Fool's Gold Report: Metals Climb Following ECB Pause, Dollar Decline

On Thursday, news on the geopolitical front moved back into the background, with central bank activity taking center stage as the European Central Bank continued to leave interest rates unchanged. That, in turn, boosted the euro against the U.S. dollar, and a weak dollar helped send gold back above the $1,350 level. April gold futures jumped $11.50 per ounce, to settle at $1,351.80, while May silver futures rose more than $0.30 per ounce, to $21.57. Bullion ETFs SPDR Gold Shares (GLD 0.31%) and iShares Silver Trust (SLV 1.31%) gained 1% and 1.5% respectively, and gold mining stocks followed suit as the Market Vectors Gold Miners ETF (GDX 0.95%) gained just more than 1%.

Source: Kitco. As of 5 p.m. EST.

Why the dollar matters
To understand gold's moves today, you have to understand some of the dynamics of the foreign currency market. For months, investors have expected that the European Central Bank might move to cut interest rates even further, given the ongoing struggles that the European economy has gone through in recent years as it tries to recover from a hard recession. Because the ECB kept rates at current levels rather than cutting them, it made euros more attractive to hold as a currency, and that, in turn, sent the dollar down compared to the euro.

Image sources: Wikimedia Commons; Creative Commons/Armin Kubelbeck.

Because the gold market is a global one, local-currency moves can have a marked impact on the way that gold trades in dollar terms. For instance, with the euro's gain of roughly 1% today, gold priced in euros only gained a small fraction of a percent. Even larger gains in the Australian dollar mean that for buyers in Australia, gold actually got cheaper today. On the other hand, with the Japanese yen losing about 0.8% compared to the dollar, gold's gains in yen terms was almost double what American investors saw.

Meanwhile, in company-specific news, Goldcorp (GG) climbed more than 1% after reporting last night that it would make a secondary offering of shares it owns of Primero Mining (PPP). With the sale of an almost 20% stake in Primero, Goldcorp will completely divest itself of its stake in the fellow miner. Goldcorp originally took the shares as part of the sale of its San Dimas mine to Primero in 2010. Even with about 31 million shares coming onto the market, Primero actually gained more ground than Goldcorp today, rising almost 2%.

What to expect tomorrow
For gold and silver, all eyes Friday will be on the U.S. employment report, which has the potential to move stocks, bonds, and commodities. With early readings on the employment situation pointing to the possibility of continued weakness, gold investors are hoping that a sluggish economy will lead the Federal Reserve to be even more dovish in its monetary policy, at worst continuing its current pace of tapering and, at best, choosing to slow down its reduction in bond buying. Yet, with many already projecting weak results because of weather and other one-time factors, gold could find itself in a no-win situation if investors discount bad figures as a temporary phenomenon.