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Comex Gold Softens With Euro As Markets Anticipate Further ECB Measures

This article is more than 9 years old.

(Kitco News) - Gold futures lost ground along with the euro Wednesday on ideas that the European Central Bank might undertake more measures to loosen monetary policy, traders said.

“Your lead story is likely the anticipation of the ECB doing something with regard to stimulus. That is pressuring the euro, and the subsequent strength in the dollar is pressuring the precious-metals complex,” said Dave Meger, director of metals trading with Vision Financial Markets.

As of 1:35 p.m. EDT, gold for December delivery was $5.80 lower to $1,245.90 an ounce on the Comex division of the New York Mercantile Exchange. December silver was down 30.4 cents to $17.245 an ounce.

The London p.m. gold fixing was $1,243.75 an ounce, down from the morning fixing of $1,246.75 and the previous p.m. fixing of $1,250.25.

“The U.S. dollar is stronger, and that is putting some pressure on gold,” said Kevin Grady, president of Phoenix Futures and Options on the Comex floor.

The euro was down to $1.26620 from $1.27109 late Monday. Traders often buy gold as a hedge against dollar weakness, and vice-versa. Additionally, a stronger dollar makes all commodities more expensive in other currencies and thus can hurt demand.

In particular, there are growing expectations that the ECB may expand its program of asset purchases, often referred to as quantitative easing, said Daniel Pavilonis, commodities broker with RJO Futures. If so, that would boost the greenback since it would widen the spread between higher yields in the U.S. versus lower ones the eurozone.

“That’s the trade right now,” Pavilonis said.

There has been some conjecture that the ECB may add corporate bonds to its asset purchases. Analysts at Brown Brothers Harriman, in a research note, pointed out that the central bank’s targeted long-term repo operations had not even been launched this year when the ECB announced its intention to buy asset-backed securities and bonds.

“It then began to buy covered bonds before the conclusion of the Asset Quality Review and bank stress tests,” BBH said. “This insistence on putting the proverbial cart before the horse fosters an environment that lends itself to speculation of even more measures. In addition, some official comments appear to express skepticism over the efficacy of current measures….While reports that the ECB may add corporate bonds to its asset purchases have been played down, it may be hard to shake the general idea that the ECB is likely to do more than it has already announced.”

Grady also suggested gold ran into some technical resistance around the $1,254-$1,257 area. The December contract hit a nearly six-week high of $1,255.60 on Wednesday before backing off. A 50% Fibonacci retracement lies at $1,253.80, which is the midpoint of the decline from the August high of $1,324.30 to the Oct. 6 low of $1,183.30.

Around these levels, Grady added, some traders are careful about adding fresh long positions, in case the dollar rises again and puts gold back under pressure. Early in the month, the euro fell to a two-year low of $1.25000 before bouncing since.

By Allen Sykora of Kitco News; asykora@kitco.com