Gold price down on Draghi speech, close above $1,200 crucial

Otmane El Rhazi from The Bullion Desk.

The gold price stepped back from $1,200 following dovish comments from ECB president Mario Draghi that boosted the dollar in early-morning London trading.

Spot gold was last at $1,188.70/1,189.50 per ounce, down $3.50 on Thursday’s close and having earlier peaked at $1,199.70.

The euro dropped to 1.2460 against the dollar from 1.2668 after Draghi said that “a stronger recovery is unlikely in the coming months,” and that “the inflation situation in the euro area has also become increasingly challenging”. But the ECB will do what it can to lift inflation “as fast as possible”, he reiterated.

Bulls in the market will watch price movements closely today after rallies in the two previous Friday afternoon sessions over the particularly last week when gold climbed $30 as London passed the torch to New York.

“The longer prices have avoided retesting the lows, the more it looks like a base is in place, especially above $1,180. The more it looks a base is in place, the more the shorts might decide to take their profits, which could trigger more short-covering,” FastMarkets’ William Adams said.

“The past two Fridays have seen sharp rallies in bullion – we wait to see if the same happens again today,” he added.

A close above $1,200 would boost confidence, with heavy resistance at that number after multiple attempts to break it throughout the week.

Physical demand this week has been unsettled by news that the Indian government is assessing its gold import restrictions while Chinese demand has improved but premiums remain fairly flat.

“Physical demand has been more active from China over the past week, with volumes on the SGE picking up, but premiums still remain fairly soft yesterday, trading around flat. Chinese banks are looking to pick up their import quotas into year-end, which seems to be a decent source of demand leading,” MKS said in a note.

There is no front line data due today although Bundesbank president Jens Weidmann will give a speech later this morning.

In the other metals, silver has traded in a 28-cent intraday range but was last unchanged at $16.19/16.24 per ounce.

Platinum and palladium both performed well in the previous session on further reports that South African power producer Eskom is struggling to maintain power to many of the country’s producers.

Platinum hit its highest in over two weeks this morning at $1,225 before settling back at $1,216/1,222 per ounce, up $14, while palladium at $774/780 was up $9.

(Editing by Mark Shaw)

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