Gold and Euro Reacted to Draghi’s Verbal Intervention
The U.S. Comex gold futures dropped 0.45 percent on Thursday after
rising 0.32 percent on Wednesday, and were almost unchanged for the
week. The Dollar Index reasserted its strength, rebounding 0.89 percent
in the past two days and rising 1.35 percent for the week. From a
recent high of 1.3711 on 1 February, the Euro/Dollar dropped to a low of
1.3371 on Thursday. The Euro Stoxx 50 index fell 4.14 percent this
week while the S&P 500 index fell only 0.25 percent.
Draghi’s Comments Shook the Euro and Gold
On 7 February, the ECB kept its interest rate unchanged at 0.75 percent
but commented that the recent Euro/Dollar appreciation could derail the
economic recovery in Europe and reduce the threat of inflation. The
mere hint of future interest rate cuts caused the Euro/Dollar to
immediately drop 1.52 percent before stabilizing at around 1.34 during
Friday Asian morning. The gold price fell in reaction to the rising
U.S. Dollar and the decline in inflation expectation.
Stronger Data from the U.S. and China
The U.S. jobless claims fell during the week ending 2 February while the
four-week moving average fell to a 59-month low to 350,500 according to
Bloomberg. However, the fiscal drag could pose further risks to the
job market in the next few months. In China, the January exports grew
at a much faster yearly pace at 25 percent while the imports also grew
much faster at 28.8 percent. However, the data in the first two months
of the year are distorted by the Chinese Lunar New Year holiday. The
Chinese customs administration reported that the export managers’ index
rose 3.3 points in January to 37.5, pointing to further trade
improvement in the first quarter. The gold market continues to be
sensitive to any significant improvement in the U.S. labour market as
well as in the global economy for the fear that central banks will early
withdraw from their monetary stimulus.
What to Watch Next Week
Most of Asia will be on holiday for the first part of next week to
celebrate the New Year of the Snake. The ECB President will speak in
the Spain parliament and the EU-27 Finance Ministers will meet in
Brussels on 12 February. The Euro-17 will report the December
industrial production data while the U.S. will report its January retail
sales on 13 February. The Bank of Japan will announce its Target rate
while many European countries will report their preliminary Q4 GDP on
14 February.
Kelly Smith
Sharps Pixley, London
www.sharpspixley.com
