Gold was initially boosted by uncertainty in the Eurozone

Gold & Silver Report 2 Feb 2015

Gold was initially boosted by uncertainty in the Eurozone as the leftist Greek Syriza party came to power. However the metal saw continual losses as markets stablised and after the US Fed announced it was on track to raise interest rates this year. It turned around with a two-week high thanks to speculation over the implications of cooling global economic growth

Price and charts snapshot:

On Monday fresh concerns about the eurozone resurfaced after Greece’s far-left Syriza party swept to power and opposed the terms of the nation’s international bailout conditions. Gold also fell as traders cashed in gains from last week’s five-month highs^[1]. Gold fell for its third session in a row on Tuesday, hurt by the stronger US dollar and equities^[2]. The precious metal then extended losses on Wednesday while the market anticipated an upcoming US Federal Reserve policy meeting. On Thursday the Reserve signaled it was still on track to lift interest rates this year, causing gold prices to tumble over 2% to a two-week low while silver saw its biggest decline in 1.5 years. On Friday, gold futures rose the most in two weeks amid speculation that weaker foreign economies will drag on American growth prompted the Federal Reserve to wait longer before raising interest rates^[3].

This week overall, the yellow metal dropped 1.1%. For silver the price has jumped 10%, the most since June last year^[4]. Gold is up 6.5% so far this month, boosted by European uncertainty after the Swiss National Bank scrapped the franc’s peg limit and the European Central Bank said it would pump billions into the economy.

The Greek election set leftist leader Alexis Tsipras to become prime minister of a government openly opposed to bailout conditions, the resulting uncertainty was initially a supporting factor for gold.

However, the price appeared to ease over the week as sellers capitalised on gains from last week and as global equities strengthened, reflecting the view that European markets had weathered Greece’s election outcome without much disruption^[5]. Gold’s rise to its highest price since mid-August last week may have also overstretched prices, particularly as as the uncertainty surrounding the Greek election cleared. ABN Amro analyst Georgette Boele said: “With the event risk out of the way, now that everyone knows what’s going on in Greece, sentiment has calmed somewhat… The recovery in sentiment is hurting gold prices somewhat.”^[6]

The cooling of global economic growth which slowed sharply in the fourth quarter of last year to a modest 2.6% has raised hopes the US recovery finally was slowing to normal or at least be ‘dragged’ somewhat by global growth, and this sentiment appeared to help support the precious metal again at the end of the week.

For the week ahead, investors will be watching US gross domestic product data due on Friday for more clues on the strength of the economy.