it second weekly loss in three, a rather encouraging sign emerged in the precious metals space. Gold equities not only climbed to a new record high alongside the price of gold, but as a group they continued their recent trend of outperforming the yellow metal. The Market Vectors Gold Miners ETF (GDX) reached a new high of $66.98 per share on Friday, and posted a 1.4% weekly gain. Furthermore, the GDX is now higher by 4.9% this month.

The euro zone sovereign debt crisis continued to be at the forefront of economic concerns last week. Rumors of a Greek default escalated on Friday after a report that German Chancellor Angela Merkel’s government is “preparing plans to shore up German banks in the event that Greece fails to meet the terms of its aid package and defaults,” according to three coalition officials.

Confidence in policymakers’ ability to contain the crisis was dealt another blow on Friday when European Executive Board Member Juergen Stark unexpectedly resigned due to “personal reasons.” Stark was widely thought to have been opposed to the resumption of bond purchases, according to Reuters, which cited two sources that spoke on condition of anonymity. Carsten Brzeski, ING Bank’s senior economist, wrote in a note to clients that Stark’s resignation may increase the likelihood of further monetary policy easing by the European Central Bank (ECB).

The gold price fell $14.27 to $1,818.70 Tuesday morning as sovereign debt concerns in Europe led to broad-based liquidation in financial markets.

Saturday, September 10, 2011

Longer-term outlook for the gold price remains bright – notwithstanding shorter-term corrections as is occurring this morning.

The sharp reversal lower in the gold price did not coincide with any significant macroeconomic news, although speculation has risen in recent days that the COMEX is planning to hike gold margins once again. Commenting on the gold price sell-off, Macquarie analyst Hayden Atkins wrote in a note to clients that “People are probably very exposed to gold now, because they’ve been so bullish, yet the technicals aren’t that great now that you’ve had that double-top pattern coming through.”

Atkins went on to say that “There is no real direction provided by other markets. I guess this is a sign that people are interested in taking profits at these kinds of prices, in the absence of direction from anywhere else.” The “double-top” pattern that he referred to stems from the fact that the gold price peaked near $1,920 per ounce on two occasions over the past month – August 22 and September 6 – and subsequently turned sharply lower on each occasion. This development is often a worrisome sign from a technical perspective and can lead to further price declines.

The gold price slid $14.3 to $1,855.80 per ounce Friday night closing amid widespread liquidation in precious metals. In doing so, the price of gold surrendered approximately half of yesterday’s 2.9% rally and turned back into negative territory for the week. Yesterday the gold price held firm after Fed Chairman Ben Bernanke’s speech on the economy and U.S. President Barack Obama’s jobs speech last evening. COMEX gold futures – per the December 2011 contract – climbed to $1,889.10 in overnight trading, but tumbled to as low as $1,825.50 at approximately 6:15am ET on heavy volume.

Coupled with fact that the Fed has committed itself to near-zero interest rates through mid-2013 and is expected to launch further easing measures in the coming months, the longer-term outlook for the gold price remains bright – notwithstanding shorter-term corrections as is occurring this morning.

Friday, September 9, 2011

UBS lifted its 2012 average gold estimate to $2,075

The gold price climbed $39.66 to $1,857.32 per ounce Thursday afternoon, rebounding from yesterday’s sharp sell-off. The SPDR Gold Trust (GLD), a proxy for the gold price and the world’s largest gold ETF, advanced $3.77, or 2.1%, to $180.85 per share. COMEX gold futures, per the December 2011 contract, reached an intra-day high of $1,868.70 per ounce and maintained the majority of their gains as trading progressed.

Despite the volatility and series of large declines, the gold price recently surpassed the price of platinum for the first time since 2008. On Thursday, platinum advanced $25.30 to $1,854.00 per ounce, however, gold’s outperformance continued, sending the platinum/gold ratio below 1.0 once again. Gold’s superior performance relative to platinum has been largely related to ongoing risks of renewed recessions in the U.S. and Europe.

UBS was the latest investment bank to raise its gold forecast, based on a multitude of factors likely to push the yellow metal to further new all-time highs.

UBS lifted its 2012 average gold estimate to $2,075, a 50.4% increase over its prior target of $1,380 per ounce. In 2013, UBS expects gold to average $1,780 per ounce, 48.3% above its prior estimate of $1,200 per ounce.

In its report to clients, analysts led by Edel Tully wrote that “Our core view is that ongoing global macroeconomic disappointments, the inevitability of further negative turns in the European sovereign debt crisis, and low business, consumer and investor confidence will lead to gold being increasingly used as the line of defence against negative market outcomes. With the pool of competing asset alternatives sparse, ‘new’ money will flow into the gold market over the months ahead and into 2012, which has significant price implications.”

UBS went on to say that “The maintenance of U.S. rates close to zero means that gold is not in competition with assets that offer yield. Economic growth expectations globally are declining, high debt burdens in Europe will continue to hamper growth, and the risk of a U.S. recession is rising. All of these factors are individually positive for gold. Taken together, they are a potentially explosive cocktail.”

Thursday, September 8, 2011

Gold remained firmly in negative territory Thursday morning following the release of the latest Fed Beige Book

Gold remained firmly in negative territory Thursday morning following the release of the latest Fed Beige Book. The gold price slid 2.5% Thursday morning, declining $60.20 to $1,815 per ounce. After trading to a new all-time high early yesterday, the price of gold has plunged $92 over the past 30 hours.

The Beige Book, comprised of economic data collected by each Federal Reserve Bank in their respective districts – noted that “economic activity continued to expand at a modest pace, though some Districts noted mixed or weakening activity.”

