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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

08 Feb 2013 | Categories: Gold, Euro

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