Gold has continued its steady climb this week and was up again on Thursday following the European Central Bank’s decision to keep interests rates down to 0.25 per cent. As a result the Euro strengthened against the US dollar which slipped a further 0.5 per cent.
ECB president Mario Drahgi also took the decision not to relax lending regulations in order to boost liquidity. With European equities already on the slide traders played it safe and backed gold.
Following current trends, gold price will decline slightly towards the close of trading, but has been steadily increasing value by almost US$2 a day. Much of the rise of precious metals recently is due to the Ukraine-Russia crisis, but disappointing US data has also influenced investor sentiment.
Weak US economy
Gold was predicted to fall in 2014. A recovering global economy will put trader confidence back into equities and currency will strengthen. Ordinarily, when economies are performing strongly, the price of gold and silver falls. When currencies are weak however, investors turn to gold and push up the prices.
Economic data from the United States has not been encouraging since the turn of the year, sparking fears that the global economy is not recovering as stronger as anticipated. Figures published by the Institute for Supply Maintenance this week gave traders more reason for concern although adverse weather conditions across the northern States significantly slowed down production.
All eyes will be on data from the US nonfarm payroll tomorrow and more disappointing data will be good news for gold. The US labour market was over 300,000 jobs short against analyst expectation in January and another bad month will draw more criticism of the Federal Reserve’s decision to trim their stimulus program.
Gold in the balance
Investors are playing a waiting game. Until the US economy shows signs of progress market sentiment will remain with precious metals keeping gold prices up over the $1330 mark, a far cry from the predicted average of $1220.
The political crisis in Eastern Europe appears to be reaching a satisfactory conclusion, although the outcome is a victory for politics rather than the people – so there could be more to come from Ukrainian nationalists in the coming months.
Harsh weather conditions in the US have been unrelenting since the turn of the year which is likely to produce more disappointing results on the job front for February. Companies were forecast to add 150,000 jobs last month.
Investing in gold
The predicted drop in gold prices in 2014 has arguably been delayed, but there are still high hopes of an emerging global economy gathering pace in the next month or two. Once traders restore their confidence in the market, investors can expect to see a drop in gold prices.
With gold prices hanging in the balance, investors looking to add precious metals to their portfolio have a decision to make. Invest now or wait until prices fall. With a debt ceiling waiting to collapse, it’s never too early to invest in gold!