Gold has reversed directions and posted losses in the Tuesday session. In North American trade, the spot price for an ounce of gold is $1333.83, down 0.52% on the day. It’s a light day on the release front, with just one US indicator. The Empire State Manufacturing Index softened to 17.7, missing the forecast of 18.5 points. This marked the weakest reading since June.
Gold is trading in red territory on Tuesday, after posting four straight winning sessions. On Monday, the base metal climbed above $1344, for the first time since early September of 2016. The US dollar has lost ground against its major rivals, notably the euro. There are two main reasons for the euro’s recent rally. First, the ECB minutes from the December meeting were hawkish, leading to speculation that the ECB could wind up its asset purchase program in September. In the minutes, policymakers said that risks to the current outlook were to the upside, which could necessitate a gradual shift in guidance in the next few months. As for the eurozone, the minutes stated that the economy was displaying “continued robust and increasingly self-sustaining economic expansion”.
The second factor is major progress in coalition negotiations in Germany, raising hopes that the political stalemate may soon be over. There was a report on Friday that Angela Merkel’s conservative bloc and the Social Democrats have agreed on a coalition draft. This ends months of political uncertainty, which has eroded Merkel’s standing and also sidelined Germany on key issues such as Brexit and political reform in the eurozone. Still, the talks are only in the preliminary stage, and further negotiations will take at least several weeks before it is clear that the talks have been successful.
Gold often gains ground when investor risk appetite is weak, but that has not been the case early in 2018. Global stock markets are pointing higher and US economic numbers have been strong. This points to the broadly weaker dollar as the catalyst for stronger gold prices. If major currencies such as the euro and Japanese yen continue to make inroads against the dollar, traders can expect the gold rally to continue.
