Spot gold fell by as much as $15 on Thursday morning, sliding below $1,125/oz as markets in the U.S. opened. Futures traders cut their positions on gold for December delivery, with their reasoning focused on the risk-off environment on the financial markets. Stocks in both the U.S. and Europe were higher this morning as investors moved away from safe havens and into risk assets again with lowered expectations for rate increases from the major central banks in the West. By the late afternoon, the gold price had only recovered slightly.
Weekly jobless claims came in above expectations at 282,000 new claims, up 12,000 from the number of workers receiving pink slips during the week previous. Although this was seen as a somewhat weak data point for the labor market, the silver lining came from the U.S. trade deficit. The deficit shrank to a 5-month low of $41.9 billion in July thanks to stronger exports.
Though the data is clearly mixed, continuing a trend that has not abated throughout 2015, the fact remains that this is a sign to the markets about the strength of the U.S. economy in a relative sense. In most other corners of the globe, the economic data is even less encouraging, particularly in Europe and Japan, where deflation is becoming an increasingly serious threat to economic growth.
ECB Stands Pat
The European Central Bank (ECB) met on Thursday morning, but sang a very different tune than in the U.S. According to ECB President Mario Draghi, Eurozone inflation has been running below zero—meaning deflation, Worries over deflation have persisted for months, which is what originally prompted the central bank to begin its own round of QE in Europe.
The ECB decided to leave its interest rates at their current lows, leading to a scenario where doing nothing (with NIRP, a generally dovish move) was actually taken as hawkish—i.e. the markets wanted more accommodation from the central bank. Few seemed to care that the ECB extended its stimulus program by allocating hundreds of billions of euros in extra liquidity to Ireland and the Netherlands. We may even see more negative interest rates from the Eurozone before the calendar year is over.
The euro fell in response to the ECB news, and is now trading just above $1.11. With fundamentals in place for the dollar to continue to rise and the euro to devalue amid deflationary forces, Goldman Sachs joins the group of analysts predicting that the euro will eventually fall into parity with the dollar in terms of purchasing power. The dollar spiked more than 0.5% on the DXY index this morning to jump above 96.3.
The pound sterling has also been on a losing streak of late, falling from $1.575 to about $1.525 over the last week of trading on dampened expectations about the Bank of England raising its own interest rates in the near future. European stocks were up between 0.75% and 2.25% across the region, nonetheless.