If you were a betting man, and knew a thing or two about the economy, you would probably have backed gold prices to fall this week. Strangely enough, traders, who bet professionally and know more than most about economics, would not agree with you.
Despite positive economic data showing a strengthening of paper currencies around the globe, gold prices were edged over the $1300 threshold today, before being dragged back in latter day trading. So, what do traders know that we don’t?
Perhaps traders are still concerned about the friction in Ukraine. Over the weekend, the word from Eastern Europe was that Ukraine was on the brink of civil war. It is certainly deterring money managers to back equities and stay firm with safe haven gold.
A referendum which is scheduled to be held at the weekend will surely end in the same result as the “illegal” first vote, but maybe this time the Ukrainian government will back down for the good of democracy. The situation should end without further violence.
Gold set for price drop
If that is the case, gold prices will fall. When Putin announced he had pulled Russian forces from the border with Ukraine, the knot loosened and triggered gold prices to fall back to $1298.80 (4pm GMT). However, the Russians said they withdrew forces last week and hadn’t.
The ECB are also scheduled to meet this week with a view to easing credit for SME’s which will also favour currencies rather than precious metals. With the US economy gaining momentum, trader sentiment in Europe will surely be with the central banks.
Economies in the UK and Germany are also performing strongly giving a much-needed boost the Eurozone which is even showing signs of life in long-term strugglers Spain and Greece. It would appear the ECB will be able to avoid quantitative easing.
What we can learn from Japan
Perhaps the most optimistic news however comes from the Far East where reports that Japan’s gross domestic product grew and annualised rate of 5.9 per cent in the first quarter – the country’s best results in three years. Japan has never really recovered from collapse in 1989.
The house and equity bubble in Japan during was a pre-cursor to the 2008 banking crisis. After almost a decade of grossing equities, inflated estate prices could not hold and wiped out economic growth for the next decade.
Japan was beginning to recover in the early part of the Millennium, but were hit hard in the global disaster orchestrated by fraudulent housing loans that were being dished out by banks all over the world.
Buying gold this week
Monday was an exception given the crisis calls of civil war echoing from the Ukraine, but if Russia troops have returned to their bases, the concern of further violence will be distinguished. We should expect to see gold prices fall heavily on Tuesday and gradually slide over the course of the week.
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