The Week Ahead: Eurozone Disappointment Continues

Last week was an interesting one which saw the markets almost hanging around waiting for news from central banks. But they were disappointed as not much happened to follow up the previous week’s announcements. However, the Bank of England, ECB and Chinese data all managed to add fuel to the "not if, but when" dilemma of further QE.

The gold price also seemed to be in a funny limbo trading narrowly between $1,603 and $1,617 before breaking above $1,620 at the last minute on Friday. It finished on a high for the second time in three weeks.

Why did gold perform so well last week? In recent months gold has been treated as a "risk asset" which is understandable given the faith in Central Banks and their printing presses. As a result, gold and stocks have become closely correlated. As Zerohedge reported last week, stocks have now outperformed whilst gold is held down by "magic forces." As was seen in 2009, the first half of this year has seen the S&P 500, priced in gold, take a tumble and then rise again. "At current levels we are getting rich in terms of equities priced in reals stores of value." Of course, what Zerohedge is so excited about is that also like 2009, we may see gold (a real source of value) catch up with these equities and drive this bull market even further.

Last week we saw a series of gloomy data releases from the EU, with the ECB revising its forecast for growth. Markets continued to be disappointed as no further information was released as to how Draghi would do ‘whatever it takes’.

Data from Germany prompted worries of just how much the crisis will impact the eurozone’s largest economy. Over the weekend Spiegel.de reported on rumours of Germany holding referendum on EU membership, as demanded by opposition parties. Merkel however is officially pro-EU and would like to push the Germany’s involvement to the very limits of the German constitution. However data from last week, and this, will no doubt lead many to question the benefits of membership to the world’s largest single currency.

Whilst London will spend the week dealing with the Olympic blues, the eurozone will also be dealing with their own comedown as data released this week is likely show a new downturn in the single currency area.

GDP data from Germany and France and the whole eurozone will be released on Tuesday. All three are expected to show a decline. Central bank data and PMI preliminary releases data show some discrepancies, with PMI data showing larger declines – I know which one I’ll be putting my money on.

Inflation figures from both the US and UK are expected to show a rosier picture, with price rises to have slowed slightly. This may give a boost to the markets with a potential short-term negative effect on the gold price. Also look out for employment data and MPC minutes from the BoE, whilst the US releases retail sales and housing data.

Now that the gold price has broken above $1,620 there are hopes in the gold investment market of further rises. We wait with interest as to whether Draghi will announce further measures which may work against gold in the short-term as investors continue to be coerced into "safe haven" bond markets.