Gold Down as Central Banks Put Off Action Posted by James Randolph on August 03, 2012
The price of gold dropped for a fourth straight session Thursday amid a continued
unwinding from positions initiated by speculative investors hoping for more immediate
and direct stimulus from the European Central Bank and the US Federal Reserve.
The president of the European Central Bank, Mario Draghi, has said that any
government bond buying, one of the more aggressive forms of stimulus, would not occur
before September. The ECB president, who last week said his administration would do
what it takes to save the euro, was largely seen as giving the indication that the ECB
would act more aggressively and more quickly to implement fiscal stimulus within the
Gold fell commensurate with a drop on Wall Street and also in line with US
crude oil futures as markets looking for stimulus amidst relatively week recent economic
reports were disappointed.
On Wednesday, the Federal Reserve concluded its Federal Open Markets
Committee policy-making meeting and released the minutes of the meeting, which
indicated a lackluster attitude towards fiscal stimulus, dashing hopes for immediate
stimulus on this side of the Atlantic. The bullion market was immediately put under
pressure as investors who had been hoping for a more liberal attitude towards stimulus
had to change direction quickly.
This news all comes amidst relatively pessimistic economic data recently released
that gave many the expectation that some form of stimulus would give a boost to the gold
market. Phillip Streible, a senior commodities broker at futures brokerage R.J. O’Brien
remarks that central banks now appear to need more economic data in order to produce
aggressive action. This is disappointing in the short term for gold investors.
However, Steible sees a downside limit on gold prices as the expectation of
stimulus has already been built into market prices.
The spot price of gold dropped 0.8 percent to $1,585.75 per troy ounce after
hitting a weekly low of $1,587.80.
Silver bullion gained back over $27.30 per troy ounce, in line with a close two
weeks ago, as various other industrial commodities also gained higher.
Going towards the weekend, gold appeared in line for a 1.7 percent weekly loss
toward Friday lunchtime in London markets. A better than anticipated ADP Employment
report which is an independently produced in addition to the nonfarms payroll published
by the US government is among relatively optimistic economic reports that have made
further action by central banks less likely in the eyes of some investors.