Commodities | Oct 10 2013
We have been focused on the reasons as to why gold has not benefitted from US fiscal mismanagement. We did expect to see more support come to play as investors moved to the sidelines and into gold as a safe haven play. At the time this made sense. However, this was not to be the case and gold has since just traded sideways. It’s a little frustrating. However, when you look at what is really happening then the prospects of more of a deflationary concern seem to be the overriding influences for the metal. Basically, the market is viewing the government shut down and debt ceiling debate as being deflationary. Why? The main reason is that a resolution will be found. It is too important a factor in the debate for both the Republicans and Democrats not to solve this issue. Neither will force the issue to the extent that a default will occur, as the consequences of this happening are just too risky. Hence a solution will be found, however at the expense of economic confidence. It is the lack of confidence and price pressure from the recovery we feel is driving sentiment for the gold price. Hence it is not moving. The inflation rate in the US it is starting to turn south again this is not a good sign for an economic recovery and may just promote more talk of stimulus. As Yellen is named Bernanke’s predecessor perhaps we will see more QE steps to placate any deflationary signs in the US. Remember she was the main instigator of the program.
The issue we feel the US, or rather Bernanke/Yellen, will have if this is the case is to work out how to re-inflate any deflationary scenarios should they start to unfold again. Obviously stimulus will need to be keep up to the market, however is this enough? Clearly the economy was faltering before this occurred. Maybe we look at another round of QE, once the current crisis has been averted. If this is the case then gold will benefit but at the moment it is looking a little soggy.
We are small long waiting for some direction.
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