A few factors contributed to the rise in gold prices
today. They included the surprising sharp drop in GDP from England and ECB
member comments plus news out of the U.S. that hinted additional monetary
stimulus (money printing) may soon be on the horizon. Those factors alone, appeared to be the catalysts for the sharp rise
Starting with England, economists predicted that any
growth prospects for the British economy in 2012 were pretty much off the
table after a surprise drop in GDP. The British economy contracted by .7% in
the second quarter which was significantly more than the .2% fall. This is
now the 3rd consecutive quarter of contraction which places Britain in its
longest recession in more than 50 years. (The double dip that many including
myself warned would happen is officially upon us).
One economist at least shares the view that Britain
will embark on some sort of easing later this year. Howard Archer at IHS Global
Insight told the Telegraph;
"The steep contraction ... heaps further
pressure on the government to come up with more measures to boost growth, and
will undoubtedly lead to further calls for the fiscal squeeze to be eased
until the economy is on a firmer footing," he said.
"It also fuels speculation that the Bank of
England will have to announce more stimulative
measures this year."
There was also talk out of Europe that the European
Central Bank will boost firepower of Eurozone bailout fund. Austria's central bank governor, Ewald Nowotny, said Europe's permanent bailout fund should be given new powers to
protect the euro, an apparent softening of his position and hints that the
Eurozone will take drastic monetary action to save the single currency. His
comments helped Spanish debt costs come down after yesterday’s record
pricing that we spoke about in our recap at the end of yesterday’s
Finally over in the United States, there was a
report out of the Wall Street Journal late Tuesday that speculated the Federal Reserve remains at the ready
to start another round of easing.
I had speculated in the spring that we weren’t
going to see significant upward action in the metals until we get definitive
news on actual easing, not just rumours or
“talk” but actual news that country a, b or c was going to launch
a massive spending endeavour. It appears as though
we are on the verge of a trifecta in that regard with England, the EU and the
USA all ready to fire up the printing presses.
These are the fundamental reasons needed for the
metals to start moving again. That, and of course actual physical
demand/buying from the biggest users of the metals, namely India and China.
Without all those factors present, I didn’t expect to see much
movement, if any in the metals. For the time being, it appears at least that
there is enough reason on the table to keep the metals from posting further
declines and the lows may be safe for now. We all know that the news can
change on a dime however, today’s news was the kind of news that the
metals needed to get a long overdue boost. Whether they can sustain their
gains remains to be seen. As we have noted over the past few months, these
pops have been short lived. Only time will tell if today’s moves are sustainable.