No sooner had we sent out
yesterday’s commentary, expressing the view that gold was heading for a
fall, than the precious metal started to go south in a big way. Amplifying the relief in the market from what appears to be an amelioration of the situation in Ukraine
were a number of positive reports from the US. Both Durable Goods orders and
Consumer Confidence came in better than expected. These fit nicely into the
scenario that will see QE terminated in the US on schedule, and a rise in
interest rates there sometime after that. All bad for the price of gold.
So where to from here? The trajectory for the gold
price is resolutely down. As always, it will not proceed in a straight line. In
addition to that, there is a very strong support level in the $1180 per Troy Oz
area that will have to be given serious attention when and if it is reached
(see chart above). If this is broken in any kind of resolute manner, then it is
anyone’s guess where the price of gold will come to rest.
Inflation call
surprise at Sintra conference
The European Central Bank (ECB) has just concluded a
two day conference for its members, leaders of associated agencies, academics
and influential commentators at Sintra, which lies west of Lisbon in Portugal.
One of the more interesting speakers there was Paul
Krugman, Princeton University economist, whose column in the New York Times is syndicated
worldwide. It is obvious from what appears in the Irish Times under his name
that he is a dedicated supporter of government measures to assist the economy
in all spheres and a proponent of state assistance for healthcare, social
protection and unemployment relief payments – in other words he writes with a regard
for the needs of the great masses of citizens everywhere.
Krugman made a speech at the Sintra conference on
inflation. It might be expected, given his standpoint as outlined above, that
he would be arguing for less of this, or at least that the current low levels
are not the disaster they are painted in some quarters to be. Inflation always
hurts the general public as it curtails spending power, reduces the value of
savings, leads to anxiety for the future and promotes industrial unrest when
workers attempt to maintain living standards. But Krugman is not concerned
about this. He is calling for a greater
inflation target that that currently aimed for by the ECB, of close to 2%.
The attitude of Mario Draghi was interesting. He is
quoted as saying in response to the professor’s speech:
“…try telling that to Germany. What would it mean for a German, for example, to have a 5% objective in the whole of the euro area? I don't even want to think [about] that”.
Somewhat appropriately, given Prof. Krugman’s day job, the whole question is academic. The ECB is simply not able to dictate terms for inflation and is under severe pressure to achieve even its 2% target, never mind an increase beyond that.
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