Gold and euro reacted to Draghi's verbal intervention

The U.S. Comex gold futures dropped 0.45% on Thursday after rising 0.32% on Wednesday, and were almost unchanged for the week. The Dollar Index reasserted its strength, rebounding 0.89% in the past two days and rising 1.35% for the week. From a recent high of 1.3711 on Feb. 1, the Euro/Dollar dropped to a low of 1.3371 on Thursday. The Euro Stoxx 50 index fell 4.14% this week while the S&P 500 index fell only 0.25%.

Draghi's Comments Shook the Euro and Gold

On Feb. 7, the ECB kept its interest rate unchanged at 0.75% but commented that the recent Euro/Dollar appreciation could derail the economic recovery in Europe and reduce the threat of inflation. The mere hint of future interest rate cuts caused the Euro/Dollar to immediately drop 1.52% before stabilizing at around 1.34 during Friday Asian morning. The gold price fell in reaction to the rising U.S. dollar and the decline in inflation expectation.

Stronger Data from the U.S. and China

The U.S. jobless claims fell during the week ending Feb. 2 while the four-week moving average fell to a 59-month low to 350,500 according to Bloomberg. However, the fiscal drag could pose further risks to the job market in the next few months. In China, the January exports grew at a much faster yearly pace at 25% while the imports also grew much faster at 28.8%. However, the data in the first two months of the year are distorted by the Chinese Lunar New Year holiday. The Chinese customs administration reported that the export managers' index rose 3.3 points in January to 37.5, pointing to further trade improvement in the first quarter. The gold market continues to be sensitive to any significant improvement in the U.S. labor market as well as in the global economy for the fear that central banks will early withdraw from their monetary stimulus.

What to Watch Next Week

Most of Asia will be on holiday for the first part of next week to celebrate the New Year of the Snake. The ECB President will speak in the Spain parliament and the EU-27 Finance Ministers will meet in Brussels on Feb. 12. The Euro-17 will report the December industrial production data while the U.S. will report its January retail sales on Feb. 13. The Bank of Japan will announce its Target rate while many European countries will report their preliminary Q4 GDP on Feb. 14.

About the Author
Austin Kiddle

Austin Kiddle is a director of the London-based gold broker Sharps Pixley Ltd.

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