Gold under further pressure as dollar surges towards parity vs euro

Otmane El Rhazi from The Bullion Desk.

The gold price came under further pressure on Wednesday morning while the dollar continued to surge after ECB president Mario Draghi underlined the risks to the eurozone economy.

Spot gold was last at $1,161.90/1,162.70 per ounce, down $1.50 on Tuesday’s close. It hit its lowest in four months in the previous session at $1,155.20.

The euro has broken below 1.06 against the dollar and is approaching its lowest since March 21, 2003 after Draghi warned that inflation in the eurozone, which fell into negative territory in December, will remain at low or negative levels for several months.

The single currency was last at 1.0581, down a cent and a quarter, with a test of 1.05 on the cards later.

Still, Draghi suggested that the ECB’s asset purchase programme will ultimately succeed in stoking inflation towards the bank’s two percent target and that the slowdown in growth has been reversed.

The surge in the US currency puts further pressure on gold prices particularly as chatter increases that the Federal Reserve is on the verge of increasing the federal funds rate and the dollar looks likely to move to parity against the euro in the near term.

Also pressuring the euro is news that Greece once again needs assistance with debt repayments. The ECB, European Commission and IMF officials are meeting today in Athens to review the state of the country’s finances.

“Gold, silver and platinum have been under a lot of downward pressure on dollar strength but, with many currencies in turmoil and US equities showing some stress on possible early rate rises and the stronger dollar, there may be room for some safe-haven buying, especially at what could be considered bargain levels,” FastMarkets analyst William Adams said.

But physical demand from southeast Asia and China is apparently “drying up”, MKS said in a note on Wednesday, which will weigh on sentiment

“There is physical demand down here but not enough to move us back up, so the more likely scenario is further moves to the downside. However, interest is scarce and business patchy, so the chances of a great deal happening are small. For the time being look for gold to range between $1,150 and $1,175,” Marex Spectron said in a note.

In data today, Chinese industrial production at 6.8 percent fell far short of the forecast 7.7 percent. Fixed asset investment at 13.9 percent also significantly undershot expectations at 15.1 percent, as did retail sales at 10.7 percent against forecasts of 11.6 percent.

This will add fuel to speculation that Beijing may need to introduce further stimulus measures to reinvigorate the country’s slowing economy, particularly following a speech last week from Premier Li Keqiang in which he set the 2015 GDP growth target at around seven percent.

In other data, French final non-farm payrolls at 0.0 percent were as expected. Still to come out of the US are the results of stress tests on the country’s banks and the federal budget balance.

The PGMs are performing slightly better – platinum was up $1 at $1,127/1,132 per ounce after setting another July 2009 low earlier in the day, while palladium was $2 higher at $802/807.

(Editing by Mark Shaw)

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