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Gold Price Up in Dollars, Falls in Euros as ECB Faces Record Inflation 'Acid Test'

GOLD PRICE gains of 0.9% for the week so far in Dollar terms continued to elude Euro and UK investors on Wednesday as the US currency extended a sharp retreat on the FX market after shock data said the world's largest economy lost 301,000 jobs in January.
The first decline on the private-sector ADP Payrolls' series since December 2020, that slump contrasted with analysts' consensus forecasts of 207,000 growth for New Year 2022.
Inflation across the 19-nation Eurozone meantime hit 5.1% per year last month on the Eurostat data agency's first estimate, the highest ever for the currency union formed in 1998 and worsening "the acid test" for the European Central Bank in tomorrow's monetary policy decision, according to a German economics professor.
European stock markets rose regardless, up for the 6th session in 7 after hitting 3-month lows last week.
But government bond prices slipped lower again, edging up Germany's 10-year borrowing costs to their highest since 2019 at 0.05% per annum having been negative almost without pause for 31 months running and sinking as low as minus 0.80% per annum during the Covid Crisis.
Currency traders meantime reacted by buying the Euro and selling the Dollar, which fell to 1-week lows on its trade-weighted index, fully 1.5% beneath Friday's 18-month peak.
US gold prices held at $1804 per ounce but the precious metals hit 2-week lows in Euro terms at €1593, down more than 3.0% from last week's 2-month high.
The UK gold price in Pounds per ounce meantime touched a 3-week low near £1325 ahead of Thursday's Bank of England decision, expected to bring a second consecutive rate-rise for the world's 5th largest economy.
Chart of Eurozone HICP inflation vs. gold priced in Euros. Source: BullionVault
"At 5.1%, inflation is miles above the 4.1% forecast by the ECB for the first quarter," Germany's FAZ news-site today quotes Jörg Kramer, chief economist at financial services group Commerzbank.
"The unexpectedly high rate of inflation is a blow to the ECB. It should finally recognize the massively increased inflation risks and take its foot off the gas in terms of monetary policy.”
With US inflation running to 7.1% on December's data – the highest in 4 decades – traders in CME futures contracts now putting a chance of 2-in-3 on US interest rates rising by year-end to 1.50% or above.
Almost 1-in-10 bets on March now forecast a half-point hike for 'lift off' at next month's Fed meeting.
"Markets are increasingly sceptical the ECB can avoid an interest rate rise in 2022," says Ireland's Independent paper, "despite insistences to date from [president] Christine Lagarde and [vice-president] Philip Lane that a hike is off the table this year."
Thursday's ECB decision – the first since it said additional Covid pandemic QE bond purchases will end in March – is likely to remain "far less aggressive than global peers" says Bloomberg.
"[But] any debate on future stimulus withdrawal is likely to weigh interest-rate increases along with shrinking the ECB's €8.6 trillion ($9.7 trn) balance sheet."
Driving the surge in global headline inflation rates, energy prices rose again Wednesday, with Europe's crude oil benchmark Brent regaining this week's 7-year highs above $90 per barrel as Russia and the Nato alliance both claimed they want to avoid conflict over Ukraine.
Confidential documents leaked to Spain's El Pais newspaper say the US and Nato have offered "disarmament agreements" in a bid to de-escalate the situation, but won't guarantee blocking Ukraine – a former Soviet state – from ever joining the military alliance.

Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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