Draghi vs. Weidmann Round 1

Today’s AM fix was USD 1,604.50, EUR 1,305.53, and GBP 1,031.90 per ounce.
Yesterday’s AM fix was USD 1,614.75, EUR 1,311.95and GBP 1,032.78 per ounce.

Silver is trading at $27.52/oz, €22.51/oz and £17.76/oz. Platinum is trading at $1,404.75/oz, palladium at $580.80/oz and rhodium at $1,100/oz.

Gold fell $14.10 or 0.87% in New York yesterday and closed at $1,599.20/oz. Silver fell to a low of $27.157 then also recovered, but still ended down 2.04%.


Cross Currency Table – (Bloomberg)

Gold was off less than 1% on Wednesday, its biggest drop in 3 weeks, as the Fed didn’t deliver the sparks for QE3’s fireworks.  It did signal that further bond buying could be in store to help the US economic recovery that had lost steam this year. Fed officials commented that the economy had “"decelerated somewhat," a change of tone from its previous assessment in June when the economy was “expanding moderately”. 

Investors now look to the European Central Bank’s rate decision at 1145 GMT.  If “Super” Mario Draghi doesn’t come out with a loaded arsenal (bold intervention), then the markets will be disappointed.  Mario Draghi will be confronting his colleague and nemesis in the ECB Jens Weidmann.  

Weidmann is the Head of THE Bundesbank, a former Merkel economics advisor, and an ECB governing council member who has just 1 vote out of the 23 today at the ECB MEETING in Frankfurt.  

However Weidmann sees his role differently.  "I certainly would not say that we are just one of 17 central banks [in the Eurozone]," he said in an interview published on Wednesday. "We are the largest and most important central bank and we have a greater say than many other central banks in the Eurosystem. This means we have a different role."


Gold Prices/Rates/Fixes /Volumes – (Bloomberg)

The disagreement here lies with the fact that the Germans are against the ECB becoming like a US Federal Reserve in Europe. Weidmann feels it would be wrong to give the ESM a banking license allowing it to tap large quantities of funds from the ECB.

Can “Super” Mario make the jump happen? Time will tell.

The inverse relationship between gold and the US dollar reached its highest point since the start of 2012.  The correlation is -.75, while -1 shows a perfect inverse relationship where one asset rises and the other falls.

South Korea increased its gold holdings by 30% to 70.4 tons.  This July multiple purchases totalling $810 million, was just off from the $850 million bought last November said BOK.  

Central banks are still adding gold to diversify their reserves, although many investors are waiting for ECB and US Fed action before they jump back into the markets.     

Stephen Flood

Stephen Flood is the CEO of GoldCore. He is a former Wall Street equity trader and FinTech expert. He has been involved in the precious metals markets since 2004 and has appeared as an expert contributor on CNBC, CNN, BBC, RTE & Bloomberg TV and has had articles published in the Irish Times, Irish Independent and The Sunday Business Post.

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