Gold and silver prices rose from multi-month lows as US payrolls surprised to the downside, strengthening the case for on-going Federal Reserve stimulus to support the economic recovery.
This development comes close on the heels of last week’s announcement by the European Central Bank (ECB), highlighting greater potential for downside risks to the Eurozone economy.
Indeed, with the Cyprus bailout fresh in investor minds, coupled with the uncertain Italian political environment and difficulty reaching an agreement on how Portugal will meet its fiscal consolidation targets, more monetary support rather than less is likely to come from the ECB.
These trends, together with the Bank of Japan’s announcement it plans substantially increase its quantitative easing program, should help support ‘hard currency’ alternatives such as gold and silver in the medium to longer-term.
Elevated short positioning boosts the gold price’s positive reaction to the weaker than expected US payrolls data. CFTC data showed a 17,273 decline in net longs in the week to last Tuesday, mainly on the back of a build-up of short positions. It is likely the reversal of those elevated short positions served as a catalyst for positive price movement when the weak US job data was released and the BoJ announced that it will double its monetary base within two years.