Gold Gains But Lacks Conviction

Gold is trading completely flat on Wednesday morning at 1591.70 as the gains yesterday had no conviction; markets remain without a direction while they begin to speculate about next week’s FOMC meeting decision. Gold rose nearly 1%, after a top European Central Bank official said the euro zone crisis was not over; however prices again came under pressure as redemptions in gold-backed exchange-traded funds continued. Gold holdings of SPDR gold trust declined to 1,236.31 tons

Bundesbank’s chief Jens Weidmann, also a member of the ECB Governing Council, said the German central bank had set aside billions more Euros against what it deemed risky ECB moves. Weidmann is very outspoken and very conservative with a negative outlook so much of thoughts and statements are colored by his overall bias.

The dollar index closed a seesaw session with a marginal loss which allowed precious metals an opportunity to buy gold on dips in the US dollar. The dollar index which tracks greenback against major currencies moved to 82.585.

Gold prices were also supported on expectations of aggressive monetary easing by Japan after the new BOJ governor steps in on March 19. Mr. Kuroda received the support of the parties controlling the legislature this morning assuring his swift and positive approval on Thursday.

 

There has been very little on the economics calendar this week but things will get a bit more active with the EU summit and US retail sales which could affect prices. EU finance ministers will be discussing the bailout of Cyprus along with the Italian situation and problems arising in Greece once again. News flow and statements might move markets.

Wall Street was weak on Tuesday after having a strong rally over the past few trading sessions although the Dow was able to gain just a few points to break another record. The modest weakness on Wall Street is attributable to profit booking by traders after the strong rally. US exchanges will keenly await the release of key reports during the week on industrial production and consumer price inflation. However, positive news flows from US resulted in gains for other markets. Speculators remain in a positive mode, it seems that traders sold off equities along with the US dollar to take advantage of the recent highs ahead of next week’s FOMC meeting. Traders may begin to take positions as no one is sure what Mr. Bernanke will do at this meet as jobs data and the overall economic situation are showing strong signs of recovery and there seems to be no immediate effect of the “sequestered” budget cuts. This leaves gold without direction.

President Obama warned on Tue, America will not balance its budget within a decade because republican plans to do so would entail slashing social programs many citizens rely on for support. Obama called for an approach that restores fiscal stability but also protects healthcare for the poor and the elderly and shields the middle class. The upcoming fight between the Administration and lawmakers could stoke some volatility as the debt ceiling deadline is also drawing closer. - FxEmpire