Daily Nugget: Gold Feels The Strain Of A Busy Week

Yesterday the gold price rebounded from a three-week low, but has failed to maintain momentum this morning.

This sort of pricing action was inevitable in a week of major central bank meetings and key US economic data.

Later today both the ECB and the Bank of England will hold their own meetings regarding monetary policy. Once these have concluded all attention will be fully focussed on tomorrow’s non-farm payroll data release.

The ECB will no doubt be concerned about the low level of inflation facing the single currency union, in October it dropped to 0.7% year-over-year. Many are concerned that rates will be cut further in order to avoid a deflationary spiral.

Strong German industrial orders data saw the euro hovering near one-week highs yesterday as markets speculated that the ECB would refrain from lowering rates in its November meeting. Listening to media coverage this morning, the general consensus appears to be that the nothing will be decided today but is almost guaranteed to be at the next meeting. Instead look out for hints in the ECB statement.

In Euro terms the gold price is down 25%, should the ECB signal that it is going to loosen monetary policy further this may give the yellow metal the boost it deserves.

In the UK, no change is expected; the asset purchase target is expected to remain at £375 billion and the base rate at 0.5%. The tranche of PMI data released yesterday suggested the UK is spearheading Europe’s economic recovery. Next week Carney will present the Bank’s updated economic outlook, forecasters such as Goldman Sachs believes the outlook will be somewhat improved.

Ahead of tomorrow’s US non-farm payroll data, traders will be looking out for preliminary GDP data and the Labor Department’s release of jobless claims for the week ended Nov. 2. Both of these are expected to give a hint as to what the Fed’s next move might be in terms of tapering.

October’s non-farm payroll data is expected to show the smallest increase in new jobs created since July. Recent releases have prompted concerns that the US recovery is slowing, numbers have failed to match the impressive data since August.

Should jobs numbers disappoint tomorrow, the gold price will no doubt benefit as concerns over a delay in tapering are renewed.

The largest gold ETF, the SPDR Gold Trust, saw holdings rise yesterday by 2.10 tonnes to 868.42 tonnes, the first increase since mid-October.