EU’s Deflationary Fear Might Cap Rise of Gold

The price of spot gold extended its seemingly unstoppable run to $1,400 last week but Michael Widmer, a metals strategist at Bank of America Merrill Lynch, believes that persistent headwinds could soon end this move higher.
“There’s a few things in the market that make us believe it is not a sustained rally from here onwards,” he told CNBC Monday.

Geopolitical tensions in Ukraine are seen as the driver behind gold’s short term move as well as lingering growth fears over China. Despite recently trading “extremely well”, according to Widmer, he believes deflationary fears in the euro zone could curb gold’s rise.

Weaker consumer prices in the euro zone mean the European Central Bank is less likely to raise rates anytime soon. Gold is traditionally seen as having an inverse relationship to interest rates and is often used as a hedge against inflation. With the euro zone showing little inflation and little expectation of tighter monetary policy, Widmer says there is little upside for gold.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza