The gold market was poised to rise last week on dramatic
action by European Central Bank chairman Mario Draghi. It got
more euro-fudge instead.
Draghi's pledge to do "whatever it takes" to bolster euro-zone
economies turned into doing not much once he spelled out details
at a
globally anticipated press conference
. Or, more precisely, failed to spell out details, leaving the
ECB's rescue plan shrouded in bureaucratic mystery. The gold
market sold off along with the rest of the world's "risk-on"
assets.
Our ETFS Gold Trust (
SGOL
,
quote
) lost 2% of its value as Draghi underwhelmed investors. The gold
market bounced back Friday and Monday, but looks bound within the
same narrow range that has constrained it for the past three
months.
What Draghi and the ECB do is important to the gold market for
two reasons. First, a convincing rescue plan for the Eurozone
would spread general investor optimism and encourage money that
has been clinging to cash or U.S. and German sovereign bonds to
shift into assets perceived as more risky. Second, large new
credits from the European bank would tend to dilute the euro,
increasing gold's traditional allure as a store of value.
The other trigger that might fire the gold market out of its
doldrums, a move by the U.S. Federal Reserve Bank toward a new
round of "quantitative easing," also remained on safety last
week. A meeting of the Federal Open Markets Committee, the Fed's
high command, came and went without incident on August 1st. Then
on August 3rd, America's monthly non-farm payroll numbers
healthily exceeded expectations, with the world's top economy
adding 163,000 new jobs in July.
A weaker employment statistic would have been more bullish for
the gold market. One thing the Fed did make clear last week was
that it views inflation as under control for the moment, so its
focus is increasingly skewed toward job creation, the other half
of its dual mandate. So the softer the job market, the more
investors would anticipate more stimulus from the Fed in the form
of QE3.
Quantitative easing is a code word for printing large amounts
of new dollars, debasing the U.S. currency in the long run and
increasing the attraction of gold as an alternative.
The bright side for the gold market is that it has proved
stubbornly resistant to going much lower. Investors' holdings in
gold-related exchange traded funds are holding steady near an
all-time high. Speculators' long positions in the futures
markets, while low by historical standards, have also shifted
little over the past few months, and barely reacted to the Draghi
disappointment.
The gold market seems to be quietly keeping faith that a
break-out moment will come, either when QE3 arrives at last, or
some more violent darkening of the global picture revives the
"fear trade" of piling into metal when all else fails. But
everyone will probably have to wait another month at least before
the break-out comes.
Events more dramatic than even an ECB press conference shed a
brief spotlight on the lackluster platinum market. The deaths of
three people and wounding of 20 others during a labor dispute at
South Africa's Aquarius Mining (
AQPTY
,
quote)
led to renewed concern about supply from the country that is the
vital industrial metal's largest producer.
Platinum had its last bull run in February, partly because of
strike activity in restive South African mines. Our ETFS Platinum
Trust (
PPLT
,
quote
) has slid by 19% since then on perceptions of a slowdown in
global manufacturing. But more supply interruptions might push it
back up.
