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A week in gold: Dole claims pull rug

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Gold had a poor week as worries over US rate rises resurfaced.

Weekly dole claims falling to a fifteen year low sparked the decline and overshadowed the latest meeting of the US Federal Reserve’s interest rate committee, which had only had a limited impact.  

If there had been any possibility that rates were going to go up, the unexpectedly weak GDP number earlier put paid to that.

Investors took some comfort that the Fed seem unworried by the weak first quarter and saw the economic outlook as balanced over the remainder of the year.

The market consensus for when rates will start to go up is now trending more towards September than June as a consequence.

While that should be good for gold, many commentators say any interest rate change is already in the price anyway.

Gold traditionally moves in the opposite direction to the dollar and is used as a hedge for movements in the US currency.

The metal has spent most of April within $20 on either side of $1,200, supported by a 3% dip in the dollar against its basket of rival currencies. 

A recovering euro and mixed economic data caused the dollar wobble, but gold bears say it should have done better and it is not a good sign if it can’t make headway when the US dollar is under pressure.

“Gold's correlation with the US dollar remains firmly in negative territory,” said broker UBS.

“The relatively weaker relationship of late likely reflects the fact that both assets have safe-haven properties, which would have become attractive to investors especially in light of Eurozone risks. “

But with the situation in Europe possible easing a little, certainly on the broader economic front, gold seems set to stay around the US$1,200 mark unless another major catalyst emerges, says UBS.

Scotiabank’s technical analysis is more gloomy, at least in the very short–term.

“We remain bearish and look to a closing break of US$1,180, with a focus on further weakness toward the mid-March lows under US$1,150. 

“Technical signals are biased to further downside and are showing signs of acceleration.”

Commerzbank said that gold had hardly profited from the weak US economic data and the impact it had on the dollar.

US non-farm payrolls data next week will be the next test. It may help clarify if the unexpectedly weak US first quarter was indeed a one-off as many economists suggest and a better than expected number would almost certainly see the gold under more pressure.

The spot price gold was US$1,172, down around US$20 on the week, shortly after trading got underway in the US Friday.


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