Gold is edging higher on Thursday shortly before the release of the European Central Bank’s (ECB) interest rate and monetary policy decisions. We’re likely to see a volatile, two-sided trade by the market, but realistically, most of its decision has already been priced into the market. With renewed optimism over U.S.-China trade relations leading to the dumping of safe-haven assets, gold is going to have a hard time taking out its recent high and is likely to fall further until it reaches a value area that appeals to speculative buyers.
At 10:38 GMT, December Comex gold futures are trading $1510.30, up $7.10 or +0.47%.
Traders will also get the opportunity to react to the release of the U.S. consumer inflation report at 12:30 GMT that could set the tone for future U.S. Federal Reserve action.
European Central Bank
At 11:45 GMT, the ECB is expected to unveil its highly anticipated stimulus package. This will be followed by ECB President Mario Draghi’s press conference at 12:30 GMT. Gold traders are expecting a rate cut as the ECB tries to prop up the Euro Zone’s ailing economy. The real issue for traders is whether policymakers restart a quantitative easing (QE) program after some ECB members expressed doubt in recent weeks about the need to relaunch asset purchases.
President Trump’s Good Will Gesture
Late Wednesday, President Donald Trump tweeted that he will delay increasing tariffs on $250 billion worth of Chinese goods from October 1 to October 15 as a “gesture of good will” to China.
Trump said the postponement came “at the request of the Vice Premier of China, Liu He, and due to the fact that the People’s Republic of China will be celebrating their 70th Anniversary.”
CPI Data Could Affect Future Fed Policy
In the U.S., investors will get the opportunity to react to the latest data on consumer inflation. Traders are looking for an increase of 0.1%. Core CPI is expected to have risen 0.2%.
The CPI report shouldn’t be an issue to the Fed since the market has already decided the central bank will cut its benchmark rate 25-basis points at next week’s policy meeting. A stronger than expected report will likely be addressed in next week’s policy statement. It could have an impact on whether the Fed makes a third cut in December.
An extremely dovish ECB could be supportive for gold but gains will be limited if the U.S. Dollar soars on the news. Furthermore, gains could be capped if demand for risky assets increases on the news, or if investors decide to shift their focus on U.S.-China trade relations.
The ECB could deliver a less-than-expected stimulus package that would drive the Euro higher and the dollar lower. This could also be supportive for gold.
It’s difficult to predict the Euro’s impact on gold because of the dollar and the current risk on tone in the markets. Negative yields should be bullish for gold, but only if the Fed is moving rates in the same direction too, and that may not happen. A weaker Euro/firmer dollar scenario also doesn’t sound bullish for gold either.
The CPI report should be watched because a strong report will reduce the chances of a third rate cut by the Fed in December. This could be bearish for gold.
Too many variables makes me think we’ll see a two sided trade with a bias to the downside because of improving trade conditions.