Gold Prices Slip, All Eyes on ECB and BOJ

Gold prices slipped amid low volume trading on Wednesday as edgy investors wait for European Central Bank’s (ECB) policy rate statement on Thursday.

Gold futures for February delivery slipped $6.70 an ounce or 0.4 percent to settle at $1,655.50 while spot gold was losing 0.1 percent to trade near $1,656 an ounce. A data provided by Reuters showed that trading volume was 20 percent below 30-day-moving-average.

On Tuesday the metal had jumped 1 percent on the news that Bank of Japan was considering to offer more economic stimulating measures in order to arrest deflation while strong physical side demand for yellow metal from China and India also boosted the prices. The metal had slumped to $4 ½ month low at $1,625 on last Friday.

Bullion investors are extremely cautious at this moment. Although the “fiscal cliff’ deal postponed series of dreaded automatic spending cuts by two months thanks to last-minutes settlement in the U.S. congress, the U.S. economy is not yet out of woods as both the White House and GOP seems to be in no mood to reconcile over unresolved issues such as slashing entitlement benefits and raising country’s borrowing limit.

The growing uncertainty is likely to cap gold’s gains as investors will avoid inflation-hedge bets.  Even though safe-haven bets tend to gain in the backdrop of economic uncertainty, investors’ preference for seeking safety in the U.S. dollar in the recent past has acted as a headwind for bullion.

Moreover, Fed’s growing discomfort on ongoing quantitative easing is also preventing bullion investors to take any bullish positions on gold. Last week, the minutes released from the Federal Reserve’s latest FOMC, held on Dec. 11-12 showed that top officials were concerned about unprecedented asset purchase program launched by the central bank.

Meanwhile, the ECB is scheduled to announce its interest rate policy statement on Thursday. While speculation is rife that the ECB will keep benchmark interest rates unchanged, any further rate cut could undermine the euro, which in turn could hurt gold’s prices as traders dealing in euro zone’s common currency will find it expensive to buy commodities which are dollar-dominated in international market. Also, if the ECB further cuts its outlook on euro zone’s economy then inflation-hedge bets are likely to dry-up. On Wednesday, a data release from Germany showed that industrial production grew by only 0.2% in November, falling well short of economists’ expectation of 1% growth. The Bank of England is also slated to announce its policy statement on Thursday.

“The gold market now focuses on the ECB meeting tomorrow and the FOMC meeting at the end of the month. Other than those, gold has struggled to find a direction in a slow news week,” said David Meger, director of metals trading at Vision Financial Markets, in a note to investors.

According to Reuters, many analysts believe that avalanche of economic data, which include retail sales data, consumer prices and housing starts could act as a much needed catalyst for bullion investors—who are directionless.

Holdings of Gold-Backed ETFs Ease

A data provided by Reuters showed that holdings of SPDR Gold Trust (ETF) (NYSE: GLD), world’s largest gold-backed exchange traded fund, fell for second day, pulling down total holdings by 11 tons from the start of this year.

In some other metal markets, silver futures for March delivery slid 22 cents an ounce or 0.7 percent to settle at $30.25. Platinum futures gained $16.80 an ounce or 1.1 percent to close at $1,600 while palladium futures climbed $20.35 or 3.1 percent to end the day at $688.20.

Both platinum and palladium prices have been supported by strengthening U.S. auto sales. Platinum group metals are used as auto-catalysts.



Ed Liston is a senior contributing editor at 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.