Gold & Silver Report 26 Jan 2015

Gold was pushed higher early this week from worries over the global economy and surged after the European Central Bank’s anticipated quantitative easing announcement, but fell again by Friday to corrective action and as the market digested the mixed implications of the ECB stimulus.

Price and charts snapshot:

During the first half of the week worries over the global economy and uncertainty over European Central Bank stimulus measures pushed investors towards the safe-haven metal^[1]. On Monday Gold held close to a four-month high while on Tuesday its dipped slightly but held just below the high. On Wednesday, Gold Prices climbed to USD$1,305 (AUD$1,659.57) an ounce, trading close to a five-month high. Explaining the movement, Howie Lee of Phillip Futures reported that “Increased liquidity in the euro-region is set to boost the prices of gold, as the precious metal may enjoy fund inflows from hot money coursing through Europe”^[2]. On Thursday the European Central Bank announced the details of its quantitative easing plan to pump one trillion euros into the euro zone’s flagging economy, causing gold to surge as a hedge against inflation, jumping more than 1% and hitting the five month high. However, on Friday Gold again fell by around 1.3% as the US dollar rose and markets digested the mixed implications of a European Central Bank plan^[3].

This week, markets have been reacting to Mario Draghi’s confirmation on Thursday that the European Central Bank would launch its Quantitative Easing plan beginning in March. Prior to the announcement, the market was expecting a total of €600 billion in asset purchases. Instead the announcement was for a €1.08 trillion plan, a huge 80% jump high than expected^[4]

With bank announcements from the ECB, the Swiss National Bank and earlier, Japan, the currency market is currently under the speculation of a currency war, and has impacted precious metals prices. As the euro hit an 11-year low against the US dollar, this makes USdollar-based commodities more expensive for investors holding other currencies. According to Saxo Bank’s Ole Hansen: “Gold was completely dislocated from the dollar yesterday, meaning that euro-gold is the best performing commodity this year, helping dollar gold stay fairly stable around USD$1,300 (AUD$1,653.21).”^[5]

These latest developments in 2015 have improved the outlook for gold prices. Goldman Sachs in a report seen by Reuters on Friday raised its 2015 gold price forecast to USD$1,262 (AUD$1,604.88) per ounce, up from a previous forecast of USD$1,200 ($AUD1,526.04)^[6].

For the week ahead, traders are expected to be watching Sunday’s election in Greece and next week’s US Federal Open Market Committee policy meeting for clues on when US interest rates may rise^[7].

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