Why Is Gold Weak?

by Michael J. Howell5. December 2012 12:47

The US dollar gold price has retreated back to test its long-term support line at circa $1700/oz. Gold is a pure liquidity phenomenon and its weakness tells us alot about how little new liquidity policy-makers are creating. We have noted in recent weeks that the US Fed has broken its QE3 'promise' stated on Sept 13th to add some US$85 billion per month to its balance sheet. It may ultimately 'catch up' thereby fuelling a 'Risk On' rally in 2013. But why has it stalled? The explanation may lie in Chairman Bernake's speech in early November to the New York Economic Club where he appeared to tie QE to progress on resolving the 'fiscal cliff'. In short, he is keeping his powder dry untill either he sees fiscal progress, or may be is forced to act by market turmoil. Gold is a convenient benchmark of this QE, as is the 10-2 yield curve. Investors can afford to wait until both indicators turn higher. It may be a jittery few weeks. Traditionally, the period between Election and Inauguration in the US has seen roughly twice normals level of market volatility, and that without a 'fiscal cliff'.

Tags: , ,

Comments are closed
 
Copyright © - All rights reserved
themes/CBC/site.master