Thursday July 4, 2013 11:18 AM
(Kitco News) - Gold could be hit with some selling pressure on
Friday as it catches up with renewed dollar strength on Thursday.
U.S. markets were closed on Thursday in recognition of
Independence Day but that has not stopped the U.S. dollar from
building momentum in Europe as a result of dovish stances from the
European Central Bank and the Bank of England.
Both the ECB and the BOE left rates unchanged; however the
European Central Bank took the unprecedented move to provide
forward guidance, which some analysts are interpreting the shift as
a looming rate cut.
"…by explicitly suggesting in the opening remarks that rates
could be cut, essentially doing the unthinkable for the ECB and
precommitting, the ECB made clear that the rate expectations curves
for the ECB needed to be flatten," said analysts from TD
Securities. "We still do not expect the ECB to cut rates, at least
not over the coming few months if the data continues to keep with
its improving trend."
Thursday was Mark Carney's first meeting in his role as the new
governor for the BOE. Although he said he wanted to take time to
assess the country's economic situation, the central bank's
statement did say that the recovery remains weak and that rising
interest rates could hamper the country's recovery efforts.
The bank also went on to say that they are considering adopting
forward guidance for the next meeting.
The pound dropped 200 points against the U.S. dollar following
the release of the BOE's statement.Following ECB president Mario
Draghi's press conference, the euro lost more than 100 points
against the greenback.
However, the strong U.S. dollar did not impact gold prices. As
of 10:54 a.m. EDT spot gold was trading at $1,248.40 an ounce, down
$4.10 on the day.
Colin Cieszynski, senior market analyst at CMC Markets, said
that his is not surprised gold, and commodities in general, have
not reacted to the stronger U.S. dollar as the U.S. is closed;
however, there is potential for gold to move lower on Friday ahead
of the U.S. employment report.
Cieszynski added that today's stronger U.S. dollar does
highlight an increased risk that if employment numbers are
relatively in line with economists' expectations, gold could see
"I would expect to see some catch up tomorrow and it will be
important to pay attention to the employment numbers," he said.
Neil Mellor, currency strategist at the Bank of New York Mellon,
said the ECB meeting highlights the host of negativity that is
building up in the eurozone, which will continue to benefit the
U.S. dollar and drag down gold prices.
Mellor said there is economic instability in both Portugal and
Italy as well as weaker growth expectations in Germany. He added
that these problems will force the ECB to remain "accommodative"
while the U.S. continues to see some modest economic
"You can't argue against the fundamentals. The U.S. has an
economy that is clearly building momentum," he said.
"It's not going to be a straight 45 degree move but I think the
trend for stronger U.S. dollar is in place," he added.
Although gold could lose out against the U.S. dollar, Cieszynski
said the precious metal could make some significant gains against
the euro as the political turmoil continues to grow.
"We have seen gold quietly move up against the euro," he said.
"Things seemed to be improving but now it looks like the wheels are
starting to fall off."
Read the latest news in gold and precious metals markets
By Neils Christensen of Kitco News firstname.lastname@example.org