The big story this week regarding gold shifted away from political issues as the market digested the lessening of tensions in Ukraine following negotiations between Russia and Crimea over a ceasefire.
What was a brief gold price recovery as the dollar weakened lagged during the week. A dollar drop provided some bargain hunting and short covering that lifted prices on Friday, but generally, the trend was down. In the near term, the dollar will likely retain strength against gold, though long term, analysts seem more hopeful.
As Reuters pointed out:
Weak demand has shaken the seasonal strength and outlook for the yellow metal remains sluggish in the near term … On the global front, gold succumbed to heavy offloading from hedge funds and investors following robust US macro data even as optimistic view of the economy amid Fed rate hike concerns prompted selling.
The Week’s Monetary and Industrial Trends
On the financial front, the big news was the surprise announcement by Mario Draghi that the European Central Bank would cut its benchmark interest rate. But of even more import was Draghi’s position regarding ECB stimulus. Draghi intends what amounts to an almost US$1 trillion stimulus for the EU, according to reports.
Draghi’s action included a rate cut but he also indicated a broadening of asset-backed securities. He intends to “significantly steer” the ECB’s balance sheet to 2.7 trillion euros up from 2 trillion euros today. Whether he can accomplish his goals via quantitative easing remains questionable given German resistance, which is based on legal facilities embedded in duly signed EU documents.
This post was published at The Daily Bell on September 06, 2014.