(Kitco News) - The gold market has seen an impressive rally this past week, as prices managed to hold critical support above $2,550 an ounce. According to some analysts, if investors want to know where gold prices are going, they just need to look at its performance against the euro.
In the spot market, gold is currently trading at €2,596.02 an ounce against the euro, up nearly 2% on the day. At the same time, gold is up nearly 7% against the euro for the week. By comparison, gold is currently trading at $2,701 an ounce against the U.S. dollar, up more than 2% on the day and over 5% for the week.
Some analysts have noted that gold’s move against the euro is driven largely by growing economic weakness in Europe. The euro fell to a two-year low against the U.S. dollar on Friday after the Eurozone composite Purchasing Managers Index unexpectedly sank to a 10-month low, dropping to 48.1. The disappointing data is now prompting markets to price in aggressive monetary policy easing from the European Central Bank.
However, analysts emphasize that gold’s strength should not be dismissed as merely a response to specific factors impacting this one currency.
“The weakness of the single currency, caused both by geopolitics and the sharp cooling of the economy and political crisis in Germany, is also a serious reason to move into gold,” said Alex Kuptsikevich, Chief Market Analyst at FxPro.
Kuptsikevich added that gold’s price action against the euro paints a bullish picture for the broader market.
“Gold surpassed the €2,600 per ounce mark, hitting an all-time high, adding every day this week. The turning point that attracted buyers was the touching of the 50-day moving average towards the end of last week. For more than a year, this curve has provided tactical support: localized selloffs stop there,” he said. “The drawdown at the beginning of the month also fits into a classic Fibonacci retracement, with a pullback to 61.8% of the rise from the August lows to the late October highs. Movement within this pattern suggests the next shakeout near €2,840, which could well be a bullish target. At the current exchange rate, this roughly puts the price at $3,000. Given the decline of the single currency, these could be lower levels as well.”
Jesse Colombo, an independent precious metals analyst and founder of the BubbleBubble Report, is also paying attention to gold’s gains against the euro. He added that gold remains on track to hit new all-time highs against the U.S. dollar and all other major global currencies.
He pointed out that the threat of an economic slowdown is not unique to the eurozone. While some are optimistic that the U.S. economy could avoid a recession as President-elect Donald Trump pursues his America-First agenda, Colombo said that he is not yet convinced.
“So many people think that Trump's win means that we're 'saved' and that he's going to rev up the economy and start paying down the national debt, but the reality is that he's not a sound money proponent,” he said in a comment to Kitco News. “His M.O. is to put pressure on the Fed to hold interest rates at ultra-low levels to juice asset prices and create a boom on his watch, as well as to ramp up spending to make the economy look like it's booming.”
Colombo added that the West is also losing its grip on the gold market. He noted that gold was reaching all-time highs earlier this year when Western investors were sitting on the sidelines.
He said that growing U.S. government debt will continue to push emerging market nations away from the U.S. dollar and into gold.
“So even if Americans lose faith in gold and pile into Dogecoin and other speculative junk, gold's bull market can continue on,” Colombo said.
