Gold plunges as US dollar strengthens
LONDON (Sept 5) The precious metal traded lower during Thursday's trading hours on the back of a strengthening US dollar, which gained versus the euro during Draghi's speech, as well as on the back of upbeat US economic fundamentals.
Gold tumbled 1.70%, trading at $1,365.30 per troy ounce at the time of writing, while silver futures were seen 1.54% lower at $23.065 per troy ounce at the same time.
The SPDR Gold trust (GLD), the world's biggest exchange trade fund for gold, lost 1.37% in value at the closing bell on Wednesday, with gold holdings standing at 919.32 tons.
Gold's recent rally was put to rest after it failed to climb above the $1,434 mark on August 28. Gold has gained nearly 17% in value from its lowest reading on June 27, when it temporarily dipped to levels just above $1,180 an ounce.
Draghi's speech
ECB President Mario Draghi said the markets should expect key rates in the euro area to remain at current or lower levels for "an extended period of time", continuing in abandoning its tradition of never pre-committing to future moves, which was broken in July for the first time. Even other parts of his speech broadly reiterated July sentiment.
Draghi raised the gross domestic product (GDP) growth rate projections for this year to -0.4% (up from -0.6%), but lowered them for next year to 1.0% from 1.1%.
Moreover, he raised the inflation outlook for this year to 1.5% and maintained it unchanged at 1.3% in 2014.
Still, he claimed that inflation risks were "firmly anchored". Downside risks to inflation stemmed from weak economic activity. On the contrary, the upside risks include commodities prices and indirect taxes, he said.
“Taking the appropriate medium-term perspective, underlying price pressures are expected to remain subdued, reflecting the broad-based weakness in aggregate demand and the modest pace of the recovery. Medium to long-term inflation expectations continue to be firmly anchored in line with price stability,” Draghi stated.
“It is essential that the fragmentation of euro area credit markets declines further and that the resilience of banks is strengthened where needed. Further decisive steps to establish a banking union will help to accomplish this objective,” he said about the topic of the banking union.
US data
ISM non-manufacturing Purchasing Managers' Index (PMI) was recorded at 58.6 points for last month versus July's reading of 56.0. The number indicated better business conditions according to purchasing and supply executives. Analysts had expected the figure to come in at 55.0 points prior to the release.
Dragged down by a slump in orders for transportation equipment, demand for US manufactured goods fell for the first time since the end of the first quarter in July.
US non-farm payrolls increased 176,000 in August following a revised advance of 198,000 in the previous month, the ADP has revealed. Analysts expected private employers to have added 184,000 jobs last month.
A separate job report in the US showed that 9,000 fewer Americans applied for unemployment help in the week ending September 2. Initial jobless claims dropped to 323,000 from the previous week's upwardly revised figure of 332,000, the US Department of Labor said on Thursday. Economists projected that 330,000 new applications would be submitted.
