Stock Prices are Up and Risk Appetite Returns

The FTSE 100 was up 1.14% yesterday, the DAX, CAC 40, Dow Jones, S&P 500… all were up yesterday as investors took the increased US manufacturing data as a sign that the US recovery was back on track.

As thoughts of recovery filtered through, risk appetite grew and fed back into the markets. Assets and commodities took center stage at the expense of the USD (US dollar). Oil was up 2.59% to $74.78 per barrel and the gold price finished up 2.15% at $1106.30 per troy ounce. The gold price is finding resistance at $1075, helped by a slightly weaker dollar it is finding higher ground, but its’ price is heavily dependent on what’s going on politically and economically.

Data, reported yesterday, told the story that U.S. manufacturing has expanded for the sixth straight month in January, giving an indication that ‘maybe’ we’re at the beginning of finding economic stability.

But as you’ve heard us say before, we at Gold Price Today don’t believe this bull market has legs. In fact, at the moment, you cannot discount the probability that what we’re seeing is still a bear market rally, just like the ‘suckers rally’ that fooled investors back in the 1930s. But it’s a different ball game today; nothing like this amount of fiscal stimulus has ever been carried out before in the US and the UK as a reaction to an economic recession. And because we’ve not seen this before we’re cautious.

We’re also cautious about figures pushed in front of us… Here in England we had similar optimistic news last week. Data released last Tuesday showed that the UK GDP grew by 0.1% which means we’re no longer in a recession. This was followed by data revealing the UK manufacturing activity grew at its fastest pace in 15 years in January. Both of these should have been reflected in strength for the pound, but, with an announcement looming this Thursday over the Bank of England’s decision on whether to increase quantitative easing, investors are understandably cautious…

And we’ve every right to be cautious as John Hawksworth of Pricewaterhouse-Coopers points out, figures can be deceiving… “Given the normal margin of error for preliminary GDP estimates, the difference between 0.1% and zero growth is statistically insignificant.”

A weak pound can be beneficial for the UK as they chase the huge public deficit. Export led economic growth, driven by a low pound, would attract investment in goods and services. In effect the UK needs a weak pound to control its finances and keep its manufacturing arm competitive. We don’t think we’ve seen the last of quantitative easing in the UK. Whether it’s sooner or later the government is more than likely to follow Obama’s lead and renew its’ use of QE. And with the more QE that takes place their will be growing worries of inflation.

Stay tuned to see what happens in the UK and the US and what the effect will be on the gold price.

Digger
Gold Price Today

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Information in Gold Price Today is for general information only and is not intended to be relied upon by individual readers in making (or not making) specific investment decisions. Appropriate independent advice should be obtained before making any such decision.