Finally, there are other drivers apart from deflation and dollar that have been influencing gold prices this week. After a long time gold has found supporting drivers such as negative interest rate and market turmoil and uncertainty.
Finally gold managed to reach a high of $1300 on Thursday and then lost a little pace and settled at $1293 on Friday.
It’s just been the third week of 2015 and gold is already 9 per cent up and because of its strong momentum, gold prices do have room to move higher and a consolidation period is expected at some time soon.
Following influential factors played a significant role for precious metals this week-
ECB– On Thursday, the ECB announced the launch of an expanded asset purchase program with combined monthly purchases of 60 billion euros or $70 billion, through end September 2016.
ECB President Mario Draghi said that this stimulus package will help in pushing inflation back towards 2 per cent during this year.
However, concerns about the global economy sustained gold’s safe haven appeal, keeping prices afloat.
SPDR- Holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, remained unchanged at 740.45 tons on Friday from its previous.
US Economic Indicators- a Conference Board on Friday showed positive contributions from a majority of its components and stated that U.S economic indicators rose slightly more than anticipated in December.
This did influence gold prices but not to a great extent.
Eurozone- Eurozone private sector grew at the fastest pace in five months in January, flash survey data from Market Economics showed Friday. The composite output index rose more-than-expected to a five-month high of 52.2 in January from 51.4 in December. Economists had forecast the index to rise nominally to 51.7.
Gold prices ended modestly lower on Friday, on the above mentioned mixed global economic data with the dollar trending sharply higher even as the euro slipped significantly after the European Central Bank announced a massive, larger than expected monetary stimulus.
Gold soared to 5-month highs just above $1300 earlier in the week, but a swiftly rising dollar saddened the rally in bullion.
The coming week holds a lot of surprises for gold- Some of the noted ones are:
FED- The precious metals market will be focused on the Fed and their upcoming monetary policy statement on Wednesday. But markets believer that unlike the Bank of Canada and the European Central Bank, which both shocked markets this week, the Fed is unlikely to announce any major surprises.
The dollar is expected to be bullish as the Fed is not expected to shift their monetary policy outlook because currently the Fed remains one of the only central banks that are in any position to eventually raise rates.
Dollar- Next week, the gold market should re-establish its negative correlation with the U.S. dollar, and that steady rise in the greenback would be negative for gold.
However, the report also suggested that recent changes made to the European Central Bank’s monetary policy may support precious metals prices.
Chinese Slowdown- Although China’s economic slowdown can also hurt metals given the country accounts for almost half of world metal consumption,a sharp slowdown of the Chinese economy remains a low probability scenario at present.
Greece Elections– Traders are likely to turn to Sunday’s election in Greece. Polls show the opposition Syriza party widening its lead to about 6% over the governing conservatives. If they get it then it raises the suspect that the Euro will likely open weaker again on Monday, helping gold in the process. The potential of more economic uncertainty and positive chart patterns provides a constructive backdrop for further gains in gold.
U.S. interest rates – “While downward pressure on precious metal prices is expected to become more pronounced when the U.S. Federal Reserve raises interest rates (expected in mid-2015), the European Central Bank’s plan to purchase €60 billion of assets per month through September 2016 may put upward.
People are coming to the conclusion that while the ECB is getting more expansionary, the Fed may be forced to be less restrictive because of the headwinds to inflation from the drop in oil prices, which can trigger some delay in interest rate hikes and would be positive for gold.
To conclude, Low inflation, global risks, and firmer physical demand are all modest positives for gold and silver.