A few weeks earlier, we saw a lot of noise in the market…but this time it seems that someone left the loudspeakers on!
Well, oil and SNB played the game here.Precious metals showed great volatility- all thanks to the fluctuating oil prices.
Crude oil was highly volatile after a report from Paris based energy agency IEA depicted a likely reduction in Non-OPEC output for 2015 by 350,000 BPD.
Moreover, gold and silver prices soared in Euro terms after the SNB moves and now many market players are beginning to wonder if a loss of confidence after the Swiss fiasco has started a run on gold?
Bullion traders said sentiment turned better after gold rallied to the highest since September in global markets as the dollar weakened after Switzerland decoupled its currency to the euro and lowered the deposit rate.
Gold had closed at 1276.50 following a brief intraday break above 1280, its highest level since September 2014. We look to the September 2nd open of 1286 as the next important level of
Resistance, followed by 1300 and 1320. Momentum indicators are increasingly bullish.
Gold regained its safe-haven mantle following a shocking and unforeseen decision by the Swiss Central Bank (SNB) to scrap its cap on the franc’s exchange rate against the euro.
After the SNB- Swiss National Bank dropped the bombshell on the markets Thursday morning, the prices of the precious metals had gone in one direction… UP. In just two days, the price of gold was up $40 and silver $1.10.
Post this action, gold rose more than 2 percent to a 4 month high in Thursday. This was a result of the move by Switzerland to abandon its three-year cap on the franc sent global shares and bond yields into turmoil.
Following the Swiss National Bank’s unprecedented move to abandon the franc’s peg to the euro, the country’s currency had appreciated sharply against the U.S. dollar. The surge in the Swiss franc…means it is now the most overvalued of all the developed market (DM) currencies in terms of the deviation of the real effective exchange rate from its 10-year average
The SNB has been under growing pressure to revisit the peg as speculation grows that the European Central Bank could introduce outright money-printing as early as next week, which could see the euro zone flooded with liquidity.
It looks as is the SNB decision has finally destroyed the notion of $800 gold ever again.
Furthermore, a Labor Department report released on Thursday showed that Jobless claims climbed by 19,000 to 316,000 in the week ended Jan. 10, the most since early September, from a revised 297,000 in the prior period.
Adding to it, the gold price climbed on Friday after a lackluster US inflation report had participants readjusting their timetable for the next Federal Reserve rate increase.
In data, the US consumer price index fell 0.4 percent last month, the biggest drop since December 2008, after sliding 0.3 percent in November. It also undershot the -0.3 percent forecast.
This goes directly against the Federals Reserve’s mandate to achieve inflation of around two percent as the reports imply a deflationary trend. Which further means that the fed may probably delay its rate increase as it would want to know that inflation is on track to hit this level before acting?
Additionally, deciding not to reduce stimulus in 2015 would also be consistent with a goal-oriented approach to the employment mandate.
Additionally, Holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, rose to 717.15 tons on Friday from 707.59 tons from its previous close on Thursday.
Fall in equities and worries over Euro area political and debt issues might continue to help Bullion complex as a whole and mainly the yellow metal.
Next week we could see further volatility as the ECB are set to meet and it is widely expected they will announced a broad-based government bond purchases.
We stay with our moderate positive bias in Gold and advice buying on small dips.