Safe Haven Trades Support Gold and Silver

Gold was up as ECB’s Draghi lowered growth prospects for the Eurozone and expects the economy to contract next year thus increasing safe haven appeal for gold. The ECB kept rates unchanged at 0.75%, however expectations of a rate cut in next quarter also pushed gold prices up.

Gold investors are awaiting direction from U.S. non-farm payrolls data today and next week’s Federal Reserve policy meeting, as well as clearer signals on the fiscal cliff. Gold is expected to be  up but gains would be capped as uncertainty over fiscal cliff continues and fears of deflation in US can put pressure on prices.

Yesterday the US unemployment numbers buoyed the markets pushing up Wall Street after President Obama assured investors that US policy markets would reach an agreement to avoid the “Fiscal Cliff” scenario come January 1, 2013.

The focus and surprise depth of the downward revision along with the first view of the forecast for 2014. Mr. Draghi’s comments pushed the US dollar index to climb while the euro tumbled. Traders had been in a risk on mode throughout the week adding risk to their portfolios ahead of year end, but there was an instantaneous reversal as traders moved from anything associated with the euro and eurozone. Safe haven demand increased while Wall Street continued to climb ignoring the mess in the EU as US recovery was supported by positive unemployment data.

Of course the marquee event will be today’s nonfarm payroll report which could be complicated by the intervention of Hurricane Sandy at the very beginning of the month and its aftermath. Traders may not be able to fully interpret the data but forecasts have been dropped to see the US only creating a meager 89K jobs.

Gold futures rose Thursday, as some investors closed out bets on lower prices ahead of Friday’s closely watched U.S. unemployment report. Gold futures have fallen for six of the last eight weeks, as investors turned their focus toward the impending set of automatic tax increases and spending cuts set to take effect in the U.S. in January. The chance that politicians will fail to come to a deal to avert the measures, and that the U.S. dollar may rise in response should investors seek the safe-haven currency, has made investors wary of betting on higher gold prices. Historically, dollar-denominated gold prices and the currency move inversely. Gold nudged higher again today morning, extending gains from the previous session when bullion was boosted by prospects of future interest cuts by the European Central Bank. The eurozone economy is likely to further shrink in 2013, the European Central Bank predicted on Thursday, fanning expectations that the bank may cut rates next year in the face of another contraction in the economy. With the US FOMC meet set for next week, gold should see a lot of volatility over the next few days, as traders begin to position themselves after today’s nonfarm release. Silver followed gold as precious metal demand increased but was offset by industrial metal declines; silver is trading this morning at 33.160