Gold Looks Good Whether There’s More QE or Not

22-Aug (USAGOLD) — Gold edged higher in overseas trading to establish a new 16-week high at 1644.84. The convincing violation of of the early-June high at 1640.72 offers further encouragement and the yellow metal is doing a pretty good job of maintaining the recent gains. As we wrote yesterday, the next resistance level to watch is “1656.06/1658.72/1660.54 on the weekly chart, where the 50-week moving average, the trendline off the 1920.74 all-time high and the halfway-back point of the decline from 1790.64 to 1526.80 all converge.” A push through this area would go a long way toward confirming the upside breakout.

Much of the recent gains are being attributed to rising expectations that the ECB is about to fire their ‘big bazooka’ in their most recent effort to quell the ongoing sovereign debt crisis in the eurozone. We’ve heard about the ‘bazooka’ on a number of occasions in the past, and their heavy artillery has taken several different forms, but ammo is always the same…easier monetary policy and liquidity. With Germany — the lynchpin of the EU — still generally opposed to such measures, I wouldn’t necessarily hitch my wagon to the notion that the ECB is going to be forthcoming with some form of massive QE effort. Unless of course Germany — and particularly the voters in Germany — can be convinced that the fallout from not flooding markets with euros will ultimately be far worse than the fallout from doing so. Good luck with that…

But as we’ve said in the past, a resumption of the secular bull market in gold is not wholly dependent on additional quantitative measures; be they from the ECB, the Fed, the BoE, the Boj…or the PBoC for that matter. We maintain that the realities of supply and demand, and the rather harsh realities of the global economic fundamentals, will ultimately carry the day. Gary Dugan of Coutts & Co., the private-banking division of Royal Bank of Scotland, summed it up thusly; “The reason we’re positive on gold is that major currencies around the world lack credibility.” Dugan went on to add that, “The natural buyers of today are emerging-market central banks, and over and above that, it’s going to be further investment demand.”

Mr. Dugan believes that people will “continue to naturally gravitate to gold.” I think that will remain the case for years to come, largely because faith in global currencies will continue to be undermined. More QE will certainly hurry the process, the the absence of more QE isn’t going to re-instill confidence in fiat. Only sound fiscal policy can do that, and as near as I can tell, there is an absolute dearth of that in the world.

When Germany espouses its version of sound policy, it is roundly lambasted from all quarters for doing so. No, I don’t expect things on that front to change any time soon, so I do suspect that the long-term uptrend in gold remains safe.

21-Aug (USAGOLD) — Gold is showing renewed signs of life after several weeks of rather tepid trade (to say the least). Upside technical barriers on both the daily and weekly charts have been violated, triggering buy-stops that have pushed the yellow metal to new 15-week highs.

Fresh hope of a new and meaningful ECB response to the omnipresent European debt crisis has heightened risk appetite. The EUR-USD rate jumped to levels not seen since early-July. Meanwhile, the dollar index fell through support at 82.041 as a new quest for yield seems to be emerging.

Ongoing tensions in the Middle East, centered on Syria and Iran, along with labor unrest in South Africa are underpinning the metals as well. The recent lead taken by platinum in particular is very reminiscent of 2008, when the white metal pulled the entire metals complex higher on labor and power issues.

The next resistance level I’m watching is 1656.06/1658.72/1660.54 on the weekly chart, where the 50-week moving average, the trendline (T3) off the 1920.74 all-time high and the halfway-back point of the decline from 1790.64 to 1526.80 all converge. While at this point the broader ranges remain intact, we’ll be watching short-term price moves closely to see if we get confirmation of the breakout that I wrote extensively about two-weeks ago in our August special report.

See the updated weekly chart below:

Chart by NetDania

• Canada wholesale trade -0.1% in Jun, on expectations of +0.2%, vs +0.9% in May.
• UK CBI Industrial Trends Monthly – Total Orders plunged to -21 in Aug, vs -6 in Jul; export orders fell to -17 from -9 in Jul.
• Japan All-Industry Index (sa) -0.2% m/m in Jun, vs positive revised -0.2% in May.
• India CPI +9.86% y/y in Jul, vs +10.0% y/y in Jun.
• Hong Kong CPI (composite) +1.6% y/y in Jul, vs 3.7% y/y in Jun.

20-Aug (USAGOLD) — Gold remains narrowly confined, despite talk of the latest ECB “bazooka” to quell rising rates in the periphery. The German weekly Der Spiegel reported today that the ECB was planning to cap bond spreads and intervene with bond purchases to maintain those caps.

The market seemed largely nonplussed by the rumor. Of course such a plan is tantamount to committing to “unlimited” bond purchases and Germany continues to object to bond purchases period. The Bundesbank has pretty consistently reiterated its opposition to central bank bond buying and a spokesperson said the German finance ministry not aware of any ECB rate targeting plan. The German Constitutional Court was slated to rule on ESM bond purchases on 12-Sep, but that may have been pushed back by yet another legal challenge.

As far as additional measures on the part of the US central bank, the market will be looking for some clarity at the end of next week when Fed chairman Bernanke speaks at the Fed’s economic policy symposium in Jackson Hole. That meeting will be followed-up in fairly short order with the ECB’s policy decision on 06-Sep and the Fed’s on 13-Sep.

• Chicago Fed National Activity Index improved to -0.13 in Jul, vs negative revised -0.34 in Jun (was -0.15).
• UK Rightmove House Prices (nsa) -2.4% m/m in Aug, vs -1.7% in Jul; +2.0% y/y.
• Russia unemployment rate steady at 5.4% in Jul.
• Thailand Q2 GDP +4.2% y/y, vs +0.4% in Q1.
• Japan Jun Leading Index revised higher to -2.0% m/m, vs -2.6% previously.
• Japan Jun Coincident Index revised higher to -1.7% m/m, vs -2.0% previously.
• Taiwan export orders -4.4% y/y in Jul, vs -2.6% in Jun.