Gold and silver fell in European trading as the euro touched a two-week low amid the increasing worry over a currency war between industrialized nations. ECB chairman Mario Draghi has mentioned a strong euro as an impediment to European economic recovery, as it hampers exports from the nations in economic crisis such as Greece and Spain.
The race to debase currencies will be a top item on the agenda of the G-20 summit in Moscow later this week. The surprise devaluation of the bolivar by Venezuela has brought the notion of currency wars out of the trading pits and financial blogs, and into the mainstream.
Physical buying support for gold in Asia will be absent this week, as the markets in China, Japan, South Korea, Hong Kong and Singapore are all closed for the entire week for Lunar New Year celebrations. The Commodities Futures Trading Commission in the U.S. reports that long futures contracts on gold increased by over 4,800 last week, perhaps signaling traders hedging against inflation.
The dollar is higher today, after hitting a 4-week high overnight. Oil futures are slightly lower, due to generally milder winter weather. These trends are unfavorable for gold. Kira McCaffrey Brecht of Kitco News notes that this morning’s hefty drop in gold breaks it out of the ever-narrowing trading wedge it had established, at least temporarily. The probability of a true downside breakout increases she says, if gold closes for two consecutive days below $1668.