Gold futures dropped four days in a row by about 1.8% and ended at $1,634.80 on Thursday. The last time gold futures fell consecutively for four days was the 12th to 15th of December last year when the dollar surged and fear of European banking problems caused investors to rush to liquidity, selling gold. The broader market is also on a downdraft this week with the S&P down 0.8%, Stoxx down 2.4%, Euro down 0.8% and CRB commodities index down 1.3%. The US dollar was up 0.6% week to Thursday.
Holdings of gold-backed ETPs now stand at 2,381 metric tons, the lowest level since Feb. 1, according to Bloomberg. In April India physical gold imports fell to 30 to 35 tons from 90 tons a year ago, according to the Bombay Bullion Association, due to higher prices and strikes against a rising import tax.
As European unemployment rose to 10.9%, the EC PMI dropped to 45.9 and the US added fewer jobs, the dollar rose while investors dumped commodities and went for safe havens such as US dollar and Treasury instead of gold.
The dollar was further boosted on Thursday when the European Central Bank (ECB) left the interest rate at 1% without announcing any further bond purchase program. Governor Draghi is actually more concerned about downside economic risk than inflation risk and wants to put growth back as a priority.
This coincides with more and more Europeans turning to growth rather than fiscal austerity, such as the French candidate, Hollande, as well as the Greek, Spanish and Italian governments who sorted to loosen the tight fiscal stance.
U.S. economist Paul Krugman leads the pack in saying that budget cut without growth does not help to correct economic imbalances which in Europe's case are caused by too much private debt. He therefore urges the ECB to cut interest rates further and to buy government bonds. When that happens, the gold price should push higher.
In a recent interview, economist Marc Faber reiterated he does not see any gold bubble because gold is not widely-owned and the economic and debt situation has grown much worse, favoring higher gold prices. He also reckoned that with the growth outlook weakening the major central banks would ultimately print more money.
Investors will wait and see whether this Sunday's France second round of presidential election and Greece general election will be game-changing.