Gold Jumps on Weak US Data, SNB Cap Move
Frankfurt (Jan 16) Gold is trading at 4-month highs on Friday, courtesy of strong gains a day earlier. In the European session, the spot price is $1258.42 per ounce. Gold prices jumped up about 2.5% on Thursday, taking advantage of weak US numbers, as well as a surprise move by the Swiss National Bank to reduce its cap against the euro and lower interest rates. Taking a look at Friday’s events, it’s another busy day in the US, highlighted by CPI and the UoM Consumer Sentiment.
US employment numbers slipped on Thursday, as Unemployment Claims surprised with a reading of 316 thousand. This was well above the estimate of 299 thousand and was the highest reading since June 2014. However, the first full week of the year often shows a spike in claims, since holiday workers are dismissed, resulting in a higher number of claims. Elsewhere, PPI posted a decline of 0.3%, matching the forecast. Manufacturing data was mixed, as the Empire State Manufacturing Index rose to 10.3 points, while the Philly Fed Manufacturing Index slipped to 6.3 points, its worst showing in 11 months.
The markets were in shock on Thursday, as the Swiss National Bank suddenly terminated its cap on the exchange rate between the euro and the franc, which was set a floor of 1.20 for EUR/CHF. The cap had been in place since 2011, and the move marks a major policy reversal for the normally conservative Swiss central bank. Market reaction was swift, as the euro dropped some 15% against the franc and slipped 160 points against the US dollar. Why the dramatic move by the Swiss? One reason is an attempt to fight deflation, which is hurting the Swiss economy. As well, the SNB has been buying large amounts of euros to keep EUR/CHF within the cap, and with the euro having fallen to 10 years low, the central bank may have soured on the common currency. The SNB also reduced interest rates, which helped gold move higher.