Dollar Bounces, Gold Weakens after ECB Comments Sink Euro

Gold futures are edging lower on Thursday on relatively light volume ahead of the start of the long Easter holiday weekend. After a promising start to the session and an attempt to follow-through to the upside, prices started to retreat as U.S. Treasury yields turned higher and the U.S. Dollar recovered from an early session setback.

At 13:45 GMT, June Comex gold futures are trading $1974.00, down $10.70 or -0.54%. The SPDR Gold Shares ETF (GLD) is at $183.78, down $0.87 or -0.47%.

US Dollar Index Turns Higher Amid Euro Weakness

The U.S. Dollar Index turned higher, recovering from an earlier setback following a sell-off in the Euro. This put pressure on dollar-denominated gold.

The price action in both the Euro and the dollar index was fueled by the dovish tone of the European Central Bank (ECB). European policymakers announced at their monthly meeting that they would be keeping its policy stance broadly unchanged by sticking to plans to slowly unwind stimulus.

According to Reuters, the Euro turned negative, a plus for the dollar and a minus for gold, after the ECB confirmed its plans to cut bond purchases, commonly known as quantitative easing, this quarter, then end them at some point in the third quarter.

Interest rates will, however, only go up some time after the end of bond buys and they will be gradual, the ECB added.

Yields Turn Lower on Retail Sales Jump

Treasury yields are reversing their early course and moving higher on Thursday as the volatility continues. The shift in direction to higher is underpinning the U.S. Dollar, while putting pressure on gold prices. The catalyst behind the moves is a surprisingly strong U.S. retail sales report.

Consumers continued to spend in March even as inflation rose to its highest level since late 1981, according to government data released Thursday.

Retail sales climbed 0.5% from the previous month, slightly less than the 0.6% Dow Jones estimate and a deceleration from the upwardly revised 0.8% gain in February.

US Initial Jobless Claims, Imports Rise

In other economic data, initial jobless claims rose to 185,000 for the week ended April 9, an increase of 18,000 from the previous week and above the estimate of 172,000. Also, inflation continued to hit imports, with prices rising by 2.6%, the largest monthly increase since April 2011, the Bureau of Labor Statistics reported. That was higher than the 2.2% estimate.

Daily Forecast

Nothing has changed fundamentally to suggest gold has topped. The Fed is still on track to lift interest rates aggressively, while gold is on track to finish higher for the week.

The Fed believes that raising rates will stop the rise in inflation, but gold investors are saying, “Show me results and I’ll lighten up on my buying.”