Gold Remains Under Pressure on Euro Weakness

Gold futures prices pushed to the weekly high of $1739 and of late had traded as a risk asset, rising along with the Euro and stocks on hope that that Greece deal is moving toward resolution, and failing along with the Euro as the dollar rises when such hopes erode. However, gold yesterday settled with modest gains at both OCMEX and MCX.

The US equities ended lower after minutes of the FOMC shed water on hopes of more easing as only a few members of the policy-setting panel favored another round of quantitative easing. European equities as well slid after the Greece meet postponed

The stronger dollar index gained as the TIC flows increased hugely indicating dollar demand and the Euro lost the ground by more than half a percent on a losing Greek hope

Holdings of the SPDR trust, world’s largest gold backed exchange traded fund, remained unchanged at 1278.64 tons as on Feb.15

OUTLOOK

Gold futures prices at the Globex declined at the early trade keeping the Greece deal at focus. Concern about Greek default rose after the European leaders delayed a decision regarding bailout and is postponed until February 20 as creditors countries asked for more acknowledgment from them.

The Euro therefore weakens and the dollar took the advantage to keep the metal under stress. Asian equities are also trading at a conservative note, mostly downside.

Today, gold seems to be remaining under pressure owing to the huge currency flows to the US bonds and likely improving housing market.

Dual sentiment from the FOMC minutes might also have fuelled the dollar as some of the members are considering more asset purchase; while oppositions are taking it as necessary if the US economy lose momentum or if inflation seemed likely to remain below 2% in the medium term.

Report today is likely to forecast that the PPI has gained by 0.4% in January while another government release tomorrow may show some proportion of this rise has been transferred to the consumers and hence CPI has also increased. Besides, US housing starts probably rose in last month as compared to December.

A rise in inflation is normally well supported by fall in unemployment. This is now clearly visible for the US economy which indicates alternative demand for gold might be eroded and as discussed, the economic releases scheduled for the day are also likely to be supportive for the dollar. Hence, gold is expected to remain under pressure and therefore, we recommend remaining short for the metal.