Posted on January 02, 2015
Gold prices are beginning the new trading year on the weak side as dovish comments from the ECB have pushed the Euro lower while boosting the dollar. The Euro is now trading near the $1.20 mark, and both the shared currency as well as the U.S. dollar index appear to be poised for further extensions of their corresponding moves higher and lower.
ECB President Mario Draghi made comments recently that would seem to suggest that the central bank may initiate further stimulus measures to attempt to boost the regions struggling economy. Draghi was quoted as stating ” We are making technical preparations to alter the size, pace and composition of our measures in early 2015.”
While Draghi’s comments can be left to interpretation-for now anyway-it would seem that the ECB is getting ready to be more aggressive in their stimulus measures. Inflation in the region is running at only .3 percent, far below the central bank’s desired target of nearly two percent.
The reaction being seen in gold today may be due to Euro weakness, however, it should also be noted that thin trading conditions may also be exacerbating the drop being seen. The majority of traders and investors are still on vacation until next week, and volumes are likely to be extremely low today.
Going into the new year, it would seem that the stronger U.S. dollar index will likely be an ongoing theme and may keep pressure on the precious metals complex. That being said, metals could potentially rally in spite of stronger greenback given an appropriate catalyst. That potential catalyst could very well be the equities markets. While stocks look poised for further upside when looking at the charts, one has to wonder just how much upside may be left in the tank. Higher interest rates are becoming more of a reality, and oil prices may continue to move lower.
Will investors enter the new year buying stocks as aggressively as they did in 2014? We shall see. The first few weeks of the new trading year may be very interesting and may offer some clues as to what investors may be thinking at this point. Should stocks begin to weaken, gold and precious metals may potentially stand to benefit as investors look to put capital to work in alternative asset classes. Current price levels in gold and silver may be attractive to long-term investors, and thus physical demand for these metals may also be on the stronger side.