Rising Dollar Forecast to Put Gold Under Pressure

on Jun 2, 2012

The Wall Street Journal today announced that the European Central Bank has released its latest Monthly Bulletin. For the monthly report, the bank surveyed professional forecasters who said they expected “significantly higher inflation in the euro zone” in 2012 – a result of increased energy prices, weaker euro performance and an anticipated increase in taxes and administered prices as some countries in the union are striving to shore up budget revenues amid the euro-zone’s sovereign debt crisis. As a result, experts give a more negative outlook about the region’s economic performance compared to their forecast back in February.

According to the Wall Street Journal, the survey of professional forecasters is widely believed to have a significant impact on the way the European Central Bank formulates its monetary policy. The goal of the bank is to keep inflation below two percent over the medium term.
In addition, the Seattle Times last week reported that gold prices took a dip right after the European Central Bank offered little indication to provide further stimulus to help the struggling region with its debt crisis.

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Dave Meger, vice president of metals trading at the Chicago-based Vision Financial Markets, said for the Seattle Times: “If the Europeans are discussing no further stimulus, you would make the assumption that it brings credence to the idea that it’s very unlikely that you would then see further stimulus here in the US. Obviously, the lack of further stimulus, we all know, takes away one of the support factors behind the precious metals complex.”!m[](/uploads/story/23/thumbs/eurodollar_inline.png)

Lynette Tan, an analyst at the Singapore-based trading company Phillip Futures, told the Economic Times: “With the euro zone debt crisis threatening to flare up again, we can see some pressure on gold [prices falling] if the dollar rises. So far investors are still quite confident in the US economy, because over the past few months we have seen some pretty good data.”

As the Fed’s latest policy statement indicated, the US economy has seen a moderate expansion.
In a press release, the Fed Committee explained: “Labor market conditions have improved in recent months; the unemployment rate has declined but remains elevated. Household spending and business fixed investment have continued to advance. Inflation has picked up somewhat, mainly reflecting higher prices of crude oil and gasoline. However, longer-term inflation expectations have remained stable.”
Following the release of the Fed’s policy statement, gold futures declined $1.50 from a day earlier. The Financial Times last week reported that prices for spot gold trades declined by 0.4 percent, reaching $1,646.81 an ounce. Similarly, gold in the US edged down 0.4 percent and settled at $1,647.70 per ounce.


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