Gold rose by 2 percent on Thursday, almost erasing the steep losses of the previous day, after the European Central Bank fanned investor concern over growth by saying the euro zone economy had worsened enough to warrant a shift in monetary policy.
The bank left interest rates at 1.5 percent, as expected, yet ECB President Jean-Claude’s downbeat assessment of the current situation dented the euro, pushing up the price of gold in the single currency, as well as in dollars.
Spot gold [XAU= 1854.00 37.54 (+2.07%) ] was last up 2.1 percent on the day at $1,855.70 an ounce, while gold in euros was last up 2.8 percent at 1,324.00 euros an ounce, some 2.5 percent shy of Tuesday’s record 1,366.38 euros.
Gold futures [GCCV1 1859.60 42.00 (+2.31%) ] rose 2.0 percent to trade at $1,855.40 an ounce.
The weakness in the euro and resulting dollar strength can act as a headwind to gold, yet the prospect of a period of steady euro zone rates and slowing growth would likely continue to pique investor appetite for the metal.
“The situation, economically and politically, will not improve at all in the near future,” said MKS Finance head of trading Afshin Nabavi.
“At this point in time, there is nothing else that can act as a safe haven … Buy gold or just keep your cash under the mattress. Those are the only real (safe-haven) options.”
In his post-rate setting news conference, Trichet said euro zone inflation risks were no longer skewed to the upside and growth would be moderate at best.
“We expect the euro area economy to grow moderately, subject to particularly high uncertainty and intensified downside risks,” Trichet said.
Obama in focus
Up next was a televised speech by U.S. President Barack Obama to Congress in which he is expected to outline a jobs package worth more than $300 billion, as he stakes his re-election hopes on a call for urgent bipartisan action to revive the faltering U.S. economy.
Gold’s 23 percent rise in the current quarter—its largest quarterly gain since 1980—has largely been the product of investor nervousness over the impact to the U.S. and euro zone economies from their huge debt piles.
Last Friday’s U.S. employment report that showed no jobs were created last month has rekindled expectations across markets for the Federal Reserveto launch another round of government bond purchases to inject more cash into the financial system and keep rates low to stimulate growth.
Gold has had a choppy week, hitting a record high above $1,920 on Tuesday before correcting more than $120 an ounce to the week’s lows in the next session.
Physical gold purchases rose after prices eased below $1,800 on Wednesday, dealers said. Physical demand is expected to rise ahead of India’s wedding season and as concern over the economic outlook brightens gold’s appeal as a haven.
“In the medium term to long term, it’s pretty clear that the bullish trend hasn’t been tarnished a bit,” said Pradeep Unni, senior analyst at Richcomm Global Services. “We take yesterday’s slide as correction which is good for the overall bullish market.”
Swiss bank UBS said it sees the euro zone debtcrisis as a key factor driving prices higher, as it raised its 2012 gold price forecast to $2,075 an ounce from $1,380 and its 2011 price view to $1,665 an ounce from $1,500.
“Our core view is that ongoing global macroeconomic disappointments, the inevitability of further negative turns in the European sovereign debt crisis, with low business, consumer and investor confidence will lead to gold being increasingly used as the line of defence against additional negative market outcomes,” the bank said in a report.
“With the pool of competing asset alternatives sparse, ‘new’ money will likely flow into the gold market over the months ahead and into 2012, and this should have significant price implications.”
“Much rests on policymakers’ actions, in particular whether they will act proactively and whether such action will in fact have a positive impact on growth,” it said.
On the supply side of the market, Libya’s central bank, now under the control of the new regime, said on Thursday it had sold 29 tonnes of gold in April or May to merchants within the country.