Gold Drops on Eurozone GDP Horror Show
For those that missed it, Gold re-coupled with the Euro in early January after the ECB’s policy meeting and Mario Draghi’s comments on about the direction of ECB monetary policy for the medium term — think tight. Since that day the daily directional moves in Gold and the Euro have been in sync, with Gold’s advance’s capped on strong Euro days and pushed into free-fall on down euro days. Movements in the EURUSD have been used to push the price of Gold back near its January lows no matter how much buying is uncovered — and no matter how much the open interest on the COMEX expands — every opportunity for a waterfall down in gold is taken by the Fed as all-0ut war has broken out between the central banks. In the process they have pushed the price of silver back near $30 an ounce, despite record levels of physical demand from U.S. investors.
Gold was taken down to a low of $1632.60 in the cash market, $6 above the January low of $1626 after a spate of GDP misses by the major economies of the Euro-zone for the 4th quarter of 2012 hit the market this market. This took the Euro back down to $1.334 along with gold. Meanwhile the price for oil and other inflation-linked commodities remained high. This arbitrage and rising price of Brent crude as priced in Euros is an attack on what’s left of the PIIGS’ economies. It has been the steadily dropping price of Brent since July that has helped countries like Spain and Italy resist the siren’s call of an ECB bailout. But after a GDP print for the entire Euro-zone of -0.6% that will not be resisted for much longer.
Do not expect anything to change at the G-7 meeting through the weekend. The Fed will likely continue to press its current short-term advantage until the debt-ceiling negotiations become a reality again.