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Tyche Group: Central Banks Expected to Continue Monetary Easing

Release Date: 
Thursday, February 21, 2013

Gold rose today on negative U.S. economic news and bargain hunting in Asia.  Gold was $12.70 higher at 12:14 p.m. Pacific Time on the New York Spot Market, trading at $1,578.00 per ounce.  Spot silver was $0.11 lower at $28.77 per ounce.  (Click here for the most current spot prices.)

Initial jobless claims increased by 20,000 to a seasonally adjusted 362,000 the week ending Feb. 16, the Labor Department said, higher than economists’ expectation of 350,000.  "Labor markets have probably improved marginally over the last six months, but there has been no dramatic strengthening," Stephen Stanley, an economist at Pierpont Securities, said.

The Federal Reserve Bank of Philadelphia’s gauge of regional manufacturing activity fell to negative 12.5 in February from negative 5.8 in January.  Markit, a financial information services company, also said its manufacturing activity gauge showed slower expansion.

These reports point to a slow recovery, suggesting the Federal Reserve may be more likely to continue its monthly purchases of $85 million in bonds to stimulate growth. In minutes from the central bank's January meeting, officials said "the recovery in the labor market was far from complete.” 

Tyche Group associate director Martin Hennecke said that he believes gold’s recent losses present a buying opportunity.  Hennecke believes the markets were spooked by the recent G 20 countries’ pledge not to engage in competitive devaluation of their currencies, the Fed minutes suggesting a possible reduction in monetary easing, and gold sales by notable investors in the last quarter of 2012.

According to Hennecke, despite the central banks’ statements, the reality is the debt position of many countries remains as weak as ever.  He believes that they will continue to print money to devalue their currencies in order to control debt.  “They have no choice but to print,” he said. “I think there will be upside [for gold] as people come to realize that the crisis isn’t over.”

(Sources:  “Jobless Claims Increase,” Wall Street Journal, February 21, 2013; “PRECIOUS-Gold up as data boosts Fed stimulus hope after drop,” Reuters, February 21, 2013; “PRECIOUS-Gold rebounds after Fed worries sink price to 7-month low,” Reuters, February 21, 2013; Gold futures score first gain in six sessions,” Marketwatch, February 20, 2013)

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†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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