In a very volatile trading session, gold prices settled lower on Thursday after the European Central Bank’s (ECB) President, Mario Draghi’s optimistic but very cautious outlook on the euro zone economy triggered broader asset slump with investors seeking safety in the U.S. dollar.
Bullion along with equities, industrial metals and other commodities- all fell in tandem as Draghi’s statement fanned fears of recession. The euro slumped nearly one percent against the U.S. dollar while the ICE dollar index, a gauge on U.S. unit’s performance against a basket of six major traded currencies, also edged higher, making dollar-dominated commodities expensive which in turn put more pressure on the yellow metal.
Earlier on Thursday, the European Central Bank, in-line with expectations, left the benchmark rate unchanged at 0.75%. However, later in the press conference Draghi said that although the euro zone’s economy would steadily pick up the momentum towards the second half of 2013, there were more downside risks than upside potential. The remarks immediately weighed on bullion investors’ sentiment.
The metal however received some support when Chicago’s Fed Chairman, Charles Evans, in an exclusive interview to CNBC’s ‘Squawk Box’ said that ongoing economic stimulating measures were appropriate and QE3 would continue until the U.S. economy showed marked improvement, adding that unemployment level falling to 6.5% will not be achievable until mid 2015.
Although Draghi’s positive but cautious remarks momentarily put pressure on prices, a huge slump in euro made it very difficult for the metal to recover towards the end.
Gold futures for April delivery lost $7.50 an ounce or 0.5% to settle at $1,671.30 while spot gold fell 0.3% to trade near $1,671 an ounce. Gold futures trading range was more than $20 an ounce on Thursday.
The SPDR Gold Trust (ETF) (NYSE: GLD) ended the day 0.34% lower at $161.84.
“( Bullion prices swung in large trading range) due to positive economic updates” from Draghi at first, then that was followed by comments by the Chicago Fed President alluding to continued [quantitative easing] measures and elevated unemployment levels through 2014,” said Jeffrey Wright, managing director at Global Hunter Securities.
Gold’s failure to breach its 55 moving-day-average on Thursday also triggered technical sell-off, putting more pressure on prices. Gold has repeatedly failed to settle above this technical level since late October. Adding more light to this matter, Jonathan Jossen , a COMEX gold options floor trader said to Thomson Reuters, “It was up earlier but couldn’t get through a resistance level. “There is no interest in gold.”
Also weighing on the sentiment was news that said that top Federal Reserve official Jeremy Stein, who is a member of the powerful Fed board of governors, is not in favor of ultra low interest rate regime. He believes that extended period of record near zero level interest rate would harm the financial stability, according to Reuters.
Meanwhile, the demand for physical gold in Asia is beginning to ease as dealers in China unwind orders with Chinese Lunar Year Celebrations just around the corner. Premiums for gold bars in Hong Kong dropped from last week’s high, showed a Reuters’ data, underpinning the fact that demand has eased.
China’s Gold Production Climb
Shanghai Securities News said on Thursday that China’s gold production increased for a sixth straight year to hit a record 403 tons in 2012. China is world’s largest gold producer.
Moving to some other precious metal markets, platinum futures for April delivery fell $14.20 an ounce or 0.8% to end the day at $1,722.30 while palladium for March delivery lost $ 14.35, or 1.9%, to settle at $750.45 an ounce
Silver futures for March delivery plunged 47 cents an ounce or 1.5% to close at $31.40.
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Post Written By: Ed Liston
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications. He is widely quoted in various financial publications on the Internet. When Ed is not writing about stocks, investing in stocks, talking about stocks, or otherwise doing something stock related, he likes to go sailing and fishing in his yacht.