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James Hyerczyk

Gold futures are trading steady to higher on Thursday shortly before the regular session opening and the release of the European Central Bank (ECB) policy announcements. Early in the session, gold hit a one-week high as the U.S. Dollar weakened, however, the volume is light, which suggests general nervousness and uncertainty ahead of the ECB decisions at 11:45 GMT.

At 08:58 GMT, December Comex gold is trading $1954.90, unchanged.

Besides the ECB news, gold traders are also positioning themselves ahead of today’s U.S. reports on producer inflation and weekly jobless claims. Other key events on the watch list include Friday’s U.S. consumer inflation report and next week’s two-day Federal Reserve meeting.

Longer-term, gold continues to be well supported by ample money supply, historically low interest rates and geopolitical uncertainty.

ECB Decisions Expected to Drive the Price Action

The ECB decisions should drive the price action in gold because of its tight relationship with the U.S. Dollar. Anything the ECB says will drive the Euro and the single currency represents about 57% of the U.S. Dollar Index, a key indicator many gold traders use in their analysis.

A couple of weeks ago the U.S. Federal Reserve announced it was adopting average inflation targeting, at least in principle, that puts pressure on foreign central banks to make dovish moves if they don’t want their currency to appreciate too much. The initial report drove the Euro to the 1.20 level. A level it hadn’t seen since 2018. Gold spiked higher as the dollar weakened.

Last week, a statement from European Central Bank chief economist Philip Lane that the “Euro/Dollar rate does matter”, helped cap the rise in the Euro. This also encouraged long investors to book profits, driving the U.S. Dollar higher and dollar-denominated gold lower.


Daily Forecast

This week’s price action clearly shows that gold prices will be largely influenced by the ECB decision later today at 11:45 GMT. We expect the ECB to say that it stands ready to ease policy further to bring inflation back to its pre-crisis path. Additionally, we also think that policymakers are going to emphasize that although it does not have price targets for the Euro, over-appreciation and excessive price swings do impact its macro projections and hence the appropriate stance of its monetary policy.

Furthermore, we expect the ECB to suggest that it will ease policy again by the end of the year. This should put pressure on the Euro and gold.

Our outlook if dovish for the ECB, which would be bearish for the Euro and gold. But keep in mind that this news may already be priced into the market.

For a look at all of today’s economic events, check out our economic calendar.

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