Euro surge dollar fall do little to alleviate dim prospects for gold

After the European Central Bank’s rate decision on Thursday failed to impress with a smaller-than-expected deposit rate cut down to -0.30% from -0.20%, the heavily-shorted euro surged dramatically while the heavily-bought US dollar plunged sharply.

While Thursday’s large moves in these currencies, especially with respect to the dollar pullback, might have been expected to lead to some substantial relief for persistently depressed gold prices, the precious metal received only a relatively modest bounce on Thursday after establishing a brand new multi-year low below the $1050 support level. Thursday’s early drop to $1046 drew perilously near the 2010 depth of $1044, and closely approached a new six-year low.

This relative lack of significant relief for gold investors in light of a substantially weaker dollar on Thursday highlights the general lack of interest that continues to pervade the gold market. Potentially exacerbating the precious metal’s already dim prospects are upcoming economic data and events that could likely lead to a higher interest rate environment in the US and a resulting further decrease in the precious metal’s attractiveness.

With the ECB decision now out of the way, all eyes should now refocus back on the US Federal Reserve and its mid-December rate decision. Federal Reserve Chair Janet Yellen stated on Wednesday that she was “looking forward” to a rate hike. These comments helped push the dollar to a new multi-year high and dragged down the price of gold on Wednesday. Thursday’s rebound in gold was unable to regain Wednesday’s losses, as of this writing.

This Friday’s US Non-Farm Payrolls and Unemployment Rate report could potentially exert additional pressure on gold. An employment picture that meets or exceeds expectations will further support the case for a rate hike, and should lead to further dollar support and gold weakness. In this event, a re-break below the noted $1050 support level could see a move towards $1025 and then the psychologically important $1000 mark. In the event that gold remains supported by the $1050 level, short-term upside resistance continues to reside around the $1080 level.