Gold price to be largely dictated by euro/dollar movements today

Once again, a weaker euro (and the consequent dollar strength) served as a downward impetus for gold price markets yesterday. Slowly, market participants are returning their attention to the Eurozone and the possibility of further fiscal problems in the region and, for now, the focus is on Spain. Also, comments from S&P overnight once again brought Greece’s rating into question, highlighting the high risks and inflexibility of the current plan.

We expect movements in gold price to be largely dictated by euro/dollar movements today. Consequently, we could see gold price react to the plethora of US data out today (GDP, jobless claims and Kansas City Fed manufacturing activity). For the most part, this reaction will hinge on what market participants think the data flow means for the possibility of further quantitative easing. Therefore, a disappointing set of numbers could be the most positive outcome for gold price.

Keeping with the quantitative easing theme, there are several Fed members scheduled to speak today, including Fed Chairman Bernanke. No doubt, the market will be all ears to try and determine from their respective remarks whether or not the Fed is planning another round of quantitative easing. After Bernanke’s most recent dovish comments, expectations of increased monetary accommodation have been heightened. Therefore, should any of today’s commentators be perceived as being too hawkish, we could see a marked knee-jerk reaction to the downside from gold price.