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James Hyerczyk
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Gold futures are inching lower on Thursday after giving back earlier gains. After opening lower, the market reversed course to the upside in reaction to a plunge in global equity markets and Treasury yields.

Although yields and equities remain under pressure, gold has also turned lower due to a stronger U.S. Dollar. The dollar is being underpinned by a drop in the Euro ahead of the European Central Bank monetary and interest rate announcements. A stronger dollar tends to weigh on foreign demand for dollar-denominated gold.

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At 11:22 GMT, April Comex gold is trading $1638.60, down $3.70 or -0.23%.

Bullish Influences

The catalyst behind any strength in the gold market will be worries about the economic impact of the coronavirus. Shortly after the futures market opening, gold rallied after the United States suspended travel from virus-hit Europe. The travel ban drove stocks sharply lower as well as Treasury yields, the moves triggers a small spike in gold prices.

The travel ban “is a big surprise and a big shock to the market” and shows that investors are yet to see the full financial fallout from the coronavirus outbreak, said IG Markets analyst Kyle Rodda.

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Bearish Influences

The rally in gold was short-lived because investors once again sold gold to raise cash to meet margin calls in the stock market.

Gold is also being pressured by a stronger U.S. Dollar Index, which is being supported by a weaker Euro. The single-currency is losing ground in reaction to Trump announcement of a ban on travelers from 26 European countries entering the United States for a month.

Investors are also waiting to see how aggressively the European Central Bank (EC B) acts at its meeting later on Thursday.

Traders expect a cut to the main deposit rate by 10 basis points. But it is no certainty since rates are already at a record low of -0.5% and further cuts could hurt bank margins and so squeeze lending.

A press conference is due at 1230 GMT in Frankfurt, after the monetary policy meeting.

Daily Forecast

Based on the early price action, gold could weaken further if the ECB decides to act aggressively and trim rates further. This move would drive the Euro lower and the dollar index higher. This would put further pressure on demand for dollar-denominated gold.

Stock index futures are limit down. If the selling pressure continues then look for gold to drop further since this would encourage investors to sell gold to meet stock market margin calls.

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