Gold & Silver Report 9 Mar 2015

Gold kicked off the week strong thanks to Chinese demand but declined under pressure after a weaker Euro and stronger US dollar, ending the week under the key USD$1,200 level.

Price and charts snapshot:

Source: Bloomberg

Source: NASDAQ

On Monday Gold was at its highest level in nearly two weeks, backed by firm Chinese demand after interest rates were cut. Analysts saw this as supportive; Howie Lee from Phillip Futures in Singapore said “The prospects of better growth and stronger income should boost gold-buying in China”^[1]. On Tuesday Gold fell, steadying around the USD$1,200 mark, supported by weak US consumer spending and factory data, but the metal struggled to push higher as the US dollar hovered near an 11-year high, bolstering expectations for a US interest rate hike^[2]. On Wednesday Gold prices fell again as the US dollar extended gains versus the euro after positive US jobs and payrolls data^[3]. On Thursday the European Central Bank rose next year’s inflation expectation to 1.5% (up from previous expectations of 1.3%) causing Gold to fall below USD$1,200 an ounce. On Friday Gold fell almost 3%, remaining below the USD$1,200 mark, with.the US dollar helped by weakness in the euro, which came under pressure after the European Central Bank announced it’s plan to start its 1 trillion euro bond-buying programme next week.^[4]

Overall the US economy appears to be a major driver behind precious metals prices. For example Bernard Sin from MKS Finance^[5] stated “It is struggling to find the real direction and in the meantime it is reacting to the dollar and the US data, which will continue to drive the market for now”. Some weaker US data supported gold; consumer spending in January fell for a second straight month while factory activity and construction spending also declined, indicating that US economic growth is beginning to moderate.

On the other hand, the question of a US interest rate hike also continues to be a theme for gold prices.The US jobs data has been strong and the dollar has been doing well – this week hovering just below an 11-year peak. As a result most analysts still expect the Fed to raise interest rates this year. For example Mark To at Hong Kong’s Wing Fung Financial Group said “Despite the fact that most people are swaying back and forth on the timing of the US rate hike, there is still consensus that it will happen this year”^[6]. Not all are convinced however, as Macquarie analyst Matthew Turner said: “there are always people that won’t believe it until it happens,” adding: “And those people, of course, have got history on their side because there hasn’t been a rate hike for eight years and every year there has been a forecast of one and it hasn’t happened yet.”^[7]

Author Lisa Casagrande | https://www.goldbullionaustralia.com.au