Highlights included:

- Consumer spending increased slightly in most Districts since the last survey, but non-auto retail sales were flat or down in several Districts

- Although poor weather dampened growth in some areas, tourist activity remained solid in most Districts

- The demand for services was generally positive throughout the nation, but one region said conditions were deteriorating

- Of the five Districts reporting on transportation, three said conditions were mostly positive, while the other two reported activity as flat or slightly below expectations

- Manufacturing conditions were mixed across the country, but the pace of activity slowed in many Districts

- Residential real estate markets remained weak overall with only a few slight improvements in some Districts

- Most Districts characterized commercial real estate and construction activity as weak or little changed, but improvements were noted in several areas

- Loan demand remained stable or slightly weaker, and lending standards were largely unchanged with an improvement in loan quality

Wednesday, September 7, 2011

Euro zone bailouts is waning

Financial markets viewed the loss as a strong indication that support for euro zone bailouts is waning. Coupled with last Friday’s losses, the Stoxx Europe 600 Index posted its largest two-day decline since March 2009. The euro currency tumbled to 1.4060 against the U.S. dollar, its lowest level in over a month.

The rally in the gold price follows a 3.1% rise last Friday, when the yellow metal surged following the worse than expected U.S. non-farm payrolls report. As economic data deteriorates across the globe, investors are increasingly moving a greater percentage of their assets into gold as a safe haven and store of value.

Gold price traded to yet another record high at $1,921 per ounce overnight before moving back below $1,900 Wednesday morning. The price of gold surged following heavy liquidation in European stock markets on the back of a key election loss by German Chancellor Angela Merkel’s political party. S&P 500 stock futures plunged 27.30 to 1,142 while the cyclically-sensitive copper price, lower by 1.8% to $4.05 per pound, headed for its largest loss in over a month. The gold price rallied and equity markets in Asia and Europe posted steep losses amid escalating euro zone sovereign debt concerns. The rising fears stemmed from the news that German Chancellor Angela Merkel’s political party suffered its fifth election loss this year and its worst showing since 1990.

Tuesday, September 6, 2011

Gold Price Back To $1,900 per oz on Tuesday Morning

Gold Price Back To $1,900 per oz on Tuesday Morning

Saturday, September 3, 2011

Weakest jobs data since September 2010!

The tepid labor market has led to a flurry of chatter from economists and investment strategists that a fresh round of fiscal and monetary stimulus is in the offing. President Obama is set to give a speech next week where he will outline a plan to restart the waning economic recovery. Later this month, Chairman Bernanke and the Federal Open Market Committee (FOMC) will convene a two-day meeting. A fresh round of quantitative easing appears to be on the table despite the Fed Chairman’s dwindling consensus on the FOMC. Gold prices have soared 9.7% off the $1,704 per ounce level hit just two weeks ago.

The gold price surged closing this week ahead of the release of the monthly jobs report and rallied further on the weaker than expected data. The price of gold climbed $56.12 to $1,882.30 per ounce after the Labor Department reported that zero nonfarm payrolls were created in August versus expectations of 68,000, according to a Bloomberg survey of economists. This was the weakest jobs data since September 2010. Furthermore, July’s payroll figures were revised downward. The unemployment rate was unchanged at 9.1% in August.

Friday, September 2, 2011

Goldman Sachs lowered its estimate for tomorrow’s key job report

Goldman Sachs lowered its estimate for tomorrow’s key job report following this morning’s ISM data. In a note to clients, chief U.S. economist Jan Hatzius reduced the firm’s August non-farm payroll estimate to 25,000 from 50,000.

The Goldman economist explained that “The main reason is the accumulation of evidence of weak hiring in late July and August: a sharp deterioration in perceptions of job availability in the latest Conference Board survey, a drop in today’s ISM manufacturing employment index, another drop in job advertising, and a soft ADP report. Layoffs seem to have remained low, given steady jobless claims in the 410,000 range, although even here the recent pickup in layoff announcements is a concern.”

Heading into today, the consensus estimate among economists for the jobs report was 75,000 non-farm payrolls added. If the data comes in below consensus – as Goldman now believes – the price of gold is likely to benefit.

The gold price oscillated near $1,830 per ounce Friday morning, trading near unchanged on the day. After sliding off its $1,913 all-time high posted on Aug 22, the price of gold has been held in check under $1,850 as investors and traders weigh whether a deeper correction is in the offing.

Thursday, September 1, 2011

FOMC minutes contained no surprises, and consequently our view on QE3 remains unchanged

After a relatively lacklustre day, gold received a shot in the arm yesterday after the release of the much-anticipated FOMC minutes. Investor hopes of further monetary accommodation were raised by discussions among members concerning policy options available to boost the economy, should it become necessary. The various tools outlined were, a) further quantitative easing, b) maturity extension of the existing bond portfolio and c) lowering of the interest rate on reserves. Further contributing to speculation that September’s meeting could see an announcement of more monetary accommodation, was the decision to extend the meeting to two days.

For us, the FOMC minutes contained no surprises, and consequently our view on QE3 remains unchanged. While the likelihood has increased in recent weeks, we await further evidence on the extent of the weakness in the US economy before making QE3 our base case. To this end, should tomorrow’s ISM manufacturing and Friday’s non-farm payrolls continue to decline, this would most definitely increase the probability of further quantitative easing.

After the initial FOMC induced surge, precious metals have once gain began to track sideways. Asian flows were muted amid Eid al-Fitr celebrations and various other regional holidays in India. This lack of direction has extended into this morning, with participants likely waiting on the sidelines ahead of Friday's non-farm payrolls.

Gold support is at $1,793 and $1,760.

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