Euro will stay weak, the dollar will stay strong, and that’s going to cap the gold price

The gold price bounced back on Thursday from yesterday’s sell-off alongside the broader financial markets.  On Wednesday the spot price of gold tumbled to a two-week low of $1,738.47 per ounce before paring its losses in afternoon trading.  This morning, the gold price climbed by $13.57, or 0.8%, to $1,765.17 per ounce.

Today’s gold price rally was driven by a confluence of macroeconomic factors across the globe.  The yellow metal received a boost in overnight trading from speculation that the People’s Bank of China will soon announce additional monetary stimulus measures to help support the nation’s slowing economy.  In Europe, the Spanish government met to approve a 2013 austerity budget – which helped the euro currency rise 0.2% to 1.2901 against the U.S. dollar.  The greenback’s weakness in turn helped lift the price of gold.

Across the Atlantic, several worse than expected economic reports affirmed the Federal Reserve’s view that the U.S. remains at risk of falling back into recession.  Second quarter GDP grew by 1.3%, below the 1.7% consensus estimate among economists.  The Core PCE Index – the Fed’s preferred measure of inflation – increased by 1.7%, missing the 1.8% level the markets were expecting.  Lastly, Durable Goods for August fell by 13.2%, far below the 6.5% decline economists had forecast.
With Thursday’s gold price rebound, the yellow metal climbed back to within 1.5% of its seven-month high reached last Friday.  However, the spot price of gold remains down by 0.4% this week and on pace to snap a five-week winning streak.  Gold prices have oscillated between gains and losses in recent days as the impetus from last week’s QE3 announcement by the Fed has worn off and the European sovereign debt crisis has returned to the forefront.

Commenting on the outlook for the price of gold, Credit Agricole analyst Robin Bhar stated that “Short term, I think we’ll see more consolidation. We’ll have to see how the dollar performs.  As we’ve seen in the last 48 hours, the crisis in Europe has resurfaced…If it comes back with a vengeance, the euro will stay weak, the dollar will stay strong, and that’s going to cap the gold price.”

Comments

Post a Comment

Popular posts from this blog

Gold edges up on weaker dollar, dovish U.S. Fed policy bets

Image
 Gold edged higher on Monday, helped by a weaker dollar and expectations that the U.S. Federal Reserve will reiterate its dovish monetary policy stance this week. Spot gold was up by 0.1% at $1,943.58 per ounce. U.S. gold futures rose 0.1% to $1,950.10 per ounce. “Gold is firm on the basis that the Fed could adopt a further dovish message with respect to average inflation targeting,” said Michael Hewson, chief market analyst at CMC Markets UK. “If you want to have a policy of average inflation targeting, you’re going to have to go into detail as to how you are going to arrive at that particular outcome.” The dollar retreated on Mond ay, bolstering gold’s appeal for investors holding other currencies, ahead of the Fed’s policy decision due on Wednesday. “If inflation forecasts remain at 2% or below, this could offer gold a tailwind as the zero-yielding metal thrives in a low-interest rate environment,” said FXTM analyst Lukman Otunuga. Market participants are also wai...
Read more

For the gold price, two outcomes are possible.

Image
For the gold price, two outcomes are possible. First is a return to or near the April low ($1,277.40). Second is a drop to a lower low, $1,240 - $1,260. Yet a third possible outcome is that the June and December lows were not a double bottom and one further drop may come. I account that the least likely, and look for a low here by the end of the week, but I'm no more'n a nacheral born durnd fool from Tennessee, so what do I know?   You'd think that an institution charged with promoting the gold industry would produce reports that at least cast the best light on gold's prospects. You'd think wrong, if you're thinking about the World Gold Council. They've been negative on gold for, oh, the last 14 years or so. Today they issued a report that contained a nugget about Chinese business using physical gold as collateral for bank credit ($40 bn worth) but they managed to tease a gloomy forecast even out of this inventive monetary use. That and bad ...
Read more

The price of gold advanced as high as $1,603.40 per ounc

Image
The gold price broke out to a new all-time high above $1,600 per ounce Monday morning, rising for the eleventh consecutive trading session. The price of gold advanced as high as $1,603.40 per ounce before backing off to trade just the $1,600 level. The yellow metal gained on the back of a surge in borrowing costs for Italy, the latest European nation to see its bond market come under heavy selling pressure. The lack of a deal to raise the $14.3 trillion debt ceiling also helped boost gold prices. The eleven-day rise in the gold price is the longest winning streak since January of 1980. The gold price delivered another noteworthy performance last week, climbing 3.2% on its way to a series of fresh record highs. With Monday’s advance, the gold price extended its monthly and year-to-date gains to 6.6% and 12.5%, respectively. Last week’s two-day Congressional testimony by Chairman Ben Bernanke on the economy and monetary policy revealed that the Fed remains open to the...
Read more