Daily Nugget: Gold Waits For ECB

Gold is looking forward to the ECB meeting later today, inching higher as investors expect the outcome to be positive for gold. Many are expecting the rate to remain at 0.75%, and a Reuters poll indicated that no one is expecting to see rates change before summer 2014.

Should Draghi resist the call to arms in the currency wars, then the Euro is likely to gain further strength, sending gold higher. Issues over the strong Euro are dividing nations – namely France and Germany. Germany believes the strong euro is not a cause for worry, and has signalled opposition to the French proposal for a mid-term target rate.

One hopes that as the EU-bloc works to secure the long-term budget for the EU, the debate over currency weakening won’t seriously consider Japan’s actions where the yen has been significantly weakened thanks to fiscal and monetary actions.

Speaking of currencies, the Japanese Yen remains so weak that gold futures on TOCOM continue to reach new highs, reaching 5,286 a gram yesterday – the highest since early 2010. It was unsurprising to read that a Bank of Japan board member reportedly said that currency intervention was an acceptable course of action to stimulate domestic demand.

Whilst gold has climbed in the last 24 hours it still remains trading in a narrow range and seems unlikely to break $1700 without a significant catalyst. This may come tomorrow when we see data releases (inflation and trade activity) from China ahead of the Lunar New Year holiday.

Gold buying in China ahead of the celebrations has disappointed this year, however buying has slowed down even further in anticipation of the New Year.

Platinum and palladium remain near their 17-month high, thanks to concerns over supply in both South Africa and Russia.

It’s not just the ECB who are meeting later today; the MPC of the Bank of England will also meet. General opinion is that no further QE will be voted for and there will be no change in policy. The Committee is expected to adopt a ‘wait-and-see’ approach for the next month or so, as there has been little change in recent months.

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