Sharps Pixley sees Big 3 politics affecting gold price developments

Politics in the US, Europe and Japan combined are likely to effect a bull scenario for gold investors, says London based precious metals trader Sharps Pixley.

New Tools from the Fed

As expected, the US Fed will buy $45 billion of longer-term Treasuries per month next year in addition to the $40 billion mortgages. However, for the first time, the Fed links its interest-rate policy to an unemployment threshold of 6.5% and an inflation threshold of 2.5%. Ben Bernanke expects the lower unemployment rate can be reached in 2015. On Thursday, gold prices sold off due to funds’ liquidations and the concern that the future stimulus from the Fed will be limited. As the fiscal negotiations will likely drag on until the last minute, some traders predict that the investors will sell risky assets and bid up the US dollar.

European News and the Germans’ Gold Holdings

In Europe, the finance ministers finally agreed to release the funds of €49.1bn to Greece. They also agreed to make the ECB the head of the bank supervision for the EU-17 countries by Q1 2014. An “economic union” will likely take shape in the next 5 to 10 years. However, the EU leaders will defer any important decisions on closer fiscal and economic integration until June. There are no details when the European Stability Mechanism will recapitalize banks. The continued EU uncertainty will likely prompt European citizens to fetch more gold. A recent study revealed that the Germans have been buying up gold at a faster pace. An average German owns around €6,000 worth of gold. Adding the central bank’s gold holdings, Germany now holds about 7% of the world’s gold.

Japanese Election Next Week

Besides the looming US fiscal cliff, the 16 December Japanese general election will be an important event to watch. Abe from the LDP is projected to win the election. His aggressive monetary and fiscal policies to revise a depressed economy will further support the case for gold. The recently-released Japanese Tankan Survey shows that the business confidence has reached a three-year low. Other events to watch include the US Q3 GDP, the Bank of Japan interest rates decision, and the Eurozone December consumer confidence number on 20 December.


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