Gold futures weekly recap, September 1 – September 5

Gold futures logged significant losses this week, as a stronger dollar and speculation of peace in Ukraine weighed on the precious metal. The ECB surprisingly lowered the central interest rate, spurring a sizable drop for the euro, strengthening the dollar, while US gauges were reported largely on the growth track.

Gold futures for delivery in December added 0.06% on Friday, closing at $1 267.3 per troy ounce, ~1.6% down for the week. Weekly high and low were at, respectively, $1 290.9 on Tuesday and $1 258.0 per ounce on Friday, which was also a three-month bottom. The contract added ~0.6% last week.

The European Central Bank cut deep into the central lending rate, lowering it to just 0.05%, as well as announcing a €1tn bond-purchasing program, as the Eurozone struggles to revive growth.The EU economy logged a 0% quarterly growth today, supporting the validity of Mario Draghi’s decision. The ECB also announced two bond-purchasing programs which would total in excess of €1tn.

The sharp turn in European policy shocked markets, sending the euro to a fresh 15-month low against the dollar, which in turn helped the dollar to a new 15-month peak.

The value of the US dollar is a major influence on gold prices, because gold, like most other commodities, is denominated in dollars. Hence, a stronger greenback increases the cost of gold to foreign currencies, lowering the precious metal’s investment appeal.

Meanwhile, the US economy also made its own, massive contributions to the strength of the greenback this week. Although new payrolls were logged at just 143 000, far below the expected 225 000, the unemployment rate was logged at the six-year low of 6.1%, paring much of the negative sentiment from the payrolls figure.

Earlier, ISM reported its manufacturing PMI and services PMI gauges for the US, both of which were logged high above expectations at three-year highs, stoking confidence in the worlds largest economy.

Ukraine

Events in Ukraine are as close to unfolding as ever today, as a number of events could shape the conflict and the long-term geopolitical outlook in Europe.

Foremost, peace talks between rebels and Kiev resulted in the signing of a preliminary ceasefire protocol.

The talks come after rebels directly assisted by Russian military, according to NATO, made significant advances against government troops recently.

Meanwhile, NATO holds its summit in Wales, with security in Eastern Europe and response to Russian aggression high on the agenda. Member-states agreed on a widely-anticipated move to create a mobile, rapid-response unit in Eastern Europe, as rhetoric against Russian aggression climbs among Western states. The EU could also announce further sanctions against Russia today.

Ukraine lawmakers yesterday approved of the country’s decision to bid for NATO membership, souring relations with the Kremlin just ahead of the scheduled peace talks with the rebels.

Investors buy gold, lifting its price, when there is a higher risk of political or economical instability.

Next Week

Several key readings are due next week. The US will probably report moderately growing retail sales, a key metric for gauging consumer spending, which generates 80% of US GDP. Elsewhere, the Eurozone is set to post employment and industrial production figures, while China will release foreign trade and CPI data.