Gold Price Prediction – Gold Rallies on Dovish ECB Policy

Gold prices moved higher, following the dovish commentary by the ECB, but stopped short of resistance near the 50-day moving average at 1,320. Support on gold prices is seen near the 10-day moving average at 1,297, and then an upward sloping trend line at 1,289. Momentum remains positive as the MACD (moving average convergence divergence) histogram prints in the black with an upward sloping trajectory which points to higher prices. The fast stochastic also generated a crossover buy signal which points to accelerating positive short term momentum.

The ECB Announces the End of QE

The ECB kept rates unchanged but announced the phasing out of quantitative easing. The ECB also said that rates would remain unchanged at least until the fall of 2019. Draghi warned that a soft patch may last longer than projections suggest. So while the official introductory statement still argues that the balance of risks is balanced, Draghi stressed during the Q&A session that the soft patch can extend into the second quarter in some countries, while the official projections are only based on a downward revision to the first quarter. Overall the ECB still argues that the underlying strength of the economy has not changed and Draghi stressed that the ECB is more optimistic that the inflation objective can be reached.

Against that background, Draghi stressed that the ECB hasn’t discussed when to raise rates. The statement only reads that rates will remain on hold at least through the summer next year, so September may be the first possible time for a rate hike and markets are starting to price in a hike for that month.

U.S. data remains Strong

U.S. initial jobless claims declined 4k to 218k in the week ended June 9 after dipping 1k to 222k in the June 2 week. This is the lowest level since December 1973. And the slide brings the 4-week moving average down to 224.25k from 225.5k. Continuing claims dropped 49k to 1,697k in the June 2 week, after climbing 26k to 1,746k previously.

U.S. retail sales climbed 0.8% in May, and surged 0.9% excluding autos. The 0.2% increase in April sales was revised to 0.4%, and the 0.3% ex-auto rise was bumped to 0.4%. Sales excluding autos, gas, and building materials increased 0.6% from 0.4%. Motor vehicle and parts sales were up 0.5% from 0.2% previously. Gas station sales jumped 2.0% after the prior 1.0% increase. Building materials climbed 2.4% after dropping 0.8% previously. Clothing sales increased 1.3%, with department sales 1.5% higher. Sporting goods sales declined 1.1%. This is a stronger than expected report and adds to expectations for a strong pick up in Q2 GDP.