Gold futures settled higher last week as the disappointing U.S. economic data along with the drop in the stock market lifted the metals prices. Gold gained currency against the dollar as traders were getting worried about the economic conditions. The SPDR Gold Trust was down for the week due to the poor reception to the period on renewed concerns about Greece and the euro. This week will also exhibit a similar state of the U.S. economic data and the concern about Europe. The weaker of the two – euro or the dollar, will decide the faith of gold and its prices.
A soft review of the initial quarter GDP statistics was anticipated, but when the Q1 data was discovered to show reduction of 0.7% alongside the formerly reported 0.2% reduction, it still gave bullion currency against the dollar.
Previously this year, the common attitude of economists appear to say the year might tag along the same GDP route of last year, when a 2.1% reduction in Q1 was pursued by a quick recovery in Q2 of 4.6% growth. However, experts are currently observing approximately 2% growth in the future for Q2, and present signs in statistics already reported significant growth could be poorer than that.
Last week’s data was just one, amongst the many statistics points gathering onto the current worrisome situation of the economy. For example, Consumer Spending was recently reported unaffected for April, in opposition to economists’ consensus outlook for 0.2% growth; the expenditure was raised by 0.5% (adjusted from 0.4%) in March.
Despite the current soft economic statistics, we are aware that the Fed is waiting for recovery and expect to raise the Fed Funds Rate in 2015. Any query regarding the Fed and whether they plan to change their plans have also impacted the value of the dollar and will persist as we reach each FOMC Monetary Policy Meeting.
The depressing state of the U.S. economic growth has raised many eyebrows especially about the worth of dollar when compared to other currencies. The question will be particularly genuine if Europe posts a strong rebound. This Tuesday, the customer price statistics for the euro zone displayed an uptick in the price rise which has the dollar index dropping and gold also indicating that it is likely to test higher ground. The GLD is up a little bit and the spot gold price has also increased.
Still, Greece persists to evaluate in a conflicting way on the currency (euro/dollar) bond and gold which results that the recent gain in euro’s value opposite the dollar could be momentary.
The Currency Shares Euro Trust (NYSE: FXE), which tries to replicate a venture in the euro, is up 0.9% in premarket trading. The doubts about the situation around Greece’s recently late payment to the IMF circulate amongst the experts. The verdict of these assumptions that the Greece is short on finances and can miss the payment, European officials are planning a meeting in Berlin which will discuss ways to speed up the plans of making a deal with Greece that might release funds that they desperately lack.
Although, experts of the economy are unaware how far the Europe will bend towards the Greece, but it is currently reported that they have presented a proposal to their partners today. But fellow economists are not optimistic about a deal between the two countries. This would also specify the euro can decrease its current value along dollar which would in turn put a pressure on the value of gold also.
Due to this, investors can look ahead to high instability in the value of gold this week and the near future. Until and unless there comes a genuine decision for Greece – whether positive or negative, the course of the dollar is unpredictable and expected to vary.
In the end, until there is a transparent view about the economic conditions and the Fed, we can predict instability. Investments in gold can now also be reduced judging by the rumors. Although, the situation is somewhat ideal for trading opportunities, those investors who are long-term backers of gold should be able to pull through this storm.