Gold Price Prediction – Dovish Draghi Delivers

Gold prices traded sideways, in a tight range on Thursday despite a more dovish than expected ECB decision. The Euro headed lower in the wake of the ECB decision and revisions to staff projections that show lower growth and inflation in the Q1. The European Central bank is introducing new TLTRO lending facilities and appear to be trying to fend off a recession. US yields appear to be holding as the 10-year remains above the critical 2.60% level.

Technical Analysis

Gold prices formed another Doji day where the close and open were near the same level. This is a sign of indecision. Traders are likely waiting for Friday’s payroll report. A softer than expected number could be the catalyst that buoys prices. If the number is solid, gold could be in for a bumpy ride. Medium term momentum remains negative as the MACD (moving average convergence divergence) histogram prints in the red with a downward sloping trajectory which points to lower prices. Prices are also oversold in the short-term. The fast stochastic is printing a reading of 8, below the oversold trigger level of 20, which could foreshadow a correction. The trajectory of the fast stochastic is flat and the index generated a crossover sell signal. This could be interpreted as a consolidation event.

The ECB Reverse Course

The European Central Bank a significant policy reversal Thursday, unveiling plans for fresh stimulus just three months after phasing out 2.9 trillion dollars bond-buying program. This is the first of the major central banks to point to a significant slowdown and change policy to support the deceleration.

The ECB kept rates unchanged and announced plans for cheap long-term loans for banks, which is known as the TLTRO. The first loans will be launched in September. Despite the new stimulus, ECB President Mario Draghi said that the risks to the economy remain but they do not see a recession on the horizon. The staff projections of the ECB revised both growth and inflation lower. Growth was lower for the Q1 to 1.1% from 1.7%. Inflation in the first quarter was lower to 1.2% from 1.6%.